On January 16, 2013 the FDIC published an interagency rule to amend Regulation Z, as required by  the Dodd-Frank Act. The new rule established appraisal requirements for “higher-priced mortgages.” The other federal financial institution regulatory agencies are expected to join the effort on January 18th. The 305-page final rule is effective on January 18, 2014.
The new rule prohibits a creditor from extending credit in the form of a higher-priced mortgage loan to any consumer without first:

  • Obtaining a written appraisal performed by a certified or licensed appraiser who conducts a physical property visit of the interior of the property.
  • Obtaining an additional appraisal from a different certified or licensed appraiser if the higher-risk mortgage finances the purchase or acquisition of a property from a seller at a higher price than the seller paid, within 180 days of the seller’s purchase or acquisition. The additional appraisal must include an analysis of the difference in sale prices, changes in market conditions, and any improvements made to the property between the date of the previous sale and the current sale.

The creditor must also:

  • Provide the applicant, at the time of the initial mortgage application, with a statement that any appraisal prepared for the mortgage is for the sole use of the creditor, and that the applicant may choose to have a separate appraisal conducted at the applicant’s expense.
  • Provide the applicant with one copy of each appraisal without charge, at least three (3) days prior to the transaction losing date.

The term “higher-priced mortgage” includes a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set:

  • By 1.5 or more percentage points, for a loan secured by a first lien that is not a jumbo loan;
  • By 2.5 or more percentage points, for a loan secured by a first lien that is a jumbo loan; or
  • By 3.5 or more percentage points, for a loan secured by a subordinate lien.

The rule does not apply to:

  • A qualified mortgage as defined in 12 CFR 1026.43(e).
  • A transaction secured by a new manufactured home.
  • A transaction secured by a mobile home, boat, or trailer.
  • A transaction to finance the initial construction of a dwelling.
  • A loan with a maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling.

A copy of the final interagency rule is available by clicking here.