On August 15, 2012 the Federal Reserve Board, the Consumer Financial Protection Bureau, Federal Deposit Insurance  Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively, the Agencies) jointly proposed to amend Regulation Z, to implement a Dodd-Frank Act  provision requiring appraisals for “higher-risk mortgages.”
Comments are due on or before October 15, 2012.
The 211-page proposed rule generally defines a “higher-risk mortgage” as a closed-end consumer credit transaction secured by a principal dwelling with an APR that exceeds the APOR by 1.5 percent for first-lien loans, 2.5 percent for first-lien jumbo loans, and 3.5 percent for subordinate-lien loans.
The proposal would exclude “qualified mortgages” from the definition of higher-risk mortgage loan. The Bureau will define “qualified mortgage” when it finalizes the proposed rule to implement the ability-to-repay requirements in TILA section 129C. In addition, the Agencies propose to rely on exemption authority granted by the Dodd-Frank Act to exempt the following additional classes of loans: (1) reverse mortgage loans; and (2) loans secured solely by residential structures, such as many types of manufactured homes.
The proposal would allow a creditor to make a higher-risk mortgage loan only if the following conditions are met:

  • The creditor obtains a written appraisal;
  • The appraisal is performed by a certified or licensed appraiser;
  • The appraiser conducts a physical property visit of the interior of the property;
  • At application, the applicant is provided with a statement regarding the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted at the expense of the applicant; and
  • The creditor provides the consumer with a free copy of any written appraisals obtained for the transaction at least three (3) business days before closing.

In addition, the proposal would require a higher-risk mortgage loan creditor to obtain an additional written appraisal, at no cost to the borrower, under the following circumstances:

  • The higher-risk mortgage loan will finance the acquisition of the consumer’s principal dwelling;
  • The seller is selling what will become the consumer’s principal dwelling acquired the home within 180 days prior to the consumer’s purchase agreement (measured from the date of the consumer’s purchase agreement); and
  • The consumer is acquiring the home for a higher price than the seller paid, although comment is requested on whether a threshold price increase would be appropriate.

The additional written appraisal, from a different licensed or certified appraiser, generally must include the following information: an analysis of the difference in sale prices (i.e., the sale price paid by the seller and the acquisition price of the property as set forth in the consumer’s purchase agreement), changes in market conditions, and any improvements made to the property between the date of the previous sale and the current sale.
For a copy of the proposal click here.