CFPB Announces Rules for Appraisals and Higher-Priced Loans
By: Tory Barringer
Starting in January 2014, mortgage lenders will work under new rules governing the handling of appraisals and other home value estimates.
The Consumer Financial Protection Bureau (CFPB) announced Friday the adoption of a new rule intended to improve consumer access to appraisal reports. While borrowers are typically charged for the costs related to conducting an appraisal, current laws do not require that consumers receive a copy of the appraisal unless they request it. Lenders are also not currently required to provide copies of any other estimates of a home’s value.
The new rule implements requirements under the Dodd-Frank Act that state that lenders must give consumers a copy of each appraisal (or other estimate) free of charge. A lender generally may still charge a reasonable fee for the cost of conducting the appraisal.
“This rule will guarantee consumers can receive important information on how a lender determines the value of the home,” said CFPB director Richard Cordray. “Having this information available promptly makes it easier for loan applicants to make informed decisions.”
The rule also requires that lenders inform consumers with three days of receiving a loan application of the borrower’s right to
receive a copy of all appraisals. Creditors are then required to provide those reports promptly, or three days before closing, whichever is earlier.
The rule will applies to first-lien mortgages, CFPB said.
In addition, CFPB (in partnership with five other federal regulatory agencies) issued a rule establishing specific appraisal requirements for higher-priced mortgage loans (defined under Dodd-Frank as loans that “are secured by a consumer’s home and have interest rates above certain thresholds”).
According to a joint release, the new rule implements amendments to the Truth in Lending Act (TILA), which was made to establish disclosures on the costs and terms of consumer credit.
For higher-priced loans, creditors will be required to use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit to the property interior. The rule also requires lenders to disclose to applications information about the appraisal’s purpose and to provide consumers with a free copy of any appraisal report.
In addition, if a seller flips a property for a higher price within six months of purchasing it, lenders will have to obtain a second appraisal (at no cost to the consumer) to ensure the value of the property is legitimately increased.
According to the agencies, the rule exempts several types of loans, such as qualified mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers, and houseboats. Certain loans (including some made in rural areas) will also be exempt from the second appraisal requirement.
In response to public comments, the agencies announced they will publish a supplemental proposal to request additional comment on possible exemptions for streamlined refinance programs and small dollar loans. They also seek comment on whether the rule should apply to loans secured by existing manufactured homes and certain other property types.
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