Banking

The Federal Reserve and five other federal financial regulatory agencies on January 18 issued appraisal requirements for higher-priced mortgage loans.

Under the new requirements, creditors must use a licensed or certified appraiser who writes a report after physically visiting the inside of the home. The rule also requires creditors to tell applicants why the appraisal is done and to give consumers a free copy of any appraisal report.

Amends Regulation Z
This new rule, which is effective January 18, 2014, implements amendments to the Truth in Lending Act (Regulation Z) made by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act defines mortgage loans as higher priced if they are secured by a consumer's home and have interest rates above certain thresholds.

There are, of course, other provisions. If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors must obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by trying to ensure that the property value legitimately increased.

Several loan types exempt
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 boats that are dwellings. The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions.

The rule is being issued by the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency.

February 6, 2013