Last Week, Six federal financial regulatory agencies issued a proposed rule to establish new appraisal requirements for “higher-risk mortgage loans.” The proposed rule would implement changes to the Truth in Lending Act enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The rules would apply to higher-risk mortgage loans, which under the Dodd Frank Act are those on people’s homes whose interest rates are above a variable threshold. The bar is set based on how much a loan’s interest rate exceeds the Average Prime Offer Rate, a survey-based estimate of typical mortgage rates.
For higher-risk mortgage loans, the proposed rule would require creditors to use a licensed or certified appraiser who prepares a written report based on a physical inspection of the interior of the property. The proposed rule also would require creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.
Creditors would have to obtain an additional appraisal at no cost to the consumer for a home-purchase higher-risk mortgage loan if the seller acquired the property for a lower price during the past six months. This requirement is meant to discourage fraudulent property flipping by seeking to make sure that the value of the property being used as security for the loan reasonably increased.
The proposed rule, jointly 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 agencies is open for review and comments from the public until October 15, 2012.
There are those who feel that there are already enough checks to ensure that appraisals are not inflated, so the proposal will not necessarily help consumers but may instead heap on an extra burden in the process resulting in lower quality appraisals.
Michael Hobbs, PahRoo Appraisal & Consultancy
Twitter @PahRoo
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