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Joint Agencies Propose Rule on Appraisal Requirements for "Higher-Risk" Mortgage Loans

On the same day as the Consumer Financial Protection Bureau (CFPB) proposed its own rule on appraisals and valuations discussed above, the joint federal banking regulators, including National Credit Union Administration (NCUA) and the CFPB, proposed a separate rule concerning the appraisal requirements relating to “higher-risk” mortgage loans.  General comments on this rule are also due on October 15, 2012, and this rule is also required to be finalized by the agencies by January 21, 2013. 

Under the rule, a creditor could not make a higher-risk mortgage loan unless it obtains a written appraisal based on a physical inspection of the property’s interior by a qualified appraiser.  Creditors would have to provide the consumer with a free copy of the appraisal at least three days before closing on the mortgage, and if the property was last sold within 180 days at a lower price, the proposed rule would require the creditor to obtain an additional appraisal at no cost to the consumer. 

The proposed rule would not apply to reverse mortgage loans, loans secured only by residential structures (such as mobile homes), or open-end lines of credit.  Additionally, the rule would not apply to Qualified Mortgages, which the CFPB is currently in process of defining.  For purposes of what constitutes a “higher-risk” mortgage loan, the Dodd-Frank Act defines the term as a closed-end consumer credit transaction secured by a principal dwelling with an APR exceeding certain statutory thresholds.  These rate thresholds are substantially similar to what are currently in place for “higher-priced” mortgage loans under current Regulation Z § 1026.35. 

Loans are “higher-risk” mortgage loans under the proposed rule if the APR exceeds the Average Prime Offer Rate by 1.5% for first-lien loans, 2.5% for first-lien jumbo loans, and 3.5% for subordinate-lien loans.

CUNA will be preparing a comment call on this proposed rule soon, and will be coordinating with CUNA’s Consumer Protection Subcommittee, the Housing Finance Reform Task Force, the Lending Council and the AACUL Regulatory Advisory Committee, as well.  For a link to the interagency proposed rule, click here.