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Mortgage Loan Proposals Pending at Two Agencies

There are currently two pending proposals regarding appraisals for certain mortgage loans.  First, a Consumer Financial Protection Bureau (CFPB) proposal would amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) and require creditors to provide free copies of all written appraisals and valuations developed in connection with an application for a loan secured by a first lien on a dwelling.  Currently, federal credit unions are exempt from the appraisal delivery requirements of Regulation B. The proposal would remove this exemption and require credit unions to comply with the proposed requirements.  While most creditors currently provide the borrower with a copy of the appraisal, there is concern with the potential scope of the requirement to include copies of all written valuations developed in connection with the application.

Additionally, the National Credit Union Administration (NCUA), in conjunction with the CFPB and the other federal financial regulators have jointly issued a proposal on appraisals for “higher-risk mortgages.”  Specifically, the proposal would amend Regulation Z to implement the appraisal requirements for extensions of credit for “higher-risk mortgage loans” required by the Dodd-Frank Act.  In general, loans are “higher-risk mortgage loans” under this proposed rule if the APR exceeds the average prime offer rate (APOR) by 1.5% for first-lien loans, 2.5% for first-lien jumbo loans, and 3.5% for subordinate-lien loans.  The proposal contemplates using as a “Transaction Coverage Rate” (TCR) as an alternative to APR (as proposed in its pending RESPA-TILA proposal).  The TCR alternative is intended as an option to circumvent negative consequences of the CFPB’s proposed amendment to the definition of “finance charge” under the RESPA-TILA proposal.  In addition, the proposal would allow a creditor to make a higher-risk mortgage loan only if certain conditions such as the creditor has obtained a written appraisal by a certified or licensed appraiser, are met.  Also, the proposal would require a higher-risk mortgage loan creditor to obtain an additional appraisal under certain circumstances.  The proposal would not apply to reverse mortgage loans, loans secured solely by residential structures, and would exclude “qualified mortgages” from the definition of “higher-risk mortgage loan.”  The CFPB has yet to finalize its ability-to-repay rule, which will define “qualified mortgage.”