Regulators Propose New Appraisal Requirements For Higher-Risk Mortgages

The OCC, Federal Reserve, CFPB, FDIC, FHFA, and NCUA recently issued a joint notice of a proposed rule implementing new appraisal requirements for “higher-risk mortgages.”  These requirements would apply under the Federal Truth in Lending Act and were imposed by Dodd-Frank.  “Higher-risk” mortgages are defined to include first-lien residential mortgages that exceed an interest rate threshold of 1.5% or 2.5% greater than the average prime offer rate for a comparable transaction (depending on principal amount), and subordinate-lien residential mortgages with an interest rate in excess of 3.5% of the average prime offer rate. There are a number of exclusions from the definition of “higher-risk mortgage” in the proposed rule. 

The new requirements will prohibit the issuance of a higher-risk mortgage to a consumer without first (i) obtaining a written appraisal from a certified or licensed appraiser who has conducted a physical visit of the interior of the property; (ii) obtaining a second appraisal from a different certified or licensed appraiser if the mortgage is to finance an acquisition from a seller who purchased the same property for a lower price within 180 days of the purchase agreement with the consumer; (iii) providing the consumer notice at the time of application regarding the choice of appraisers; and (iv) providing the consumer with copies of the appraisals free of charge at least three days prior to the closing.