Office of General Counsel Report
AGENCIES ISSUE HIGHER-RISK MORTGAGE
APPRAISAL PROPOSED RULE
NCUA recently joined with five other financial institution
regulatory agencies in an interagency proposed rule
( http://go.usa.gov/rmAw) on appraisal requirements applicable
to higher-risk mortgages. The proposed rule implements a new
section in the Truth in Lending Act (TILA) as prescribed by a
provision in the Dodd-Frank Wall Street Reform and Consumer
Protection Act (DFA). The NCUA Board was briefed at its open
meeting in late July on the progress among the agencies in
agreeing to a joint interagency rule, and the Board approved a
proposed rule by notation vote in August.
Under the new section in TILA, a higher-risk mortgage
is defined as a residential mortgage loan secured by
a consumer’s principal dwelling with an annual percentage
rate that exceeds the average prime offer rate for
a comparable transaction: by 1. 5 or more points for a
conventional mortgage loan, by 2. 5 or more points for
a jumbo mortgage loan, and by 3. 5 or more points for a
second mortgage loan.
Consistent with the statute, the proposal would exclude
“qualified mortgages” from the definition of higher-risk
mortgage. Additionally, personal property and reverse
mortgages are excluded from the proposed definition.
Also in the statute and now the proposed rule, a creditor is not
permitted to extend credit in the form of a higher-risk mortgage
loan to any consumer without first obtaining a written
appraisal performed by a certified or licensed appraiser who
conducts a physical interior visit of the property. If the purpose
of the higher-risk mortgage loan is to finance a property from
a seller within 180 days from when the seller bought or
acquired the property—at a price that was lower than its
current sale price—the creditor must obtain a second appraisal
from a different certified or licensed appraiser.
The second appraisal must include an analysis of the
difference in sale prices, changes in market conditions, and
any improvements made to the property between the date of
the previous sale and the current sale. Furthermore, the
creditor may not charge the applicant for the cost of having
the additional appraisal performed.
Certified and licensed appraisers must perform higher-risk
mortgage appraisals in conformity with Uniform Standards of
Professional Appraisal Practice, Title VI of the Financial
Institutions Reform, Recovery and Enforcement Act, and the
regulations prescribed under it. The statute requires the
creditor to provide the higher-risk mortgage applicant with a
statement at the time of application that any appraisal
prepared for the mortgage is for the sole use of the creditor
and that the applicant may choose to have a separate
appraisal conducted at the applicant’s expense. The creditor
must also provide the applicant with one copy of each
appraisal without charge at least three days before the
transaction closing date.
DFA gives the agencies the authority to identify exclusions
from the rule, as well as exceptions to the additional appraisal
requirement for those loans that are to finance properties that
have been resold within 180 days for a higher price. As such,
the agencies are seeking comment on a variety of matters,
including the scope of the rule, the Act’s exclusions as well as
the potential for additional ones, means to assist creditors
with compliance, and possible classes of loans that the rule
could except from the second appraisal requirement.
Additionally, the agencies are seeking comments on more
nuanced issues like clarifying the purchase acquisition dates
that would trigger compliance, as well as the standards for
obtaining sufficient information about the transaction to
determine whether certain aspects of the rule apply, and also
whether the rule should exempt transactions that, for
example, involve a minimal increase in the sales price.
The proposed rule amends Regulation Z. However, NCUA’s
appraisal regulations under Part 722 also will be amended to
add a cross-reference to the new requirements for high risk
mortgages. Comments are due by October 15, 2012. DFA
requires that final regulations be issued by January 21, 2013.
DODD-FRANK ACT REQUIRES REGULATORS TO DEVELOP DIVERSITY STANDARDS AND ASSESSMENTS (FROM PAGE 6)
At a future date, NCUA and other financial services regulators
will issue proposed standards for formal public comment. If
your credit union has any suggestions to assist NCUA in
establishing proposed standards that can ease the regulatory
burden while complying with congressional intent, please send
your suggestions to NCUA’s OWMI at OMWImail@ncua.gov.
Also, if your credit union has a diversity policy or program in
place that you are willing to share with NCUA and other credit
unions, please contact OMWI at (703) 518-1650 or email the
office at the address above.