January 30, 2013
Authored by: Bryan Cave
As part of its recent wave of rulemaking, the CFPB issued its final rule implementing a Dodd-Frank amendment to the Equal Credit Opportunity Act (ECOA) on January 18, 2013. Under the new rule, lenders must automatically provide copies of any written appraisal reports and valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. The current version of this rule only requires this disclosure upon an applicant’s request, although it applies to junior lien credit applications, as well. The new rule takes effect January 18, 2014. As it does now, and as the ECOA does generally, the rule will be equally applicable to business and consumer credit applications.
On the same day, the CFPB and five other financial regulatory agencies jointly issued a separate appraisal rule for “higher-risk mortgages”. The interagency rule, which implements an amendment to the Truth in Lending Act also contained in Dodd-Frank, applies to mortgages with an APR exceeding the APOR by certain statutory thresholds – what the relevant Dodd-Frank provision calls higher-risk mortgages but the rule calls “higher-priced mortgage loans” to avoid the introduction of a seemingly new class of Regulation Z mortgages. For these loans, lenders must obtain a written appraisal performed by a licensed or certified appraiser who conducts an interior site visit of the subject property and then share this appraisal with the applicant. Taking aim at fraudulent flipping, the interagency rule also requires a second, more detailed appraisal on homes that were sold in the last 6 months for less than the current purchase price. This new rule is also effective on January 18, 2014.
Qualified mortgages under the CFPB’s final Ability to Repay rule; transactions secured by new manufactured homes, mobile homes, boats or trailers; loans on construction of new homes; and bridge loans will be exempt from the interagency rule. The agencies also announced their intent to publish a supplemental proposed rule to also exempt “streamlined” refinance programs and small dollar loans.
In addition, the agencies noted that they may consider tying the definition of “higher-priced mortgage loans” to the “transaction coverage rate” or TCR, a term which would exclude all prepaid finance charges not retained by the lender, instead of the APR. This change will likely depend on the CFPB’s final TILA-RESPA disclosure integration rule.