By John Golden
The January 2014 New Year will bring about more than a celebration of auld lang syne, it also will bring about the implementation of some significant legislation that affects matters of real estate appraisal reports.
The Consumer Financial Protection Bureau (CFPB) has issued the following final rule amendments which will take effect in January ‘14:
• Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuation Under the Equal Credit Opportunity Act (ECOA) (Regulation B)
• Appraisals for Higher-Priced Mortgage Loans Under the Truth in Lending Act (TILA) (Regulation Z)
Under the amended ECOA Regulation B requirements, a creditor must provide an applicant (consumer) with copies of the final version of each appraisal and other written valuations that were developed in connection with an application for a loan secured by a first lien on a dwelling, and to require creditors to notify consumers in writing within three days of the application that copies of these appraisals or other valuations will be provided to them promptly. Such copies must be provided to the consumer promptly at the earlier of – (1) completion of the appraisal or other written valuations; (2) three business days prior to consummation or account opening. The requirement is automatic – the consumer does not need to request such copies, and there is to be no fee charged to the consumer in providing such copies.
There is a waiver option under ECOA for the consumer regarding the requirement to receive a copy at consummation or account opening, but such waiver must be received at least three business days prior to consummation or account opening, unless the specific appraisal or other written valuations pertain to a report that contains only clerical changes from a previously submitted version. It should be noted that the delivery requirements associated with this requirement apply whether the loan is consummated or not. In the case of a loan that is not consummated, the creditor must provide copies no later than 30 days after it is determined that consummation will not occur.
Appraisal and other written valuations under ECOA would be inclusive of: a report prepared by an appraiser including the estimate or opinion of the real estate’s value, a document prepared by the creditor’s staff that assigns value to the property, an automated valuation model (AVM) estimate, a broker price opinion by a real estate agent or salesperson, or broker. Any attachments and/or exhibits that are a part of the valuation would also be applicable.
Under the amended TILA Regulation Z requirements, a creditor may not extend a higher-priced mortgage loan to a consumer without obtaining a written appraisal of the property to be mortgaged, prior to consummation of the loan. Said appraisal must be performed by a certified or licensed appraiser who has completed a physical visit of the interior of the subject property. A higher-priced mortgage loan is classified as a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction which varies by the type of loan.
Transactions excluded under TILA include: qualified mortgages, transactions secured by a new manufactured home, transactions secured by a mobile home, boat or trailer; transactions to finance initial construction of a dwelling, initial construction loans, reverse mortgages transactions, “bridge” loans with maturity of 12 months or less with the purpose connected with the acquisition of a dwelling intended to become the consumer’s principal dwelling.
TILA requires that a creditor must provide a consumer with copies of the final version of each appraisal developed in connection with a higher-priced mortgage loan. Creditors are also required to notify consumers in writing within three days of the application that copies of the appraisal will be provided to them promptly, and that they may also pay for an additional appraisal for their own use at their own expense. Such copies must be provided to the consumer no later than three business days prior to consummation of the loan and there are no waiver options available to the consumer related to this requirement as in the case of ECOA. The requirement is automatic – the consumer does not need to request such copies, and there is to be no fee charged to the consumer in providing such copies. In the case of a loan that is not consummated, the creditor must provide copies no later than 30 days after it is determined that consummation will not occur.
Prior to consummation, TILA provisions require the completion of two written appraisals on a higher-priced mortgage loan in certain situations – (1) the seller acquired the property 90 or fewer days prior to the date of the consumer’s agreement to acquire the property and the price exceeds the seller’s acquisition price by more than 10 percent; (2) the seller acquired the property 91 – 180 days prior to the date of the consumer’s agreement to acquire the property and the price exceeds the seller’s acquisition price by more than 20 percent. The two appraisals may not be performed by the same certified or licensed appraiser, and one of the two appraisals must include an analysis of – (1) the difference between the seller’s acquisition price and the consumer’s purchase price; (2) changes in market condition between the date the seller acquired the property and the date of the consumer’s agreement to acquire the property; (3) any improvements made to the property between the date the seller acquired the property and the date of the consumer’s agreement to acquire the property.
The additional written appraisal on a higher-priced mortgage loan is exempt if the consumer’s acquisition of property is from – (1) a local, State or Federal government agency; a person who acquired the property through foreclosure or deed-in lieu of; a non-profit entity as part of a local, State, of Federal program permitting them to acquire title for resale through foreclosure or deed-in-lieu; a person who inherited the property; an employer or relocation agency in connection with a relocation of an employee; a service member deployed or subjected to permanent change of station.
The burden for compliance with these regulations rests with the creditor. Many are formulating compliance procedures into their own in-house operations while others are seeking assistance through the partnership with AMC’s or other third party solution providers. In either case, adaptation and implementation of these requirements will prove to be a challenge to some creditors; but will no doubt be met with increased operating costs by all.
There is no doubt that the possible onslaught of appraisal and/or other written valuation reports may prove to be overwhelming to the average consumer. This is especially true as it relates to senior consumers consummating reverse mortgage loans. Most consumers find it challenging to understand a routine residential appraisal report; value producing field and desk reviews, AVM, and BPO documents will create a special challenge related to discernment and applicability to the loan process. Only time will tell how we as a industry respond to such consumer issues; however, these situations will undoubtedly require special care, diligence, and patience on the part of us all.
Detailed information regarding these amended regulations is readily available via the CFPB website at www.consumerfinance.gov. Landmark Network, Inc. is interested in your views, suggestions, plans, and experiences surrounding these legislative changes.