The federal banking agencies have issued a proposed rule that would create exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. The exemptions proposed on July 10 would provide that three types of higher-priced mortgage loans would be exempt from the appraisal requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The exemptions would apply to higher-priced mortgage loans of $25,000 or less, certain “streamlined” refinancings, and loans secured by existing (used) manufactured housing and not land. According to the agencies, the exemptions are intended to save borrowers time and money and to promote the safety and soundness of creditors. The exemption for streamlined refinances would apply where the owner or guarantor of the refinance loan is the current owner or guarantor of the existing loan. To qualify for the proposed exemption for streamlined refinances, periodic payments under the refinance loan could not result in negative amortization, interest-only payments or balloon payments. In addition, the proceeds from the refinance loan could only be used to pay off the outstanding principal balance on the existing loan and to pay closing costs. Comments on the proposed rule are due by September 9, 2013.
Nutter Notes: The appraisal requirements for higher-priced mortgages were imposed by the Dodd-Frank Act. Under the Dodd-Frank Act, a residential mortgage loan is considered to be higher-priced if it has an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 percentage points or more for a non-jumbo first lien residential mortgage loan, by 2.5 percentage points or more for a jumbo first lien residential mortgage loan, or by 3.5 percentage points or more for a subordinate lien residential mortgage loan. A final rule implementing the new Dodd-Frank Act appraisal requirements was issued by the federal banking agencies in January 2013. The final rule requires a creditor in a higher-priced mortgage loan transaction to use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property, provide consumers with a free copy of the appraisal report, disclose to applicants information about the purpose of the appraisal and obtain an additional appraisal at no cost to the consumer under certain circumstances. Compliance with the final rule will become mandatory on January 18, 2014.