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Agencies Propose New Appraisal Rules for Higher-Risk Loans

Higher-risk mortgage loans may have a new set of rules to go by when it comes to appraisals.


A proposed rule from six federal agencies would set out new requirements when conducting appraisals for higher-risk mortgages.

For example, the rule would require creditors to use a licensed or certified appraiser when preparing reports based on the physical inspection of a property. Creditors would also need to provide a free copy of an appraisal and disclose the purpose of an appraisal.

An additional appraisal at no cost to the consumer would also be required from creditors if the seller acquired the property for a lower price during the past six months. This requirement is to address fraudulent property flipping by checking if the property's value saw a legitimate increase.

According to a release from the agencies, the proposed rule implements amendments to the Truth in Lending Act enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

According to the Dodd-Frank Act, higher-risk loans are categorized as such based on the following criteria: they must be secured by a borrower's home and have interest rates exceeding a certain level.

The rule is being issued by the Federal Reserve, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the OCC.

The public has until October 15, 2012 to comment on the proposal, and details on how to submit feedback are provided in this ""document"":http://files.consumerfinance.gov/f/201208_cfpb_HRM_proposed_rule.pdf.

In addition to the proposed rule for higher-risk mortgages, the ""CFPB also released a separate proposed rule"":http://dsnews.comarticles/proposed-cfpb-rule-requires-lenders-to-provide-free-appraisal-reports-2012-08-15 requiring lenders to provide free appraisal reports. In the bureau's proposal, creditors would need to inform applicants of their right to a free appraisal report within three days of applying for a loan.

Creditors can, however, charge reasonable fees associated with conducting the appraisals, but not for providing a report.

About Author: Esther Cho


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