On December 6, HUD issued Mortgagee Letter 2013-44, which updates HUD’s policies on (i) the use of an FHA-insured mortgage to purchase a HUD REO property; and (ii) the use of distressed properties in determining the market value of REO properties. With regard to the first, the letter provides a chart of conditions that trigger a requirement for the mortgagee to order a new appraisal. According to the letter, if a new appraisal is ordered, then (i) the original appraisal ordered by HUD may not be used to underwrite the loan; (ii) HUD will not reimburse the mortgagee for the cost of the new appraisal and the borrower/purchaser can be charged for the expense of the new appraisal as part of the borrower’s closing costs; (iii) the mortgagee must provide a written justification for ordering a new appraisal; and (iv) the mortgagee must retain copies of all appraisals available to the mortgagee in its loan file. With regard to establishing market value of REO properties, the letter details the conditions implicit in HUD’s characterization that a market value price should “reflect the price appropriate for properties sold in a competitive and open market, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.” In addition, the letter states that, when considering sales to be used as comparables, the appraiser must note the conditions of sale and the motivations of the sellers and purchasers, and that in developing an opinion of market value, REO sales and pre-foreclosure sales transactions should only be chosen as comparables if there is compelling evidence in the market to warrant their use. Mortgagees are required to implement the policy changes in the letter by February 4, 2014.
On December 12, the Federal Reserve Board, the CFPB, the FDIC, the FHFA, the NCUA, and the OCC, issued a final rule supplementing their January 2013 interagency appraisal rule. As described in detail in our Special Alert, the January 2013 rule amended Regulation Z to require creditors to obtain appraisals for a subset of loans called Higher-Priced Mortgage Loans (HPMLs) and to notify consumers who apply for these loans of their right to a copy of the appraisal. Those new requirements take effect January 18, 2014.
The supplemental final rule, which takes effect on the same date, exempts certain transactions from the HPML appraisal requirements. First, all loans secured in whole or in part by a manufactured home are fully exempt until July 18, 2015. After that date: (i) transactions secured by a new manufactured home and land are exempt only from the requirement that the appraisal include a physical review of the interior of the property; (ii) transactions secured by an existing manufactured home and land are not exempt from any HPML appraisal requirements; and (iii) transactions secured by a manufactured home but not land are exempt from all HPML appraisal requirements, provided the creditor provides the consumer with certain specified information about the home’s value. Second, the supplemental final rule exempts streamlined refinances—i.e. refinancing transactions where the holder of the successor credit risk also held the credit risk of the original credit obligation—so long as the consumer does not take any cash out and the new loan does have negative amortization, interest only, or balloon payments. Third, the supplemental final rule exempts “small dollar” transactions of $25,000 or less, indexed annually for inflation.
On October 8, Freddie Mac issued Bulletin 2013-20, which (i) announces tools and systems that provide estimates of property value generated by Freddie Mac’s proprietary automated property valuation model and (ii) updates requirements related to disclosure of property valuation information. Freddie Mac explains that its property value estimates can help sellers/servicers identify potentially inflated appraised values that may need additional review early in the origination process and also can be used to determine property values for Freddie Mac modifications or refinances, but that use of the valuation information may impact seller/servicers’ obligation to comply with the revised valuation disclosure requirements finalized by the CFPB earlier this year. For sellers, the Bulletin states that Freddie Mac will be adding disclaimers about the property value estimate, and provides additional options for system-to-system users. For servicers, Freddie Mac plans to provide supporting text for use in complying with the new disclosure requirements and to provide to borrowers. The Bulletin identifies certain other changes related to the use of property valuation data.
Special Alert: CFPB Finalizes Additional Amendments to ATR/QM Rule; Agencies Propose Appraisal Rule Amendments
On July 10, the Consumer Financial Protection Bureau (“Bureau”) finalized important amendments (the “Amendments”) to its ability-to-repay / qualified mortgage rule (the “QM / ATR Rule”) that are intended to ease certain compliance challenges with making qualified mortgages (“QMs”). In response to industry concerns on the extensive underwriting requirements in Regulation Z’s new Appendix Q, the Bureau acknowledged that certain of its provisions were “not well-suited to function as regulatory requirements” and, as a result, finalized major revisions to the methodology for determining a consumer’s monthly debt and income for purposes of making a QM under the 43% debt-to-income (“DTI”) underwriting alternative.
The Amendments, which had been proposed in April of this year (the “April Proposal”), also finalize clarifications to its mortgage servicing and escrows rules that were issued this January. Like the mortgage rules themselves, the Amendments will take effect on January 10, 2014.
Separately, on the same date, the Bureau, together with the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency (the “Agencies”) issued proposed amendments to their January 2013 final rule governing appraisal practices.
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On January 18, the federal banking agencies issued a final rule amending Regulation Z to implement certain requirements from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) that require creditors to obtain appraisals for a subset of loans called Higher-Priced Mortgage Loans (HPMLs), and to notify consumers who apply for these loans of their right to a copy of appraisal. On the same day, the Consumer Financial Protection Bureau issued a final rule under the Equal Credit Opportunity Act (ECOA), as amended by the Dodd-Frank Act, to require creditors to provide residential mortgage loan applicants with a copy of any and all appraisals and other written valuations developed in connection with an application for closed or open-end credit that is to be secured by a first lien on a dwelling. Both rules take effect on January 18, 2014. BuckleySandler has prepared a Special Alert that provides additional details regarding the HPML appraisal rule, as well as a Special Alert regarding the ECOA appraisal rule.
On January 18, the Federal Reserve Board, the OCC, the FDIC, the NCUA, the FHFA, and the CFPB issued a final rule to implement Dodd-Frank Act amendments to TILA that require creditors to meet certain appraisal conditions before making a higher-risk loan. The rule uses the term “higher-priced mortgage loan,” which covers: (i) a loan for which the APR exceeds the average prime offer rate (an average market rate) by 1.5 percent for a first-lien loan, (ii) 2.5 percent for a first-lien jumbo loan, and (iii) 3.5 percent for a subordinate-lien loan. For such loans, the final rule requires that a creditor obtain a written appraisal from a certified or licensed appraiser that is based on a physical property visit of the interior of the property. During the application process, the creditor must issue a disclosure stating (i) the purpose of the appraisal, (ii) that the creditor will provide the applicant a copy of any written appraisal, and (iii) that the applicant may choose to have a separate appraisal conducted at his or her own expense. The creditor must provide the borrower with a free copy of any written appraisals at least three business days before closing. Additional appraisal requirements apply under certain circumstances. As did the proposed rule, and consistent with the statute, the final rule exempts loans that are considered “qualified mortgages,” as recently defined by the CFPB, as well as reverse mortgages, loans secured by manufactured homes, and certain other loans.
On the same day, the CFPB issued a related rule to implement a Dodd-Frank Act provision that adds similar appraisal requirements to ECOA. The final rule generally mirrors the rule as proposed and requires that for any loan to be secured by a first lien on a dwelling, a creditor must (i) notify applicants within three business days of receiving an application of their right to receive a free copy of written appraisals and valuations and (ii) provide applicants a free copy of all written appraisals and valuations promptly after receiving them, but in no case later than three business days prior to closing on the mortgage. The rule prohibits creditors from charging additional fees for providing a copy of written appraisals and valuations, and allows applicants to waive the three day requirement, provided a copy of all written appraisals and valuations are provided at or prior to closing. Together, the revisions to TILA and ECOA, as implemented by these rules, require creditors to provide two appraisal disclosures to consumers applying for a higher-risk loan secured by a first lien on a borrower’s principal dwelling. The rules take effect January 18, 2014.
On August 15, the Federal Reserve Board, the OCC, the FDIC, the NCUA, the FHFA, and the CFPB proposed new appraisal requirements for certain “higher-risk loans.” The new requirements apply to loans for which the APR exceeds the average market rate by 1.5 percent for first-lien loans, 2.5 percent for first-lien jumbo loans, and 3.5 percent for subordinate-lien loans. The proposal exempts loans that are considered “qualified mortgages” as defined under a separate CFPB rulemaking to implement TILA section 129C, as well as reverse mortgages and loans secured by manufactured homes. The rule would implement amendments to TILA under the Dodd-Frank Act that require creditors to meet certain appraisal conditions before making a higher-risk loan. A creditor would have to obtain a written appraisal from a certified or licensed appraiser that is based on a physical property visit of the interior of the property. Read more…