Alert supersedes and replaces Regulatory Alert 13-RA-08 (September 2013).
Board of Directors and Chief Executive Officer:
your credit union receives an application for a higher-priced mortgage loan
(HPML), you must comply with the new HPML Appraisal Rule.
the rule, a mortgage loan is an HPML if it is a closed-end transaction, secured
by a consumer’s principal dwelling, and has an interest rate above a certain
threshold, as described in more detail below.
you originate an HPML, you must:
- Obtain one or more appraisals meeting specified standards;
- Provide information to applicants regarding your use of the appraisals; and
- Give applicants a copy of each appraisal you used.
must also consider the requirements of the new Equal Credit Opportunity Act Appraisals
and Written Valuations Rule (ECOA Valuations Rule),
addressed in NCUA Regulatory Alert 13-RA-07.
The overlap between the two rules is detailed later in this alert.
date for both the HPML Appraisal Rule and ECOA Valuations Rule was January 18,
2014. Modified exemptions for loans
secured by manufactured homes will be effective on July 18, 2015.
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
amended the Truth in Lending Act (TILA) by adding a new section to establish
certain appraisal requirements for creditors.
TILA and its implementing rule, Regulation Z,
seek to promote the informed use of consumer credit by requiring disclosures
about the costs and terms of credit.
requires disclosures for loans, including those secured by consumers’ homes.
along with the Consumer Financial Protection Bureau (CFPB), Federal Reserve
Board, Federal Deposit Insurance Corporation, Federal Housing Finance Agency,
and Office of the Comptroller of the Currency (collectively, the Agencies) adopted
the HPML Appraisal Rule to implement these new appraisal requirements.
A Small Entity Compliance Guide for the rule,
developed by CFPB, is embedded here
The specific requirements of the HPML Appraisal
Rule are provided in § 1026.35(c) of the CFPB’s regulation and apply in
addition to the requirements of NCUA’s Appraisal Standards Rule provided in 12
CFR Part 722.
December 12, 2013, the Agencies issued a supplemental final rule,
providing additional exemptions from the appraisal requirements for certain
subsets of higher-priced mortgage loans.
The additional exemptions are intended to save borrowers time and money,
while still ensuring the loans are financially sound.
Most of the amendments made by the supplemental
final rule also took effect on January 18, 2014.
Which Loans Are Covered?
The HPML Appraisal Rule applies to first-lien or subordinate-lien HPMLs that are closed-end and
secured by the consumer’s principal dwelling.
A loan is “higher-priced” if it meets any one of the following
- It is a first-lien mortgage (other than a jumbo mortgage) with an annual percentage rate (APR) that exceeds the Average Prime Offer Rate (APOR) published by CFPB at the time the APR is set by 1.5 percentage points or more;
- It is a first-lien jumbo mortgage with an APR that exceeds the APOR published by CFPB at the time the APR is set by 2.5 percentage points or more. A jumbo mortgage is when the principal balance exceeds the limit in effect as of the date the transaction’s rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or
- It is a subordinate-lien mortgage with an APR that exceeds the APOR published by CFPB at the time the APR is set by 3.5 percentage points or more.
The following table illustrates the conditions that would
make a closed-end mortgage loan “higher-priced.”
Table 1: Higher-Priced Mortgage
Which Loans Are
The HPML Appraisal Rule
exempts each of the following loans from all of its requirements:
- Qualified Mortgages, as defined in Regulation Z (12 CFR § 1026.43(e) & (f)) and the CFPB’s Ability-to-Repay/Qualified Mortgage Rule ;
- Reverse mortgages;
- Bridge loans for 12 months or less and intended to be used to acquire a new principal dwelling;
- Loans for initial construction of a dwelling (not limited to loans of 12 months or less); and
- Loans secured by boats, trailers, and mobile homes.
The supplemental final rule provides the following additional exemptions from the requirements of the HPML Appraisal Rule:
- Loans for $25,000 or less, indexed every year for inflation;
- Streamlined refinance loans, where the owner or guarantor of the existing obligation remains the same on the refinancing ; and
- Loans secured in whole or in part by a manufactured home, for which the application is received before July 18, 2015.
Which Loans Will
Be Treated Differently?
loan applications received on or after
July 18, 2015, the following changes will apply:
- Transactions secured by a new manufactured home and land will be exempt from the requirement that the appraisal include a physical inspection of the interior of the property, but will be subject to all other HPML appraisal requirements.
- Transactions secured by an existing (used) manufactured home and land will be subject to all of the requirements of the HPML Appraisal Rule.
- Transactions secured solely by a manufactured home and not land will be exempt from the rules if the creditor gives the consumer one of three types of information about the home’s value:
- The manufacturer’s invoice of the unit cost (for a transaction secured by a new manufactured home);
- An independent cost service unit cost; or
- A valuation conducted by an individual who has no financial interest in the property or credit transaction, and has training in valuing manufactured homes.
What are the Basic Requirements of the Rule?
When you originate a covered HPML, you must:
- Within three business days after receiving the application, disclose the following statement in writing: “We may order an appraisal to determine the property’s value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”
- Obtain a written appraisal performed by a certified or licensed appraiser in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) and Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and its implementing regulations;
- Have the appraiser physically visit the interior of the property; and
- At least three business days before the transaction closing date, give the applicant a free copy of each written appraisal conducted for the mortgage. You can send the copy electronically with the applicant’s consent, as required by the Electronic Signatures in Global and National Commerce Act (E-SIGN Act).
If there is more than one applicant, you are required to
give a copy of the disclosure and appraisal to only one of the applicants. If you determine that you are not going to
close a loan, you still must give the applicant a copy of the written appraisal
within 30 days of determining the transaction will not close.
Additional Requirements for Flipped Properties
When a home is being resold within 180 days of its acquisition
by the seller, commonly referred to as “flipping,” additional appraisal requirements
may apply. If the consumer is applying
for an HPML to buy a flipped property, an additional appraisal is required if
the price reflected in the consumer’s purchase agreement is a certain amount higher
than the seller’s acquisition price. These amounts are:
- More than a 10 percent price increase if the seller acquired the property in the past 90 days; or
- More than a 20 percent price increase if the seller acquired the property in the past 91 to 180 days.
To determine the seller’s acquisition price, use the
amount the seller paid without the cost of financing the property.
If the price increase exceeds the above specified amounts, you must
obtain an additional appraisal from a different certified or licensed appraiser unless an exemption applies. You
cannot charge the applicant for the additional appraisal. The additional appraisal must meet the same
requirements as the first appraisal. The
additional appraisal also must analyze the difference in the original sales
price and the subsequent sales price, changes in market conditions, and property
improvements the seller made.
Exemptions for Flipped Properties
Several types of transactions are exempted from the additional
appraisal requirement. You do not have to order an additional
appraisal when an HPML is used to acquire a flipped property from:
- A local, state, or federal government agency;
- A person who acquired the title from the holder of a
defaulted mortgage on the property via foreclosure, deed-in-lieu of
foreclosure, or other similar judicial or non-judicial procedures through
exercise of the holder’s rights in the defaulted loan;
- A nonprofit entity as part of a local, state, or federal
government program that lets nonprofits acquire title to single-family
properties for resale from a seller who itself acquired title to the property
through foreclosure, deed-in-lieu of foreclosure, or other similar judicial or
- A person who inherited the property or acquired it
through a court-ordered dissolution of a marriage, civil union or domestic
partnership, or through the partition of the seller’s joint or marital assets;
- An employer or relocation agency in connection with an
employee relocation; or
- A servicemember
who received a deployment or permanent change of station order after purchasing
You also do not
have to order an additional appraisal when an HPML is used to acquire a flipped
property if the property is:
- Located in a presidentially-declared disaster area during any time
period during which the federal financial institutions regulatory agencies
waive the requirements in Title XI of FIRREA and any implementing regulations;
- Located in a rural county located in the U.S. Department
of Agriculture’s Economic Research Service Urban Influence Codes 4, 6, 7, 8, 9,
10, 11, or 12. CFPB has published a list
of these counties.
How Can You Ensure that an Appraisal Qualifies for the Rule’s Safe
N to Regulation Z provides a list of steps you can take to ensure that any
required appraisal meets the requirements of the HPML Appraisal Rule. To gain safe harbor protection for an HPML appraisal,
follow these steps:
an appraisal from a certified or licensed appraiser in the state where the
property is located;
the appraiser to follow USPAP and Title XI of FIRREA and any implementing
regulations in effect at the time the appraiser signs the appraiser’s
that the appraisal:
- Identifies the creditor who ordered the appraisal, the property, and the interest being appraised;
whether the appraiser analyzed the contract price;
conditions in the property’s neighborhood;
- Addresses the condition
of the property and any improvements to the property;
- Indicates which
valuation approaches the appraiser used and includes a reconciliation if the
appraiser used more than one valuation approach;
- Provides an
opinion of the property’s market value and an effective date for the opinion; Indicates that
the appraiser performed a physical property visit of the interior of the
- Includes a
certification signed by the appraiser that the appraisal was prepared in
accordance with the requirements of USPAP and Title XI of FIRREA and any
implementing regulations; and
the National Registry
to verify that the appraiser is certified or licensed in the state where the
property is located on the date of the appraiser’s certification.
safe harbor applies only if you do not have actual knowledge contradicting the
facts or certifications made in the written appraisal.
How Do the HPML
Appraisal Rule and ECOA Valuations Rule Overlap?
Valuations Rule requires you to provide consumers with disclosures and free
copies of appraisals and other written valuations.
First-lien HPMLs covered by the HPML
Appraisal Rule are also subject to the ECOA Valuations Rule.
In addition, the disclosure requirements of
both rules overlap. You may use the ECOA Valuations Rule disclosure to comply with the
notice requirement of the HPML Appraisal Rule.
ECOA Valuations Rule imposes a different deadline structure for providing
copies of appraisals to consumers. Under
the ECOA Valuations Rule, the copies of appraisals must be provided promptly
upon completion of a loan application or three business days before closing,
whichever is earlier. As a result, if the appraisal is
completed early in the application process, then the “promptly upon completion”
deadline will come first, since it will be earlier than the three business days
before the loan closing deadline under the HPML Appraisal Rule. If the
transaction is subject to both rules, then you must comply with the earlier
ECOA Valuations Rule, an applicant can waive the right to receive copies of the
appraisal three business days before closing.
Under the HPML Appraisal Rule, however, an applicant cannot waive the
right to receive a copy of the appraisals three business days before closing.
What Guidance Is
you have questions, please contact NCUA’s Office of Consumer Protection at 703-518-1140
or ComplianceMail@ncua.gov, your regional office, or state