ACTION: Compliance Required by January 18, 2014
Effective January 18, 2014, you must comply with the new higher-priced mortgage loan (HPML) Appraisal Rule requirements when your credit union receives an application for an HPML.1 Under 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. Before 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.
The effective date for both the HPML Appraisal Rule and ECOA Valuations Rule is January 18, 2014.
NCUA, 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 adopted the HPML Appraisal Rule to implement these new appraisal requirements.4 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.
- 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 the 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 the 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 the 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.”
|First lien||Jumbo||Subordinate lien||APR > APOR by at least|
The HPML Appraisal Rule exempts the following loans from all of its requirements:
- Qualified Mortgages, as defined in Regulation Z (12 CFR § 1026.43(e)) and the CFPB’s Ability-to-Repay/Qualified Mortgage Rule;5
- 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);
- Loans secured by new manufactured homes; and
- Loans secured by boats, trailers, and mobile homes.
- 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.” 7
- 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)8 and its implementing regulations;9
- 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).
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.
- 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 nonjudicial 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 nonjudicial procedures;
- 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 service member10 who received a deployment or permanent change of station order after purchasing the property.
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 agencies11 waive the requirements in Title XI of FIRREA and any implementing regulations; or
- 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.12
How Can You Ensure that the Appraisal Qualifies for the Rule’s Safe Harbor?
Appendix 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:
- Order an appraisal from a certified or licensed appraiser in the state where the property is located and require 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 certification.
- Confirm that the appraisal:
- Identifies the creditor who ordered the appraisal, the property, and the interest being appraised;
- Indicates whether the appraiser analyzed the contract price;
- Addresses 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 property; and
- 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.
- Use the National Registry13 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.
http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/ (opens new window).
2 78 FR 7215 (Jan. 31, 2013).
3 Public Law 111-203, 124 Stat. 1376, §§ 1471, 1474 (2010).
4 78 FR 10368 (Feb. 13, 2013).
5 78 FR 6407 (Jan. 30, 2013). For more information on Qualified Mortgages see the CFPB’s Small Entity Compliance Guide, available at http://files.consumerfinance.gov/f/201308_cfpb_atr-qm-implementation-guide_final.pdf (opens new window).
6 The streamlined refinances covered by the proposal would include only refinancing where: (1) the owner or guarantor of the refinance loan is the current owner or guarantor of the existing obligation; (2) regular periodic payments that do not result in negative amortization, cover only the interest on the loan, or result in a balloon payment; and (3) the proceeds from the refinance loan may be used solely to pay off the outstanding principal balance on the existing obligation and to pay closing or settlement charges.
778 FR 10368, 10443 (Feb. 13, 2013).
9 For credit unions, see 12 CFR Part 722.
10See 50 U.S.C. Appendix 511(1).
11The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration.
12See 12 CFR § 1026.35(c)(4)(vii)(H) and (b)(2)(iv)(A). See also http://www.consumerfinance.gov/blog/exemption-from-escrow-requirement-for-small-creditors-in-rural-or-underserved-counties (opens new window).
13https://www.asc.gov/National-Registries/NationalRegistry.aspx (opens new window).
14See Regulatory Alert 13-RA-07 (July 2013).
15As discussed herein on page 2 and in footnote 6, on July 10, 2013, NCUA and the other five agencies proposed amendments to the HPML Appraisal Rule.