Aug. 16, 2012 – An interagency proposed rule released Wednesday would impose new requirements for credit unions that issue higher-risk mortgage loans, such as providing a free copy of the appraisal to borrowers.
The proposed rule, called for under Dodd-Frank Act revisions to the Truth in Lending Act, was issued jointly by NCUA, the Consumer Financial Protection Bureau, the Federal Reserve Board, FDIC, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency.
Under TILA, a higher-risk mortgage is defined as residential mortgage loans secured by a principal dwelling with annual percentage rates exceeding a statutory threshold. Those thresholds include: first-lien loans with an APR 1.5 percentage points higher than the average prime offer rate; first-lien jumbo loans with an APR 2.5 percentage points higher than the average prime offer rate; and subordinate-lien loans with APRs that are 3.5 percentage points higher than the APOR.
The proposal excludes “qualified mortgages,” which the CFPB is expected to define in the coming months, and would not apply to reverse mortgages and loans for manufactured homes.
Under the proposed rule, creditors would be required to obtain written appraisals conducted by a certified or licensed appraiser and based on physical inspection of the interior of the property. A free copy of the appraisal report would be required to be provided at least three business days before closing.
Other requirements included in the proposed rule include:
- Providing a disclosure to applicants that includes information about the purpose of the appraisal;
- Obtaining an additional appraisal if the higher-risk mortgage loan involves a “flipped” property that was acquired by the seller within the last six months – credit unions would be prohibited from passing on any of the cost of the appraisal on to members.
The agencies are accepting comments on the proposal until Oct. 15.
The joint agencies are also seeking comment on a proposed rule issued in July that would change the definition of finance charges and the possible impact on the annual percentage rate on mortgage loans; That rule could expand the number of mortgage loans deemed “higher-risk.”
NAFCU will be tackling this and other mortgage proposals during its Sept 5 webcast, “Inside the CFPB’s Mortgage Proposals.” For more information about the webcast and how to register, click here.
NAFCU has already issued a Regulatory Alert on the APR-related proposed rule. It will soon be issuing a Regulatory Alert on the higher-risk mortgage loan proposal.