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Complying with Truth-in-Lending's 'Higher Priced Mortgage Loan Appraisal' Requirement
Wednesday, November 20, 2013 6:55 AM

The Higher Priced Mortgage Loan Appraisal Requirement implements amendments to the Truth in Lending Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Under the Dodd-Frank Act, mortgage loans are higher-priced if they are secured by a consumer's home and have interest rates above certain thresholds.

For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical inspection of the interior of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.

If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.

The Final Rule, formerly the Higher Risk Appraisal Requirement and now the Higher Priced Mortgage Loan Appraisal Requirement, will become mandatory effective Jan. 18, 2014. If you are going to make a higher priced mortgage loan as the regulators in the Consumer Financial Protection Bureau (CFPB) have defined, you must do the following things:

  • Produce a written appraisal by a certified or licensed appraiser;
  • Have that appraiser inspect the interior of the property;
  • Provide certain disclaimers to the borrower within three days of the application; and
  • Provide the borrower a free copy of the appraisal at least three business days before closing or within 30 days after it is determined the loan will not close. This cannot be waived by the borrower.

If you are doing evaluations or drive-by appraisals on properties that in the future will be higher priced mortgage loans, you will instead be ordering full interior inspections.

Higher Priced Mortgage Appraisal Requirement - Model form

For more information, please contact InfoCentral, (512) 853-8515, or at bhamilton@cornerstoneleague.coop.