Appraisals for Higher-Priced Mortgage Loans

SUMMARY: The Board, Bureau, FDIC, FHFA, NCUA, and OCC (collectively, the Agencies) are amending Regulation Z, which implements the Truth in Lending Act (TILA), and the official interpretation to the regulation. This final rule supplements a final rule issued by the Agencies on January 18, 2013, which goes into effect on January 18, 2014. The January 2013 Final Rule implements a provision added to TILA by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or Act) requiring appraisals for "higher-risk mortgages." For certain mortgages with an annual percentage rate that exceeds the average prime offer rate by a specified percentage, the January 2013 Final Rule requires creditors to obtain an appraisal or appraisals meeting certain specified standards, provide applicants with a notification regarding the use of the appraisals, and give applicants a copy of the written appraisals used. On July 10, 2013, the Agencies proposed amendments to the January 2013 Final Rule implementing these requirements. Specifically, the Agencies proposed exemptions from the rules for transactions secured by existing manufactured homes and not land; certain streamlined refinancings; and transactions of $25,000 or less.

EFFECTIVE DATE: This final rule is effective on January 18, 2014. Alternative provisions regarding manufactured home loans in amendatory instructions 3b and 5f (12 CFR 34.203(b)(8) and 12 CFR part 34, appendix C, 34.203(b)(8) entry OCC), 12 CFR 226.43(b)(8) Board, and 12 CFR 1026.35(c)(2)(viii) CFPB, are effective July 18, 2015.

FOR FURTHER INFORMATION CONTACT: OCC: Robert L. Parson, Appraisal Policy Specialist, at (202) 649-6423, G. Kevin Lawton, Appraiser (Real Estate Specialist), at (202) 649-7152, Charlotte M. Bahin, Senior Counsel or Mitchell Plave, Special Counsel, Legislative & Regulatory Activities Division, at (202) 649-5490, Krista LaBelle, Special Counsel, Community and Consumer Law Division, at (202) 649-6350, or 400 Seventh Street SW., Washington, DC 20219.

Board: Lorna Neill or Mandie Aubrey, Counsels, Division of Consumer and Community Affairs, at (202) 452-3667, Carmen Holly, Supervisory Financial Analyst, Division of Banking Supervision and Regulation, at (202) 973-6122, or Kara Handzlik, Counsel, Legal Division, at (202) 452-3852, Board of Governors of the Federal Reserve System, Washington, DC 20551.

FDIC: Beverlea S. Gardner, Senior Examination Specialist, Risk Management Section, at (202) 898-3640, Sandra S. Barker, Senior Policy Analyst, Division of Consumer Protection, at (202) 898-3615, Mark Mellon, Counsel, Legal Division, at (202) 898-3884, Kimberly Stock, Counsel, Legal Division, at (202) 898-3815, or Benjamin Gibbs, Senior Regional Attorney, at (678) 916-2458, Federal Deposit Insurance Corporation, 550 17th St, NW., Washington, DC 20429.

NCUA: John Brolin, Staff Attorney, Office of General Counsel, at (703) 518-6540, or Vincent Vieten, Program Officer, Office of Examination and Insurance, at (703) 518-6360, or 1775 Duke Street, Alexandria, Virginia, 22314.

Bureau: Owen Bonheimer, Counsel, or William W. Matchneer, Senior Counsel, Division of Research, Markets, and Regulations, Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20552, at (202) 435-7000.

FHFA: Robert Witt, Senior Policy Analyst, at 202-649-3128, or Ming-Yuen Meyer-Fong, Assistant General Counsel, Office of General Counsel, (202) 649-3078, Federal Housing Finance Agency, 400 Seventh Street SW., Washington, DC 20024.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

As discussed in detail under part II of this SUPPLEMENTARY INFORMATION, section 1471 of the Dodd-Frank Act created new TILA section 129H, which establishes special appraisal requirements for "higher-risk mortgages." 15 U.S.C. 1639h. The Agencies adopted a final rule on January 18, 2013 (January 2013 Final Rule; 78 FR 10368 (Feb. 13, 2013)) to implement these requirements (adopting the term "higher-priced mortgage loans" (HPMLs) instead of "higher-risk mortgages"). The Agencies believe that several additional exemptions from the new appraisal rules are appropriate. Specifically, the Agencies are adopting exemptions for certain types of refinancings and transactions of $25,000 or less (indexed for inflation). The Agencies are also adopting a temporary exemption of 18 months (until July 18, 2015) for all loans secured in whole or in part by a manufactured home. Starting on July 18, 2015, 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; transactions secured by an existing (used) manufactured home and land will not be exempt from the rules; and 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, discussed in more detail below.

The Agencies are not adopting the proposed definition of "business day" that would have differed from the definition used in the January 2013 Final Rule. A revision to the exemption for "qualified mortgages" is adopted that is similar to the proposed revision, as well as a few proposed non-substantive technical corrections.

A. Exemption for Extensions of Credit of $25,000 or Less

The Agencies are adopting without change the proposed exemption from the HPML appraisal rules for extensions of credit of $25,000 or less, indexed every year for inflation.

B. Exemption for Certain Refinancings

The Agencies also are adopting an exemption from the HPML appraisal rules for certain types of refinancings with characteristics common to refinance products often referred to as streamlined refinances. Consistent with the proposal, the final rule exempts a refinancing where the holder of the credit risk of the existing obligation remains the same on the refinancing. The final rule includes revised terminology and additional examples in Official Staff Commentary to clarify the meaning of this requirement. In addition, the periodic payments under the refinance loan must not result in negative amortization, cover only interest on the loan, or result in a balloon payment. Finally, the proceeds from the refinance loan may only be used to pay off the existing obligation and to pay closing or settlement charges.

C. Exemption for Transactions Secured in Whole or in Part by a Manufactured Home

All loans secured in whole or in part by a manufactured home will be exempt from the HPML appraisal rules for 18 months, until July 18, 2015. For loan applications received on or 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 not be exempt from the rules.

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.

* A valuation conducted by an individual who has no financial interest in the property or credit transaction, and has training in valuing manufactured homes. /1/ An example would be an appraisal conducted according to procedures approved by the U.S. Department of Housing and Urban Development (HUD) for existing (used) home-only transactions.

FOOTNOTE 1 As discussed further in the section-by-section analysis, the Agencies are adopting the definition of "valuation" at 12 CFR 1026.42(b)(3): " `Valuation' means an estimate of the value of the consumer's principal dwelling in written or electronic form, other than one produced solely by an automated model or system." END FOOTNOTE

D. Effective Date

The temporary exemption for manufactured home loans and the exemptions for certain refinancings and loans of $25,000 or less will be effective on January 18, 2014, the same date on which the January 2013 Final Rule will become effective. The Agencies find under 5 U.S.C. 553(d)(1) that these provisions may be made effective less than 30 days after publication in the Federal Register because these provisions "grant[] or recognize[] an exemption or relieve[] a restriction." 5 U.S.C. 553(d)(1). The modified exemptions for loans secured by manufactured homes will be effective on July 18, 2015.

II. Background

--This is a summary of a Federal Register article originally published on the page number listed below--

Supplemental final rule; official staff commentary.

CFR Part: "12 CFR Part 34"

RIN Number: "RIN 1557-AD70"

Citation: "78 FR 78520"

Document Number: "RIN 3170-AA11"

Federal Register Page Number: "78520"

"Rules and Regulations"