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The CFPB, Federal Reserve Board, FDIC, FHFA, NCUA, and OCC published in the Federal Register on August 8, 2013 proposed rules creating several exemptions to the appraisal requirements for higher-priced mortgage loans. Most notably, the proposed rule creates an exemption for certain refinances with characteristics common to “streamlined” refinances. To be exempt from the appraisal rules, the owner or guarantor of the refinance loan must be the current owner or guarantor of the existing obligation, and the regular periodic payments under the new loan cannot cause a principal balance increase, permit the consumer to defer repayment, or result in a balloon payment. In addition, the proceeds from the refinance must be used solely to pay off the outstanding balance on the existing debt and for closing or settlement charges.

The proposed rule also creates exemptions for: (i) transactions secured solely by an existing or used manufactured home (in addition to the exemption for transactions secured by new manufactured homes); and (ii) extensions of credit in the amount of $25,000 or less, indexed annually for inflation.

Comments on the proposals are due by September 9.

The regulatory barrage continued last week with the CFPB issuing the last batch of mortgage-related rules it was required to finalize by the Dodd-Frank Act’s January 21 deadline.   

On January 17, the final rules implementing provisions of the Dodd-Frank Act that relate to mortgage servicing were issued. The servicing rules will take effect on January 10, 2014.    

On January 18,  the CFPB, the federal financial institution agencies (the FDIC, Fed, OCC, and NCUA),  and the Federal Housing Finance Agency adopted a joint final rule to implement Dodd-Frank appraisal requirements for higher-priced mortgage loans under the Truth in Lending Act. The final rule is effective on January 18, 2014. 

Another final appraisal rule issued by the CFPB on January 18 implements amendments to the Equal Credit Opportunity Act made by the Dodd-Frank Act that require creditors to automatically provide copies of appraisals and other written valuations for first lien mortgage loans.  The final rule will become effective on January 18, 2014. 

On January 20, the CFPB issued a final rule incorporating Dodd-Frank requirements into the existing Regulation Z loan originator compensation rule that applies to mortgage loans.  The final rule also implements Dodd-Frank qualification requirements for bank employee mortgage loan originators and the Dodd-Frank prohibition on mandatory arbitration clauses for mortgage agreements.  The final rule is effective January 10, 2014, except the mandatory arbitration prohibition is effective June 1, 2013. 

To provide further details, we have prepared legal alerts on the servicing rules, the higher-priced mortgages appraisal rule and the loan originator compensation rule.  We will also be issuing a legal alert on the ECOA appraisal rule. 

To assist the mortgage industry in implementing the CFPB’s new rules, Ballard Spahr’s Mortgage Banking Group will be conducting a series of webinars.  On January 30, we will hold a webinar on “Top 10 Takeaways from the Ability-to-Repay/QM, Servicing, and Loan Originator Compensation Rules.”   On February 5, the Mortgage Banking Group will hold a webinar on “The Ability-To-Repay/QM Rule—Important Regulatory and Litigation Considerations.” More information on the webinars and links to register are available here for our January 30 webinar and here for our February 5 webinar.

The CFPB has issued two new proposals dealing with mortgage appraisals that implement provisions of the Dodd-Frank Act.  One of the proposals would amend Regulation B (Equal Credit Opportunity Act) to require lenders to provide to a first lien mortgage applicant a copy of all written appraisals and valuations developed in connection the application.  The lender would have to notify an applicant within three business days of receiving an application that the applicant has a right to receive the copy and provide the copy promptly after receiving the appraisal or valuation, which in no event can be later than three days before mortgage consummation.  Lenders could charge for costs of the appraisal or valuation itself but not for photocopying, postage or other costs associated with providing one written copy to an applicant. 

The other proposal, which the CFPB issued jointly with the OCC, the Fed, the FDIC and the NCUA,  would amend Regulation Z (Truth in Lending) to require appraisals for “higher-risk mortgages.”  “Higher-risk mortgages” is a new category of mortgage loans that the Dodd-Frank Act added to TILA  and which is similar to the already-existing “higher-priced mortgages” category in Regulation Z.  

“Higher-risk mortgages” are defined as residential mortgage loans secured by a principal dwelling with an APR that exceed certain thresholds tied to whether the loan is secured by a first or subordinate lien and, if secured by a first lien, the loan’s principal amount.  Under the proposal, an appraisal for a higher-risk mortgage would have to satisfy various conditions, including that it be performed by a certified or licensed appraiser and that a physical visit of the property’s interior be conducted by the appraiser.  It would also require a second written appraisal under certain circumstances. 

As a practical matter, the joint proposal is likely to have a limited impact given that both TILA and the proposal exclude “qualified mortgages” from the definition of “higher-risk mortgages.”  “Qualified mortgages” receive special status under the Dodd-Frank Act’s ability to repay provisions.  How the CFPB should define “qualified mortgages” in its proposal to implement those provisions has been the subject of considerable debate since, as even CFPB Director Cordray has acknowledged, most residential mortgage lending will likely be limited to qualified mortgages for at least several years after the CFPB’s rule is adopted.  

Comments on both proposals are due by October 15.