In 1989, the FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act) established the federal rules to govern state certification and licensing of real estate appraisers. The guidance is published in The Uniform Standards of Professional Appraisal Practice (USPAP). In 2009, the Home Valuation Code of Conduct (HVCC) was developed and included provisions to isolate parties with a financial interest from selecting or retaining appraisers for a related mortgage loan transaction. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Rules) phases out the HVCC, and it includes appraiser independence requirements similar to the HVCC. Dodd-Frank Rules also amend Regulation Z – Truth in Lending Act appraiser independence requirements. The final Regulation Z rule for appraisal requirements on higher-priced mortgage loans (HPML) was issued by the Consumer Financial Protection Bureau (CFPB) in January 2013 and became effective January 18, 2014.
Higher-priced mortgage loans are defined in Regulation Z as closed-end mortgage loans secured by the consumer’s principal dwelling with an annual percentage rate (APR) that exceeds the average prime offer rate (APOR) for comparable transactions by these thresholds:
- 1.5 percentage points for a first lien conforming residential mortgage loan;
- 2.5 percentage points for a first lien jumbo residential mortgage loan (for applications received after 6/1/2013); or,
- 3.5 percentage points for a subordinate lien residential mortgage loan.
The final Regulation Z rule prohibits creditors from extending credit in the form of a HPML to a consumer unless the credit ensures appraisals meet specified standards including appraiser independence requirements, provides a notification about the appraisal(s) to the loan applicant(s), and provides a copy of the appraisal(s) used. The rule includes the following requirements for the creditor:
- Obtain a written appraisal performed by a certified or licensed appraiser who conducts a physical property visit of the interior of the property.
- Obtain an additional appraisal from a different certified or licensed appraiser if the HMPL finances the purchase or acquisition of a property from a seller at a higher price than the seller paid, if the seller purchased the property within 180 days of the sale to the current applicant(s). The second appraisal must include:
- Analysis of the difference in sale prices;
- Changes in market conditions; and,
- Any improvements made to the property between the date of the previous sale and the current sale.
The creditor for a HPML must also:
- Provide the applicant(s), at the time of initial application, with a statement that any appraisal prepared for the mortgage is for the sole use of the creditor, and that the applicant may choose to have a separate appraisal conducted at the applicant’s expense.
- At least three days prior to the loan closing date, provide the applicant with one copy of each appraisal conducted for the HPML without charge.