Regulators Propose Appraisal Rules for High-Risk Loans

August 16, 2012

Six federal regulatory agencies have proposed new appraisal standards for high-risk mortgages that aim to give borrowers more information about their loans. 

The Federal Reserve, along with five other federal agencies, have recommended adopting rules that would require lenders to use certified or licensed appraisers who prepare written reports that must be based on a physical inspection of the home. The proposal, if approved, also would require creditors to disclose to the borrower the purpose of the appraisal and supply them with free copies of the appraisal reports afterwards. 

If the seller had purchased the property for a lower price in the last six months, creditors would also be required — at their cost — to get an additional appraisal of the property. That guideline is aimed at preventing flipping and ensuring the property’s value really did increase in that timeframe, according to a press release by the Fed. 

The new appraisal proposal would only apply to mortgages deemed “high-risk,” which under the Dodd-Frank Act is defined as mortgages that “are secured by a consumer’s home and have interest rates above a certain threshold.”

The Fed is seeking comments on the new rules until mid-October. 

Besides the Fed, the rules were proposed by the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency.

Source: Federal Reserve