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Banking Bulletin: New Year Brings New Mortgage Regulations

1/13/2014

The Higher-Priced Mortgage Loans (HPML) Appraisal Rule, part of Regulation Z, goes into effect on January 18th of this year. At that time, many lenders will begin using the exemption relating to “certain streamlined refinancings” in order to avoid the implications of the HPML Appraisal Rule. See 12 CFR § 1026.35(c)(2)(vii).

It should be noted, however, that any lender subject to regulation by a federal financial regulatory agency will remain subject to the applicable FIRREA regulations and the Interagency Appraisal and Evaluation Guidelines. Therefore, such institutions will still be required to obtain an appraisal or “evaluation” for all refinanced loans – even if the loan qualifies for an exemption from the HPML Appraisal Rule.

Complicating matters, the Equal Credit Opportunity Act (Regulation B), 12 CFR § 1002.14, also is being revised on January 18, 2014 to read:

§ 1002.14 Rules on providing appraisals and other valuations.

(a) Providing appraisals and other valuations. (1) In general. A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling.

Previously, the phrase “other valuations” was not included in the language of section 1002.14(a); but the inclusion of “other valuations” clearly means that even in-house valuations must be provided to the applicant as required by Regulation B. Section 14(b)(3) of the Official Staff Interpretations to section 1002.14 clarifies this, stating that a “valuation” includes a “document prepared by the creditor's staff that assigns value to the property.”

Because FIRREA regulations require a valuation, and because Section 1002.14(a) requires the lender to “provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier,” financial institutions should consider adding certain disclosures to any valuation sent to applicants.

The Adams and Reese Banking and Finance Team will continue to monitor these regulations.