How appraisals are affected by new higher-price mortgage rules

One of the many changes heading our way in January 2014 (on the 18th, to be precise) is an amendment to Reg. Z incorporating new provisions concerning appraisals for higher-priced mortgages. Here’s a plain-English breakdown of what’s required.

The NCUA, FDIC, Federal Reserve Board Federal Housing Finance Board and the Consumer Finance Protection Bureau have issued a joint final rule that requires creditors to:

1. obtain an appraisal, and in some cases a second appraisal, which meets specific standards;
2. provide the applicant with a notice regarding the use of the appraisal; and
3. provide the applicant with a copy of the appraisal.

Higher-priced mortgages, as defined in section 1026.35 of Regulation Z, are closed-end mortgage loans secured by the applicant’s primary dwelling and which have an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by:

• 1.5 or more percentage points for loans secured by a first lien with a loan amount at consummation that does not exceed the limit in effect as of the date the transaction’s interest rate is set for the maximum loan amount eligible for purchase by Freddie Mac;
• 2.5 or more percentage points for loans secured by a first lien with a loan amount at consummation that exceeds the limit in effect as of the date the transaction’s interest rate is set for the maximum loan amount eligible for purchase by Freddie Mac; or
• 3.5 or more percentage points for loans secured by a subordinate lien.

However, certain mortgage loans are excluded from this appraisal rule for higher-priced mortgages. They are: