by Amy Kleinschmit, Director of Compliance

The Consumer Financial Protection Bureau recently issued its final rule regarding appraisal requirements under Regulation B.  This final rule implements requirements from the Dodd-Frank Act. Prior to Dodd-Frank amendments, section 701(e) of the Equal Credit Opportunity Act (ECOA) required creditors to provide credit applicants, upon written request, with copies of appraisal reports used in connection with their applications for a loan secured by residential real property.  Section 1474 of the Dodd-Frank Act replaces the existing section 701(e) with a new provision to require that creditors provide copies of all appraisals and other written valuations to loan applicants, in credit transactions to be secured by a first lien on a dwelling, at no additional cost and without requiring applicants to request the copies.  There are additional appraisal requirements in a separate rule that amends Regulation Z, a summary of this final rule will also appear in an upcoming Memo.

Effective Date: January 18, 2014

Link to Final Rule and CFPB guidance: http://www.consumerfinance.gov/regulations/disclosure-and-delivery-requirements-for-copies-of-appraisals-and-other-written-valuations-under-the-equal-credit-opportunity-act-regulation-b/

The CFPB also developed a summary for consumers (available at the same link) that is helpful to see what the CFPB’s message is to consumers on the topic.

Under this final rule, a creditor is required to 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.  This requirement applies whether credit is extended or denied or if the application is incomplete or withdrawn.  Also, this requirement covers all types of credit, whether the credit is for a business purpose (for example, a loan to start a business) or a consumer purpose (for example, a loan to purchase a home) if it is secured by a first lien on a dwelling.

For purposes of this rule, “dwelling” means residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit, and a mobile or other manufactured home. Also, the term “valuation” as is used in this rule, means any estimate of the value of a dwelling developed in connection with an application for credit.  Examples of valuations include a report prepared by an appraiser (whether or not licensed or certified) including the appraiser's estimate or opinion of the property’s value; a document prepared by the creditor’s staff that a assigns value to the property; a report approved by a government-sponsored enterprise for describing to the applicant the estimate of the property’s value developed pursuant to the proprietary methodology or mechanism of the government-sponsored enterprise; a report generated by use of an automated valuation model to estimate the property’s value; and a broker price opinion prepared by a real estate broker, agent, or sales person to estimate the property’s value.  The term “valuation” also includes any attachments and exhibits that are an integrated part of the valuation.

Examples of documents that are not “valuations” include, internal documents that merely restate the estimated value of the dwelling contained in an appraisal or written valuation being provided to the applicant; governmental agency statements of appraised value that are publically available; publicly-available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges); manufacturers’ invoices for manufactured homes; and reports reflecting property inspections that do not provide an estimate or opinion of the value of the property and are not used to develop an estimate or opinion of the value of the property.

For timing purposes, the appraisal or other written valuation must be provided “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.” “Consummation” for purposes of this rule means the time that a consumer becomes contractually obligated on a closed-end credit transaction. This timing requirement can be waived by an applicant and they therefore agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. However, there are certain requirements under the final rule that the waiver must meet.

Disclosure requirements.  A creditor is required to mail/deliver a written notice of the applicant’s right to receive a copy of all written appraisals developed in connection with the application. This notice must be mailed/delivered to the applicant not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling. If initially an application for credit is not to be secured by a first lien on a dwelling, but the creditor later determines the credit will be secured by a first lien on a dwelling, then the creditor is still required to give notice not later than the third business day after the creditor determines that the loan is to be secured by a first lien on a dwelling.

The final rule does include sample language for this notice, specifically: “We may order an appraisal to determine the property’s value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.”

The creditor cannot charge the applicant for providing a copy of the appraisals or other written valuations, this includes charges for photocopying, postage, or other costs incurred in providing a copy of an appraisal or other written valuation. However, the creditor may require applicants to pay a reasonable fee to reimburse the creditor for the cost of the appraisal or other written valuation unless otherwise provided by law. Copies of the appraisal or valuations may be provided in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act).

Should you have any questions or concerns on this or any other compliance topic, please do not hesitate to contact Amy Kleinschmit at akleinschmit@cuad.coop or 701.214.9721.