Today, the CFPB posted a video presentation on YouTube, explaining the recently-published, final ECOA and TILA appraisal rules. Watch the video here. In our humble opinion, it's 1 minute and 57 seconds well spent.
Late yesterday, the CFPB published compliance guides for its ECOA Valuations Rule and the TILA Higher-Priced Mortgage Loans (HPML) Appraisal Rule. Both rules were finalized in January of this year and take effect in January of 2014.
CFPB ECOA Valuations Rule Compliance Guide
CFPB TILA HPML Appraisal Rule Compliance Guide
In publishing the guides, the CFPB's goal is to "provide an overview of the rules in a plain language and FAQ format which makes the content more accessible and consumable for a broad array of industry constiuents, especially smaller businesses with limited legal and compliance staff."
Appraiser Blacklisting and Defamation
This oversight of who is going to be taken off an approved appraiser list or placed on an exclusionary list comes from a whole host of lawsuits that have occurred regarding “blacklisting” appraisers because there was some determination made that they weren’t returning appropriate values.
Defamation actions refer to taking an appraiser off a list for a reason that is not substantiated as a violation. This comes from allegations that some banks broadcasted to the community that an appraiser on an exclusionary list had done something wrong and the appraiser sued for defamation, in some cases successfully.
See our “Best Practices for Working With Appraisers” blog post for our suggested best practices.
This blog is provided for your information only and does not constitute legal advice. It may not reflect new or recent changes in regulation. No representation or warranty is made as to the accuracy or completeness of the content.
At MountainSeed, we work with lenders to help them understand the ever-changing regulatory environment and anticipate legislative changes. We are also committed to developing sustainable, long-term solutions that are mutually beneficial to our bank clients and to the appraisal community. If you have any questions about our services or anything in this blog, please contact MountainSeed Appraisal Management at (855) 640-0905 or visit mountainseed.com.
In a blog post last week, we alerted you that the agencies had released a new, 211-page proposal to implement Dodd-Frank Section 1471, which added Section 129H to the Truth in Lending Act. That section imposes tougher appraisal requirements on higher-risk mortgage loans. The next day, we circulated our preliminary analysis of the proposal.
Click here to download the whitepaper.
In an earlier post -- that also appeared in National Mortgage News -- we discussed the Dodd-Frank appraisal provisions governing higher-risk mortgages and reminded you that the interagency workgroup was currently drafting a new proposed rule to implement it. Today, the agencies released that proposed rule. A copy of the rule and FDIC press release are available here:
Bankers and other stakeholders will have until mid-October to submit comments. Please check back shortly for more detailed analysis of the proposed rule.
Some of you may have seen our earlier post on the new proposed CFPB rules governing the combined TILA/RESPA disclosures. You may not have seen the insuing discussion in the comments on the extent to which it might affect fees paid both to AMCs affiliated with the creditor and independent, third-party AMCs. (Thanks to Jeff for getting the thread started.)
Here's the key point, as I see it. Your bank will need to become familiar with the new CFPB rules. You need to realize that in certain situations, your bank will be expected either to work to prevent any increase in certain fees between the initial disclosure and closing-- again, refer to the discussion in the comments to our earlier post for some opinions on the extent to which appraisal and AMC fees might be covered -- or to eat those fees.
Assuming the new rules would affect the appraisal and AMC fees you currently pass through to your borrower, what kind of challenges would a zero percent tolerance policy present? How are you planning to address those challenges? Let us know. Or pose a question and we'll offer our thoughts.
(And remember you still have a few months to get comments to the CFPB on the proposal. Let your voice be heard.)
By: Nathan C. Brown, Chief Legal Officer, MountainSeed Appraisal Management, LLC
Copyright © 2012, MountainSeed Appraisal Management, LLC. All Rights Reserved.
(NOTE: This article also appeared in National Mortgage News)
The Consumer Financial Protection Bureau recently released its proposed rule on integrated mortgage disclosures, providing some direction about where the agency is headed as it creates the new mortgage lending rulebook. That is the good news. The not-so-good news is that the proposed rule, while is meant to simplify and align relevant Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) requirements, presents potential compliance challenges for appraisers, appraisal management companies (AMCs) and lenders, specifically when it comes to fees.
The biggest change in the appraisal space may be the elimination of what "wiggle room" remained in appraiser and AMC fees following the 2008 revised RESPA rules that became effective in 2010. Those 2008 RESPA rules provided, generally, that the sum of charges for so-called lender-required settlement services, like AMC and appraiser fees, could not increase by more than 10 percent between the initial good faith estimate and the final closing statement. Under limited “changed circumstances” an originator may provide a revised GFE.
The new CFPB proposal—which creates new, simplified disclosure and closing statements—appears to restrict lender-required settlement charges to a 0% tolerance. In other words, appraiser and AMC fees as stated on the closing statement must match exactly the fee quoted on the initial disclosure, again subject to some limited ability to revise the disclosure when circumstances change.
This could be a challenge. USPAP (Uniform Standards for Professional Appraisal Practice) views an appraiser’s scope of work obligations as an ongoing process – one subject to revision during the development of the appraisal. Appraisers will need some flexibility to adjust their pricing accordingly. Appraisers and lenders do have some hope on this front, as buried near the back of the rule—on page 964 of the version of the proposed rule available on the CFPB’s website and blog—is an example explaining at least one circumstance where revisions to scope of work (caused by the borrower providing misleading information about the nature of the property) might actually rise to the level of a “changed circumstance” justifying a revision to the initial disclosure. To compare matters, the supplemental information to the 2008 RESPA rule, as published in the Federal Register, included an example with the opposite result – where an appraiser raised his fee by $50 after the GFE. In that example, it was suggested that the originator would not be able to pass along that increase to the borrower. This issue is one to watch for appraisers, lenders and AMCs as we begin the process of analyzing the massive new rule.
There are other questions, too. To what extent will appraisal and AMC fees count towards the new definition of "finance charge"—or APR—under the CFPB’s new rules? The new rule suggests that all such fees will be lumped in. If that’s the case, more loans may fail the “qualified mortgage” test under ability-to-repay provisions and the new rules currently being written on appraisal requirements for high-cost mortgages (we wrote about those in an earlier post), and more loans may become subject federal and state high-cost loan rules. Based on commentary included in the new proposed rule, the CFPB appears to be aware of the possible ramifications and references potential “fixes.”
Another hot-button issue addressed implicitly in the new rule is the reporting of appraiser and AMC fees on the disclosure and closing statement. The Appraisal Institute and other appraiser trade organizations had issued several comment letters in the months leading up to the proposal arguing that the CFPB should mandate that originators separately report the AMC and appraiser fee (as opposed to lumping them into a single appraisal fee). Dodd-Frank includes a provision that makes separate disclosure optional, and the CFPB’s new rule follows the Dodd-Frank provision. In the last few days, the Appraisal Institute has reported that the CFPB gave them a statement indicating that the CFPB’s intention was to follow Dodd-Frank. Occasionally, over the last few years, statements had appeared in testimony from the Appraisal Institute suggesting that they favored a strict prohibition on lenders passing through AMC fees. However, the new CFPB rule permits lenders to pass AMC fees through to borrowers.
Given the shear mass of the proposed rule (weighing in at some 1,100 pages) it will take weeks, if not months, for analysts and experts to dig through and process exactly how the proposal may affect appraisal and AMC fees. And, of course, the rule is still subject to public comment, and won’t be finalized for months. But lenders, appraisers and AMCs need to pay attention to these issues, digest the proposal, and let their voice be heard.
DISCLAIMER: The author, Nathan C. Brown, is Chief Legal Officer at MountainSeed Appraisal Management, LLC. MountainSeed, and its affiliates, offer valuation-related products and services to banks. The article is not legal advice. It’s for your information only. Neither the author nor MountainSeed makes any representation or warranty as to the accuracy or completeness of the content. You should always consult your regulator or a licensed attorney in your jurisdiction with questions relating to compliance with any law, guidance, rule, or regulation. Please don’t hesitate to send any questions, comments or corrections to the author at email@example.com.
With all the attention to the new appraisal independence requirements in Section 129E of the federal Truth in Lending Act (TILA) that became effective in April of 2011, it can be easy to forget that more Dodd-Frank-based appraisal regulations are coming. For example, Dodd-Frank’s Section 1471 amended TILA to add the new Section 129H. Section 129H imposes so-called “super-appraisal” requirements as a condition to extending credit in certain higher-risk mortgage loans, and the interagency work group is currently drafting a rule to implement the requirements...
Continue reading this post that we wrote for National Mortgage News:
New Dodd-Frank Requirements for AVMs
By: Nathan C. Brown, Chief Legal Officer, MountainSeed Advisors, LLC
Copyright © 2012, MountainSeed Advisors, LLC. All Rights Reserved.
If your head is spinning after our quick trip through the AVM regulations and validation requirements in the revised Interagency Appraisal and Evaluation Guidelines, you may be surprised to learn that there are more AVM-related regulations coming, and they will apply more broadly to residential mortgage loans not otherwise covered by the interagency guidelines.
Section 1473(q) of Dodd-Frank amends FIRREA Title XI to add new section 1125. FIRREA Section 1125 requires the FHFA, the CFPB, the OCC, the FDIC, and the NCUA, in consultation with the federal Appraisal Subcommittee (ASC) – the ASC is a subcommittee of the FFIEC – and the Appraisal Standards Board (ASB) – the ASB is best known for its role in drafting and revising USPAP – to write regulations implementing quality control standards for AVMs.
What will the regulations say?
While we don’t know exactly what those regulations will say when they’re published, Dodd-Frank does give some general guidelines for what those rules need to address, including ensuring high levels of confidence in the results, protecting against data manipulation, avoiding conflicts of interest, requiring random sampling and reviews, and accounting for other factors as determined by the agency. It’s a good bet that they will include validation requirements and otherwise borrow concepts from the interagency guidelines.
When will those regulations be effective?
Dodd-Frank sets a deadline for publishing the regulations -- January of 2013 -- and the regulations will have to be effective within a year after that. So we expect the regulations to take effect some time in 2013.
Who and what transactions will be subject to these AVM regulations?
Dodd-Frank defines an AVM, for purposes of the new FIRREA Section 1125-based regulations as “[A]ny computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling.”
While the details of which AVMs will be subject to these requirements will be fleshed out in the regulations themselves, the key point is that these regulations will apply primarily to AVMs used by originators and secondary market issuers in connection with mortgages secured by a consumer’s principal dwelling. (You’ll recognize that language from certain TILA standards.)
Who will enforce these AVM regulations?
For banks and other regulated financial institutions and subsidiaries of regulated financial institutions, these new AVM regulations will be enforced by their primary federal regulator. With respect to other non-bank participants in the market, the regulations will be enforced by the FTC, the CFPB and state attorneys general.
The next post will highlight new ECOA rules being drafted in response to mandates in Dodd-Frank that beef up requirements to share valuation reports, specifically including AVMs, with consumer borrowers.
DISCLAIMER: The author, Nathan C. Brown, is Chief Legal Officer at MountainSeed Advisors, LLC. MountainSeed, and its affiliates, offer valuation-related products and services to banks. The article is not legal advice. It’s for your information only. Neither the author nor MountainSeed makes any representation or warranty as to the accuracy or completeness of the content. You should always consult your regulator or a licensed attorney in your jurisdiction with questions relating to compliance with any law, guidance, rule, or regulation. Please don’t hesitate to send any questions, comments or corrections to the author at firstname.lastname@example.org.
There are many federal agencies that are regulating appraisals and will govern each financial institutions appraisal management and independence requirements. We found it helpful to walk through what these federal agencies are and how the new and old appraisal regulations will be changing in the future.