Agencies Approving Tougher Appraisal Rules on High-Cost Mortgages

The Federal Deposit Insurance Corp. has approved a final rule that imposes new appraisal requirements on lenders in mortgage transactions where the homebuyer is being charged a higher-than-normal mortgage rate.

This high-risk appraisal rule is mandated by the Dodd-Frank Act to prevent appraisal fraud and flipping.

In a “higher-priced mortgage loan” transaction, the lender must obtain a written appraisal from a certified or licensed appraiser who conducts an on-site appraisal that includes a walk through the interior of the house.

“Lenders must obtain a second appraisal at no cost to the consumer from a different appraiser if the seller acquired the property at a lower price during the prior six months,” an FDIC staffer told the FDIC board of directors Tuesday morning.

The lenders must tell the borrower the purpose of this appraisal and provide a free copy of the appraisal at least three days prior to closing.

The final rule defines a higher-priced mortgage loan based on the annual percentage rate and its relation to the average prime offer rate (APOR).

A first mortgage with an APR that exceeds the APOR on a comparable transaction by 1.5 percentage points will trigger the high-risk appraisal requirements. On jumbo loans, the trigger is 2.5 percentage points and on subordinated liens it is 3.5 percentage points.

Other federal banking and GSE regulatory agencies are expected to approve the appraisal rule soon. The final rule goes into effect Jan. 18, 2014.