Tough Appraisal Rules Proposed for ‘High Risk’ Mortgages

Federal banking regulators are seeking public comment on a proposed rule that would impose new appraisal requirements on lenders when they charge homebuyers a higher than normal mortgage rate.

In a “high risk” mortgage transaction, the lender must obtain a written appraisal from a certified or licensed appraiser who conducts an onsite inspection that includes the interior of the house.

The appraisal is required when the annual percentage rate exceeds the average prime rate by 1.5 percentage points on a conforming mortgage and by 2.5 percentage points on a loan with a principal balance that exceeds the conforming loan limit.

The appraisal requirements are mandated under the Dodd-Frank Act. The comment period ends shortly.  

In cases where a property is being flipped or sold within 180 days, the lender has to obtain a second appraisal with an analysis of the previous sales price, improvements to the property and changes in market conditions.

Lenders will be able share these appraisals with borrowers and suggest that they obtain their own appraisal. However, lenders will be required to provide the borrower with “one copy of each appraisal conducted in accordance with these requirements without charge, at least three days prior to the transaction closing date,” according to the regulators.