Appraisals for Higher-Priced Mortgage Loans
For higher-priced mortgage loans, or HPML’s, there are new rules on appraisals that will become effective on January 18, 2014. HPML’s are loans that used to be referred to as subprime mortgage loans.
For higher-priced mortgage loans, full interior appraisals are required. This requirement expands consumer protections for HPML’s by adding new appraisal provisions to the Truth in Lending Act.
At the time of application, the borrower must be provided with an appraisal notice. It must state the purpose of the appraisal and inform the borrower that they will receive a copy of the appraisal. The borrower will be charged for the appraisal, and can choose to have a separate appraisal performed at their expense.
As provided in Dodd-Frank, a creditor will only be permitted to make an HPML after the creditor obtains a written appraisal report, and the appraisal is performed by a licensed appraiser. The appraiser must perform a physical property inspection including the interior of the property. The appraisal must be delivered at least 3 days before closing.
Some mortgages and loan types are exempt from the appraisal rules detailed below. Exemptions from these appraisal rules are:
1. Reverse mortgages
2. Loans for initial construction of a house
3. Loans with terms of 12 months or less
4. Loans on manufactured homes
5. Loans secured by a mobile home
A second appraisal, at the lender’s expense, will be required in connection with certain “flipped properties.” The three scenarios are (i) if the seller acquired the home within 180 days of the borrower’s contract of sale, and the borrower is paying 20% more than the seller’s purchase price or (ii) if the seller purchased it 91-180 days earlier and the borrower is paying 10% more than the seller’s purchase price, or (iii) in all cases if the seller purchased the property in the past 90 days.