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Final Rule on Appraisals for Higher Priced Mortgage Loans (HPML)

January 18, 2013

The Federal Reserve Board, along with five other federal regulatory agencies, issued a final rule to impose appraisal requirements for loans secured by a borrower’s home and bearing interest rates higher than the average prime offer rate (APOR) for comparable properties and mortgages.  Certain HPML loans are exempt from this rule including: qualified mortgages, reverse mortgages, loans secured by new manufactured homes and by mobile homes, boats or trailers, new construction loans and bridge loans.  The final rule is effective on Jan. 18, 2014.  

All other HPML loans will now require creditors to use a licensed or certified appraiser who prepares a complete report on a physical inspection of the property.  Applicants for a loan must be furnished a free copy of any appraisal.

In an effort to prevent fraudulent property flipping, the rule requires creditors to obtain an additional appraisal at no cost to the applicant if the property has been acquired 1) within 90 days and the resale price exceeds the seller’s acquisition price by more than 10 percent; or 2) within 91 to 180 days of acquiring it and the resale price exceeds the seller’s acquisition price by more than 20 percent.  The rule includes an exemption for rural areas as requested by the National Association of REALTORS® in response to the proposed rule.  Additional exemptions include state and local government agencies, service members, and federal disaster areas.

The Agencies intend to publish a supplemental proposal to request comment on possible exemptions for “streamlined” refinance programs and small dollar loans, as well as to seek comment on whether application of the rule to loans secured by certain other property types, such as existing manufactured homes, is appropriate.