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On September 27, the OCC, the Federal Reserve Board, and the FDIC announced a final rule increasing the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. As previously covered by InfoBytes, in November 2018, the agencies proposed the threshold increase in response to feedback that the exemption threshold had not increased to keep pace with the price appreciation in the residential real estate market. The final rule also includes the rural residential appraisal exemption included in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here), and implements the Dodd-Frank Act mandate that institutions appropriately review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice. The final rule is effective the first day after publication in the Federal Register, except for the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the requirement to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice, which are effective January 1, 2020.
On September 16, the OCC issued Bulletin 2019-43, “Appraisals: Appraisal Management Company Registration Requirements,” which reminds covered institutions of the new registration requirement for appraisal management companies (AMC) that became effective on August 10. Specifically, under 12 CFR 34, subpart H, AMCs are now required to register with the state or states in which they do business; however, an AMC that is owned and controlled by an insured depository institution and regulated by the OCC, Federal Reserve Board, or FDIC is not subject to the registration requirement. The Bulletin reminds covered institutions that they should conduct sufficient due diligence to confirm that third-party AMCs are registered as required, including (i) checking the Appraisal Subcommittee of the Federal Financial Institutions Examination Council’s (ASC) national AMC registry; (ii) checking the relevant state’s AMC registry if the AMC is not listed on the national registry; and (iii) if no electronic registry check is available, requesting evidence of registration directly from the AMC. Moreover, if a covered institution determines that a federally related transaction is in a state that is not registering AMCs, an institution may instead use an individual appraiser, a staff appraiser employed by the institution, a smaller AMC not subject to the regulation, or a federally regulated AMC.
On December 4, Fannie Mae issued SEL-2018-09, which announces updates to the Selling Guide, including a new self-employment income calculation tool and an updated policy for appraisal waivers for disasters. Specifically, the guide now addresses the use of an approved vendor tool to assist lenders in calculating self-employment income: Fannie Mae “will provide representation and warranty enforcement relief on the accuracy of the calculation of the amount of self-employment income” to lenders that use this tool and enter the income calculated into Fannie Mae’s Desktop Underwriter. Additionally, the guide now allows lenders to exercise appraisal waiver offers on loans in process at the time of a disaster. If a property was damaged during a disaster, but the damage does not affect the safety, soundness, or structural integrity of the property and the repair items are covered by insurance, the lender may still deliver the loan to Fannie Mae; however, the lender must obtain a cost estimate for the repair and ensure that funds are available to the borrower to guarantee the completion of the repairs. The appraisal waiver change is available starting on or after the weekend of December 8. Among other things, the updates also include changes to (i) commission income and unreimbursed business expenses; (ii) Desktop Underwriter Version 10.3; (iii) small business administration loans; and (iv) duplicative provisions regarding flood insurance coverage.
On November 29, FHA announced that the protocols in place for the second appraisal requirement for certain reverse mortgage transactions are now fully automated. As previously covered by InfoBytes, in September, FHA announced that it would require a second appraisal for certain Home Equity Conversion Mortgage (HECM) transactions (also known as “reverse mortgages”) to mitigate the risk that valuation of the collateral poses to FHA borrowers and the Mutual Mortgage Insurance Fund, according to Mortgagee Letter 2018-06. FHA will perform a collateral risk assessment of the appraisal prepared for use in all reverse mortgage originations; whether a second appraisal is required will depend on the results of the assessment. Now, once an appraisal is logged into the system, a lender will immediately receive a message indicating whether a second appraisal is required or not required.
On November 23, the CFPB, OCC, and the Federal Reserve Board published a final rule in the Federal Register, which increases the smaller loan exemption threshold for the special appraisal requirements for higher-priced mortgage loans (HPMLs) under TILA. TILA requires creditors to obtain a written appraisal based on a physical visit to the home’s interior before making a HPML, unless the loan meets or is less than the threshold exemption. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold for 2019 is $26,700, up from $26,000. This final rule is effective January 1, 2019.
On November 20, the OCC announced a joint notice of proposed rulemaking with the Federal Reserve Board and the FDIC, which raises the threshold for residential real estate transactions requiring an appraisal to $400,000 from its current level of $250,000. According to the OCC, the proposal is in response to feedback that the current exemption threshold has not increased to keep pace with the price appreciation in the residential real estate market. The proposal includes the rural residential appraisal exemption included in the Economic Growth, Regulatory Relief, and Consumer Protection Act (previously covered by InfoBytes here). Additionally, among other things, the proposal implements the Dodd-Frank Act mandate that institutions appropriately review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice. Comments will be due 60 days after publication in the Federal Register.
On October 16, the FDIC, Federal Reserve Board, and the OCC issued FAQs to offer additional clarification concerning appraisal and evaluation functions set out in the 2010 Interagency Appraisal and Evaluation Guidelines, the 2016 Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions, and other related regulations, guidance, and advisories. (See FDIC FIL-62-2018 and OCC Bulletin 2018-39.) The FAQs—which do not introduce new policy or guidance—address a range of topics including (i) regulatory and statutory requirements applicable to appraisal and evaluation programs; (ii) financial institutions’ review of appraisal and evaluation programs; (iii) appraisal exemptions; (iv) development of appraisals and evaluations, including relevant policies and procedures; and (v) appraisal independence.
On September 28, FHA announced that it will require a second appraisal for certain reverse mortgage transactions. The purpose of this requirement, according to Mortgagee Letter 2018-06, is mitigation of the risk that valuation of the collateral poses to FHA borrowers and the Mutual Mortgage Insurance Fund. FHA will perform a collateral risk assessment of the appraisal prepared for use in all Home Equity Conversion Mortgage (HECM) originations (also known as “reverse mortgages”); whether a second appraisal is required will depend on the results of the assessment. A mortgagee may not approve or close a transaction until a second appraisal, if required, is obtained. If the second appraisal provides a lower value, the mortgagee must use the lower value in the origination of the HECM. The new requirements are effective for all HECM originations with FHA case numbers assigned on or after October 1 through September 30, 2019. FHA will evaluate these program changes at six and nine months to determine if it should extend the requirements beyond the current end date.
On September 4, Fannie Mae issued SEL-2018-07, which announces updates to its Selling Guide including, among other things, the introduction of rural high-needs appraisal waivers. The rural high needs appraisal waiver is contingent on obtaining a home inspection to confirm safety, soundness, and structural integrity consistent with Fannie’s property condition guidelines. The waiver is available on a limited basis for purchase transactions containing certain characteristics, such as borrowers with income at or below 100 percent of the area median income and property located in designated rural-high needs areas, as defined by Fannie’s “Duty to Serve” obligations. Additionally, the Selling Guide includes updates to (i) the name of the property inspection and property field work waivers; (ii) liability and fidelity/crime insurance for projects; (iii) single-entity ownership of co-op projects; and (iv) the approved mortgage insurers list and mortgage insurance forms.
Fannie Mae issues Selling Guide updates, removes requirement to use Market Conditions Addendum for appraisals
On August 7, Fannie Mae issued Selling Guide update SEL-2018-06, which announces, among things, the removal of the requirement to use the Market Conditions Addendum (Form 1004MC) for appraisals and clarification of the policies regarding disbursement of HomeStyle Renovation funds. Specifically, effective immediately, the Selling Guide provides that lenders are no longer required to use Form 1004MC for appraisals as the agency’s Collateral Underwriter program provides market trend information for lenders and Fannie Mae to measure and manage market risks. However, appraisers remain responsible for analyzing market conditions and reporting them in the Neighborhood section of Fannie Mae’s appraisal forms. The update also clarifies that for HomeStyle Renovation funds disbursed using a wire transfer, the lender must obtain written consent to release the funds. Additionally, the update clarifies that all mechanics liens must be cleared or waived by the final disbursement of funds—a lien waiver is not required at each disbursement stage. The announcement also notes that the previously released information regarding Fannie Mae’s high loan-to-value refinance option (covered by InfoBytes here) is now available in the Selling Guide.
- Jonice Gray Tucker to discuss "MCCA's blueprint for selling & buying - A pitch workshop for outside counsel" at the Minority Corporate Counsel Association Creating Pathways to Diversity Conference
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- Daniel P. Stipano to discuss "BSA/AML culture of compliance roundtable" at the FiSCA Annual Conference
- Daniel P. Stipano to discuss "Is there a better way to fight money laundering" at the FiSCA Annual Conference
- Michelle L. Rogers to discuss "What's trending in enforcement" at the Mortgage Bankers Association Annual Convention & Expo
- Kathryn L. Ryan and Moorari K. Shah to discuss "Today's regulatory environment - Are you in the know?" at the Equipment Leasing and Finance Association Annual Convention
- Buckley Webcast: Smoke and mirrors: Navigating the regulatory landscape in banking the marijuana industry
- H Joshua Kotin to discuss "CMS - Components of a successful monitoring program" at the RegList Annual Workshop
- Tim Lange to discuss "Temporary authority to operate - Are you prepared? Hear what the states are doing" at the RegList Annual Workshop
- Sherry-Maria Safchuk to discuss "Cybersecurity" at the RegList Annual Workshop
- Jeffrey P. Naimon to discuss "Hot topics in mortgage origination" at the Conference on Consumer Finance Law Annual Consumer Financial Services Conference
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference