Summary of Reg B Appraisal Rules Effective from 2014
- Coverage of Appraisal: The appraisal rules apply to all appraisals and other written valuations developed in connection with the loan application. It includes any estimate of the value of a dwelling developed in connection with an application for credit. Read more in the What is an Appraisal or Other Written Valuation section below.
- Coverage of Loans: The appraisal rules apply to an application for a first lien loan secured by one-four unit residential structure, whether or not that structure is attached to real property. It includes single family residences, individual condominium or cooperative unit, a mobile home, or manufactured home. Read more in the Type of Loans Covered under the Reg B Appraisal Rule section below.
- Appraisal Disclosure
- Delivery: Lender must disclose to applicants that they will receive copies of appraisals and other written valuations. This replaces the previously used Right to Receive Copy of Appraisal Report.
- Timing: The appraisal disclosure must be mailed or delivered within 3 days from date of receipt of mortgage application.
- Form: Reg B provides model language for this disclosure in the Appendix C, Form C-9—Sample Disclosure of Right To Receive a Copy of Appraisals.
Read more on Appraisal Disclosure.
- Delivery: Lenders need to deliver the appraisal and other written valuations to the applicant. Delivery occurs three business days after mailing or delivering the copies to the last-known address of the applicant, or when evidence indicates actual receipt by the applicant, whichever is earlier.
- Timing: Appraisal and other valuations must be provided promptly upon completion, but no later than three business days prior to loan consummation or account opening, whichever is earlier. “Completion” occurs when the last version is received by the creditor, or when the creditor has reviewed and accepted the appraisal or other written valuation to include any changes or corrections required, whichever is later. “Promptly” has not been defined in the regulation, other than being dependent upon facts and circumstances. However, based on the examples in the official interpretations to Regulation B and industry practices, the rule of thumb is seven calendar days. Delays delivery beyond seven days after completion may become questionable.
- Waiver: The requirement to deliver the appraisal three business days prior to loan consummation can be waived by the applicant. By providing a waiver the applicant can agree to receive the appraisal at or before consummation or account opening. There are two types of waiver and they are described below.
- Waiver Received Three Business Days Prior To Closing: If a waiver is received at least three business days prior to consummation or account opening, then the appraisal or written valuation can be provided at or before consummation or account opening, whichever is earlier. If the waiver is not received three days prior to consummation, then the closing must be delayed so that it occurs three days after the delivery of appraisal.
- Waiver Received During the Three Business Days Prior To Closing: This waiver applies solely to the delivery of a revised appraisal that is amended for clerical changes from the previous version that was delivered. In this case, assuming the waiver is received during the three business days prior to loan consummation, the timing requirement for the delivery of the revised appraisal can be waived if the following conditions are met:
- An appraisal or other written valuation was previously provided to the applicant
- The previous appraisal was provided at least three business days prior to consummation or account opening
- The revised appraisal is amended only for clerical changes from the previous version that was delivered. Clerical changes refer to changes that do not cause a change the valuation. In other words, the waiver applies only to providing a revised appraisal where the estimate of property value has not changed and no changes were made to the calculation or methodology used to derive the value estimate. If the revised appraisal has a change in value, then the lender must provide the revised appraisal and postpone closing to three days after providing the revised appraisal.
- Loan Subsequently Does Not Close: If the applicant provides a waiver and the transaction is not consummated or the account is not opened, the lender must provide the copies of the appraisal or other valuation no later than 30 days after the lender determines consummation will not occur or the account will not be opened.
- Coverage: The waiver is only for the timing of receipt of appraisal. It does not waive the right to receive the appraisal. Therefore, with the waiver, the lender does not need to wait for at least 3 days prior to loan closing. However, the appraisal still needs to be provided to the applicant at or before consummation or account opening, whichever is earlier.
- Form of Waiver: Waiver can be received orally or in writing. We recommend a written waiver.
- Cost of Appraisal: Fee reflecting reasonable cost of appraisal may be charged.
- Cost of Delivery: No fee can be charged for delivering the appraisal. Therefore, photocopy, postage, and other delivery fee cannot be charged.
- E-Sign: The appraisal can be delivered electronically to the applicant subject to the compliance with the requirements of E-Sign Act.
- Multiple applicants: If there is more than one applicant, the disclosure and the appraisal need only be given to one applicant. However, it must be given to the primary applicant where one is readily apparent.
Effective Date for the Implementation of Appraisal Rules
The new appraisal rules are effective for any mortgage loan application received on or after January 18, 2014. Applications that were in progress prior to Jan 18, 2014 can comply with previous Reg B appraisal rules.
Consumer Financial Protection Bureau (CFPB) changed the appraisal rules in Regulation B on January 18, 2013. The amendments were published in the Federal Register on January 31, 2013, in 78 FR 7248.
Type of Loans Covered under the Reg B Appraisal Rule
Appraisal process is applicable for the loans that meet the requirements below.
- First Lien loans.
- Loan secured by dwelling. Dwelling is defined as one to four unit residential structure, whether or not that structure is attached to real property. It includes single family residences, individual condominium or cooperative unit, a mobile home, or manufactured home.
- The loan may be for any purpose. It includes purchase or refinance and commercial and consumer purpose loans.
- Applies to both open end and closed end credit. Therefore, in addition to mortgage loans, first lien Home Equity Lines of Credit (HELOC) and first lien Home Equity Loans (HEL) are covered.
- Occupancy does not matter. The rules apply irrespective of whether the property is owner occupied or investment property.
- The rules apply to renewals if new appraisal or other written valuation is being developed in connection with the renewal application. The rules do not apply if the lender is relying on appraisal or other written valuations that were previously developed for the loan.
- Loan modification and other loss mitigation transactions, as long as they are considered as extensions of credit under Regulation B.
- Reverse mortgages.
- Time share loans, if they are considered as extensions of credit under Regulation B.
What is an Appraisal or Other Written Valuation?
Appraisal and other written valuations include “any estimate of the value of a dwelling developed in connection with an application for credit.”
Therefore, it includes appraisal report, Automated Valuation Models (AVM), Broker's Price Opinion (BPO), desktop reviews or other appraisal reviews that come up with a value estimate, and any other written valuation developed internally or by a third party. A value estimate by the lender’s staff would also be included.
The key is to recognize that the Reg B applies to appraisal or written valuation that was developed for the loan application. The use of appraisal is not the criteria.
Zillow and Trulia property values are not valuations because they were not developed for the loan application. These are publically available data. However, if the lender uses these values along with other data to come up with a property valuation then such valuation would be covered by the appraisal rules.
Attachments and exhibits
The term “valuation” includes any attachments and exhibits that are an integrated part of the valuation.
Regulation B Examples of Valuations
- A report prepared by an appraiser (whether or not licensed or certified) including the appraiser's estimate of the property's value or opinion of value.
- A document prepared by the creditor's staff that assigns value to the property.
- A report approved by a government-sponsored enterprise for describing to the applicant the estimate of the property's value developed pursuant to the proprietary methodology or mechanism of the government-sponsored enterprise.
- A report generated by use of an automated valuation model to estimate the property's value.
- A broker price opinion prepared by a real estate broker, agent, or sales person to estimate the property's value.
Regulation B Examples of Documents that are NOT Valuations
- Internal documents that merely restate the estimated value of the dwelling contained in an appraisal or written valuation being provided to the applicant.
- Governmental agency statements of appraised value that are publically available.
- Publicly-available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges).
- Manufacturers' invoices for manufactured homes.
- Reports reflecting property inspections that do not provide an estimate of the value of the property and are not used to develop an estimate of the value of the property.
- Appraisal reviews that do not include the appraiser's estimate of the property's value or opinion of value.
Multiple Versions and Multiple Appraisals
Multiple Versions of Appraisals or Valuations
If the lender has received multiple versions of an appraisal or other written valuation, then the lender is required to provide only a copy of the latest version received. However, if the lender has provided a copy of the appraisal and it is subsequently revised, then the revised appraisal must also be delivered to the applicant promptly upon completion of the revised appraisal and at least three days before consummation.
Multiple Appraisals or Valuations
The rule applies to “all” appraisals and written valuations developed for the loan. Therefore, if more than one appraisal or written valuation is obtained for the loan, then each appraisal or written valuation must be provided to the applicant. For example, if you received an appraisal on Jan 15 and an AVM on Jan 25, then both the appraisal and AVM must be provided to the applicant. Using the seven day rule of thumb for “promptly upon completion”, the appraisal should be delivered by Jan 22 and the AVM by Feb 1.
Complying with New Regulation B Rules
Loan originators, loan processors, underwriters, and especially closing department must be trained on the new requirements. Processors and underwriters need to be mindful to deliver the appraisal once they have received and reviewed it. Any corrections should be promptly ordered to ensure it does not affect the timing for loan closing. The trainings should also cover the new process for handling waivers. It is important that the staff understands what the waiver covers and the timing requirements for the waiver.
You should consider implementing the following upgrades to the loan origination system (LOS) and other related platforms:
- Configuring the system to send the Appraisal Disclosure and the Appraisal as per the new timing requirements.
- The system should ensure that the electronic delivery of appraisal is complies with E-sign.
- The system should have the ability to generate warnings/flags to alert if the time lines for the delivery of the appraisal or the appraisal disclosure are not met.
- The system should include the work flow for handling the waivers.
- New data fields should be added such as Date Appraisal Received, Date Appraisal Provided, and Date of Receipt of Waiver.
Revise Process and Procedures
Processes need to be amended to reflect the new requirements. It would touch areas of disclosure delivery, appraisal delivery, processing waivers, quality control checks, and loan officer communications. Relevant procedures should be amended to reflect the new processes.
- Appraisal Disclosure: The Appraisal Disclosure needs to be developed which replaces the Right to Receive Copy of Appraisal Report. Reg B provides the model language for the Appraisal Disclosure.
- Waiver: You may also consider developing a template for the waiver that can be provided to the applicant if one is needed.
If you use a vendor for delivery of the appraisal by mail, then you should closely monitor the vendor after the implementation phase to ensure that the process is working as designed.
Compliance and Internal Audit reviews
The internal audit and compliance should review the processes and controls related to appraisals to ensure that they are operating effectively to meet the new regulatory requirements