Applicability of Regulation B Appraisal Process
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.
The appraisal process is based on Regulation B rules that are effective for any mortgage loan application received on or after January 18, 2014.
The steps below illustrate the process that would be followed to comply with regulation B. In the process description, we are using word appraisal to include appraisals and all other written valuations.
Step 1: Receipt of Loan Application
The applicant makes a loan application. This is usually done by filling out the Form 1003 and providing it to the lender. The lender records the application date in its system.
Step 2: Deliver Appraisal Disclosure
The lender must mail or deliver the Appraisal Disclosure to an applicant within three business days from the application date. The Appraisal Disclosure can be provided electronically to the applicant without regard to the applicant’s consent or other provisions of the E-Sign Act.
If the application was not for a first lien on a dwelling, but later becomes a loan secured by first lien on a dwelling, then the lender must mail or deliver the appraisal disclosure no later than the third business day after the determination is made that the loan will be secured by first lien on a dwelling. Therefore, any time during the application if the collateral is changed to a dwelling having a first lien position, then the lender must send the appraisal disclosure within three business days.
Step 3: Order Appraisal
The lender orders an appraisal for the loan. Regulation B does not specify the time for when to order the appraisal. However, given the various timing requirements, it is best to order the appraisal at the earliest.
Step 4: Complete Appraisal
The lender receives the appraisal report which is reviewed by the underwriter or an appraisal review department. The purpose of the review is to ensure that the appraisal meets the appraisal standards and there are no mistakes on it. In case of errors, the appraisal sent back for corrections. The appraisal is deemed to be complete when the appraisal with all the corrections is reviewed and is deemed satisfactory for the purpose of the loan. The date of completion should be recorded in the loan origination system.
Step 5: Deliver Appraisal
Regulation B requires the lender to deliver the appraisal promptly upon completion or at least three business days prior to consummation of the transaction or account opening, whichever is earlier. “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 to deliver the appraisal within seven calendar days from the date of completion. Delaying delivery beyond seven days after completion may be questioned by the regulators.
Method of Delivery:
- Electronically: The appraisal can be sent electronically to the applicant subject to the compliance with the requirements of E-Sign Act. In this case the date of delivery of appraisal is the date when the appraisal is received electronically.
- Postal Mail: The appraisal may be sent through postal mail. 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.
Step 6: Waiver Process
The waiver process is mainly concerned with the requirement to deliver the appraisal at least three business days prior to the loan consummation or account opening, whichever is earlier. If the loan consummation or account opening, whichever is earlier, will take place at least 3 business days after delivery of the appraisal then the next step is to consummate the loan. In this case there no need to utilize the waiver process.
In case there is not enough time for consummation, the lender may obtain a waiver from the borrower. The waiver would allow the lender to deliver the appraisal at or before consummation. In other words, it waives the requirement that the appraisal must be delivered at least three business days prior to consummation of the transaction. The waiver is only for the timing of delivery of appraisal; it does not waive the requirement to deliver the appraisal itself.
The waiver is dependent upon certain circumstances. The Appraisal Waiver Process section below describes this in detail.
Step 7: Loan Consummation
The loan is consummated (for closed-end loans) or account is opened (for open-end loans). Consummation occurs when the applicant becomes contractually obligated. This is dependent upon the rules in specific states or jurisdictions where the property is being transacted. Typically, for mortgage loans, the consummation is the closing date when the loan is signed at escrow.
If a waiver was applied, then the appraisal or other valuations must be provided at or before consummation.
Appraisal Waiver Process
The waiver process is invoked when there is not enough time between the date of delivery of the appraisal and the date of loan consummation or account opening. The waiver process is described below.
Step 1: Rush For Closing
The first step in the appraisal process is the identification for a rush for consummation. The rush may be triggered due to delays in underwriting, later delivery of appraisal, or other reasons. Once it is identified that there is a possibility that the expected consummation date will be within three business days prior to the date of delivery of appraisal, the lender should work with the applicant to obtain a waiver.
Step 2: Obtain Waiver
The lender should obtain the waiver from the applicant. While the regulation allows the lender to receive the waiver orally or in writing, we recommend obtaining the waiver in writing. Regulation B does not prescribe a particular format or content for the waiver letter.
Step 3: Deliver Appraisal
The lender should deliver the appraisal as soon as it is completed. If the intention is to deliver the appraisal at closing, then lender may deliver the appraisal to the escrow officer and add the requirement to deliver appraisal in the closing escrow instructions. While not required by regulation B, we recommend obtaining an acknowledgement from the applicant for the receipt of appraisal.
Step 4: Receipt of Waiver Before Three Business Days Prior to Closing
If the borrower has provided the waiver to the lender three business days prior to loan consummation, then the appraisal or written valuation can be provided at or before consummation or account opening, whichever is earlier.
Step 5: Receipt of Waiver Within Three Business Days Prior to Closing
If the borrower has provided the waiver during the three business days prior to the expected date of closing, then the waiver may be utilized only for a revised appraisal that is being amended for clerical changes from the previous version that was delivered. In this case, 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.
Elements of the Appraisal Process
- Makes the loan application
- Receives the appraisal and appraisal disclosure
- Signs and provides the waiver
- Signs the acknowledgement of receipt of appraisal
- Obtains the loan application
- In some cases, responsible for sending the appraisal disclosure and appraisal
- Coordinates the waiver process with the applicants
- Responsible for meeting the Regulation B requirements when obtaining a written valuation for a first lien loan secured by a dwelling
- Performs a detailed review of appraisal to ensure it meets the appraisal standards and it has no mistakes
- Reviews appraisal
- May include conditions for any corrections to the appraisal
- Delivers the appraisal disclosure and appraisal
- Coordinates the closing and ensures that either there is a waiver or closing is occurring at least 3 business days after delivery of appraisal
Appraiser or Valuation Provider
- Provides the appraisal report and other written valuations
- Makes corrections to the appraisal report
Appraisal Related Documents
- Appraisal Report or Other Written Valuation: The written estimate of the value of a dwelling developed in connection with an application for credit.
- Appraisal Disclosure: The notice of the applicant's right to receive a copy of all appraisal reports or any other written valuation.
- Appraisal Waiver Letter: A letter signed by the applicant confirming his/her intention to waive the timing requirement for the receipt of appraisal.
- Acknowledgement of Receipt of Appraisal Report: Letter signed by the applicant confirming their receipt of the appraisal.
To effectively track and comply with the appraisal process, the loan origination system should be able to track the following data elements.
- Application Date: Date when applicant made the loan application.
- Date of Delivery of Appraisal Disclosure: Date when the Appraisal Disclosure was mailed or delivered to the borrower.
- Date of Completion of Appraisal: Date when the lender considers the appraisal was complete. Generally, it is when the appraisal was received and reviewed by the lender.
- Date of Delivery of Appraisal: Date when the appraisal was provided to the applicant.
- Date of Waiver: Date when a waiver was received by the lender.
- Date of Consummation: Date of loan consummation or account opening, whichever is earlier. Consummation is typically when the loan is signed (note date).
- Method of Delivery of Appraisal: The method for delivery of appraisal, i.e., electronically or by postal mail. For postal deliveries, the 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.
Best Practices for Lender
- Order Appraisal Early: Try to order the appraisal as soon as the borrower has agreed to proceed with loan application.
- Review Appraisal Upon Receipt: Review the appraisal as soon as it is received and ask the appraiser to make corrections promptly.
- Obtain Waivers Early: Try to obtain a waiver when it is apparent that the appraisal would not be delivered at least three business days prior to loan consummation.
- System Controls: Enhance the systems so that they can track and manage the appraisal process. System controls should be implemented that track the timelines for appraisal disclosure, appraisal delivery, waivers, and loan consummation.
- Avoid Obtaining Waivers Routinely: Do not obtain the waivers routinely on every loan as it may give the impression that the lender is subtly coercing the applicants into signing waiver. Remember, the intent of the regulation is to allow the applicants to have 3 business days to review the appraisal before loan consummation or account opening. It is always preferable to postpone the closing, where possible, than obtaining a waiver.