WASHINGTON — Federal regulators issued proposals on Wednesday that would make home appraisals essentially compulsory in certain cases before banks can approve a loan.
One plan, issued jointly by six banking agencies, would require lenders making "higher-risk" loans to get an appraisal based on a physical inspection, and provide the borrower with a free copy at least three days before the loan closes.
"Higher-risk" mortgages would generally be defined as charging interest at least 1.5 percentage points above the average prime rate. To prevent fraudulent price inflation, a second appraisal would be required if the home had previously sold less than 180 days earlier at a lower price.
"This requirement would address fraudulent property flipping by seeking to ensure that the value of the property being used as collateral for the loan legitimately increased," the six agencies said in a press release. (The proposal was issued by the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve Board, National Credit Union Administration and Office of the Comptroller of the Currency.)
A second proposal, issued solely by the CFPB, would clarify appraisal requirements more generally for first lien loans. Previously, borrowers could request copies of appraisal reports from lenders under the Equal Credit Opportunity Act. But a provision in Dodd-Frank strengthened the rules to require lenders to notify loan applicants of their right to an appraisal, and provide copies of all written reports no later than three days before closing. While lenders could still charge borrowers for conducting the appraisal, the proposal would ban additional fees for providing the reports.
"When looking to buy a home or refinance a mortgage, consumers need the best available facts and data," CFPB Director Richard Cordray said in a separate press release. "This rule would guarantee consumers receive important disclosures on how a lender determines the value of the home, making it easier for loan applicants to make informed decisions."