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Proposed Appraisal Requirements for High-Risk Mortgages

Proposed Appraisal Requirements for High-Risk Mortgages

If you own a mortgage or are thinking of taking one, then the new changes in the Dodd-Frank ACT will be of interest to you. As of August 15th, 2012, the Federal Reserve and five other financial regulatory agencies have proposed a new appraisal requirement for higher-risk mortgage loans. This appraisal is set to bring changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank Act classified mortgages that are “secured by a consumer’s home and have interest rates above a certain threshold” as high-risk loans.

This category of high-risk includes loans which have 1.5% more APR compared to the Average Prime Offer Rate (APOR), for first-lien loans, 2.5% for first-lien jumbo loans, and 3.5 % for subordinate-lien loans. Specific rules will be eventually finalized for “qualified mortgages.”

According to this new rule, creditors will be required to appoint a licensed or certified appraiser to prepare a report based on a thorough inspection of the property. It will also require the creditors to inform loan applicants about the appraisal and provide them a free copy of the report which will include “an analysis of the difference in sale prices, changes in market conditions, and any improvements made to the property.” An additional report will be required if the seller has acquired the home for a lower-than-market price, within the past six months and if the property will be used as the buyer’s primary residence. This keeps in mind the various fraudulent property flipping that goes on in some cases. The applicant also has the option to conduct a separate appraisal, at his/her own expense.

The federal agencies have given the public 60 days, or until October 15, 2012, to review the proposal completely and provide comments, if any.

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