Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
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.
On May 2, the FDIC published a notice and request for comment in the Federal Register regarding the renewal of an existing information collection on the minimum requirements for appraisal management companies (AMCs). According to the notice, there is no significant change in the methodology or substance of the information collection; however, burden estimates for states and AMCs have been revised to include (i) “AMC Written Notice of Appraiser Removal from Network or Panel;” (ii) “Develop and Maintain a State Licensing Program;” (iii) “AMC Reporting Requirements (State and Federal AMCs);” and (iv) “State Reporting Requirements to the Appraisal Subcommittee.” The notice requests comment on, among other things, whether the information collection is necessary and ways to minimize the burden of the information collection on the respondents. Comments are due by July 2.
On February 1, the Appraisal Qualifications Board (Board) announced new real property appraiser qualification criteria. The Board is a part of the Appraisal Foundation, which is authorized by Congress to set the standards and qualifications for real estate appraisers. Effective May 1, states may choose to adopt the new criteria, which aims to increase the number of available appraisers, especially in rural areas. Specifically, the new criteria (i) reduces the college-level education degree requirements for licensed residential appraisers and certified residential appraisers; (ii) creates an options for licensed residential appraisers to become certified without a college-level education requirement; and (iii) reduces the number of field hours needed to obtain either designation.
- Daniel P. Stipano to discuss "Lessons learned: Integrating FinCEN’s CDD final rule into compliance programs" during an ACAMS webinar
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference