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Reg B Appraisal Rules

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  • #3635
    TheBank
    Participant

    The definition of dwelling does not specify that it includes principal dwellings only, so I just want to clarify that this new rule in Reg B requiring banks to provide a notice within 3 days of application and a copy of the valuation promptly, applies to applications on first lien loans secured by 1-4 family residential units, regardless of the purpose. Which means it would cover business loans secured by 1-4 family rental units, for example duplexes, correct?

    Also, page 6 of the FLT refers to the definition of timing, provide, and deliver. It says that delivery occurs 3 business days after mailing. Does that mean that if a bank USPS mails the valuation, and for example it is the last item we are waiting on, there was a delay in getting the valuation perhaps, so days matter in this example. Since we must provide it 3 business days prior to consummation, and delivery occurs 3 business days after mailing, do we really need to USPS mail it 6 business days before we can close if the customer did not waive the timing requirement?

    #3638
    rcooper
    Keymaster

    Yes, the rule covers applications for closed-end or open-end credit secured by a first lien on a dwelling. And you are correct on the timing. However, delivery occurs three business days after you mail or transmit the copies, or whenever you have evidence indicating that the applicant received the copies. The Small Entity Compliance Guide (SECG) answers a lot of questions: https://files.consumerfinance.gov/f/201305_compliance-guide_ecoa-appraisals-rule.pdf. See page 8-10 for what loans are covered and delivery information begins on page 13.

    Below is an excerpt from the CFPB’s SECG:

    When processing an application for a closed-end loan, you must deliver copies of appraisals and other written valuations “promptly upon completion,” or three business days before consummation, whichever is earlier. For example, if a loan will close on Friday, April 4, you must deliver the valuation no later than Tuesday, April 1. When processing an application for an open-end loan, you must deliver copies of appraisals and other written valuations “promptly upon completion,” or three business days before account opening, whichever is earlier.

    #6058
    TheBank
    Participant

    Robin, could you clarify 1002.14a(1) for me, specifically the commentary that says “Section 1002.14(a)(1) applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. Section 1002.14(a)(1) does not apply to the extent a creditor uses the appraisals and other written valuations that were previously developed in connection with the prior extension of credit to evaluate the renewal request.” ?

    When exactly would the rule not apply? To an application where we used a prior appraisal? or just if it was a “renewal” (not a refinance, increase, extension, modification), etc…?

    I originally thought this meant if a bank originated, renewed, refinanced, extended, etc… made any type of credit extension, and used an existing appraisal from a prior loan, and therefore did not obtain an appraisal in connection with that new loan’s application, regardless as to weather it was a renewal, refi, extension, etc… the appraisal rule would not apply for the new loan….because they already have it.

    (Reg B’s definition of credit is very broad and includes credit of all types)

    #6066
    rcooper
    Keymaster

    In my opinion, the language from the preamble, below, shows the intent is to not to duplicate by giving appraisals that have already been given. Also the definition of extension of credit states “the refinancing or other renewal” so it indicate that a refinance is a form of renewal.

    “Extend credit and extension of credit mean the granting of credit in any form (including, but not limited to, credit granted in addition to any existing credit or credit limit; credit granted pursuant to an open-end credit plan; the refinancing or other renewal of credit, including the issuance of a new credit card in place of an expiring credit card or in substitution for an existing credit card; the consolidation of two or more obligations; or the continuance of existing credit without any special effort to collect at or after maturity).”

    From the Preamble of the Reg B Valuation Rules: The final rule maintains comment 14(a)(1)-2, pertaining to credit renewals, with minor changes for consistency and clarity. Comment 14(a)(1)-2 clarifies that creditors must provide copies of appraisals or other written valuations prepared in connection with credit renewals requested by the applicant. Whether an applicant has requested a credit renewal, and when such an application is received for purposes of the timing requirements under § 1002.14(a)(2), depend on the facts and circumstances of an individual transaction. The remaining part of comment 14(a)(1)-2, clarifying that the rule does not apply to the use of an appraisal or other written valuation that was developed for a prior extension of credit, is adopted as proposed. Because the creditor in a prior transaction covered by the final rule would already have been required to provide a copy of an appraisal or other written valuation to the applicant, requiring the creditor in the subsequent transaction to provide another copy of that appraisal or other written valuation would be duplicative. The Bureau is therefore finalizing comment 14(a)(1)-2 largely as proposed.

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