While reverse mortgage lenders are largely exempt from federal mortgage rules taking effect this month, there is one rule being implemented by the Consumer Financial Protection Bureau that took effect January 18 that will impact all lenders forward and reverse: a new rule regarding appraisals.
The rule requires lenders to provide borrowers with their home appraisal as well as materials that were used in completing the appraisal—from comps to calculations.
Specifically, creditors must “provide to applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling, and require creditors to notify applicants in writing that copies of appraisals will be provided to them promptly.”
By law, lenders will be required to provide this information before three days prior to the loan closing and within a “reasonable” time period within the loan closing.
In a lending environment where new, additional disclosures are becoming more and more commonplace, the rule aligns with other efforts by the CFPB. Appraisal management companies are equipped for the change, but even with automated systems to handle the new requirement, there could be delays ahead as the rule goes live.
“We have built into our technology a solution that allows lenders to electronically deliver not only the appraisal but also the additional valuation reports ordered through other third party providers,” says Erik Richard, CEO of Landmark Network. “All of the information is added to each file and then can be released to the lenders’ clients through a secure portal where they can track whether their borrowers have accessed it.”
Yet the valuation tools, which for many borrowers will be brand new, may possibly hinder the process as borrowers seek answers regarding the appraisal and the value of the home.
“We anticipate some borrowers are going to be confused,” Richard says. “That’s a given, especially in the reverse mortgage market. Borrowers already have a difficult time understanding their appraisals. They will certainly have a difficulty reconciling their appraisal with various AVMs’ desk reviews and field reviews.”
Lenders are preparing operations equally to ensure the systems are in place for the new rule to take effect, but may be best served to send the documents before the three-day pre-closing period, Richard says.
“We highly encourage clients to not wait until that three day cut off,” he says. “Otherwise they may experience many delayed closings as borrowers wade through the mountains of information.”
Written by Elizabeth Ecker