Lenders face a more complex appraisal process for so-called “higher-risk mortgages” according to a proposed rule released Wednesday by six federal financial regulatory agencies, including the NCUA.

The proposed rule is yet another amendment to the Truth in Lending Act mandated by the Dodd-Frank Act of 2010, which requires the proposed rules to be enforced by January 21, 2013.

Higher-risk mortgages are defined as closed-end consumer loans secured by a principal dwelling that have annual percentage rates that exceed a statutory threshold.

Under the proposed rule, those thresholds include first-lien loans with an APR 1.5 percentage points higher than the average prime offer rate, first-lien jumbo loans with an APR 2.5 percentage points higher than APOR, and subordinate-lien loans with APRs that are 3.5 percentage points higher than APOR.

Per the proposed rule, higher-risk mortgages must include a licensed or certified appraiser who prepares a written report based on a physical inspection of the interior of the property.

Credit unions would also be required to disclose to applicants information about the purpose of the appraisal and provide members with a free copy of any appraisal report.

Credit unions would also have to obtain an additional appraisal without passing on the cost to members if the higher-risk mortgage loan involves a “flipped” property that was acquired by the seller within the last six months.

The NCUA said in a release that the requirement would address fraudulent property flipping by seeking to ensure the value of the property being used as collateral for the loan legitimately increased.

The public will have 60 days, or until Oct. 15, to review and comment on most of the proposal.

The joint agencies are also seeking comment on a rule proposed last month that would change the way APR is calculated. That rule could cause more mortgages to be considered “higher-risk”, according to the proposed rule, which is published online at the NCUA's website.

Instant Insights /

Joint Agency Proposed Rule Sets New Appraisal Requirements for 'Higher-Risk Mortgages'

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