I. INTRODUCTION
The Bureau of Consumer Financial Protection (CFPB) has amended Regulation B, which implements the Equal Credit Opportunity Act (ECOA). The final rule revises Regulation B to implement an ECOA amendment concerning appraisals and other valuations that was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In general, the revisions to Regulation B require creditors to 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.
The final rule was effective January 18, 2014. Accordingly, the final rule applies to mortgage transactions to be secured by a first lien on a dwelling for which the creditor receives an application on or after January 18, 2014.
II. BACKGROUND
The ECOA makes it unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status, or age, or because all or part of an applicant’s income derives from public assistance, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
Prior to its amendment by the Dodd-Frank Act, section 701(e) of ECOA required creditors to provide credit applicants, upon written request, with copies of appraisal reports used in connection with their applications for a loan secured by residential real property. Section 1474 of the Dodd-Frank Act replaces the existing section 701(e) with a new provision that imposes several new requirements concerning appraisals as well as other valuations.
III. SUMMARY OF THE FINAL RULE
Congress amended ECOA section 701(e) to require creditors to provide applicants with a copy of appraisals and other written valuations developed in connection with certain mortgage transactions as a matter of course, rather than only providing copies of appraisals upon applicants’ request as previously required.
The final rule provides for the following in connection with applications for credit to be secured by a first lien on a dwelling:
IV. DEFINITIONS
A. Dwelling
A dwelling is a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, individual condominium units, mobile home or manufactured homes.
B. Valuation
A valuation is any estimate of the value of a dwelling developed in connection with an application for credit. A nonexclusive list of evaluations provided by the comments to the final rule, is as follows:
Any attachments or exhibits that are an integrated part of the valuation must be shared with the applicant.
Not all documents that discuss or restate a property’s value are valuations. Documents that discuss property value but are not valuations include:
In addition, an appraisal review that does not itself state a different estimate from the appraisal would not be a valuation that must be provided to the applicant.
V. PROVIDING COPIES OF APPRAISALS AND OTHER WRITTEN VALUATIONS
ECOA Section 701(e)(1) requires a creditor to provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. This requirement replaced the previous requirement in section 701(e) to provide copies of appraisal reports upon request of the applicant for a loan secured by a lien on a dwelling.
For purposes of the final rule, a “written” appraisal or other valuation would include, without limitation, an appraisal or valuation received or developed by the creditor in any of the following manners: in paper form (hard copy); electronically, such as by CD or email; or by any other similar media.
The final rule covers applications for credit to be secured by a first lien on a dwelling (a residential structure that contains one-to-four units whether or not that structure is attached to real property), including, but not limited to, individual condominium units, mobile homes, and manufactured homes, whether the credit is business credit or consumer credit. The final rule also applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. The final rule does NOT apply when a creditor uses the appraisals or other valuations that were previously developed in connection with the prior extension of credit in order to evaluate the renewal request.
The requirements of the final rule apply to appraisals or other written valuations “developed in connection with an application for credit.” If an appraisal or other written valuation is “developed in connection with” an application, then the applicant may benefit from receiving a copy, even if the creditor does not use the valuation. In the event there are multiple versions of an appraisal or other written valuation, the creditor is required to provide a copy of only the latest version received by the creditor. In the event that a creditor has provided a version of an appraisal or other written valuation that is later superseded, the creditor still must provide a copy of the latest version to the applicant. In addition, the comments to the final rule clarify that a copy of at least one version of each appraisal or other written valuation must be provided. This satisfies the statutory requirement that the applicant receive a copy of “any and all” appraisals or other written valuations “developed” in connection with an application.
A. Timing and Waiver
The final rule requires that creditors provide copies of each appraisal or other written valuation promptly upon completion, but in no case later than three days prior to the closing of the loan. The copy must be provided promptly upon completion of the appraisal or other written valuation, or three business days before consummation (for closed-end credit) or account opening (for open-end credit), whichever is earlier. Comments to the final rule clarify that the “promptly upon completion” standard is applied based upon the facts and circumstances and provide illustrative examples of situations in which the titling requirement would or would not be met. The comments further clarify that in the absence of a waiver, that the “promptly upon completion” requirement governs even if no consummation or account opening occurs.
Examples in which the “promptly upon completion” standard would be satisfied include (but are not limited to) the following:
Examples of cases in which the “promptly upon completion” standard would not be satisfied include (but are not limited to):
The commentary to the final rule clarifies that the meaning of the term “promptly upon completion” depends upon the facts and circumstances, including when the creditor receives the appraisal or other written valuation, and when any review or revisions occur. For purposes of the final rule, “completion” occurs when the lender has “reviewed and accepted the appraisal or other written valuation to include any changes or corrections required,” or when the creditor receives the last version, whichever is later.
The comments further clarify that “provide” is interpreted to mean delivery to the applicant, with delivery occurring three business days after mailing or delivering the copy to the last-known address of the applicant, or when evidence indicates the applicant actually received the copies, whichever is earlier. A waiver by the applicant applies both to the requirement that copies be provided three business days before closing and to the requirement that copies be provided “promptly.”
With respect to the form of the waiver, the final rule allows for an affirmative oral or written statement. By allowing for an affirmative oral or written waiver, the final rule is designed to allow creditors to apply existing practices such as the standards for waiver of the appraisal copy requirement under the Appraisal Independence Requirements applied by certain GSEs. Under the final rule, however, even if the waiver is obtained, creditors are still required to provide the required copies at or before consummation or account opening.
Comments to the final rule allow waivers to be provided in either of two situations: generally before three business days of consummation or account opening, or within three business days of consummation or account opening if certain conditions are met. In general, requests for waiver should not be presented to consumers less than three business days before consummation or account opening, however, an exception to the general rule applies to treatment of waivers pertaining to copies of appraisals or other written valuations containing correction of clerical errors in previously-provided copies.
An applicant can provide a waiver within three business days of consummation or account opening in the following circumstance: the creditor receives a revised version of an appraisal or other written valuation that the applicant already received three business days before consummation or account opening. The option to provide a waiver in this situation would only apply, though, if each of the following criteria are met: (1) The revisions are solely to correct clerical errors in that appraisal or other written valuation; (2) the revisions have no impact on the estimated value; (3) the revisions have no impact on the calculation or methodology used to derive the estimate; and (4) the applicant receives the copy of the revised appraisal or other written valuation at or prior to consummation or account opening.
Finally, the final rule clarifies the timing requirement in situations where the applicant has provided a waiver, but no consummation or account opening occurs. In that instance, the copy must be provided no later than 30 days after the creditor determines the transaction will not be consummated or the account will not be opened.
B. Delivery of Copies of Appraisals and Other Written Valuations
The final rule provides that copies of appraisals and other written valuations are deemed “provided” three days after they are mailed to the last known address of the applicant. The commentary makes clear that the creditor is required to deliver the materials only to one applicant in a multiple-applicant transaction.
VI. DISCLOSURE OF RIGHT TO RECEIVE COPY OF WRITTEN APPRAISAL AND VALUATION
ECOA section 701(e)(5) requires that, at the time of application, the creditor “notify an applicant in writing of the right to receive a copy of each written appraisal and valuation.” In response to these provisions of the Dodd-Frank Act, the final rule contains sample disclosure language in Form C-9, as follows:
“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close.
You can pay for an additional appraisal for your own use at your own cost.”
A. Timing of Disclosure
ECOA section 701(e)(5) requires creditors to notify applicants in writing, at the time of application, of the right to receive a copy of each appraisal and other written valuation. Under the final rule “at the time of application” requires creditors to provide the ECOA appraisal disclosure not later than three business days after receiving an application.
The final rule includes an exception to this requirement, however. In the case of an application for credit that is not to be secured by a first lien on a dwelling at the time of application, if the creditor later determines the credit will be secured by a first lien on a dwelling, the creditor must mail or deliver the notice required in writing not later than the third business day after the creditor determines that the loan is to be secured by a first lien on a dwelling.
VII. REIMBURSEMENT
ECOA section 701(e)(3) affirms that creditors may require applicants to pay reasonable fees to reimburse the creditor for the cost of the appraisal, except where otherwise required in law. Section 701(e)(4) provides, however, that creditors shall provide a “free” copy of each appraisal or other written valuation at no additional cost to the applicant.
Because the final rule does not require that creditors provide more than one copy, there is no suggestion in the final rule that creditors are prohibited from charging for duplicates or additional copies. If they do provide additional duplicate copies, it would not be pursuant to the requirement in the final rule.
VIII. WITHDRAWN, DENIED, OR INCOMPLETE APPLICATIONS
ECOA section 701(e)(1) requires providing copies of the appraisals or other written valuations “whether the creditor grants or denies the applicant’s request for credit or the application is incomplete or withdrawn.” The requirements of the final rule apply whether credit is extended or denied or if the application is incomplete or withdrawn. Specifically, creditors would be required to provide copies of appraisals and other written valuations even in situations where an applicant provides only an incomplete application.
IX. PROVISION OF COPIES IN ELECTRONIC FORM
The final rule allows creditors to provide applicants with copies of appraisals and other written valuations in electronic form if the applicant consents to receiving the copies in such form (subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act)).