Although Congress mandated the sunset of the Home Valuation Code of Conduct (HVCC) in the Dodd-Frank Act, Congress effectively codified many of its requirements, including the obligation to furnish a copy of an appraisal to borrowers. To implement this statutory change to ECOA, the CFPB proposes to amend Regulation B to make the furnishing of “any and all written appraisals and valuations” developed in connection with the application for a first-lien loan mandatory, rather than at the consumer’s request. Comments to the ECOA proposed rule are due on October 15, 2012.
As proposed, the rule would provide a specific time frame within which the copy (or copies) must be provided (generally within 30 days of receipt or three days prior to the closing of the loan, whether the creditor grants or denies the applicant’s request for credit or the application is incomplete or withdrawn). Like under the HVCC (and AIR, its successor), the borrower may waive the three day requirement. The rule contemplates that a creditor will provide notification to the applicant of the right to receive a free copy of each written appraisal and valuation, not later than the third business day after the creditor receives an application.
What is a Valuation?
The CFPB acknowledges that it is important for creditors to be able to easily distinguish between documents that must be provided to applicants and those that are not required to be provided. Unfortunately, the CFPB’s attempt to clarify whether a document is a “valuation” subject to disclosure is not wholly clear.
The preamble to the proposed rule states that “[t]he [CFPB] understands that many documents prepared in the course of mortgage transactions may contain information regarding the value of a dwelling, but are not themselves a written appraisal or valuation.” To that end, the proposed rule provides a list of examples of documents that the CFPB considers to be “valuations” and those that it does not consider to be “written appraisals and valuations.” The proposed rule defines valuation as “any estimate of a dwelling developed in connection with a creditor’s decision to provide credit.” Examples of “valuations” included in the commentary to the proposed rule include:
- A report prepared by an appraiser including written comments and other documents submitted to the creditor in support of the person’s estimate or opinion of the property’s value;
- A document prepared by the creditor’s staff that assigns value to the property, if a third party appraisal report has not been issued;
- An internal review document reflecting that the creditor’s valuation is different from a valuation in a third party’s appraisal report;
- Values developed pursuant to a methodology or mechanism required by the GSEs, including written comments and other documents submitted to the creditor in support of the estimate of the property value;
- Values developed by an automated valuation model, including written comments and other documents submitted to the creditor in support of the estimate of the property’s value; and
- A BPO prepared by a real estate broker, agent, or sales person, including written comments and other documents submitted to the creditor in support of the estimate of the property’s value.
Note that the first three “examples” above reflect the prior definition of “appraisal report” in the commentary to Regulation B. By relying on this “old” definition, did the CFPB intend to signal that appraisals are meant to be a subset of valuations?
The proposed commentary further provides the following examples that discuss the valuation of the applicant’s property “but nonetheless are not written appraisals and valuations.”
- Internal documents that merely restate the value of the dwelling contained in a written appraisal or valuation being provided to the applicant;
- Government agency statements of appraised value that are publicly available; and
- Valuation lists that are publicly available (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges) and valuations such as manufacturers’ invoices for mobile homes.
Like above, these three “exceptions” have their genesis in the current commentary to Regulation B explaining reports that do not constitute “appraisal reports.” On their face, however, there is no clear reason why these “exceptions” would not be considered “valuations” as that term is defined. The CFPB justifies creating this “exclusion” list because it “does not believe that consumers would benefit from being given duplicative information concerning written appraisals and valuations.” Based on the CFPB’s current delineation, would documents created in a pre-funding appraisal review (like an AVM) that supported the appraisal or valuation being provided to the borrower be excluded? Unfortunately, in deciding to rely heavily on the current definition of “appraisal report,” the CFPB made it very difficult to determine whether a valuation is “in” or “out.”