Feds tighten appraisal rules for risky mortgages

[August 16, 2012]  WASHINGTON (AP) -- New federal rules proposed Wednesday would require all high-risk mortgage lenders to obtain property appraisals for the first time.

Under the rule, all mortgages deemed risky would require an appraisal by a licensed or certified appraiser, including a written inspection of the home's interior, according to regulators including the Federal Reserve and the Consumer Financial Protection Bureau. Previously, there was no universal federal requirement that appraisals be performed on all risky mortgages.

Consumers would receive more information, including a free copy of the appraisal, the agencies said.

A second appraisal would be required if the seller bought the home at a lower price in the previous six months. The provision is meant to prevent fraudulent flipping of properties using inflated appraisals.

The rules would apply to higher-risk mortgage loans -- those on people's homes whose interest rates are above a variable threshold. The bar is set based on how much a loan's interest rate exceeds the Average Prime Offer Rate, a survey-based estimate of typical mortgage rates.

As of this week, the APOR on a 30-year loan was 3.64 percent, according to data from the Federal Financial Institutions Examination Council. To qualify as higher-risk, a typical mortgage would have to carry a rate of 5.14 percent or higher. For "jumbo loans" -- generally exceeding $417,000 -- the rate would have to top 6.14 percent.

The rule is open for public comment until Oct. 15. It was proposed jointly by the Fed, CFPB, Federal Deposit Insurance Corp., Federal Housing Finance Agency, National Credit Union Administration and the Office of the Comptroller of the Currency.

[Associated Press; By DANIEL WAGNER]

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