Politics & MoneyMortgage

Feds announce 2016 threshold for smaller, ‘higher-priced’ loan appraisal exemption

Exemption amount remains at same level as 2015

The Federal Reserve Board, the Consumer Financial Protection Bureau, and the Office of the Comptroller of the Currency announced the annual adjustment of the dollar amount used to determine whether a small loan is exempt from the special appraisal requirements that apply to higher-priced mortgage loans.

According to the governmental agencies, the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Truth in Lending Act to add special appraisal requirements for “higher-priced” mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan.

According to Section 1026.35 of the Truth in Lending Act, a “higher-priced” mortgage loan is defined as:

A mortgage loan subject to section 1026.35 (higher-priced mortgage loan) is a closed-end consumer credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by:

  • 1.5 or more percentage points for loans secured by a first lien on a dwelling where the amount of the principal obligation at the time of consummation does not exceed the maximum principal obligation eligible for purchase by Freddie Mac;
  • 2.5 or more percentage points for loans secured by a first lien on a dwelling, where the amount of the principal obligation at the time of consummation exceeds the maximum principal obligation eligible for purchase by Freddie Mac; or
  • 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.

The rules implementing this requirement contain an exemption for loans of $25,000 or less and also provide that the exemption threshold will be adjusted annually based on the annual percentage change reflected in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2015.

Last year, the exemption threshold was adjusted to $25,500.

The agencies announced Wednesday that the threshold amount for exempting loans from special appraisal requirements for higher-priced mortgage loans during 2016 will remain at $25,500.

Click here for more detail on the small loan appraisal exemption from the relevant section of the Federal Register.

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