Changes in real estate appraisal rules were among the provisions included in the new Truth in Lending statement recently issued by the Federal Reserve Board.
Starting October 1, new mortgage lending requirements will be implemented to provide greater protections for borrowers. Most of the new provisions are intended to prevent predatory lending practices, abusive charges and deceptive advertising.
One of the appraisal provisions is the prohibition of lenders and mortgage brokers from enticing real estate appraisers to inflate or decrease the value of a property. The Fed has to include this provision because overvaluation was largely blamed as a contributing factor in the foreclosure crisis.
Hundreds of thousands of borrowers were able to take out big loans they could not afford to pay because the homes they bought were overvalued.
According to Glenn Gimble, senior policy analyst at the Federal Deposit Insurance Corporation, lenders are now prohibited from implying that the retention of appraisers? services will depend on their valuation or appraisal reports and their impact on loan sales. He added that the provisions ensure that every real estate appraisal reflects the true value of the home loans.
Gimble also said that banks can no longer tell a home appraiser the minimum house appraisal needed for the approval of a loan application. However, lending institutions can ask appraisers to consider additional factors or information so that a fairer home appraisal is achieved.
Meanwhile, loan servicers are now required to credit monthly home loan payments on the date they are received. They are also prohibited from subtracting late payment fees from the monthly payments without first notifying the borrowers.
Servicers are required to give borrowers the chance to make the needed payments so they would not be hit with various fees.
Lenders are now required to use third-party documents to evaluate the financial capabilities of potential borrowers applying for high-priced loans. High-priced loans are those that charge interest rates which are higher by 1.5 points than prime rates for first liens and higher by 3.5 points than prime rates for junior liens.
In addition, lenders now are banned from advertising practices that confuse consumers. All interest payment amounts and interest rates must now be prominently displayed when low promotional rates or payments are advertised. Lenders cannot use the word fixed rate if the rate will change after a few years.
According to Fed analyst Gimble, all the new provisions, including the real estate appraisal rules, are proactive and aimed at protecting borrowers and preventing situations that led to the mortgage and housing crisis.
