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Appraisal Standards for Higher-Risk Mortgages Passed by FDIC

U.S. mortgage lenders will get an additional year to implement new appraisal standards for higher-risk loans after regulators revised the Dodd-Frank Act measure to address concerns raised by financial firms.

Creditors issuing loans at above-average interest rates that don’t meet the “qualified mortgage” standard will need to get written reports by certified appraisers who physically inspect homes under rules approved today by the Federal Deposit Insurance Corp., one of six agencies that must sign off. The chiefs of the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency -- as FDIC board members -- also approved the rule.

“This rule, along with the CFPB’s recently issued qualified mortgage rule, are key components in addressing the practices that contributed to the worst economic crisis since the Great Depression,” Comptroller Thomas Curry said before the vote. “It will bring transparency and clarity to the appraisal process for higher-risk residential mortgages.”

In addition to the initial physical inspection, the rule requires a second appraisal when a home is being turned around for a quick, higher resale. The final rule doesn’t require the second appraisal if the new sale price is only marginally higher -- a point requested in an Oct. 15 letter from Wells Fargo & Co., the largest U.S. home lender, which had also asked for the 12-month implementation.

The rule, which goes into effect Jan. 14 next year, uses the Truth in Lending Act definition of a “higher-priced mortgage loan” to maintain consistency.

The six U.S. regulators involved in the joint rule include the FDIC, OCC, CFPB, the Federal Reserve, Federal Housing Finance Agency and the National Credit Union Administration. Other regulators will follow the FDIC, with the NCUA voting “early next week,” said John Fairbanks, an NCUA spokesman.

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