Written by Steve Van Beek
During last week's webcast we received numerous great questions from credit unions - including one on the model language of appraisal disclosure requirement under Regulation B. Below is the Q&A that we've drafted on the question. Note: Attendees of the webcast should receive the Q&As in the next day or two.
Question: The model language for the appraisal disclosures tells the member “You can pay for an additional appraisal for your own use at your own cost.” Isn’t this going to lead to member confusion because it implies a lender might consider the member’s own appraisal (which we cannot do)?
Answer: You are exactly right – the model language has the potential to cause confusion. This was brought to the Consumer Financial Protection Bureau’s attention during the rulemaking process but there were no changes in the final language of the disclosure. However, the CFPB did include a comment to official staff commentary indicating that the disclosure does not alter any existing prohibitions on using a borrower-ordered appraisal:
“14(a)(2) Disclosure.
1. Appraisal independence requirements not affected. Nothing in the text of the disclosure required by § 1002.14(a)(2) should be construed to affect, modify, limit, or supersede the operation of any legal, regulatory, or other requirements or standards relating to independence in the conduct of appraisers or the use of applicant-ordered appraisals by creditors.”
Of course, the comment in the staff commentary does nothing to prevent member confusion.
Thus, we have the potential for applicants to infer - from the required notice - that they can obtain their own appraisal and provide it to their lender for consideration.
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Confused Members. So, here is one way this could play out.
- Credit union provides the appraisal disclosure to the applicant.
- Applicant reads "You can for an additional appraisal for your own use at your own cost" and reasons that "for your own use" obviously means to help them get a loan from the institution who provided the notice.
- Applicant obtains an additional appraisal.
- Applicant brings the appraisal to the credit union for use in connection with their application.
- Credit union informs the applicant that it is not allowed to use borrower-provided appraisals.
- Applicant is furious and waives the credit union's disclosure in front of the loan originator.
- The credit union explains that the notice is required by the Consumer Financial Protection Bureau and the credit union cannot modify the language.
- Applicant is not satisfied.
- Applicant calls the Consumer Financial Protection Bureau to file a complaint.
Of course, this won't happen often - but it will happen. Hopefully, the CFPB's implementation plans include educating consumers on the appraisal process. And, credit unions and other commenters brought this up to the CFPB and they declined to address this in the model language.
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If you are curious, the industry's concerns are located here in the Federal Register and the CFPB's decision is here.
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