NEW YORK (
) -- The
Consumer Finance Protection Bureau
announced Friday a new rule that would require lenders to provide applicants with free copies of all appraisals and home value estimates on the property prior to closing.
The rule prohibits creditors from charging applicants for the copy of the appraisal although lenders can continue to charge reasonable fees for the cost of appraisals.
The rule applies to first-lien mortgages and will take effect in January 2014.
""This rule will guarantee consumers can receive important information on how a lender determines the value of the home," said CFPB Director Richard Cordray. "Having this information available promptly makes it easier for loan applicants to make informed decisions."
The CFPB along with five other regulatory agencies including the Federal Reserve also issued a final rule that establishes new appraisal requirements for "higher-priced mortgage loans"- loans where interest rate is above the average rates in the market.
Lenders would have to use a licensed or certified appraiser who will submit a written appraisal of a report based on physical inspection of a home. Lenders will have to disclose the purpose of the appraisal to customers and provide them with a free copy of the report.
The rule is designed to protect borrowers from unfair appraisals, ensuring that they do not pay more for a home than what it is worth and that lenders use an accurate value for the property when setting lending terms.
The rule also includes special protection for borrowers in instances where the seller is a "flipper." A flipper is defined as a seller who sells his home for a profit of 10% to 20% in less than 6 months.
Banks in such cases are required to pay for a second appraisal of the home that also includes physical inspection inside the home. Moreover the lender can't charge borrowers for the appraisal.
Some higher-priced mortgages including qualified mortgages, reverse mortgages and loans for construction of a new home are exempted.
The CFPB earlier this week introduced new servicing rules that would require banks such as
Bank of America
(BAC - Get Report)
(JPM - Get Report)
(WFC - Get Report)
to inform borrowers of all alternatives to foreclosures.
It also recently finalized the qualified mortgage rules that would protect borrowers from abusive lending practices and provide more clarity to the mortgage market.
--Written by Shanthi Bharatwaj in New York