(a) Scope. Except for paragraph (i) of this section, this section
applies to any consumer credit transaction secured by the consumer’s
principal dwelling. Paragraph (i) of this section applies to any mortgage,
as defined in paragraph (i)(2)(v) of this section, secured by the
consumer’s principal dwelling, even if the mortgage is primarily
for business, commercial, agricultural, or organizational purposes.
(b) Definitions. For
purposes of this section:
(1) “Covered person” means
a creditor with respect to a covered transaction or a person that
provides “settlement services,” as defined in 12 U.S.C.
2602(3) and implementing regulations, in connection with a covered
transaction.
(2) “Covered transaction” means an extension of consumer
credit that is or will be secured by the consumer’s principal
dwelling, as defined in section 1026.2(a)(19).
(3) “Valuation” means an estimate
of the value of the consumer’s principal dwelling in written
or electronic form, other than one produced solely by an automated
model or system.
(4)
“Valuation management functions” means:
(i) Recruiting,
selecting, or retaining a person to prepare a valuation;
(ii) Contracting with or
employing a person to prepare a valuation;
(iii) Managing or overseeing the process
of preparing a valuation, including by providing administrative services
such as receiving orders for and receiving a valuation, submitting
a completed valuation to creditors and underwriters, collecting fees
from creditors and underwriters for services provided in connection
with a valuation, and compensating a person that prepares valuations;
or
(iv) Reviewing
or verifying the work of a person that prepares valuations.
(c) Valuation
of consumer’s principal dwelling.
(1) Coercion. In connection with a covered transaction, no covered person shall
or shall attempt to directly or indirectly cause the value assigned
to the consumer’s principal dwelling to be based on any factor
other than the independent judgment of a person that prepares valuations,
through coercion, extortion, inducement, bribery, or intimidation
of, compensation or instruction to, or collusion with a person that
prepares valuations or performs valuation management functions.
(i) Examples of actions that violate paragraph (c)(1) include:
(A) Seeking to influence a person that prepares a valuation to report
a minimum or maximum value for the consumer’s principal dwelling;
(B) Withholding or threatening
to withhold timely payment to a person that prepares a valuation or
performs valuation management functions because the person does not
value the consumer’s principal dwelling at or above a certain
amount;
(C) Implying to
a person that prepares valuations that current or future retention
of the person depends on the amount at which the person estimates
the value of the consumer’s principal dwelling;
(D) Excluding a person that prepares
a valuation from consideration for future engagement because the person
reports a value for the consumer’s principal dwelling that does
not meet or exceed a predetermined threshold; and
(E) Conditioning the compensation paid to
a person that prepares a valuation on consummation of the covered
transaction.
(2) Mischaracterization
of value.
(i) Misrepresentation. In connection with a covered transaction, no person that prepares
valuations shall materially misrepresent the value of the consumer’s
principal dwelling in a valuation. A misrepresentation is material
for purposes of this paragraph (c)(2)(i) if it is likely to significantly
affect the value assigned to the consumer’s principal dwelling.
A bona fide error shall not be a misrepresentation.
(ii) Falsification or alteration. In connection
with a covered transaction, no covered person shall falsify and no
covered person other than a person that prepares valuations shall
materially alter a valuation. An alteration is material for purposes
of this paragraph (c)(2)(ii) if it is likely to significantly affect
the value assigned to the consumer’s principal dwelling.
(iii) Inducement of mischaracterization. In connection
with a covered transaction, no covered person shall induce a person
to violate paragraph (c)(2)(i) or (ii) of this section.
(3) Permitted actions. Examples of actions
that do not violate paragraph (c)(1) or (c)(2) include:
(i) Asking
a person that prepares a valuation to consider additional, appropriate property
information, including information about comparable properties, to
make or support a valuation;
(ii) Requesting that a person that prepares
a valuation provide further detail, substantiation, or explanation
for the person’s conclusion about the value of the consumer’s
principal dwelling;
(iii) Asking a person that prepares a valuation to correct errors
in the valuation;
(iv) Obtaining multiple valuations for the consumer’s principal
dwelling to select the most reliable valuation;
(v) Withholding compensation due to
breach of contract or substandard performance of services; and
(vi) Taking action
permitted or required by applicable Federal or state statute, regulation,
or agency guidance.
(d) Prohibition on conflicts of interest.
(1) (i) In general. No person preparing a valuation
or performing valuation management functions for a covered transaction
may have a direct or indirect interest, financial or otherwise, in
the property or transaction for which the valuation is or will be
performed.
(ii) Employees and affiliates of creditors; providers
of multiple settlement services. In any covered transaction,
no person violates paragraph (d)(1)(i) of this section based solely
on the fact that the person:
(A) Is an employee or affiliate
of the creditor; or
(B)
Provides a settlement service in addition to preparing valuations
or performing valuation management functions, or based solely on the
fact that the person’s affiliate performs another settlement
service.
(2) Employees
and affiliates of creditors with assets of more than $250 million
for both of the past two calendar years. For any covered transaction
in which the creditor had assets of more than $250 million as of December
31st for both of the past two calendar years, a person subject to
paragraph (d)(1)(i) of this section who is employed by or affiliated
with the creditor does not have a conflict of interest in violation
of paragraph (d)(1)(i) of this section based on the person’s
employment or affiliate relationship with the creditor if:
(i) The compensation
of the person preparing a valuation or performing valuation management
functions is not based on the value arrived at in any valuation;
(ii) The person preparing
a valuation or performing valuation management functions reports to
a person who is not part of the creditor’s loan production function,
as defined in paragraph (d)(5)(i) of this section, and whose compensation
is not based on the closing of the transaction to which the valuation
relates; and
(iii)
No employee, officer or director in the creditor’s loan production
function, as defined in paragraph (d)(5)(i) of this section, is directly
or indirectly involved in selecting, retaining, recommending or influencing
the selection of the person to prepare a valuation or perform valuation
management functions, or to be included in or excluded from a list
of approved persons who prepare valuations or perform valuation management
functions.
(3) Employees and affiliates of creditors
with assets of $250 million or less for either of the past two calendar
years. For any covered transaction in which the creditor had
assets of $250 million or less as of December 31st for either of the
past two calendar years, a person subject to paragraph (d)(1)(i) of
this section who is employed by or affiliated with the creditor does
not have a conflict of interest in violation of paragraph (d)(1)(i)
of this section based on the person’s employment or affiliate
relationship with the creditor if:
(i) The compensation of
the person preparing a valuation or performing valuation management
functions is not based on the value arrived at in any valuation; and
(ii) The creditor
requires that any employee, officer or director of the creditor who
orders, performs, or reviews a valuation for a covered transaction
abstain from participating in any decision to approve,
not approve, or set the terms of that transaction.
(4) Providers of multiple settlement services. For any covered transaction,
a person who prepares a valuation or performs valuation management
functions in addition to performing another settlement service for
the transaction, or whose affiliate performs another settlement service
for the transaction, does not have a conflict of interest in violation
of paragraph (d)(1)(i) of this section as a result of the person or
the person’s affiliate performing another settlement service
for the transaction if:
(i) The creditor had assets of more
than $250 million as of December 31st for both of the past two calendar
years and the conditions in paragraph (d)(2)(i)-(iii) are met; or
(ii) The creditor
had assets of $250 million or less as of December 31st for either
of the past two calendar years and the conditions in paragraph (d)(3)(i)-(ii)
are met.
(5) Definitions. For purposes of this
paragraph (d), the following definitions apply:
(i) Loan production function. The term “loan
production function” means an employee, officer, director, department,
division, or other unit of a creditor with responsibility for generating
covered transactions, approving covered transactions, or both.
(ii) Settlement service. The term “settlement
service” has the same meaning as in the Real Estate Settlement
Procedures Act, 12 U.S.C. 2601 et seq.
(iii) Affiliate. The term “affiliate” has the same meaning as in Regulation
Y of the Board of Governors of the Federal Reserve System, 12 CFR
225.2(a).
(e) When extension of credit prohibited. In
connection with a covered transaction, a creditor that knows, at or
before consummation, of a violation of paragraph (c) or (d) of this
section in connection with a valuation shall not extend credit based
on the valuation, unless the creditor documents that it has acted
with reasonable diligence to determine that the valuation does not
materially misstate or misrepresent the value of the consumer’s
principal dwelling. For purposes of this paragraph (e), a valuation
materially misstates or misrepresents the value of the consumer’s
principal dwelling if the valuation contains a misstatement or misrepresentation
that affects the credit decision or the terms on which credit is extended.
(f) Customary and reasonable
compensation.
(1) Requirement
to provide customary and reasonable compensation to fee appraisers. In any covered transaction, the creditor and its
agents shall compensate a fee appraiser for performing appraisal services
at a rate that is customary and reasonable for comparable appraisal
services performed in the geographic market of the property being
appraised. For purposes of paragraph (f) of this section, “agents”
of the creditor do not include any fee appraiser as defined in paragraph
(f)(4)(i) of this section.
(2) Presumption
of compliance. A creditor and its agents shall be presumed to
comply with paragraph (f)(1) of this section if:
(i) The
creditor or its agents compensate the fee appraiser in an amount that
is reasonably related to recent rates paid for comparable appraisal
services performed in the geographic market of the property being
appraised. In determining this amount, a creditor or its agents shall
review the factors below and make any adjustments to recent rates
paid in the relevant geographic market necessary to ensure that the
amount of compensation is reasonable:
(A) The type of property,
(B) The scope of work,
(C) The time in which the
appraisal services are required to be performed,
(D) Fee appraiser qualifications,
(E) Fee appraiser experience and
professional record, and
(F) Fee appraiser work quality; and
(ii) The creditor and its agents do
not engage in any anticompetitive acts in violation of state or Federal
law that affect the compensation paid to fee appraisers, including:
(A) Entering into any contracts or engaging in any conspiracies to
restrain trade through methods such as price fixing or market allocation,
as prohibited under section 1 of the Sherman Antitrust Act, 15 U.S.C.
1, or any other relevant antitrust laws; or
(B) Engaging in any acts of monopolization
such as restricting any person from entering the relevant geographic
market or causing any person to leave the relevant geographic market,
as prohibited under section 2 of the Sherman Antitrust Act, 15 U.S.C.
2, or any other relevant antitrust laws.
(3) Alternative presumption of compliance. A
creditor and its agents shall be presumed to comply with paragraph
(f)(1) of this section if the creditor or its agents determine the
amount of compensation paid to the fee appraiser by relying on information
about rates that:
(i) Is based on objective third-party
information, including fee schedules, studies, and surveys prepared
by independent third parties such as government agencies, academic
institutions, and private research firms;
(ii) Is based on recent rates paid to
a representative sample of providers of appraisal services in the
geographic market of the property being appraised or the fee schedules
of those providers; and
(iii) In the case of information based
on fee schedules, studies, and surveys, such fee schedules, studies,
or surveys, or the information derived therefrom, excludes compensation
paid to fee appraisers for appraisals ordered by appraisal management
companies, as defined in paragraph (f)(4)(iii) of this section.
(4) Definitions. For purposes of this paragraph
(f), the following definitions apply:
(i) Fee appraiser. The term “fee appraiser”
means:
(A) A natural person who is a state-licensed
or state-certified appraiser and receives a fee for performing an
appraisal, but who is not an employee of the person engaging the appraiser;
or
(B) An organization
that, in the ordinary course of business, employs state-licensed or
state-certified appraisers to perform appraisals, receives a fee for
performing appraisals, and is not subject to the requirements of section
1124 of the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (12 U.S.C. 3353).
(ii) Appraisal
services. The term “appraisal services” means the
services required to perform an appraisal, including defining the
scope of work, inspecting the property, reviewing necessary and appropriate
public and private data sources (for example, multiple listing services,
tax assessment records and public land records), developing and rendering
an opinion of value, and preparing and submitting the appraisal report.
(iii) Appraisal management company. The term
“appraisal management company” means any person authorized
to perform one or more of the following actions on behalf of the creditor:
(A) Recruit, select, and retain fee appraisers;
(B) Contract with fee appraisers to perform
appraisal services;
(C)
Manage the process of having an appraisal performed, including providing
administrative services such as receiving appraisal orders and appraisal
reports, submitting completed appraisal reports to creditors and underwriters,
collecting fees from creditors and underwriters for services provided,
and compensating fee appraisers for services performed; or
(D) Review and verify the work
of fee appraisers.
(g) Mandatory reporting.
(1) Reporting required. Any covered person that reasonably believes
an appraiser has not complied with the Uniform Standards of Professional
Appraisal Practice or ethical or professional requirements for appraisers
under applicable state or Federal statutes or regulations shall refer
the matter to the appropriate state agency if the failure to comply
is material. For purposes of this paragraph (g)(1), a failure to comply
is material if it is likely to significantly affect the value
assigned to the consumer’s principal dwelling.
(2) Timing of
reporting. A covered person shall notify the appropriate state
agency within a reasonable period of time after the person determines
that there is a reasonable basis to believe that a failure to comply
required to be reported under paragraph (g)(1) of this section has
occurred.
(3) Definition. For purposes of this paragraph
(g), “state agency” means “state appraiser certifying
and licensing agency” under 12 U.S.C. 3350(1) and any implementing
regulations. The appropriate state agency to which a covered person
must refer a matter under paragraph (g)(1) of this section is the
agency for the state in which the consumer’s principal dwelling
is located.
(h) The Bureau issued a
joint rule to implement the appraisal management company minimum requirements
in the Financial Institutions Reform, Recovery, and Enforcement Act,
as amended by section 1473 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act. See 12 CFR part 34.
(i) Quality control standards for automated
valuation models.
(1) Scope. The purpose of this paragraph (i) is to implement quality control
standards for the use of automated valuation models in determining
the value of collateral in connection with making a credit decision
or covered securitization determination regarding a mortgage or mortgage-backed
security. This paragraph (i) applies to the use of automated valuation
models by any mortgage originator or secondary market issuer, other
than either a financial institution as defined in 12 U.S.C. 3350(7),
or a subsidiary owned and controlled by such a financial institution
and regulated by one of the federal financial institutions regulatory
agencies as defined in 12 U.S.C. 3350(6). This paragraph (i) does
not apply to the use of automated valuation models in:
(i) Monitoring
of the quality or performance of mortgages or mortgage-backed securities;
(ii) Reviews of the
quality of already completed determinations of the value of collateral;
or
(iii) The development
of an appraisal by a certified or licensed appraiser as defined in
section 1026.35(c)(1)(i).
(2) Definitions. As used in this paragraph (i):
(i) Automated valuation
model means any computerized model used by mortgage originators
and secondary market issuers to determine the value of a consumer’s
principal dwelling collateralizing a mortgage.
(ii) Control systems means the
functions (such as internal and external audits, risk review, quality
control, and quality assurance) and information systems that are used
to measure performance, make decisions about risk, and assess the
effectiveness of processes and personnel, including with respect to
compliance with statutes and regulations.
(iii) Covered securitization determination means a determination regarding:
(A) Whether to waive an appraisal
requirement for a mortgage origination in connection with its potential
sale or transfer to a secondary market issuer; or
(B) Structuring, preparing disclosures for,
or marketing initial offerings of mortgage-backed securitizations.
(iv) Credit decision means a decision regarding whether and under
what terms to originate, modify, terminate, or make other changes
to a mortgage, including a decision whether to extend new or additional
credit or change the credit limit on a line of credit.
(v) Mortgage means
a transaction in which a mortgage, deed of trust, purchase money security
interest arising under an installment sales contract, or equivalent
consensual security interest is created or retained in a consumer’s
principal dwelling.
(vi) Mortgage originator means:
(A) Any person who, for direct
or indirect compensation or gain, or in the expectation of direct
or indirect compensation or gain—
(1) Takes a mortgage application;
(2) Assists a consumer in obtaining
or applying to obtain a mortgage; or
(3) Offers or negotiates terms of
a mortgage;
(B) Includes any person who represents to the public, through advertising
or other means of communicating or providing information (including
the use of business cards, stationery, brochures, signs, rate lists,
or other promotional items), that such person can or will provide
any of the services or perform any of the activities described in
paragraph (A) of this definition;
(C) Does not include any person who is not
otherwise described in paragraph (A) or (B) of this definition and
who performs purely administrative or clerical tasks on behalf of
a person who is described in any such paragraph;
(D) Does not include a retailer of manufactured
or modular homes or an employee of the retailer if the retailer or
employee, as applicable—
(1) Does not receive compensation or gain for engaging in
activities described in paragraph (A) of this definition that is in
excess of any compensation or gain received in a comparable cash transaction;
(2) Discloses to
the consumer in writing any corporate affiliation with any creditor
and, if the retailer has a corporate affiliation with any creditor,
at least 1 unaffiliated creditor; and
(3) Does not directly negotiate with
the consumer or lender on loan terms (including rates, fees, and other
costs);
(E) Does not include a person or entity that only performs real estate
brokerage activities and is licensed or registered in accordance with
applicable state law, unless such person or entity is compensated
by a lender, a mortgage broker, or other mortgage originator or by
any agent of such lender, mortgage broker, or other mortgage originator;
(F) Does not include a person
that meets the criteria for seller financers provided in section 1026.36(a)(4)
and (5); and
(G) Does not
include a servicer or servicer employees, agents and contractors,
including but not limited to those who offer or negotiate terms of
a mortgage for purposes of renegotiating, modifying, replacing and
subordinating principal of existing mortgages where borrowers are
behind in their payments, in default or have a reasonable likelihood
of being in default or falling behind.
(vii) Secondary market
issuer means any party that creates, structures, or organizes
a mortgage-backed securities transaction.
(3) Quality control
standards. Mortgage originators and secondary market issuers
that engage in credit decisions or covered securitization determinations
themselves, or through or in cooperation with a third-party or affiliate,
must adopt and maintain policies, practices, procedures, and control
systems to ensure that automated valuation models used in these transactions
adhere to quality control standards designed to:
(i) Ensure
a high level of confidence in the estimates produced;
(ii) Protect against the manipulation
of data;
(iii) Seek
to avoid conflicts of interest;
(iv) Require random sample testing and
reviews; and
(v) Comply
with applicable nondiscrimination laws.
