The Dodd-Frank Act established which requirement for appraisals on higher-priced mortgage loans?
Correct Answer
D) The borrower must receive a copy of the appraisal at least 3 business days before closing
The Dodd-Frank Act requires that borrowers receive a copy of any appraisal or valuation at least 3 business days before closing on higher-priced mortgage loans. This ensures borrower access to valuation information.
Why This Is the Correct Answer
Option D is correct because the Dodd-Frank Act specifically mandates that lenders must provide borrowers with copies of appraisals or other written valuations at least 3 business days before loan consummation for higher-priced mortgage loans. This requirement is codified in federal regulations and enforced by the Consumer Financial Protection Bureau (CFPB). The purpose is to give borrowers sufficient time to review the valuation, understand the property's worth, and make informed decisions before closing. This disclosure requirement is a key consumer protection measure that distinguishes higher-priced mortgage loans from conventional loans.
Why the Other Options Are Wrong
Option A: Two appraisals must be obtained
While some loan programs may require multiple appraisals in certain circumstances, the Dodd-Frank Act does not establish a blanket requirement for two appraisals on all higher-priced mortgage loans. The Act focuses on disclosure timing rather than the number of appraisals required.
Option B: Only certified general appraisers may perform the appraisal
The Dodd-Frank Act does not restrict appraisals on higher-priced mortgage loans to only certified general appraisers. Both certified residential and certified general appraisers can perform these appraisals, depending on the property type and complexity, following existing state licensing requirements.
Option C: The appraisal must include a cost approach
The Dodd-Frank Act does not mandate that appraisals for higher-priced mortgage loans must include a cost approach. Appraisers still follow standard appraisal methodology and include approaches that are applicable and reliable for the specific property type and assignment conditions.
3-Day Dodd Rule
Remember 'Dodd's 3-Day Deal' - The Dodd-Frank Act requires a 3-business-day advance copy of appraisals for higher-priced mortgage loans. Think of it as giving borrowers a '3-day head start' to review their appraisal before closing.
How to use: When you see questions about Dodd-Frank and appraisal requirements, immediately think '3-Day Deal' and look for the option mentioning 3 business days before closing for borrower disclosure.
Exam Tip
Focus on the specific timing requirement (3 business days) and remember this applies specifically to higher-priced mortgage loans, not all mortgage loans. The key is borrower protection through advance disclosure.
Common Mistakes to Avoid
- -Confusing this with general appraisal delivery requirements for all loans
- -Mixing up the 3-business-day requirement with other disclosure timelines like the 3-day closing disclosure rule
- -Thinking this applies to all mortgage loans rather than specifically higher-priced mortgage loans
Concept Deep Dive
Analysis
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 introduced significant consumer protection measures in mortgage lending, including specific requirements for appraisals on higher-priced mortgage loans (HPMLs). The Act established mandatory disclosure timelines to ensure borrowers have adequate time to review appraisal information before closing. This provision is part of broader efforts to prevent predatory lending practices and ensure borrowers are fully informed about their property's valuation. The 3-business-day requirement specifically applies to higher-priced mortgage loans, which are defined as loans with APRs exceeding certain thresholds above comparable Treasury securities.
Background Knowledge
The Dodd-Frank Act was enacted in response to the 2008 financial crisis and includes comprehensive reforms to financial regulation, with Title XIV specifically addressing mortgage reforms. Higher-priced mortgage loans (HPMLs) are defined as first-lien mortgages with APRs exceeding the Average Prime Offer Rate (APOR) by 1.5 percentage points or more, and subordinate-lien mortgages exceeding APOR by 3.5 percentage points or more.
Real-World Application
In practice, lenders must track APOR rates and identify when loans qualify as HPMLs, then ensure their closing departments provide appraisal copies to borrowers with adequate timing. Appraisers should be aware that their reports on HPMLs will be disclosed to borrowers in advance, emphasizing the importance of clear, accurate reporting.
More Report Writing Questions
Under FIRREA, which federal agency has the authority to set minimum standards for real estate appraisals in federally related transactions?
What is the minimum transaction threshold for requiring a state licensed or certified appraiser under Title XI for most federally related transactions?
The Dodd-Frank Act established which requirement specifically related to appraisal independence?
Which of the following is NOT a responsibility of the Appraisal Subcommittee (ASC)?
State appraiser regulatory agencies are primarily responsible for which of the following functions?
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