The Dodd-Frank Act established which requirement for appraisals on higher-priced mortgage loans?
Correct Answer
C) The borrower gets a copy 3 business days before closing
Why this is correct: Dodd-Frank mandates that for higher-priced mortgage loans, the creditor must provide the borrower a copy of all appraisals and valuations at least 3 business days before closing. Why the other choices are wrong: The act does not require only a certified general appraiser; residential work can be done by certified residential appraisers. Two separate appraisals are not always required. The cost approach is not mandated by Dodd-Frank. Exam tip: Remember the '3-day copy' rule for higher-priced mortgage loans under Dodd-Frank.
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
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 USPAP Questions
An appraiser is analyzing three comparable sales with the following data: Sale 1: $350,000 with +$10,000 adjustments; Sale 2: $340,000 with -$5,000 adjustments; Sale 3: $360,000 with -$15,000 adjustments. What are the adjusted sale prices?
A lender orders an appraisal for a $300,000 residential loan. After receiving the appraisal, the loan officer contacts the appraiser requesting that certain language be changed to better support the loan approval. This scenario represents a violation of:
How often must appraisers complete continuing education to maintain their license or certification?
Under FIRREA, which federal agency was given the authority to set minimum standards for real estate appraisers performing appraisals in federally related transactions?
How often must licensed and certified appraisers complete continuing education to maintain their credentials according to AQB requirements?
FIRREA was enacted primarily in response to which financial crisis?
In a narrative appraisal report, which section would typically contain the appraiser's analysis of highest and best use?
A narrative appraisal report for a commercial property must include detailed analysis of income, expenses, and capitalization rates. This level of detail is primarily required because:
Under the Dodd-Frank Act, which entity is responsible for establishing appraisal standards for federally related transactions?
In the URAR form, what does the appraiser indicate in the 'Subject' column for site size?
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