On the compliance side, both Regulation B (Equal Credit Opportunity Act) and Regulation Z (Truth in Lending Act) have requirements applicable to appraisals and/or other valuations developed in connection with an application. Specifically, the Regulation B rule applies to any application that is or will be secured by a first lien on a 1-4 family dwelling. The Regulation Z rule applies to any high-priced mortgage loan (HPML). While the requirements themselves are quite similar there are some differences.
Click on the video to listen to Jerod explain more.
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Let’s talk Reg B, Equal Credit Opportunity Act, and Reg Z, Truth in Lending Act valuation/slash appraisal requirements.
Hi there, this is Jarod Moyer with Banker’s Compliance Consulting. So Reg B and Reg Z have a similar set of requirements as it relates to appraisals/evaluations developed in connection with applications. Specifically, Reg B states that they apply to any application that is or will be secured by a one to four family with a first lien. Then Reg Z states that it’s for any high-priced mortgage loan, HPML.
The rule essentially goes that you have to provide a notice and then provide a free copy of the appraisal, and that’s what the notice states that you’re going to do. So that’s the general idea of the rule.
Today, I want to take a look at one of the unique differences between the Reg B requirement and the Reg Z requirement, even though they’re very similar. So Reg B applies to all credit, and then specifically with this requirement, any application that is or will be secured by a one to four family first lien.
Reg B says you got to provide this notice, and then you got to give them a free copy of the valuation/appraisal no later than three days before closing and possibly even sooner than that, which we’ll save that discussion for another day. Reg B also says that the applicant can choose to waive their right to receive the free copy of that appraisal three days before closing, but they have to execute that waiver at least three days before closing. Now, there’s no magic document for them to sign, although you could create one. The burden of proof rests with the lender to document that the borrower or the applicant has in fact waived this right. That’s Reg B’s side of it.
If we have a application that is or will be secured by a one to four family first lien, and it’s also going to be a high-priced mortgage loan, what you need to understand is that there’s a difference on the Reg Z side. That is that although Reg B allows this waiver to occur, Reg Z states that you cannot allow the borrower to waive their right to receive a free copy of that appraisal at any point in time. So if it’s just subject to Reg B and it’s not an HPML, then the waiver can occur. You can document it. It’s got to be done at least three days before closing. But if it’s also going to be a high-priced mortgage loan, you need to understand that you cannot allow the waiver, and that Reg Z trumps Reg B in that instance.
This is the kind of stuff that our team does. We take this regulation and see how it affects that regulation and how they talk to one another, because they don’t always talk or play nicely. What we try to do in those situations is give you back the plain English translation, hopefully like what I did for you here today. We do that with a lot of different compliance requirements.
Invite you and your team to check out our training library today at bankerscompliance.com. Or better yet, pick up the phone and give us a call, and we can figure out how we can partner with one another to help you navigate the challenges that compliance presents.