The CFPB recently published two Factsheets outlining lender obligations under the Equal Credit Opportunity Act (ECOA) Valuations Rule.
The Factsheets are a newer category of CFPB guidance called a ‘compliance aid,’ which are not meant to replace formal regulatory guidance, but to "accurately summarize and illustrate the underlying rules and statutes."
The ECOA Valuations Rule dates from 2013 and generally requires creditors to provide applicants with copies of all property appraisals or other valuations generated and a notice, within three days of application, of the applicant’s right to receive those copies. These requirements are triggered by 1) an application for credit 2) secured by a first lien on a dwelling, and 3) an appraisal or other valuation generated in connection with the application.
Loan Modifications
The Factsheets confirm that these triggering requirements use defined terms from ECOA and Reg B, such as ‘application,’ ‘credit’ and ‘creditor.’ Of special note in today’s environment, the Factsheets also confirm that the definition of ‘credit’ under Reg B includes ‘the right granted by a creditor to defer payment of a debt, [or] incur debt and defer its payment.’ (Reg B, 12 CFR 1002.2(j)). Lenders with loss mitigation and modification programs should consider this in determining their need to comply with the ECOA Valuations Rule.
Denied or Withdrawn Applications
Among other issues that the Factsheets clarify, there are no exceptions to requirements of the ECOA Valuations Rule if the application for credit is denied or withdrawn. The required notice is due to the applicant within three business days of application, although the notice itself can be modified to make clear that the application has been denied.
Examples of ‘Dwelling’
Reg B defines ‘dwelling’ as a "residential structure that contains one to four units whether or not that structure is attached to real property." (Reg B, 12 CFR 1002.14(b)(2)). The Factsheets offer examples of collateral that do not meet this definition, such as multiple structures, a single structure with more than four units, land without any structure, a motor vehicle and a commercial-use property.
Broad Definition of ‘Valuation Prepared in Connection with the Application’
Reg B defines ‘valuation’ broadly to include "any estimate of the value of a dwelling" developed in connection with an application for credit, including a document prepared by a lender’s staff, if it was prepared as part of the loan application process. The Factsheets give examples of narrow exceptions to this broad definition, including publicly available lists of property values (such as Zillow), unless they are incorporated into a separate analysis of value, and an appraisal used in a prior loan and reused without update for a new loan application.
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In this blog post concerning legal and regulatory matters of interest to the mortgage industry, Sandler Law Group (SLG) provides general information and industry observations that are not motivated by or concerned with a particular past occurrence or event, or a specific existing legal problem of which SLG is aware. Nothing published herein is intended to constitute legal advice and the use of the blog post by a reader shall not give rise to an attorney-client relationship with SLG. SLG expressly disclaims any representation of accuracy or reliability as to the content of this blog post, as well as any obligation to maintain such content over time or to ensure it is free from errors. Brad Cope is the attorney responsible for the SLG content of this blog post. Unless otherwise noted, the attorneys of SLG are not certified by the Texas Board of Legal Specialization.
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