Recent Changes in Federal Regulations Affecting Home Loans: Insight From An Arkansas Residential Appraiser

Arkansas residential appraisers from Ferstl Valuation help navigate recent regulatory changes in mortgage lending aimed to protect consumers.

Home sales are on an upswing again thanks to record-low mortgage rates. However, in an effort to curtail abuses and unethical practices by lenders and real estate speculators, higher-priced and higher-risk loans face greater scrutiny under recent federal regulatory changes. Ferstl Valuation Services, an Arkansas residential appraisal firm, takes a look at some of these changes and how they might affect home loans.

While aimed to protect consumers, the mortgage process for borrowers and lenders will change. Creditors are now prohibited from relying on unverified assets or incomes from borrowers, and from banning prepayment penalties during the first four years of the loan. This means that borrowers will need to provide all the information they can to the creditors who are now required to make a good-faith effort in determining the borrowers’ ability to repay the loan. Further, mortgages that fall into the new “higher-priced” category require additional regulatory measures aimed at preventing creditors from misrepresenting the value of a piece of property.

Higher-Priced Mortgage Loan Regulations

The new amendments to the Truth-in-Lending laws establish a new category of mortgages called Higher-Priced Mortgage Loans. These loans are defined as mortgages with interest rates that run 1.5 percent or higher than the Freddie Mac Primary Mortgage Market Survey rates for first liens and 3.5 percent or higher for subordinate or secondary liens. The new federal regulations attempt to prevent biased parties from exerting undue influences on appraisals and consumers from taking out loans for larger amounts than properties are really worth.

• Lenders must furnish borrowers with copies of appraisals three days or more before closing dates.
• Loans companies and owners are prohibited from influencing appraisal objectivity.
• Lenders can use qualified in-house appraisers, but these employees must work independently of sales staffs.
• Appraisal misconduct must be reported to state regulatory agencies.
• Creditors must verify higher-priced loan applicants’ incomes, credit ratings and other pertinent details of mortgage applications.

Evidence of Market Recovery in Response to New Regulations

The new regulations appear to work as intended, generating a new wave of refinance mortgages to take advantage of low rates and correct abuses of the past. Recently, mortgage rates for 30-year loans have dropped from 3.54 percent to 3.43 percent, and 15-year loans have fallen from 2.74 percent to 2.65 percent. Refinance applications rose 6.3 percent in the week of April 5, 2013. Record-low interest rates, reliable appraisals and the desire to start fresh with accurate market information have certainly contributed to the recovery trend.

Appraisals Vary According to External Influences

Property appraisals can vary significantly from sales prices, but statistics issued by the Appraisal Institute show that one-third of property appraisals hit the mark exactly. Mortgage appraisals of single-family homes conducted between January and May of 2012 were more than 3 percent higher than sales prices 24 percent of the time, and between 8 and 9 percent of appraisals undervalued residential property values during the period.

“… recent regulatory changes attempt to protect consumers by prohibiting creditors from misrepresenting the values of property…”

Second appraisals by an Arkansas certified residential appraiser could prove valuable for Arkansas clients, and customers can choose whether to order basic, middle-of-the-road or comprehensive studies. In Arkansas, buyers and sellers, as well as insurance companies, lenders and litigants, can receive major economic benefits by commissioning detailed appraisals that focus on their specific needs and value perspectives. Ferstl Valuation Services, the largest appraisal firm in Arkansas, has worked with buyers, sellers, bankers, accountants, attorneys and insurance companies for more than 45 years and established an enviable reputation for accuracy and integrity among its influential clients.

Ferstl Valuation Services Enjoys an Impeccable Reputation Among Clients and Peers

Regardless of the purpose for ordering an appraisal, Ferstl Valuation Services has the experience, reputation and skill to conduct accurate evaluations and appraisals based on its clients’ needs. “Trust but verify” makes a good strategy to follow in business and real estate transactions, and new federal regulations have made this caveat a legal requirement for mortgage lenders. Appraisal customers can follow the same routine by investigating appraisal company reputations. Clients can download the Ferstl Valuation Services customer references to get word-of-mouth verifications from the company’s many satisfied clients. Contact Ferstl Valuation for more information or speak to one of our appraisers at (501) 313-0641.