Agencies Exempt Subset of Higher-Priced Mortgages

Loans of $25,000 or less and certain 'streamlined refinancings' won't require appraisals.

February 1, 2014

The Consumer Financial Protection Bureau (CFPB) and five other federal financial regulatory agencies issued a final rule last December that created exemptions from certain appraisal requirements for a subset of higher-priced mortgages (HPML).

The rule supplements Regulation Z amendments that went into effect on Jan. 18, 2014.


Under the Dodd-Frank Act, closed-end mortgages are considered to be “higher-priced” if they are secured by a consumer’s principal dwelling and have interest rates above a certain threshold.

The Dodd-Frank amendments to the Truth in Lending Act and Regulation Z require creditors to obtain a written appraisal based on a physical visit of the home’s interior before making an HPML.

The supplemental final rule provides that loans of $25,000 or less and certain “streamlined refinancings” are exempt from the HPML appraisal requirements. The rule exempts a refinancing where the holder of the credit risk of the existing obligation remains the same on the refinancing (examples in Official Staff Commentary clarify the meaning of this requirement).

In addition, the periodic payments under the refinance loan must not result in negative amortization, cover only interest on the loan, or result in a balloon payment.

Finally, the proceeds from the refinance loan may only be used to pay off the existing obligation and to pay closing or settlement charges.

In addition, all loans secured by a manufactured home will be exempt from the HPML appraisal rules until July 18, 2015. Starting on July 18, 2015, loans secured by an existing manufactured home and land will be subject to the Dodd-Frank Act’s appraisal requirements.

Loans secured by a new manufactured home and land will be exempt only from the requirement that the appraiser visit the home’s interior.

For loans secured by manufactured homes without land, creditors will be allowed to use other valuation methods without an appraisal, such as using third-party valuation services or “book values.”