Six federal financial regulatory agencies have jointly issued a final rule establishing new appraisal requirements for "higher-priced mortgage loans” that are intended to address fraudulent property flipping.

The rule—issued by the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, Office of the Comptroller of the Currency, and Federal Reserve on Friday—implements amendments to the Truth in Lending Act mandated by the Dodd-Frank Act. For higher-priced mortgage loans, the rule requires creditors to hire a certified appraiser for a report based on a physical inspection of the interior of a property. 

If a seller acquired the property for a lower price during the prior six months, and the price difference exceeds certain thresholds, creditors will need to obtain a second appraisal at no cost to the consumer. The requirement is intended to ensure that the value of the property legitimately increased.

The rule exempts several types of loans, such as qualified mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers and boats used as a residence.  It also includes exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions. 

The final rule's use of the term “higher-priced mortgage loan,” already used in other regulations, is intended to also cover borrowing deemed as “higher-risk,” the definition of which includes having an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by 1.5 to 3.5 or more percentage points, depending on the terms of the arrangement. The creditor of a “higher-risk mortgage” must also inform the prospective buyer, at the time of the initial loan application, that any appraisal prepared for the mortgage is for the sole use of the creditor, but they may have a separate one conducted at their own expense.

The rule will become effective on Jan. 18, 2014. In response to public comments, the agencies intend to publish a supplemental proposal to request additional feedback on whether the rule should apply to loans secured by existing manufactured homes and certain other property types.

The new, multi-agency rule comes amid a variety of other mortgage-focused rules issued by the Consumer Financial Protection Bureau. Among them: new, consumer-friendly requirements for mortgage service providers; “ability-to-repay” screenings to ensure prospective buyers can afford an offered mortgage; prohibitions on risky lending practices, such as “no-doc” and “interest-only” offerings; and defining the criteria for loans designated as a “qualified mortgage.”