In the October 28, 2010, issue of the Federal Register (75 FR 66554), as corrected in the December 23, 2010, issue of the Federal Register (75 FR 80675), the Board of Governors of the Federal Reserve System (FRB) published an interim final rule (the Interim Rule) designed to ensure that real estate appraisers use their independent professional judgment in appraising homes without influence or pressure from parties interested in the loan transaction and that the appraiser receive customary and reasonable compensation for their services. The Interim Rule implements new Section 129E of the Truth in Lending Act (TILA), which was enacted as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) to establish new requirements for appraisal independence for consumer loans secured by the consumer’s principal dwelling. To implement this new TILA appraisal independence requirement, the Interim Rule adds Section 226.42 to Regulation Z, which replaces Section 226.36(b) that contained similar appraisal requirements. Pursuant to the Dodd-Frank Act, supra, the issuance of this Interim Rule renders the Home Valuation Code of Conduct of no further force or effect. (But see our October 18, 2010 memorandum on the new Fannie Mae Appraiser Independence Requirements in Fannie Mae Announcement SEL-2010-14.) Compliance with new Section 226.42 added by the Interim Rule is mandatory for all applications received by a creditor on or after April 1, 2011. The complete text of Section 226.42 is attached to this memorandum for your reference. In order to assist you in understanding the Interim Rule’s new appraisal independence requirements, this memorandum summarizes or redacts comments from the FRB’s official staff interpretations of Section 226.42 and from the preamble published with the Interim Rule.
