Wall Street Reform and Consumer Protection Act: The Dodd-Frank Act
The Dodd-Frank Act has brought sweeping change to the financial services industry and, among other things, has modified the Truth in Lending Act and allowed for the use of Broker Price Opinions in non-origination transactions. Industry participants were able to agree upon a narrowly tailored restriction solely limiting the use of BPOs when they serve as the primary basis for the origination of a residential mortgage loan secured by a consumer's principal dwelling.
SEC. 1126. BROKER PRICE OPINIONS.
(a) General Prohibition- In conjunction with the purchase of a consumer's principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by such piece of property.
(b) Broker Price Opinion Defined- For purposes of this section, the term `broker price opinion' means an estimate prepared by a real estate broker, agent, or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property's condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model, as defined in section 1125(c).
Home Affordable Modification Program
The Home Affordable Modification Program (HAMP) commits $75 billion to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures. The program supports the use of AVMs or BPOs to establish eligibility for a loan modification.
The servicer may use, at its discretion, either one of the government sponsored enterprises (GSEs) automated valuation model (AVM) - provided that the AVM renders a reliable confidence score - or a broker price opinion (BPO).
Home Affordable Foreclosure Alternatives
The U.S. Treasury introduced the Home Affordable Foreclosure Alternatives (HAFA) that encourages short sales and deeds where a loan modification or refinancing will not work.
Property Valuation: The servicer will independently establish both property value and the minimum acceptable net return in accordance with investor guidance and will provide instruction to the borrower regarding the list price and any permissible price reductions. The price may be determined based on either: (1) an appraisal performed in accordance with USPAP and/or (2) one or more Broker Price Opinions either of which must be dated within 120 days of the Short Sale Agreement.
Federal Reserve Homeownership Preservation Policy
The Federal Reserve Homeownership Preservation Policy targets borrowers who are 60 days or more overdue on loan payments and covers modifications of interest rates and payment plans. The policy allows for the use of a BPO (or another valuation method reasonably designed to provide a fair estimate of a property's current market value) to estimate the current value of the property underlying the loan to be modified.
Regulation Z (Truth in Lending) April 1, 2011
Section 226.42(d) prohibits conflicts of interest. Specifically: "No person preparing a valuation or performing valuation management functions for a covered transaction may have a direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is or will be performed."
The Federal Reserve has supported the use of BPOs and AVMs to assist lenders in making decisions related to home equity lines of credit (HELOCs).
FDIC Loss Sharing Proposal
The FDIC Loss Sharing Proposal outlined a systemic loan modification program that, while not adopted, laid the groundwork for much of the Federal government's loan modification efforts. The Proposal encouraged the use of BPOs to establish a loan to value (LTV) ratio.