GSEs and HUD Announce Reconsideration of Value Policies
Written by: Rob Ellis, Senior Compliance Consultant
Please refer to SCA blog post on August 22, 2024 for updated guidance (link)
On May 1, 2024, Fannie Mae, Freddie Mac, and HUD announced new policies for appraisal reconsiderations of value (ROV). These policies are intended to create a consistent process for lenders to respond to a borrower initiated ROV. Within this process, the lender must include steps for the borrower to appeal an appraisal when they believe the value opinion:
is unsupported.
is deficient due to unacceptable appraisal practices; or
reflects discriminatory practices.
The policy guidelines include new requirements for lenders and appraisers. These guidelines include:
Underwriters must be trained to identify and remediate appraisal deficiencies, including prohibited discriminatory practices, through the appraisal review process.
The lender must disclose an “easy-to-understand” disclosure of the ROV process to the borrower at the time of the application and upon delivery of the appraisal report to the borrower.
The lender must provide a standardized format for providing the rationale, requirements, and documentation supporting the ROV request to be communicated to the appraiser, including:
The borrower’s name, property address, effective date of the appraisal, appraiser’s name, and the date of the ROV submission.
Identification of specific issues and deficiencies in the appraisal report; and
Detailed information, data, or alternative comparable properties (maximum of five) including the source of the data, and the rationale for the inclusion of the alternative comparables, information, or data, as applicable.
The lender must define turn-time expectations for communicating the ROV results to the borrower. (NOTE: This does not specify a turn time; that is up to the lender to determine)
The appraiser must deliver a revised appraisal report that includes specific commentary explaining their conclusions to the ROV request, regardless of whether the appraiser determines that changes are not needed to address the issues identified in the ROV.
Only one borrower initiated ROV is permitted per appraisal (this must be disclosed).
The resolution of the ROV must be completed prior to loan closing.
After the loan is closed, an ROV is no longer permitted.
The ROV process must conform with the Safeguards for Appraiser Independence.
Standards for the appraisal review and the ROV process must be clearly defined in the Mortgagee’s Quality Control (QC) Plan.
If material deficiencies identified in the appraisal report are not corrected or addressed by the appraiser upon request, or if there is evidence of any unacceptable appraisal practices, the lender must forward the appraisal report and summary of findings to the appropriate appraisal licensing agency or regulatory board. The lender must also report suspected overt violations of antidiscrimination laws to the proper local, state, and federal agency.
Although lender requirements are consistent, there exists a disparity between Federal Housing Administration (FHA) and the GSEs regarding the party responsible for covering the cost for the second appraisal. While the GSEs have not been specified, FHA prohibits borrowers from incurring this expense.
Additionally, the GSEs and HUD plan to track how many ROVs are handled by lenders and what the outcomes are.
The Appraiser’s response must be included in a revised version of the appraisal, which must be logged in FHA Connection (FHAC). All documentation associated with an ROV must be retained in the case binder including all written communication among the Mortgagee, the Borrower, the Appraiser, and any other parties involved in the ROV process.
The GSE guidelines will become effective on August 29, 2024, while FHA’s will take effect on September 2, 2024.
Fannie Mae’s Selling Guide Announcement SEL-2024-03 may be accessed here.
Freddie Mac’s Bulletin 2024-6 may be accessed here.
HUD’s ROV Mortgagee Letter 2024-07 may be accessed here.
If you would like to discuss assistance in implementing these guidelines, please contact our Director, Bill Dolan, at WDolan@scapartnering.com or by phone at (617) 694-2617 and schedule a time to speak with us today.
