On August 20th, five federal regulatory agencies issued final guidance addressing reconsiderations of value (ROVs) for residential real estate transactions. The guidance advises on policies and procedures that financial institutions may implement to allow consumers to provide financial institutions with information that may not have been considered during an appraisal or if deficiencies are identified in the original appraisal.
According to VivalLaw, the guidance will allow lenders and borrowers to request and provide additional information to supplement appraisals in assessing real estate value
The agencies are:
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 34
[Docket ID OCC-2023-0007]
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Docket No. OP-1809]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 323
RIN 3064-ZA36
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
[Docket ID NCUA-2023-0061]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Chapter X
[Docket No. CFPB-2023-0033]
ROVs are requests from a financial institution to an appraiser or other preparer of a valuation report to reassess the value of residential real estate. Deficiencies identified in valuations, either through an institution’s valuation review processes or through consumer-provided information, may be a basis for financial institutions to question the credibility of the appraisal or valuation report.
The guidance offers examples of ROV policies and procedures that a financial institution may implement to help institutions identify, address, and mitigate discrimination risk; describes the risks of deficient residential real estate valuations; and explains how financial institutions may incorporate ROV processes into risk management functions. The agencies finalized the guidance largely as proposed, with the addition of clarifying edits based on public comments received on the proposed guidance published in July 2023.
The guidance ultimately recommends that financial institutions should develop ROV policies that identify, address, and mitigate deficient values. The guidance recommends policies that:
Consider ROVs as a possible resolution for consumer complaints or inquiries related to residential property valuations.
Consider whether any information or other process requirements related to a consumer’s request for a financial institution to initiate an ROV create unreasonable barriers or discourage consumers from requesting the institution initiate an ROV.
Establish a process that provides for the identification, management, analysis, escalation, and resolution of valuation-related complaints or inquiries across all relevant lines of business.
Establish a process to inform consumers how to raise concerns about the valuation early enough in the underwriting process for any errors or issues to be resolved before a final credit decision is made.
Identify stakeholders and clearly outline each business unit’s roles and responsibilities for processing an ROV request.
Establish risk-based ROV systems that route the request to the appropriate business unit.
Establish standardized processes to increase the consistency of consideration of requests for ROVs.
Ensure relevant lending and valuation-related staff, inclusive of third parties (e.g., appraisal management companies, fee-appraisers, mortgage brokers, and mortgage servicers) are trained to identify deficiencies (including practices that may result in discrimination) through the valuation review process.
The FFIEC in its previous principles has stressed: "Valuation discrimination or bias can cause consumer harm, lead to violations of law, and have a detrimental impact on communities. In addition, valuation discrimination or bias could result in deficient and unreliable collateral valuations that undermine an institution’s credit decisions and negatively impact its safety and soundness."
