A coalition of five federal agencies — the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve Board, the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) — announced on Thursday finalized guidance that is designed to address “reconsiderations of value (ROVs) for residential real estate transactions,” according to an announcement.
The new guidance is designed to advise on “policies and procedures that financial institutions may implement” and allow consumers to provide institutions with information that “may not have been considered during an appraisal or if deficiencies are identified in the original appraisal,” the agencies explained.
This guidance follows the May announcement of new appraisal bias protections handed down by the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). These enable mortgage borrowers to request an ROV “if they believe that the appraisal was inaccurate or biased,” HUD said in May of the protections that are set to go into effect in September.
The new 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 joint announcement said.
The agencies did not make many changes to the originally proposed guidance from July 2023 on the matter, “with the addition of clarifying edits based on public comments received on the proposed guidance published” at that time.
The new guidance “would include several clarifying edits in response to comments, including a clarification that the interagency guidance applies to financial transactions that are secured by 1-to-4 family residential real estate,” the document detailing the proposed changes said.
The new guidance is the result of work following 45 unique comment letters received from a variety of stakeholders, including “banking organizations, real estate companies, trade associations, nonprofits, The Appraisal Foundation (TAF), an automated valuation model (AVM) developer, loan officers, appraisers, and other individuals.”
Some comments recommended the addition of more “prescriptive guidance” and highlighted the potentially burdensome nature for some organizations to comply.
“Agency staff have reviewed the comments received on the proposal and are recommending finalizing the interagency guidance largely as proposed, with the addition of several clarifying edits,” according to a summarizing document published by the agencies. “The interagency guidance is intended to provide a flexible, risk-based approach to ROV processes that can be adjusted to the unique profile of each institution. Institutions may apply the considerations discussed in this guidance to their specific circumstances.”
Earlier this month, the FHA updated its FHA Connection (FHAC) portal — which provides FHA-approved lenders and business partners with secure online access to computer systems at HUD — to accommodate the implementation of new ROV policy for appraisals.
The Biden administration has taken a critical view of instances of appraisal bias and has prioritized the creation of an ROV policy to address it.
“Appraisal bias harms homeowners of color at every stage of homeownership, and it can lock in inappropriately lower values for entire neighborhoods,” FHA Commissioner Julia Gordon said when announcing FHA’s new policies in May. “Our new policies will arm homeowners, lenders and FHA with a clear process to address biased or inaccurate appraisals.”
