- 08.29.24 •
- Topics:
- Compliance
Q&A with Leadership: Reconsidering Reconsideration of Value
If a homeowner or homebuyer believes a home valuation is not accurate, they can request a reconsideration of value (ROV) from their lender. Lenders are required to have policies and procedures in place to process ROV requests that provide a fair opportunity for all borrowers to challenge appraisals that are believed to be inaccurate or discriminatory.
Docutech clients who use a custom document in lieu of Docutech’s standard document are encouraged to review the standard document thoroughly and request any desired customizations by September 30, 2024, to ensure ample time before the new effective date of October 31, 2024.
Why are these ROV changes being made?
To address appraisal bias and remove obstacles to borrower reconsideration of value (ROV), Fannie Mae (FNMA), Freddie Mac (FHLMC), and The U.S. Department of Housing and Urban Development (HUD) have announced changes to the ROV requirements for their various housing programs and businesses.
When are the ROV changes required?
On August 6, 2024, FNMA, FHLMC, and HUD announced an extension for new policy requirements for lenders to respond to a borrower-initiated ROV of an appraisal report. The prior implementation date for FNMA and FHLMC was August 29, 2024, and the HUD date was previously May 1, 2024. The delay was a response to industry feedback requesting more time for implementation. This feedback included a letter from the Mortgage Bankers Association requesting more time for lenders to adopt new processes, such as providing new disclosures to borrowers at the time of application and upon receipt of an appraisal. The effective date is now set to be on or after October 31, 2024, ensuring alignment for all impacted parties. However, lenders are encouraged to implement these policies as soon as possible.
What is an ROV?
Accurate appraisals are an essential component to a fair and efficient mortgage lending market. If an underwriter believes there is a problem with an appraisal, he or she may request that the appraiser to reassess the appraisal report based on information that may affect the valuation. If a homeowner or homebuyer believes that a home valuation is not accurate, they can also request a reconsideration of value (ROV) from their lender. During this process, borrowers can identify errors or omissions, problems with comparable properties, or other evidence that their appraisal report is inaccurate or was influenced by prohibited bias. Lenders are required to have policies and procedures in place to process ROV requests that provide a fair opportunity for all borrowers to challenge appraisals that are believed to be inaccurate or discriminatory.
What are the general ROV requirements?
The agencies require lenders to have policies and procedures in place for borrower-initiated ROV for loans requiring an appraisal report. The process must meet agency guidelines and all applicable federal state and local law. The process must include a review and resolution procedure for the ROV request and steps the borrower must follow when they believe the opinion of value is unsupported, may be unacceptable due an unacceptable appraisal practice, or reflects discriminatory practices. The lender is ultimately responsible for ensuring the appraisal is reliable and adequately supported.
What are the disclosure requirements?
The lender is required to provide an easy-to-understand disclosure to the borrower outlining the ROV process and instructions for requesting an ROV. The disclosure must specify that only one borrower-initiated ROV is permitted per appraisal, outline the expected ROV processing times, and explain the process for requesting clarifications or corrections that do not pertain to the value conclusion. The disclosure must detail the required information for submitting an ROV request, including any limitations on the information allowed from the borrower, such as a maximum of five alternative comparable sales for consideration. This ROV disclosure must be provided at the time of application and again when the appraisal report is provided to the borrower.
What are the lender’s ROV responsibilities?
Lenders are required to continually evaluate the quality of an appraiser’s work by reviewing all appraisal reports as part of their quality assurance programs. When a borrower initiates the ROV process, the request must include the following items:
- Borrower(s) name,
- Property address,
- Effective date of the appraisal,
- Appraiser name, and
- Date of the ROV request.
The request must also identify and describe unsupported, inaccurate, or deficient areas in the report. It must include additional data, information, or comparable properties (not to exceed five), and the related data sources (example: MLS listing number). It should also explain why the data supports the ROV.
- The lender’s ROV policies and procedures must also include instruction on required information for borrower-submitted ROV and standardized communications to the appraiser.
- The lender must complete its appraisal review before initiating the ROV process.
- The lender must designate an underwriter or other appraisal subject matter expert to review the ROV request.
- The lender must validate that the request from the borrower contains sufficient details prior to sending to the appraiser and obtain the necessary information from the borrower if the ROV request is unclear or needs more information.
- The lender must align its ROV policies and procedures with Appraiser Independence Requirements.
The lender must also establish protocols for communication with the borrower. FHA specifically requires that the following communications must be in writing: (1) acknowledging receipt of the ROV request; (2) how to correct an incomplete ROV request; (3) updates on the status of the ROV request; and (4) the results of the ROV request.
What are requirements for lenders to communicate with appraisers?
Lenders are also required to standardize their communication to the appraiser, and the communication must contain the following elements:
- Borrower(s) name, property address, effective date of the appraisal, appraiser name, and date of the ROV;
- Identification and description of unsupported, inaccurate, or deficient areas in the appraisal report;
- Additional data, information, or comparable properties, not to exceed the maximum of five;
- A definition of turn-time expectations for communicating ROV results;
- Instructions for delivering the ROV response as part of a revised appraisal report that includes commentary on conclusions regardless of the outcome; and
- A reference for appraisers on how to correct minor appraisal issues or non-material errors not related to the ROV process.
What is Docutech doing to support the ROV disclosure requirements?
Docutech has created a new generic document entitled “Notice of Right to Request a Reconsideration of Value (ROV)” (Cx27674). While this is a customizable document, Docutech has provided generic default language in compliance with FNMA, FHLMC, and HUD guidelines.
The Notice of Right to ROV needs to be disclosed to the borrower twice: once at the time of loan application and once again when the appraisal report is provided to the borrower. Cx27674 will print identically both times. The only difference will be when Cx27674 is disclosed after appraisal, the additional fields for Date of Appraisal and Name of Appraiser will be included.
Clients may also utilize a custom document in lieu of Docutech’s standard document. Clients are encouraged to review Docutech’s standard document thoroughly and request any desired customizations by September 30, 2024, to ensure ample time before the new effective date of October 31, 2024.
Where can I go to learn more?
Additional detail may be found at the links below, as well as directing any Docutech-specific inquiries to docutech-insights@docutech.com.