On May 1, 2024, the Federal Housing Administration (“FHA”) and the Federal Housing Finance Agency (“FHFA”) both published new policies regarding Reconsideration of Value (“ROV”). The new requirements outline how lenders must disclose the ROV process to consumers and sets standards to improve current policies for appraisal reviews, including requests for reconsideration of value and second appraisals.
In Mortgagee Letter 2024-07 (ML 2024-07), the FHA announced that the new ROV guidance can be implemented immediately but must be implemented for loans with FHA Case numbers assigned on or after September 2, 2024. The updates will be included in upcoming changes to the FHA Single Family Housing Policy Handbook (“HUD Handbook 4000.1”) and apply to Single Family Title II forward mortgage and Home Equity Conversion Mortgage (“HECM”) loan programs.
ML 2024-07 provides policy updates for how an FHA Direct Endorsement underwriter may order a second appraisal if it is determined that the first appraisal is materially deficient, and the original appraiser is unable or uncooperative in resolving the deficiency. If the appraisal is materially deficient due to a statement related to characteristics of a protected class, the underwriter may forgo communicating with the original appraiser before ordering a second appraisal and must report the appraisal to the State Appraiser Regulatory Agency.
In addition to an underwriter initiated ROV, the new FHA policy allows a borrower to request an ROV. The FHA has added a new section under property acceptability criteria (II.A.3.a.ix.) to outline the process for a borrower to request a review, which includes a new disclosure requirement. Mortgagees must “provide an easy-to-understand disclosure at mortgage loan application and upon delivery of the appraisal report to the Borrower with instructions to explain the borrower-initiated ROV process, the expected ROV processing times, and the process for requesting clarifications or corrections unrelated to the value conclusion.”
The FHFA also announced the publication of new ROV policies issued by Fannie Mae and Freddie Mac. In the announcement, FHFHA Director Sandra L. Thompson states that “consistent standards for lenders and appraisers, coupled with a well-understood process for consumers to challenge appraisal findings, will help ensure that consumers are treated fairly.” Like the FHA, Fannie Mae and Freddie Mac require lenders to provide borrowers a disclosure outlining the ROV process at the time of application and again when the appraisal report is provided to the borrower. The disclosure must advise the borrower that they may only request one ROV per appraisal.
Fannie Mae updated its Selling Guide, including Section B4-1.3-12, to add new lender requirements for policies and procedures to be in place for a borrower-initiated reconsideration of value. The policies must include the steps a borrower has to follow to appeal an appraisal when it is believed that the reported value is unsupported, deficient due to unacceptable appraisal practices, or reflects a prohibited discriminatory practice.
In Bulletin 2024-6, Freddie Mac issued guidance similar to that of FHA and Fannie Mae, requiring lenders to implement policies and procedures for borrowers to request a ROV, and to disclose to the borrower the process for initiating an ROV request.
FHA, Fannie Mae, and Freddie Mac all state that the new guidance may be, but is not required to be, implemented immediately. ML 2024-07 provides that the new policies are mandatory for FHA-guaranteed loans with case numbers assigned on or after September 2, 2024. Fannie Mae and Freddie Mac require the new policies to be implemented for loan applications dated on or after August 29, 2024.
DocMagic will return a new disclosure to meet the requirements of providing the borrower an explanation of the ROV process. The new form will be available in DocMagic’s testing environment by the end of June and will be released to production on August 15, 2024. The form will be added by default to application, appraisal, and initial disclosure packages for FHA-guaranteed and conventional loans.
If you have any questions, please contact DocMagic’s Compliance Department.
