On July 18, the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp. (FDIC), Federal Reserve Board (FRB), National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) finalized guidance addressing reconsiderations of value (ROV) for residential real estate valuations, the agencies announced in a joint press release.
ROVs are requests from a financial institution to an appraiser or other preparer of a valuation report to reassess a subject property’s value. 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 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,” the agencies said in the release.
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.
“This guidance is intended to highlight risks associated with deficient residential real estate valuations, describe how financial institutions may incorporate ROV processes and controls into risk management functions, and provide examples of ROV policies and procedures that institutions may choose to implement,” the guidance stated. “Collateral valuations, including appraisals, are important to the integrity of the residential real estate lending process. Deficient collateral valuations can contain inaccuracies due to errors, omissions, or discrimination that affect the value conclusion and can result in either overvaluing or undervaluing real estate collateral.
“The [FRB], FDIC, NCUA, and OCC have previously issued guidance that describes actions a financial institution may take to correct deficiencies identified in collateral valuations,” it continued. “These actions include ordering a second appraisal or evaluation or resolving the deficiency through the original appraiser or preparer of the evaluation.”
The guidance was issued the day after these agencies and the Federal Housing Finance Agency (FHFA), issued a final rule to help ensure the credibility and integrity of models used in valuations for certain mortgages secured by a principal dwelling.
The new rule implemented quality control standards for the automated valuation models used by mortgage originators and secondary market issuers in valuing homes.
The new rule requires institutions engaging in certain transactions secured by a consumer’s principal dwelling to adopt policies, practices, procedures, and control systems that will:
- Protect against data manipulation.
- Seek to avoid conflicts of interest.
- Require random sample testing and reviews.
- Comply with nondiscrimination laws.
Check out RESPA News’ sister publication Valuation Review for more in-depth coverage on these developments.