ICBA requests clarity on HUD appraisal guidance

ICBA called on the Department of Housing and Urban Development to clarify lender obligations under draft guidance on borrower requests for Reconsideration of Value, or ROV, of appraised properties for Federal Housing Administration single-family loans.

ROV Process: HUD’s draft mortgagee letter is designed to improve the process of requesting ROVs, which generally occur if the value is lower or higher than expected, if there is any indication of bias or discrimination, and if any fair housing regulations have been violated. The letter also modifies the list of possible material deficiencies that could justify a second appraisal, including indications of unlawful bias in the appraisal.

Documentation Guidance: The key change outlined in HUD’s draft mortgagee letter is the addition of specific guidance directing lenders to document and conduct appraisal reviews upon request by borrowers. Lenders may then decide whether an ROV is appropriate or a second appraisal is necessary.

Borrower Notification: In response, ICBA requested clarification regarding lender obligations to notify borrowers of their right to request a review, such as whether there be standardized forms, whether borrowers are required to provide any justification or data for the request. ICBA expressed concern that many mortgagees will automatically apply for an ROV or second appraisal even if the review didn’t find any discrepancies, which could lead to increased costs and delayed closings.

Legal Expertise: ICBA also asked HUD to better define how a mortgagee is supposed to single out instances of potential bias and discrimination. ICBA said expecting lenders—especially community banks—to retain staff with the legal expertise necessary to flag state, local, and federal violations of fair housing and nondiscrimination laws is unrealistic.