Consistent with concerns surrounding bias in property valuations, on June 8, 2023, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (the “board”), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) issued proposed guidance on reconsiderations of value (ROV) for residential real estate valuations.
Generally, an ROV is a request by a consumer or financial institution to an appraiser, appraisal management company, or other property evaluator to reassess the analysis and conclusions of the initial appraisal based on supporting evidence contracting the initial valuation. Prior to issuance of the proposed guidance, there was no clear rule regarding ROV processes. In fact, in November 2018, the Appraisal Foundation – the entity charged with standards and qualifications for real estate appraisers – issued a white paper recognizing “that there is no consistent industrywide policies, guidelines, or forms related” to the ROV process and highlighting the need for consistency in handling such requests.
Even more, under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the board, NCUA, OCC, and FDIC simply require financial institutions to ensure appraisals conducted on their behalf are consistent with Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. USPAP, which generally recognized performance standards for appraisers, does not address the interplay between ROV and the appraisal review process.
Of noted importance, the board, CFPB, FDIC, NCUA, and OCC are also part of the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE). The PAVE Task Force was created in June 2021 to evaluate the causes, extent, and consequences of appraisal bias and to establish recommendations to address racial and ethnic bias in home valuations. In this regard, Action 1.3 of the PAVE Action Plan established by the task force states, “NCUA, FDIC, OCC, and FRB will issue guidance regarding ROVs. Issues that the agencies will consider addressing in the guidance would include examples of effective practices in using ROVs, and whether there are any measures that lenders can take to encourage greater use of ROVs. Prudential regulators will also review authorities and determine the potential for rulemaking related to ROV processes, as rulemaking would drive additional accountability beyond that of guidance.”
In fulfilling their PAVE Action Plan duties, the five federal agencies issued the proposed interagency guidance to describe how financial institutions may incorporate ROV processes and controls, as well as highlight examples of policies and procedures that a financial institution may choose to establish to help address appraisal bias and discrimination concerns. According to the CFPB, the proposed guidance “describes how financial institutions may create or enhance their existing ROV processes while remaining consistent with safety and soundness standards, complying with applicable laws and regulations, preserving appraiser independence, and remaining responsive to consumers.”
The proposed guidance is a step by federal regulators to establish clear and robust ROV processes and address perceived appraisal bias concerns. Those regulators maintain such processes are necessary to ensure real estate valuations are free of bias, thereby promoting increased integrity within the real estate lending process.
Comments are due within 60 days of the proposed guidance’s publication in the Federal Register.
