1) July 21 -- The Board of Governors of the Federal Reserve System (Board); Consumer Financial Protection Bureau (CFPB); Federal Deposit Insurance Corporation (FDIC); National Credit Union Administration (NCUA); and Office of the Comptroller of the Currency (OCC), Treasury (together, the agencies) are issuing proposed guidance that would highlight risks associated with deficient residential real estate valuations and describe how financial institutions may incorporate reconsiderations of value (ROV) processes and controls into established risk management functions. The proposed guidance would also highlight examples of policies and procedures that a financial institution may choose to establish to help identify, address, and mitigate the risk of discrimination impacting residential real estate valuations. Comments must be submitted on or before September 19, 2023.
The Board, the CFPB, the FDIC, the NCUA, and the OCC are proposing interagency guidance (proposed guidance) on ROVs of residential real estate valuations. 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 Board, FDIC, NCUA, and the OCC have previously issued guidance that describes actions a financial institution may take to correct deficiencies identified in collateral valuations. These actions include ordering a second appraisal or evaluation or resolving the deficiency through the original appraiser or preparer of the evaluation.
The agencies, collectively, do not have existing guidance specific to ROV processes. For purposes of the proposed guidance, an ROV is a request from the financial institution to the appraiser or other preparer of the valuation report to re-assess the report based upon potential deficiencies or other information that may affect the value conclusion. The agencies have received questions and comments from financial institutions and other industry stakeholders on ROVs, highlighting the uncertainty in the industry on how ROVs intersect with appraisal independence requirements and compliance with Federal consumer protection laws, including those related to nondiscrimination.
The proposed guidance describes how financial institutions may create or enhance ROV processes that are consistent with safety and soundness standards, comply with applicable laws and regulations, preserve appraiser independence, and remain responsive to consumers. The proposed guidance (1) describes the risks of deficient collateral valuations, (2) outlines applicable statutes, regulations, and existing guidance that govern ROVs and collateral valuations, (3) explains how ROV processes and controls can be incorporated into existing risk management functions such as appraisal review and complaint management, and (4) provides examples of ROV policies, procedures, and controls that financial institutions may choose to adopt.
The agencies seek comment, from all interested parties, on all aspects of the proposed guidance, and in particular request comment on the following:
(1) To what extent does the proposed guidance describe suitable considerations for a financial institution to take into account in assessing and potentially modifying its current policies and procedures for addressing ROVs?
(a) What, if any, additional examples of policies and procedures related to ROVs should be included in the guidance?
(b) Which, if any, of the policies and procedures described in the proposed guidance could present challenges?
(2) What model forms, or model policies and procedures, if any, related to ROVs would be helpful for the agencies to recommend?
(3) What other guidance may be helpful to financial institutions regarding the development of ROV processes?
(4) To what extent, if any, does the proposed ROV guidance conflict, duplicate, or complement the existing Interagency Appraisal and Evaluation Guidelines or a financial institution's policies and procedures to implement those Guidelines?
Text of Proposed Interagency ROV Guidance
Background--Credible collateral valuations, including appraisals, are essential to the integrity of the residential real estate lending process. 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. Collateral valuations may be deficient due to prohibited discrimination; errors or omissions; or valuation methods, assumptions, data sources, or conclusions that are otherwise unreasonable, unsupported, unrealistic, or inappropriate. Deficient collateral valuations can keep individuals, families, and neighborhoods from building wealth through homeownership by potentially preventing homeowners from accessing accumulated equity, preventing prospective buyers from purchasing homes, making it harder for homeowners to sell or refinance their homes, and increasing the risk of default. Valuations that are not credible may pose risks to the financial condition and operations of a financial institution. Such risks may include loan losses, violations of law, fines, civil money penalties, payment of damages, and civil litigation. . . .
2) June 8 [press release] -- Five federal regulatory agencies [FRB, CFPB, OCC, NCUA, FDIC] today requested public comment on proposed guidance addressing reconsiderations of value (ROV) for residential real estate transactions. The proposed guidance advises on policies 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. ROVs are requests from a financial institution to an appraiser or other preparer of a valuation report to reassess the value of residential real estate. An ROV may be warranted if a consumer provides information to a financial institution about potential deficiencies or other information that may affect the estimated value.
The proposed guidance shows how ROVs intersect with appraisal independence requirements and compliance with applicable laws and regulations. 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.
Additionally, the proposed guidance would describe the risks of deficient residential real estate valuations and how financial institutions may incorporate ROV processes into established risk management functions. Deficient collateral valuations can contain inaccuracies due to errors, omissions, or discrimination that affect the value conclusion. The proposed guidance would also provide examples of ROV policies and procedures that a financial institution may establish to help identify, address, and mitigate valuation discrimination risk.
Comments must be received within 60 days of the proposed guidance’s publication in the Federal Register.
FRB press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230608a.htm
CFPB Press release: https://www.consumerfinance.gov/about-us/newsroom/agencies-propose-interagency-guidance-on-reconsiderations-value-residential-real-estate-valuations/