In a significant move to further enhance fairness and accuracy in home appraisals, Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) recently introduced new Reconsideration of Value (ROV) requirements that will go into effect no later than October 31, 2024. These updates are aimed at addressing appraisal bias and serving as an extra safeguard to ensure that home valuations are fair and equitable. Here is an overview of these new provisions and how they will affect both lenders and appraisers.
 

Striking a Blow Against Appraisal Bias 

The Reconsideration of Value policy updates are part of a broader initiative to combat racial and ethnic bias in home appraisals. There is ample proof that bias in home valuations has been an underlying problem in the housing industry for many years. This unfair practice can lead to significant financial disadvantages for minority homeowners and perpetuate economic disparities. The new policies – developed collaboratively by the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, and the FHA – aim to provide a clear and structured process for borrowers to challenge and correct potentially biased or inaccurate appraisals​.
 

The Major New Changes in ROV Policies 

Borrower-Initiated Appeals: Borrowers now have the right to request a reconsideration of their property’s appraised value if they believe it to be inaccurate or biased. This appeal process must be clearly communicated to borrowers not only at the time of application but upon the delivery of their appraisal report, with detailed instructions on how to initiate an ROV request.

Lender Responsibilities: 

• Underwriter Training: Lenders are already required to train underwriters to identify and address potential appraisal deficiencies. However, the FHA has also recommended that underwriters look for possible racial or ethnic biases during their appraisal valuations. 
• ROV Request Procedures: Lenders must establish and maintain standards for receiving, processing, and communicating the status of ROV requests to their borrowers. This includes providing clear instructions to borrowers on what should be included in ROV requests, how to correct incomplete requests, and how to evaluate and understand the eventual results of said requests. 
• Quality Control: Enhanced quality control standards must be mandated to ensure that appraisal reviews and reconsiderations are conducted fairly and accurately​​ and that borrowers understand their rights and limitations under the new requirements.
  

Appraiser Guidelines: Appraisers must adhere to new standards when responding to ROV requests and may not simply dismiss borrower-initiated ROVs simply because they disagree with the reasoning therein. The submitted evidence must be thoroughly reviewed and appraisers must provide a summary supporting  their decisions, whether they agree to amend the appraisal or choose to uphold the original valuation​.
 

Implications for Lenders 

As the above responsibilities clearly show, these changes necessitate that lenders implement comprehensive training programs and the establishment of clear procedures for handling ROV requests. Lenders must ensure that their processes are transparent, consistent, and nondiscriminatory. This will likely involve several internal pivots, up to and including: updating internal systems, training staff on the new requirements, and communicating these new changes effectively to borrowers. 

Additionally, lenders must be prepared to provide detailed feedback to borrowers and work closely with appraisers to speedily and carefully resolve any disputes regarding property valuations. This emphasis on no-nonsense quality control means that lenders will need to scrutinize appraisals more closely than ever and ensure that any potential biases are promptly weeded out.
 

Implications for Appraisers 

On the other end of the appraisal chain, appraisers will also need to adjust their practices to comply with the new ROV standards. This includes being available for, and responsive to, ROV requests and providing thorough explanations for their valuations. Under these new requirements, appraisers and their work will be more closely scrutinized than ever before. They must ensure that their assessments are free from bias and based solely on accurate and relevant market data. 

The new requirements also place a greater emphasis on transparency and accountability in the appraisal process. Appraisers should be prepared to engage in detailed discussions with both lenders and borrowers, backed by unbiased research, to justify their valuations and address potential concerns.
 

Working Together Towards a Fair Future 

The new Reconsideration of Value requirements introduced by Fannie, Freddie, and the FHA represents another significant step toward ensuring true fairness and accuracy in home appraisals across the board. By providing borrowers with a clear avenue to challenge possibly biased or inaccurate valuations, these policies aim to promote equity in the housing market by giving borrowers a real say in the appraisal process. 

For lenders and appraisers, these changes necessitate a proactive approach to training, process management, and quality control. By adhering to these new standards and refreshing their underwriter and loan team best practices, mortgage companies can help work towards eliminating appraisal bias and ensuring that all homeowners receive correct property valuations based on factual data alone. As these new requirements take effect, all industry participants must stay informed and adapt their practices accordingly. While updating systems and practices may take time, lenders and appraisers should be mindful that these new rules are in place to create a more equitable and transparent housing market  ̶  one that benefits ALL borrowers while eliminating discriminatory biases in the loan process. 

For more in-depth details on the new ROV policies, lenders and appraisers may refer to the official announcements and guidelines provided by Fannie Mae, Freddie Mac, and the FHA. 

At Class Valuation, our goal is to ensure fair and accurate property valuations for all stakeholders. We’re committed to helping borrowers, lenders and appraisers meet the new ROV requirements as we collectively move toward a more equitable housing market. Contact Class Valuation today to learn more. To find the updated ROV form and an extensive FAQ, visit classvaluation.com/reconsideration.