Economic analysis

ROV (Reconsideration of Value) Changes – FHA and GSEs

GSE Effective date is August 29, 2024
HUD Effective date is September 2, 2024

Editor’s note: This long section includes, In order:

• McKissock/Dave Bradley post with a good summary including links to HUD and GSE documents.
• Appraisersblogs with Dave Towne’s opinions plus many appraiser comments.
• George Dell – his usual very interesting comments.
• VA’s Tidewater Initiative written in 2021 by McKissock (Similar idea as current ROV changes), effective in 2003.

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Changes to ROVs: GSEs and HUD Announce New Reconsideration of Value Policies

By Dave Bradley, McKissock May 2, 2024

Excerpts: On May 1, 2024, Fannie Mae, Freddie Mac, and HUD announced new policies for appraisal reconsiderations of value (ROV). These policies were the result of a collaborative effort between the GSEs, the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA).

These policies are intended to create a consistent framework for lenders to respond to a borrower-initiated reconsideration of value. Within this framework, the lender must include steps for the borrower to appeal an appraisal when they believe the value opinion:

• is unsupported;
• is deficient due to unacceptable appraisal practices; or
• reflects discriminatory practices.

Freddie Mac’s Bulletin, announcing the new policy, states:

“Freddie Mac, in collaboration with Fannie Mae and HUD, is implementing requirements related to reconsideration of value (ROV) that promote consistency when a perceived appraisal issue and/or appraisal deficiency exists. These requirements also recognize the importance of the Borrower having the knowledge and opportunity to request an ROV.”

Several sections of HUD Handbook 4000.1 have been amended to reflect HUD’s new ROV policy.

For appraisers, Section II.D.2. of the Handbook creates new general requirements for appraisers. This section states, in part:

“In the event that the underwriter requests a Reconsideration of Value (ROV) and provides additional information material to the value of the Property, the Appraiser must: review all information and market data received from the underwriter;

and summarize the analysis of all information provided by the underwriter within a revised version of the appraisal report regardless of whether the Appraiser determines that changes are not needed to address the issues identified in the ROV.”

To read more plus get links to FHA/GSE documents, Click Here

My comments: If you do GSE or FHA appraisals, read this post, plus the links to the documents. Many appraisers will probably not like it, but will like to have a standardized ROV method. I have never done an “official” ROV for a lender, but I did not like any lender clients objecting to my values.

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Low Value = Material Deficiencies? New FHA ROV Policy

By Dave Towne, May 3, 2024

Excerpts: Up until recently, there has never been a standardized policy for mortgage loan related Reconsideration of Value (ROV) requests after an appraisal has been submitted. Now there is, per the attached PDF HUD/FHA mortgage letter. The GSE’s have similar policies.

I’m not opposed to having a standardized ROV policy. However, these policies are in keeping with the new initiatives surrounding alleged and often unproved appraisal bias and discrimination claims.

But when one reads deeper into the reason for implementing these procedures, it is quickly evident that actually it’s focused on the perception that the appraised VALUE is wrong.

This is the statement in the HUD/FHA ML-2024-07: “This included guidance to improve the established process by which FHA program participants may request an ROV if the initial valuation is lower than expected.”

OK, so who exactly decided the value should be HIGHER than what the appraiser reported, before an appraisal was ordered? Was it the borrower? The mortgage loan officer handling the loan? A Zillow Zestimate? Maybe the underwriter at the lender?

The document also mentions many times the words “material deficiencies” in the appraisal report, which can trigger an ROV request.

My comments: I find this post’s appraiser comments most interesting, especially those from VA appraisers who have been required to use the VA’s Tidewater Initiative, which started in 2003. It was and is controversial. See the last article in this list for more info on Tidewater.

To read more, Click Here

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Row, Row, Row, Part 1

By George Dell May 8, 2024

Excerpts: A better ROV! Please reconsider the direction of your boat. Try this this bigger oar. And use it only on the right side of the boat.

Appraisers have long been asked to “reconsider” their opinion. Now we have a more official “standardized process” which affects appraisers, lenders, AMCs, GSEs, and of course, the borrower.

On quick review, I see some unintended consequences, as well as some which have been anticipated. The anticipation includes the additional burden on lenders as well as appraisers. There is administrative time involved, as well as legal factors. Also, the burden on borrowers appears greater than before, including detail and reason.

First, the burden on borrowers. They start the row. Borrowers must believe the opinion of value is:

• Unsupported;
• Deficient (due to unacceptable appraisal practices); or
• Reflects prohibited discriminatory practices.

And regardless of the impact on borrowers and appraisers, the Fannie Mae Selling Guide is almost entirely focused on the responsibilities of the lender.

To read more, Click Here

My comments: Short and worth reading.

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The first “official” ROVs – VA’s Tidewater Initiative in 2003: What VA Appraisers Need to Know

By McKissock, January 8, 2021

Excerpts: The VA has a unique set of protocols, known as the Tidewater Initiative, that a VA appraiser must follow when he or she expects the appraised value of a property is going to be lower than its contract price.

This program, often known simply as “Tidewater,” initiated in—you guessed it—the Tidewater area of Virginia (i.e., the Norfolk, Chesapeake, Portsmouth, and Virginia Beach areas). It initially began as a test program in the early 2000s and was expanded to all areas of the country in 2003, as a result of VA Circular 26-03-11. This initiative was subsequently reaffirmed in the issuance of VA Circular 26-17-18 in July 2017.

If it appears to a VA appraiser that the appraised value of a property is going to come in below the pending sales price, the appraiser must contact the designated point of contact (POC) party that is specified in the appraisal order.

The appraiser is not supposed to discuss the contents of the appraisal with the POC at this point, except to explain they are asking for whatever additional information the POC may be able to provide…

To read more, Click Here

My comments: Read this Tidewater post to see why the current changes are not new. There was a precedent. I never did VA appraisals, so can’t speak from Tidewater experience. But, I remember it was very controversial when it started. Many appraisers complained about it. I was contacted many years ago by the VA to get on their panel, but I declined as the property values were way above VA limits where I lived.

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