Rule2024-16200
Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 26, 2024
Issuing agencies
Treasury DepartmentComptroller of the CurrencyFederal Reserve SystemFederal Deposit Insurance CorporationNational Credit Union AdministrationConsumer Financial Protection Bureau
Abstract
The Board, CFPB, FDIC, NCUA, and OCC (together, the agencies) are issuing final guidance that highlights risks associated with deficient residential real estate valuations and describes how financial institutions may incorporate reconsiderations of value (ROV) processes and controls into established risk management functions. The final guidance also provides examples of policies and procedures that a financial institution may choose to implement to help identify, address, and mitigate the risk of discrimination impacting residential real estate valuations.
Full Text
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<title>Federal Register, Volume 89 Issue 144 (Friday, July 26, 2024)</title>
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[Federal Register Volume 89, Number 144 (Friday, July 26, 2024)]
[Rules and Regulations]
[Pages 60549-60558]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16200]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 89, No. 144 / Friday, July 26, 2024 / Rules
and Regulations
[[Page 60549]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 34
[Docket ID OCC-2023-0007]
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Docket No. OP-1809]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 323
RIN 3064-ZA36
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
[Docket ID NCUA-2023-0061]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Chapter X
[Docket No. CFPB-2023-0033]
Interagency Guidance on Reconsiderations of Value of Residential
Real Estate Valuations
AGENCY: 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.
ACTION: Final interagency guidance.
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SUMMARY: The Board, CFPB, FDIC, NCUA, and OCC (together, the agencies)
are issuing final guidance that highlights risks associated with
deficient residential real estate valuations and describes how
financial institutions may incorporate reconsiderations of value (ROV)
processes and controls into established risk management functions. The
final guidance also provides examples of policies and procedures that a
financial institution may choose to implement to help identify,
address, and mitigate the risk of discrimination impacting residential
real estate valuations.
DATES: The guidance is final as of July 26, 2024.
FOR FURTHER INFORMATION CONTACT:
OCC: Siddarth Rao, Fair Lending Compliance Policy Specialist, (732)
635-2070; Olutoyin Falade, Fair Lending Compliance Policy Specialist,
(972) 277-9551; James B. Rives, Retail Credit Risk Specialist, (202)
649-6594; Joanne Phillips, Counsel, or Marta Stewart-Bates, Counsel,
Chief Counsel's Office, (202) 649-5490; Office of the Comptroller of
the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf,
hard of hearing, or have a speech disability, please dial 7-1-1 to
access telecommunications relay services.
Board: Devyn Jeffereis, Senior Financial Institution Policy Analyst
II, Division of Supervision and Regulation, (202) 452-2729; Keshia
King, Lead Supervisory Policy Analyst, Division of Consumer and
Community Affairs, (202) 452-2496; Trevor Feigleson, Senior Counsel,
(202) 452-3274, or Derald Seid, Senior Counsel, (202) 452-2246, Legal
Division. For users of telephone systems via text telephone (TTY) or
any TTY-based Telecommunications Relay Services, please call 711 from
any telephone, anywhere in the United States; Board of Governors of the
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
FDIC: Patrick J. Mancoske, Senior Examination Specialist, Division
of Risk Management Supervision, (202) 898-7032; Stuart Hoff, Senior
Policy Analyst, Division of Depositor and Consumer Protection, (202)
898-3852; Legal Division: Navid Choudhury, Counsel, (202) 898-6526,
<a href="/cdn-cgi/l/email-protection#9ef0fdf6f1ebfaf6ebece7def8faf7fdb0f9f1e8"><span class="__cf_email__" data-cfemail="ec828f8483998884999e95ac8a88858fc28b839a">[email protected]</span></a>, Lauren Whitaker, Counsel, (202) 898-3872,
<a href="/cdn-cgi/l/email-protection#4e223926273a2f252b3c0e282a272d60292138"><span class="__cf_email__" data-cfemail="5a362d32332e3b313f281a3c3e3339743d352c">[email protected]</span></a>, or Mark Mellon, Counsel, (202) 898-3884,
<a href="/cdn-cgi/l/email-protection#630e0e060f0f0c0d2305070a004d040c15"><span class="__cf_email__" data-cfemail="0964646c65656667496f6d606a276e667f">[email protected]</span></a>. Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
NCUA: Naghi Khaled, Director of Credit Markets, or Walonda Hollins,
Senior Credit Specialist, Office of Examination and Insurance, (703)
216-5136; Ernestine Ward, Director, Division of Consumer Compliance
Policy & Outreach, Office of Consumer Financial Protection, (703) 518-
6524; National Credit Union Administration, 1775 Duke Street,
Alexandria, VA 22314.
CFPB: George Karithanom, Office of Regulations, at (202) 435-7700
or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you require this
document in an alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#f3b0b5a3b1acb290909680809a919a9f9a878ab390958391dd949c85"><span class="__cf_email__" data-cfemail="1c5f5a4c5e435d7f7f796f6f757e75707568655c7f7a6c7e327b736a">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Discussion of Comments on the Proposed Guidance
A. General Comments
B. Terminology & Scope
i. Description of the Term ``ROV''
ii. Description of the Terms ``Comparable Sale'' and ``Specific
and Verifiable Information''
ii. Scope of Transactions Covered by the Guidance
C. Comments on Prescriptive Versus Principles-Based Approach
i. Specific Suggestions for Added Prescriptiveness
ii. Uniformity & Standardization of ROV Processes
iii. Model Forms, Checklists, & Policies
D. Comments on Burden on Institutions
E. Other Comments Submitted
III. Paperwork Reduction Act
IV. Text of Final Interagency Guidance on Reconsiderations of Value
of Residential Real Estate Valuations
I. Introduction
The agencies are issuing final interagency guidance (final
guidance) on ROVs of residential real estate valuations.\1\ The
agencies considered the comments received on the proposed guidance, and
as a result, made several edits to the final guidance, including
clarifying the guidance's scope. The agencies are finalizing the
guidance largely as proposed. This guidance is intended to highlight
risks associated with deficient residential real estate valuations,
describe how financial
[[Page 60550]]
institutions may incorporate ROV processes and controls into risk
management functions, and provide examples of ROV policies and
procedures that institutions may choose to implement. Collateral
valuations, including appraisals,\2\ are important to the integrity of
the residential real estate lending process. Deficient collateral
valuations can contain inaccuracies due to errors, omissions, or
discrimination \3\ that affect the value conclusion and can result in
either overvaluing or undervaluing real estate collateral. The Board,
FDIC, NCUA, and OCC have previously issued guidance that describes
actions a financial institution may take to correct deficiencies
identified in collateral valuations.\4\ These actions include ordering
a second appraisal or evaluation or resolving the deficiency through
the original appraiser or preparer of the evaluation.\5\
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\1\ This final guidance is supervisory guidance that does not
have the force and effect of law or regulation and does not impose
any new requirements on supervised institutions. See 12 CFR part 4,
subpart F, appendix A (OCC); 12 CFR part 262, appendix A (Board); 12
CFR part 302, appendix A (FDIC); 12 CFR part 1074, appendix A
(CFPB); 12 CFR part 791, subpart D, appendix A (NCUA).
\2\ Appraisal means ``a written statement independently and
impartially prepared by a qualified appraiser setting forth an
opinion as to the market value of an adequately described property
as of a specific date(s), supported by the presentation and analysis
of relevant market information.'' 12 CFR 34.42(a) (OCC); 12 CFR
323.2(a) (FDIC); 12 CFR 225.62(a) (Board); 12 CFR 722.2 (NCUA).
\3\ For the purposes of this guidance, ``discrimination'' is
prohibited discrimination based on protected characteristics in the
residential property valuation process. For these purposes,
``valuation'' includes appraisals, evaluations, and other means to
determine the value of residential property.
\4\ See Interagency Appraisal and Evaluation Guidelines, 75 FR
77450 (December 10, 2010).
\5\ The NCUA uses the term ``written estimate of market value''
in place of the term ``evaluation.'' See 12 CFR 722.3.
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Prior to the efforts to adopt this joint guidance, the agencies had
not, collectively, issued guidance specific to ROV processes. The
agencies had received questions and comments from financial
institutions and other industry stakeholders on ROVs. Stakeholders
highlighted 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.
As such, the final guidance addresses some of the questions raised by
stakeholders. For purposes of the final guidance, an ROV is a request
from the financial institution to the appraiser or other preparer of
the valuation report to reassess the report based upon potential
deficiencies or other information that may affect the value
conclusion.\6\
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\6\ ROVs may arise from a consumer requesting a financial
institution to reexamine a valuation.
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II. Discussion of Comments on the Proposed Guidance
On July 21, 2023, the agencies published for comment proposed
guidance on ROVs of residential real estate valuations (proposal).\7\
The 60-day comment period ended on September 19, 2023. The agencies
invited comment on all aspects of the proposed guidance from all
interested parties. In particular, the agencies requested comment on
the following: (1) to what extent the proposed guidance describes
suitable considerations for a financial institution to take into
account in assessing and potentially modifying its current ROV policies
and procedures; (2) suggestions for ROV model forms or model policies
and procedures, if any, that would be helpful for the agencies to
recommend; (3) suggestions for other guidance that may be helpful to
financial institutions concerning the development of ROV processes; and
(4) to what extent, if any, the proposed ROV guidance conflicts with,
duplicates, or complements the existing Interagency Appraisal and
Evaluation Guidelines (Guidelines) or a financial institution's
policies and procedures to implement those Guidelines. The agencies
collectively received more than 45 unique comment letters from banking
organizations, real estate companies, trade associations, nonprofits,
The Appraisal Foundation (TAF),\8\ an automated valuation model (AVM)
developer, loan officers, appraisers, and other individuals.
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\7\ ``Proposed Interagency Guidance on Reconsiderations of Value
of Residential Real Estate Valuations,'' 88 FR 47071 (July 21,
2023).
\8\ TAF is a not-for-profit corporation under the laws of
Illinois, which sets appraisal standards and appraiser
qualifications in connection with federally related transactions.
See 12 U.S.C. 3331 et seq. and <a href="https://appraisalfoundation.org/imis">https://appraisalfoundation.org/imis</a>.
As contemplated by title XI of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA), the Board, FDIC,
NCUA, and the OCC have promulgated regulations requiring that real
estate appraisals be performed in accordance with generally accepted
appraisal standards as evidenced by the appraisal standards
promulgated by the Appraisal Standards Board of TAF. See 12 U.S.C.
3339; 12 CFR part 225 (Board); 12 CFR part 323 (FDIC); 12 CFR part
722 (NCUA); 12 CFR part 34 (OCC).
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A. General Comments
In general, many commenters supported the agencies' issuance of
interagency guidance specific to ROV processes. Some of these
commenters agreed with the proposal's focus on the importance of
credible collateral valuations, compliance with nondiscrimination laws,
and safeguarding appraiser independence. Other commenters asserted that
additional clarity in the guidance is necessary and provided
recommendations. A few commenters, including certain credit unions,
trade associations, and appraisers, opposed the guidance or aspects of
the guidance on the grounds that it would be overly burdensome for
institutions or place undue pressure on appraisers which could lead to
overvaluation.
Commenters expressed mixed views on whether ROV processes should be
uniform across all institutions. Some commenters recommended adding
more prescriptive elements to the guidance, while others asserted that
the guidance should be broad and flexible, as proposed. Some commenters
believed that many of the proposal's policies and procedures should be
mandatory.
In response to comments received, the agencies made several
clarifying edits to the final guidance, including clearly stating the
scope of transactions covered by the guidance. The agencies underscore
that supervisory guidance does not have the force and effect of law or
regulation and does not impose any new requirements on supervised
institutions.\9\ The guidance is intended to provide a flexible, risk-
based approach to ROV processes that institutions can adjust to their
unique profile. The justification for and benefits of the agencies'
approach, and the agencies' consideration of specific comments, are
discussed further below.
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\9\ See authorities cited supra note 1.
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B. Terminology & Scope
Commenters offered views on certain terms used in the proposal,
including the terms ``ROV,'' ``comparable sale,'' and ``specific and
verifiable information.'' Commenters also expressed views on the scope
of transactions covered by the guidance.
i. Description of the Term ``ROV''
One commenter requested that the agencies revise the definition of
``ROV'' to remove the language ``that may affect the value
conclusion.'' \10\ This commenter expressed concern that including this
language could result in a lender exerting pressure on an appraiser to
change a value that does not satisfy the lender. Another commenter
asserted that the proposal's use of the term ``ROV'' might be too
limiting as it focuses on ``value'' and suggested the broader term
``Appraisal Reconsideration'' instead. A commenter
[[Page 60551]]
suggested that the definition of ``ROV'' be amended to provide that an
agent of the institution, such as an appraisal management company
(AMC), could initiate an ROV request.
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\10\ The proposal described the term ``ROV'' as a ``request from
the financial institution to the appraiser or other preparer of the
valuation report to reassess the report based upon potential
deficiencies or other information that may affect the value
conclusion.'' 88 FR 47071, 47073 (July 21, 2023).
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Alternative descriptions suggested by commenters could result in
overly broad or narrow descriptions and would not capture the
appropriate types of requests. Therefore, the agencies believe the
description of the term ``ROV'' in the proposed guidance captures the
intended scope and the final guidance does not change that description.
The agencies decline to incorporate the term ``Appraisal
Reconsideration'' into the final guidance, as it implies that
appraisals are the sole type of valuation subject to ROVs.
ii. Description of the Terms ``Comparable Sale'' and ``Specific and
Verifiable Information''
One commenter requested that the agencies clearly define the term
``comparable sale'' \11\ in the context of the content of an ROV
request, which may include comparable properties not previously
identified. A commenter recommended that the agencies clarify the term
``specific and verifiable information'' in connection with a consumer
providing specific and verifiable information that may not have been
available or considered when the initial valuation and review were
performed. The same commenter requested that the agencies provide clear
examples of both valid and invalid data in the context of consumer-
provided ``specific and verifiable information.''
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\11\ The agencies note that the final guidance, like the
proposed guidance, references ``comparable properties'' and
``comparable properties not previously identified,'' instead of
``comparable sales.''
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The agencies considered the comments regarding ``comparable sale''
and ``specific and verifiable information.'' Under the provisions of
title XI of the FIRREA, the Appraisal Standards Board (ASB) of TAF sets
appraisal standards in connection with federally related transactions,
which it does through the development and publication of the Uniform
Standards of Professional Appraisal Practice (USPAP).\12\ What
constitutes a ``comparable sale'' and ``specific and verifiable
information'' fall within the purview of the ASB and USPAP. Therefore,
the agencies decline to provide definitions or examples related to
those terms in the final guidance.
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\12\ See 12 U.S.C. 3331 et seq.
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iii. Scope of Transactions Covered by the Final Guidance
Some commenters questioned the scope of the term ``residential real
estate'' in connection with the types of transactions that the guidance
covers. One commenter asserted that ``residential real estate'' likely
encompassed single-unit dwellings like standalone homes, condos, co-
ops, and townhouses. Another commenter stated that their interpretation
of the proposal's scope was that it included loans for properties that
borrowers plan to live in as their primary residence.
Commenters made specific suggestions regarding the type of loans
the guidance should cover. In particular, a commenter suggested that
the guidance should only extend to loans secured by a single 1-to-4
family residential property, excluding multi-family dwellings. Another
commenter recommended that loans to small businesses, corporations,
partnerships, and trusts should be covered by the guidance, because the
Equal Credit Opportunity Act (ECOA) applies to any extension of credit
to those entities. Finally, a commenter asserted that the guidance
should cover all types of real estate-related credit, including multi-
family and commercial.
The agencies considered the comments regarding the scope of
``residential real estate,'' as well as the comments in favor of
expansion of the guidance's scope. In response, the agencies revised
the guidance to clearly state that the scope of the final guidance is
intended to be limited to real estate-related financial transactions
that are secured by a single 1-to-4 family residential property.\13\
The considerations and principles included in the guidance are targeted
towards single 1-to-4 family residential transactions and thus are best
suited for those types of transactions. Other types of transactions may
involve different considerations.
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\13\ See 12 CFR 34.42(k) (OCC); 12 CFR 323.2(k) (FDIC); 12 CFR
225.62(k) (Board); 12 CFR 722.2 (NCUA).
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C. Comments on Prescriptive Versus Principles-Based Approach
Some commenters recommended that the final guidance take a more
prescriptive approach, suggesting specific amendments to the guidance,
urging uniformity and standardization of ROV processes across
institutions, and endorsing the development of model forms, checklists,
and policies. Other commenters supported the proposal's more flexible
and principles-based approach to the guidance.
i. Specific Suggestions for Added Prescriptiveness
Many commenters made specific suggestions that the agencies provide
more granularity and prescriptiveness in the guidance in particular
areas. With regard to second appraisals, one commenter recommended that
the guidance should outline the circumstances under which a financial
institution must request a second appraisal. One commenter asserted
that the guidance should provide examples of when, if ever, it is
reasonable to pass on the cost of a second appraisal to the consumer. A
commenter recommended that, if the agencies determined that it was
never acceptable to pass on the cost of a second appraisal to the
consumer, the guidance should clearly state that, and should also
clarify to whom the fee could be assessed. Another commenter more
generally requested clear guidelines on handling second appraisals.
With regard to data submitted with an ROV request, commenters
requested that the guidance define what types of data or items a
consumer should or should not include. For example, one commenter
suggested that alleged appraiser remarks should not be included.
Another commenter requested that the guidance specify that data
provided by consumers with the ROV request should not include separate
valuations for the same property (e.g., a separate appraisal or
evaluation). A commenter recommended that information that was
unavailable as of the appraisal's effective date should not be included
with the ROV request. Finally, a commenter requested specificity on
which alternate market data should be provided with an ROV request and
whether it should be limited to sales that closed prior to the date of
the appraisal.
Other commenters focused on adding detail to the guidance related
to consumer and appraiser education and communication. One commenter
requested that the agencies provide additional clarity on the process
to inform consumers about how to raise valuation concerns early in the
underwriting process. Another commenter suggested consumer education
should be incorporated as a standard component in the ROV process. A
commenter emphasized the importance of appraiser education and training
on how to recognize and avoid bias. Another commenter requested
additional examples of ROV policies and procedures to improve
communications with consumers.
[[Page 60552]]
The agencies received several comments regarding timelines of ROV
processes. A commenter requested that the agencies incorporate a set
timeline for an ROV process into the guidance. Another commenter
requested that the agencies consider whether the guidance should set
forth a specific timeframe after receipt of the original valuation
during which an ROV request must be made. This commenter noted that
allowing ROV requests to be made several days or more after receipt of
the original valuation can have consequences on the rate lock and can
be a considerable burden on financial institutions. Another commenter
believed that the guidance should state that, if an institution
requests data or other information to support an ROV request, and the
required information is not provided by the borrower in a reasonable
timeframe, the institution should have no additional responsibilities
other than conducting its own internal review to ensure there were no
evident omissions, errors, or discriminatory actions involved in the
valuation.
The agencies considered the range of comments aimed at adding
prescriptiveness to the guidance with regard to second appraisals, the
types of information submitted with an ROV request, consumer and
appraiser education and training, ROV timelines, and communication with
consumers. The final guidance is intended for institutions of many
different sizes, types, and business models. Institutions implementing
the guidance have flexibility to tailor their ROV processes based on
their unique risk profile.\14\ The agencies determined there is no one-
size-fits-all approach and that it is important to maintain a high-
level, principles-based approach to help ensure the guidance will be
useful and relevant for a diverse range of institutions and
circumstances. In light of their decision to retain the broad,
principles-based approach of this guidance, the agencies have not made
revisions to address specific topics or individual situations raised by
commenters in order to provide flexible guidance for institutions
designing their ROV processes.
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\14\ Accordingly, institutions have flexibility as to the level
of granularity to include in their own ROV processes. For example,
an institution's ROV policies and procedures could specify what
types of information the institution would accept with an ROV
request (e.g., comparable sales provided with an ROV request must
have closed by the effective date of the appraisal).
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ii. Uniformity and Standardization of ROV Processes
Some commenters asserted that ROV processes should be uniform
across all institutions. Other commenters believed that certain aspects
of the ROV process should not be uniform due to the wide range of
institutions that would be in-scope for purposes of the guidance.
Another commenter recommended that the agencies build in additional
flexibility to the guidance for financial institutions to exercise
discretion within their own ROV processes. The agencies also received
comments related to interagency coordination in developing a uniform,
industry-wide ROV process.
Several commenters recommended the adoption of a standardized,
expedient appeals process that would allow any party to the transaction
to appeal the valuation, similar to the United States Department of
Veterans Affairs' (VA) Tidewater Procedure. The VA's Tidewater
Procedure allows VA program participants to provide relevant market
data to VA fee-appraisers and staff appraisers during the appraisal
process.\15\ One commenter suggested that the guidance confirm that an
ROV process similar to the Tidewater Procedure is acceptable. Another
commenter noted that the major benefit of the Tidewater Procedure is
that it establishes a process for an interested party to provide
relevant data to the appraiser. A commenter noted that the Tidewater
Procedure may help prevent abuse of the ROV process. The commenter
raised a concern regarding who would decide the number of alternative
sales to review and how it would be decided which sales transactions
deserve consideration.
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\15\ The VA's Tidewater Procedure has been in existence since
2003. Under this procedure, appraisers are required to notify the
requester (i.e., the person who orders the appraisal) when it
appears that the estimated market value will be below the sale price
during the appraisal process. The requester, or any parties to the
transaction contacted by the requester, has two business days to
submit any additional sales data that they wish to have considered.
For each potential comparable sale submitted, requesters are
encouraged to provide the following information: (1) street address;
(2) sales price; (3) date of sale; (4) gross living area; (5) if the
property was listed, a copy of the listing with details about the
property; and 6) any other information to assist the appraiser in
determining whether the sale could be used as a comparable property.
If the requester submits market data, the appraiser will note in the
appraisal report that the Tidewater Procedure was followed and
include: (1) the street address of each sale submitted; (2) whether
each sale was considered and, if not, the reason; and (3) the effect
of the data, if any, on the opinion of value. If the market data
does not result in the value meeting or exceeding the sale price,
the next step is an ROV. After two business days, if the requester
does not submit market data, the appraiser will note in the
appraisal report that the Tidewater Procedure was followed and
complete the appraisal report. See VA's Lenders Handbook, Chapter
10, Section 8, available at <a href="https://benefits.va.gov/WARMS/docs/admin26/m26-07/Chapter_10.pdf">https://benefits.va.gov/WARMS/docs/admin26/m26-07/Chapter_10.pdf</a>; see also VA's presentation entitled
``Tidewater and Reconsiderations of Value'' at the 2023 Loan
Guaranty Conference, available at <a href="https://benefits.va.gov/HOMELOANS/documents/conf/2023-lender-d1-04-tidewater.pdf">https://benefits.va.gov/HOMELOANS/documents/conf/2023-lender-d1-04-tidewater.pdf</a>.
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The agencies considered the comments on uniformity and
standardization of ROV processes for all institutions and recognize
that institutions may find existing standardized processes, such as the
Tidewater Procedure, something to consider while developing their own
ROV processes. However, a standardized approach to ROV processes
ignores the differences in risk profiles of institutions of varying
size and complexity. The final guidance provides a principles-based
approach with flexibility for implementing institutions to adopt ROV
processes that are responsive to the unique profile of each
institution. Thus, the agencies do not believe it would be appropriate
to prescribe a rigid, one-size-fits-all ROV process across
institutions.
iii. Model Forms, Checklists, & Policies
In the proposal, the agencies specifically requested comment on
what model forms, or model policies and procedures, if any, related to
ROVs would be helpful for the agencies to recommend. Several commenters
encouraged the agencies to develop a standardized model form for ROV
requests and provide model disclosure language for financial
institutions to use when educating consumers about ROVs. One of these
commenters also suggested that the agencies create a list of common
documents needed for a consumer to initiate an ROV request.
One commenter suggested that the agencies work with TAF to develop
model forms based on TAF's previous efforts in this area. This
commenter also recommended that the agencies develop model policies
addressing the denial of a consumer's ROV request and situations when
consumer-provided information should be forwarded to the appraiser as
part of an ROV. Another commenter requested that the agencies encourage
the Federal Housing Administration, VA, and United States Department of
Agriculture to develop consistent or shared materials for consumers to
request ROVs and develop a model borrower application or checklist to
standardize the process for consumers to request ROVs.
The agencies considered the comments recommending the development
of model forms, model policies, checklists, and other standardized
documents. The agencies agree that such documents may have
[[Page 60553]]
utility and will consider future development of model forms.
D. Comments on Burden on Institutions
Several commenters stated that the proposal would add unnecessary
and burdensome requirements on top of an existing ROV process that
already functions well. Certain commenters noted that implementing
parts of the proposal's policies and procedures may present significant
challenges for smaller institutions, especially institutions with
limited resources. One commenter requested an explanation of how the
guidance would specifically affect small financial institutions that
perform internal valuations as an alternative to formal appraisals. A
commenter also expressed concern that smaller institutions do not have
sufficient financial resources to support the necessary valuation staff
and that many institutions will be unable to make timely and accurate
ROV request decisions due to their limited access to nationwide data or
analytical tools.
Several commenters expressed concerns related to burden on credit
unions specifically. One commenter pointed to the cost associated with
oversight and additional processes related to ROVs, which the commenter
stated would be passed on to credit union members without providing
additional value to their membership. Another commenter noted that
applying rigid timelines for an ROV process would be difficult for
certain credit unions to implement. One commenter requested that the
agencies exclude from the guidance any policies and procedures that
require monitoring multiple channels for ROV requests because those
would be challenging for credit unions to implement. This commenter
stated that monitoring multiple channels does not align with the NCUA's
previous guidance on handling consumer complaints.\16\ Another
commenter suggested that policies and procedures that require credit
unions to ensure that their lending and valuation staff are trained to
identify prohibited discriminatory practices through the appraisal
review process could be similarly challenging to implement.
---------------------------------------------------------------------------
\16\ NCUA, Responding to Consumer Complaints (June 2015),
available at <a href="https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/improving-process-consumer-complaints">https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/improving-process-consumer-complaints</a>
(recommending that credit unions ``[e]stablish channels to receive
consumer complaints and inquiries such as telephone numbers or email
addresses dedicated to receiving [consumer complaints].'').
---------------------------------------------------------------------------
The agencies considered these comments regarding burden on smaller
institutions, credit unions, and institutions in general. The guidance
is intended to provide clarity to institutions with respect to ROV
processes. The agencies reiterate that the final guidance does not have
the force and effect of law or regulation and does not impose any new
requirements on supervised institutions.\17\ The examples of policies
and procedures in the final guidance are illustrative and not
requirements. The final guidance clarifies that these examples may not
be applicable or material to each institution or their ROV processes.
Risk-based ROV-related policies, procedures, control systems, and
complaint processes may vary according to the size and complexity of
the financial institution. Smaller financial institutions that choose
to implement the guidance may have policies and procedures that differ
from those at larger and midsize institutions. Under this guidance,
institutions have flexibility in their approach to their internal ROV
processes and deciding the relevance of the considerations discussed in
the final guidance.
---------------------------------------------------------------------------
\17\ See authorities cited supra note 1.
---------------------------------------------------------------------------
This ROV guidance does not conflict with the NCUA's previous
guidance on handling consumer complaints, because financial
institutions can use their existing complaint resolution process to
manage complaints regarding potential valuation deficiencies. ROV
processes work in congruence with the NCUA's current process for
consumer complaints.
E. Other Comments Submitted
Several commenters made recommendations regarding the use of
automated valuation models (AVMs) in ROV processes.\18\ A commenter
advised that the agencies should discourage reliance solely on
automatic review tools in an ROV and should identify features that AVMs
should and should not include for consideration in an ROV. A few
commenters encouraged the use of AVMs in ROVs and suggested the use of
automated and interactive appraisal review scoring tools that could
detect, correct, and minimize human error. The agencies considered
these comments and neither promote nor discourage the use of a
particular method or tool as part of an ROV process.
---------------------------------------------------------------------------
\18\ There is a separate notice of proposed rulemaking on
quality control standards for AVMs that was published in the Federal
Register for comment on June 21, 2023. See 88 FR 40638.
---------------------------------------------------------------------------
One commenter recommended that bias complaints should not be
handled by an ROV. This commenter asserted that accusations of bias
should trigger an alternative complaint process, either through an
escalated ROV process or a review entirely independent of the ROV
process. This commenter believed ROVs should be used only for
correction of informational or methodological deficiencies that do not
relate to discrimination.
The final guidance does not state that ROVs are the sole tool to
address bias complaints, nor does the final guidance direct
institutions to use a specific tool to address bias complaints.
However, in response to this comment, the agencies have made a
clarifying edit to the final guidance to provide that, if an ROV
request includes allegations of discrimination, an institution may
consider, in addition to processing the ROV, referring the allegations
through a separate process that the institution may have to respond to
discrimination complaints.
Other commenters requested that the guidance address the potential
liability of parties who may rely on discriminatory appraisals (e.g.,
third parties, AMCs, fee-appraisers, mortgage brokers, mortgage
servicers, and appraisal firms), and appraisers' or evaluators' rights
to dismiss non-factual or unverified claims and be shielded from any
potential backlash or liability for doing so. The assigning or
absolving of civil liability of future unknown parties is outside of
the scope of this guidance.
The agencies received a few comments regarding appraiser
independence in the context of ROVs. A commenter asserted that the
agencies should provide suggestions in the guidance for how to manage
ROV requests so that they do not affect appraiser independence. Another
commenter recommended that the agencies clarify and provide examples of
how appraiser independence can be maintained during an ROV of an
internal evaluation when an institution has only one or two individuals
on staff that are qualified to perform evaluations. Another commenter
believed that the guidance, as proposed, puts appraiser independence at
risk.
The agencies considered the comments received on appraiser
independence and reiterate that institutions are responsible for
maintaining standards of independence for all real estate lending
activity, including ROVs, as required by the agencies' appraisal
regulations and, as applicable, USPAP. For small institutions or
branches, an institution may be able to demonstrate clearly that it has
prudent safeguards in place when absolute lines of independence cannot
[[Page 60554]]
be achieved, due to, for example, limited staff.\19\
---------------------------------------------------------------------------
\19\ See Interagency Appraisal and Evaluation Guidelines, 75 FR
77457, 77462 (December 10, 2010).
---------------------------------------------------------------------------
Commenters also made suggestions for further actions the agencies
could take, such as developing data-sharing arrangements to collect ROV
data. The agencies may take such suggestions under advisement when
considering future agency initiatives on this topic. A few commenters
encouraged the agencies to hold roundtables and hearings to gather
stakeholder input in the development of the final guidance. The
agencies note that the proposed guidance was published for notice and
comment in the Federal Register for the purpose of gathering
stakeholder input.
Lastly, one commenter asserted that the interpretation of the
adequacy of an ROV process will vary and will be defined by each exam,
opening banking organizations up to unnecessary criticism. Examiners
will continue to review institutions' residential real estate
collateral valuation programs within the framework of established
safety and soundness and consumer compliance examination procedures.
This examination scope includes consideration of whether institutions'
risk management practices for valuations are appropriate to identify
and address valuation discrimination or bias and promote credible
valuations.\20\
---------------------------------------------------------------------------
\20\ See the Federal Financial Institutions Examination
Council's (FFIEC) Statement on Examination Principles Related to
Valuation Discrimination and Bias in Residential Lending, Attachment
B (February 12, 2024), available at <a href="https://files.consumerfinance.gov/f/documents/cfpb_ffiec-statement-on-exam-principles_2024-02.pdf">https://files.consumerfinance.gov/f/documents/cfpb_ffiec-statement-on-exam-principles_2024-02.pdf</a>. In some situations, examiners may reference
(including in writing) supervisory guidance to provide examples of
safe and sound conduct, appropriate consumer protection and risk
management practices, and other actions for addressing compliance
with laws or regulations. See 12 CFR part 4, subpart F, appendix A
(OCC); 12 CFR part 262, appendix A (Board); 12 CFR part 302,
appendix A (FDIC); 12 CFR part 1074, appendix A (CFPB); 12 CFR part
791, subpart D, appendix A (NCUA).
---------------------------------------------------------------------------
III. Paperwork Reduction Act Analysis
In accordance with the Paperwork Reduction Act (PRA) of 1995,\21\
the Board, FDIC, NCUA, and OCC reviewed the final guidance. The
agencies may not conduct or sponsor, and an organization is not
required to respond to, an information collection unless the
information collection displays a currently valid OMB control number.
The agencies have determined that certain aspects of the final guidance
constitute a collection of information and are revising their
information collections related to real estate appraisals and
evaluations. The OMB control number for each agency is: OCC, 1557-0190;
Board, 7100-0250; FDIC, 3064-0103; and NCUA, 3133-0125. These
information collections will be extended for three years, with
revision. In addition to accounting for the PRA burden incurred as a
result of this final guidance, the Board, FDIC, NCUA, and OCC are also
updating and aligning their information collections with respect to the
hourly burden associated with the Guidelines. Accordingly, the tables
below provide data on both the final guidance addressed in this
document and the Guidelines.
---------------------------------------------------------------------------
\21\ 44 U.S.C. 3506.
---------------------------------------------------------------------------
The agencies did not receive any PRA-related comments. The agencies
have a continuing interest in the public's opinions of information
collections. At any time, commenters may submit comments regarding the
burden estimate, or any other aspect of this collection of information,
including suggestions for reducing the burden, to the addresses listed
in the ADDRESSES caption in the Notice of Proposed Guidance. All
comments will become a matter of public record. Written comments and
recommendations for the proposed information collection should be sent
within 30 days of publication of this document to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Find this information collection by selecting
``Currently under 30-day Review--Open for Public Comments'' or using
the search function.
Abstract: The final guidance describes principles for financial
institutions to implement ROV policies, procedures, and control systems
that identify, address, and mitigate the risk of deficient valuations.
Such policies and procedures create a recordkeeping requirement.
Frequency of Response: Annual.
Affected Public: Businesses, other for-profit institutions, and
other not-for-profit institutions.
Respondents:
OCC: National banks, Federal savings associations.
Board: State member banks (SMBs), bank holding companies (BHCs) and
nonbank subsidiaries of BHCs.
FDIC: Insured state nonmember banks and state savings associations,
insured state branches of foreign banks.
NCUA: Private Sector: Not-for-profit institutions.
Burden
OCC:
Table 1--Summary of Estimated Annual Burden
[OMB No. 1557-0190]
----------------------------------------------------------------------------------------------------------------
Total number
Requirement Citations Number of Burden hours per of hours
respondents respondent annually
----------------------------------------------------------------------------------------------------------------
Recordkeeping: Resolution stating Sec. 7.1024(d)..... 6 5.................... 30
plans for use of property.
Recordkeeping: ARM loan Sec. 34.22(a); Sec. 164 6.................... 984
documentation must specify 160.35(b).
indices to which changes in the
interest rate will be linked.
Recordkeeping: Appraisals must be Sec. 34.44......... 976 1,465 responses per 119,072
written and contain sufficient respondent @5
information and analysis to minutes per response.
support engaging in the
transaction.
Recordkeeping: Written policies Sec. 34.62; 1,413 30................... 42,390
(reviewed annually) for appendix A to
extensions of credit secured by subpart D to part
or used to improve real estate. 34; Sec. 160.101;
appendix A to Sec.
160.101.
Recordkeeping: Real estate Sec. 34.85......... 9 5.................... 45
evaluation policy to monitor OREO.
Recordkeeping: New Information N/A.................. 907 13.3................. 12,093
Collection (``IC'') 1--ROV
Guidance--Policies and Procedures
(Implementation: Applies to first
year only).
Recordkeeping: New IC 2--ROV N/A.................. 907 2.................... 1,814
Guidance--Policies and Procedures
(Ongoing).
Recordkeeping: New IC 3-- N/A.................. 976 10................... 9,760
Interagency Appraisal and
Evaluation Guidelines--Policies
and Procedures.
[[Page 60555]]
Reporting: Procedure to be Sec. 34.22(b); Sec. 249 6.................... 1,494
followed when seeking to use an 160.35(d)(3).
alternative index.
Reporting: Prior notification of Sec. 34.86......... 6 5.................... 30
making advances under development
or improvement plan for OREO.
Disclosure: Default notice to Sec. 190.4(h)...... 42 2.................... 84
debtor at least 30 days before
repossession, foreclosure, or
acceleration of payments.
Disclosure: New IC 4--Interagency N/A.................. 976 5.................... 4,880
Appraisal and Evaluation
Guidelines.
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Total Annual Burden Hours..... ..................... .............. ..................... 192,676
----------------------------------------------------------------------------------------------------------------
Board:
Table 2--Summary of Estimated Annual Burden
[OMB No. 7100-0250]
----------------------------------------------------------------------------------------------------------------
Estimated Estimated Estimated
FR Y[dash]30 number of annual Estimated average hours per annual burden
respondents frequency response hours
----------------------------------------------------------------------------------------------------------------
Recordkeeping
----------------------------------------------------------------------------------------------------------------
Sections 225.61--225.67 for SMBs... 706 498 5 minutes.................. 29,299
Sections 225.61--225.67 for BHCs 4,516 25 5 minutes.................. 9,408
and nonbank subsidiaries of BHCs.
Guidelines......................... 5,222 1 10......................... 52,220
Policies and Procedures ROV 5,591 1 13.3....................... 74,547
guidance (Initial setup).
Policies and Procedures ROV 5,591 1 2.......................... 11,182
guidance (Ongoing).
----------------------------------------------------------------------------------------------------------------
Disclosure
----------------------------------------------------------------------------------------------------------------
Guidelines......................... 5,222 1 5.......................... 26,110
----------------------------------------------------------------------------------------------------------------
Total.......................... .............. .............. ........................... 202,766
----------------------------------------------------------------------------------------------------------------
FDIC:
Table 3--Summary of Estimated Annual Burden
[OMB No. 3064-0103]
----------------------------------------------------------------------------------------------------------------
Type of burden Number of Time per Annual
Information collection (IC) (frequency of Number of responses per response burden
(obligation to respond) response) respondents respondent (HH:MM) (hours)
----------------------------------------------------------------------------------------------------------------
Recordkeeping Requirements Recordkeeping (On 2,936 259 00:05 63,369
Associated with Real Estate Occasion).
Appraisals and Evaluations
(Mandatory).
New IC 1--ROV Guidance--Policies Reporting (Annual). 2,887 0.33 40:00 38,120
and Procedures--Implementation
(Voluntary).
New IC 2--ROV Guidance--Policies Disclosure (Annual) 2,887 1 02:00 5,774
and Procedures--Ongoing
(Voluntary).
New IC 3--2010 Guidelines-- Recordkeeping 2,936 1 10:00 29,360
Policies and Procedures--Ongoing. (Annual).
New IC 4--2010 Guidelines-- Reporting (Annual). 2,936 1 05:00 14,680
Disclosure--Ongoing (Voluntary).
------------------------------------------------------------------------------
Total Annual Burden (Hours).. ................... .............. .............. ........... 151,303
----------------------------------------------------------------------------------------------------------------
Source: FDIC.
Note: The estimated annual IC time burden is the product, rounded to the nearest hour, of the estimated annual
number of responses and the estimated time per response for a given IC. The estimated annual number of
responses is the product, rounded to the nearest whole number, of the estimated annual number of respondents
and the estimated annual number of responses per respondent. This methodology ensures the estimated annual
burdens in the table are consistent with the values recorded in OMB's consolidated information system.
[[Page 60556]]
NCUA:
Table 4--Summary of Estimated Annual Burden
[OMB No. 3133-0125]
----------------------------------------------------------------------------------------------------------------
Average annual Number of Time per Annual
Information collection Type of burden number of responses per response burden
respondents respondent (hours) (hours)
----------------------------------------------------------------------------------------------------------------
Recordkeeping Requirements Recordkeeping (On 2,871 517 0.0833 123,643
Associated with Real Estate Occasion).
Appraisals and Evaluations.
New IC 1--ROV Guidance--Policies Recordkeeping 2,871 1 5 14,355
and Procedures--Implementation. (Annual).
New IC 2--ROV Guidance--Policies Recordkeeping 2,871 1 1 2,871
and Procedures--Ongoing. (Annual).
New IC 3--2010 Guidelines-- Recordkeeping 2,871 1 10 28,710
Policies and Procedures--Ongoing. (Annual).
New IC 4--2010 Guidelines-- Disclosure (Annual) 2,871 1 5 14,355
Disclosure--Ongoing.
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Total Annual Burden Hours.... ................... .............. .............. ........... 183,934
----------------------------------------------------------------------------------------------------------------
Comments continue to be invited on:
(a) Whether the collections of information are necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
(b) The accuracy of the estimate of the burden of the information
collections, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
IV. Text of Final Interagency Guidance on Reconsiderations of Value of
Residential Real Estate Valuations
Background
Credible collateral valuations, including appraisals, are essential
to the integrity of the residential real estate lending process.\22\
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; \23\ 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. Deficient valuations 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.
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\22\ For the purposes of this guidance, the residential real
estate lending process is limited to real estate-related financial
transactions that are secured by a single 1-to-4 family residential
property.
\23\ For the purposes of this guidance, ``discrimination'' is
prohibited discrimination based on protected characteristics in the
residential property valuation process. For these purposes,
``valuation'' includes appraisals, evaluations, and other means to
determine the value of residential property.
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Applicable Statutes, Regulations, and Guidance
The Equal Credit Opportunity Act (ECOA), and its implementing
regulation, Regulation B, prohibit discrimination in any aspect of a
credit transaction.\24\ The Fair Housing Act (FH Act) and its
implementing regulation prohibit discrimination in all aspects of
residential real estate-related transactions.\25\ ECOA and the FH Act
prohibit discrimination on the basis of race and certain other
characteristics in all aspects of residential real estate-related
transactions, including in residential real estate valuations. In
addition, section 5 of the Federal Trade Commission Act prohibits
unfair or deceptive acts or practices \26\ and the Consumer Financial
Protection Act prohibits any covered person or service provider of a
covered person from engaging in any unfair, deceptive, or abusive act
or practice.\27\
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\24\ See 15 U.S.C. 1691 et seq. and 12 CFR part 1002. While this
guidance focuses on residential valuations, ECOA covers all lending,
including commercial lending. In addition, Regulation B requires
creditors to (1) provide an applicant a copy of all appraisals and
other written evaluations developed in connection with an
application for credit that is to be secured by a first lien on a
dwelling; and (2) provide a copy of each such appraisal or other
written valuation promptly upon completion, or three business days
prior to consummation of the transaction (for closed-end credit) or
account opening (for open-end credit), whichever is earlier. See 12
CFR 1002.14(a)(1).
\25\ See 42 U.S.C. 3601 et seq. and 24 CFR part 100. The FH Act
defines ``residential real estate-related transaction'' as (1) the
making or purchasing of loans or providing other financial
assistance for: purchasing, constructing, improving, repairing or
maintaining a dwelling; or secured by residential real estate; or
(2) the selling, brokering or appraising of residential real
property. See 42 U.S.C. 3605(b); 24 CFR 100.115.
\26\ See 15 U.S.C. 45(a)(1).
\27\ See 12 U.S.C. 5531, 5536.
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The Truth in Lending Act (TILA) and its implementing regulation,
Regulation Z, establish certain Federal appraisal independence
requirements.\28\ Specifically, TILA and Regulation Z prohibit
compensation, coercion, extortion, bribery, or other efforts that may
impede upon the appraiser's independent valuation in connection with
any covered transaction.\29\ However, Regulation Z also explicitly
clarifies that it is permissible for covered persons \30\ to, among
other things, request the preparer of the valuation to consider
additional, appropriate property information, including information
about comparable
[[Page 60557]]
properties, or to correct errors in the valuation.\31\
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\28\ See 15 U.S.C. 1601 et seq. and 12 CFR part 1026.
\29\ See 12 CFR 1026.42(c)(1).
\30\ ``Covered persons'' include creditors, mortgage brokers,
appraisers, appraisal management companies, real estate agents, and
other persons that provide ``settlement services'' as defined in
section 3(3) of the Real Estate Settlement Procedures Act (12 U.S.C.
2602(3)) and the implementing regulation. See 12 CFR 1026.42(b)(1).
\31\ See 12 CFR 1026.42(c)(3)(iii).
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The Board's, FDIC's, NCUA's, and OCC's appraisal regulations \32\
implementing title XI of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 \33\ require all appraisals conducted in
connection with federally related transactions to conform with the
Uniform Standards of Professional Appraisal Practice (USPAP), which
requires compliance with all applicable laws and regulations including
nondiscrimination requirements.
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\32\ See 12 CFR part 34, subpart C (OCC); 12 CFR part 208,
subpart E and 12 CFR part 225, subpart G (Board); 12 CFR part 323
(FDIC); 12 CFR part 722 and 12 CFR 701.31 (NCUA).
\33\ Public Law 101-73, title XI, 103 Stat. 511 (1989), codified
at 12 U.S.C. 3331 et seq.
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The Board's, FDIC's, NCUA's, and OCC's appraisal regulations also
require appraisals for federally related transactions to be subject to
appropriate review for compliance with USPAP.\34\ Financial
institutions generally conduct an independent review prior to providing
the consumer a copy of the appraisal or evaluation; however, additional
review may be warranted if the consumer provides information that could
affect the value conclusion or if deficiencies are identified in the
original appraisal. An appraisal does not comply with USPAP if it
relies on a prohibited basis set forth in either ECOA or the FH Act
\35\ or contains material errors including errors of omission or
commission.\36\ If a financial institution determines through the
appraisal review process, or after consideration of information later
provided by the consumer, that the appraisal does not meet the minimum
standards outlined in the agencies' appraisal regulations and if the
deficiencies remain uncorrected, the appraisal cannot be used as part
of the credit decision.\37\
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\34\ See 12 CFR 34.44(a) (OCC); 12 CFR 225.64(c) (Board); 12 CFR
722.4(c) (NCUA); and 12 CFR 323.4(c) (FDIC).
\35\ See Nondiscrimination Section of the USPAP's Ethics Rule
(2024 edition).
\36\ An error of omission is neglecting to do something that is
necessary, e.g., failing to identify the subject property's relevant
characteristics. An error of commission is doing something
incorrectly, e.g., incorrectly identifying the subject property's
relevant characteristics.
\37\ See 12 CFR 34.44 (OCC); 12 CFR 225.64 (Board); 12 CFR 323.4
(FDIC); and 12 CFR 722.4 (NCUA). In addition, under TILA, if at any
point during the lending process the financial institution
reasonably believes, through appraisal review or consumer-provided
information, that an appraiser has not complied with USPAP or
ethical or professional requirements for appraisers under applicable
state or Federal statutes or regulations, the financial institution
is required to refer the matter to the appropriate state appraisal
regulatory agency if the failure to comply is material. See 12 CFR
1026.42(g).
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The Board, FDIC, NCUA, and OCC have issued interagency guidance
describing actions that financial institutions may take to resolve
valuation deficiencies.\38\ These actions include resolving the
deficiencies with the appraiser or preparer of the valuation report;
requesting a review of the valuation by an independent, qualified, and
competent state certified or licensed appraiser; or obtaining a second
appraisal or evaluation. Deficiencies may be identified through the
financial institution's valuation review or through consumer-provided
information. The regulatory framework permits financial institutions to
implement reconsideration of value (ROV) policies, procedures, and
control systems that allow consumers to provide, and the financial
institution to review, relevant information that may not have been
considered during the appraisal or evaluation process.\39\
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\38\ See Interagency Appraisal and Evaluation Guidelines, 75 FR
77450 (December 10, 2010).
\39\ The agencies note that institutions that choose to
implement ROV policies described in this guidance would not be
precluded or excused from complying with other relevant legal and
contractual requirements related to ROVs, as applicable.
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Use of Third Parties
A financial institution's use of third parties in the valuation
review process does not diminish its responsibility to comply with
applicable laws and regulations.\40\ Moreover, whether valuation review
activities and the resolution of deficiencies are performed internally
or via a third party, financial institutions supervised by the Board,
FDIC, NCUA, and OCC are required to operate in a safe and sound manner
and in compliance with applicable laws and regulations, including those
designed to protect consumers.\41\ In addition, the CFPB expects
financial institutions to oversee their business relationships with
service providers in a manner that ensures compliance with Federal
consumer protection laws, which are designed to protect the interests
of consumers and avoid consumer harm.\42\ A financial institution's
risk management practices include managing the risks arising from its
third-party valuations and valuation review functions.
---------------------------------------------------------------------------
\40\ See OCC Bulletin 2023-17, ``Third-Party Relationships:
Interagency Guidance on Risk Management'' (June 6, 2023); CFPB
Compliance Bulletin and Policy Guidance; 2016-02, Service Providers
(October 2016); FDIC FIL-29-2023, ``Interagency Guidance on Third-
Party Relationships: Risk Management'' (June 6, 2023); Board SR
Letter 23-4, ``Interagency Guidance on Third-Party Relationships:
Risk Management'' (June 7, 2023). The Board, FDIC, and OCC also
issued ``Third-Party Relationships: A Guide for Community Banks,''
which is intended to assist community banks when developing and
implementing their third-party risk-management practices. See OCC
Bulletin 2024-11 (May 3, 2024); FDIC FIL-19-2024 (May 3, 2024); SR
Letter 24-2 (May 7, 2024). The NCUA does not currently have
supervisory or enforcement authority over third-party credit union
vendors and service providers. The NCUA issued LTR 07-CU-13
``Evaluating Third Party Relationships'' to communicate guidance to
examiners on a standard framework for reviewing third party
relationships.
\41\ See section 39 of the Federal Deposit Insurance Act (12
U.S.C. 1831p-1) (which requires each appropriate Federal banking
agency to prescribe safety and soundness standards for insured
depository institutions). The Federal banking agencies implemented
section 1831p-1 by rule through the ``Interagency Guidelines
Establishing Standards for Safety and Soundness.'' See 12 CFR part
30, appendix A (OCC); 12 CFR part 208, appendix D-1 (Board); and 12
CFR part 364, appendix A (FDIC). See also 12 U.S.C. 1786(b); 12
U.S.C. 1789; and 12 CFR 741.3 (NCUA).
\42\ CFPB Compliance Bulletin and Policy Guidance; 2016-02,
Service Providers (October 2016).
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Reconsiderations of Value
An ROV request made by the financial institution to the appraiser
or other preparer of the valuation report encompasses a request to
reassess the report based upon deficiencies or information that may
affect the value conclusion. A financial institution may initiate a
request for an ROV because of the financial institution's valuation
review activities or after consideration of information received from a
consumer through a complaint, or request to the loan officer or other
lender representative.\43\
---------------------------------------------------------------------------
\43\ See Interagency Appraisal and Evaluation Guidelines, 75 FR
77450, 77463 (December 10, 2010).
---------------------------------------------------------------------------
A consumer inquiry or complaint regarding a valuation would
generally occur after the financial institution has conducted its
initial appraisal or evaluation review and resolved any issues that it
has identified. Given this timing, a consumer may provide specific and
verifiable information that may not have been available or considered
when the initial valuation and review were performed. Regardless of how
the request for an ROV is initiated, a consumer inquiry or complaint
could be resolved through a financial institution's independent
valuation review or other processes to ensure credible appraisals and
evaluations.
An ROV request may include consideration of comparable properties
not previously identified, property characteristics, or other
information about the property that may have been incorrectly reported
or not previously considered, which may affect the value conclusion. To
resolve deficiencies, including those related to potential
[[Page 60558]]
discrimination, financial institutions can communicate relevant
information to the original preparer of the valuation and, when
appropriate, request an ROV.
Complaint Resolution Process
Financial institutions can capture consumer feedback regarding
potential valuation deficiencies through existing complaint resolution
processes. The complaint resolution process may capture complaints and
inquiries about the financial institution's products and services
offered across all lines of business, including those offered by third
parties, as well as complaints from various channels (such as letters,
phone calls, in person, transmittal from regulators, third-party
valuation service providers, emails, and social media). Depending on
the nature and volume, appraisal and other valuation-based complaints
and inquiries can be an important indicator of potential risks and risk
management weaknesses. Appropriate policies, procedures, and control
systems can adequately address the monitoring, escalating, and
resolving of complaints including a determination of the merits of the
complaint and whether a financial institution should initiate an ROV.
Examples of Policies, Procedures, and Control Systems
Financial institutions may consider developing risk-based ROV-
related policies, procedures, control systems, and complaint resolution
processes \44\ that identify, address, and mitigate the risk of
deficient valuations, including valuations that involve prohibited
discrimination, and that:
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\44\ Risk-based ROV-related policies, procedures, control
systems, and complaint processes may necessarily vary according to
the size and complexity of the financial institution. Smaller
financial institutions that choose to implement the guidance may
have policies and procedures that differ from those at larger and
midsize institutions.
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<bullet> Consider ROVs as a possible resolution for consumer
complaints or inquiries related to residential property valuations. If
a complaint or inquiry includes allegations of discrimination, the
institution may consider, in addition to processing the ROV, separately
initiating the process the institution may have to respond to
allegations of discrimination.
<bullet> Consider whether any information or other process
requirements related to a consumer's request for a financial
institution to initiate an ROV create unreasonable barriers or
discourage consumers from requesting the institution initiate an ROV.
<bullet> Establish a process that provides for the identification,
management, analysis, escalation, and resolution of valuation-related
complaints or inquiries across all relevant lines of business, from
various channels and sources (such as letters, phone calls, in person,
regulators, third-party service providers, emails, and social media).
<bullet> Establish a process to inform consumers how to raise
concerns about the valuation early enough in the underwriting process
for any errors or issues to be resolved before a final credit decision
is made. This may include educating consumers on the type of
information they may provide when communicating with the financial
institution about potential valuation deficiencies.
<bullet> Identify stakeholders and clearly outline each business
unit's roles and responsibilities for processing an ROV request (e.g.,
loan origination, processing, underwriting, collateral valuation,
compliance, customer experience, or complaints).
<bullet> Establish risk-based ROV systems that route the request to
the appropriate business unit (e.g., requests that include concerns or
inquiries that allege discrimination could be routed to the appropriate
compliance, legal, and appraisal review staff that have the requisite
skills and authority to research and resolve the request).
<bullet> Establish standardized processes to increase the
consistency of consideration of requests for ROVs:
[cir] Use clear, plain language in notices to consumers of how they
may request the ROV;
[cir] Use clear, plain language in ROV policies that provide a
consistent process for the consumer, appraiser, and internal
stakeholders;
[cir] Establish guidelines for the information the financial
institution may need to initiate the ROV process;
[cir] Establish timelines in the complaint or ROV processes for
when milestones need to be achieved;
[cir] Establish guidelines for when a second appraisal could be
ordered and who assumes the cost; and
[cir] Establish protocols for communicating the status of the
complaint or ROV and the lender's determination to consumers.
<bullet> Ensure relevant lending and valuation-related staff,
inclusive of third parties (e.g., appraisal management companies, fee-
appraisers, mortgage brokers, and mortgage servicers) are trained to
identify deficiencies (including practices that may result in
discrimination) through the valuation review process.
Michael J. Hsu,
Acting Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
Dated at Washington, DC, on July 08, 2024.
Hina Z. Hussain,
Acting Assistant Executive Secretary.
By the National Credit Union Administration Board on June 27,
2024.
Melane Conyers-Ausbrooks,
Secretary of the Board.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-16200 Filed 7-25-24; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 7535-01-P; 4810-AM-P
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</html>Indexed from Federal Register on July 26, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.