Mortgage Bankers Association Issues Public Comment to 5 Agencies
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The comment was sent to the
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The
1 The
2 Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations. Available at: https://www.federalregister.gov/documents/2023/07/21/2023-12609/interagency-guidance-onreconsiderations-of-value-of-residential-real-estate-valuations
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...working in partnership with the Agencies to establish lender guidance and standardize borrower experience (and expectations) in the execution of ROVs, an important tool in ensuring accurate valuations.
ROVs are a valuable means for lenders and borrowers to remedy informational and methodological errors in the initial appraisal report. MBA notes that the proposed guidance asserts that ROVs are a tool in combatting the undue influence of bias in real estate valuations. MBA applauds the role fair lending laws have played in the evolution of our country's housing markets and believes that the influence of racial bias on real estate valuations must be addressed. MBA does not, however, see ROVs, solely by themselves, as the optimal avenue for addressing discriminatory valuations, whether actual or perceived, as discussed below.
Lending institutions should have clear, robust, and efficient policies and procedures for ROVs.
In acknowledgment of risks associated with deficient residential real estate valuations, MBA agrees lenders should incorporate clear, robust, and efficient ROV processes and controls into their established quality control functions.
MBA supports principles-based guidance from the Agencies outlining that lenders should provide clear communication to borrowers of the requirements for requesting an ROV, and the range of outcomes they can expect from an ROV request, including:
1. Outlining the types of information that may be sourced, presented, and shared in a ROV;
2. Use of clear, plain language;
3. Timelines;
4. Process milestones;
5. Who assumes cost (if any);
6. Range of possible outcomes from an ROV; and
7. Protocols for communicating results.
The guidance should not be prescriptive or specify the details of these communications, but only suggest that they be outlined in policies by each lender, at their discretion, and provided to the borrower accordingly.
MBA additionally agrees lenders should consider - and regularly review - whether any of their ROV requirements create an unreasonable barrier to requesting an ROV.
MBA does not see ROVs as the best tool for addressing allegations of discrimination.
The reconsideration of value process is, in MBA's analysis, an appropriate and valuable avenue to seek correction of informational or methodological deficiencies that do not relate to discrimination. This distinction between discrimination and non-discrimination-related deficiencies is important, as seeking to remedy a potential discrimination-related deficiency with the same appraiser who conducted the initial valuation (as would generally apply in the ROV process) is counter-intuitive and may establish an adversarial dynamic between the lender and appraiser that runs counter to the goal of establishing a correct and fair valuation. Instead, accusations of bias should trigger an alternative complaint process, either by way of an escalated ROV process and/or a review entirely independent of the ROV process.
Further, MBA has concerns with the inclusion of a broad provision that lender staff should be trained to identify all appraisals for deficiencies related to implicit bias. Appraisers are licensed professionals with specialized knowledge that lender employees simply do not and cannot be expected to have. Most lender/servicer employees, and certainly those in multiple branch offices and states, will not be familiar with the local neighborhoods of the properties at issue to recognize the indicia of implicit bias. As part of their reasonable vendor management and fair lending practices, lenders and servicers can, and should, train their staff in identifying clear indications of discrimination involving protected classes within the appraisal report and/or the valuation process itself.
It would be additionally appropriate for investors, insurers, and guarantors to develop software-based reviews for bias (language, patterns of undervaluation, patterns of comp selection, etc.) within their appraisal data portals or other appraisal analysis environments. If an appraisal is flagged within the data portal/analysis environment, lenders should take subsequent steps - such as a second appraisal and/or third-party appraisal review -- to mitigate the finding. AMCs and appraisal companies could similarly implement appraisal review systems to flag indicia of bias prior to submission. Again, ROVs, by themselves, may not be appropriate to yield the outcome envisaged by the borrower when addressing a discrimination complaint.
Other appropriate, and likely more effective, avenues to address and remedy discrimination include greater training and/or education requirements for appraisers as well as increased remediation or recourse options available to appraisal management companies (AMCs) in the event that evidence of bias is observed. It would additionally be appropriate for such observations, when substantiated, to be reported to the appraiser's certification or licensing body.
The Agencies should be mindful of how the Interagency Guidance could overlay with forthcoming investor, insurer, and guarantor guide updates.
In finalizing the Interagency Guidance, the Agencies should consult with the
The Interagency Guidance should be principles-based and not set requirements for:
1. Limits on the number of ROV requests a borrower/lender can make;
2. Limits on the number or constraints on the type of alternative comparative sales to be reviewed in relation to the ROV request;
3. Limits on the amount an appraiser can charge for an ROV request and which party is responsible for fulfilling the fee; and
4. Guidance on handling ROVs received after a loan application has been denied, or after the loan has been closed.
Focusing on a principles-based approach that broadly specifies the types of information needed and communications provided will allow the investors, insurers, and guarantors to dictate more specific limits and provide further compliance guides.
MBA has concerns with the framework outlined in the "Applicable Statutes, Regulations, and Guidance" section.
MBA agrees that discrimination that violates fair lending laws is categorically unacceptable and that all parties involved in the mortgage loan production process hold some responsibility for compliance and eradication of unlawful bias. It is critical, however, to design the system of fair lending review in a manner that takes into account the unique position of each party and the concomitant limitations of each role. MBA is concerned that, as addressed above, the proposed guidance conflates use of the ROV process for collateral risk management with use of ROVs as an additional prong required for satisfying a lender's anti-discrimination obligations. MBA and its members identify a crucial distinction between the two types of complaints. Addressing a borrower's accusation of the influence of bias would logically trigger a set of customer service, complaint, and remediation processes that would not include attempting to seek a reconsideration of value from the initial appraiser.
MBA is concerned that the proposed guidance may lend credence to unsettled interpretations of a lender's legal responsibility to review all independent valuations for implicit bias. The Agencies propose attaching anti-discrimination responsibilities and related procedural obligations to every appraisal review function, even though these valuations are produced by independent third parties.
While it is true that ECOA and the Fair Housing Act (FHA) prohibit discrimination in all aspects of residential real estate-related transactions, lender liability does not extend to third-party appraisals conducted by independent agents. In MBA's assessment, ECOA and the FHA do not extend discrimination review obligations to independent third parties that are not agents of, or under the direct control of, the lender. The extension of a lender's ECOA and FHA obligations to apply to oversight of third-party independent agents (in this case, appraisers) is a legal interpretation that is contrary to the underlying statutes and existing precedent.
Additionally, Appraisal Independence Requirements (AIR) were very intentionally designed to ensure the integrity of real estate appraisals and prevent "value shopping." This applies equally to both over- and under- valuation.
To the extent this proposed guidance is providing a novel statutory interpretation, it should be noted that guidance of this sort is insufficient to establish new regulatory requirements related to fair lending or offer a new interpretation of the core fair lending statutes.
MBA is concerned, additionally, that the Agencies propose using the lender's obligation to review appraisal reports for compliance with USPAP as a vehicle for legal recourse against the lender for discriminatory actions by independent third parties. USPAP standards are controlled by the Appraisal Standards Board (ASB) of
Finally, for lenders who have existing contracts with Appraisal Management Companies (AMCs) for their appraisals, where:
* the AMCs employ a systematic review process that includes rooting out bias,
* the lender has performed sufficient due diligence on the AMCs' review processes as part of the lender's ongoing third-party risk management assessment and
* the lender employees are regularly trained to identify and remedy clear indications of discrimination,
There should be limited expectation that additional file-level review is necessary.
The Interagency Guidance should not be a predicate for an enforcement action.
MBA appreciates the opportunity to comment and the insight into the agencies' thinking provided by this guidance. We would emphasize, however, that such guidance is insufficient to establish new regulatory requirements related to fair lending, nor does it establish any binding interpretation of fair lending law such that failure to follow it would give rise to a violation. Thus, this guidance cannot and should not be a predicate for an enforcement action should an institution choose to implement alternative ROV procedures and strategies.
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MBA thanks the Agencies for their work in guiding lenders toward a more standardized ROV process. Setting expectations for lender review of ROV requests will improve borrower experience and reduce risk of collateral misvaluation. Should the Agencies have further questions, please contact
Sincerely,
Senior Vice President
Residential Policy and Strategic Industry Engagement
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Original text here: https://downloads.regulations.gov/OCC-2023-0007-0017/attachment_1.pdf
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
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