National Association of Home Builders Issues Public Comment to 5 Agencies

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WASHINGTON, Sept. 22 -- Jessica R. Lynch, Vice President, Housing Finance, National Association of Home Builders, has issued a public comment to five agencies. The comment was written and posted on Sept. 19, 2023.

The comment was sent to the Office of the Comptroller of the Currency (Docket No. OCC-2023-0007); Board of Governors of the Federal Reserve System (Docket No. OP-1809); Federal Deposit Insurance Corporation; National Credit Union Administration (Docket No. NCUA-2023-0061); and Consumer Financial Protection Bureau (Docket No. CFPB-2023-0033).

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The National Association of Home Builders of the United States (NAHB) is pleased to submit comments on the proposed interagency guidance regarding the reconsideration of value (ROV) process for residential real estate valuations. NAHB believes that accurate appraisals are essential to a healthy and sustainable housing finance system. Yet, appraisals remain a challenge for the housing industry, including the lack of an expedient and standardized process to contest inaccuracies found within an appraisal report.

NAHB is a Washington DC-based trade association representing more than 140,000 members involved in the development and construction of for-sale single family homes, including homes for first-time and low- and moderate-income homebuyers, as well as the construction, ownership and management of multifamily rental housing, including affordable rental housing. NAHB and its members have a strong interest in supporting a housing finance system that offers home builders and home buyers access to affordable mortgage financing in all geographic areas and economic conditions. The process to evaluate the collateral supporting real estate transactions is a key component in the overall housing finance system.

Overview of Proposed Interagency Guidance on Reconsiderations of Value

The Board of Governors of the Federal Reserve System (Board), Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and Office of the Comptroller of the Currency (OCC) (together, the agencies) are issuing proposed guidance that would highlight risks associated with deficient residential real estate valuations and describe how financial institutions may incorporate reconsiderations of value (ROV) processes and controls into established risk management functions. The proposed guidance would also highlight examples of policies and procedures that a financial institution may choose to establish to help identify, address and mitigate the risk of discrimination impacting residential real estate valuations.

Collateral valuations including appraisals, are important to the integrity of the residential real estate lending process. Deficient collateral valuations can contain inaccuracies due to errors, omissions or discrimination that affect the value conclusion and can result in either overvaluing or undervaluing real estate collateral. The Board, FDIC, NCUA and the OCC have previously issued guidance that describes actions a financial institution may take to correct deficiencies identified on collateral valuations. These actions include ordering a second appraisal or evaluation or resolving the deficiency through the original appraiser or preparer of the evaluation.

The agencies, collectively, do not have existing guidance specific to ROV processes. For purposes of the proposed guidance, an ROV is a request from the financial institution to the appraiser or other preparer of the valuation report to re-assess the report based upon potential deficiencies or other information that may affect the value conclusion. The agencies have received questions and comments from financial institutions and other industry stakeholders on ROVs, highlighting the uncertainty in the industry on how ROVs intersect with appraisal independence requirements and compliance with Federal consumer protection laws, including those related to nondiscrimination.

The proposed guidance describes how financial institutions may create or enhance ROV processes that are consistent with safety and soundness standards, comply with applicable laws and regulations, preserve appraiser independence and remain responsive to consumers. The proposed guidance describes the risks of deficient collateral valuations. It also outlines applicable statues, regulations and existing guidance that govern ROVs and collateral valuations. In addition, it explains how ROV processes and controls can be incorporated into existing risk management functions such as appraisal review and complaint management and finally, it provides examples of ROV policies, procedures and controls that financial institutions may choose to adopt.

Current Related Effort

In March 2022, the Property Appraisal and Valuation Equity Interagency Task Force or PAVE Task Force released an Appraisal Action Plan designed to make the appraisal industry more accountable and to help home buyers and homeowners better navigate the appraisal process. On the one-year anniversary of the release of the Action Plan, the Interagency Task Force on PAVE touted its efforts in making the home buying process more equitable for people of color. An example of these efforts includes HUD's release of a draft Mortgagee Letter earlier this year revising its reconsideration of value policies in connection with appraisals for FHA-insured mortgage loans. The draft Mortgagee Letter would amend FHA's existing guidance to include indication of unlawful bias as a reason that a second appraisal may be ordered. FHA would also improve the process to request a reconsideration of valuation of a property if the initial valuation is lower than expected and increase consumer awareness of the option to request a review of an appraisal.

NAHB Comments

In real estate transactions, it is not unusual to find differences of opinion over the market value of the subject property. Such discrepancies can stem from inconsistent determinations on comparable sales, questions on appraisal methodologies and different interpretations of information.

All parties to the real estate transaction can be harmed when it is difficult to challenge appraisals expeditiously and fairly for errors of omission or commission. Currently, if a home builder or a seller engages in a transaction where the appraisal contains flaws that affect the value opinion, the only recourse is through the lender. If the lender has any process to address appraisal complaints it is typically slow. NAHB believes it is extremely important to establish an expedient appeals process that is fair and balanced which allows all parties to the transaction to appeal appraisals that do not meet USPAP standards or are based on inaccurate data or assumptions.

Presently, there is no standardized dispute resolution process outside of the Department of Veterans Affairs (VA) Loan Guaranty Program. Further, there is no single authority to expeditiously resolve an appraisal conflict nor is there any consistency amongst lenders should they decide to evaluate complaints of an appraisal that potentially contains factual errors or other flaws affecting the value opinion.

NAHB believes it is important for all parties to a real estate transaction to know and understand what options and or processes are available to them in the event a home appraises less than expected.

Having an established process in place that is understood by all stakeholders prior to the commencement of a real estate transaction will improve trust and confidence in the home buying process.

Tidewater Initiative

NAHB recommends and supports the adoption of a standardized, expedient appeals structure which provides the consumer a reasonable expectation of the process and steps involved during the appeals process, similar in design to that of the VA's Tidewater Initiative.

Introduced in 2003, the VA's Tidewater Initiative allows all parties to a real estate transaction to provide the appraiser with additional information prior to the formulation of the appraiser's initial value opinion, which the VA refers to as a Notice of Value (NOV). The policy was launched in the Tidewater region of Virginia with notable success reported by home builders who have utilized it. The purpose of the Tidewater Initiative is to encourage VA program participants to provide relevant market data to VA fee and staff appraisers during the appraisal process to assist the appraiser in identifying relevant information they may not have had access to that creates a more accurate value of opinion.

Prior to issuing a NOV, a VA appraiser is required to notify a designated point of contact (POC) if the appraised value will come in below the sales price of the subject property. The appraiser will not be at liberty to discuss the contents of the appraisal with the POC at this point beyond explaining they are calling for whatever additional information the POC may be able to provide. Full cooperation is expected between the appraiser and the specified POC or lender. Once the POC or lender has been notified, they will have two working days to provide additional information to the fee appraiser in a specified format. After receipt of any additional information, the appraiser will proceed with their due diligence and complete the report, which may or may not be impacted by the additional information.

Conclusion

Collateral valuation is a critical component of the mortgage underwriting process. While there have been positive changes to the appraisal system since the Great Recession, there remain unresolved issues. NAHB believes that having a standardized, efficient and expedient process to contest the accuracy of an appraisal would be beneficial to the overall housing finance system.

Please contact Curtis Milton, NAHB's Director of Single-Family Finance (email: [email protected] or phone: 202-266-8597) if you have any questions about this letter.

Sincerely,

Jessica R. Lynch

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Original text here: https://downloads.regulations.gov/OCC-2023-0007-0011/attachment_1.pdf