On May 1, 2024, the Federal Housing Administration (FHA) issued Mortgagee Letter (ML) 2024-07 titled “Appraisal Review and Reconsideration of Value Updates,” which enhances the agency’s current policy on home valuations. ML 2024-07 underscores FHA’s ongoing commitment to addressing appraisal bias, which directly aligns with the Interagency Task Force on Property Appraisal and Valuation Equity’s (PAVE) mission to combat bias in home appraisals.
Launched in June 2021, the PAVE task force was created to evaluate the causes and consequences of appraisal bias, as well as establish recommendations to address bias in home valuations. As part of its findings, the PAVE task force recognized the absence of uniform, industry-wide policies and guidelines related to Reconsideration of Value (ROV) processes that allow borrowers to formally appeal home valuations. ML 2024-07 addresses this concern by enhancing FHA’s current policy on standards for appraisal reviews, and provides specific requirements related to borrower-initiated ROV requests.
ML 2024-07 emphasizes that mortgagees must ensure that their underwriters are trained to identify appraisal deficiencies, including those resulting from prohibited discriminatory practices. A mortgagee’s appraisal review process must include protocols for addressing such deficiencies, including by requesting a ROV, requesting a general correction, explanation, or substantiation, or obtaining a second appraisal.
For ROVs initiated by an underwriter:
- The underwriter must include a description of the area(s) in the appraisal report and all the additional information that require the appraiser’s response.
- The underwriter must provide detailed information, data, or relevant comparable sales as available.
- Documentation associated with a ROV must be retained in the case binder, including all written communication between the mortgagee, the borrower, the appraiser, and any other parties involved in the ROV process.
- Further, no costs related with a ROV may be charged to the borrower.
For ROVs initiated by a borrower:
- At a minimum, the mortgagee must provide an “easy-to-understand” disclosure regarding its ROV processes to the borrower during the application phase and along with the delivery of an appraisal report. The disclosure must explain the borrower-initiated ROV process, including identifying what information is needed from the borrower, the expected processing times, the process for addressing further questions or issues, and that only one borrower-initiated ROV request is permitted per appraisal.
- Mortgagees are also required to establish written protocols regarding communication with the borrower, including acknowledging receipt of the ROV request and providing the results of the ROV request.
- Underwriters must thoroughly assess all borrower-initiated ROV requests prior to communicating with an appraiser. The mortgagee is responsible for confirming the borrower-initiated ROV complies with all general ROV requirements prior to contacting the appraiser.
The policy changes established in ML 2024-07 will be incorporated into the FHA Single Family Housing Policy Handbook (Handbook 4000.1). The provisions of this ML may be implemented immediately but must be implemented for FHA case numbers assigned or after September 2, 2024.