HUD should provide more detailed guidance to lenders regarding the process by which a potential borrower may request a Review of Appraisal Results. In addition to FHA's actions to increase consumer awareness, will lenders be required to provide standardized forms to potential borrowers notifying them of their right to request a review of appraisal results?
HUD should also clarify what information or data, if any, the borrower must provide to the mortgagee when the request is initiated. If there is no written justification for the request or additional data to consider, a subsequent appraisal review is unlikely
to result in a different conclusion about the property’s appraisal valuation.
One concern is that many mortgagees will proceed with submitting an ROV even after the additional review reveals no apparent discrepancies. They may do this to avoid reputational and legal risks, or to avoid losing the customer. We ask that HUD consider whether this may result in a significant increase in ROVs and/or second appraisals that may or may not be appropriate.
Not only could this influx exacerbate closing delays, but it is also likely to increase costs for the borrower and further restrict credit availability. Alternatively, if a mortgagee informs a borrower that an ROV or second appraisal may delay closing, they may decide to not pursue that option even if it is justified.
Second Appraisal by Original Mortgagee
ICBA asks HUD to offer more clarification regarding what defines a material deficiency in an appraisal, particularly relating to the addition of instances of illegal bias or discrimination. It is certainly important that blatant examples of any form of discrimination be noted.
However, it is unrealistic to expect lenders – especially smaller community banks – to retain staff with the legal expertise necessary to flag state, local, and federal violations of fair housing and nondiscrimination laws, many of which are extremely nuanced and complex.
Without such expertise or further guidance by HUD, many lenders may seek a second appraisal out of an abundance of caution when it is unclear if there are any violations. This results in increased costs and prolongs the closing process.
ICBA agrees that it is crucial to establish a clear and efficient process for mortgagees when a borrower requests an appraisal review associated with their application for an FHA-insured mortgage. It is also critically important to combat all forms of appraisal bias.
We urge HUD to consider whether the proposed solutions and guidance do not result in an influx of new appraisal challenges that may or may not be valid. Given limited resources, this may have the unintended consequence of reduced scrutiny on those perpetuating appraisal bias while also adding to the aforementioned costs and time to close the mortgage.