Industry Insights

Fannie Mae, Freddie Mac & the FHA’s New Reconsideration of Value Requirements: What Lenders Need to Know

Fannie Mae, Freddie Mac and the FHA just issued lender updates to their selling guides and appraisal requirements (here, here & here). While the FHA guidance is not identical to the Fannie Mae and Freddie Mac guidance, in principle there is alignment on defined expectations for the reconsideration of value (ROV) process that mortgage lenders need to follow. This announcement impacts more than 80% of mortgage originations in the United States.

Previously, Fannie Mae and Freddie Mac didn’t cover ROV’s in their selling guides. FHA/HUD did, and required underwriters to actually initiate ROV’s. Now, all three have:

  1. Issued clear unified guidelines
  2. Require the borrower to initiate the ROV*
  3. Ask lenders to meet these requirements by August

    *FHA allows for a trained underwriter to initiate an ROV 

In this guide we’ll cover the new requirements in detail. If you have any questions, or need guidance on how to adjust your workflows, I’m also available for a complimentary, one-on-one consultation. We’ll discuss the update, its implications for your unique appraisal process, and provide guidance on how to handle it.

The New ROV Requirements

The new guidelines cover lender responsibilities, appraiser rights and responsibilities, and borrower rights and responsibilities. We’ll cover each of these areas. But, to make this guide as actionable as possible for lenders, we will focus more heavily on lender responsibilities. 

The new guidelines are designed to ensure the following three things are accomplished in the ROV process:

  1. Educate the borrower about their right to appeal an appraisal on their own behalf, and provide them with guidance on how to do it.
  2. Create a unified, industry-wide expectation for how to manage a request for a ROV.
  3. Maintain appraiser independence requirements (AIR).

Now, here are the lender responsibilities:

1. Lender notifies the borrower of their right to initiate an ROV in two places:
    • The Initial Disclosure
    • Upon delivery of the appraisal report
2. ROV is initiated by the borrower (or FHA underwriter)
3. Prior to delivery of the ROV request to the appraiser, the lender has completed the appraisal review.  
4. The lender has screened the content of the ROV to ensure it is in compliance with AIR, and includes prescribed data points. For example FNMA requires the following five data points (at a minimum):
    • Borrower Name
    • Property Address
    • Effective date of appraisal
    • Appraiser Name(s)
    • Date of ROV Request
5. Lender ensures the borrower’s ROV includes the identification and description of  inaccurate, deficient area(s)
6. Lender ensures the borrower’s ROV provides additional data, information and comparable properties (max 5) and related data sources (this is data to support the claim made by the borrower in item #5)
7. Lender ensures the borrower’s ROV provides an explanation of why the new data supports the ROV (this is an explanation of why the data provided in #6 supports the claim made in #5)
8. Lender communicates expectation to the borrower and the appraiser
    • Only one ROV is permitted (communicated to borrower)
    • The time permitted for the appraiser to address the ROV
      (communication to both appraiser and borrower)
    • ROV results reported in revised appraisal report addressing ROV concerns
    • Lender retains all ROV documentation and communication in the loan file

These are the requirements the agencies want to see met within your unique ROV process. Again, the emphasis is placed on providing a clear process for the borrower to request an ROV. From there, requirements are placed on the borrower to explain why they’ve initiated the ROV, along with data to support the claim they’ve made. From there, expectations are set with the appraiser so they have a clear process to follow. 

As usual, the lender is at the center of these parties, and is responsible - to a degree - for helping them work together in a smooth fashion. I believe this already has clear implications for lenders and as time unfolds considerable focus will provide for consistent lender best practices when managing their ROV process.   

Contact us for a Complimentary ROV Consultation

Updating your ROV process has implications across both business processes and technology. Making these adjustments by August is no small feat. To help you adapt to these changes effectively, we’ve put together a variety of resources — including a step by step checklist. If you’d like to learn more about these changes, their implications for your ROV process, and get access to these resources, book a complimentary ROV consultation today.

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Fannie Mae, Freddie Mac & the FHA’s New Reconsideration of Value Requirements: What Lenders Need to Know