HUD and FHA announce new appraisal bias protections

The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) announced a new policy on Wednesday that will enable mortgage borrowers to “request a re-assessment of the appraised value of their property if they believe that the appraisal was inaccurate or biased,” according to an announcement from HUD.

“The Reconsideration of Value (ROV) policy represents months of collaboration with the Federal Housing Finance Agency (FHFA) to develop an aligned approach for both FHA-insured mortgages and those purchased or guaranteed by Fannie Mae and Freddie Mac,” the department said.

Applying to all FHA single-family forward and reverse mortgage programs, the new FHA Mortgagee Letter (ML) enhances current ROV policy while adding additional clarified statements for appraisal reviews, according to FHA. These include “improvements to the process by which borrowers may request an ROV if they identify a problem with the appraisal.”

The guidance also requires lenders to include “a borrower-initiated ROV process meeting certain minimum requirements, including delivery of disclosures to borrowers at loan application and upon delivery of the appraisal with instructions on how to request an ROV.”

HUD acting secretary Adrianne Todman called the new guidance an important step in HUD’s ongoing efforts during the Biden administration to prevent biased appraisal outcomes.

“We know that biased home appraisals not only disproportionately harm homeowners of color, but stunt economic opportunity for the communities we serve,” Todman said in a statement. “Today, we are announcing a new step in our work to root out racial and ethnic bias in home valuations, which will give borrowers greater ability to have their home valuation reconsidered.”

HUD called the new guidance a step to fulfill the commitments of its Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), which includes representatives from 13 federal agencies.

“Appraisal bias harms homeowners of color at every stage of homeownership, and it can lock in inappropriately lower values for entire neighborhoods,” FHA Commissioner Julia Gordon said in a statement. “Our new policies will arm homeowners, lenders and FHA with a clear process to address biased or inaccurate appraisals.”

The National Association of Realtors (NAR) released a statement shortly after the announcement, lauding the move.

“We applaud HUD and the GSEs for establishing this process so consumers can more readily obtain a second look at appraisals when they disagree with them,” said Bryan Greene, NAR’s vice president of policy advocacy. “It empowers consumers while affording appraisers an opportunity to make sure they got it right. NAR has long advocated for updating the ROV process, seeing it as crucial to ensuring fair housing in the appraisal process. We are encouraged by HUD and the GSEs taking this significant step to support consumers nationwide.”

The new guidance is effective for FHA case numbers assigned on or after Sept. 2, 2024, and the policy clarifications are expected to be added to HUD’s Single Family 4000.1 Handbook at a later date.

“FHA’s new policy requires lenders to disclose to borrowers that they may request a reconsideration of value with instructions that explain the process, including what information will be required from a borrower and the expected [ROV] processing times,” HUD explained. “These disclosures must be provided at both the time of mortgage application and at the presentation of the appraisal.”

New requirements for lenders include that underwriters be “trained to identify and remedy appraisal deficiencies, including racial and ethnic bias;” requirements for lenders “when receiving, processing, and communicating the status of the reconsideration of value requests initiated by a borrower;” new standards for “lender quality control of appraisal reviews and reconsiderations of value;” and new standards for appraisers “to respond to requests from lenders for a [ROV] review.”

Editor’s note: This story has been updated with a statement from the National Association of Realtors.

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