The U.S. Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are now allowing home appraisals to get a second look when bias is suspected in the appraisal process.
The rule change will enable borrowers to request a re-assessment of the appraised value of their property if they believe that the appraisal was inaccurate or biased, HUD says in a release.
The Reconsideration of Value policy represents months of collaboration with the Federal Housing Finance Agency to develop an aligned approach for both FHA-insured mortgages and those purchased or guaranteed by Fannie Mae and Freddie Mac.
“We know that biased home appraisals not only disproportionately harm homeowners of color, but stunt economic opportunity for the communities we serve,” says Adrianne Todman, acting secretary for HUD. “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.”
“Appraisal bias harms homeowners of color at every stage of homeownership, and it can lock in inappropriately lower values for entire neighborhoods,” adds Julia Gordon, Federal Housing Commissioner. “Our new policies will arm homeowners, lenders, and FHA with a clear process to address biased or inaccurate appraisals.”
The 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 Reconsideration of Value processing times.
These disclosures must be provided at both the time of mortgage application and at the presentation of the appraisal.
This is an important policy change for mortgage lenders, as it includes a requirement that underwriters be trained to identify and remedy appraisal deficiencies, including racial and ethnic bias.
It also includes requirements for lenders when receiving, processing, and communicating the status of the reconsideration of value requests initiated by a borrower; standards for lender quality control of appraisal reviews and reconsiderations of value; and standards for appraisers to respond to requests from lenders for a reconsideration of value review.
“Consistent standards for lenders and appraisers, coupled with a well-understood process for consumers to challenge appraisal findings, will help ensure that consumers are treated fairly,” says Sandra L. Thompson director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, in a separate statement. “These updates represent a powerful tool in combatting racial bias in property appraisals and promoting valuation accuracy.”
Bryan Greene, vice president of policy advocacy for the National Association of Realtors (NAR), applauded HUD and the GSEs “for establishing this process so consumers can more readily obtain a second look at appraisals when they disagree with them.”
“It empowers consumers while affording appraisers an opportunity to make sure they got it right,” Greene says in a statement. “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 rule change takes effect in August.
Photo: Agence Olloweb