Navigating HUD's New ROV Guidelines: What Lenders Need to Know + The Jaro Solution

The Department of Housing and Urban Development (HUD) has introduced significant changes to appraisal processes through Mortgagee Letter 2024-07, impacting how lenders manage borrower-initiated Reconsideration of Value (ROV) requests. These changes aim to improve appraisal fairness, accuracy, and compliance with non-discrimination policies, thus enhancing transparency and consistency within the industry. Below, we break down these changes and discuss how lenders need to adapt.

This post covers three main topics:

1. Changes for lenders and appraisal companies
2. How to adapt processes and lending operations

We also include a demo showing how JaroDesk supports these changes in your ROV process, order workflow, and QC teams. Check it out below:

1. Key Changes in HUD's 2024 ROV Guidelines

The updated guidelines from HUD focus on empowering borrowers by allowing them to formally challenge appraisals they believe are inaccurate or biased. This is part of HUD's broader initiative to uphold equity in residential property valuations, following the PAVE (Property Appraisal and Valuation Equity) Action Plan.

1. Borrower-Initiated ROV Requests: Lenders must now establish a clear, formal process for borrowers to request an ROV if they think the appraisal report contains errors or deficiencies. Borrowers can request reconsideration for reasons such as factual inaccuracies, inappropriate comparable properties, or possible bias in valuation.
2. Notification Requirements: Lenders must inform borrowers of their right to request an ROV at two points—during the initial loan application and upon delivery of the appraisal report. This requirement aims to increase awareness and accessibility for borrowers, ensuring they understand their rights in the appraisal process.
3. ROV Limits: Borrowers are allowed only one ROV per appraisal, and this process must be completed before loan closing. Lenders must ensure borrowers are aware of this limitation and guide them on how to provide all relevant information within that single request.
4. Quality Control: Lenders must integrate ROV standards into their Quality Control (QC) plans. The QC updates should define standards for appraisal review and specify protocols for handling ROVs, ensuring a consistent and equitable process. Moreover, potential Fair Housing violations must be included as part of the quality checks to safeguard against discrimination.

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2. How Lenders Should Adapt Their Processes

Lenders must adapt their processes to align with HUD's new guidelines and ensure compliance. Below is an integrated overview of how lenders can meet their responsibilities and update their processes effectively:

• Develop Written Policies: Establish written policies and procedures for accepting and processing borrower-initiated ROV requests. This includes clear steps, criteria for screening ROVs, and consistent decision-making guidelines.
• Create Disclosure Materials: Provide easy-to-understand disclosures explaining the ROV process, timelines, and information requirements. Borrowers should receive these disclosures during the mortgage application process and upon delivery of the appraisal report.
• Establish Communication Protocols: Set up systems to acknowledge receipt of ROV requests, provide updates, and communicate results to borrowers in writing. This helps maintain transparency and ensures that all parties are well-informed throughout the process.
• Train Underwriters: Ensure underwriters are trained to identify appraisal deficiencies, including potential fair housing violations. Training should also cover how to evaluate borrower-initiated ROVs and decide whether contacting the appraiser is warranted.
• Implement Screening Process for AIR Compliance: Develop a screening process to ensure ROV requests comply with Appraiser Independence Requirements (AIR) before submission to the appraiser. This helps maintain the integrity of the appraisal process.
• Revise Internal Review Procedures: Update internal appraisal review processes to include protocols for requesting corrections, explanations, or substantiations from appraisers as part of the ROV process.
• Document Retention: Establish systems to retain all ROV-related documentation and communications in the loan file, ensuring compliance and future reference.
• Appraiser Communication: Develop standardized communication protocols with appraisers for ROV requests to maintain consistency and clarity in the process.
• Quality Control Updates: Revise QC plans to include standards for appraisal review and ROV processing. Define criteria for when an ROV should be requested and how these requests are evaluated to maintain compliance.
• Reporting Mechanisms: Implement processes to report appraisals with material deficiencies to appropriate state licensing or regulatory bodies. Any suspected fair housing violations should be promptly reported to HUD’s Office of Fair Housing and Equal Opportunity.
• Fair Housing Vigilance: Establish procedures for identifying and reporting suspected fair housing violations or discriminatory practices to the proper agencies.

By implementing these changes, lenders will significantly rethink their appraisal processes to accommodate borrower-initiated ROVs, ensure fair and transparent evaluations, and maintain compliance with HUD's new guidelines. JaroDesk can assist with many of these adaptations, streamlining the ROV process, and ensuring lenders remain compliant while effectively managing borrower interactions.

Equity and Transparency in Appraisals

The push for borrower-initiated ROVs reflects HUD's goal of creating a fair, unbiased homebuying process. Appraisal inaccuracies—whether through overvaluation or undervaluation—can prevent homeowners from accessing accumulated equity or obtaining fair financing. By streamlining and formalizing ROV processes, HUD aims to enhance consumer protection, combat discriminatory practices, and ensure more equitable outcomes for all borrowers.

According to the Consumer Financial Protection Bureau (CFPB), ensuring that borrowers have a clear and accessible process for challenging appraisals is crucial to maintaining fairness in mortgage lending. Lenders that provide transparency around ROV opportunities help in promoting non-discriminatory practices and reducing disparities in home valuations.

Where to From Here?

With these new ROV requirements, lenders must revisit their appraisal practices and quality control measures to align with HUD's enhanced standards. These changes require significant adjustments to internal processes, but they also present an opportunity to improve customer experience and reinforce fairness within the appraisal system.

As the industry adapts, the focus remains on transparency, fairness, and ensuring every borrower has the chance to receive an accurate, unbiased appraisal. By embracing these guidelines, lenders can help foster a more equitable housing market.

If you would like to discuss your workflow, and how you can adapt it to these new standards, connect with the Jaro team for a discussion here, and find out why Movement Mortgage, A&D, Veterans United, and New Wave Lending rely on Jaro as their appraisal management platform of record.

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