Final Interagency Guidance on Reconsideration of Value (ROV) for Residential Real Estate Valuations

Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

Hello, this is Samantha Shares. This episode is a high level summary of the final interagency guidance on reconsiderations of value (R O V) for residential real estate valuations

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And now the summary.

1. Purpose and Scope:

- The guidance is issued by the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency.

- It aims to highlight risks associated with deficient residential real estate valuations and describe how credit unions can incorporate R O V processes into their risk management functions.

- The scope is limited to real estate-related financial transactions secured by single 1-4 family residential properties.

2. Background and Importance:

- Credible collateral valuations, including appraisals, are essential to the integrity of residential real estate lending.

- Deficient valuations can result from prohibited discrimination, errors, omissions, or inappropriate valuation methods.

- Such deficiencies can prevent individuals and families from building wealth through homeownership and pose risks to credit unions.

3. Regulatory Context:

- The guidance references several relevant laws and regulations, including:

- Equal Credit Opportunity Act (ECOA) and Regulation B

- Fair Housing Act (FH Act)

- Truth in Lending Act (TILA) and Regulation Z

- Uniform Standards of Professional Appraisal Practice (USPAP)

- It emphasizes that credit unions must comply with these laws and operate in a safe and sound manner.

4. Reconsideration of Value (R O V) Process:

- An R O V is a request from the financial institution to the appraiser or valuation preparer to reassess the report based on potential deficiencies or new information.

- R O Vs can be initiated by the institution's review process or after consideration of consumer-provided information.

- The guidance allows credit unions to implement R O V policies and procedures to review relevant information not considered in the original valuation.

5. Use of Third Parties:

- The use of third parties in the valuation review process does not diminish an institution's responsibility to comply with applicable laws and regulations.

- Credit unions are expected to manage risks arising from third-party valuations and valuation review functions.

6. Complaint Resolution Process:

- Credit unions can capture consumer feedback on potential valuation deficiencies through existing complaint resolution processes.

- The process should cover complaints from various channels and sources.

- Complaints can be an important indicator of potential risks and risk management weaknesses.

7. Recommendations for Policies, Procedures, and Control Systems:

- Consider R O Vs as a possible resolution for valuation complaints

- Establish processes for identifying, managing, analyzing, escalating, and resolving valuation-related complaints

- Inform and educate consumers on how to raise valuation concerns early in the underwriting process

- Identify stakeholders and outline roles and responsibilities for processing R O V requests

- Establish risk-based R O V systems to route requests to appropriate business units

- Use standardized processes to increase consistency in handling R O V requests

- Ensure relevant staff, including third parties, are trained to identify valuation deficiencies, including practices that may result in discrimination

8. Flexibility in Implementation:

- The guidance is principles-based and does not mandate specific requirements.

- It allows credit unions flexibility in implementation based on their size, complexity, and risk profile.

- Smaller credit unions may have policies and procedures that differ from larger credit unions.

9. Regulatory Expectations:

- While the guidance does not have the force of law or regulation, it outlines supervisory expectations for how credit unions should handle R O Vs and valuation-related complaints.

- Credit unions are expected to incorporate these considerations into their risk management practices.

10. Potential Impact:

- The guidance aims to improve the integrity of the residential real estate lending process by addressing potential deficiencies in valuations.

- It may help mitigate risks associated with discrimination in property valuations and improve consumer protection in the lending process.

This guidance provides a framework for credit unions to develop and implement R O V processes that align with regulatory expectations and help ensure the credibility and fairness of residential real estate valuations.

This concludes the final interagency guidance on reconsiderations of value (R O Vs) for residential real estate valuations.

If your Credit union could use assistance with your exam, reach out to Mark Treichel on LinkedIn, or at mark Treichel dot com. This is Samantha Shares and we Thank you for listening.