Revised FHA and HUD Appraisal Guidelines
May 12, 2024
The FHA and HUD have revised appraisal rules for FHA single-family loans. The revisions are meant to address issues including housing discrimination at the appraisal level, and provide home buyers with clarified guidelines to contest an appraisal or request a reconsideration of value (ROV).
The HUD official site says these improvements are part of a larger drive to “root out racial, ethnic, or national origin bias in residential property valuations” on homes purchased with FHA mortgages.
The HUD Announcement
A HUD mortgagee letter published in May 2024 notes, “HUD has strengthened its Nondiscrimination Policy, Appraiser Conduct, and other Federal Housing Administration (FHA) Roster Appraiser requirements.”
This was done “to promote equity in the appraisal process and ensure appraisals for insured Mortgages are performed in a competent, independent, impartial, and objective manner” and that appraisers conform to what HUD calls the “Competency Rule.”
Changes to FHA Appraisal Policy
How did the agency strengthen appraisal policy to align with this approach? The agency has clarified the requirements for a borrower-initiated reconsideration of value, which happens when the borrower challenges the appraisal results formally.
Typically a borrower is not permitted to ask for an ROV just because they disagree with the appraised value or condition of the home.
But in cases where the ROV is warranted, now HUD requires the lender to “establish an appeal process that includes steps for the Borrower to receive a copy of the appraisal report and request an ROV when the Borrower believes the appraisal report is inaccurate or deficient.”
Inaccurate or Deficient Appraisals
Inaccuracies and deficiencies are typically the only borrower-initiated challenges to the appraisal recognized by HUD. A simple disagreement on the dollar amount is not sufficient.
Under the upgraded guidelines, when an ROV is justified, the participating lender “must thoroughly assess all borrower-initiated ROV requests to determine the applicability of an ROV and the relevance and appropriateness of information before communicating with the Appraiser.”
The Lender’s Responsibility
The lender has to ensure the ROV meets FHA and HUD requirements before passing it on to the FHA fee appraiser.
The material the borrower gets from the ROV process must be easy to understand, and there must be instructions “that explain the borrower-initiated ROV process, the expected ROV processing times, and the process for requesting clarifications or corrections unrelated to the value conclusion...”
HUD rules now say that in cases where a borrower-initiated ROV but the request “is unclear, deficient, or requires additional information, the Mortgagee must remediate with the Borrower, as applicable.”
Talk to a participating FHA lender if you aren’t sure how this may apply to your loan.
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The HUD official site says these improvements are part of a larger drive to “root out racial, ethnic, or national origin bias in residential property valuations” on homes purchased with FHA mortgages.
The HUD Announcement
A HUD mortgagee letter published in May 2024 notes, “HUD has strengthened its Nondiscrimination Policy, Appraiser Conduct, and other Federal Housing Administration (FHA) Roster Appraiser requirements.”
This was done “to promote equity in the appraisal process and ensure appraisals for insured Mortgages are performed in a competent, independent, impartial, and objective manner” and that appraisers conform to what HUD calls the “Competency Rule.”
Changes to FHA Appraisal Policy
How did the agency strengthen appraisal policy to align with this approach? The agency has clarified the requirements for a borrower-initiated reconsideration of value, which happens when the borrower challenges the appraisal results formally.
Typically a borrower is not permitted to ask for an ROV just because they disagree with the appraised value or condition of the home.
But in cases where the ROV is warranted, now HUD requires the lender to “establish an appeal process that includes steps for the Borrower to receive a copy of the appraisal report and request an ROV when the Borrower believes the appraisal report is inaccurate or deficient.”
Inaccurate or Deficient Appraisals
Inaccuracies and deficiencies are typically the only borrower-initiated challenges to the appraisal recognized by HUD. A simple disagreement on the dollar amount is not sufficient.
Under the upgraded guidelines, when an ROV is justified, the participating lender “must thoroughly assess all borrower-initiated ROV requests to determine the applicability of an ROV and the relevance and appropriateness of information before communicating with the Appraiser.”
The Lender’s Responsibility
The lender has to ensure the ROV meets FHA and HUD requirements before passing it on to the FHA fee appraiser.
The material the borrower gets from the ROV process must be easy to understand, and there must be instructions “that explain the borrower-initiated ROV process, the expected ROV processing times, and the process for requesting clarifications or corrections unrelated to the value conclusion...”
HUD rules now say that in cases where a borrower-initiated ROV but the request “is unclear, deficient, or requires additional information, the Mortgagee must remediate with the Borrower, as applicable.”
Talk to a participating FHA lender if you aren’t sure how this may apply to your loan.
------------------------------
RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
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