Banking Agencies Propose Guidance on "Reconsiderations of Value" in Real Estate Transactions

The Federal Reserve Board, CFPB, FDIC, National Credit Union Administration and OCC (collectively, the "Agencies") proposed risk management guidance for financial institutions on incorporating "reconsiderations of value" ("ROV") for residential real estate transactions.

The proposed guidance is specific to the ROV process, which involves a request from a financial institution to the preparer of a valuation report to re-assess the report due to identified potential deficiencies, such as errors, omissions or discrimination. The Agencies stated that the proposed guidance is intended to address uncertainty regarding ROVs in relation to appraisal independence requirements and compliance with consumer protection laws and regulations, including prohibitions against discrimination.

Under the proposed guidance, the Agencies would make clear that financial institutions:

  • are (i) not exempt from compliance with applicable laws and regulations and (ii) expected to ensure the third parties’ compliance with federal consumer protection laws, when they use a third party in the valuation process,
  • may initiate an ROV request following review of the valuation or after receiving a related complaint from a consumer;
  • can resolve identified deficiencies in a valuation, including those related to potential discrimination by communicating relevant information to the original preparer and requesting an ROV;
  • can refer to consumer feedback regarding potential valuation deficiencies when reviewing existing complaint resolution processes; and
  • should implement policies, procedures and control systems designed to "adequately address the monitoring, escalating, and resolving of complaints including a determination of the merits of the complaint" and whether to proceed with an ROV.

The proposal deals with both ROVs that may move the valuation up or down, however, the focus of the proposal is on lender responses to consumer complaints regarding valuations that are too low as well as the possibility that the valuation may have resulted from illegal discrimination.

Comments on the proposed guidance must be submitted within 60 days of publication in the Federal Register.

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