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FHA is seeking feedback on a draft appraisal Mortgagee Letter

The proposal, if implemented, would apply to both the Title II Forward and the FHA HECM program

The Federal Housing Administration (FHA) announced this week that it has posted a draft Mortgagee Letter (ML) to the Single Family Drafting Table. The proposal would increase options for borrowers with FHA-backed financing when requesting a review of their property’s appraisal.

The proposal, which applies to both the Title II Forward and Home Equity Conversion Mortgage (HECM) programs, would “strengthen FHA requirements for processing and documenting Reconsideration of Valuation (ROV) requests, particularly when those requests are initiated by a borrower’s request for review of appraisal results,” according to an FHA informational notice.

The new guidance is designed to follow through on the 2021 establishment of the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), which was announced by President Biden as part of the declaration that June is “National Homeownership Month.”

“With this Draft ML, FHA provides proposed guidance to improve the process when prospective borrowers applying for FHA-insured Title II forward or [HECM] mortgages request an ROV on a property if the initial valuation is lower than expected, there is an indication of illegal bias, Fair Housing regulations have been violated or unlawful discrimination has been identified,” the FHA stated.

The draft proposes changes that include the addition of “indications of unlawful bias in the Appraisal or other violations of applicable local, state, or federal fair housing and nondiscrimination laws” as the basis for initiating a second appraisal by the direct endorsement (DE) underwriter.

The draft also updates the acceptability criteria for a property, defines how a borrower can request their own review of an appraisal, and defines parameters for a DE underwriter to request an ROV from the appraiser.

The proposal will update appraisal review standards, aiming to clarify guidance surrounding the quality of an appraisal report and the processes of an ROV request.

Interested stakeholders can review the draft ML through February 2, 2023. Instructions for stakeholders to submit feedback are available on the Drafting Table website.

Read the draft ML on the Single Family Drafting Table.

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