Low Value = Material Deficiencies? New FHA ROV Policy
Up until recently, there has never been a standardized policy for mortgage loan related Reconsideration of Value (ROV) requests after an appraisal has been submitted. Now there is, per the attached PDF HUD/FHA mortgage letter. The GSE’s have similar policies.
I’m not opposed to having a standardized ROV policy.
However, these policies are in keeping with the new initiatives surrounding alleged and often unproved appraisal bias and discrimination claims.
But when one reads deeper into the reason for implementing these procedures, it is quickly evident that actually it’s focused on the perception that the appraised VALUE is wrong.
This is the statement in the HUD/FHA ML-2024-07: “This included guidance to improve the established process by which FHA program participants may request an ROV if the initial valuation is lower than expected.”
OK, so who exactly decided the value should be HIGHER than what the appraiser reported, before an appraisal was ordered? Was it the borrower? The mortgage loan officer handling the loan? A Zillow Zestimate? Maybe the underwriter at the lender?
The document also mentions many times the words “material deficiencies” in the appraisal report which can trigger a ROV request.
So the implication is if the VALUE is too low, then there must be “material deficiencies” present.
And the way the current appraisal climate is being experienced, if an appraiser dares appraise a home in certain neighborhoods based on relevant nearby sales at a lower value “than expected”, then the appraiser can be assumed to be biased toward the borrower. This is especially true if the races of the borrower and appraiser are different.
Also included in these new ROV policies are allowances that the ROV requestor can submit up to FIVE additional properties for consideration.
It seems prudent to me that mortgage lending appraisers had better start including info on their ‘comp’ searches, and provide in the report details of sold properties that were considered but ultimately not used as a comparable in the report. That way, if the ROV requester submits one or more of those properties to be considered, the appraiser merely can respond with the already included discussion about the rejected properties.
Dave Towne on e-AppraisersDirectory.com
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FNMA has followed suite with it. I’m glad that they have made if formal, but it’s miles away from what Tide Water Protocol is, of which is the model for ROV’s. This monstrosity opens the door for making accusations on every appraisal report that does not meet a preconceived value point regardless if this is a Zestimate for a refi, or a contractor/contract price. Just made the target on our backs closer and will waste more of our time with this.
I had asked many LO’s how they determine what the potential value would be for a borrower to see what they can qualify for and the typical answer was an average of Redfin, Zillow, and a mix of Realtor, Trulia and other. The fanciest that I heard was a percentage of the assessed value. In either case, the LO is assisting in generating some “idea” of what is to be expected.
This is the dawning of the Age of Pandering. Perpetuated fraud. To hell with facts and accuracy. ‘Hit the DESIRED value NOW or else we now have precedent to ruin YOUR life, appraiser “Commit appraisal fraud to provide us whatever value we please, or you shall live to regret it, appraiser.”
To many in the appraisal industry, Tidewater reevaluation process may seem tedious. However, it doesn’t go far enough to address damage when true fraud is discovered, and a harmed buyer is left holding an empty equity bag.
Appraisers must be required to inform Lenders to obtain HUD Verifications when evidence is present that all is not as it was originally presented to be.
Example: A manufactured home declared as new when set and declared real property. Appraiser notes briefly no exterior HUD, but fails to recommend rejection of property to Lender for HUD IBTS follow up. Conditioning by appraiser is vital, and in this instance example, was ignored by both appraiser, lender, engineer and title insurer.
Result: MH is valued as if it was new when set, when in fact it was salvage and had been stripped of HUD, but neither the appraiser nor Lender followed up.
Failure to properly document conditioning for follow up is vital to addressing proper liability attachment.
In a recent ongoing case the Lender agent was throwing the appraiser under the bus (so to speak), for not ceasing the appraisal. However, the Lender omitted their equal at fault in not following up with appropriate required IBTS Verification to assure HUD Certification for the home property.
Long story short, the Tidewater process is ineffective in the issue of discovered fraud. The Veteran Affairs has admitted to not knowing how to remedy this current scenario. The U.S. Taxpayer is on the hook if Veteran defaults on the loan. The case is moving forward.
No defendant has denied fraud exists in this matter. They each point to another for liability. Tidewater doesn’t directly address when the appraisal overvalues a property that is not even legal for the intended purpose as a legal and equity-building home purchase. Over-inflating a home value is devastating when fraud comes pouring out and destroys the equity that a buyer “thought” was being put in through steady, monthly payments over a number of years.
But your example is defect appraisal products and we are talking about ROV due specifically to “racial bias”. How is this applicable here? Just an example of the process failing anyways?
Oh, sorry. It seems fraud never gets into the mix of discussions. This one started with a manufactured home dealer who took a ‘for salvage’ mh structure and used the void documents he had available to him, to perpetrate a real property scam, mortgage fraud. It was further concealed by less than professional work of local agent failures.
It is currently in litigation, and we have heard the first of its kind in the nation (USA).
No need to apologize. It’s a great example of people that suck at their job. Then we get punished for it.
Appraiser who start out with a blank canvas (so to speak), with no asking price information provided to them, — obtaining data only by available visual information and records of the property and improvements itself, to work up the estimate and appropriate comps. This would force values to be individual and not by a preconceived $$ to be matched oor exceeded. The fraud we experienced would have been less likely to have happened as well, if the appraiser had to use only the physical property being evaluated– and appropriate comps.
Any good appraiser is already explicitly explaining their comp search, includes a farm list AND discusses specific sales not used that someone might wonder about. How bout a requirement that the underwriter screen any ROV before automatically sending it to the appraiser?
I like that idea! They should not be wasting our time and delaying the entire process by numerous ROV’s that are useless and will not change the value already determined by the only person who has the education and training to do so….The Appraiser.
George,
RE: UW Screening requirement
That is exactly what it says to do…… (I added all caps for emphasis)
The underwriter 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.
There is no way they are going to actually do that, especially is someone it throwing around racial bias. They crap their pants too. So far no appraiser has had to pay out of pocket for any of the recent cases (I’m not including the loss of work, time and stress), rather mortgage companies and E&O policies.
The LO teams will apply tons of pressure on the AMC and appraisal departments to force the issue on us. We are the low hanging fruit to pick on……or punching bag.
I am actually speaking from first hand experience. As a Sr Residential Collateral Risk Analyst for HSB we would review any ROV request that came through before passing it on to the appraiser. I was able to address the concern(s) or ROV comps much of the time and the ROV would be rejected as unsubstantiated. The appraiser would never see it.
***ROV includes data that closed after the effective date and as such is not applicable to the valuation process…..
***ROV uses data that is from a different market or substantially older and does not better represent the current valuation of the property …
***Or the ROV does not sufficiently document/support why the additional comparable supplied for the ROV are superior to those that were included in the appraisal.
There has to be a proven and documented material deficiency to go back to the appraiser for an ROV, and if in reviewing the ROV the UW, AMC, review appraiser, etc don’t find sufficient reason, then it should not be passed on to the appraiser. Emphasis on “should”
I wish all ROVs were handled in this manner. I recently completed an appraisal on a duplex and got an ROV within days. Three of the four “new” comps were already in the report, and the fourth was a fourplex. This ROV should never have been sent to me, but I had to waste my time on it anyway.
Great article, Dave. I was thinking the same things when I saw that letter. I also don’t have a problem with a fair and legitimate ROV. My issue is that some people will do ROVs for the hell of it. Their thinking is “why not, can’t hurt, it’s my right…”
One important oversight here. They must include a fee for appraisers to do ROVs. I’ve done some that have taken a couple of hours because they included many comps. I have to fully research each comp to determine if it’s a true comp or not. Then I have to state why it is or isn’t. I even had one AMC tell me I should go drive by the new comps provided.
There was a part where the Appriaser gets a fee for the ROV?
No. That’s Mary’s point. Appraisers are expected to review and analyze up to FIVE more properties for FREE, just so someone else’s value opinion can be hopefully supported.
That’s what I thought. So when she said that, I thought I had misread something. Thank you for the clarification.
The guidelines limit them to 5 “comps”.
Tail wagging the dog! How many other professions are there where the client or receiver of your services tells YOU what to do. Homeowners, Realtors, Lenders are NOT Appraisers yet they can tell you….your value is low AND you need to review these comps (for FREE) and smile about it or lose your license.
When have they ever told you your value is too HIGH? Goes both ways right….NOPE! So In my reports I already have a paragraph where I state many more sales were reviewed but not included in the report as the ones included in the report were found to be the best replacements for the Subject.
So what you need to do is if you get one of these ROV request is to state the following: All of those sales were reviewed prior to submission of the report, they were not found to be as comparable due to size, location, square footage, lot, quality or condition and leave it at that. Do not spend any more time that stating the above and then if they come back and want you to specifically address each additional comparable say I would be happy to for $50.00 per Comp. What can they do? If they refuse to pay you, send them to collections. Then do not do work for them again! We have to stand up for ourselves and no longer do more and more work for FREE .
OR another solution. GET RID OF THE LENDERS, DO NOT DO FHA REPORTS AND DO PERSONAL WORK ONLY. YOU HAVE TO MAKE THAT MOVE OR YOUR WILL BE AT THE MERCY OF THESE PEOPLE AND RISK BEING SUED ON A WHIM.
Yea, “well judge, we would like to submit a reconsideration of guilty” Here are some cases that we believe are relevant and support a verdict of not guilty”….oh, that’s right, that’s an appeal. Difference is the original judge does not need to take time out of his busy day and it can be rejected right out of the gate.
The idea of “the initial valuation is lower than expected” is a huge red flag that there is a level of targeting at play. Which we “know” is a USPAP violation.
So the implication is if the VALUE is too “low”, then there must be “material deficiencies” present. This is in conflict with the idea that a predetermined “target” is not the basis of our analysis…
FROM USPSP Conduct Rule
An appraiser:
• must not perform an assignment with bias;
• must not advocate the cause or interest of any party or issue;
• must not agree to perform an assignment that includes the reporting of predetermined opinions and conclusions;
Did I miss a class or a course ????
I agree with you fully on this, but they are don’t have to because their license, if they have any, was not subject to swearing to uphold USPAP. Only we are and they are leveraging that against us in the worst way possible. The appraisal bias mechanism, the ROV’s that will burn more of the time at our expense, the FNMA love letters that are never signed and in most cases just thrown out from the state boards (now that they understand what is going on). All of it is to build a perception that appraiser’s can’t do what the “big data” mass appraisal and AVM’s can in theory.
They are going to shove it down the publics throat whether or not they like it. I can’t hold my breath on this, but I’m really hoping there would be some break through with Maryland investigating FNMA for the lack of transparency with it’s methods and practices putting the public and investors at risk. We have to remember that FNMA, while in conservatorship, is still owned by private investors, of which is made up of a board and the board of investors want to get paid. They do not care what they have to do to accomplish it.
Look what happened in the last crash. Regulation was non-existent and public safety be damned. They just wanted to grease the money machine as much and for as long has they can. Now they are hitting hard in our back sides with just sandpaper.
Avm’s like Zillow are populated with unreliable data, as tech savvy people double list, manipulate data, the illusion of a higher market ceiling. Open source community driven content. Look at an amc’s technical details; Property goes up for list, the avm calculation turns off, that price asking figure is treated as a sale. Until closing, then the adjusted number and ensuing averages changes again. Price is not the same thing as value.
Post language correction; Look at an avm’s technical details; etc. Not amc’s, sorry.
Interesting changes in the avm’s market values and predictive behaviors happen if one looks into details at the right moment in time. Before the list (mass appraisal results averages.) During the list (predictive software turns off as the list is treated as bonafide sales data, aka hits the number every time and no longer predicts, incorporates this new data into area averages.) And after sale closing / recording (New data which effects everything else surrounding and leaves previous predictions as nill.)
The avm systems are instantly responsive to listing data, treating them just like sales. Theoretically if an entity holding multiple properties lists several at unusually higher figures, this drives up the values of their other properties, no actual sale required.
Ask the question why all avm’s out there appear to have consistent figures. You’d think at least one of them would recognize incorporation of outlier skewed data or coordinated activity which may not be valid sales data, straw listings. One speculates if the avm’s are using their own ai systems to borrow, copy, self correct, and check their data conclusions against other avm’s and other ai systems. That seems to be the case, which is how their data output appears consistent across the board against supposedly independent competition from other avm systems. The illusion of intelligent design; avm’s and ai systems. Systemic unavoidable deficiencies in data reliability is the result. Control the market.
This also happens at the ground level with individuals. One time a tech savvy person somehow was able to enter a fake sale on Zillow and that made it all the way to me as an ROV. Got past the lender and everything. The sale never existed outside of Zillow. I was the only person to take the time to validate the data. Called the county to verify the recording was not somehow delayed. I wrote Zillow and they never removed the false data indicator. Drove averages up for the whole neighborhood.
The event happened because the lender gave instructions on requesting an ROV to every borrower. As is inevitable in any financial system; someone got the bright idea for a new way to scam the system to get more for themselves. Appraisal modernization! Central planning never works.
I will be blunt. I have no problem with 95% of this announcement. Note that the reason the term “material deficiencies” is stated so many times is because it has to be included in each of the housing programs. So on the left you have Forward mortgages, reverse mortgages then you have the different sections of each of those programs that have to reference to the changes in other sections and so on and so forth.
I disagree that the ML implies that if the value is low it must mean there is a material deficiency. I believe it to say that material deficiencies must be proven to exist and those material deficiencies are the reason for the less than expected value conclusion before an ROV can be requested from the appraiser.
The ONLY true issue I have is where the UW can unilaterally decide that whatever is in the report is so egregious that the UW does not have to go back to the original appraiser and ask for a revision of any kind, and instead just jump the shark by ordering a new 2nd appraisal. It is the next statement that is concerning and says the Mortgagee MUST report appraisals replaced due to material deficiencies to the applicable State appraiser regulatory agency. So if the UW is biased against the appraiser, they can just order another appraisal without the original appraiser ever knowing and report them to the “state”. Not allowing the appraiser to have a chance to explain, justify or otherwise revise a report before being reported to the state is a bit anti “right to face the accuser”.
I appreciate your perspective, Todd. But you’re far more competent than 99% of the lender staffs who review appraisals. Remember, the UCDP error messages were never supposed to be directly transmitted to the appraiser when flags occurred. Well, they were….and sometimes still are. This new directive from FHA (and the GSE’s) also directs the lender staff to review appraisals for ‘correctness’ and “material defects.” Wanna bet an over-ripe banana they won’t do that initially? And guess what…..most of the defects will revolve around “I don’t like your value, so I’m filing a complaint” …. because the value you report is a defect.
Dave,
Thank you for the kind words. Yes, the UCDP was used inappropriately at the outset and there are occasions where they still get abu…..used. As to your other point….. maybe I should have been more clear. It is the announcement that I don’t have much of a problem with… The supposed required training of UWs to be able to determine correctness of the ROV is of course a concern, but that is more than they are required to do now and they are the ones passing the ROVs currently, so at least they are getting some “training”. However, I can definitely see the abuse of the system by just wanting to bypass the original appraiser and order a 2nd appraisal through the bias pathway which only takes the LO telling the borrower to claim bias even if it does not exist to get a free 2nd appraisal. There should be a checks and balances internally before that 2nd appraisal gets ordered, maybe a Field review or at the very least a desk review by an appraiser, maybe even a two party verification request so that 2 UWs have to validate the concern and sign off on a 2nd appraisal request. Yes 2 UWs can both be bad actors, but it is it least some sort of an additional hurdle to jump over. Maybe I just have too much glass half full faith.
OK, it sounds like lenders want a completely unbiased and accurate appraisal. Granted I am a newbie (4 years on), but my question is this; why do we not receive the contract with no price ? Terms etc. would be fine, but why include the price ? My guess is that lenders would not like that. . . why not you may ask ? Every piece of information will have your brain collating and comparing with possibly some influence, acknowledged or not. Previous comment re: when have you been harranged for coming in too high ? Once in 4 years for me and it was a private sale. Lastly, the ROV comp’s I’ve seen don’t always support an increase in value, has anyone actually lowered the opinion of value after seeing superior comp.’s, best to all !
Yes, I did lower my value once. There was a small cluster of sales, on a complex property, that were applicable but not labeled with proper terms of functional utility, therefore they did not show up in the original searches. These are the houses with daylight basements and this specific agent listed them as 2 story, as in 2 story all above grade.
Once shown these sales that were actually better than two of the sales contained in the report, I had to include those sale and adjusted the value. If I didn’t, I knew they would pop up in the UW process because of the risk score that would be given and CU would pull those two sales and ask – did you consider these? SO, why wait for them to ask when more credible information was given on the ROV.
I don’t think that we should be afraid to lower the value if better information becomes available as of the effective date of the assignment. Remember we are appraiser’s and not expected to be perfect, but credible. The assignment needed to be the most credible it could be so those sale had merit and were included with an adjusted value.
So, my advise to those seeking ROV’s and providing 5 sales to do so, be careful what you ask for, you just might get it. In the case listed above, the agent thought that I had over valued the subject and I agreed. in 99.99% of the ROV’s the agents are going to only complain when the value is low, but once my eyes were opened to market data being mislabeled, I always pay hyper attention to the ROV’s and search again to see of there was a sales that was not labeled correctly. Most of the time the additional sales are nothing more than a price grab with no consideration to concessions, differences in GLA, condition/quality ratings, or lot sizes.
On a side note, the same agent still mislabels the day ranches. So, if you are not paying attention to the market and the actual data you are looking at, you might get caught off guard. Sometimes it does not hurt to search for sales based on GBA and no other limiting perimeters entered about the style and/or functional utility, or terms regarding basements. Just a thought.
Viewing contractual figures is essential for appraisers. Always comp search first or you’re driving blind. How realty sales representation works in the real world; Agent to seller; List with me and I’ll get you the highest possible number. Seller; Do you really think we can get that much? Agent; We’ll put the number out there and see if anyone bites. Sign the listing agreement and I will be your personal market advocate. We’re going to win. And we’re going to win big. Seller; What if the appraisal comes in low? Agent; That’s some one elses problem.
Only on paper in the bureaucrats minds can honesty be regulated with executive decrees, an endless procession of guidance updates and written instructions. Independent checks and balances are what makes the world turn. Appraisal is not all that complicated; The appraiser is the independent non advocate in the chain of lending. The last check and balance. When the safe guard of checks and balances is removed, that’s when systems break and people are taken advantage of.
Upon thinking of this ROV situation further I have considered a way we can stop this insanity in its tracks. I am sure everyone has had situations where comps were provided and IF you used them it would actually reduce value, because all they did was look at sales price and did not think to look at square footage, renovations etc. So Next time you get a ROV use one or more of those comps provided and REDUCE your value and say hey thanks for the ROV I have chosen to use your comp/s and here is new value. Remember it is ROV not a ROVI ( reconsideration of value INCREASE)
Yeah, I did just that once, not to be a butt but because those comps where mislabeled and where more appropriate than two of the comps I had.
Not trying to be a butt. Reality is those comps could actually be good but sad news is the value is reduced. Everyone always thinks new comps means a higher value. They don’t.
Exactly. However, the norm is the ROVI with sales that to be downward adjusted to prove the sales contract. This practice is not allowed either.
There should be no expectations whatsoever. Imagine if an appraiser entered an assignment with the expectation of a predetermined value? Of course, everyone else is insulated when throwing out a predetermined value that just happens to meet the number they need to make it “work”. This is hypocrisy at the highest level and has no place in the industry. They are just asking for trouble. Somebody is actually sitting in an office at HUD coming up with “ideas” to justify their existence. Inferring the appraiser is immediately wrong because someone can’t make the numbers work is rediculous. Perhaps they should have the disgruntled borrower or loan officer provide viable purchase alternatives based on reasonableness and let the management company review the “sales” for reasonableness before they bother the appraiser. Seems to me having the management company who reviews the appraiser report with a fine tooth comb should be capable of reviewing the “sales” provided by someone who has “skin in the game” and earn their money. If the sales are BS, they should reject forwarding to the appraiser as they are supposed to be the expert middlemen, not just paper shufflers. Of course they won’t stick their neck out for fear they will need to support the complaining party. Too many people involved in the appraisal process who have no clue what they are talking about. I’m for a standard however not with a predetermination the appraiser is wrong. The world has become a horrible place when appraisers render an unbiased opinion and immediatley is accused of being wrong because some uneducated appraisal process individual simply makes an accusation the appraiser is wrong and the flood gates open. It is so upside down and rediculous. Sad state of affairs.
The fact that GSE’s, lenders, and amc’s are even talking about ROV’s is the problem. Lenders used to simply order additional appraisals from one of their other trusted well vetted appraisal panel members. Get a second, a third, a field review. Write the expense off, process the loan. In house management was better, the majority of ROV’s today come from the amc world. Because for amc’s it is more profitable to exert pressure on the appraiser, as they maximize all possible write offs towards executive perks and market expansion rather than attentive customer handling and redundant safe guards.
In the real world all amc’s function as advocates of the lender in order to maintain the order request volume in the over saturated market of appraisal management companies. The chain of communication and established trust between the licensed mortgage loan officer and the licensed appraiser becomes severed by the presence of unnecessary for profit amc middle management companies. In the end it is the consumer whom is most harmed. As the best appraisers refuse to work for amc’s, and all parties essentially advocate for the seller, as important independent checks and balance safe guards are systematically dismantled at the institutional level. aka; appraisal modernization.
As far as I understand it, when an ROV is submitted to you by the lender, who may have received it from the borrower, they have to give you a valid and researched reason as to why their comp(s) is worthy of being considered and is better than your comp(s). This according to Dodd-Frank & the revised ROV rule. No? If they give me a valid appraiser like reason and it falls into my criteria for a comp search, I may include it in the report as an additional comp but it may not alter the final opinion of value as its weight is only one. But this has rarely happened to me lately I’m glad to say.
https://www.zerohedge.com/political/florida-condo-owners-dump-units-over-six-figure-special-assessments
https://mishtalk.com/economics/americas-homebuilder-d-r-horton-homes-falling-apart-in-months/
Massive projects running on auto pilot. Until the music stops.
Wait till the refinances start. AI, the unlicensed appraisal inspector or the homeowner will surely report this, no?
I’ve had to turn down a few of the rarer refinance requests lately. The people are often wildly over valued from only a few years prior. Serial financiers have it the worst. Because nobody ever tells them no. When it comes to actually try to sell those homes, they’ll be lucky to get out with their shirts still on.
Smart appraisers are not going to be the only 1099 whom tells them how corrupt the system is after they’ve been run through avm’s and value acceptance waivers for the last half dozen rounds until their risk profile grew so substantial, they had to actually deal with a live human appraiser again. Talk about a setup.