FHA Rescinds Biden Administration Appraisal Policies
Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Administration (FHA) has rescinded a number of appraisal policies instituted during the Biden Administration.
In a Mortgagee Letter released last week, FHA rescinded three previous Mortgagee Letters released during the previous administration, effectively restoring the policies in place prior to these three letters:
ML 2021-27, Appraisal Fair Housing Compliance and Updated General Appraiser Requirements, addressed appraisal fair housing compliance and updated general appraiser requirements. The policy was designed to align FHA appraisals with fair housing regulations to minimize appraisal bias.
ML 2024-07, Appraisal Review and Reconsideration of Value Updates, expanded Housing and Urban Development’s (HUD) process for Reconsideration of Value to include borrower-initiated ROVs. It also established minimum requirements for mortgagee to follow when a borrower requested an ROV.
ML 2024-16, Extension to the Effective Date of Appraisal Review and Reconsideration of Value (ROV) Updates, extended the effective date of a policy allowing borrowers to request a Reconsideration of Value (ROV) if they believed an appraisal was inaccurate or biased.
In the ML released last week, FHA cited President Trump’s Executive Orders issued in January, which “aimed at reversing policies that have adversely affected key sectors, including the housing market.”
“As part of this ongoing effort, FHA is focused on eliminating policies that have created barriers, increased regulatory and financial burdens, and deepened disparities in lending practices.”
The summary section of the latest ML notes that various sections of the aforementioned MLs have been rescinded and that previous language has been restored, effectively immediately. In a few cases, a policy introduced in the rescinded MLs has been removed entirely, including the Mortgagee Quality Control Plan and the Underwriter Requests for a Reconsideration Value.
The new ML noted that “a second appraisal may only be ordered if the Direct Endorsement (DE) underwriter determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency.” Material deficiencies are defined as those having a direct impact on value and marketability.
Mortgage processors and underwriters, along with appraisers, will have to revert mostly to policies that existed prior to the 2021 ML.
Several industry stakeholders pointed out the change to the ROV policy as one that could be problematic under the new/old guidelines.
On its LinkedIn page, the Appraisal Institute wrote: “While the adoption of a standardized ROV policy was one that real estate appraisers understood and was good for appraisers and consumers, the issues associated with appraisal appeals will continue to evolve without the FHA policy. However, the most pressing concern for appraisers remains the resolution of fair housing claims by HUD, which carry significant professional and legal consequences. We urge HUD to provide a clear path to resolution and a fair, transparent process to ensure appraisers have due process in these cases.”
The Apex Real Estate School in Colorado wrote: “Of concern to us is that underwriters cannot initiate an ROV themselves and even if an appraiser clearly makes a mistake while judging value that will not be reviewable either. We also do not like that FHA no longer has a requirement for lenders to audit appraisal accuracy or that fairness guidelines on valuation practices or misrepresentation are no longer going to be enforced.”
The National Reverse Mortgage Lenders Association noted the collateral risk assessment provision remains in place, meaning a second appraisal may be ordered if FHA’s collateral risk assessment determines one is required.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
