Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations

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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF SUPERVISION

AND REGULATION

DIVISION OF CONSUMER AND

COMMUNITY AFFAIRS

SR 24-3

CA 24-4

July 18, 2024

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE

BANK AND INSTITUTIONS SUPERVISED BY THE FEDERAL RESERVE

SUBJECT: Interagency Guidance on Reconsiderations of Value of Residential Real Estate

Valuations

Applicability: This guidance is relevant for all financial institutions supervised by the Federal

Reserve, including those with $10 billion or less in consolidated assets.

The Board of Governors of the Federal Reserve System (Board), Consumer Financial

Protection Bureau, the Federal Deposit Insurance Corporation, the National Credit Union

Administration, and the Office of the Comptroller of the Currency have adopted the attached

guidance on reconsiderations of value of residential real estate valuations (interagency guidance).

A reconsideration of value (ROV) is a request from a financial institution to the appraiser or

other preparer of the valuation report to reassess the report based upon potential deficiencies or

other information that may affect the value conclusion. Valuations that are deficient may pose

risks to the financial condition and operations of a financial institution.

The interagency guidance describes the risks of deficient collateral valuations and

outlines applicable laws, regulations, and existing guidance relating to the appraisal review

process and the correction of valuation deficiencies. The interagency guidance also explains how

financial institutions may incorporate ROV processes into existing risk management functions

such as appraisal review and complaint management

nce describes the risks of deficient collateral valuations and

outlines applicable laws, regulations, and existing guidance relating to the appraisal review

process and the correction of valuation deficiencies. The interagency guidance also explains how

financial institutions may incorporate ROV processes into existing risk management functions

such as appraisal review and complaint management. Finally, the interagency guidance provides

examples that financial institutions may choose to adopt when developing risk-based ROV-

related policies, procedures, control systems, and complaint processes to identify, address, and

mitigate the risk of deficient valuations.

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Reserve Banks are asked to distribute this letter to the supervised financial institutions in

their districts and to appropriate supervisory staff. In addition, questions regarding this letter may

be sent via the Board’s public website.1

Michael S. Gibson

Eric S. Belsky

Director

Director

Division of Supervision

Division of Consumer and

and Regulation

Community Affairs

Attachments:

• Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations

• Federal Register Notice

Cross References:

• SR letter 23-4, “Interagency Guidance on Third-Party Relationships: Risk Management”

• CA letter 24-2, “Interagency Guidance on Third-Party Relationships: Risk Management”

• SR letter 24-2/CA letter 24-1, “Third-Party Risk Management: A Guide for Community

Banks”

1 See http://www.federalreserve.gov/apps/contactus/feedback.aspx

te Valuations

• Federal Register Notice

Cross References:

• SR letter 23-4, “Interagency Guidance on Third-Party Relationships: Risk Management”

• CA letter 24-2, “Interagency Guidance on Third-Party Relationships: Risk Management”

• SR letter 24-2/CA letter 24-1, “Third-Party Risk Management: A Guide for Community

Banks”

1 See http://www.federalreserve.gov/apps/contactus/feedback.aspx

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_________________________________________________________________________________

Board of Governors of the Federal Reserve System

Consumer Financial Protection Bureau

Federal Deposit Insurance Corporation

National Credit Union Administration

Office of the Comptroller of the Currency

_________________________________________________________________________________

July 18, 2024

Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations

Background

Credible collateral valuations, including appraisals, are essential to the integrity of the

residential real estate lending process.1 Deficiencies identified in valuations, either through an

institution’s valuation review processes or through consumer-provided information, may be a basis

for financial institutions to question the credibility of the appraisal or valuation report. Collateral

valuations may be deficient due to prohibited discrimination;2 errors or omissions; or valuation

methods, assumptions, data sources, or conclusions that are otherwise unreasonable, unsupported,

unrealistic, or inappropriate. Deficient collateral valuations can keep individuals, families, and

neighborhoods from building wealth through homeownership by potentially preventing homeowners

from accessing accumulated equity, preventing prospective buyers from purchasing homes, making

it harder for homeowners to sell or refinance their homes, and increasing the risk of default.

Deficient valuations may pose risks to the financial condition and operations of a financial

institution

, and

neighborhoods from building wealth through homeownership by potentially preventing homeowners

from accessing accumulated equity, preventing prospective buyers from purchasing homes, making

it harder for homeowners to sell or refinance their homes, and increasing the risk of default.

Deficient valuations may pose risks to the financial condition and operations of a financial

institution. Such risks may include loan losses, violations of law, fines, civil money penalties,

payment of damages, and civil litigation.

Applicable Statutes, Regulations, and Guidance

The Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B,

prohibit discrimination in any aspect of a credit transaction.3 The Fair Housing Act (FH Act) and its

implementing regulation prohibit discrimination in all aspects of residential real estate-related

1 For the purposes of this guidance, the residential real estate lending process is limited to real estate-related financial

transactions that are secured by a single 1-to-4 family residential property.

2 For the purposes of this guidance, “discrimination” is prohibited discrimination based on protected characteristics in the

residential property valuation process. For these purposes, “valuation” includes appraisals, evaluations, and other means

to determine the value of residential property.

3 See 15 U.S.C. 1691 et seq. and 12 CFR part 1002. While this guidance focuses on residential valuations, ECOA covers

all lending, including commercial lending. In addition, Regulation B requires creditors to 1) provide an applicant a copy

of all appraisals and other written evaluations developed in connection with an application for credit that is to be secured

by a first lien on a dwelling; and 2) provide a copy of each such appraisal or other written valuation promptly upon

completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening

(for open-end credit), whichever is earlier

appraisals and other written evaluations developed in connection with an application for credit that is to be secured

by a first lien on a dwelling; and 2) provide a copy of each such appraisal or other written valuation promptly upon

completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening

(for open-end credit), whichever is earlier. See 12 CFR 1002.14(a)(1).

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transactions.4 ECOA and the FH Act prohibit discrimination on the basis of race and certain other

characteristics in all aspects of residential real estate-related transactions, including in residential real

estate valuations. In addition, section 5 of the Federal Trade Commission Act prohibits unfair or

deceptive acts or practices5 and the Consumer Financial Protection Act prohibits any covered person

or service provider of a covered person from engaging in any unfair, deceptive, or abusive act or

practice.6

The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, establish

certain Federal appraisal independence requirements.7 Specifically, TILA and Regulation Z prohibit

compensation, coercion, extortion, bribery, or other efforts that may impede upon the appraiser’s

independent valuation in connection with any covered transaction.8 However, Regulation Z also

explicitly clarifies that it is permissible for covered persons9 to, among other things, request the

preparer of the valuation to consider additional, appropriate property information, including

information about comparable properties, or to correct errors in the valuation.10

The Board of Governors of the Federal Reserve System’s (Board), Federal Deposit Insurance

Corporation’s (FDIC), National Credit Union Administration’s (NCUA), and Office of the

Comptroller of the Currency’s (OCC) appraisal regulations11 implementing title XI of the Financial

Institutions Reform, Recovery, and Enforcement Act of 198912 require all appraisals conducted in

connection with federally re

oard of Governors of the Federal Reserve System’s (Board), Federal Deposit Insurance

Corporation’s (FDIC), National Credit Union Administration’s (NCUA), and Office of the

Comptroller of the Currency’s (OCC) appraisal regulations11 implementing title XI of the Financial

Institutions Reform, Recovery, and Enforcement Act of 198912 require all appraisals conducted in

connection with federally related transactions to conform with the Uniform Standards of

Professional Appraisal Practice (USPAP), which requires compliance with all applicable laws and

regulations including nondiscrimination requirements.

The Board’s, FDIC’s, NCUA’s, and OCC’s appraisal regulations also require appraisals for

federally related transactions to be subject to appropriate review for compliance with USPAP.13

Financial institutions generally conduct an independent review prior to providing the consumer a

copy of the appraisal or evaluation; however, additional review may be warranted if the consumer

provides information that could affect the value conclusion or if deficiencies are identified in the

4 See 42 U.S.C. 3601 et seq. and 24 CFR part 100. The FH Act defines “residential real estate-related transaction” as 1)

the making or purchasing of loans or providing other financial assistance for: purchasing, constructing, improving,

repairing or maintaining a dwelling; or secured by residential real estate; or 2) the selling, brokering or appraising of

residential real property. See 42 U.S.C. 3605(b); 24 CFR 100.115.

5 See 15 U.S.C. 45(a)(1).

6 See 12 U.S.C. 5531, 5536.

7 See 15 U.S.C. 1601 et seq. and 12 CFR part 1026.

8 See 12 CFR 1026.42(c)(1).

9 “Covered persons” include creditors, mortgage brokers, appraisers, appraisal management companies, real estate

agents, and other persons that provide “settlement services” as defined in section 3(3) of the Real Estate Settlement

Procedures Act (12 U.S.C. 2602(3)) and the implementing regulation. See 12 CFR 1026.42(b)(1).

10 See 12 CFR 1026.42(c)(3)(iii)

rt 1026.

8 See 12 CFR 1026.42(c)(1).

9 “Covered persons” include creditors, mortgage brokers, appraisers, appraisal management companies, real estate

agents, and other persons that provide “settlement services” as defined in section 3(3) of the Real Estate Settlement

Procedures Act (12 U.S.C. 2602(3)) and the implementing regulation. See 12 CFR 1026.42(b)(1).

10 See 12 CFR 1026.42(c)(3)(iii).

11 See 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E and 12 CFR part 225, subpart G (Board); 12 CFR

part 323 (FDIC); 12 CFR part 722 and 12 CFR 701.31 (NCUA).

12 Pub. L. 101–73, title XI, 103 Stat. 511 (1989), codified at 12 U.S.C. 3331 et seq.

13 See 12 CFR 34.44(a) (OCC); 12 CFR 225.64(c) (Board); 12 CFR 722.4(c) (NCUA); and 12 CFR 323.4(c) (FDIC).

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original appraisal. An appraisal does not comply with USPAP if it relies on a prohibited basis set

forth in either ECOA or the FH Act14 or contains material errors including errors of omission or

commission.15 If a financial institution determines through the appraisal review process, or after

consideration of information later provided by the consumer, that the appraisal does not meet the

minimum standards outlined in the agencies’ appraisal regulations and if the deficiencies remain

uncorrected, the appraisal cannot be used as part of the credit decision.16

The Board, FDIC, NCUA, and OCC have issued interagency guidance describing actions

that financial institutions may take to resolve valuation deficiencies.17 These actions include

resolving the deficiencies with the appraiser or preparer of the valuation report; requesting a review

of the valuation by an independent, qualified, and competent state certified or licensed appraiser; or

obtaining a second appraisal or evaluation. Deficiencies may be identified through the financial

institution’s valuation review or through consumer-provided information

hese actions include

resolving the deficiencies with the appraiser or preparer of the valuation report; requesting a review

of the valuation by an independent, qualified, and competent state certified or licensed appraiser; or

obtaining a second appraisal or evaluation. Deficiencies may be identified through the financial

institution’s valuation review or through consumer-provided information. The regulatory framework

permits financial institutions to implement reconsideration of value (ROV) policies, procedures, and

control systems that allow consumers to provide, and the financial institution to review, relevant

information that may not have been considered during the appraisal or evaluation process.18

Use of Third Parties

A financial institution’s use of third parties in the valuation review process does not diminish

its responsibility to comply with applicable laws and regulations.19 Moreover, whether valuation

review activities and the resolution of deficiencies are performed internally or via a third party,

14 See Nondiscrimination Section of the USPAP’s Ethics Rule (2024 edition).

15 An error of omission is neglecting to do something that is necessary, e.g., failing to identify the subject property’s

relevant characteristics. An error of commission is doing something incorrectly, e.g., incorrectly identifying the subject

property’s relevant characteristics.

16 See 12 CFR 34.44 (OCC); 12 CFR 225.64 (Board); 12 CFR 323.4 (FDIC); and 12 CFR 722.4 (NCUA). In addition,

under TILA, if at any point during the lending process the financial institution reasonably believes, through appraisal

review or consumer-provided information, that an appraiser has not complied with USPAP or ethical or professional

requirements for appraisers under applicable state or Federal statutes or regulations, the financial institution is required to

refer the matter to the appropriate state appraisal regulatory agency if the failure to comply is material. See 12 CFR

1026.42(g)

eves, through appraisal

review or consumer-provided information, that an appraiser has not complied with USPAP or ethical or professional

requirements for appraisers under applicable state or Federal statutes or regulations, the financial institution is required to

refer the matter to the appropriate state appraisal regulatory agency if the failure to comply is material. See 12 CFR

1026.42(g).

17 See Interagency Appraisal and Evaluation Guidelines, 75 FR 77450 (December 10, 2010).

18 The agencies note that institutions that choose to implement ROV policies described in this guidance would not be

precluded or excused from complying with other relevant legal and contractual requirements related to ROVs, as

applicable.

19 See OCC Bulletin 2023-17, “Third-Party Relationships: Interagency Guidance on Risk Management” (June 6, 2023);

CFPB Compliance Bulletin and Policy Guidance; 2016-02, Service Providers (October 2016); FDIC FIL-29-2023,

“Interagency Guidance on Third-Party Relationships: Risk Management” (June 6, 2023); Board SR Letter 23-4,

“Interagency Guidance on Third-Party Relationships: Risk Management” (June 7, 2023). The Board, FDIC, and OCC

also issued “Third-Party Relationships: A Guide for Community Banks,” which is intended to assist community banks

when developing and implementing their third-party risk-management practices. See OCC Bulletin 2024-11 (May 3,

2024); FDIC FIL-19-2024 (May 3, 2024); SR Letter 24-2 (May 7, 2024). The NCUA does not currently have

supervisory or enforcement authority over third-party credit union vendors and service providers. The NCUA issued

LTR 07-CU-13 “Evaluating Third Party Relationships” to communicate guidance to examiners on a standard framework

for reviewing third party relationships.

ulletin 2024-11 (May 3,

2024); FDIC FIL-19-2024 (May 3, 2024); SR Letter 24-2 (May 7, 2024). The NCUA does not currently have

supervisory or enforcement authority over third-party credit union vendors and service providers. The NCUA issued

LTR 07-CU-13 “Evaluating Third Party Relationships” to communicate guidance to examiners on a standard framework

for reviewing third party relationships.

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financial institutions supervised by the Board, FDIC, NCUA, and OCC are required to operate in a

safe and sound manner and in compliance with applicable laws and regulations, including those

designed to protect consumers.20 In addition, the CFPB expects financial institutions to oversee their

business relationships with service providers in a manner that ensures compliance with Federal

consumer protection laws, which are designed to protect the interests of consumers and avoid

consumer harm.21 A financial institution’s risk management practices include managing the risks

arising from its third-party valuations and valuation review functions.

Reconsiderations of Value

An ROV request made by the financial institution to the appraiser or other preparer of the

valuation report encompasses a request to reassess the report based upon deficiencies or information

that may affect the value conclusion. A financial institution may initiate a request for an ROV

because of the financial institution’s valuation review activities or after consideration of information

received from a consumer through a complaint, or request to the loan officer or other lender

representative.22

A consumer inquiry or complaint regarding a valuation would generally occur after the

financial institution has conducted its initial appraisal or evaluation review and resolved any issues

that it has identified. Given this timing, a consumer may provide specific and verifiable information

that may not have been available or considered when the initial valuation and review were

performed

2

A consumer inquiry or complaint regarding a valuation would generally occur after the

financial institution has conducted its initial appraisal or evaluation review and resolved any issues

that it has identified. Given this timing, a consumer may provide specific and verifiable information

that may not have been available or considered when the initial valuation and review were

performed. Regardless of how the request for an ROV is initiated, a consumer inquiry or complaint

could be resolved through a financial institution’s independent valuation review or other processes to

ensure credible appraisals and evaluations.

An ROV request may include consideration of comparable properties not previously

identified, property characteristics, or other information about the property that may have been

incorrectly reported or not previously considered, which may affect the value conclusion. To resolve

deficiencies, including those related to potential discrimination, financial institutions can

communicate relevant information to the original preparer of the valuation and, when appropriate,

request an ROV.

Complaint Resolution Process

20 See section 39 of the Federal Deposit Insurance Act (12 U.S.C. 1831p-1) (which requires each appropriate Federal

banking agency to prescribe safety and soundness standards for insured depository institutions). The Federal banking

agencies implemented section 1831p-1 by rule through the “Interagency Guidelines Establishing Standards for Safety

and Soundness.” See 12 CFR part 30, appendix A (OCC); 12 CFR part 208, appendix D-1 (Board); and 12 CFR part

364, appendix A (FDIC). See also 12 U.S.C. 1786(b); 12 U.S.C. 1789; and 12 CFR 741.3 (NCUA).

21 CFPB Compliance Bulletin and Policy Guidance; 2016-02, Service Providers (October 2016).

22 See Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, 77463 (December 10, 2010).

ty

and Soundness.” See 12 CFR part 30, appendix A (OCC); 12 CFR part 208, appendix D-1 (Board); and 12 CFR part

364, appendix A (FDIC). See also 12 U.S.C. 1786(b); 12 U.S.C. 1789; and 12 CFR 741.3 (NCUA).

21 CFPB Compliance Bulletin and Policy Guidance; 2016-02, Service Providers (October 2016).

22 See Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, 77463 (December 10, 2010).

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Financial institutions can capture consumer feedback regarding potential valuation

deficiencies through existing complaint resolution processes. The complaint resolution process may

capture complaints and inquiries about the financial institution’s products and services offered across

all lines of business, including those offered by third parties, as well as complaints from various

channels (such as letters, phone calls, in person, transmittal from regulators, third-party valuation

service providers, emails, and social media). Depending on the nature and volume, appraisal and

other valuation-based complaints and inquiries can be an important indicator of potential risks and

risk management weaknesses. Appropriate policies, procedures, and control systems can adequately

address the monitoring, escalating, and resolving of complaints including a determination of the

merits of the complaint and whether a financial institution should initiate an ROV.

Examples of Policies, Procedures, and Control Systems

Financial institutions may consider developing risk-based ROV-related policies, procedures,

control systems, and complaint resolution processes23 that identify, address, and mitigate the risk of

deficient valuations, including valuations that involve prohibited discrimination, and that:

• Consider ROVs as a possible resolution for consumer complaints or inquiries related to

residential property valuations

itutions may consider developing risk-based ROV-related policies, procedures,

control systems, and complaint resolution processes23 that identify, address, and mitigate the risk of

deficient valuations, including valuations that involve prohibited discrimination, and that:

• Consider ROVs as a possible resolution for consumer complaints or inquiries related to

residential property valuations. If a complaint or inquiry includes allegations of

discrimination, the institution may consider, in addition to processing the ROV, separately

initiating the process the institution may have to respond to allegations of discrimination.

•

Consider whether any information or other process requirements related to a consumer’s

request for a financial institution to initiate an ROV create unreasonable barriers or

discourage consumers from requesting the institution initiate an ROV.

•

Establish a process that provides for the identification, management, analysis, escalation, and

resolution of valuation-related complaints or inquiries across all relevant lines of business,

from various channels and sources (such as letters, phone calls, in person, regulators, third-

party service providers, emails, and social media).

• Establish a process to inform consumers how to raise concerns about the valuation early

enough in the underwriting process for any errors or issues to be resolved before a final credit

decision is made. This may include educating consumers on the type of information they

may provide when communicating with the financial institution about potential valuation

deficiencies.

• Identify stakeholders and clearly outline each business unit’s roles and responsibilities for

processing an ROV request (e.g., loan origination, processing, underwriting, collateral valuation,

23 Risk-based ROV-related policies, procedures, control systems, and complaint processes may necessarily vary

according to the size and complexity of the financial institution

aluation

deficiencies.

• Identify stakeholders and clearly outline each business unit’s roles and responsibilities for

processing an ROV request (e.g., loan origination, processing, underwriting, collateral valuation,

23 Risk-based ROV-related policies, procedures, control systems, and complaint processes may necessarily vary

according to the size and complexity of the financial institution. Smaller financial institutions that choose to implement

the guidance may have policies and procedures that differ from those at larger and midsize institutions.

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compliance, customer experience, or complaints).

• Establish risk-based ROV systems that route the request to the appropriate business unit (e.g.,

requests that include concerns or inquiries that allege discrimination could be routed to the

appropriate compliance, legal, and appraisal review staff that have the requisite skills and

authority to research and resolve the request).

• Establish standardized processes to increase the consistency of consideration of requests for

ROVs:

o Use clear, plain language in notices to consumers of how they may request the ROV;

o Use clear, plain language in ROV policies that provide a consistent process for the

consumer, appraiser, and internal stakeholders;

o Establish guidelines for the information the financial institution may need to initiate

the ROV process;

o Establish timelines in the complaint or ROV processes for when milestones need to

be achieved;

o Establish guidelines for when a second appraisal could be ordered and who assumes

the cost; and

o Establish protocols for communicating the status of the complaint or ROV and the

lender’s determination to consumers.

• Ensure relevant lending and valuation-related staff, inclusive of third parties (e.g., appraisal

management companies, fee-appraisers, mortgage brokers, and mortgage servicers) are

trained to identify deficiencies (including practices that may result in discrimination) through

the valuation review process

cating the status of the complaint or ROV and the

lender’s determination to consumers.

• Ensure relevant lending and valuation-related staff, inclusive of third parties (e.g., appraisal

management companies, fee-appraisers, mortgage brokers, and mortgage servicers) are

trained to identify deficiencies (including practices that may result in discrimination) through

the valuation review process.