Why Haven’t Loan Officers Been Told These Facts?
Reconsideration of Value, FAQs From FNMA

Like many other aspects of the mortgage industry, the standard appraisal process is changing substantially. One change is the necessity of formalizing the borrower-requested reconsideration of value.

Stakeholders often cry foul when the appraiser’s valuation is lower than the sales price or negatively impacts a refinance or equity loan application. If the lender mishandles the borrower-initiated ROV, in addition to brand damage, a host of legal entanglements and losses can occur.

MLOs are often the first point of contact regarding borrower-requested reconsideration of value and should be trained to facilitate the ROV. This issue is complex and poses numerous compliance challenges. Generally, if available, a lender is wise to use external benchmarks to establish its practices.

Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations

The industry has a variety of benchmarks to pick from including the recently published Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations. Interagency guidance is not a law, nor does it establish new regulations or policies, but it serves to benchmark best practices. According to the announcement, “The agencies underscore that supervisory guidance does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions. The guidance is intended to provide a flexible, risk-based approach to ROV processes that institutions can adjust to their unique profile.”

The lender or borrower requested reconsideration of value, which is a delicate matter must also conform to written agency requirements, such as those published by FNMA and HUD. Lenders risk extreme liability when failing to regiment the ROV, including TILA, ECOA, and Fair Housing Act violations, not to mention indemnities for harm to insurers and investors.

Regulators are seeking enforcement action to promulgate the seriousness of the ROV. Don’t be the next example of what not to do.

HUD and FNMA have collaborated to clarify ROV standards for lenders. The time to determine how to proceed with the ROV is not when the need arises but in advance of the need.

From FNMA

On May 1, 2024, Fannie Mae in collaboration with Freddie Mac and HUD, published requirements related to a borrower-initiated reconsideration of value (ROV) that promote consistency when a perceived appraisal issue and/or appraisal deficiency exists. These requirements also recognize the importance of the Borrower having the knowledge and opportunity to request an ROV.

These frequently asked questions (FAQs) provide additional information about the borrower-initiated ROV requirements. Lenders should refer to Selling Guide section B4-1.3-12, Appraisal Quality Matters for the comprehensive policy requirements.

FNMA ROV FAQs

Q1. Why did Fannie Mae implement these requirements? Historically, lenders have maintained their own ROV policies and procedures; Fannie Mae is implementing ROV requirements to promote consistency throughout the borrower-initiated ROV process.

Q2. Will standardized order or disclosure forms be provided by Fannie Mae to lenders? No, lenders are responsible for creating and providing forms that include the information required by Fannie Mae Selling Guide in B4-1.3-12, Appraisal Quality Matters.

Q3. What does the requirement to provide a disclosure “at the time of application” mean? The first disclosure occurs “at the time of loan application,” which is the same as the “application date” definition
in the Selling Guide glossary and aligned with the Truth in Lending Act and Real Estate Settlement Procedures Act (TRID or TILA-RESPA) definition in Regulation Z regarding the timing of disclosure.

Q4. How will Fannie Mae evaluate compliance with the ROV requirements? Compliance with these requirements will be part of the lender’s operational review.

Q5. What if the borrower-initiated ROV request submitted to the lender does not meet the minimum Fannie Mae requirements? If the borrower-initiated ROV does not meet the minimum Fannie Mae requirements, the lender should work with their borrower(s) to obtain any missing information and ensure the ROV request meets Fannie Mae requirements
before sending the request to the appraiser.

Q6. Can the borrower initiate more than one ROV? The borrower may request a maximum of one ROV for each appraisal report.

Q7. Will a borrower-initiated ROV replace a lender’s ability to request an ROV? No, Fannie Mae’s borrower-initiated ROV requirements do not replace the lender’s underwriting practices, which may provide for an ROV to be requested by someone other than the borrower.

Q8. Can the borrower cancel a borrower-initiated ROV request? Yes, the borrower may cancel a borrower-initiated ROV request. The lender should communicate the cancellation process to the borrower.

Q9. Once the ROV conclusion is made and there is no value change, may the borrower request a new appraisal? No, the decision whether to accept the appraiser’s conclusions is the responsibility of the lender (Seller).

Q10. As part of a borrower–initiated ROV, if the borrower identifies a minor error in the appraisal report and the appraiser determines the error does not impact the value of the property, is the appraiser required to update the appraisal report? Yes, for each borrower-initiated ROV, the appraiser must update the appraisal report to correct any errors and
provide comments on the change(s).

Q11. What if the borrower-initiated ROV identifies material deficiencies in the appraisal report? The lender must work with the appraiser to have all material deficiencies corrected.

Q12. Must a borrower-initiated ROV adhere to Appraiser Independence Requirements (AIR)? Yes, all appraisals and ROVs submitted to Fannie Mae must comply with AIR.

Q13. How do these requirements apply to third party-originated loans? For each loan sold to Fannie Mae, the lender is responsible for ensuring compliance with the borrower-initiated ROV requirements, even if the lender did not originate the loan.

HUD Mortgagee Letter 2024-07 Borrower-Initiated Reconsideration of Value (ROV) requirements

FNMA Appraisal Quality Matters B4-1.3-12

CFPB Announcement Agencies Finalize Interagency Guidance on Reconsiderations of Value

Interagency Guidance on Reconsiderations of Value of Residential Real Estate

 

 

BEHIND THE SCENES – D.C. Accountant Pleads Guilty to Mortgage Fraud and Tax Crimes

Defendant Falsified Documents to Obtain Mortgage

From The US Department of Justice Office of Public Affairs

A Washington, D.C. CPA pleaded guilty today to making a false statement on a mortgage loan application and failing to file an income tax return.

According to court documents and statements made in court, Timothy Trifilo worked in tax compliance for several large accounting and finance firms. In recent years, Trifilo was managing director at a tax firm where he specialized in transaction structuring and advisory service, tax compliance and tax due diligence. Nevertheless, for a decade, Trifilo did not file federal income tax returns or pay all the taxes that he owed despite earning more than $7.7 million during that time. He caused a tax loss to the IRS of $2,057,256.40.

In February 2023, Trifilo sought to obtain a $1.36 million bank-financed loan to purchase a home in D.C. and was working with a mortgage company to do so. After the mortgage company told Trifilo that the bank would not approve the loan without copies of Trifilo’s filed tax returns, Trifilo provided the mortgage company with fabricated documents to make it appear as if he had filed tax returns and provided copies of tax returns for 2020 and 2021 that Trifilo never filed with the IRS. On these returns and other documents that he submitted to the mortgage company, Trifilo listed a former colleague as the individual who prepared the returns and uploaded them for filing with the IRS. This individual did not prepare the returns, has never prepared tax returns for Trifilo and did not authorize Trifilo to use his name on the returns and other documents that Trifilo submitted to the mortgage company. Based on Trifilo’s false representation, the bank approved the loan and Trifilo purchased the home.

Sentencing is scheduled for May 19, 2025. Trifilo faces a maximum penalty of 30 years in prison on the charge of making a false statement on a loan application and a maximum penalty of one year in prison on the charge of failure to file a tax return. He also faces a period of supervised release, monetary penalties and restitution. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division made the announcement.

IRS Criminal Investigation is investigating the case. Trial Attorneys Melissa S. Siskind and Alexis Fleszar of the Justice Department’s Tax Division are prosecuting the case.

 

 

Tip of the Week – Make Your Goal the Success of Another

What changes must you make in 2025 to ensure you progress towards your goals? Ask yourself, “Am I setting goals in a vacuum, or are my goals aligned with those of key stakeholders in my life? Can you align yourself with the goals of key stakeholders such as your boss, spouse, referral partners, or past customers and, in doing so, further your own goals?

Help your referral partners set their goals and be a prominent factor in their success. How do you help another with their goal setting? Ask them about their goals or changes they want to make for 2025 and beyond. Let them know you want to add to their success.