[Federal Register Volume 89, Number 144 (Friday, July 26, 2024)]
[Rules and Regulations]
[Pages 60549-60558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16200]



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 Rules and Regulations
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  Federal Register / Vol. 89, No. 144 / Friday, July 26, 2024 / Rules 
and Regulations  

[[Page 60549]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 34

[Docket ID OCC-2023-0007]

FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Docket No. OP-1809]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 323

RIN 3064-ZA36

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 722

[Docket ID NCUA-2023-0061]

CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Chapter X

[Docket No. CFPB-2023-0033]


Interagency Guidance on Reconsiderations of Value of Residential 
Real Estate Valuations

AGENCY: Board of Governors of the Federal Reserve System (Board); 
Consumer Financial Protection Bureau (CFPB); Federal Deposit Insurance 
Corporation (FDIC); National Credit Union Administration (NCUA); and 
Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Final interagency guidance.

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SUMMARY: The Board, CFPB, FDIC, NCUA, and OCC (together, the agencies) 
are issuing final guidance that highlights risks associated with 
deficient residential real estate valuations and describes how 
financial institutions may incorporate reconsiderations of value (ROV) 
processes and controls into established risk management functions. The 
final guidance also provides examples of policies and procedures that a 
financial institution may choose to implement to help identify, 
address, and mitigate the risk of discrimination impacting residential 
real estate valuations.

DATES: The guidance is final as of July 26, 2024.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Siddarth Rao, Fair Lending Compliance Policy Specialist, (732) 
635-2070; Olutoyin Falade, Fair Lending Compliance Policy Specialist, 
(972) 277-9551; James B. Rives, Retail Credit Risk Specialist, (202) 
649-6594; Joanne Phillips, Counsel, or Marta Stewart-Bates, Counsel, 
Chief Counsel's Office, (202) 649-5490; Office of the Comptroller of 
the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, 
hard of hearing, or have a speech disability, please dial 7-1-1 to 
access telecommunications relay services.
    Board: Devyn Jeffereis, Senior Financial Institution Policy Analyst 
II, Division of Supervision and Regulation, (202) 452-2729; Keshia 
King, Lead Supervisory Policy Analyst, Division of Consumer and 
Community Affairs, (202) 452-2496; Trevor Feigleson, Senior Counsel, 
(202) 452-3274, or Derald Seid, Senior Counsel, (202) 452-2246, Legal 
Division. For users of telephone systems via text telephone (TTY) or 
any TTY-based Telecommunications Relay Services, please call 711 from 
any telephone, anywhere in the United States; Board of Governors of the 
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
    FDIC: Patrick J. Mancoske, Senior Examination Specialist, Division 
of Risk Management Supervision, (202) 898-7032; Stuart Hoff, Senior 
Policy Analyst, Division of Depositor and Consumer Protection, (202) 
898-3852; Legal Division: Navid Choudhury, Counsel, (202) 898-6526, 
[email protected], Lauren Whitaker, Counsel, (202) 898-3872, 
[email protected], or Mark Mellon, Counsel, (202) 898-3884, 
[email protected]. Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.
    NCUA: Naghi Khaled, Director of Credit Markets, or Walonda Hollins, 
Senior Credit Specialist, Office of Examination and Insurance, (703) 
216-5136; Ernestine Ward, Director, Division of Consumer Compliance 
Policy & Outreach, Office of Consumer Financial Protection, (703) 518-
6524; National Credit Union Administration, 1775 Duke Street, 
Alexandria, VA 22314.
    CFPB: George Karithanom, Office of Regulations, at (202) 435-7700 
or https://reginquiries.consumerfinance.gov/. If you require this 
document in an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Discussion of Comments on the Proposed Guidance
    A. General Comments
    B. Terminology & Scope
    i. Description of the Term ``ROV''
    ii. Description of the Terms ``Comparable Sale'' and ``Specific 
and Verifiable Information''
    ii. Scope of Transactions Covered by the Guidance
    C. Comments on Prescriptive Versus Principles-Based Approach
    i. Specific Suggestions for Added Prescriptiveness
    ii. Uniformity & Standardization of ROV Processes
    iii. Model Forms, Checklists, & Policies
    D. Comments on Burden on Institutions
    E. Other Comments Submitted
III. Paperwork Reduction Act
IV. Text of Final Interagency Guidance on Reconsiderations of Value 
of Residential Real Estate Valuations

I. Introduction

    The agencies are issuing final interagency guidance (final 
guidance) on ROVs of residential real estate valuations.\1\ The 
agencies considered the comments received on the proposed guidance, and 
as a result, made several edits to the final guidance, including 
clarifying the guidance's scope. The agencies are finalizing the 
guidance largely as proposed. This guidance is intended to highlight 
risks associated with deficient residential real estate valuations, 
describe how financial

[[Page 60550]]

institutions may incorporate ROV processes and controls into risk 
management functions, and provide examples of ROV policies and 
procedures that institutions may choose to implement. Collateral 
valuations, including appraisals,\2\ are important to the integrity of 
the residential real estate lending process. Deficient collateral 
valuations can contain inaccuracies due to errors, omissions, or 
discrimination \3\ that affect the value conclusion and can result in 
either overvaluing or undervaluing real estate collateral. The Board, 
FDIC, NCUA, and OCC have previously issued guidance that describes 
actions a financial institution may take to correct deficiencies 
identified in collateral valuations.\4\ These actions include ordering 
a second appraisal or evaluation or resolving the deficiency through 
the original appraiser or preparer of the evaluation.\5\
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    \1\ This final guidance is supervisory guidance that does not 
have the force and effect of law or regulation and does not impose 
any new requirements on supervised institutions. See 12 CFR part 4, 
subpart F, appendix A (OCC); 12 CFR part 262, appendix A (Board); 12 
CFR part 302, appendix A (FDIC); 12 CFR part 1074, appendix A 
(CFPB); 12 CFR part 791, subpart D, appendix A (NCUA).
    \2\ Appraisal means ``a written statement independently and 
impartially prepared by a qualified appraiser setting forth an 
opinion as to the market value of an adequately described property 
as of a specific date(s), supported by the presentation and analysis 
of relevant market information.'' 12 CFR 34.42(a) (OCC); 12 CFR 
323.2(a) (FDIC); 12 CFR 225.62(a) (Board); 12 CFR 722.2 (NCUA).
    \3\ 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.
    \4\ See Interagency Appraisal and Evaluation Guidelines, 75 FR 
77450 (December 10, 2010).
    \5\ The NCUA uses the term ``written estimate of market value'' 
in place of the term ``evaluation.'' See 12 CFR 722.3.
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    Prior to the efforts to adopt this joint guidance, the agencies had 
not, collectively, issued guidance specific to ROV processes. The 
agencies had received questions and comments from financial 
institutions and other industry stakeholders on ROVs. Stakeholders 
highlighted the uncertainty in the industry on how ROVs intersect with 
appraisal independence requirements and compliance with Federal 
consumer protection laws, including those related to nondiscrimination. 
As such, the final guidance addresses some of the questions raised by 
stakeholders. For purposes of the final guidance, an ROV is a request 
from the 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.\6\
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    \6\ ROVs may arise from a consumer requesting a financial 
institution to reexamine a valuation.
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II. Discussion of Comments on the Proposed Guidance

    On July 21, 2023, the agencies published for comment proposed 
guidance on ROVs of residential real estate valuations (proposal).\7\ 
The 60-day comment period ended on September 19, 2023. The agencies 
invited comment on all aspects of the proposed guidance from all 
interested parties. In particular, the agencies requested comment on 
the following: (1) to what extent the proposed guidance describes 
suitable considerations for a financial institution to take into 
account in assessing and potentially modifying its current ROV policies 
and procedures; (2) suggestions for ROV model forms or model policies 
and procedures, if any, that would be helpful for the agencies to 
recommend; (3) suggestions for other guidance that may be helpful to 
financial institutions concerning the development of ROV processes; and 
(4) to what extent, if any, the proposed ROV guidance conflicts with, 
duplicates, or complements the existing Interagency Appraisal and 
Evaluation Guidelines (Guidelines) or a financial institution's 
policies and procedures to implement those Guidelines. The agencies 
collectively received more than 45 unique comment letters from banking 
organizations, real estate companies, trade associations, nonprofits, 
The Appraisal Foundation (TAF),\8\ an automated valuation model (AVM) 
developer, loan officers, appraisers, and other individuals.
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    \7\ ``Proposed Interagency Guidance on Reconsiderations of Value 
of Residential Real Estate Valuations,'' 88 FR 47071 (July 21, 
2023).
    \8\ TAF is a not-for-profit corporation under the laws of 
Illinois, which sets appraisal standards and appraiser 
qualifications in connection with federally related transactions. 
See 12 U.S.C. 3331 et seq. and https://appraisalfoundation.org/imis. 
As contemplated by title XI of the Financial Institutions Reform, 
Recovery and Enforcement Act of 1989 (FIRREA), the Board, FDIC, 
NCUA, and the OCC have promulgated regulations requiring that real 
estate appraisals be performed in accordance with generally accepted 
appraisal standards as evidenced by the appraisal standards 
promulgated by the Appraisal Standards Board of TAF. See 12 U.S.C. 
3339; 12 CFR part 225 (Board); 12 CFR part 323 (FDIC); 12 CFR part 
722 (NCUA); 12 CFR part 34 (OCC).
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A. General Comments

    In general, many commenters supported the agencies' issuance of 
interagency guidance specific to ROV processes. Some of these 
commenters agreed with the proposal's focus on the importance of 
credible collateral valuations, compliance with nondiscrimination laws, 
and safeguarding appraiser independence. Other commenters asserted that 
additional clarity in the guidance is necessary and provided 
recommendations. A few commenters, including certain credit unions, 
trade associations, and appraisers, opposed the guidance or aspects of 
the guidance on the grounds that it would be overly burdensome for 
institutions or place undue pressure on appraisers which could lead to 
overvaluation.
    Commenters expressed mixed views on whether ROV processes should be 
uniform across all institutions. Some commenters recommended adding 
more prescriptive elements to the guidance, while others asserted that 
the guidance should be broad and flexible, as proposed. Some commenters 
believed that many of the proposal's policies and procedures should be 
mandatory.
    In response to comments received, the agencies made several 
clarifying edits to the final guidance, including clearly stating the 
scope of transactions covered by the guidance. 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.\9\ The guidance is intended to provide a flexible, risk-
based approach to ROV processes that institutions can adjust to their 
unique profile. The justification for and benefits of the agencies' 
approach, and the agencies' consideration of specific comments, are 
discussed further below.
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    \9\ See authorities cited supra note 1.
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B. Terminology & Scope

    Commenters offered views on certain terms used in the proposal, 
including the terms ``ROV,'' ``comparable sale,'' and ``specific and 
verifiable information.'' Commenters also expressed views on the scope 
of transactions covered by the guidance.
i. Description of the Term ``ROV''
    One commenter requested that the agencies revise the definition of 
``ROV'' to remove the language ``that may affect the value 
conclusion.'' \10\ This commenter expressed concern that including this 
language could result in a lender exerting pressure on an appraiser to 
change a value that does not satisfy the lender. Another commenter 
asserted that the proposal's use of the term ``ROV'' might be too 
limiting as it focuses on ``value'' and suggested the broader term 
``Appraisal Reconsideration'' instead. A commenter

[[Page 60551]]

suggested that the definition of ``ROV'' be amended to provide that an 
agent of the institution, such as an appraisal management company 
(AMC), could initiate an ROV request.
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    \10\ The proposal described the term ``ROV'' as a ``request from 
the 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.'' 88 FR 47071, 47073 (July 21, 2023).
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    Alternative descriptions suggested by commenters could result in 
overly broad or narrow descriptions and would not capture the 
appropriate types of requests. Therefore, the agencies believe the 
description of the term ``ROV'' in the proposed guidance captures the 
intended scope and the final guidance does not change that description. 
The agencies decline to incorporate the term ``Appraisal 
Reconsideration'' into the final guidance, as it implies that 
appraisals are the sole type of valuation subject to ROVs.
ii. Description of the Terms ``Comparable Sale'' and ``Specific and 
Verifiable Information''
    One commenter requested that the agencies clearly define the term 
``comparable sale'' \11\ in the context of the content of an ROV 
request, which may include comparable properties not previously 
identified. A commenter recommended that the agencies clarify the term 
``specific and verifiable information'' in connection with a consumer 
providing specific and verifiable information that may not have been 
available or considered when the initial valuation and review were 
performed. The same commenter requested that the agencies provide clear 
examples of both valid and invalid data in the context of consumer-
provided ``specific and verifiable information.''
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    \11\ The agencies note that the final guidance, like the 
proposed guidance, references ``comparable properties'' and 
``comparable properties not previously identified,'' instead of 
``comparable sales.''
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    The agencies considered the comments regarding ``comparable sale'' 
and ``specific and verifiable information.'' Under the provisions of 
title XI of the FIRREA, the Appraisal Standards Board (ASB) of TAF sets 
appraisal standards in connection with federally related transactions, 
which it does through the development and publication of the Uniform 
Standards of Professional Appraisal Practice (USPAP).\12\ What 
constitutes a ``comparable sale'' and ``specific and verifiable 
information'' fall within the purview of the ASB and USPAP. Therefore, 
the agencies decline to provide definitions or examples related to 
those terms in the final guidance.
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    \12\ See 12 U.S.C. 3331 et seq.
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iii. Scope of Transactions Covered by the Final Guidance
    Some commenters questioned the scope of the term ``residential real 
estate'' in connection with the types of transactions that the guidance 
covers. One commenter asserted that ``residential real estate'' likely 
encompassed single-unit dwellings like standalone homes, condos, co-
ops, and townhouses. Another commenter stated that their interpretation 
of the proposal's scope was that it included loans for properties that 
borrowers plan to live in as their primary residence.
    Commenters made specific suggestions regarding the type of loans 
the guidance should cover. In particular, a commenter suggested that 
the guidance should only extend to loans secured by a single 1-to-4 
family residential property, excluding multi-family dwellings. Another 
commenter recommended that loans to small businesses, corporations, 
partnerships, and trusts should be covered by the guidance, because the 
Equal Credit Opportunity Act (ECOA) applies to any extension of credit 
to those entities. Finally, a commenter asserted that the guidance 
should cover all types of real estate-related credit, including multi-
family and commercial.
    The agencies considered the comments regarding the scope of 
``residential real estate,'' as well as the comments in favor of 
expansion of the guidance's scope. In response, the agencies revised 
the guidance to clearly state that the scope of the final guidance is 
intended to be limited to real estate-related financial transactions 
that are secured by a single 1-to-4 family residential property.\13\ 
The considerations and principles included in the guidance are targeted 
towards single 1-to-4 family residential transactions and thus are best 
suited for those types of transactions. Other types of transactions may 
involve different considerations.
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    \13\ See 12 CFR 34.42(k) (OCC); 12 CFR 323.2(k) (FDIC); 12 CFR 
225.62(k) (Board); 12 CFR 722.2 (NCUA).
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C. Comments on Prescriptive Versus Principles-Based Approach

    Some commenters recommended that the final guidance take a more 
prescriptive approach, suggesting specific amendments to the guidance, 
urging uniformity and standardization of ROV processes across 
institutions, and endorsing the development of model forms, checklists, 
and policies. Other commenters supported the proposal's more flexible 
and principles-based approach to the guidance.
i. Specific Suggestions for Added Prescriptiveness
    Many commenters made specific suggestions that the agencies provide 
more granularity and prescriptiveness in the guidance in particular 
areas. With regard to second appraisals, one commenter recommended that 
the guidance should outline the circumstances under which a financial 
institution must request a second appraisal. One commenter asserted 
that the guidance should provide examples of when, if ever, it is 
reasonable to pass on the cost of a second appraisal to the consumer. A 
commenter recommended that, if the agencies determined that it was 
never acceptable to pass on the cost of a second appraisal to the 
consumer, the guidance should clearly state that, and should also 
clarify to whom the fee could be assessed. Another commenter more 
generally requested clear guidelines on handling second appraisals.
    With regard to data submitted with an ROV request, commenters 
requested that the guidance define what types of data or items a 
consumer should or should not include. For example, one commenter 
suggested that alleged appraiser remarks should not be included. 
Another commenter requested that the guidance specify that data 
provided by consumers with the ROV request should not include separate 
valuations for the same property (e.g., a separate appraisal or 
evaluation). A commenter recommended that information that was 
unavailable as of the appraisal's effective date should not be included 
with the ROV request. Finally, a commenter requested specificity on 
which alternate market data should be provided with an ROV request and 
whether it should be limited to sales that closed prior to the date of 
the appraisal.
    Other commenters focused on adding detail to the guidance related 
to consumer and appraiser education and communication. One commenter 
requested that the agencies provide additional clarity on the process 
to inform consumers about how to raise valuation concerns early in the 
underwriting process. Another commenter suggested consumer education 
should be incorporated as a standard component in the ROV process. A 
commenter emphasized the importance of appraiser education and training 
on how to recognize and avoid bias. Another commenter requested 
additional examples of ROV policies and procedures to improve 
communications with consumers.

[[Page 60552]]

    The agencies received several comments regarding timelines of ROV 
processes. A commenter requested that the agencies incorporate a set 
timeline for an ROV process into the guidance. Another commenter 
requested that the agencies consider whether the guidance should set 
forth a specific timeframe after receipt of the original valuation 
during which an ROV request must be made. This commenter noted that 
allowing ROV requests to be made several days or more after receipt of 
the original valuation can have consequences on the rate lock and can 
be a considerable burden on financial institutions. Another commenter 
believed that the guidance should state that, if an institution 
requests data or other information to support an ROV request, and the 
required information is not provided by the borrower in a reasonable 
timeframe, the institution should have no additional responsibilities 
other than conducting its own internal review to ensure there were no 
evident omissions, errors, or discriminatory actions involved in the 
valuation.
    The agencies considered the range of comments aimed at adding 
prescriptiveness to the guidance with regard to second appraisals, the 
types of information submitted with an ROV request, consumer and 
appraiser education and training, ROV timelines, and communication with 
consumers. The final guidance is intended for institutions of many 
different sizes, types, and business models. Institutions implementing 
the guidance have flexibility to tailor their ROV processes based on 
their unique risk profile.\14\ The agencies determined there is no one-
size-fits-all approach and that it is important to maintain a high-
level, principles-based approach to help ensure the guidance will be 
useful and relevant for a diverse range of institutions and 
circumstances. In light of their decision to retain the broad, 
principles-based approach of this guidance, the agencies have not made 
revisions to address specific topics or individual situations raised by 
commenters in order to provide flexible guidance for institutions 
designing their ROV processes.
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    \14\ Accordingly, institutions have flexibility as to the level 
of granularity to include in their own ROV processes. For example, 
an institution's ROV policies and procedures could specify what 
types of information the institution would accept with an ROV 
request (e.g., comparable sales provided with an ROV request must 
have closed by the effective date of the appraisal).
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ii. Uniformity and Standardization of ROV Processes
    Some commenters asserted that ROV processes should be uniform 
across all institutions. Other commenters believed that certain aspects 
of the ROV process should not be uniform due to the wide range of 
institutions that would be in-scope for purposes of the guidance. 
Another commenter recommended that the agencies build in additional 
flexibility to the guidance for financial institutions to exercise 
discretion within their own ROV processes. The agencies also received 
comments related to interagency coordination in developing a uniform, 
industry-wide ROV process.
    Several commenters recommended the adoption of a standardized, 
expedient appeals process that would allow any party to the transaction 
to appeal the valuation, similar to the United States Department of 
Veterans Affairs' (VA) Tidewater Procedure. The VA's Tidewater 
Procedure allows VA program participants to provide relevant market 
data to VA fee-appraisers and staff appraisers during the appraisal 
process.\15\ One commenter suggested that the guidance confirm that an 
ROV process similar to the Tidewater Procedure is acceptable. Another 
commenter noted that the major benefit of the Tidewater Procedure is 
that it establishes a process for an interested party to provide 
relevant data to the appraiser. A commenter noted that the Tidewater 
Procedure may help prevent abuse of the ROV process. The commenter 
raised a concern regarding who would decide the number of alternative 
sales to review and how it would be decided which sales transactions 
deserve consideration.
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    \15\ The VA's Tidewater Procedure has been in existence since 
2003. Under this procedure, appraisers are required to notify the 
requester (i.e., the person who orders the appraisal) when it 
appears that the estimated market value will be below the sale price 
during the appraisal process. The requester, or any parties to the 
transaction contacted by the requester, has two business days to 
submit any additional sales data that they wish to have considered. 
For each potential comparable sale submitted, requesters are 
encouraged to provide the following information: (1) street address; 
(2) sales price; (3) date of sale; (4) gross living area; (5) if the 
property was listed, a copy of the listing with details about the 
property; and 6) any other information to assist the appraiser in 
determining whether the sale could be used as a comparable property. 
If the requester submits market data, the appraiser will note in the 
appraisal report that the Tidewater Procedure was followed and 
include: (1) the street address of each sale submitted; (2) whether 
each sale was considered and, if not, the reason; and (3) the effect 
of the data, if any, on the opinion of value. If the market data 
does not result in the value meeting or exceeding the sale price, 
the next step is an ROV. After two business days, if the requester 
does not submit market data, the appraiser will note in the 
appraisal report that the Tidewater Procedure was followed and 
complete the appraisal report. See VA's Lenders Handbook, Chapter 
10, Section 8, available at https://benefits.va.gov/WARMS/docs/admin26/m26-07/Chapter_10.pdf; see also VA's presentation entitled 
``Tidewater and Reconsiderations of Value'' at the 2023 Loan 
Guaranty Conference, available at https://benefits.va.gov/HOMELOANS/documents/conf/2023-lender-d1-04-tidewater.pdf.
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    The agencies considered the comments on uniformity and 
standardization of ROV processes for all institutions and recognize 
that institutions may find existing standardized processes, such as the 
Tidewater Procedure, something to consider while developing their own 
ROV processes. However, a standardized approach to ROV processes 
ignores the differences in risk profiles of institutions of varying 
size and complexity. The final guidance provides a principles-based 
approach with flexibility for implementing institutions to adopt ROV 
processes that are responsive to the unique profile of each 
institution. Thus, the agencies do not believe it would be appropriate 
to prescribe a rigid, one-size-fits-all ROV process across 
institutions.
iii. Model Forms, Checklists, & Policies
    In the proposal, the agencies specifically requested comment on 
what model forms, or model policies and procedures, if any, related to 
ROVs would be helpful for the agencies to recommend. Several commenters 
encouraged the agencies to develop a standardized model form for ROV 
requests and provide model disclosure language for financial 
institutions to use when educating consumers about ROVs. One of these 
commenters also suggested that the agencies create a list of common 
documents needed for a consumer to initiate an ROV request.
    One commenter suggested that the agencies work with TAF to develop 
model forms based on TAF's previous efforts in this area. This 
commenter also recommended that the agencies develop model policies 
addressing the denial of a consumer's ROV request and situations when 
consumer-provided information should be forwarded to the appraiser as 
part of an ROV. Another commenter requested that the agencies encourage 
the Federal Housing Administration, VA, and United States Department of 
Agriculture to develop consistent or shared materials for consumers to 
request ROVs and develop a model borrower application or checklist to 
standardize the process for consumers to request ROVs.
    The agencies considered the comments recommending the development 
of model forms, model policies, checklists, and other standardized 
documents. The agencies agree that such documents may have

[[Page 60553]]

utility and will consider future development of model forms.

D. Comments on Burden on Institutions

    Several commenters stated that the proposal would add unnecessary 
and burdensome requirements on top of an existing ROV process that 
already functions well. Certain commenters noted that implementing 
parts of the proposal's policies and procedures may present significant 
challenges for smaller institutions, especially institutions with 
limited resources. One commenter requested an explanation of how the 
guidance would specifically affect small financial institutions that 
perform internal valuations as an alternative to formal appraisals. A 
commenter also expressed concern that smaller institutions do not have 
sufficient financial resources to support the necessary valuation staff 
and that many institutions will be unable to make timely and accurate 
ROV request decisions due to their limited access to nationwide data or 
analytical tools.
    Several commenters expressed concerns related to burden on credit 
unions specifically. One commenter pointed to the cost associated with 
oversight and additional processes related to ROVs, which the commenter 
stated would be passed on to credit union members without providing 
additional value to their membership. Another commenter noted that 
applying rigid timelines for an ROV process would be difficult for 
certain credit unions to implement. One commenter requested that the 
agencies exclude from the guidance any policies and procedures that 
require monitoring multiple channels for ROV requests because those 
would be challenging for credit unions to implement. This commenter 
stated that monitoring multiple channels does not align with the NCUA's 
previous guidance on handling consumer complaints.\16\ Another 
commenter suggested that policies and procedures that require credit 
unions to ensure that their lending and valuation staff are trained to 
identify prohibited discriminatory practices through the appraisal 
review process could be similarly challenging to implement.
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    \16\ NCUA, Responding to Consumer Complaints (June 2015), 
available at https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/improving-process-consumer-complaints 
(recommending that credit unions ``[e]stablish channels to receive 
consumer complaints and inquiries such as telephone numbers or email 
addresses dedicated to receiving [consumer complaints].'').
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    The agencies considered these comments regarding burden on smaller 
institutions, credit unions, and institutions in general. The guidance 
is intended to provide clarity to institutions with respect to ROV 
processes. The agencies reiterate that the final guidance does not have 
the force and effect of law or regulation and does not impose any new 
requirements on supervised institutions.\17\ The examples of policies 
and procedures in the final guidance are illustrative and not 
requirements. The final guidance clarifies that these examples may not 
be applicable or material to each institution or their ROV processes. 
Risk-based ROV-related policies, procedures, control systems, and 
complaint processes may 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. Under this guidance, 
institutions have flexibility in their approach to their internal ROV 
processes and deciding the relevance of the considerations discussed in 
the final guidance.
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    \17\ See authorities cited supra note 1.
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    This ROV guidance does not conflict with the NCUA's previous 
guidance on handling consumer complaints, because financial 
institutions can use their existing complaint resolution process to 
manage complaints regarding potential valuation deficiencies. ROV 
processes work in congruence with the NCUA's current process for 
consumer complaints.

E. Other Comments Submitted

    Several commenters made recommendations regarding the use of 
automated valuation models (AVMs) in ROV processes.\18\ A commenter 
advised that the agencies should discourage reliance solely on 
automatic review tools in an ROV and should identify features that AVMs 
should and should not include for consideration in an ROV. A few 
commenters encouraged the use of AVMs in ROVs and suggested the use of 
automated and interactive appraisal review scoring tools that could 
detect, correct, and minimize human error. The agencies considered 
these comments and neither promote nor discourage the use of a 
particular method or tool as part of an ROV process.
---------------------------------------------------------------------------

    \18\ There is a separate notice of proposed rulemaking on 
quality control standards for AVMs that was published in the Federal 
Register for comment on June 21, 2023. See 88 FR 40638.
---------------------------------------------------------------------------

    One commenter recommended that bias complaints should not be 
handled by an ROV. This commenter asserted that accusations of bias 
should trigger an alternative complaint process, either through an 
escalated ROV process or a review entirely independent of the ROV 
process. This commenter believed ROVs should be used only for 
correction of informational or methodological deficiencies that do not 
relate to discrimination.
    The final guidance does not state that ROVs are the sole tool to 
address bias complaints, nor does the final guidance direct 
institutions to use a specific tool to address bias complaints. 
However, in response to this comment, the agencies have made a 
clarifying edit to the final guidance to provide that, if an ROV 
request includes allegations of discrimination, an institution may 
consider, in addition to processing the ROV, referring the allegations 
through a separate process that the institution may have to respond to 
discrimination complaints.
    Other commenters requested that the guidance address the potential 
liability of parties who may rely on discriminatory appraisals (e.g., 
third parties, AMCs, fee-appraisers, mortgage brokers, mortgage 
servicers, and appraisal firms), and appraisers' or evaluators' rights 
to dismiss non-factual or unverified claims and be shielded from any 
potential backlash or liability for doing so. The assigning or 
absolving of civil liability of future unknown parties is outside of 
the scope of this guidance.
    The agencies received a few comments regarding appraiser 
independence in the context of ROVs. A commenter asserted that the 
agencies should provide suggestions in the guidance for how to manage 
ROV requests so that they do not affect appraiser independence. Another 
commenter recommended that the agencies clarify and provide examples of 
how appraiser independence can be maintained during an ROV of an 
internal evaluation when an institution has only one or two individuals 
on staff that are qualified to perform evaluations. Another commenter 
believed that the guidance, as proposed, puts appraiser independence at 
risk.
    The agencies considered the comments received on appraiser 
independence and reiterate that institutions are responsible for 
maintaining standards of independence for all real estate lending 
activity, including ROVs, as required by the agencies' appraisal 
regulations and, as applicable, USPAP. For small institutions or 
branches, an institution may be able to demonstrate clearly that it has 
prudent safeguards in place when absolute lines of independence cannot

[[Page 60554]]

be achieved, due to, for example, limited staff.\19\
---------------------------------------------------------------------------

    \19\ See Interagency Appraisal and Evaluation Guidelines, 75 FR 
77457, 77462 (December 10, 2010).
---------------------------------------------------------------------------

    Commenters also made suggestions for further actions the agencies 
could take, such as developing data-sharing arrangements to collect ROV 
data. The agencies may take such suggestions under advisement when 
considering future agency initiatives on this topic. A few commenters 
encouraged the agencies to hold roundtables and hearings to gather 
stakeholder input in the development of the final guidance. The 
agencies note that the proposed guidance was published for notice and 
comment in the Federal Register for the purpose of gathering 
stakeholder input.
    Lastly, one commenter asserted that the interpretation of the 
adequacy of an ROV process will vary and will be defined by each exam, 
opening banking organizations up to unnecessary criticism. Examiners 
will continue to review institutions' residential real estate 
collateral valuation programs within the framework of established 
safety and soundness and consumer compliance examination procedures. 
This examination scope includes consideration of whether institutions' 
risk management practices for valuations are appropriate to identify 
and address valuation discrimination or bias and promote credible 
valuations.\20\
---------------------------------------------------------------------------

    \20\ See the Federal Financial Institutions Examination 
Council's (FFIEC) Statement on Examination Principles Related to 
Valuation Discrimination and Bias in Residential Lending, Attachment 
B (February 12, 2024), available at https://files.consumerfinance.gov/f/documents/cfpb_ffiec-statement-on-exam-principles_2024-02.pdf. In some situations, examiners may reference 
(including in writing) supervisory guidance to provide examples of 
safe and sound conduct, appropriate consumer protection and risk 
management practices, and other actions for addressing compliance 
with laws or regulations. See 12 CFR part 4, subpart F, appendix A 
(OCC); 12 CFR part 262, appendix A (Board); 12 CFR part 302, 
appendix A (FDIC); 12 CFR part 1074, appendix A (CFPB); 12 CFR part 
791, subpart D, appendix A (NCUA).
---------------------------------------------------------------------------

III. Paperwork Reduction Act Analysis

    In accordance with the Paperwork Reduction Act (PRA) of 1995,\21\ 
the Board, FDIC, NCUA, and OCC reviewed the final guidance. The 
agencies may not conduct or sponsor, and an organization is not 
required to respond to, an information collection unless the 
information collection displays a currently valid OMB control number. 
The agencies have determined that certain aspects of the final guidance 
constitute a collection of information and are revising their 
information collections related to real estate appraisals and 
evaluations. The OMB control number for each agency is: OCC, 1557-0190; 
Board, 7100-0250; FDIC, 3064-0103; and NCUA, 3133-0125. These 
information collections will be extended for three years, with 
revision. In addition to accounting for the PRA burden incurred as a 
result of this final guidance, the Board, FDIC, NCUA, and OCC are also 
updating and aligning their information collections with respect to the 
hourly burden associated with the Guidelines. Accordingly, the tables 
below provide data on both the final guidance addressed in this 
document and the Guidelines.
---------------------------------------------------------------------------

    \21\ 44 U.S.C. 3506.
---------------------------------------------------------------------------

    The agencies did not receive any PRA-related comments. The agencies 
have a continuing interest in the public's opinions of information 
collections. At any time, commenters may submit comments regarding the 
burden estimate, or any other aspect of this collection of information, 
including suggestions for reducing the burden, to the addresses listed 
in the ADDRESSES caption in the Notice of Proposed Guidance. All 
comments will become a matter of public record. Written comments and 
recommendations for the proposed information collection should be sent 
within 30 days of publication of this document to www.reginfo.gov/public/do/PRAMain. Find this information collection by selecting 
``Currently under 30-day Review--Open for Public Comments'' or using 
the search function.
    Abstract: The final guidance describes principles for financial 
institutions to implement ROV policies, procedures, and control systems 
that identify, address, and mitigate the risk of deficient valuations. 
Such policies and procedures create a recordkeeping requirement.
    Frequency of Response: Annual.
    Affected Public: Businesses, other for-profit institutions, and 
other not-for-profit institutions.
    Respondents:
    OCC: National banks, Federal savings associations.
    Board: State member banks (SMBs), bank holding companies (BHCs) and 
nonbank subsidiaries of BHCs.
    FDIC: Insured state nonmember banks and state savings associations, 
insured state branches of foreign banks.
    NCUA: Private Sector: Not-for-profit institutions.

Burden

    OCC:

                                   Table 1--Summary of Estimated Annual Burden
                                               [OMB No. 1557-0190]
----------------------------------------------------------------------------------------------------------------
                                                                                                   Total number
            Requirement                   Citations           Number of       Burden hours per       of hours
                                                             respondents         respondent          annually
----------------------------------------------------------------------------------------------------------------
Recordkeeping: Resolution stating   Sec.   7.1024(d).....               6  5....................              30
 plans for use of property.
Recordkeeping: ARM loan             Sec.   34.22(a); Sec.             164  6....................             984
 documentation must specify            160.35(b).
 indices to which changes in the
 interest rate will be linked.
Recordkeeping: Appraisals must be   Sec.   34.44.........             976  1,465 responses per           119,072
 written and contain sufficient                                             respondent @5
 information and analysis to                                                minutes per response.
 support engaging in the
 transaction.
Recordkeeping: Written policies     Sec.   34.62;                   1,413  30...................          42,390
 (reviewed annually) for             appendix A to
 extensions of credit secured by     subpart D to part
 or used to improve real estate.     34; Sec.   160.101;
                                     appendix A to Sec.
                                     160.101.
Recordkeeping: Real estate          Sec.   34.85.........               9  5....................              45
 evaluation policy to monitor OREO.
Recordkeeping: New Information      N/A..................             907  13.3.................          12,093
 Collection (``IC'') 1--ROV
 Guidance--Policies and Procedures
 (Implementation: Applies to first
 year only).
Recordkeeping: New IC 2--ROV        N/A..................             907  2....................           1,814
 Guidance--Policies and Procedures
 (Ongoing).
Recordkeeping: New IC 3--           N/A..................             976  10...................           9,760
 Interagency Appraisal and
 Evaluation Guidelines--Policies
 and Procedures.

[[Page 60555]]

 
Reporting: Procedure to be          Sec.   34.22(b); Sec.             249  6....................           1,494
 followed when seeking to use an       160.35(d)(3).
 alternative index.
Reporting: Prior notification of    Sec.   34.86.........               6  5....................              30
 making advances under development
 or improvement plan for OREO.
Disclosure: Default notice to       Sec.   190.4(h)......              42  2....................              84
 debtor at least 30 days before
 repossession, foreclosure, or
 acceleration of payments.
Disclosure: New IC 4--Interagency   N/A..................             976  5....................           4,880
 Appraisal and Evaluation
 Guidelines.
                                   -----------------------------------------------------------------------------
    Total Annual Burden Hours.....  .....................  ..............  .....................         192,676
----------------------------------------------------------------------------------------------------------------

    Board:

                                   Table 2--Summary of Estimated Annual Burden
                                               [OMB No. 7100-0250]
----------------------------------------------------------------------------------------------------------------
                                        Estimated       Estimated                                    Estimated
            FR Y[dash]30                number of        annual      Estimated average hours per   annual burden
                                       respondents      frequency              response                hours
----------------------------------------------------------------------------------------------------------------
                                                  Recordkeeping
----------------------------------------------------------------------------------------------------------------
Sections 225.61--225.67 for SMBs...             706             498  5 minutes..................          29,299
Sections 225.61--225.67 for BHCs              4,516              25  5 minutes..................           9,408
 and nonbank subsidiaries of BHCs.
Guidelines.........................           5,222               1  10.........................          52,220
Policies and Procedures ROV                   5,591               1  13.3.......................          74,547
 guidance (Initial setup).
Policies and Procedures ROV                   5,591               1  2..........................          11,182
 guidance (Ongoing).
----------------------------------------------------------------------------------------------------------------
                                                   Disclosure
----------------------------------------------------------------------------------------------------------------
Guidelines.........................           5,222               1  5..........................          26,110
----------------------------------------------------------------------------------------------------------------
    Total..........................  ..............  ..............  ...........................         202,766
----------------------------------------------------------------------------------------------------------------

    FDIC:

                                   Table 3--Summary of Estimated Annual Burden
                                               [OMB No. 3064-0103]
----------------------------------------------------------------------------------------------------------------
                                      Type of burden                       Number of      Time per      Annual
   Information collection (IC)        (frequency of        Number of     responses per    response      burden
     (obligation to respond)            response)         respondents     respondent      (HH:MM)      (hours)
----------------------------------------------------------------------------------------------------------------
Recordkeeping Requirements         Recordkeeping (On             2,936             259        00:05       63,369
 Associated with Real Estate        Occasion).
 Appraisals and Evaluations
 (Mandatory).
New IC 1--ROV Guidance--Policies   Reporting (Annual).           2,887            0.33        40:00       38,120
 and Procedures--Implementation
 (Voluntary).
New IC 2--ROV Guidance--Policies   Disclosure (Annual)           2,887               1        02:00        5,774
 and Procedures--Ongoing
 (Voluntary).
New IC 3--2010 Guidelines--        Recordkeeping                 2,936               1        10:00       29,360
 Policies and Procedures--Ongoing.  (Annual).
New IC 4--2010 Guidelines--        Reporting (Annual).           2,936               1        05:00       14,680
 Disclosure--Ongoing (Voluntary).
                                  ------------------------------------------------------------------------------
    Total Annual Burden (Hours)..  ...................  ..............  ..............  ...........      151,303
----------------------------------------------------------------------------------------------------------------
Source: FDIC.
Note: The estimated annual IC time burden is the product, rounded to the nearest hour, of the estimated annual
  number of responses and the estimated time per response for a given IC. The estimated annual number of
  responses is the product, rounded to the nearest whole number, of the estimated annual number of respondents
  and the estimated annual number of responses per respondent. This methodology ensures the estimated annual
  burdens in the table are consistent with the values recorded in OMB's consolidated information system.


[[Page 60556]]

    NCUA:

                                   Table 4--Summary of Estimated Annual Burden
                                               [OMB No. 3133-0125]
----------------------------------------------------------------------------------------------------------------
                                                        Average annual     Number of      Time per      Annual
      Information collection          Type of burden       number of     responses per    response      burden
                                                          respondents     respondent      (hours)      (hours)
----------------------------------------------------------------------------------------------------------------
Recordkeeping Requirements         Recordkeeping (On             2,871             517       0.0833      123,643
 Associated with Real Estate        Occasion).
 Appraisals and Evaluations.
New IC 1--ROV Guidance--Policies   Recordkeeping                 2,871               1            5       14,355
 and Procedures--Implementation.    (Annual).
New IC 2--ROV Guidance--Policies   Recordkeeping                 2,871               1            1        2,871
 and Procedures--Ongoing.           (Annual).
New IC 3--2010 Guidelines--        Recordkeeping                 2,871               1           10       28,710
 Policies and Procedures--Ongoing.  (Annual).
New IC 4--2010 Guidelines--        Disclosure (Annual)           2,871               1            5       14,355
 Disclosure--Ongoing.
                                  ------------------------------------------------------------------------------
    Total Annual Burden Hours....  ...................  ..............  ..............  ...........      183,934
----------------------------------------------------------------------------------------------------------------

    Comments continue to be invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

IV. Text of Final 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.\22\ 
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; \23\ 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. Such risks may include loan 
losses, violations of law, fines, civil money penalties, payment of 
damages, and civil litigation.
---------------------------------------------------------------------------

    \22\ 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.
    \23\ 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.
---------------------------------------------------------------------------

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.\24\ The Fair Housing Act (FH Act) and its 
implementing regulation prohibit discrimination in all aspects of 
residential real estate-related transactions.\25\ 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 practices \26\ 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.\27\
---------------------------------------------------------------------------

    \24\ 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. See 12 
CFR 1002.14(a)(1).
    \25\ 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.
    \26\ See 15 U.S.C. 45(a)(1).
    \27\ See 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------

    The Truth in Lending Act (TILA) and its implementing regulation, 
Regulation Z, establish certain Federal appraisal independence 
requirements.\28\ 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.\29\ However, Regulation Z also explicitly 
clarifies that it is permissible for covered persons \30\ to, among 
other things, request the preparer of the valuation to consider 
additional, appropriate property information, including information 
about comparable

[[Page 60557]]

properties, or to correct errors in the valuation.\31\
---------------------------------------------------------------------------

    \28\ See 15 U.S.C. 1601 et seq. and 12 CFR part 1026.
    \29\ See 12 CFR 1026.42(c)(1).
    \30\ ``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).
    \31\ See 12 CFR 1026.42(c)(3)(iii).
---------------------------------------------------------------------------

    The Board's, FDIC's, NCUA's, and OCC's appraisal regulations \32\ 
implementing title XI of the Financial Institutions Reform, Recovery, 
and Enforcement Act of 1989 \33\ 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.
---------------------------------------------------------------------------

    \32\ 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).
    \33\ Public Law 101-73, title XI, 103 Stat. 511 (1989), codified 
at 12 U.S.C. 3331 et seq.
---------------------------------------------------------------------------

    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.\34\ 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 
original appraisal. An appraisal does not comply with USPAP if it 
relies on a prohibited basis set forth in either ECOA or the FH Act 
\35\ or contains material errors including errors of omission or 
commission.\36\ 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.\37\
---------------------------------------------------------------------------

    \34\ 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).
    \35\ See Nondiscrimination Section of the USPAP's Ethics Rule 
(2024 edition).
    \36\ 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.
    \37\ 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).
---------------------------------------------------------------------------

    The Board, FDIC, NCUA, and OCC have issued interagency guidance 
describing actions that financial institutions may take to resolve 
valuation deficiencies.\38\ 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. 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.\39\
---------------------------------------------------------------------------

    \38\ See Interagency Appraisal and Evaluation Guidelines, 75 FR 
77450 (December 10, 2010).
    \39\ 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.
---------------------------------------------------------------------------

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.\40\ Moreover, whether valuation review 
activities and the resolution of deficiencies are performed internally 
or via a third party, 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.\41\ 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.\42\ A financial institution's 
risk management practices include managing the risks arising from its 
third-party valuations and valuation review functions.
---------------------------------------------------------------------------

    \40\ 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.
    \41\ 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).
    \42\ CFPB Compliance Bulletin and Policy Guidance; 2016-02, 
Service Providers (October 2016).
---------------------------------------------------------------------------

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.\43\
---------------------------------------------------------------------------

    \43\ See Interagency Appraisal and Evaluation Guidelines, 75 FR 
77450, 77463 (December 10, 2010).
---------------------------------------------------------------------------

    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

[[Page 60558]]

discrimination, financial institutions can communicate relevant 
information to the original preparer of the valuation and, when 
appropriate, request an ROV.

Complaint Resolution Process

    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 
processes \44\ that identify, address, and mitigate the risk of 
deficient valuations, including valuations that involve prohibited 
discrimination, and that:
---------------------------------------------------------------------------

    \44\ 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.
---------------------------------------------------------------------------

     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, 
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:
    [cir] Use clear, plain language in notices to consumers of how they 
may request the ROV;
    [cir] Use clear, plain language in ROV policies that provide a 
consistent process for the consumer, appraiser, and internal 
stakeholders;
    [cir] Establish guidelines for the information the financial 
institution may need to initiate the ROV process;
    [cir] Establish timelines in the complaint or ROV processes for 
when milestones need to be achieved;
    [cir] Establish guidelines for when a second appraisal could be 
ordered and who assumes the cost; and
    [cir] 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.

Michael J. Hsu,
Acting Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.

Federal Deposit Insurance Corporation.
    Dated at Washington, DC, on July 08, 2024.
Hina Z. Hussain,
Acting Assistant Executive Secretary.
    By the National Credit Union Administration Board on June 27, 
2024.
Melane Conyers-Ausbrooks,
Secretary of the Board.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-16200 Filed 7-25-24; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 7535-01-P; 4810-AM-P