VIDEO: What is an ROV?
In this Compliance Clip (video), Adam provides an overview of Reconsideration of Value (ROV) in the context of residential real estate transactions. Drawing on recently released interagency guidance from key financial regulatory bodies, Adam explains the significance of an ROV and the importance of addressing appraisal bias and fair lending concerns.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about ROVs. The question we have for this Compliance Clip is, what is an ROV?
The answer to this is going to come from some interagency guidance that was released in 2024. This interagency guidance was released by the CFPB, FDIC, Federal Reserve Board, NCUA, and OCC on July 18, 2024. It was issued to provide financial institutions with the regulator's expectations for an ROV. So first and foremost, an ROV stands for a Reconsideration of Value - a reconsideration of value on a residential real estate transaction. When somebody is applying for a loan and an appraisal comes in low, they want to have a reconsideration of what the value is of a residential real estate transaction. That's what we're talking about. This is where the guidance comes from.
The interagency guidance gives us a specific definition of an ROV. The definition here is “an ROV is a request from the financial institution to the appraiser or other preparer of the valuation report on a residential real estate transaction to reassess the report based upon potential deficiencies or other information that may affect the value conclusion.” So when an appraisal comes in low, a customer may come to the financial institution. At that point, that's not the ROV. The ROV is when the financial institution requests the appraiser to reconsider the value that they concluded on the appraisal report.
There are some processes and procedures and things the financial institution should be doing when customers or applicants are contacting financial institutions requesting that the financial institution send in a request for a reconsideration of value. Now, why is this a big deal? Well, this is a big deal because it relates directly to appraisal bias and fair lending concerns.
Over the past few years, the regulators have brought up a concern of discrimination called appraisal bias. Long story short, there have been a number of cases where some minority applicants have received an appraised value that was significantly lower than a second appraisal that they got by removing themselves from the equation and having a non-protected class - friend or neighbor - sit in for them, typically a white male and the appraised value has come in high.
In the United States, there's been this concern of appraisal bias where there's a concern that appraisers are discriminating by giving low values on appraisal reports. And so this is a really big deal. And the regulators have been focusing on this as a hot topic in fair lending.
So what the regulators are telling financial institutions, in order to mitigate your risk of having a fair lending violation, you should implement a ROV or reconsideration of value process in your financial institution. And that's what the interagency guidance does. Now, what should financial institutions do? That's more than what we can talk about in this Compliance Clip, but the interagency guidance explains on high-level terms, it's very high level, it doesn't give us practical application, but it gives us some high-level terms on what is expected for an ROV program, what it's supposed to accomplish. And there was also some guidance in May of 2024, from HUD to provide some practical applications. And then there were also some statements and some other best practices from the regulators that have been discussed over the last couple of years. So it's kind of a complicated topic.
And that's what an ROV is. That's what a reconsideration of value is.
That's really all the time I have for this Compliance Clip, but I understand you may want more information about a reconsideration of value or implementing an ROV program in your financial institution as a lender. And if you're interested in that, our Winter 2025 Quarterly Compliance Update Part II is a feature topic that talks all about reconsiderations of value. We talk about the interagency guidance. We talk about a background and the history of it. We talk about the HUD guidance, and we even talk about what the regulators have said in best practices. And we leave you with a number of best practices to consider to mitigate your risk of having discrimination as it relates to appraisal bias by fully having a reconsideration of value program in your organization, some things you should think about, some things you should consider. So if you're interested in taking that deeper dive, it's Part II. So you'd be purchasing our full Winter 2025 Quarterly Compliance Update, but it's the Part II of the program that really breaks down the reconsideration of value. So that's available in our store, www.compliancecohort.com/store.
That's all I have for this Compliance Clip.