TR - The loan apparently will be modified to amortized basis -- this isn't a new loan -- so the "changed circumstance" isn't applicable.
Sheba, is the bank going to be imposing a PMI insurance requirement on the borrower as a condition of the modification to perm (amortizing) status? If so, and if the borrower wants an updated appraisal, you can certainly accommodate the borrower, but order the appraisal for the bank and bill the borrower for it as part of the cost of the deal.
If you weren't planning on imposing a PMI requirement, tell him so and tell him that, if he still wants the appraisal, he can order it himself.
John S. Burnett
Fighting for Compliance since 1976
Bankers' Threads User #8