Borrower Requested Appraisal
Posted By: Compliance NABW
Borrower Requested Appraisal - 02/12/18 10:08 PM
A Bank generally relies on a drive-by appraisal, which they lender pay, for qualifying certain home equity transactions. If a borrower wanted to qualify for a higher loan amount or better terms by hoping for a higher appraised value with a "full" appraisal, would you allow this as a valid CoC (borrower requested) to include the full appraisal fee on the revised LE? What section would you disclose it on in the LE, Section B or H? Is it still "required" because it was required to get the higher amount/better terms, or is it "Other" because the lender generally wouldn't require that type of appraisal?
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/12/18 11:09 PM
The bank determines the value of the property according to your appraisal policies. There is no longer such a thing as a "drive by" appraisal and hasn't been since 2010. If you are doing evaluations and those evaluations are not accurate, then you have an evaluation problem.
Posted By: Compliance NABW
Re: Borrower Requested Appraisal - 02/13/18 02:13 AM
Not too hip on all the investor requirements, but if I'm not mistaken, in some situations they don't even require an appraisal at all right? They just get automated scores sometimes. Or, even when an appraisal is required, I believe it is common for them to be drive-by only. At the end of the day, there are occasions when an appraiser just can't get into a property.
But, appraisal considerations aside, would you consider this a valid CoC, and would this be a required service or an "Other?"
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/13/18 12:22 PM
A borrower cannot influence the valuation assigned by the bank. If they are not happy with the value assigned by the bank they have one choice - go see another lender. If you allow the borrower to help determine how the creditor values the property, then you have basically violated the appraisal/evaluation independence principles. You can't shop for values. You are asking a question for which there are no answers.
Posted By: Skittles
Re: Borrower Requested Appraisal - 02/13/18 01:00 PM
The 2010 Interagency Appraisal Guidelines do not allow banks to use either a borrower ordered or an appraisal received from a borrower. Here is a snippet:
An institution or its agent must directly select and engage appraisers. The only exception to this requirement is that the Agencies' appraisal regulations allow an institution to use an appraisal prepared for another financial services institution provided certain conditions are met. An institution or its agents also should directly select and engage persons who perform evaluations. Independence is compromised when a borrower recommends an appraiser or a person to perform an evaluation. Independence is also compromised when loan production staff selects a person to perform an appraisal or evaluation for a specific transaction. For certain transactions, an institution also must comply with the provisions addressing valuation independence in Regulation Z (Truth in Lending).17
An institution's selection process should ensure that a qualified, competent and independent person is selected to perform a valuation assignment. An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. Further, the person who selects or oversees the selection of appraisers or persons providing evaluation services should be independent from the loan production area. An institution's use of a borrower-ordered or borrower-provided appraisal violates the Agencies' appraisal regulations. However, a borrower can inform an institution that a current appraisal exists, and the institution may request it directly from the other financial services institution.
Posted By: Compliance NABW
Re: Borrower Requested Appraisal - 02/13/18 03:05 PM
Sorry, I guess I am not being clear. Yes, I understand a borrower cannot select the appraiser. The Bank will still engage the appraiser as in any other situation. The borrower is just "hoping" the full appraisal will come back with a different (higher) value than the drive by appraisal. For all anybody knows, it could come back lower. The borrower will not be influencing the valuation.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/13/18 03:22 PM
You are being clear - maybe it is us. The borrower in this case would be influencing the evaluation method used by the bank, which is not allowed. If an appraisal comes back and it does not match closely your current evaluation, then that says your evaluation processes are lacking and are not producing reliable data. If your evaluation processes are solid, you are doing nothing but wasting both the bank's time and the borrower's money.
Posted By: Tracey, CRCM
Re: Borrower Requested Appraisal - 02/13/18 04:43 PM
I would also have a concern with allowing a customer to do this for their loan and not allowing others to do the same.
Posted By: mbl4250
Re: Borrower Requested Appraisal - 01/31/22 07:00 PM
Can the borrower tell the bank that they do not want to use a certain appraiser due to a previous experience? The appraiser has been assigned to them, but they want to request a new appraiser due to the previous experience.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 01/31/22 07:26 PM
A borrower cannot influence the bank's appraisal process and that should be covered within your policies..
Posted By: ACBbank
Re: Borrower Requested Appraisal - 02/01/22 03:11 PM
Maybe I am reading this thread or the question incorrectly. How is it wrong for someone to question the value of a "drive by appraisal?" I would question that value as well.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/01/22 03:39 PM
The drive by appraisal question was 4 years ago. Can a customer question it - sure? But the lender has already accepted the appraisal/evaluation by the time it is delivered to the customer - so the customer has no say, unless they can point to something besides - I think my property is worth more. Could a lender re-evaluate the appraisal/evaluation? Sure, but if the first one is then deemed unacceptable, it would be on the lender's dime to get it redone. Can the customer influence the lender on the original choice of appraiser/evaluator - no - that has to be done independently.
Posted By: InFairness, CRCM
Re: Borrower Requested Appraisal - 02/01/22 04:10 PM
A borrower cannot influence the valuation assigned by the bank. If they are not happy with the value assigned by the bank they have one choice - go see another lender. If you allow the borrower to help determine how the creditor values the property, then you have basically violated the appraisal/evaluation independence principles. You can't shop for values. You are asking a question for which there are no answers.
They can also request a reconsideration of valuation. Processes related to such requests were the basis of the
consent order between HUD and JPMorganChase last year.
The interagency Property Appraisal and Valuation Equity Task Force looks like a "who's who" of financial services regulatory and enforcement agencies.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/01/22 04:13 PM
I think my last statement pretty much clarified what I was talking about 4 years ago.
And I don't think we are even close to talking about a customer approaching the lender and saying - I think you undervalued my house because I am black or live in the minority neighborhood. Apples and oranges.
Posted By: ACBbank
Re: Borrower Requested Appraisal - 02/01/22 04:30 PM
You're right Randy. I didn't realize that the OP was from 2018. Good points nonetheless.
Posted By: Compliance NABW
Re: Borrower Requested Appraisal - 02/03/22 04:06 PM
Although I agree with pretty much everything Randy is saying about influencing the appraisal process, as an fyi my understanding on how to disclose such a scenario would be it is a valid CoC (borrower requested change) and it would be disclosed in Section B.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/03/22 04:21 PM
This is not a changed circumstance. The evaluation or appraisal that was originally ordered by the lender was either acceptable or it was not. The only way the lender could order another evaluation or appraisal is if the lender deemed the first one not acceptable.
How could a lender charge the borrower for a failed evaluation or appraisal?
Posted By: Compliance NABW
Re: Borrower Requested Appraisal - 02/03/22 04:29 PM
The borrower wants the full appraisal, end of story. The lender doesn't charge for the drive by. Like I said, I agree with your valuation process analysis, but if it gets done it needs to be disclosed. So, that is the part I am speaking to.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/03/22 04:31 PM
The borrower cannot influence the appraisal process. The lender orders either an evaluation or an appraisal according to their own policy requirements. The evaluation or appraisal is either accepted by the lender or it is not. There is no changed circumstance as whatever happens after that is on the lender's dime.
Posted By: Compliance NABW
Re: Borrower Requested Appraisal - 02/03/22 06:12 PM
Yes, I know how it "should" work, but once it doesn't work like that, you still need to figure out what to do. The lender accepts the drive by just fine. The borrower "wants" to try to see if a full appraisal will come back with a higher value. Creditor orders the appraisal like they would any other. This is the policy, lol. Now it must be dealt with from a disclosure standpoint. It's a borrower requested change - they want the full appraisal.
Posted By: raitchjay
Re: Borrower Requested Appraisal - 02/03/22 06:20 PM
I don't see how that would fly in an examination environment. "But Mr. Examiner, the borrower WANTED the appraisal, so we usurped our appraisal policy and ordered one and then charged the borrower for it (on top of the evaluation that we initially ordered)." I just don't see how that statement would help anything.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/03/22 06:36 PM
And then you have to deal with the fact that if the appraisal does come back with a number and it is different from the number you got from your evaluation, one of them is wrong. Which one is it? If you go with the appraisal number because it was a higher value, then you have two issues.
The first one is explaining to the regulators why you are shopping for values.
The second one is that it proves that your evaluation process is flawed, and it is not giving you fair market values, which leaves you with the requirement to address that issue immediately and then most likely doing a look back at previous evaluations that you used to gage the impact on overall credit quality.
This is a much more serious issue than trying to determine a TRID changed circumstance and it goes to the basic level of safety and soundness fundamentals in your credit processes.
Posted By: Rocky P
Re: Borrower Requested Appraisal - 02/03/22 06:43 PM
The Board approved a policy. It should be in conformity with appraisal guidelines. If the bank/policy accepts drive-by's for loans under $250K, that is the policy. The regulatory guidelines however say the creditor orders the appraisals, evaluates them. For control, they keep the good appraisers and doesn't approve the other ones.
The rules were written because during the property inflationary period, the certification "MAI" took on another meaning, "Made As Instructed", and as a result, many banks failed and the FDIC was bailing out left and right. The creditor determines who the appraiser is and what type to get. Not the client. If this person is causing such a problem now, think of the servicing issues. Also, as brought up, be prepared to defend any "low" appraisal the bank received where they did not jump through the same hoops for any minority. Disparate treatment, even if the loan was made.
And an AMEN to Randy's statement!
Posted By: Compliance NABW
Re: Borrower Requested Appraisal - 02/03/22 09:04 PM
Again, I agree with all that. However, that's for other decision makers. My task was to handle the disclosure piece.
Posted By: rlcarey
Re: Borrower Requested Appraisal - 02/03/22 09:10 PM
Yes - and nothing has been presented that would allow me to classify any of this, regardless of how ordering a second evaluation or appraisal happened, as a change circumstance. It would be the quickest way to a UDAAP IMHO.