HELOC Appraisals

Posted By: M&M

HELOC Appraisals - 03/16/20 09:24 PM

Our standard practice is to require a drive by appraisal on a HELOC. If a customer doesn't agree with the value, then they can request and pay for a full walk-through appraisal. We don't disclose this fee on our early HELOC disclosure since this isn't a standard fee.

We have a couple of applicants who are requesting an initial full appraisal in lieu of the drive by (to save time), and they want to pay the cost difference between the drive-by and the full appraisal up front. Do we need to disclose anything on our early HELOC disclosure because of this? Does this raise any compliance issues if we allow this?
Posted By: rlcarey

Re: HELOC Appraisals - 03/16/20 10:29 PM

So, what that tells me, is that this really means that your drive-by evaluation process is flawed and unreliable for determining a property value.
Posted By: TomS

Re: HELOC Appraisals - 03/16/20 11:15 PM

Rlcarey - with all due respect, I fail to see how you came to that conclusion. Just because a customer disagrees with a drive-by valuation and wants to pay for a full appraisal doesn't mean the drive-by valuation process is flawed and unreliable. I've seen many cases where a customer will disagree with a full walk-through appraisal, but that never led me to conclude that the full appraisal process must be flawed and unreliable.
Posted By: M&M

Re: HELOC Appraisals - 03/17/20 11:14 AM

Randy- to Tom's point, that isn't necessarily the case. Many borrowers believe their property is worth much more than it is, and they want to try to ensure they get every bit of equity that they can.

If anyone can help me with the question on the fee, it would be appreciated.
Posted By: rlcarey

Re: HELOC Appraisals - 03/17/20 12:08 PM

As part of the credit approval process and prior to making a final credit decision, a financial institution should review appraisals and evaluations to confirm that they comply with the agencies’ appraisal regulations and the financial institution’s internal policies.

So, once this review has been completed and accepted by the lender, you are going to turn around and say - no - that evaluation is possibly flawed so lets get a full appraisal.

As the appraisal and evaluation process has to be independent, allowing the borrower input into the process also violates the independence rules. It is no different than the bank getting a full appraisal and then the borrower wanting another one because they disagree. A lender cannot shop for value.

If the lender chooses to go with a full appraisal after the borrower makes the request and you are comfortable that you don't care about the above, then I would opine that it is not a changed circumstance because nothing has changed involving the applicant or the property transaction and the cost of the new appraisal could not be passed to the applicant. It then becomes purely a bank decision as the applicant can have no influence in the appraisal and evaluation process, which would include paying for a second opinion.
Posted By: John Burnett

Re: HELOC Appraisals - 03/17/20 07:42 PM

Just remember that the question is about appraisals on HELOCs, and, while the applicability of appraisal independence remains valid, the concept of a changed circumstance and increased costs being passed on does not.
Posted By: M&M

Re: HELOC Appraisals - 03/18/20 11:41 AM

So, if our applicant didn't want a drive-by and requested a full appraisal up front, in lieu of the drive-by, before anything is ordered, can we charge them the cost difference without having to disclose this anywhere?
Posted By: rlcarey

Re: HELOC Appraisals - 03/18/20 01:01 PM

The bank dictates the type of appraisal that is required on a specific transaction. The borrower influencing your appraisal process violates the independence rules. Selectively doing full appraisals may also present some fair lending issues.