VA Revises Appraisal Guidance Related to COVID-19
The U.S. Department of Veterans Affairs (VA) issued Circular 26-20-13, dated April 10, 2020, to revise guidance on valuation and appraisal requirements due to the COVID-19 national emergency. Previously, the VA provided guidance on valuation and appraisal requirements due to the emergency in Circular 26-20-11. Circular 26-20-11, which was dated March 27, 2020, was rescinded upon the issuance of Circular 26-20-13. The VA also issued an Exhibit A to Circular 26-20-13, which is a modified version of the Exhibit A that accompanied Circular 26-20-11.
The VA advises that it revised the prior guidance based on the rapidly changing environment in the mortgage banking industry caused by COVID-19, as well as feedback from multiple sources on Circular 26-20-11. The revised guidance is effective for all loans for which the application date is on or after the date of the Circular (April 10, 2020) and until further notice or the rescission of the Circular, which is scheduled for April 1, 2021. The guidance in Circular 26-20-11 was effective for all loans closed on or after March 27,2020, until the rescission of the Circular. The VA did not expressly address what guidance applies to loans for which the application date is before April 10, 2020, and has not yet closed.
Exterior Only and Desktop Appraisals. In Circular 26-20-11, the VA announced the ability to use an exterior-only or desktop appraisal in certain situations, and the VA expands the ability to use such appraisals with Circular 26-20-13. The general guidance is that an exterior-only appraisal with enhanced assignment conditions is permitted for purchase or refinance transactions, subject to the requirements outlined in Circular 26-20-13, when the appraiser’s assigned geographic jurisdiction does not have restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine. The VA advises that appraisers should refer to their state or local authorities to determine if they are deemed an essential part of the financial transaction for mortgage lending. The VA also advises that lenders should not request an exterior-only appraisal if the loan amount will be more than one and a half times the applicable 2020 Freddie Mac conforming loan limit for a one-unit property in the area. Exterior-only appraisals will be permitted for liquidation appraisals without the need for the enhanced assignment conditions.
A desktop appraisal for loans that do not exceed the applicable 2020 Freddie Mac conforming loan limit for a one-unit property in the area is permitted, subject to the requirements outlined in Circular 26-20-13, when the appraiser’s assigned geographic jurisdiction has restrictions imposed by authorities prohibiting individuals leaving their domicile, such as mandatory quarantine, or not deemed an essential part of the financial transaction for mortgage lending. While desktop appraisals are permitted for cash-out refinance transactions, appraisers must prioritize appraisals for purchase transactions.
The VA advises that lenders must state in both the “public” notes in WebLGY and by email to the appraiser if they will accept a desktop appraisal. If the lender will not accept a desktop appraisal, the appraiser must advise the VA Regional Loan Center (RLC) to place the assignment on hold for 30 days and then subsequently cancel, if the status has not changed.
Desktop appraisals will not be permitted for liquidation appraisals.
Appraisals based on an inspection of the interior of the property will be required with purchase transactions involving vacant property. However, the interior inspection is allowed only when the appraiser poses no harm to themselves or others.
Various Topics. The VA advises that:
- With regard to reconsiderations of values (ROV):
- For purchase transactions, an ROV will be restricted to no greater than 7 percent from the appraiser’s opinion of value or $10,000, whichever is greater. This is changed from the guidance in Circular 26-20-11.
- For cash-out refinance and liquidation transactions, the VA is suspending ROV requests. This is consistent with the guidance in Circular 26-20-11.
- Consistent with the guidance in Circular 26-20-11, “[i]n extreme cases when an appraiser is not available to complete an appraisal assignment for a purchase, VA has the authority and ability to issue a Memorandum of Value [and this] will be completed on a case-by-case basis.”
- Consistent with the guidance in Circular 26-20-11, appraisers are to suspend any alteration and repair assignments until further notice. Lenders have two options with regard to repairs. They have the authority and “are encouraged” to certify repairs, especially repairs performed by licensed personnel (although certifications that may involve lead-based paint repairs still must be completed by an appraiser). Lenders also can use the completion escrow approach. With the latter approach, all repairs must be completed and escrowed funds disbursed before the loan may be guaranteed, and there must be adequate assurance that the work will be completed timely (up to 180 days) and satisfactorily. New guidance in Circular 26-20-13 provides when the appraisal has found repairs with a purchase transaction, the lender has the option to close the loan when the veteran accepts responsibility to complete the repairs within 180 days of the closing of the loan and the home is habitable by conventional standards. The time for completion of the repairs may be extended if warranted. Re-inspection will be required upon the completion of the repairs.
- When an interior inspection of the property will be performed, for the safety of the veteran and appraiser, certain communications between the veteran, lender, and appraiser must occur. The guidance is consistent with the guidance in Circular 26-20-11, with an update applicable to appraisers.
Termite Inspections. The VA updates the guidance from Circular 26-20-11, and advises that (1) if there is known or visible evidence of termite infestation present, the seller and real estate broker/agent must provide a certification to that fact and the veteran must acknowledge that no inspection was completed (and the VA recommends that the veteran complete an inspection once the national emergency has ended), and (2) if there is known or visible evidence of termite infestation, a clear termite report must be provided within one year of the close of escrow.
NOV Conditions. Consistent with Circular 26-20-11, the VA advises that any additional items that need to be met on the Notice of Value (NOV) to comply with VA requirements must be met within 180 days from the date of the NOV issuance, and the veteran must acknowledge and accept any and all conditions not met prior to closing. However, the VA now expressly adds that when there are clear and obvious minimum property requirement related issues that would render the home uninhabitable, a guaranty will not be issued until all repairs are completed.
Exhibit A. Exhibit A to the Circular sets forth an updated Modified Set of Instructions, Scope of Work, Statement of Assumptions and Limiting Conditions and Certification.
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