[NMLS SAFE] 25, Valuation Rules, Flood Insurance and the Right of Rescission

Lesson 25 of the free Quibank NMLS SAFE course. Three closing-stage rules with real teeth: what you may and may never say to an appraiser, how flood insurance is sized, and the three day right to cancel — including the strange way those days are counted. Appraisal independence first. The line is simple: you may never push an appraiser toward a number.

No target values, no withholding payment until the value moves, no dropping appraisers from the panel for coming in low. What you may do: ask for the correction of an objective factual error, ask the appraiser to consider additional comparable sales, or ask for more detail supporting the conclusion. Information is legal. Pressure is not.

Exam version. Which action by a lender's staff is permitted? The answer: asking the appraiser to correct an objective factual error and to consider additional comparable sales. The other three options — withholding payment, naming the value the file needs, dropping an appraiser for a low report — are all coercion, exactly what the rule was written to stop.

Inside the appraisal itself, the sales comparison approach carries the greatest weight for a home. One mechanical rule decides the exam question: adjustments are always made to the comparable, never to the subject, because the subject's value is the unknown you are solving for. If the comparable is superior, subtract from its price. If it is inferior, add.

Exam version. The comparable has three bathrooms; the subject has two. The answer: subtract the contributory value of the extra bathroom from the comparable's sale price. Every wrong option either adjusts the subject or averages the approaches — and the final value is reconciled by reasoned weighting, never averaged.

Flood insurance. If the flood determination places the building in a special flood hazard area, coverage on a federally related loan is mandatory — no waivers, no hold harmless letters. The amount is the least of three numbers: the outstanding principal balance of the loan, the insurable value of the improvements, or the maximum available under the National Flood Insurance Program. Land cannot flood in the insurable sense, so land value never counts.

Exam version. How much flood insurance must the lender require? The answer: the lesser of the loan balance, the insurable value of the improvements, or the program maximum. Full appraised value fails because it includes the land.

The sales price is not in the formula at all. And optional-with-a-signed-waiver is exactly what the law forbids. Last, the right of rescission. It attaches to refinances with a new creditor, home equity loans, and home equity lines on a principal dwelling — never to a purchase.

Three business days, and business days here means every day except Sundays and federal holidays — Saturdays count. The clock starts at the latest of three events: consummation, the material disclosures, or two copies of the notice of the right to cancel. Until it expires, not a dollar moves. Exam version.

A cash-out refinance of a principal residence with a new lender. The answer: three business days, Saturdays included, from the latest of the three triggers, with no disbursement until the period ends. Seven days is wrong, purchases are never rescindable, and refinances are not exempt. Lock these in.

Appraisers: information yes, pressure never. Adjustments go to the comparable, never to the subject. Flood coverage is the least of loan balance, insurable improvements, or the program cap — and it is never optional. Rescission: three business days, Saturdays included, from the latest of three triggers, purchases excluded.

Next lesson: origination math in practice — loan to value, the debt ratios, per diem interest and points, worked end to end. Practice free at quibank.com/en/mlo. See you in lesson 26.