FHA Announcements on Performance Standards and Flood Zones

The Federal Housing Administration (FHA) recently released several new Mortgagee Letters, including 2 on focused on appraisals.

ML 2009-37: Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers. Appraisers are required to review the applicable FEMA Flood Insurance Rate Map (FIRM) and make appropriate notations. If the property is in flood zone the appraiser is required to include a flood map with the appraisal report. The appraiser must enter the FEMA zone designation on the reporting form as well as identify the map panel number and map date. If the property is not shown on any map the appraiser should enter “not mapped”.

ML 2009-41: Appraisal Performance Standards and Sanctions. This is largely a reminder of administrative sanctions that FHA may take ranging from a Notice of Deficiency (lowest level sanction) to civil or criminal sanctions (most severe). Appraisers are reminded that they must conform to FHA appraisal requirements and USPAP. Lenders are reminded that they are responsible, along with the appraiser, for the quality and accuracy of the appraisal.

  1. Appraiser Rob

    As an appraiser I am not suprised that more appraisals are close to AVM’s since the HVCC. Many appraisers were trained over the years to hit a number on an appraisal order form (rather than provide an accurate appraisal). This is bad because AVM’s are averages of all sales within a certain proximity regardless of style, condition, quality, value or size. IE almost all of the lower category/priced homes are being over appraised and the high category/priced homes are being under appraised. This has been the historical problem with AVM’s and why many banks have determined AVM’s to be in-accurate through long term studies. So for Freddie to suggest that the quality of their appraisals are better because they match more closely with AVM’s is wrong, this data indicates the exact opposite. I would suggest this data clearly indicates that appraisers are putting less effort into each appraisal, and specifically the selection of comparable sales. If an appraiser randomly selects sales without careful consideration, the effects are that instead of a specific appraisal with quiality data, you get an average of a few sales regardless of how similar they are to the property being appraised.