How Lenders Work Within New FHA Appraisal Rules

The Federal Housing Administration (FHA) implemented new appraisal rules yesterday.  Mortgagee Letter 2009-28 focuses on appraiser independence and Mortgagee Letter 2009-51 focuses on the Appraisal Update and/or Completion Report.  As AppraisalInsight reported, the rules were originally to be implemented on January 1, 2010.

Lenders will  secure a case number assignment in FHA
Connection via the Case Number Assignment Screen but will not input the
appraiser information. The Case Number Assignment Screen will no longer
capture the assignment choice, license ID and assignment date. Instead,
lenders will be required to enter all appraisal data, including the
appraiser ID, in the Appraisal Logging Screen once the completed appraisal
is received by the lender and prior to closing the loan.

  1. Dan Wilson

    It appears to me that this will create the lender to get more than one appraisal and then the one that might have the highest value is the one they might use. This does not appear to be a good way of doing the thing that it is to stop.

    Dan Wilson

  2. Peter

    Yes, Dan that was the whole point of the system in the first place, but that has been forgotten since it is not an AMC friendly process. Wouldn’t want to put anything in the way of the AMC gravy train.

  3. David R. Smith

    I have started a new group . It is called ” V.O.T.E. ” which stands for ” VOTE OUT THE ENCUMBENT ” . YES , I know it is misspelled but so are they . Get out and vote ! Get them out of office and stop being a party flunkie !

  4. Dan, you would be mistaken. I’ve just downloaded and read the two Mortgagee Letters which identify the goals of HUD/FHA. I did not read anything in either letter that supports the claims/statements made in the second section of the article.

    From Letter 2009-28
    “…FHA is reaffirming these requirements. Mortgagees and third parties working on behalf of mortgagees are prohibited from:….Ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model(AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such appraisal is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or….”

    I find it enlightening to read the Mortgagee Letters myself, then compare what I’ve read against what is written in articles such as this.

  5. Marg

    The Affecting Issue is: Unlike conventional type loans, Appraiser’s CAN disclose how bad the borrower was TAKEN since appraiser’s are “””allowed to disclose the fee paid to them””” which is likely to be vastly lower-different than what the Borrower actually PAID for the appraisal service. However, ONCE AGAIN IT WAS NOT MADE extremely CLEAR that AMC USE is NOT mandatory. The person in contact with the appraiser “””just must not be connected to making money on the loan process end”””” that’s IT…no BIGGIE. Persons affected by new rules: Borrowers, Appraisers, Real Estate Agents, & the Actual Lender…not the AMC. AND Economic Recovery in General.
    What use to be a …lets say $325 appraisal fee just went up to anywhere around $500 due to the AMC pocketing a PORTION of the WELL EARNED Appraisal Fee and typically an additional nice chunk of change…all for making a PHONE CALL. We all have our own Delivery System…AMC’s are NO better. Think of all the potential borrowers who can’t afford to refinance with the HIGH AMC FEES or even sell their property. IF Appraiser’s were SOOOO Crooked and EASILY SWAYED-IGNORANT why would they be trusted with determining a value for a loan….gosh that seems pretty important. DON”T USE AMCs PLEASE!!!! IF you USE alamode XSites…no charge to the Lender…and The Appraiser only must pay @$14 for use of the delivery site and therefore the Appraiser Services are services…for appraisals NOT AMC demands.

  6. The new independent appraisal companies are just another example of the Federal Government writing guidelines that is not solving the problem. Yes, there was certainly some tainted appraisers, that I would agree with. Now we have appraisers being paid less and buyers being charged more to fund yet another system that will not work. Third party appraisal companies have driven the cost of appraisals up.

    We have a market of foreclosures that we need to clean up. They are being sold in some cases at 10% of the original purchase price. I ask how they can possibly be overpriced? The reason they are priced so low goes to supply and demand, nothing more. Since this law was enacted we are seeing appraisers cut values even lower than market dicates. These appraisals have little consideration given to the condition of the home, no A/C unit, no kitchen appliances, is it Move in Ready. This is affecting everyone who owns a home. Our home values are sinking and this law will send them even lower. Watch the market for the next few months and see what the existing home sale price is. It will be even lower.

    Lenders and Third Parties need to be held accountable for any part of the transaction that is tainted or fradulent. How about stronger punishments for these parties. We should not punish the New Home Buyer or current Homeowners. It all goes to supply and Demand.

    The Law may be written but it is incorrect and is going to further stop the absorption of these foreclosures. Homes are prices are based on factual prior sales and a square footage price.

    Is anyone aware of the new Fannie Mae financing on the governments foreclosure properties? It is financing offered by the government that does not require an appraisal on the Fannie Mae properties. Now what is tainted?

  7. Yeah Peter,
    What would we do without the AMC’s? Oh yeah, answer our own calls from the lenders and make the other 50% of our fee that we, as appraisers, deserve. If anyone is interested, there is a discussion page on 20/20’s Facebook page. We are trying to get 20/20 to do an investigation on how crooked the AMC’s are. I encourage the realtors to add their comments on AMC’s.

  8. The point that gets missed so often is: APPRAISERS GET THEIR DATA FROM THEIR MULTI LIST SYSTEM! I am so tired of hearing from agents complaining about how their deals are getting shot down by bad appraisals, when they and their cohorts are so willing to put up with bad, misleading, and poorly reported data in THEIR OWN SYSTEMS! Ask any appraiser how many times they will look at the sold sheets and find NOTHING describing the condition, if any concessions were paid, repairs needed. Or how there is a picture from a previous expired listing or county records because THE AGENT WAS TOO LAZY TO EVEN INSPECT THE PROPERTY! I am not talking about isolated incidents, it is a real problem. Even to the point that Fannie Mae is hiring QC Agents in major markets to monitor this behavior. Hey, I know a lot of good agents who are careerist, not opportunist, and endeavor to do the best job they can in this market. Just like we need to wash out some lackluster appraisers and agents!

  9. John

    Paid-off AMC reviewers are already “finding” flaws in appraisal reports that are “low” (owners can trigger a review if they protest the value) so they can fail the appraisal/appraiser and order a new appraisal. Reviewers are failing appraisals on non-appraisal factors such as “failure to round to the nearest $1000” or “appraised value exceeds predominant value found on page 1” or, get this one, failure to find a comp with and use a “$15000 below grade pool adjustment to offset a location adjustment”. Fight back…

  10. We also have crooked politicians, so, let’s put all politicians into a lottery and when their name is called we can cut their income in half (they will still be rich) and use the other half to help the appraisers that are having to file bancruptcy or to homebuyers who have to pay extra for an appraisal. We could pull a politician’s name each time an appraisal is paid for or let an appraiser, randomly of course, to choose a name. Government control is always very expensive so let’s make sure everyone get’s their share of the grief, namely those who create the grief.

    If the government continues to over correct their regulations to “save” the consumer there will soon be no consumers to protect.

  11. Mark

    I am a state certified appraiser, licensed real estate broker, and licensed mortgage broker with over 20 years of experience. Having appraised thousands of properties, sold hundreds of homes, and originated hundreds of mortgages, I have had the unique opportunity to see the entire process from several different areas of our very integrated professions. At one point, I had almost decided to stop appraising properties because of the constant pressure to stretch values. I lost numerous clients over that very issue. Although I do agree that there has to be measures to insure that appraisals are not inflated, there also has to be measures in place that punish appraisers for cutting values on reasonably priced properties. Just recently, I sold a property for $130,000. The house had been on the market for approximately 60 days and had a very arms-length transaction with no seller consessions. There was ample market data to support $130,000 to $140,000. To my suprise, the appraiser valued the property at $127,000. My first thought was that the appraiser must be incredibly accurate to be able to differentiate between $127,000 and $130,000. This was not the case. Upon further review of the appraisal, 15 factual errors were found along with 3 USPAP violations. The mistakes were corrected and the the transaction closed; however, had it not, it would have taken approximately $100,000 to $125,000 out of the local economy due to all of the other related transactions that would have been cancelled. My point is simply this. Appraisals should be reviewed to keep appraisers from inflated values to unreasonable amounts; however, appraisals should also be reviewed anytime the appraiser cuts the value just because they want to get the report out quickly and they feel that there are no ramifications for low appraisals. Cutting values on transactions like these will do far more damage to the real estate market and economy in general, than inflated values in my opinion.

  12. Appraiser Inactive

    *Overhead has increased approximately 75% since 1985

    *Additional work has increased by at least 20% since 1985 (1004MC, histories, etc)

    *Appraisers have at best seen a 25% pay increase since 1985 (pre HVCC)

    *With HVCC appraisers gave away 50% – 60% of their fees.

    I have a simple question for anyone who can answer.

    Why are appraisers still accepting assignments when they could make more at Walmart or McDonalds?

  13. Ryan

    You’re right. It would be nice to be able to do our work without the impersonal AMC’s. I’ll take an additional 50% fee, again, for attaching my invoice to the appraisal. In regards to your comment on 20/20’s facebook page. There is a connection in which a conflict of interest may exist. 20/20’s co anchor is Chris Cuomo who is the brother of New York’s Attorney General Andrew Cuomo. The only reason we are having this conversation is because Andrew Cuomo, Fannie and Freddie made a non-legislative agreement to adopt the HVCC which gave the AMC’s control. Investigating AMC’s and finding fraudulent activity due to lackluster regulation will eventually revert back to the source and expose the process making all those involved look bad. Now I may be wrong but I wouldn’t want to bring negative press to a relative. If it were up to me, I would find a different news source to do an investigation on fraudulent AMC’s that does not have this sort of connection.

  14. I agree with Bill. The new appraisal system has its faults, but we (as REALTORS/Brokers) can help improve the appraised values by including more accurate/complete data and comments in MLS.

  15. Erick

    Under the new FHA regulations, is one dependent on the lender to agree to order a second appraisal, or are there other channels to get one?

    And are there ways to challenge the lender in their decision, if they clearly are ignoring relevant data?

    For example, a client looking to refinance their mortgage received an appraisal that for the first time in years ignored the fact that the property was adjacent to (the backyard opened to) a public park. The appraiser did not even MENTION the park under location/ view in the report. Previous appraisals (2009, which was $9000 higher than the current one in 2010, but also 2005, when it was the same as the current one) without exception mentioned that the park location was a primary factor. The park in case being the most prominent and close to campus in a medium-sized college town. The FHA reviewer mentioned that “I don’t think that “adjacent to a park” being left off an appraisal is grounds for the ordering of a second appraisal (especially for FHA).”

    What is your take on this? Should this not be ground for a second appraisal?

  16. jrstuder

    House has a double-pane door sliding door. Inside pane is broken, replacement is on order. Does this hold-up a FHA closing? Can one do a holdback for the cost of the replacement?

  17. Karen Marie

    I’m hoping this thread updates people who have posted previously.

    My question is directed to Steve Freeman . You quoted the law “so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or….”

    My bank told me that FHA law dictates that they HAVE to use the lowest appraisal and have no discretion over the appraisals even if one differs substantially. My first appraisal for full value at $390k was knocked out by another appraisal within 2 months for $40,000 lower. A third appraisal was ordered and came in at $352k. 8 months after the first appraisal yet another was ordered (and done by the same jerk who dropped it $40k to $350k) and surprise surprise, he dropped it another $25k. This house is located in the county with the highest real estate taxes in the nation – not my area, not my state – the nation. You can’t buy a 1 bedrooom apartment for what he is saying this house is worth and there are no houses for sale at this price anywhere close. The bank claimed FHA law states they have to use the lowest appraisal but what you quoted says they can use discretion to choose the most reliable. What they have tried to pull is criminal at this point.