FHA Appraisal Update

HUD has updated the FAQs on appraiser independence stating that the
appraisal report cannot be in the name of a broker and allowing the broker
to order the appraisal from a AMC (but not multiple AMCs) and allowing a
borrower to pay the broker directly for the appraisal.

Last week, the Federal Housing Administration (FHA) released Mortgagee Letter 2010-13, Appraisal Update and/or Completion Report providing additional guidance to ML 2009-51.  ML 2010-13 provides discusses two prohibitions on the use of an appraisal report, the Market Conditions Form, and permissible validity periods.

Additional Prohibitions.  ML 2009-51 outlines two additional prohibitions on the use of an appraisal report.  First, an original appraisal report can only be updated one time using the Appraisal Update Report (AUR).  Second, the AUR may not be used when ordered by a lender who is not identified as the intended user in the original appraisal report unless the original report is incorporated into the update.

Market Conditions Report.  The appraiser must include a completed Market Conditions Addendum (Fannie Mae Form 1004MC or Freddie Mac Form 71) for the subject property.

Permissible Validity Periods.  An appraisal with no AUR has a 150 day validity period (120 day validity period for the original appraisal plus 30 day extension period as permitted by HUD).  An appraisal with a AUR has a 240 day validity period.

Finally, HUD has updated the FHA Appraisal FAQs on appraiser independence stating that the appraisal report cannot be in the name of a broker and allowing the broker to order the appraisal from an appraisal management company (AMC) and allowing a borrower to pay the broke directly for the appraisal.

  1. Chris

    I don’t think that appraisers should have knowledge of what the purchase price is on a home that they are appraising.

  2. Baron Kahle

    Nothing new from FHA. Just more superfluous, mandatory addendums as they did a decade ago. The private lenders will adapt and eventually provide a more competitve loan criterion to the consumer market.just like they did in 1980s, and the 1990s. FHA became irrelevant then and they will again. As a former loan rep I locate portfolio lenders for my clients. Brokers and buyers alike don’t like FHA loans because they are extraneous and deal killers.
    As for appraisals I have no problem providing all the extra bells and whistles as long as they pay for them.
    And, oh yes, the average appraiser can see through the rhetoric of “appraiser independence” and recognize the anti-appraiser intent behind their recent reforms.

  3. Brian M. Watson

    Such writings do seem to place a lot of the blame on appraisers, along with some implied dispersion on the character of mortgage brokers. Much of this is deserved, as they, along with greedy sellers, overzealous real estate agents, Wall St. enablers, ineffective regulations, belief in the permanence of “the party”, GDP’s over-dependence on real estate related revenues, ad. infinitum, are responsible for our mess.
    The chain of happy believers started with the sellers of homes, who were constantly insisting that their houses were worth more than what would show in a standard appraisal or broker’s price opinion, and making their broker ask more and more for similar homes. “If that one sold for “X”, and the prices are going up, why not ask for “X+10%”? After all, their home had cathedral ceilings or something. Brokers, bound by fiduciary duties to their client, would either take the listing at the high price, or watch the next broker list it and get it. Broker #1, who resisted a relative “overpricing”, would lose on two fronts. No commission, and the bad will created as seller tells his/her friends that broker #2 got the price that broker #1 wouldn’t even try to get. Lenders felt the same pressures, as if they attempted to rely on a reasonable appraisal, and the price came in less than purchase, they’d be threatened with the mortgage broker and client going to another lender and getting it done. It was a crescendo of imprudent decisions, made under pressure from many directions, by many people.
    As a Realtor, I believe that the blame lies mostly on the shoulders of the only entity that could have done anything to stop human nature from running amok, the Fed’s. Of course, one does not have to think about it for long to realize that those who want an impotent government in matters of business share blame further up the chain. Unfortunately, this last line of defense fell victim to their collective human nature, and nobody pointed out the emperor’s exposure to the cold wind that was coming. Today, the proverbial emperor is in bed, suffering from his imprudence, his partied out subjects along with him. We just want to feel better someday.
    Today, the government, through the various GSE’s, is covering the emperor with blanket upon blanket, comforter upon comforter, quilt upon quilt. Soon we won’t recognize him. But at least his fever will have broken, and he can start on the slow road to recovery, ready to strip once more. He thinks to himself, maybe next time I’ll use a pole.:-) Cheers.

  4. Of course an appraiser should know what the purchase price is, and what the terms are. It is part of the appraiser’s job to analyze the transaction and determine what the real sales price is (less concessions) and whether or not it is legit and arms length. You know, there are some bogus sales out there after all…I know, hard to believe. Oh, and Brian is correct…everyone had their fingers in the pie, including the borrower who said he made $12k a month when he actually made $4k a month. This mess started at the top but clearly filtered all the way down, so everyone from Wall Street to Joe Shmoe can shoulder some blame.