In a series of Mortgagee Letters, dated Sept. 18, 2009, the U.S. Department of Housing and Urban Development (HUD) provided new guidelines affecting the independence, portability, and validity periods of appraisals used in its Federal Housing Administration (FHA) program. These guidelines take effect on Friday, Jan. 1, 2010.
Highlights: Independence (ML 09-28)
HUD provides clarification and reaffirmation of FHA appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA-insured mortgages.
New requirements
▪ Prohibition of mortgage brokers and commission based lender staff from the appraisal process
▪ Appraiser selection in FHA connection
▪ Appraisal and appraisal management company (AMC)/third-party organization fees
Affirming existing requirements
▪ Prevention of improper influences on appraisers
▪ Appraiser independence safeguards
▪ Appraiser engagement: Knowledge of market area, geographic competency
► Click here to read the full text of Mortgagee Letter 2009-28.
Highlights: Portability (ML 09-29)
New requirement
FHA prohibits "appraiser shopping" (i.e., lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser).
However, a second appraisal may be ordered by the second lender under the following limited circumstances:
1) First appraisal contains material deficiencies as determined by the DE underwriter for the second lender.
2) Appraiser performing first appraisal is on second lender's exclusionary list of appraisers.
3) Failure of first lender to provide a copy of the appraisal to second lender in a timely manner, causing delay in closing.
Cases in 1 and 2, the lender must ensure that copies of both appraisals are retained in the case binder. In case 3, the first appraisal must be added to the case binder when received. In all cases, the lender documents why a second appraisal was ordered, retains explanation in the case binder.
Other requirements
▪ Appraisal transfer and change of client name in appraisal report
▪ Appraiser selection in FHA connection
▪ Lender compliance: Lenders who fail to comply with the requirements are subject to administrative sanctions.
► Click here to read the full text of Mortgagee Letter 2009-29.
Highlights: Validity Periods (ML 09-30)
New requirement
Validity period for all appraisals on existing, proposed and under construction properties will be 120 days. This change is consistent with industry practice and revises the current validity periods of six months for an appraisal of an existing property that is complete and 12 months for proposed and under construction properties.
► Click here to read the full text of Mortgagee Letter 2009-30.
Jonathan Foxx, former chief compliance officer for two of the country’s top publicly-traded residential mortgage loan originators, is the president and managing director of Lenders Compliance Group, a mortgage risk management firm devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456.
