The Federal Housing Administration’s (FHA) overhaul of its Single-Family Housing Policy Handbook last year offered loan originators more clarity on lending policies and loan underwriting standards, but changes made to the property valuation policies are causing confusion and delays. This was the takeaway from presentations made at the real property valuation forum at the 2016 Realtors Legislative Meetings & Trade Expo.
All properties bought or refinanced with an FHA loan have to be appraised by a HUD-approved home appraiser. When purchasing a property with a conventional loan product, the appraiser focuses on determining the market value of the home; however, with an FHA-insured loan, the appraiser not only determines market value, but also inspects the home to ensure it meets certain minimum property standards.
Requiring appraisers to take on home inspection-type duties to ensure standards are met appears to blur the line between appraisals and home inspections and has raised questions among consumers, agents and appraisers.
“FHA appraisal guidelines are stricter; the standards set the benchmark for appraisals in the industry,” FHA Appraisal/Technical Support Branch Chief Gary Eisenbraun, said in a press release detailing the forum. “The guidelines are strict though to protect consumers and safeguard FHA’s mortgage insurance fund and taxpayer dollars.”
Many of the recent changes to the handbook, though, were not changes to what appraisers are being asked to do. The handbook simply uses more definitive language to describe what steps appraisers “must” do as part of the process.
Those steps include operating all conveyed appliances and observing their performance; fully accessing attics and crawl spaces, if possible; reporting whether roof coverings are in good condition; noting whether any sump pump is properly functioning; and verifying that any pool is operational and does not pose any hazards.
“The appraiser’s job is to observe, analyze and report to the underwriter that the property meets HUD’s minimum property requirements,” said Martin Wagar of Wagar & Associates. “The danger is that consumers can mistake the role of the appraisal for that of an inspection.”
Experts agree there is confusion about whether and how appraisals are different from home inspections, the panelists said.
“There is growing confusion among consumers about whether they also need a home inspection. An appraisal makes sure a home meets FHA minimum standard requirements; it is different from a home inspection and does not replace it. Buyers should still get an inspection, and it’s often required by the lender,” Appraiser John Anderson of Twin Oaks Realty Inc. said.
A low home appraisal can kill the sale of a home, so when it comes to minimizing problems, the panelists agreed that good communication is critical.
“There have been a lot of questions because of the recent changes, but those have died down significantly,” Wells Fargo National Underwriting and Production Risk Management Vice President David Schiffmayer said. “I recommend agents work closely and be responsive to appraisers; it’s important to communicate with the appraiser, answer questions and provide any additional requested property information.”