Sound Mortgage Planning Blog

In a seemingly never ending quest to understand and abide by lending guidelines, I am taking a stab at understanding/explaining the new Mortgagee Letter 2009-28 that came out September 18, 2009. The subject line read; Appraiser Independence.

The first two paragraphs of the letter go like this:

This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages.

FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices. In this mortgagee letter, FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser. The new requirements set forth in this mortgagee letter will be effective for all case numbers assigned on or after January 1, 2010. The existing requirements will remain in effect.

In a nutshell, they are saying that there are already guidelines in effect and the letter is reminding us of those requirements. They are also saying that on January 1, 2009, the appraisal ordering process will have new guidelines and restrictions.

New Requirements

Prohibition of mortgage brokers and commission based lender staff from the appraisal process.

FHA will no longer allow appraisers to be selected by a broker or any member of a lender’s staff who is compensated on a commission basis tied to the completion of a loan. This is pretty much the same thing as the HVCC except there are fewer restrictions as you will see if you read further.

Appraiser Selection in FHA Connection

The part of the letter basically states that if the name of the appraiser shown in the FHA Connection screen had better match the name of the appraiser on the appraisal or the lender will face administrative sanctions.

Appraisal and Appraisal Management Company (AMC)/Third Party Organization Fees

FHA does not require the use of AMC’s or third party organizations for appraisal ordering. However, they do recognize that some lenders use AMCs and/or third party organizations to help ensure appraiser independence and of course FHA has corrected and expanded their existing fee requirements.

FHA-approved lenders must ensure that:

· FHA Appraisers are not prohibited by the lender, AMC or third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.

· FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.

· The fee for the actual appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.

· Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.

· AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised.

Affirming Existing Requirements

Prevention of Improper Influence on Appraisers

In order to help appraisers avoid conflicts or the appearance of conflicts of interest, no lender’s loan production staff or any person who is compensated on a commission basis upon the successful completion of a loan or who reports, ultimately, to any officer of the lender not dependent of the loan production staff and process, shall have substantive communications with an appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment.

The DE Underwriter who has responsibility for the quality of the appraisal report is allowed to request clarification and discuss with the appraiser components of the appraisal that influence its quality.

Appraiser Independence Safeguards

In a nutshell, the lender cannot provide inducements to or threaten in any way the appraiser in order to achieve a specific value.

Appraiser Engagement-Knowledge of Market Area-Geographic Competency

Appraisers must certify that:

They have knowledge and experience in appraising the property type to be appraised in the specified market area

and

They must be aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located.

There are additional mortgagee letters that were released regarding appraisal portability. This basically refers to the transfer of an appraisal from one lender to another. There is some inaccurate information out there that I won’t repeat here. Let me just say that lenders have always been allowed to transfer an appraisal from another lender. There are a few new rule sin affect that assist lenders who are having difficulties getting an appraisal transferred due to an uncooperative lender. If the delay will cause a hardship on the borrower, such as a delayed closing, the lender can now order a second appraisal.

FHA has shortened the appraisal validity timeframe from six months down to four months now.

There have been other changes that affect FHA Streamlined Refinances, but my focus has more to do with purchases at the moment.

So, HVCC this is not, but is certainly something to be aware of.