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For the first time ever, FHA appraisals have effectively actually had fewer extra requirements than conventional loan appraisals. This has been corrected effective April 1st with HUD Mortgagee Letter 2009-09 which establishes appraisal requirements for declining (in other words, most) markets. Of course, many of these policies have already been implicated in practice by lenders.

Beginning April 1st, 2009, for all FHA appraisals your appraiser must:

  • Complete the Market Conditions Addendum (Fannie Form 1004MC/Freddie Form 71)
  • Provide at least 2 comparable sales within 90 days of appraisal date
  • Provide a minimum of 2 active listings or pending sales in addition to the 3 closed comparables
  • Insure that active listings and pending sales are market tested and have reasonable market exposure to avoid the use of over priced properties as comparables.
  • Provide bracketed listings using both dwelling size and sales price when possible
  • Adjust active listings to reflect the List To Sales Price Ratio
  • Adjust pending sales to reflect contract sales price when possible
  • Include the original list price and any revised list prices
  • The appraiser must verify data via local parties to the transaction: agents, buyers, sellers, lenders, etc. (if the sale cannot be verified by a party then public records or other impartial data source that can be replicated may be used). A Multiple Listing Service (MLS) by itself is not considered a verification source.
  • Provide a reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales
  • Provide Absorption Rate Analysis
  • Indicate any known or reported sales concessions on active and pending sales

HUD also warns that “Direct Endorsement Lenders are reminded that if the appraiser they selected provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held responsible equally with the appraiser for the integrity, accuracy and thoroughness of an appraisal submitted to FHA.”

You can find the full text of the update here.

You can find a link to Fannie Mae’s presentation on completion of the Market Conditions Addendum here.

Although this Mortgagee Letter is intended for appraisers, I encourage all loan officers and real estate agents to learn it as well. This helps to avoid confusion when underwriters ask for extra conditions, and helps avoid surprises because the experts weren’t up to speed on the guidelines.

HUD Delays Implementation Of "Appraiser Independence"


Related posts:

  1. Second Appraisal Required On Cash Out FHA Refinances
  2. FHA Appraisal Process: Someone Finally Says Something Good About It
  3. FHA Guidelines: FHA Down Payment Assistance On The Chopping Block?
  4. Hope for Homeowners Requirements Relaxed

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Filed under: FHA Appraisals • FHA guidelines

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