Appraisal Update

Special Edition: The FHA's Non-HVCC; Mortgagee Letter 2009-28

The FHA released Mortgagee Letter 2009-28 last Friday, September 18, 2009, and it will likely have a dramatic impact on the FHA appraisal business. This document, which can be viewed in its entirety by clicking on the following link, "Mortgagee Letter 2009-28," is described by the writer, David H. Stevens, Assistant Secretary for Housing-Federal Housing Commissioner, as follows: "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."

The new requirements of importance to appraisers contained in this mortgagee letter are:

1) Mortgage brokers and commission based lender staff are prohibited from involvement in the appraisal process.

2) FHA-approved lenders have new responsibilities to ensure that FHA appraisers are ".compensated at a rate that is customary and reasonable for appraisal services in the market area."

3) "The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal." "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."

The Appraisal Institute, in a news release on Saturday, hailed this as an overall victory for appraisers, describing the FHA's actions as ".reversing a policy that inadvertently capped fees for real estate appraisers." The news release also noted that ".FHA's new policy separates the services (and fees) charged by appraisers from those charged by AMCs, allowing each to float at reasonable and customary levels. The previous policy inappropriately restricted the combined fees to just the customary and reasonable fee for the appraisal in the market area where the appraisal is performed." In their release, the Appraisal Institute referred to the July 1, 2009 letter authored by themselves in conjunction with the ASA, NAIFA and ASFMRA in which they urged the FHA to rescind its previous policy. In that letter, the four appraisal organizations noted that: ".many highly qualified and experienced appraisers are decli ning to perform assignments for AMCs. In many instances, those com panies are being forced to use appraisers from distant locations with less experience and training, or more pointedly: those who will work for less. Using less experienced and less qualified appraisers to perform FHA assignments is not a good business practice and is not good public policy." A copy of this July 1st letter can be viewed by clicking on the title of this post.