Valuation Management Group is sure that clients and appraisers alike who are currently involved in originating FHA loans and completing appraisals for such loans are aware of the new guidelines, but we like to make it a practice to share industry changes that potentially affect all of our partners.
The most important thing to note is that the new and slightly revised guidelines involve two FHA publications that speak to requirements and guidelines expected in appraisal reports: 1) the Single Family Housing Policy Handbook 4000.1 and 2) Appraisal Report and Data Delivery Guide. The new guidelines and requirements are now in place for loan applications taken on or after September 14, 2015. Below are highlights and excerpts of what seem to be the most pertinent points from the new language in the Single Family Housing Policy Handbook.
- Handbook 4000.1: The new language regarding attic and crawl space inspections seems quite clear that appraisers are expected to fully observe the entire space. Section II.B.3 (k), Attic Observations Requirements, state: The Appraiser must observe the interior of all attic spaces. Many concerns have been voiced by appraisers over this language, citing that it is unreasonable to expect this when there is only a small scuttle opening to access the attic areas, or if there is no decking on which to stand and move around. However, the second paragraph in this same section of the Handbook goes on to say “The Appraiser is not required to disturb insulation, move personal items, furniture, equipment or debris that obstructs access or visibility. If unable to view the area safely in their [sic] entirety, the Appraiser must contact the Mortgagee and reschedule a time when a complete visual observation can be performed, or complete the appraisal subject to inspection by a qualified third party. In cases where access through a scuttle is limited and the Appraiser cannot fully enter the attic, the insertion of at least the head and shoulders of the Appraiser will suffice.”
HUD seems to be indicating here that their expectations are reasonable but, at the same time, what has historically been accepted as a head and shoulders inspection of the attic area is no longer considered sufficient. HUD’s intent appears to be reiterating that the Appraiser is acting as HUD’s and the Mortgagee’s “eyes and ears” and they expect to be able to get a thorough understanding and visual depiction of every aspect of the condition and structural soundness of a property so they may make an educated decision about their risk in insuring a loan.
- Handbook 4000.1: Requirement for inspection of any crawl spaces are similar to, and in the same spirit, as the attic above.
- Handbook 4000.1: Requirements for routine photographs have more clarity and a few of the requirements have been increased. Front and rear photos should show all sides of the structure; improvements with contributory value are required when not otherwise shown; new construction photos should include a visual depiction of the subject’s grade and drainage; proposed construction photographs should show the subject’s lot; a lengthy and specific list of required interior photos is provided; and comparable sales, listings, pending sales and rentals require photos taken at an angle to depict both the front and the side, when possible. The language does indicate that MLS photos are acceptable to help exhibit condition (supportive and explanatory role), but the appraiser must include their own photos to document compliance. Condo appraisals must also have photos of the common areas and shared amenities.
- Appraisal Report and Data Delivery Guide: A requirement is now in place for the appraiser to report three years or more of prior sales history for comparables, instead of only one year. The guide also requires the appraiser to report whether or not connection to public sewer is available if the property is on a private waste water disposal system. The Handbook 4000.1 does not list this in their appraisal requirements pages. There may be other requirements that are in one document but not in the other.
FHA seems to be setting a clear expectation that the Appraiser observe, analyze and report all aspects of issues and topics covered in the two publications, which seems to infer very thorough observations, analysis of things observed and a comprehensive discussion from appraisers in appraisal reports for HUD/FHA.
Valuation Management Group takes pride in staying abreast of changes that affect our clients and appraisers so we are sensitive to and understand all that must be in place regarding compliance issues. It is important to utilize qualified and trained individuals for all valuations. As such, the changes to the HUD/FHA policies are critically important to the appraisal engagement process and assuring only qualified individuals are considered for engagement. As part of Valuation Management Group appraisal management services, we ensure that only qualified appraisers are engaged for appraisal assignments.
Valuation Management Group is a national, full service appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We offer the full array of commercial and residential appraisal products and services. We take the appraisal process from ordinary to extraordinary.