On HUD’s latest conference call (see NOTE below), it was stated that the primary role of an FHA Roster appraiser is to “Observe, Analyze and Report” what he/she encounters during their on-site visit to a property.
There were a number of specific examples cited in which the HUD staff presenter indicated that the appraiser has effectively completed their assignment when they have documented and reported their concerns to the lender or underwriter.
The problem, however, is that no specific guidance was provided to the lenders & underwriters as to how to deal with the problems reported by the appraiser.
In fact, the draft 4000.1 Handbook has many examples of this dilemma and needs to be modified before it is implemented. Some topics discussed were:
- Appraisers must now make a statement as to whether or not the subject property can be legally rebuilt if destroyed when the property has a legal non-conforming zoning designation. However, what about situations in which the property cannot be rebuilt if it is more than 75% destroyed? Should the underwriter reject the property for mortgage insurance although the borrower’s will be required to have adequate hazard insurance coverage? No guidance is provided in the Handbook or on the call.
- Appraisers will report to the lender if they could not observe the roof surface. Should a lender then require a roofing certification, a roofing warranty or would a hold-harmless letter from the borrower be acceptable? No guidance is provided in the Handbook or on the call.
- An Appraiser must report whenever he/she cannot gain access to the attic area and state why it is not readily accessible. The underwriter will be required to make a decision as to what actions (if any) are deemed necessary to close the loan transaction. No guidance is provided in the Handbook or on the call.
- In fact, an underwriter on the conference call stated that she had a recent case in which the appraiser stated that he could not gain access to the attic area but observed no signs of problems with the roof shingles or any evidence of roof leaks on 2nd floor ceilings. This underwriter documented the file accordingly but received an Indemnification Agreement request from HUD subsequent to the loan closing.
- Appraisers must perform a highest & best use analysis and let the lender know when it is determined that the subject property has Surplus Land. Specific guidelines, however, have not been provided to lenders as to how to deal with a transaction in which the Appraisers determine if there is Surplus Land.
The stated objective of the issuance of the 4000.1 Handbook is to consolidate all of HUD/FHA’s underwriting, appraisal, lender approval, 203(k) and Quality Control policies into one up-to-date reference guide.
However, the appraisal portion of this draft Handbook needs to be modified to provide specific guidance to underwriters on various issues or problems reported to them by the Appraiser.
The items above are just some of these examples that need to be addressed. It is also recommended that HUD conduct an industry conference call with DE underwriters to discuss these types of scenarios before the effective date of the Handbook.
To access the draft Handbook go to the www.hud.gov website and type in 4000.1 Handbook in the Search Box.
NOTE: On April 22, 2015, HUD/FHA Headquarters staff conducted a follow-up industry conference call to discuss the recently published new Section of the draft “Origination Through Post-Closing/Endorsement” Handbook (4000.1) dealing with Appraiser and Property Requirements.
This Handbook will ultimately serve as a single reference point for FHA underwriting and appraisal policies & procedures and is targeted to be effective for all transactions in which the FHA case number was assigned on and after June 15, 2015.