FHA driveby

[Donna Quixote]

Have a client who orders a full 1004 FHA appraisal and also orders a driveby 2055 to double check the price. They contacted me on doing a 2055 and I told them it was my understanding from my last FHA class that FHA does not accept drivebys, which makes sense because we can't check windows, plumbing, electrical, attics, basements, etc.

They say it is OK because they submit both appraisals at the same time and that all FHA now requires two appraisals. I suggested that they have a review appraisal done because at least the review appraiser has the information regarding conditions of the interior and whether or not there were any necessary repairs, and hopefully lots of interior photos.

Has anyone heard about FHA requiring two appraisals for every loan? Could be a great increase of work for us.

 

[RSW]

Check out Mortgagee Letter 2008-09 about 2nd appraisals. This can be done on a 1004 or a 2055 drive by form.



When is a Second Appraisal Required? A second appraisal will be required when:
· The loan amount, excluding the upfront mortgage insurance premium, will exceed
$417,000, and
· The LTV1, excluding upfront MIP, equals or exceeds 95%, and
· The property is determined as being in a declining market.

The only other time I know of that FHA would want a second appraisal would be to update an appraisal for the H4H Help for Home program. I don't believe they are requiring a second appraisal on every loan. Although, I did do a second 1004 appraisal on a property last week that did not meet the Mortgagee Letter 2008-09 criteria.

 

[Chris Colston]

Cash out FHA refis will almost always have a second appraisal and those will most likely be drive-bys.

Donna, you may want to spend some time on the HUD web site reading the mortgagee letters. FHA does not want a review of the original appraisal, they want 2 appraisals.

 

[Donna Quixote]

Thanks for the advise, I will be attempting to navigate the FHA website tonight

 

[Greg Bell]

I have done many second FHA appraisals and all were full interiors..

 

[vanguard]

Minnesota does not permit an exterior (only) inspection of the subject property as requested on the new 2055 form. An "inside and out" inspection is necessary (see below) . This would more than likely disqualify desk reviews and field reviews as well. You may wish to contact your state appraisal board to see if they have similar rules. This would affect any value appeals if a 2055 appraisal is considered to be a basis for value.

2808.6000 STANDARDS OF CONDUCT.
Subp. 3. (8) C. prior to performing the appraisal, view the entire property, inside and out, as well as confirm the existence of any contiguous highways, buildings, or other factors that affect the valuation of the property.

 

[Jim Manley]

The second appraisal cannot be FHA.
The case number is assigned to the property. However when pulling the case number...the appraiser's name also has to be submitted. Can't have two appraisers.
There is a new guideline from FHA concerning refi's. If it is a cashout refi...and the LTV is greater than 85%...a second appraisal is required. The second cannot be FHA.

 

[CindyR]

The second appraisal cannot be FHA.
The case number is assigned to the property. However when pulling the case number...the appraiser's name also has to be submitted. Can't have two appraisers.
There is a new guideline from FHA concerning refi's. If it is a cashout refi...and the LTV is greater than 85%...a second appraisal is required. The second cannot be FHA.

Well if FHA is requiring the 2nd appraisal it must surely be an FHA appraisal. I've seen a bunch of these lately. On the last one they even sent over the FHA Connection printout showing the FHA reassignment from Current Apprasier to New Appraiser ID.

 

[Vegan702]

April 1, 2008

MORTGAGEE LETTER 2008-09


TO: ALL APPROVED MORTGAGEES
ALL FHA ROSTER APPRAISERS


SUBJECT: Second Appraisal Requirements/Limits on Cash-Out Refinances

Mortgagee Letter 2007-11, announcing the FHASecure initiative, also included information regarding appropriate appraisal practices in declining markets; those instructions remain in effect. Now, with FHA in position to insure mortgage amounts greatly in excess of what has been its experience as a mortgage insurer, we believe it prudent to set forth additional underwriting and collateral assessment practices for “high-balance” loans.

Specifically, for mortgage amounts that will exceed the January 1, 2008 conforming limit of $417,000, FHA is establishing a second appraisal requirement for loans on properties in declining areas, and limiting the loan-to-value for cash-out refinances. These requirements are further described below and are effective for all mortgages with FHA case number assignments made on or after the date of this mortgagee letter.

Second Appraisal Requirements in Certain High-Cost Areas

Recognizing FHA’s counter-cyclical role in the mortgage market, and its ability to help stabilize declining housing markets, FHA is not at this time establishing higher downpayment requirements or borrower credit bureau score thresholds for properties located in declining areas. However, to mitigate risk to the FHA insurance fund as well as FHA borrowers, FHA will require a second appraisal for higher balance loans secured by properties in declining markets as indicated on the appraisal report or determined by the lender using other sources.

When is a Second Appraisal Required? A second appraisal will be required when:

· The loan amount, excluding the upfront mortgage insurance premium, will exceed $417,000, and
· The LTV[1], excluding upfront MIP, equals or exceeds 95%, and
· The property is determined as being in a declining market.


How is a declining market determined?

• By the appraiser: The appraisal report requires the appraiser to indicate if the property is located in a declining area in both the neighborhood section of the appropriate appraisal form as well as in the housing trend section, and/or determine if there is an “over-supply” of properties. The certifications contained in the appraisal reporting forms are supplemental standards to the Uniform Standards of Professional Appraisal Practice (USPAP) and Certification # 14 specifically requires an appraiser to consider and report on all conditions that impact value. Appraisers must provide specific support for any conclusions noted in the Housing Trend section of the appraisal report and research local price trends, relying upon such services as local Multiple Listing Services or others as described below.

• By the lender: The lender may determine through services such the S&P/Case-Schiller Index, Office of Federal Housing Enterprise Oversight (OFHEO) Index or National Association of Realtors (NAR) statistics, or through an automated underwriting system, e.g., Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector, that the property is located in a declining market area.

Who can perform the second appraisal? The second independent appraisal must be completed by a FHA roster appraiser selected by the Direct Endorsement lender that is underwriting the mortgage. The lender independently engages the appraiser and is not to request a second case number through FHA Connection. The fee for the appraisal may be passed onto the borrower as any other closing cost.

What form must be used for the second appraisal? If the property is a one-unit detached house, the second appraisal may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055; any repair requirements noted in the original interior-exterior appraisal report must be adhered to if the second appraisal is an exterior-only appraisal. Condominium units including detached site-condominiums; manufactured housing; and 2-4 unit properties are not eligible for exterior-only second appraisals and must be completed on the appropriate appraisal form.

When must the mortgage amount be reduced? If the second appraisal has an estimated value more than 5 percent lower than the original appraisal, the maximum mortgage must be predicated upon the lower of the two appraised values.

What does the lender do with the second appraisal? The second appraisal, when required, is to be included in the FHA insurance binder. If the second appraisal is used to recalculate the maximum mortgage amount, the mortgagee must enter the appropriate information in the appraisal logging screen in the FHA Connection or functional equivalent.

Pressure on Appraiser and Conflicts of Interest The lender and appraiser must also avoid conflicts of interest which affect, either in reality or in appearance, the credibility of the appraisal. A lender may not choose an appraiser that has any interest, direct or indirect, in the property being appraised. In addition, a lender may not choose an appraiser that is employed by an appraisal company that owns, is owned by, is affiliated with or has any financial interest in the builder or seller of the property. Instances of undue pressure or influence on an appraiser reported to FHA will result in appropriate disciplinary actions against the lender involved.

Loan-to-Value Limits for Cash-Out Refinances

If a homeowner is pursuing a cash-out refinance and the loan balance exclusive of FHA’s upfront mortgage insurance premium will exceed $417,000, the loan-to-value may not exceed 85 percent of the appraiser’s estimate of value.


If you have any questions regarding this mortgagee letter, please contact the FHA Resource Center at 1-800-CALL-FHA (1-800-225-5342).

Sincerely,



Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner

[1] Loan-to-Value is defined as the mortgage amount, excluding any financed upfront mortgage insurance premium, divided by the lower of the adjusted sales price or the appraiser’s estimate of the property’s value.

 

[CindyR]

There may be some variations in how these rules are being interpreted in the lending community. None of these FHA 2nd appraisals I have seen lately have had loan amounts anywhere near $417,000. All loan amounts were less than $300,000; most less than $200,000.