REO Appraisals Must Be Used For FHA Financing?

[Gajope]

One of my clients has told me that FHA is requiring all lenders to use the original HMBI (HMBI is a subcontractor for HUD and secures and lists all foreclosures for them in our region) appraisal on all HUD REO’s and not get a new appraisal for FHA financing…. It seems obvious that this would be wrong for two reasons, 1 – the appraisal’s original purpose was for pricing the home to list and assess the condition of the property and 2 – the intended user was HUD, not a lender for financing purposes. The whole Scope of Work would be different.

Am I wrong here? Are there any USPAP issues here?

Or can FHA just do whatever they want since they are the ones insuring the loan? FHA will not accept any other appraisals on these properties other than the original HMBI appraisals which were done prior to listing the foreclosed property for sale. I have tried to contact the Atlanta HUD office but there is no answer.

 

[RSW]

I've had several of my HUD REO appraisals used for a purchase. Doesn't make much sence to me. But, it is what it is. I had one a few months ago where I reported the house to be in fair condition on the HUD REO appraisal and the lender for the buyer wanted to know if I could change it to average. Yea, Right! They wouldn't do a loan on a property that was reported to be in fair condition. That is the problem with the HUD REO appraisals being used for lender purposes: The appraisal is done AS IS and not subject to repairs or inspections.

 

[Gajope]

yes but do you know if FHA REQUIRES that appraisal to be used?

 

[Caterina Platt]

Hi Gajope,

Well, think about this.....intended use is to determine the market value and assess the condition. Why is that any different than the market value for an FHA purchase?

The intended user is HUD. In an FHA purchase, isn't HUD one of the intended users? Sure they are.

The REO appraisal is often used in the FHA financing for the subsequent purchase. They've done this for a number of years.

 

[Caterina Platt]

I've had several of my HUD REO appraisals used for a purchase. Doesn't make much sence to me. But, it is what it is. I had one a few months ago where I reported the house to be in fair condition on the HUD REO appraisal and the lender for the buyer wanted to know if I could change it to average. Yea, Right! They wouldn't do a loan on a property that was reported to be in fair condition. That is the problem with the HUD REO appraisals being used for lender purposes: The appraisal is done AS IS and not subject to repairs or inspections.

It's only done in the case of subsequent FHA financing for the purchase. I think it's great, as the new lender gets the real truth (whether they want it or not).

If the repairs are over $5K, it automatically throws the property into non-insurable status, but that would fall under FHA 203K. New report, work write ups, etc.

If the new buyer is going conventional, they need a new appraisal.

 

[Gajope]

Caterina, I understand that, but do they REQUIRE this?

 

[Caterina Platt]

Caterina, I understand that, but do they REQUIRE this?

Several things:

Case number assignment sticks with the property. HUD won't get burned in a case of 'mistaken identity' where the new appraiser comes in and 'miraculously' finds different condition, value, etc. on one of their own REO's. In an outfit as large as FHA, it would be entirely possible.

It saves closing costs.

It saves time.

 

[Gajope]

Hi Gajope,

Well, think about this.....intended use is to determine the market value and assess the condition. Why is that any different than the market value for an FHA purchase?

The intended user is HUD. In an FHA purchase, isn't HUD one of the intended users? Sure they are.

The REO appraisal is often used in the FHA financing for the subsequent purchase. They've done this for a number of years.

But what about the SOW? The original was not done for financing. If FHA is REQUIRING this to be done, then I would think that there might be more of an interest in deciding if those original appraisals are appropriate, especially if the house has been listed for a few months and the market has changed. I understand that the client or fannie, freddie, FHA can require whatever they want, but what about USPAP and SOW?

 

[Caterina Platt]

But what about the SOW? The original was not done for financing. If FHA is REQUIRING this to be done, then I would think that there might be more of an interest in deciding if those original appraisals are appropriate, especially if the house has been listed for a few months and the market has changed. I understand that the client or fannie, freddie, FHA can require whatever they want, but what about USPAP and SOW?

What are you doing differently in your inspections or assignment on the SOW for an FHA REO vs. an FHA purchase? Yes, some of the verbiage is different, but really? Same photo requirements, same inspection requirements, and same market data.

If the house has been listed for several months and is in a declining area, FHA's recent mortgagee letter likely covers that issue.

 

[RSW]

What are you doing differently in your inspections or assignment on the SOW for an FHA REO vs. an FHA purchase? Yes, some of the verbiage is different, but really? Same photo requirements, same inspection requirements, and same market data.

If the house has been listed for several months and is in a declining area, FHA's recent mortgagee letter likely covers that issue.

The difference is, the REO appraisal is done AS IS even if there are MPR required repairs.

As to the case # staying with the property? Most of the HUD REOs I've done had a case # that was more than 6 months old. Many of them are years old. How can the case # stick with the property over six months old? Again, it doesn't make any sence to me.

I do seem to remember reading where the HUD REO can be used for financing. But, I just can't place my fingers on the info. right now.