Mortgagee Letters
ML 09-37 titled “Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers” provides the following, “FHA Roster Appraisers are required to review the applicable FEMA Flood Insurance Rate Map (FIRM) and make appropriate notations on the applicable appraisal reporting form. If the property is located within a SFHA, the appraiser must attach a copy of the flood map panel to the appraisal report. The appraiser must enter the FEMA zone designation on the reporting form as well as identify the map panel number and map date. If the property is not shown on any map the appraiser should enter “not mapped”. It is noted that FEMA is digitizing its maps to provide more detail and actual pictures of existing buildings not seen on older maps which may benefit lenders and appraisers.”
ML 09-09 titled “Adoption of Market Conditions Addendum (Fannie Mae Form 1004MC/Freddie Mac Form 71) and Appraisal Reporting Requirements for Properties located in Declining Markets” is a key Mortgagee Letter for appraisers. It provides specific direction as to the use of the 1004 MC and development and reporting requirements for assignments of properties located in declining markets.
A short but useful Web training presentation on the proper way to complete the 1004MC can be found at efanniemae.com;
https://www.efanniemae.com/is/appraisers/index.jsp?from=hp.
With regard to appraisal assignments in declining markets, the appraisal must include:
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at least two comparable sales that closed within 90 days prior to the effective date of the appraisal or include a detailed explanation as to why there is a lack of market data
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a minimum of two active listings or pending sales with adjustments in the sale comparison grid in the 4th to 6th position or higher
Appraisals not complying with the requirements found in ML 09-09 will be considered incomplete and not acceptable.
There is more in the ML than is covered here. You must refer directly to ML 09-09 for additional sales comparison development and reporting requirements for appraisals of properties located in declining markets.
Three Mortgagee Letters of direct interest to appraiser were issued one after the other.
Mortgagee Letter 2009-28 with the “Subject: Appraiser Independence”, should be read fully. It introduces new requirement for lenders and provides that, “FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan.”
This ML has a section addressing “Appraisal and Appraisal Management (AMC)/ Third Party Organization Fees”.
It also has a section affirming existing requirements including “Prevention of Improper Influences on Appraisers” , “Appraiser Independence Safeguards”, and “Appraiser Engagement – Knowledge of Market Area – Geographic Competency.”
Mortgagee Letter 2009-29 with the “Subject: Appraisal Portability”, should be read fully. In contains the following; “FHA prohibits “appraiser shopping” where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser. However, a second appraisal may be ordered by the second lender under the following limited circumstances:
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The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
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The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.
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Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.”
Further, “In cases where a borrower has switched lenders, the first lender must, at the borrower’s request, transfer the case to the second lender. FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.
In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment. To effect a client name change, the second lender and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change. A new client name should include the name of the client (lender) and HUD.”
Appraisers should be aware that, as of this writing, October 2009, there is a “USPAP Q & A” from The Appraisal Foundation that calls into question the practice of limiting the scope of work of an assignment to simply a name change as outlined in Mortgagee Letter 2009-29. The title of the October 2009 Q & A is “Client Request to Limit Scope of Work to New Client Name”.
It appears that if the direction regarding name changes in the portion of Mortgagee Letter 2009-29 cited here is followed, the assignment results may not be credible. That is, if the appraiser accepts the assignment conditions as outline in the ML, it does not appear the appraiser will have identified and executed a credible scope of work. The appraiser is referred to The Appraisal Foundation ”USPAP Q & A” (link follows) where the Q & A can be read in full.
http://www.appraisalfoundation.org/s_appraisal/sec.asp?CID=12&DID=12
Mortgagee Letter 2009-30 with the “Subject: Appraisal Validity Periods”, should be fully read. It provides that, “Effective for all case numbers assigned on or after January 1, 2010, the validity period for all appraisals on existing and proposed and under construction properties will be 120 days. This change aligns FHA’s requirements pertaining to the validity of an appraisal with current industry practices.
This is a change from the current validity periods of six months for an appraisal of an existing property that is complete and 12 months for proposed and under construction properties.”
REQUIRED EXHIBITS
Here is a list of the required exhibits for an appraisal assignment to be completed for FHA. The required exhibits include:
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Street Map
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Sketch
- Show all dimensions and include patios, porches, garages and such.
- A floor plan is required for houses with functional obsolescence due to floor plan. -
Subject Photographs
Front and rear photographs from opposite sides to show all sides of the subject are required. -
Subject is Proposed Construction
At a minimum, take a photograph of the lot to show the grade. In addition, provide whatever photos are needed to convey to your client the lot characteristics. -
Street scene
When in doubt as to whether your street scene accurately conveys the area surrounding the subject, take multiple street scene photos
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Comparables Photos
You may use photos from a data reporting service such as an MLS, but you must also include your own photograph of the comparable. So you will have two photos for the comparable in the report. As an example, the report may include the photo you took showing the locked gate which prevented you from getting a good photograph of the improvements and the MLS photo which shows the client the relevant characteristics of the comparable sale. -
The FHA Case Number should appear on each and every page of your appraisal report, including all supporting photograph exhibits, maps, deeds.
It is often, if not usually, true that a list of required exhibits is a starting point. You must be sure to include all appropriate additional exhibits which would help your client understand relevant characteristics.
