Well, folks, as if TRID isn’t enough to boggle your mind, FHA has issued a new handbook. This isn’t just a new mortgagee letter with a few tweaks here and there. It is a brand new handbook and at the center of attention is the appraisal process. Some appraisers say it is now requiring appraisers to do what they should have been doing all along; others say it is a significant change in the way they do their jobs.
The new handbook (Handbook 4000.1) became effective September 14, 2015. It has been called the most comprehensive overhaul of FHA appraisal guidance since 1999.
One of the significant changes to FHA policy is the requirement for appraisers to complete a three-year prior sales history of the comparable sales and listings used in the appraisal. Note: not just sales, but all current listings used must have a three year prior sales history.
The new handbook now requires that the appraiser make a full entry into the attic or crawl space. (No selfie sticks!) If that is not possible, a minimum entry of “head and shoulders” is acceptable. If the attic and/or crawl space are not accessible, the appraiser must state that fact in the appraisal report. The lender will determine property eligibility. Note: Appraisers will probably call for an inspection if this isn’t an easy maneuver – none seem to be anxious to crawl under the houses to check the crawl space either. Hopefully inspectors will be able to separate out appraiser requirements from the rest of the inspection.
Here’s another big change. Appraisers will be required to operate the appliances in the subject property. The Handbook states “Cabinets and built-in appliances that are considered Real Property must be present and operational.” The Handbook goes on to state, “The Appraiser must operate all conveyed appliances and observe their performance.” In industry conference calls, representatives from HUD have reiterated this requirement.
“The only problem is that to some degree it requires us to be an Appliance operator, Electrician, Geologist, Electrical Transmission line Analyst, Aviation Flight Path Analyst, Well driller, Pipe line Analyst, Engineer, Chemist, Soil Analyst, Septic expert and it sounds like FHA wants us to look in the freezer, cook something in the microwave and oven, do a load of laundry, have a drink of water, and wash the dishes while we are there.” Wisconsin Appraiser
The appraiser is now responsible for observing, analyzing and reporting all repairs necessary for the subject property to meet HUD’s minimum property requirements for existing properties or minimum property standards for new construction. One of these is the requirement that hot water heaters now must have pop off valves and the appraisers do have to check to make sure HVAC is working
In addition, the appraiser will need to provide a cost to cure and a photograph of deficiencies. The Lender’s underwriter will determine which repairs are required. The underwriter has the authority to require additional repair items and /or waive any of the appraiser’s identified repair items.
When must the appraiser require an inspection by qualified individuals?
- standing water against the foundation and/or excessively damp basements;
- hazardous materials on the site or within the improvements;
- faulty or defective mechanical systems (electrical, plumbing or heating/cooling);
- evidence of possible structural failure (e.g., settlement or bulging foundation wall, unsupported floor joists, cracked masonry walls or foundation);
- evidence of possible pest infestation;
- leaking or worn-out roofs; or any other condition that in the professional judgment of the Appraiser warrants inspection.
OK, don’t faint yet, there’s more. It seems that the new handbook calls for the appraiser to have the survey in hand when they do the appraisal. There is still a LOT of discussion about this subject but appraisers are already requiring surveys before they will finalize the appraisal reports. The handbook actually says “if available” but this is all up to interpretation and until the dust clears be prepared to order the survey upfront.
The handbook also requires the Appraiser obtain these items from the Mortgagee before beginning an appraisal: A complete copy of the executed sales contract, the land lease if applicable; surveys, legal descriptions, all legal documents contained in the loan file and a point of contact for the Mortgagee so the Appraiser can communicate any noncompliance issues.
Here is my take – if the seller agrees to provide his survey to the buyer in the contract, then the T47 and copy of the survey should be attached to the contract! If you are in the habit of requiring the survey 3 days prior to closing, you might want to change your habit.
On the underwriting side, the new handbook makes changes to age of documentation requirements, credit analysis, the treatment of liabilities and projected obligations, employment and income documentation and earnest money and cash to close requirements. Note: if a buyer pre-qualified before September 15, 2015, then they may not qualify now.
Don’t panic! TRID and the new FHA handbook make FHA transactions a little more challenging. Heck, all transactions during the next few months will be challenging! Don’t be scared. Just be careful and have an open line of communication with the lender associated with the transaction.
Stay tuned as more and more changes roll out and are discussed. As soon as I have a list of property conditions for you to have on hand, I will forward to you.
Ms. Kirkpatrick has spent 35 years in the real estate and mortgage lending industry. Currently she is Marketing Coordinator for the Sherman Branch of Guild Mortgage Company. In addition she is a website publisher, contributing author to several community blogs and writes articles for several mortgage industry blogs. You can reach BJ at email@example.com
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