Editor’s Note: FHA released its version of the Home Valuation Code of Conduct (HVCC) earlier this month, supporting appraiser independence and addressing AMC-related issues that have surfaced since implementation of the Code in May- namely appraiser compensation and appraisal quality. Find more below including clarification from FHA.
Appraisers Talk, FHA Listens
FHA Supports Appraiser Independence, Compensation
By David Brauner, Editor
Appraisers are finally being heard.
As a result of grass roots complaints by appraisers about diminishing appraisal quality in industry blogs, publications, the general media, and of late, in a formal appeal by a coalition of appraisal organizations, the Federal Housing Administration (FHA) announced several important policy changes intended to increase accountability and due diligence in the appraisal process. The changes take
effect January 1, 2010.
Beginning October 1, only appraisers at the State Certified licensing level will remain on the FHA Roster, creating more work for them but squeezing out tens of thousands of FHA appraisers at the Licensing Level.
> Our Survey said - According to the OREP/Working RE HVCC Appraiser Talkback Survey, 81 percent of the over 3,100 appraisers participating answer “Yes” to the
question: “Are you in favor of FHA’s decision requiring their appraisers to be State Certified?”
Appraiser Independence
In support of appraiser independence and to address other AMC-related issues, FHA issued three Mortgagee Letters earlier this month with new requirements for appraisal ordering (more bad news for brokers) and which mandate the separation of appraiser fees from AMC fees. In addition, FHA now requires that appraiser fees be “customary and reasonable.”
Other important issues addressed in the Letters are the validity period for appraisals (reduced to four months); the allowance of a second appraisal to be ordered under certain circumstances when a borrower switches from one lender to another, geographic competency and appraisal portability standards. You can find these three important Mortgagee letters (FHA Mortgagee Letter 2009-28, 2009-29 and 2009-30) at WorkingRE.com, sidebar.
AMCs Acknowledged
Notable is that FHA acknowledges the reality of the marketplace and the expanded role AMCs now play. By addressing compensation issues and the separation of AMC and appraisal fees, it also addresses concerns raised by appraisers since HVCC took effect. Mortgagee Letter 2009-28 mentions AMCs by name and says: “FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence.”
Appraiser Independence- Brokers Out
The Letter borrows much HVCC language in support of appraiser independence and the prevention of improper influence, including prohibitions against withholding fees, future business, etc. And it includes some bad news for mortgage brokers. The letter states: 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.
Compensation
Regarding the issues of appraiser and AMC compensation, the Letter lays out these new requirements:
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FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of
the appraisal in the appraisal report.FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report. -
FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
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The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.
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Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
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AMC and other third party fees must not exceed what is customary and
reasonable for such services provided in the market area of the property being appraised.
Lamar Wooley from the Office of Public Affairs HUD HQ, told WRE last week, “FHA does not set fees and does not intend to in the future. VA fees will not be considered. The fee is what is typically charged by an appraiser to perform an appraisal of a particular property type (single family detached, 2-4 unit single
family) within a particular market, exclusive of any discounts given to particular clients as a result of volume business. The residential mortgage lending and appraiser communities know what the typical range is for fees charged for reporting an appraisal on the Fannie Mae/Freddie Mac appraisal reporting forms.”
Wooley continues, “In Mortgagee Letter 97-22, FHA ended the practice of setting appraisal fees and has no predetermined price or price range in mind. FHA does, however, expect that the FHA Roster appraiser performing the appraisal of a property to be security for a FHA-insured mortgage and will be compensated in an amount that is commensurate with what is typically negotiated and charged for an appraisal of similar complexity and the same property type and located in the same market as the subject property.”
Customary and Reasonable
Left unresolved is how “customary and reasonable” levels of commpensation are to be determined. Are they what “full fee” appraisers customarily charge in a given market or what AMCs pay the lowest bidder? Some argue VA compensation standards could be used.
As thousands of appraisers drop off the FHA Roster October 1, many expect fees to rise as a result of supply and demand.
New transparency rules in this Letter also guarantee the right of appraisers to include their fees in the report. Given that appraiser and AMC fees must now be separate, it is possible that AMCs will have to get their service fees someplace other than appraisers. Wooley told WRE, “FHA wants to promote transparency and, to that end, believes that borrowers and other parties who are privy to the appraisal report should be aware of the fee paid for the appraisal.”
No one knows what the impact of these new requirements will be or whether appraisal fees will rise as a result. Appraisers and industry thought leaders have been unusually mute on predictions. In addition to this FHA news, there are numerous state bills that have passed or are under consideration to register and regulate AMCs. More on this in the next print edition of Working RE.
In a July letter, several appraiser organizations advocated that FHA revise its policy in the wake of HVCC. The organizations include the Appraisal Institute, American Society of Appraisers, the National Association of Independent Fee Appraisers and American Society of Farm Managers and Rural Appraisers. Apparently FHA listened.
> To the question: “In your experience with AMCs, appraiser selection is based solely on obtaining the lowest fee”;
of the finished report compared with higher fee appraisals?”;
* Sometimes: 31 percent
* Never: 29 percent
entire appraisal ordering practices.”
were paid for through overhead costs (i.e., loan processing charges, interest rates, etc.) and reported on the appropriate line of the HUD-1. However, with lenders increasingly outsourcing these functions to AMCs, the costs are being passed through the Appraisal line of the HUD-1 statement. This leaves consumers with the mistaken impression that they are paying the customary fee for the highest level of service from an appraiser who has substantial experience in performing appraisals in their geographic area when, in fact, the consumer is receiving a much lower level of service – often from appraisers who do not know the local market – in many cases. This is not transparent and should be remedied as soon as possible.”
WorkingRE.com, Sidebar: Appraiser Organizations’ Letter Regarding FHA.
8 responses so far ↓
1 Jean Willick // Oct 2, 2009 at 3:42 pm
From your Article – “Beginning October 1, only appraisers at the State Certified licensing level will remain on the FHA Roster, creating more work for them but squeezing out tens of thousands of FHA appraisers at the Licensing Level.”
I haven’t seen anything regarding the above statement from appraiser’s who are qualified, but who didn’t pursue the Certified level. There are many of us who didn’t pursue that level for many reasons. Our reason is we currently went into semi-retirement this year and didn’t see the need or expense to take all the classes and testing required so now only the “newly” certified appraisers in our area can do FHA work.
These “newly” certified appraisers have less than half the experience we have and if the reviews we have completed on their reports are any indication of their competence, they should only be licensed as limited appraisers.
Three of the most experienced appraisers in our very rural area didn’t upgrade due to nearing retirement age and now the FHA work will go to these “newly” certified appraisers with low levels of competence. Also, some have been removed from one of the larger hometown bank’s approved appraiser’s list, BUT they are able to do FHA work and we aren’t. Some of these are the number hitters who got a lot of action during the boom times and have upgraded their level of “Incompetence” to Certified.
FHA would be better served if they changed their requirements to allow experience and quality of work to be their guidelines and not the fact that someone just took classes and passed a test without having a solid background in appraising.
We have not completed a lot of FHA work in the past as we are in a very rural area, but the quality of appraisals for FHA work will now suffer due to the new Oct. 1st requirement. I’m sure this is true for many other areas of the country.
2 Edd Gillespie // Oct 5, 2009 at 8:04 am
“Our reason is we currently went into semi-retirement this year and didn’t see the need or expense to take all the classes and testing required so now only the “newly” certified appraisers in our area can do FHA work.”
Ms. Willick;
Your personal reasons for not pursuing certification make sense. Your premise that you should be FHA qualified as licensed appraiser does not. Certification and the education and vetting it represents is exactly where this profession needs to go.
If I understand it correctly, FHA wants the best educated and experienced appraisers they can find. Certification is at least some evidence that the appraiser who has it is serious about appraising and will make the sacrifices required to become certified.
You just made the wrong decision. Get certified and “bang ‘em back.”
3 Dawn // Oct 14, 2009 at 7:05 am
Mr. Gillespie,
Do you understand that currently 98% of Certified Residential appraisers were certified before January 1st 2008?
Do you realize that the only additional education requirements to become “certified” prior to that consisted of 30 hours of appraisal classes? That’s a total of 4 days at Hondros College. Do you really believe 4 days of appraisal classes makes an appraiser COMPETENT AND ETHICAL?
Do you realize that under the new regulation a person with a 2 year degree in music is better qualified to become certified and perform FHA appraisals than someone that has passed the FHA exam and has 15 years experience doing FHA appraisals?
Do you realize that the 3 “categories” for appraisers have absolutely nothing to do with “experience” or “competency”?
Do you realize that a Certified General appraiser that has been doing strictly commercial appraising for 20 years is not considered “qualified” by USPAP because they do not have the “EXPERIENCE” in the residential market?
Furthermore, this is not about what FHA wants. They were mandated [forced] by congress to enforce this new legislation. Certainly the people at FHA are smart enough to know that if they want the best educated, and experienced appraisers, they would choose those appraisers that have passed an FHA exam, understand the FHA protocol, are familiar with their local market and have years of experience. Anyone that believes education will equate to better, more ethical professionals in any field, needs to look at the many hedge fund managers with “doctorate degrees” in finance, that brought this country to its knees.
Dawn
4 Joe the Appraiser // Oct 15, 2009 at 5:28 am
First off let me say this. Any appraiser that knows and understands this business understands that LICENSED RESIDENTIAL APPRAISERS GOT THE SHAFT.
Isn’t it ironic that 81% of appraisers agree that you should be “Certified” to perform FHA appraisals. Lets see, there are 135,000 appraisers in this country and 25,000 are “Licensed Residential” gee, that’s 27%. What a stupid question. Of course the “Certified” appraisers are going to agree and “Licensed” will disagree. I have been a “Licensed Residential” appraiser for 18 years and doing FHA for 12 years. Not only have I never had an infraction on my license, I also have a very solid reputation for being ethical and accurate. Seventy-five percent of my work is FHA and this legislation has DESTROYED MY LIVELIHOOD. I am now 58 years old and OUT-OF-A-JOB. I guess this is our government’s way of saying…“thanks for a job well done”.
Very PO’d
Joe the Appraiser
5 Gary // Oct 15, 2009 at 6:26 am
I am 62 years old and have been a Licensed Residential appraiser for 20 years. I have been doing FHA appraisals for 15 years and I too have a solid reputation for being ethical and have never had any type of disciplinary action against me. Eighteen months ago we found out my wife has cancer. Since that time we have been all over the country for medical treatment. I have been able to keep my business going however, was not keeping up with the changes in the industry. In June of this year I found out about FHA eliminating Licensed Residential appraisers and now have to face the fact that I will be put out of business because our government has decided that “Licensed Residential” appraisers are the problem. So what is our government going to do to solve the appraiser problems in States that do not have the Licensed Residential category? Does anyone know why they did not “grandfather” existing FHA appraisers? Given the fact that FHA now consumes about 40% of the mortgage market, there have to be thousands of appraiser’s that will be put out of business. In my 20 years of being an appraiser I have never had a client that required a “certified” appraiser. I just spoke to a realtor that is upset because they had to use an FHA appraiser from 40 miles away, who was not familiar with our local market. She said he charged a fortune and didn’t have a clue about property values in our area. If this is our government’s way of solving problems, we’re all in trouble.
6 R. J. // Oct 19, 2009 at 6:55 pm
According to information in Appraisal Today on 10/14/2009, there were 18,808 appraisers removed from the FHA roster. That’s almost 30% with only 45,664 remaining. This has got to be the biggest farce that I have seen in the appraisal industry since I began my career 27 years ago. I personally know of three appraisers, all of whom were solid, ethical appraisers, who have been put out of business because of the “Certified” requirement. My business has dropped about 30% however, I still have my doors open. It’s nice to know that Ann O’Rourke, with Appraisal Today, cares enough about “Licensed” appraisers to have reported the number of appraisers that have been screwed by this government policy. I hope she does a more in-depth article on this and tells some of the above stories.
R. J. Jackson
SRA [Screwed Residential Appraiser]
7 Julie Howe // Nov 18, 2009 at 9:02 am
I too was a Licensed appraiser removed from the roster after 22 years doing FHA work. It was very upsetting; in our area MI certified means something very different. It meant that you could appraise a million or over. That is why I did not pursue; our area does not have million dollar homes. There were a few who pursued this certified in our area and took advantage prior to Dec 2008 to take those extra “30 hours” for the ego it gave them and now have the work. There is an entire family who came from the grocery business into this “certified” category prior to Dec 08. So they are more “qualified”? I wrote our congressmen/women in our State to clarify for them what they’ve passed. One did not respond, one congresswoman wrote back supporting this loss of more MI jobs(arent’ we in the top 5 unemployment already?) as a way to support the stabilization of the financial system, and one smart congress member wrote back to state he did not support this and actually wrote a letter to Shaun Donavon on our behalf to state that MI did not need to lose 2/3rds of their entire appraisal profession, to no avail. Yes I have a copy of what he wrote. I however will follow their silly system and have been taking college classes since Jan of 09 and am thankfully on my last class. Licensed appraisers need to know that all we need are 21 credit hours in 7 core subjects and the additional 50 hours of appraisal courses. I started with 4 classes, took 1 over the summer and 2 in fall semester. My last class ends Dec 20,09 and I’ll be ready to submit to my state to sit for the national exam. Yes it cost me tons of money, it has hit my family hard and my hair falls out over the stress. But I will have done it, passed their silly game, and gotten certified. All this just for FHA, which by the way is talking about increasing the down payment structure already for their loan programs. Most of us don’t know that FNMA just passed a new program last week that is a deed in lieu of foreclosure, and then the HO can “rent back” the home at market rent for a year lease. All in the name of “neighborhood stabilization” program. So all this realty movement this last year (which was falsely moved by REO homes for the most part and the $8000 tax credit), is coming to a screaching halt. Certified won’t mean anything after all, but boy wont’ I be smart? LOL
8 Mke Wiz // Dec 22, 2009 at 1:06 pm
Ed Gillespi wrote the following………
“Certification and the education and vetting it represents is exactly where this profession needs to go.
If I understand it correctly, FHA wants the best educated and experienced appraisers they can find. Certification is at least some evidence that the appraiser who has it is serious about appraising and will make the sacrifices required to become certified.”
Excuse me ED, but if you believe that I have a couple of bridges to sell you!!!!!
Part of the reason was they (FHA) wanted to reduce fraud, and if they think education is going to help that, well I say just look around at the auto, banking, and any other industry (including the government) that have highly educated personnel running those business. The problems they are trying to correct starts with the individual, if the federal & state governments would just police the rules & guidelines that were all ready in place we would not have the problems that exist.
As of now I am not too impressed with our education system and what kind of people they turn out.
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