On April 16, 2015, HUD/FHA Headquarters staff conducted an industry conference call to discuss the recently published new Section of the draft “Origination Through Post-Closing/Endorsement” Handbook (4000.1) dealing with Appraiser and Property Requirements.
This Handbook will ultimately serve as a single reference point for FHA underwriting and appraisal policies & procedures and is targeted to be effective for all transactions in which the FHA case number was assigned on and after June 15, 2015.
Although it was stated at the beginning of this conference call that there were few substantive changes being made to current FHA appraisal policies, there were a number of topics that I found to be rather controversial and worthy of further discussion and reconsideration by HUD staff before they are implemented. Some examples are as follows:
- On page #442 of the draft 4000.1 Handbook, it is stated that “The Appraiser must note appliances present in the house at the time of observation and indicate whether that appliance is considered Personal Property or Real Property. The Appraiser must operate all conveyed appliances and observe their performance”.
- A question was posed from an Appraiser on the conference call “does this mean that I will be responsible for testing the operations of an appliance such as a dishwasher? The answer provided by HUD staff was “yes”. This will be a new requirement for HUD Roster Appraisers as few if any; Appraisers in the past would test appliances as part of their on-site review of a property.
- Reporting of the sales history of comparable sales must now go beyond 12 months.
- Previously, only a 12-month history was required but no guidance was provided on the call or in the draft 4000.1 Handbook as to how far back the Appraiser must go. In fact, in an example provided during the call regarding a previous sale of a comp was reported as far back as 1956?
- All approaches to value (market, replacement cost, and income) must now be considered & performed onan FHA appraisal.
- Previously, the cost approach was not required on existing properties more than one-year-old and the income approach did not have to be performed on 1 unit properties.
- Appraisers must now make a statement as to whether or not the subject property can be legally rebuilt if destroyed if the property has a legal non-conforming zoning designation.
- Many more photos will be required for an FHA appraisal. It was even stated that an Appraiser should take photos of the Common Areas within a PUD? For a complete listing of required photos, refer to page # 453 of the draft 4000.1 Handbook.
Let’s hope that HUD reconsiders many of these new policies upon feedback from industry groups before the 6/15/15 effective date. To access the draft Handbook go to the www.hud.gov website and type in 4000.1 Handbook in the Search box.