Federal Housing Administration Policy Changes

The Federal Housing Administration (FHA) today announced several significant policy changes that are intended to improve their exposure to risk.  The changes, effective January 1, include:

• Modification of Procedures for Streamline Refinance Transactions
• Adoption of Home Valuation Code of Conduct Guidelines (some not all)
• Updated Appraisal Validity Period
• New Appraisal Portability Regs
• New Requirement of Lenders to Submit of Audited Financial Statements for Review
• Adjustments to the Approval Process for Participation in FHA Loan Origination
• Increased Net-Worth Requirements for Lenders

Grabbing the attention of mortgage professionals was FHA’s decision to adopt language from HVCC appraisal guidelines. The HVCC, which has been the subject of heated debate within the industry, was implemented by Fannie Mae and Freddie Mac on May 1, 2009. At that time the FHA decided not to adhere to the policy. This undoubtedly increased demand for FHA loan products as originators quickly learned of the multitude of problems associated with HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal.

FHA will not require the use of AMCs or other third party organizations for appraisal ordering, if lenders do use AMCs and/or other third party organizationsFHA-approved lenders must ensure that:

• 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.
• 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.
• Any management fees charged by an AMC or other third party must be foractual services related to ordering, processing or reviewing of appraisalsperformed for FHA financing.
• 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.

FHA issued five new mortgage letters explaining the policy changes. Here are links to each mortgagee letter:

Mortgagee Letter 09-28: Appraiser Independence

Mortgagee Letter 09-29: Appraisal Portability

Mortgagee Letter 09-30: Appraisal Validity Periods

Mortgagee Letter 09-31: Strengthening Counter Party Risk Periods

Mortgagee Letter 09-32: Revised Streamline Refinance Transactions