Impact the New Appraisal System is Having on the FHA Mortgage Market
By: Rosemary Rugnetta
July 26, 2010 (FreeRateUpdate.com) – With FHA implementing new rules regarding appraisals, there is considerable discussion on how these rules are affecting appraisers and consumers. These new rules were set up in order to cut down on fraud while, at the same time, raising the quality of the appraisal. The impact that the new appraisal system is having on the FHA mortgage market depends on which group is discussing these changes.
While FHA has always prohibited any appraisal reports to be completed by an appraiser selected by a real estate agent, it was not the case with lenders. With the new appraisal system, the appraiser must have complete independence from the lender. FHA approved lenders can no longer accept appraisals that are received from an appraiser that was selected, retained or compensated by a mortgage broker or a lender’s staff that is compensated by a commission that is attached to the completion of the loan. In addition, no member of the lender’s loan production staff or persons compensated on a commission basis, is allowed communication with an appraiser if it relates to or has an impact on the valuation of the appraisal. This includes ordering of the appraisal or providing the appraiser with information that will affect the value of the property stated by the appraiser. Only the DE certified underwriter is allowed to request clarifications from an appraiser or discuss any parts of the appraisal that affect quality.
This new rule has created a new middle man, the Appraisal Management Company. With FHA’s new appraisal rules, appraisers must be experienced and qualified through training and actual field experience in a particular market area and must certify to these facts. At the same time, AMCs are not regulated and so the quality of the appraisal can be questioned. Many lenders have already used AMCs which are their own subsidiaries while brokers now have to use an outside, independent appraisal management company to complete appraisals that are in compliance with the FHA.
The biggest impact of these new rules is with appraisers who are now collecting smaller fees. Smaller appraisal companies are going out of business due to the bigger appraisal management companies. Although FHA mortgage borrowers are paying more for this service, they are also finding out the real value of the property they are buying as lenders can no longer communicate with the appraiser. Consequently, there is an increase in wait time for the appraisal which translates to a later closing date. Despite these things, the impact the new appraisal system is having on the FHA mortgage market is yet to be seen as the FHA mortgage business continues to boom.