FHA appraisals and how they can deter the selling of your home!

January 23, 2010 by Mimi Miller.

Will new appraisal rules hurt FHA borrowers?
December 8th, 2009, 12:00 pm · 9 Comments · posted by Marilyn Kalfus, real estate reporter
In his blog this week, mortgage broker Dennis C. Smith of Stratis Financial in Huntington Beach writes about the effect he sees the new, controversial appraisal process having on homebuyers taking out FHA loans.
“On January 1, 2010 FHA will require the Home Valuation Code of Conduct (HVCC) process for all appraisals, falling in line with Fannie Mae and Freddie Mac. For a multitude of reasons this will be tremendously negative for the market, for buyers and for sellers. It will further depress property values, it will hinder sellers ability to get open offers and most importantly it will prohibit many FHA buyers from even having their offers looked at by sellers in multiple offer situations-even if they have higher offers.

When FHA converts to HVCC there will be a negative impact on property values that will be more deleterious to the real estate markets than HVCC is currently.”

“A quick review of the HVCC process: originator is randomly assigned an Appraisal Management Company (AMC), AMC randomly assigns appraiser from region, appraiser submits appraisal to AMC who forwards to originator. No one is allowed to communicate with the appraiser except the AMC. Any appeals must go through the AMC and appraiser can agree or disagree with the appeal. Appeals can only be to provide additional comps, they cannot appeal the adjustments appraiser has made; such as no subtraction for location for a home on a major artery versus a home on the interior of a neighborhood. Finally, the most important part: the AMC is guaranteeing the provided value to the lender. This guarantee creates an incentive for the AMCs to encourage low value appraisals, encourages appraisers to select the bottom comps in a market rather than fresher, higher comps. Note as well the AMC and appraiser have already been paid regardless of the outcome.

“What makes the situation even worse for FHA is the case number. Every FHA appraisal is assigned a case number. That case number, and therefore appraisal, stays with the property for six months. Example: Tamara and George offer $325,000 to buy 36 Birdsong Way and the FHA appraisal returns at $300,000. Seller says no way and the deal is cancelled. For the next six months any buyer who wants to purchase the property with FHA financing must use that $300,000 appraisal. Seller’s choices are to only sell it with conventional financing or wait six months, or sell the property with FHA financing for $300,000. Regardless of additional comps provided showing the market solidly supports a value of $325,000 if the original appraiser refuses to accept those comps, again all being filtered through the AMC which is guaranteeing the value, then the FHA value stays.

“Under the current HVCC process a new appraisal can be done either by going to another lender, or if the information being provided in the appeal is compelling enough to show the appraiser is being stubborn, or ignorant, in not re-assessing the value, the AMC can agree to send out a different appraiser for a new evaluation.

“The HVCC policy is far more harmful to Americans than it is helpful, with six months of data and experience there are tens of thousands of testimonials across the country that can attest to this.

“Finally regarding FHA, because of the case number assigning the appraisal to the property, the process is sticking a value on a homeowners property that the homeowner has no control or say over other than, “yes we agree to let you pursue FHA financing.” The seller who may become burdened with a below true market value has no appeal, has no rights to communicate to the appraiser or FHA to re-assess the value, and is put in a six month box because of one person in the process. Because of this risk any multiple offer situation that includes an FHA offer will see the non-FHA buyer win the bid, even if the offer is lower. A buyer with conventional financing will be able to offer less than an FHA buyer and buy the home, making the process uncompetitive and depressing values.”

Posted in Real Estate | No Comments »