FHA Appraisal Independence Implementation to Begin as Scheduled

The Department of Housing and Urban Development announced by email that the enactment of ML 2009-28 (Appraiser Independence) will be implemented as planned on February 15, 2010. 

ML 09-28 prohibits mortgage brokers and commission based lender staff from the appraisal process and has lead to wholesale reverse mortgage lenders requiring the use of Appraisal Management Companies to ensure compliance with FHA.

In addition, lenders are responsible for assuring that the appraiser who conducted the appraisal used for the loan is correctly identified in FHA Connection.

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The enactment of the ML was originally scheduled for implementation on January 1, 2010 but was extended to allow FHA and lenders additional time to adjust systems to accommodate the changes.  

According to the notice from FHA, detailed instructions on changes to FHA Connection will be issued in a new mortgagee letter, which was delayed due to federal offices being shut down the week of February the 8th and will be released the week of February 15th. 

However, lenders will be able to secure a case number assignment in FHA Connection via the Case Number Assignment Screen without inputting the appraiser information.

Many originators are concerned about the implementation and the effect it will have on the industry and especially senior borrowers.  “The HVCC policy will create a process of uncertainty that will adversely affect property values and reduce benefit amounts,” said Dennis Haber, EVP, of Agency For Consumer Equity in an email to RMD.

“The individual appraiser will be working for a lot less, yet the price of an appraisal will cost more,” says Haber.  He notes that appraisers that are not familiar with an area, will affectively cause an additional reduction in the principal limit.  “I don’t see how this policy helps our elders.”

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  • Cynic: rnrnThere’s a saying “strange but true” I don’t know if you have ever worked with an AMC but the statements I made are not conjecture. I am speaking from experience.rnrnI am not naive, I know why they are doing it! It’s just a nightmare. You let me know how that “Hope & Change” works out for you with lower appraisals that are fruitless to dispute, longer turn times, higher costs and more unecessary conditions that you have to dispute, have reviewed and cleared. Also, as Mr. Haber stated: “inexperienced appraisers being hired and sent to area’s they are not familiar with and using comps within 1/2 mile that are like night and day!rn rnJust because something needed to be done does not necessarily make this the answer! rnrnGet back to me in a few month’s!rn

  • treverse,rnrnWow!! That is the strangest statement about independence I have come across. The issue is not whether appraisers are employees or independent contractors; the issue is are the appraisals unduly influenced by those who benefit from the outcome, whether that be cosumer, bank, or originator. rnrnThe purpose of the change is to remove the appraisers from the influence of borrowers, originators, and others whose compensation might be affected by the outcome of the appraised value.

  • I am sick about the change mainly because even though HUD has said full eagle lenders can setup their own independent appraisal rotation with a 3rd party, most of the reverse mortgage companies are saying “no”. Why is it HUD sets the rules but no one wants to follow them and sets their own layers….frustrating. There is no warrant behind the banks doing this one….

  • The point, pass2you, is that there will always be influence on the appraisers. That influence has moved from the seniors (who are stuck footing the bill and should, therefore have some say in who is chosen) to the lenders (who now have the ultimate power of using or discarding AMCs based on the cost of the appraisals and appraisal values). As for influence, that has never been as much an issue to me as honest appraisals and courtesy to the borrowers.

  • This rule is long past due. Now the brokers will have to follow the same rules that the direct lenders have had to follow for the past 3 years. About time the playing field for appraisals has been leveled. What a concept that brokers can no longer influence their appraisers for values.

  • In response to Dennis Haber: This policy was obviously not created with any consideration of how the seniors will be affected just like the 1.25% MIP that will surely be coming Oct 1st.rnThe fact that higher costs and lower appraisals will be coming is just the beginning. What about longer wait times while they are being reviewed and more conditions on the appraisals.rnThe AMC’s are currently hiring many appraisers taking away their independence. These appraiser’s are now entirely controlled by the AMC’s.rn rnThe

  • While it is not surprising that HUD is moving forward on this front, it was surprising to see it affirmed the actual implementation date in a HUD email yesterday. Like Mr. Haber opined, this policy change seems unwarranted. However, it was good to see HUD continuing its proactive approach of notifying the industry in a very broad communication about important issues related to HECMs. Kudos to HUD for providing this level of communication.rnrnWhile it is agreed that this policy change will reduce appraisal risk, there is a cost. Mr. Haber pinpointed the most egregious impact. As a CPA, I fundamentally agree with risk reduction but benefits should exceed any increased costs. While this risk reduction appears to be cost free to lenders and FHA, it brings great costs on seniors and appraisers.rnrnSome in the forward industry have done initial analysis of the effect of the AMCs on appraisals. Some are complaining that the AMCs are keeping more for their operations than the increased price. The result is that the AMCs are shopping for lower cost appraisers. Usually these are less qualified and/or less experienced appraisers. The AMC process also seems to encourage lower appraised values. No one seems to know if this is being caused by less experienced appraisers, less effort being applied to the work product based on lower compensation and no accountability to the the consumer, a fundamental switch in allegiance away from the consumer and more to underwriting, or perhaps some other yet to be identified factors.rnrnMr. Haber also got it right when he discussed the general impact to seniors. As to a less known impact In the last four months, several manufactured home developers and replacement entities have been calling to complain about the lack of quality of appraisals due to the switch to AMCs. Since appraising manufactured homes is a specialty, these business entities have come to rely on those who are the more experienced or are committed to specializing in this home type. rnrnIt would be helpful if NRMLA would step forward as a complaint gathering center where problems with this new policy can be gathered and communicated to FHA/HUD. While NRMLA did this and is doing this regarding counseling, it should be doing the same with AMC experiences as well. rnrn

  • While it is not surprising that HUD is moving forward on this front, it was surprising to see it affirmed the actual implementation date in a HUD email yesterday. Like Mr. Haber opined, this policy change seems unwarranted. However, it was good to see HUD continuing its proactive approach of notifying the industry in a very broad communication about important issues related to HECMs. Kudos to HUD for providing this level of communication.

    While it is agreed that this policy change will reduce appraisal risk, there is a cost. Mr. Haber pinpointed the most egregious impact. As a CPA, I fundamentally agree with risk reduction but benefits should exceed any increased costs. While this risk reduction appears to be cost free to lenders and FHA, it brings great costs on seniors and appraisers.

    Some in the forward industry have done initial analysis of the effect of the AMCs on appraisals. Some are complaining that the AMCs are keeping more for their operations than the increased price. The result is that the AMCs are shopping for lower cost appraisers. Usually these are less qualified and/or less experienced appraisers. The AMC process also seems to encourage lower appraised values. No one seems to know if this is being caused by less experienced appraisers, less effort being applied to the work product based on lower compensation and no accountability to the the consumer, a fundamental switch in allegiance away from the consumer and more to underwriting, or perhaps some other yet to be identified factors.

    Mr. Haber also got it right when he discussed the general impact to seniors. As to a less known impact In the last four months, several manufactured home developers and replacement entities have been calling to complain about the lack of quality of appraisals due to the switch to AMCs. Since appraising manufactured homes is a specialty, these business entities have come to rely on those who are the more experienced or are committed to specializing in this home type.

    It would be helpful if NRMLA would step forward as a complaint gathering center where problems with this new policy can be gathered and communicated to FHA/HUD. While NRMLA did this and is doing this regarding counseling, it should be doing the same with AMC experiences as well.

  • In response to Dennis Haber: This policy was obviously not created with any consideration of how the seniors will be affected just like the 1.25% MIP that will surely be coming Oct 1st.
    The fact that higher costs and lower appraisals will be coming is just the beginning. What about longer wait times while they are being reviewed and more conditions on the appraisals.
    The AMC's are currently hiring many appraisers taking away their independence. These appraiser's are now entirely controlled by the AMC's.

    The

    • treverse,

      Wow!! That is the strangest statement about independence I have come across. The issue is not whether appraisers are employees or independent contractors; the issue is are the appraisals unduly influenced by those who benefit from the outcome, whether that be cosumer, bank, or originator.

      The purpose of the change is to remove the appraisers from the influence of borrowers, originators, and others whose compensation might be affected by the outcome of the appraised value.

  • This rule is long past due. Now the brokers will have to follow the same rules that the direct lenders have had to follow for the past 3 years. About time the playing field for appraisals has been leveled. What a concept that brokers can no longer influence their appraisers for values.

    • The point, pass2you, is that there will always be influence on the appraisers. That influence has moved from the seniors (who are stuck footing the bill and should, therefore have some say in who is chosen) to the lenders (who now have the ultimate power of using or discarding AMCs based on the cost of the appraisals and appraisal values). As for influence, that has never been as much an issue to me as honest appraisals and courtesy to the borrowers.

  • I am sick about the change mainly because even though HUD has said full eagle lenders can setup their own independent appraisal rotation with a 3rd party, most of the reverse mortgage companies are saying “no”. Why is it HUD sets the rules but no one wants to follow them and sets their own layers….frustrating. There is no warrant behind the banks doing this one….

  • treverse,rnrnWow!! That is the strangest statement about independence I have come across. The issue is not whether appraisers are employees or independent contractors; the issue is are the appraisals unduly influenced by those who benefit from the outcome, whether that be cosumer, bank, or originator. rnrnThe purpose of the change is to remove the appraisers from the influence of borrowers, originators, and others whose compensation might be affected by the outcome of the appraised value.

  • Cynic:

    There's a saying “strange but true” I don't know if you have ever worked with an AMC but the statements I made are not conjecture. I am speaking from experience.

    I am not naive, I know why they are doing it! It's just a nightmare. You let me know how that “Hope & Change” works out for you with lower appraisals that are fruitless to dispute, longer turn times, higher costs and more unecessary conditions that you have to dispute, have reviewed and cleared. Also, as Mr. Haber stated: “inexperienced appraisers being hired and sent to area's they are not familiar with and using comps within 1/2 mile that are like night and day!

    Just because something needed to be done does not necessarily make this the answer!

    Get back to me in a few month's!

  • Cynic: rnrnThere’s a saying “strange but true” I don’t know if you have ever worked with an AMC but the statements I made are not conjecture. I am speaking from experience.rnrnI am not naive, I know why they are doing it! It’s just a nightmare. You let me know how that “Hope & Change” works out for you with lower appraisals that are fruitless to dispute, longer turn times, higher costs and more unecessary conditions that you have to dispute, have reviewed and cleared. Also, as Mr. Haber stated: “inexperienced appraisers being hired and sent to area’s they are not familiar with and using comps within 1/2 mile that are like night and day!rn rnJust because something needed to be done does not necessarily make this the answer! rnrnGet back to me in a few month’s!rn

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