On September 18, 2009, HUD announced changes to the guidelines pertaining to the transferring of a FHA appraisal. This announcement was made in Mortgagee Letter 2009-29. These changes are effective for all FHA case numbers assigned on or after January 1, 2010.
This mortgagee letter addresses the portability of appraisals for the purpose of facilitating the loan process when a borrower switches from one Federal Housing Administration (FHA) approved lender (first lender) to another (second lender) and an appraisal was ordered by and completed for the first lender.
FHA prohibits "appraiser shopping" where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser.
A second appraisal may still be ordered by the second lender under the following limited circumstances:
1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
2. The appraiser performing the first appraisal is on the second lender's exclusionary list of appraisers.
3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.
Potential harm includes events outside the control of the borrower such as loss of interest rate lock, purchase contract deadline, foreclosure proceedings, and late fees.
If a second appraisal is ordered, the lender must document why a second appraisal was completed.
Appraisal Transfer and Change of Client Name in Appraisal Report
In cases where a borrower has switched lenders, the first lender must, at the borrower's request, transfer the case to the second lender. FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.
In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment. To effect a client name change, the second lender and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change. A new client name should include the name of the client (lender) and HUD.
This is one of many recent changes HUD has announced concerning FHA appraisals.