New FHA Appraisal Guidelines Take Effect

The new Appraiser Independence (ML 2009-28) requirements for Federal Housing Administration (FHA) loans officially took effect February 15, 2010. Originally planned for a January 1, 2010 implementation, the enactment was delayed to provide the FHA and lenders with additional time to adjust systems to accommodate the changes.

Many of the new guidelines are similar to the Home Valuation Code of Conduct (HVCC), which has been in place since May 1, 2009 for Freddie Mac and Fannie Mae loans. Under FHA’s rules, appraisers are required to receive reasonable and customary compensation and cannot be affiliated with lending agencies. In addition, appraisers are required to have familiarity, experience, and knowledge in the geographic location of the properties being appraised, and higher standards have been adopted for the process of ordering appraisals.

Under FHA’s new guidelines, mortgage brokers are prohibited from directly ordering appraisals for FHA loans. Title/Appraisal Vender Management Association (TAVMA), a Wexford, Pennsylvania-based trade association that represents some of the nation’s largest appraisal management companies (AMCs), said its members are prepared to help lenders comply with the changes in appraisal ordering.

Jeff Schurman, executive director of TAVMA, said the association’s members already have significant panels of FHA-certified appraisers. There are more than 51,000 FHA-approved appraisers nationwide, and TAVMA’s five largest member currently work with over 20,000 of these, he explained.

Based on the vociferous reaction to the HVCC, of which many Appraiser Independence guidelines were mirrored after, Schurman said he expects that mortgage brokers and independent appraisers with strong business ties to brokers and realtors will again protest these changes. He said there will likely be significant pushback and claims from many that the rules will create bottlenecks, shift work to less-experienced appraisers, and delay deals.

More than 60,000 local appraisers currently work with AMCs, which provide approximately 60 percent of all appraisals in the mortgage industry. Schurman said when you consider this, it stands to reason that AMCs will have a presence in virtually every market-including working on FHA transactions.

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