Appraisals
The appraisal for the H4H mortgage must be performed by an appraiser on the FHA Appraiser Roster and conducted using FHA guidelines, which can be found in the Resources box at hud.gov/groups/appraisers.cfm.
However, the appraisal must have been specifically ordered for the H4H transaction and the appraisal should be no more than 3 months old at the time of loan closing. If an appraisal is more than 3 months old because of transactional delays, the appraisal may be acceptable with an explanation that addresses how the appraisal meets existing FHA standards and the requirement for “current” appraised value. The lender may require a new appraisal, if the appraisal and written explanation are insufficient.
Prevailing Appraised Value
If an appraisal is ordered by the current lender or servicer and a new appraisal is ordered by a different lender that will originate the new loan under this Program, the value provided in the appraisal ordered by the new lender will prevail as the appraisal accepted for obtaining FHA insurance.
Appraisal Practices in Declining Markets
It is expected that many of the properties financed under this Program will be located in declining market areas. Therefore, the following guidance is provided to assist lenders in ensuring that appraisers are providing accurate property valuations. A declining market could be as small as a neighborhood or as large as an entire state, and no standard definition exists, other than a market in which home prices are falling.
Appraiser Responsibilities
The purpose of the appraisal is to provide the lender/client with an accurate, and adequately supported, opinion of market value. It is the appraiser’s responsibility in performing the appraisal to determine whether a property is located in a declining market.
The neighborhood section of each property specific appraisal form contains a subsection on housing trends where the appraiser must mark a box indicating whether property values are increasing, stable or declining. Whichever box is selected, the appraiser is certifying that he or she has performed an objective analysis of quantifiable data supporting the observations made.
The appraiser must provide an explanation in the “Market Conditions” section of the appraisal report that includes relevant information in support of the conclusions about appraised value relating to trends in property values, demand/supply and marketing time. The appraiser must also provide a description of the prevalence and impact of sales and financing concessions and/or down payment assistance in the subject’s market area. Other areas of discussion may include days on market, list-to-sale price ratios, and/or financing availability.
Appraisers and lenders are reminded that a comparable sale should not be more than six months old and should represent a closed sale. The appraiser may utilize comparables that are more than six months old but only with a clear explanation and justification. The lender may require a new appraisal, if the appraisal and written explanation are insufficient. The appraiser is not permitted to use a comparable greater than 12 months old (see Comparable Selection, page D-6 of Valuation Protocol).
Lender Responsibilities
The lender’s responsibility is to properly review the appraisal and determine that the appraised value used to support the loan amount of the new FHA-insured mortgage is accurate and adequately supported. Lenders may determine, through services such as the S&P/Case-Schiller Index, Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index or any index developed by its successor, the Federal Housing Finance Agency, or National Association of Realtors (NAR) statistics, that the appraised value is supportable.
Lenders are reminded that, if the appraiser they select provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held equally responsible with the appraiser for the violation if the lender knew or should have known of the defects or the fraud in the appraisal. FHA will pursue appropriate enforcement actions against both or either party. Lenders accept responsibility, equally with appraisers for the integrity, accuracy and thoroughness of the appraisal submitted to FHA for mortgage insurance purposes.
Lenders should inform appraisers that the purpose of the appraisal is for the H4H Program, advising them that a copy will be shared with subordinate lien holders and must be provided to the borrower.