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Valid, Portable and Independent: FHA/HUD Makes Appraisal Changes Effective 1/01/2010
HUD has been busy on the FHA appraisal front, issuing three Mortgagee Letters in one day.
Mortgagee Letter 2009-30 shortens the validity period of all FHA appraisals to 120 days, effective for all case numbers assigned on or after January 1, 2010. Previously, an appraisal of an existing and complete property was good for six months; 12 months for proposed and under construction properties.
Mortgagee Letter 2009-29 is also effective January 1, 2010. This letter addresses "portability" concerns when a borrower decides to move their loan from one lender to another. It requires the original appraisal to be used by the second lender unless:
- The first appraisal contains material deficiencies as determined by the second lender's DE underwriter
- The original appraiser is on the second lender's exclusionary list
- The first lender failed to timely provide the appraisal to the second lender, causing a delay in closing, posing potential harm to the borrower. (Potential harm includes events outside the control of the borrower such as the loss of interest-rate lock, purchase contract deadline, foreclosure proceedings, and late fees.)
FHA prohibits "appraiser shopping." This is 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.
Lenders who fail to comply with the requirements set forth in Mortgagee Letter 2009-29 will be subject to administrative sanctions.
Mortgagee Letter 2009-28 discusses in great detail HUD's position on appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA-insured mortgage loans. As one industry commenter noted, this is not the FHA's version of the Home Valuation Code of Conduct (HVCC), but this Mortgagee Letter certainly "acknowledges that appraiser independence is critical to establishing prudent lending practices."
The Letter takes effect January 1, 2010. Among other things, it institutes stronger restrictions on who can order an FHA appraisal. Reflective of some of the provisions of the HVCC, appraisals will not be acceptable to the FHA if the appraiser used was selected, retained or compensated in any manner by a mortgage broker or any member of a lender's staff who is compensated on a commission basis tied to the successful completion of a loan (real estate agents have long been prohibited from selecting, retaining or compensating appraisers). This means loan officers cannot pick the appraiser.
Lenders are now responsible for assuring the appraiser is correctly identified in FHA Connection. (FHA found too often the FHA Connection-named appraiser is not the appraiser who actually completed the appraisal.) Lenders who fail to assure the FHA Connection reflects the correct name of the appraiser will be subject to administrative sanctions.
In continuing its desire to have appraisers avoid conflicts of interest, HUD is not allowing a commissioned loan officer, or their subordinates, to have substantive communications with an appraiser relating to or having an impact on valuation and in ordering or managing an appraisal assignment. DE underwriters have been granted permission to contact the appraiser. To ensure appraiser independence, lenders are prohibited from the following actions or threats thereof:
- Withholding timely payment
- Withholding or promising future business
- Conditioning the ordering or the payment of the appraisal on a requested preliminary value estimate
- Giving the appraiser an anticipated or desired value, except providing a copy of the sales contract
- Requesting an estimated, predetermined or desired value or comparable sales prior to completion
- Providing the appraiser with any incentives other than a customary fee
- Removing an appraiser from an approved list without prompt written notice, including evidence of illegal or unprofessional conduct, a violation of industry or state licensing standards
- Obtaining a second appraisal or AVM unless there are written reasons in the loan file to question the initial appraisal or such action is done pursuant to the lender's QC/QA process
- Performing any other act that impairs an appraiser's independence, objectivity or impartiality
The lengthy letter also discusses Appraisal Management Companies (AMCs) and goes into great detail on the prevention of improper influences on appraisers, details appropriate appraiser independence safeguards and discusses appraiser engagement, knowledge of market area and geographic competency. While lengthy, anyone dealing with appraisers and appraisals should read the Mortgagee Letter in its entirety.
SAFE ACT Update
The SAFE (Secure and Fair Enforcement) Act mandating licensing or registration of residential mortgage loan originators is now a nationwide reality, except for Minnesota and some U.S. territories. The Nationwide Mortgage Licensing System & Registry (NMLS&R) reports that 49 states and the District of Columbia have now passed legislation implementing the Act. American Samoa, Guam, the Northern Mariana Islands, and the Virgin Islands have yet to pass enabling legislation. As to Minnesota, the latest word is enabling legislation will be introduced early next year to take effect August 1, 2010.
All of the legislation enacted by the states includes standardized definitions, national pre-licensure and continuing education requirements and testing standards, along with credit and criminal background standards for mortgage loan originators.
Among the final states to officially join the NMLS&R is Pennsylvania, which enacted House Bill 1654 on August 5, 2009. Twelve states passed SAFE Act legislation in July 2009.
The NMLS&R has created a tracking page with links to the enabling legislation for each state and territory.
OK, So Do I Register or Get Licensed? I Want To Be SAFE!
We get a lot of questions from our depository customers about what their Loan Officers (LOs) need to do to comply with the SAFE Act. In particular, do the LOs need to take the pre-licensure classes and pass the national and state examinations? In a word; no. Education and testing requirements are for LOs at non-depositories.
However, even though LOs at depositories are exempt from the education and testing requirements, they must still register with the NMLS&R. The big difference is LOs at non-depositories must obtain a license, while LOs at depositories need only register.
You should review the requirements of the SAFE Act as to who at your depository institution would need to register as well as review the proposed rule at the bottom of this link starting on page 148 of the document. We spoke with an attorney at the FDIC who told us the Final Rule mandating registration for federally-regulated depositories has not yet been released. He also said he gets a lot of calls from banks worried about the NMLS&R and he stresses that the registration system is not yet up and running - and won't be until next year some time, so there is no need to be concerned. The confusion comes from the fact that the licensing system is up and running.
Again, LOs at depositories will only have to register and do not need to get a license, which is a much stricter standard. Registration is for LOs at depositories; licensing is for state-licensed LOs at non-depositories like mortgage bankers and brokers. See the requirements and standards.
You might want to pass along information in the requirements and standards link when your LOs start questioning the registration process. In a nutshell, "registering with the NMLS&R requires registered loan officers to submit fingerprints for a state and federal background check and personal history and experience." They do not need to take the pre-licensure class, the federal and state exams or the 8 annual continuing-education hours (unless the Final Rule comes out and says something different).
Here are sites with all the information:
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