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Blurred Lines in the FHA’s Appraisal Policies

appraisal-twoWhen the Federal Housing Administration (FHA) announced numerous changes to its Single-Family Housing Policy Handbook last year, many in the industry, including real estate agents and appraisers, were confused about the lack of clarity regarding the blurred lines between appraisals and inspections.

Real estate agents and appraisers have experienced "confusion and delays" related to the changes made by the FHA to the property valuation policies, according to a report from the National Association of Realtors (NAR).

“FHA appraisal guidelines are stricter; the standards set the benchmark for appraisals in the industry,” Gary Eisenbraun, Appraisal/Technical Support Branch Chief of the FHA said at the NAR's 2016 REALTORS Legislative Meetings & Trade Expo. “The guidelines are strict though to protect consumers and safeguard FHA’s mortgage insurance fund and taxpayer dollars.”

Any property bought with a FHA loan must be appraised by a HUD-approved home appraiser. Unlike a conventional loan appraisal, the FHA-insured loan appraisal not only determines market value but also inspects the home to ensure it meets certain minimum property standards. This requires appraisers to conduct home inspection-like duties to ensure standards are met.

NAR said that this conflicting information from the FHA "blur[s] the line between appraisals and home inspections and has raised questions among consumers, agents and appraisers."

Last year, the FHA announced that it would move its delivery of mortgage origination appraisals online. The Electronic Appraisal Delivery (EAD) portal for FHA insured single family will be used to provide information necessary for mortgagees to prepare for delivering both forward and reverse origination appraisals, HUD announced through a mortgage letter. Mortgage lenders will be required to use the web-based platform for mortgagee submissions of FHA appraisal data and reports for case numbers assigned on and after June 27, 2016.

According to HUD, the EAD portal will make it easier to do business with FHA by offering process and technology efficiencies that “streamline appraisal data transmission, promote quality up-front appraisal data, and reduce post-endorsement appraisal data corrections,” HUD said in a statement. The EAD portal will allow transmissions to FHA of only those appraisals that comply with FHA’s Single Family Housing Appraisal Report and Data Delivery Guide.

“When submitting an appraisal, the portal provides a confirmation of a successful submission, or information regarding required corrections that may need to be made before resubmitting and transmitting to FHA,” HUD said.

"Web-based, on-demand training will be available,” HUD said, adding that mortgagees are “strongly encouraged to ensure their authorized users and/or designated third-party service providers complete the training before accessing the EAD portal.”

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