On Behalf of HUD & FHA Welcome to our session on FHA Appraisal Requirements – Property Types

1. On Behalf of HUD & FHAWelcome to our session on FHA Appraisal Requirements – Property Types 1

2. Housekeeping Phone lines ~ Q&A ~ Polling Activities • Phone lines – muted • Questions – Q&A panel • Interactivity – voting tools and polling questions 2

3. Your Instructor Rosemary Bender 3

4. FHA Subject Matter Expert Welcome to our guest from FHA – Mr. Robert Witt - who will be responding to questions and offering additional guidance during today’s webinar. 4

5. Polling Questions How long have you been in the mortgage industry? How long have you been working with FHA mortgage loans?

6. Course Objectives 6 • Identify FHA Appraiser and Appraisal Requirements • Discuss Appraisal Conditions • Define Minimum Property Requirements (MPR) and Minimum Property Standards (MPS) • Review Appraisal Protocol • Discuss Home Inspections • Explain Property Types allowed by FHA

7. Course Overview • Property Types • 2 to 4 Unit Properties • Condominiums • Condominium Approval • Mixed Use Properties • Manufactured Homes • New Construction • Appraisers • Appraisal Overview • Home Inspections • Appraisal Portability • Well and Septic systems • Appraisal Conditions • MPR and MPS • Minor Property Deficiencies • Major Property Deficiencies • Additional Inspection and Testing • Repair and Escrow Holdbacks 7

8. FHA Appraiser 8 • Roster Appraiser Requirements • Roster Appraiser Responsibilities • Appraisal Signature Guidance

9. Roster Appraiser Requirements 9 • Be a state-certified Appraiser with credentials based on the minimum certification criteria issued by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation • AND • Not be listed on SAM's Excluded Parties List System (EPLS), HUD's Limited Denial of Participation (LDP) list, or HUD's Credit Alert Verification Reporting System (CAIVRS)

10. Roster Appraiser Responsibilities 10 • Must be familiar with FHA Policies and Procedures: • Review handbooks, mortgagee letters, etc. • Keep contact information updated via FHA Connection • Subscribe to FHA roster appraisers e-mail list • Know where to find answers on FHA roster Appraiser web page • Source: http://portal.hud.gov/hudportal/HUD?src=/groups/appraisers

11. Valuation Protocol Scope of Work Appraiser must inspect: • The Subject • The Neighborhood • Comparables

12. Supervisor/Trainee Appraisers 12 • For FHA appraisals, the only signature permitted is that of the Lender Selected FHA Roster Appraiser. Supervisory signatures are not permitted. • If any party provided significant professional assistance, the Appraiser must name the party on his/her certification and note the extent of the contribution.

13. Appraisal Accountability and Communication 13 • Lenders are accountable (equally with the Appraiser) for the integrity, accuracy, and thoroughness • Appraiser and Underwriter communicate about the Appraiser

14. Let’s Stop Here 14 What does the Valuation Protocol require the Appraiser to review? Select your response in the polling.

15. Answer 15 D. All of the above.

16. What Questions Do You Have? 16

17. Let’s Review 17 Roster Appraiser Requirements • State-Certified Appraiser • Familiar with FHA Policies and Procedures • Valuation Protocol • Who can sign the Appraisal Appraisal Accountability and Communication • The Lender is equally responsible for the Appraisal • Only the DE Underwriter discusses the appraisal with the Appraiser

18. Appraisal OverviewAppraisal 18 What is the value of the property?

19. Appraisal OverviewAppraisal • Report: • The value of the property • Features and location • Property amenities • All readily observable property deficiencies

20. Appraisal OverviewAppraisal 20 • Must follow the requirements set forth in HUD Handbook 4150.2 CHG-1 • Establishes the value of the property • Confirms the marketability of the property • Identifies observable health and safety deficiencies • Source: HUD HB 4150.2, http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh/4150.2

21. Appraisal OverviewAppraisal 21 • Does not guarantee property conditions • Not a home inspection • Conducted for the benefit of Lender and FHA, not the Borrower

22. Appraisal OverviewAppraisal 22 • FHA uses the same forms as Fannie Mae and Freddie Mac for the appraisal and repair standards. The Appraiser must also complete Fannie Mae Form 1004MC, “Market Conditions Addendum to the Appraisal Report.” • The Appraiser must note repairs to comply with FHA’s MPR (Minimum Property Requirements) or MPS (Minimum Property Standards) and the estimated cost to cure.

23. Appraisal OverviewHome Inspection 23 Source: ML 06-24. • For your protection, get a home inspection HUD-92564-CN • Not required if incorporated into State’s standard sales agreement

24. Appraisal OverviewAppraisal vs. Inspection • Appraisals are for Lenders

25. Appraisal Overview FHA No Longer Mandates Automatic Inspections • Wood Destroying Insects/Organisms • Well test • Septic • Flat or unobservable roof

26. Appraisal OverviewAppraisal Portability Mortgagee Letter 09-29 26 • Appraisal Shopping is prohibited by FHA • A second appraisal can only be ordered IF: • UW notes “material deficiencies” • Appraiser on Lenders “exclusionary list” • Failure to provide in a timely manner, cause a delay in closing, harming Borrower

27. Appraisal OverviewAppraisal Portability 27 • Transferring a Case Number • Borrower requests transfer to new Lender: • The current Lender is required to provide the Appraisal in a timely manner • No new fee is due the Appraiser • The current Lender’s name remains on the Appraisal • The new Lender must verify Appraiser selection in FHA Connection

28. 28 Source:https://entp.hud.gov/clas/index.cfm

29. Appraisal OverviewIndividual Well and Septic Systems 29 • Connection to public utilities required if available and feasible as determined by the lender • Individual water and sewage disposal systems must be approved by the local health department • Location of well must meet Minimum Acceptable Separation Distances (ASD): • 10’ to lot line • 50’ to septic tank • 100’ to drain field

30. Appraisal OverviewShared Well 30 • Connection to public utilities required if available and feasible as determined by the lender • Can service no more that four living units or properties • A shared well shall have a valve on each dwelling service line as it leaves the shared well • A shared well shall have a well agreement and maintenance agreement that is binding upon signatory parties and their successors in title

31. Appraisal OverviewCommunity Wells and Sewer Systems 31 • A well or sewage collection system that services more than 4 living units • Private systems operated for profit must be under the jurisdiction of the State Public Utility Commission • Approved by local health authority • Proof that the ownership and operation meets the HUD requirements for continuity of service at reasonable rates • FHA no longer keeps a list of approved community wells or sewer systems

32. Let’s Stop Here 32 An appraisal and case number is transferred from one Lender to another. The second Lender discovers that the appraiser is on their company’s exclusionary list. What should the Lender do?

33. Answer 33 2. Order another appraisal

34. What Questions Do You Have? 34

35. Let’s Review The Appraisal Report The Appraisal does not guarantee property conditions For Your Protection Get a Home Inspection FHA no longer mandates certain inspections Appraisal Portability Well and Septic Systems 35

36. FHA Appraisal Conditions • As-is • Subject to completion per plans and specs • Subject to repairs • Subject to required inspection

37. General Acceptability Criteria Single marketable real estate entity Service and facilities Required provisions Defective conditions Access onto property Appraisal ConditionsMPR

38. Non-residential use design limitations Space requirements Requirements for mechanical systems Appraisal ConditionsMPR Cont’d… 38

39. Ventilation Roof covering Drainage Appraisal ConditionsMPR Cont’d… 39

40. Hazards Crawl space Bedroom egress Appraisal ConditionsMPR Cont’d… 40

41. Appraisal ConditionsMPS 41 • Establishes certain minimum standards for buildings constructed under HUDhousing programs • Typically uses State and Local Building Codes • Durability requirements • Source: HUD HB 4910.1

42. Appraisal ConditionsMinor Property Deficiencies 42 • Deferred maintenance • Normal wear and tear • “As-Is” appraisal permitted • Source: ML 2005-48

43. Appraisal ConditionsMinor Repairs 43 • Examples of conditions that do not ordinarily require repair include any surface treatment, beautification, or adornment not required for the preservation of the property: • Worn floor finishes • Worn carpets • Holes in window screens • Small crack in windowpane

44. Appraisal Conditions Major Property Deficiencies 44 • Health and safety • Security • Structural integrity

45. Appraisal ConditionsLead-Based Paint 45 • If the property including out-buildings, fences, and other surfaces were built before 1978, defective paint surfaces must be repaired. • The sales contract must include a Disclosure of Information on Lead-Based Paint and/or Lead-Based Paint Hazards.

46. Appraisal ConditionsAdditional Inspection or Testing 46 • Typical conditions requiring further inspection or testing by qualified individuals: • Infestation – evidence of termites/insects • Inoperative or inadequate plumbing, heating or electrical systems • Structural failure in framing members

47. Appraisal ConditionsAdditional Inspection or Testing Cont’d … 47 • Typical Conditions requiring further inspection or testing by qualified individuals: • Leaking or worn-out roof • Cracked masonry or foundation damage • Drainage problems

48. Appraisal ConditionsRepairs 48 • The Lender determines which repairs must be made to insure the property’s eligibility for FHA-insured financing: • Underwriter authority • HUD Form 54114

49. HUD 54114 Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal Report 49 Source: http://www.hud.gov/offices/adm/hudclips/forms/hud5a.cfm

50. Appraisal ConditionsRepairs/Escrow Holdbacks 50 For 203(b) loans, repairs are completed prior to closing. Typically, escrows are not permitted except for: 1) Extenuating circumstances 2) Weather-related delays