James Graner

One evening last week, I answered my cell phone and heard from a desperate lady. I, as an appraiser in Missouri, was asked for advise on this woman's overall mortgage condition. She found my website and ActiveRain Profile on Google. Her house was on the other end of the state, well outside my St Louis Metro Area, however I listened to her problem.

A licensed/certified appraiser in Missouri valued her home at $96,000 two years ago. She took out a cash out refinance mortgage on an adjustable rate mortgage. Her mortgage person told her the rate would adjust in two years, however she could improve her credit score over two years and refinance into a better mortgage. Well two years are up and she applied for a new mortgage, two Western Missouri appraisers have appraised her home for less than the current mortgage amount, $77,000. She cannot refinance her home, and her current interest rate is 11%. She mentioned the cashout mortgage was to consolidate credit card balances.

Did the real estate market fall in her town? Maybe SO! Did an her local Missouri Appraiser overvalue her home, two years ago? I do not know! Did her Mortgage Professional act outside of a fidicuary responsibility in burying her? Probably not. I heard many accusations about three appraisers, mortgage originators and the overall banking system. I did not hear her say that if she had not used her house as an ATM, she would have been in a better financial situation. I have not investigated her files, however she did tell me that SHE WAS THE ONE that spent her cashout funds. She wanted a remodeled kitchen and a finished basement.

I am here story after story of people that spend more money than they earn and wonder why they have a tough time, some even blame others. That problem is when you spend borrowed money, from people who make the rules, you always have a potential problem. Most people need to borrow money for their home purchase and car purchases, nothing wrong with living the American Dream. I do not understand those that spend money month after month without a repayment plan, then mortgage their family's security (house) to pay for a lifestyle they cannot afford. I see few of these people state their personal responsibility in their own finances.

This Missouri appraiser feels tired and worn down from real estate agents, loan production staff and recently underwriters telling him to look the other way on FHA concerns. HUD wrote a code for various things to be checked, I am not a building inspector, and I certainly do not wish to perform home inspections. Just a few things have to be in order. In previous blogs, I have summarized the FHA observation. Any appraiser in Missouri has long understood that no house is a perfect structure with all million parts in perfect order.

I as a professional that performed a significant number of appraisal reports for B & C mortgage loans for many years know and greatly understand a little missing paint is not usually a significant life and death issue. I understand that most people can easily climb three or four big foot steps, I get it when people shove thirty years worth of family keepsakes in the closet that has the only attic entry. Nobody understands better than me that no kids will ever play with an old single man's garage door. Unfortunately, I did not make the rules, and no FHA appraiser has the authority to overide any of the HUD's guidelines.

The guidelines are not overly strict. Some of the most common concerns are mentioned in FHA Property Guidelines Are Not Understood by Many Mortgage Originators! Please understand that many of the REO properties (foreclosed homes,) short sale homes and other severly distressed sales might not meet the FHA property standards when you view them. Conventional financing is a little less strict minimum property standands and perhaps agreements can be made for a buyer to perform some repair/modifications on a home before sale so financing can be completed.

This is a new market with many things that were not common just a couple of years ago. FHA financing was only a small portion of overall mortgages, REO sales were a smaller portion of the overall home stock, Conventional mortgages were more available than before. Just because mortgage financing worked in a certain for somebody else or even you in the past, does not mean today's climate will work the same.

THE 2055 FHA APPRAISAL REPORT (FOR SECOND APPRAISAL REPORTS!)

The FHA Appraisal is now required to be performed by two seperate appraisers on many cashout FHA refinances. While this could be a hardship to some borrowers as payment for such FHA appraisal reports can be expensive. Loans insured by FHA mortgage insurance that are cash out refinances now require two FHA seperate appraisals. A second appraisal may be performed on am 2055 appraisal form (FHA Driveby Appraisal)

This appears to be another step in HUD trying to keep the FHA mortgage process from falling into trouble. Overall this could be less risk for the FHA mortgage insurance program and cost control for the mortgage insurance program.

This is a portion of MORTGAGEE LETTER 2008-40

•·       Second Appraisal Requirements/Loan-to-Value Limits for Cash-Out Refinances:  The instructions in ML 2008-09 regarding when a second appraisal is needed, and the requirements for that second appraisal, as well as the 85 percent limitation on cash-out refinances when the loan balance will exceed $417,000, remain in effect. 

In addition, FHA will now require a second appraisal for all cash-out refinances where the LTV, exclusive of the UFMIP, will exceed 85 percent of the appraiser's estimate of value.  This second appraisal requirement applies regardless of the loan amount or the location of the property, i.e., whether the property is in a "declining area" or is not.  This second appraisal requirement for cash-out refinances is effective for all case number assignments on or after January 1, 2009 and is to adhere to the instructions set forth in ML 2008-09.  Please also note that cash-out refinances with LTVs exceeding 85 percent will be over-selected for post-endorsement technical reviews (PETR) to assure the quality of the underwriting.

This is a portion Mortgage Letter 2008-09 What form must be used for the second appraisal? FHA Drive by Appraisal Report If the property is a one-unit detached house, the second appraisal may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055; any repair requirements noted in the original interior-exterior appraisal report must be adhered to if the second appraisal is an exterior-only appraisal. Condominium units including detached site-condominiums manufactured housing; and 2-4 unit properties are not eligible for exterior-only second appraisals and must be completed on the appropriate appraisal form. When must the mortgage amount be reduced? If the second appraisal has an estimated value more than 5 percent lower than the original appraisal, the maximum mortgage must be predicated upon the lower of the two appraised values.

I have wrote in the past about the detail of an FHA observation. The FHA appraisal process requires a detailed observation of mechanical systems, (My personal favorite is the reverse feature on an automatic garage door opener.) attic, crawl spaces, electric fixtures, plumbing fixtures, paint surfaces, wood surfaces, safety concerns, etc.. This observation is not meant to be and is not the same as an inspection of these same systems within the home.

We have a significant difference between the detailed inspection made by a Home Inspector and the observation of a FHA Appraiser. The FHA Appraiser has a purpose of determining an opinion of market value, during the house visit the appraiser must verify the operation of some systems. This is done as HUD requires this as part of the scope of work.

Home Inspections are not required to be performed to fund a FHA insured loan, however a FHA appraisal report is required before a FHA Mortgage is insured by HUD. It is important to understand that the FHA appraiser is working on behalf of the bank or mortgage company, while the Home Inspector usually is working for a home buyer. Realtors are usually much more comfortable when a home buyer chooses to pay the additional money for a Home Inspection, this increases the likelyness that the buyer will be happy with their housing choice or bail out of a contract on a home that might cause litigation and a poor opinion of the REALTOR involved in the transaction. Sometimes the buyer feels this to be a hardship and unnecessary expense, so no Home Inspection is done.

While a Home Inspector has a duty of giving some degree of confidence of what an occupant can expect out of the home tomorrow and the next several years. The home has several thousand parts that must operate properly for maximum enjoyment and use of the home. This requires more time and tools than an appraiser would typically utilize.

The FHA Appraiser does look at many things and tries to verify several things while in a home, however my admission from the Department of Housing and Urban Development (HUD,) we appraisers are not performing a home inspection. There are several examples of where a Home Inspection can uncover things that the FHA Appraisal Report will not. I wrote down a few.

The FHA Appraiser will go into a room and turn on a light or other electrical device to observe the system to be functional and do the same in each room, as required by HUD. Just because an electric system turns a light or television on does not mean it is safe and funcioning in a fully acceptable manner. Most Home Inspectors will take an outlet in a room and verify it is properly wired, check for wiring connections, proper height and put a load on a circuit to verify the system safety and that it can operate more than a simple light bulb. In addition the electrical box will be checked in a Home Inspection for proper sized wires, circuits, etc...

The FHA Appraiser will briefly turn on the water, the hot water, flush the toilet in each bathroom. He/she will look for significant leaks, adequate pressure and loose plumbing fixtures. Most Home Inspectors will run water for a significant period of time looking for the slightest leak, and verify numerous things within the system that an average person would not think of. A Home Inspector that is trained by ASHI or another reputable group has extensive knowledge of what to look for in the system that might be a hidden problem. There is a significant difference between a Home Inspection and a FHA Appraisal Report.

The roof is observed from the ground by an FHA Appraiser, while I do carry a zoom camera and binoculars, many appraisers are left to view with the naked eye from the ground. Problem areas can best be observed from a much closer distance. Most Home Inspectors will walk the roof looking for problem areas with the shingles, sheathing, valleys, chimney areas, caps, vent pipes, loose guttering, etc...

In most basements any leaking is not observable on days that it is not raining. The FHA appraisal report will include an observation of the basement floors and walls, site will be inspected for positive drainage along with gutter downspouts and other factors. The Home Inspector will be able to study a multitude of factors and possible problems with a basement that might not be able to be determined on a day without outside moisture.

Many Home Inspectors are also licensed Termite Inspectors. This training and set of tools is a significant advantage over a regular person trying to observe rotted wood and the smallest inspect tunnels. The FHA appraiser will look for rotted wood and earth touching the frame of the home, however the detailed inspection is not part of the FHA appraisal.

I have wrote this to point out significant differences between the two professionals. Both have a significant purpose in a home purchase. The opinion of a professional of the market value of the home is very important, and so is being able to determine the utility and well being of the home over the next few years.

James S. Graner
Real Estate Appraiser
ph (636)916-4325
cell (314)277-3336
fax (636)949-2637
Website http://appraisalmo.com
Blog http://jimgraner.activerain.com

I wrote a blog earlier this week about FHA appraisals and what a mortgage originator should expect from the FHA appraiser. I thought I was informative and had nothing to upset anybody in this appraisal blog.

I get an email this morning from a home inspector blasting me for writing about ruthless and unpredictable home inspectors. I mentioned this one time as a way many originators view the FHA Appraiser. Attempting to dismiss the myth, I wrote what can be expected on the observation part of the FHA Appraisal Report.

My blog was FHA Property Guidelines Are Not Understood by Many Mortgage Originators!

http://activerain.com/blogsview/837121/FHA-Property-Guidelines-Are-Not-Understood-by-Many-Mortgage-Originators

This poor gentleman believes I was smacking his profession and also apparently believes I was putting an appraisal observation in the same light as a home inspection. Two different scopes of work.

Date:	Thursday, December 18, 2008 6:43 AM
From:	xxxxxx
To:	jimgraner@appraisalmo.com
Subject:	Ruthless and un predictable home inspector
Size:	3 KB

I was reading the article of yours where you were talking about an 
                        appraisal inspection versus a ruthless and unpredictable home inspector. I 
                        bet when  you buy a home for yourself you find the toughest Home Inspector 
                        you can find. 

Oh yea the other name we are called is Deal Killers. My Realtors love their deal killer. 

Why you may say? Because we keep both of 
                        us out of court. If your of the assumption, an appraisal and home 
                        inspection are anywhere similar, then go with a Licensed Professional Home 
                        Inspector that knows what he or she is talking about and try to learn 
                        something. 

Oh Yea that cheesy looking website of yours, you can't read the 
                        text on the button links. Spend a little money and hire a webmaster. 
                         

Name withheld

TREC Professional License xxxx

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Why the hate? I made one statement in the third paragraph that I did not think warranted this reaction.