August 21, 2017
Does the FHA appraiser work for the lender? That’s what one reader wanted to know this week, writing us to ask:
“I read your article about how an FHA appraiser is chosen by a lender but my question is: Is the FHA appraiser an ‘agent’ of the lending company? The reason I ask is two years ago I purchased my first home with an FHA loan. Two weeks after closing my roof leaked. It turns out our house has five layers of roofing on it which is visible to the naked eye from the ground because we have no gutters on the home.”
“When I called the FHA resource line I was finally told that the appraiser and his report falls back on the lending company…So now I am wondering if the appraiser is an agent of the lending company since he was supposed to be a third party and works for himself under his own business license and insurance/bond. In my instance the roof should have been called out and the seller ordered to completely replace it before the FHA loan was given.”
FHA loan rules in the FHA loan handbook, HUD 4000.1, state the following about appraiser independence:
“An FHA Roster Appraiser must avoid conflicts of interest and the appearance of conflicts of interest. To avoid conflicts of interest and/or the appearance of conflicts of interest, the Appraiser must not be unduly influenced by:
-a member of a Mortgagee’s loan production staff or any other person who is compensated based upon the successful completion of a loan; or
-anyone who reports ultimately to any officer of the Mortgagee not independent of the loan production staff and process.”
HUD 4000.1 also adds that an FHA appraiser is required to observe confidentiality rules and, “may not discuss the value or conclusions of the appraisal with anyone other than the Direct Endorsement (DE) underwriter or FHA staff or their representatives. The Appraiser may discuss components of the appraisal that influence its quality and value with the DE underwriter who has responsibility for underwriting the case.”
FHA appraisals should never be taken as a stamp of approval by the FHA or HUD. The appraisal process is for the lender, not the borrower, and no one should purchase a home without paying for the optional, but critical home inspection-something that IS designed to give the borrower a full reporting on the condition of the home. The FHA appraisal is not intended to do that, nor is it intended as a tool for the borrower.
The FHA and HUD have a publication titled, “For Your Protection, Get A Home Inspection” which states the following:
“FHA Does Not Guarantee the Value or Condition of your Potential New Home: If you find problems with your new home after closing, FHA can not give or lend you money for repairs, and FHA can not buy the home back from you. That is why it is so important for you, the buyer, to get an independent home inspection. Ask a qualified home inspector to inspect your potential new home and give you the information you need to make a wise decision.”
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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