HUD/FHA Mortgagee Letter 2007-11, announcing the FHASecure initiative, also included information regarding appropriate appraisal practices in declining markets; those instructions remain in effect.
"Now, with FHA in position to insure mortgage amounts greatly in excess of what has been its experience as a mortgage insurer, we believe it prudent to set forth additional underwriting and collateral assessment practices for “high-balance” loans."
Specifically, for mortgage amounts that will exceed the January 1, 2008 conforming limit of $417,000, FHA is establishing a second appraisal requirement for loans on properties in declining areas, and limiting the loan-to-value for cash-out refinances.
These requirements are further described below (see attached) and are effective for all mortgages with FHA case number assignments made on or after the date of this mortgagee letter.
When is a Second Appraisal Required?
A second appraisal will be required when:
· The loan amount, excluding the upfront mortgage insurance premium, will exceed $417,000, and
· The LTV (Loan to value), excluding upfront MIP, equals or exceeds 95%, and
· The property is determined as being in a declining market.
How is a declining market determined?
By the appraiser: The appraisal report requires the appraiser to indicate if the property is located in a declining area in both the neighborhood section of the appropriate appraisal form as well as in the housing trend section, and/or determine if there is an “over-supply” of properties. The certifications contained in the appraisal reporting forms are supplemental standards to the Uniform Standards of Professional Appraisal Practice (USPAP) and Certification # 14 specifically requires an appraiser to consider and report on all conditions that impact value. Appraisers must provide specific support for any conclusions noted in the Housing Trend section of the appraisal report and research local price trends, relying upon such services as local Multiple Listing Services or others as described below.
By the lender: The lender may determine through services such the S&P/Case-Schiller Index, Office of Federal Housing Enterprise Oversight (OFHEO) Index or National Association of Realtors (NAR) statistics, or through an automated underwriting system, e.g., Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector, that the property is located in a declining market area.
Who can perform the second appraisal
The second independent appraisal must be completed by a FHA roster appraiser selected by the Direct Endorsement lender that is underwriting the mortgage. The lender independently engages the appraiser and is not to request a second case number through FHA Connection. The fee for the appraisal may be passed onto the borrower as any other closing cost.
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