FHA Mortgage Guide

With many areas of the country showing stalled and declining real estate markets, can borrowers in such communities still get FHA loans?

You bet. Curiously, the FHA addressed the issue of financing in down markets in a September letter to lenders. What’s most interesting about the guidelines from HUD is what they have to say to lenders; in essence, don’t screw around with valuations because you — the lender — are responsible.

Below is what the FHA had to say:

Appraisal Practices in Declining Markets

Historically, FHA has provided a counter-cyclical force in helping to stabilize declining housing markets and will continue to do so. In fact, much of FHAs business activity this year has been in those states (e.g., Ohio, Michigan, Indiana) that have suffered sustained depreciation of home prices due to job losses and increased foreclosures. Nevertheless, recent property value declines in certain markets suggest the need to reiterate our guidance to mortgage lenders to ensure that appraisers are providing accurate property valuations. A declining market could be as small as a neighborhood or as large as an entire state, and no standard definition exists other than home prices are falling.

Appraiser Responsibilities

The purpose of the appraisal is to provide the lender/client with an accurate, and adequately supported, opinion of market value.á It is the appraisers responsibility to determine whether a property being appraised is located in a declining market.

The neighborhood section of each property specific appraisal form contains a housing trends section where the appraiser marks a box indicating property values are increasing, stable or declining.- Whichever box is selected, the appraiser is certifying that he/she has performed an objective analysis of quantifiable data supporting the observations made.

If a property is located in a declining market, the appraiser must provide an explanation in the Market Conditions section of the appraisal report that includes relevant information in support of the conclusions relating to trends in property values, demand/supply and marketing time. The appraiser must also provide a description of the prevalence and impact of sales and financing concessions and/or down payment assistance in the subjects market area. Other areas of discussion may include days on market, list-to-sale price ratios, and/or financing availability.

Lender Responsibilities

The mortgagees responsibility is to properly review the appraisal and determine that the appraised value used to support the mortgage is accurate and adequately supported.

Lenders are reminded that if the appraiser they selected provides a poor or even fraudulent appraisal that leads the Department to insure a mortgage at an inflated amount, the lender is held equally responsible with the appraiser for the violation if the lender knew or should have known. FHA will pursue appropriate enforcement actions against both or either party if necessary. Lenders accept responsibility, equally with the appraisers for the integrity, accuracy and thoroughness of the appraisal submitted to FHA for mortgage insurance purposes.

Check out these FHA resources for more information

This entry was posted on Sunday, October 21st, 2007 at 12:57 pm and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.