Written By: Stacey Sprain
Mortgagee Letter 2009-48 which was issued November 18, 2009 communicates the immediate elimination of requirements for second appraisals on high balance loans in declining market areas. Second appraisals are no longer required effective for cases pulled on and after November 19th.
As you may recall, second appraisal requirements were originally added for high balance loans in declining market areas with the issuance of Mortgagee Letter 2008-09 which HUD now rescinds in its entirety.
HUD has also rescinded the second appraisal requirements listed in Mortgagee Letter 2009-08 which originally implemented second appraisal requirements for cash-out refinances exceeding $417000 loan amounts when the subject property was considered in an area of market decline.
The only remaining second appraisal requirements apply for situations that fall under HUD’s Property Flipping Prohibition. These requirements were communicated in Mortgagee Letter 2006-14 which states the following second appraisal requirements:
• If the resale date is between 91 and 180 days following acquisition by the seller, the lender is required to obtain a second appraisal made by another appraiser if the resale price is 100 percent or more over the price paid by the seller when the property was acquired.
• If the resale date is more than 90 days after the date of acquisition by the seller but before the end of the twelfth month following the date of acquisition, FHA reserves the right to require additional documentation from the lender to support the resale value if the resale price is 5 percent or greater than the lowest sales price of the property during the preceding 12 months. At FHA’s discretion, such documentation may include, but is not limited to, an appraisal from another appraiser.
Underwriters are also allowed to use discretion and may require review appraisals to justify questionable value in certain circumstances. The important thing I always remind people in these situations is to always request an interior/exterior inspection with the second appraisal. HUD states that the second appraisal requirement is limited to a 2055 exterior only appraisal but in many situations, recent interior upgrades have contributed to the value assigned by the first FHA appraiser and need to be taken into consideration by the second appraiser. When the second appraiser isn’t allowed access to the interior of the property, most often property values will differ by far more than the accepted tolerance levels and you will be stuck with requirement to use the lower of the two appraised values. That is often a “deal killer.”
Third Quarter Delinquency Reports Reflect Trends of Concern
Mortgage Bankers Association recently released third quarter delinquency and trend reports and I’ll be honest, based on what I read I don’t think we’ve bottomed out in the housing market quite yet. In certain areas of the country, delinquency rates are still extremely high.
For serious VA mortgage delinquencies, the states of Florida, Indiana, Michigan, New Jersey, and Ohio stand out with the North Central region having the highest overall serious delinquency rates.
The states of Florida and Nevada take the lead by far in the category of prime fixed rate mortgage delinquencies with the South region having the highest overall serious delinquency rates.
It’s amazing how much the delinquency rates jump when comparing fixed programs to adjustable rate programs in the prime sector. It’s fair to state that nearly all states entertain delinquency rates close to 10% and greater with just a few exhibiting lower percentages. Florida, as example is showing a 28.93% serious delinquency rate in this category. Arizona, California and Nevada also display higher than average delinquency rates with West region averaging highest.
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For FHA delinquency trends, the states of New Jersey, the entire East North Central region, and the South Atlantic region (includes Florida), display higher delinquency rates in comparison to other states and regions. The North Central Region is out in front in this category. And once again, the delinquency trend is much higher when comparing the delinquency rate of FHA fixed rate loans versus FHA adjustable rate loans.
Based on these statistics I can derive a few main facts worth mentioning:
• It’s clear where the most severely declining market areas are within the U.S. The states of Arizona, California, Florida, Georgia, Illinois, Indiana, Michigan, and Nevada appear to consistently display the highest delinquency rates across the board for nearly all program statistics.
• These tend to be areas where questions of artificially inflated values cropped up in the recent past in combination with areas of secondary residence ownership and also areas where the employment sector has been severely affected by the financial state of the country.
• Collateral value will continue to be a major area of concern for lenders who are accepting loans in these areas. The appraisals for properties in these states have to be strong and I suspect lenders will continue issuing conservative lending guidelines to cover the risk concerns for loan applications in a number of these areas- Florida and Arizona in particular.
Next week will bring forth more information on FHA Condominium Policy Changes.
Have a wonderful Thanksgiving with family and friends! May your tables be blessed with turkey!
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About The Author
Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: firstname.lastname@example.org.