Written By: Stacey Sprain, Op-Ed Writer
This week’s topic was an easy one because of an ongoing situation I’ve been involved with that I learned a lot about over this past week. And to be honest, I am really frustrated about this one because it has taken up many people’s time, nearly cost a borrower close to $1000 in appraisal fees and put an appraiser in an awkward position to serve as “trainer” on appraisal regulations when in fact the “trainer” should have been HUD in their own instruction and communication.
I think we’ll all agree that it’s always been understood that when a lender transfers a case assignment where an appraisal has been completed, the appraisal is transferred with the case to the new lender. In fact, if you search by topic of “case transfer” within the FHA Outreach FAQ at http://www.fhaoutreach.gov/FHAFAQ/ you will read a number of times that HUD states the following:
Lenders are expected to cooperate in the transfer of case numbers. At the request of a borrower, the case number is to be assigned to the new lender using the Case Transfer function in FHA Connection. The transferring lender is entitled to retain any lock-in fee collected from the borrower at the time of application. The transferring lender is required to provide the new lender with the appraisal, if any, but is not required to provide any processing documents, if any. If processing documents are transferred, the fee for providing these documents is to be negotiated between the lenders. No separate charge to the borrower is allowed for the transfer of a case number.
Well here is what HUD doesn’t mention or answer that is more than likely to occur many many times if they do not. This is what happened on a recent incoming case transfer to our company:
Lender A held a case assignment and received a completed appraisal for borrower A. For whatever reason, Lender A never closed the case with Borrower A, never entered a mortgage credit reject in FHA Connection and never cancelled the case with HUD.
Months later, Lender B received an application from borrower B and when Lender B requested the case assignment in FHA Connection, Lender B learned that there was an existing case held by Lender A. Lender B then contacted Lender A with a request for case transfer and Lender A advised Lender B that a complete FHA appraisal was completed and logged by Lender A. Next, Lender A refused to transfer the case to Lender B and would not release the appraisal to Lender B without complete payment for the appraisal. So in order to get the new deal moving for Borrower B, the originator for Lender B proceeded to make payment to Lender A from his personal credit card so as not to allow Lender A to withhold the case transfer any longer. Wait, it gets worse.
Once Lender B received the case transfer and appraisal, Lender B contacted the appraiser to update the client and borrower names on the appraisal. It was at that point that the appraiser explained to Lender B that she could not do anything requested by Lender B because the appraisal was “owned by” Lender A. The appraiser explained that the only thing she could do was require that Lender B submit a request for a complete new appraisal and that Lender B would incur a charge of $400 for the new appraisal.
As you may know, HUD actually addresses some of this in their recently released Mortgagee Letter 2009-29-Appraisal Portability which includes an effective date of January 1, 2010. In that Mortgagee Letter, it states the following:
In cases where a borrower has switched lenders, the first lender must, at the borrower’s request, transfer the case to the second lender. FHA does not require that the client name on the appraisal be changed when it is transferred to another lender.
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In accordance with the Uniform Standards of Professional Appraisal Practice (USPAP), the lender is not permitted to request that the appraiser change the name of the client within the appraisal report unless it is a new appraisal assignment. To effect a client name change, the second lender and the original appraiser may engage in a new appraisal assignment wherein the scope of work is limited to the client name change. A new client name should include the name of the client (lender) and HUD.
Here is where the Mortgagee Letter is completely unclear and misleading. It states that HUD doesn’t require the client name to be changed from Lender A to Lender B. It goes on to explain that the 2nd lender cannot request that the appraiser make a client name change without the appraiser treating it as a new order. However, let me explain what I’ve learned based on the situation I explained above.
We assumed that based on HUD’s FAQ answers on FHA Outreach and in ML 2009-29 that when the case and appraisal are transferred from Lender A to Lender B, Lender B doesn’t have to get the client name changed in the appraisal from Lender A to Lender B. However, there are a couple of things that came up on our situation in particular that threw that assumption out the window.
In our case, the appraisal that Lender A had done for the case they ended up transferring to Lender B (us) was done subject to repairs and a final inspection. When Lender B’s processor requested the final inspection from the appraiser, the appraiser stated she could not complete a final inspection for us because we were not the client of the original appraisal. At that point the processor stated that HUD specifically states they don’t require a client name change on a case and appraisal transfer. The appraiser then explained that even though HUD does not, USPAP essentially does. She stated the only way she could do anything for us relating to the subject property and appraisal would be dependent upon our ordering a new appraisal from her which would be a completely new full appraisal charge.
I found this all a little hard to believe because HUD’s FAQ answers and ML 2009-29 seemed to contradict what she was telling us so I went out and started reading USPAP myself and by golly am I glad I did because I learned a lot by doing so!
Essentially, here is what I feel SHOULD HAVE happened with this case to have prevented all of the confusion:
1. When Lender A’s deal fell apart for whatever reason after they’d clearly received and logged a complete appraisal, they should have completed the mortgage credit reject and should have requested a case cancellation from their homeownership center (HOC). But they did not so the case remained in FHA Connection tied to the property.
2. When Lender B requested the case transfer from Lender A. Lender A should not have “held the case and appraisal hostage” for payment because it should have been Lender A’s responsibility to have collected for the appraisal from their Borrower before their deal went south. At the point when Lender B requested the case transfer, the appraiser has already been paid in full for the appraisal invoice in question by Lender A. So for Lender B to have had to reimburse Lender A for an appraisal they don’t even have rights to according to USPAP was ridiculous. Lender B’s borrower should not have to pay out close to $1000 in appraisal and final inspection fees.
I’m actually waiting for a response from HUD on a list of questions that arose from this situation specifically. I feel it’s important they be answered so that I can pass on what I learn to others in hopes others don’t have to go through all of what we’ve dealt with trying to resolve this case and get our borrower’s loan closed. I feel that HUD may need to clarify their instructions a bit further for transferring lenders and receiving lenders and may need to define the expectations and responsibilities a bit further.
My questions to HUD included the following:
1. Is it correct that the existing lender should have requested a case cancellation from HUD HOC as soon as they determined that their borrower would not close an FHA-insured loan on the property? If yes, is it true that in the future should we encounter a situation where a property is tied up with a different lender and different borrower(s), we should have that lender request a case cancellation so we can then proceed with requesting our own new case and appraisal for the property and the new borrowers?
2. Am I correct in that the existing lender should not have held up the transfer of the appraisal for payment of an FHA appraisal that was made for a different borrower? The fact that this appraisal showed an effective date of 5/15/09 and is just now being transferred in 10/09 would certainly lead me o believe that the appraiser has likely already been paid and that it should have been the existing lender’s responsibility to collect for reimbursement of the appraisal fee from their borrowers who they had obviously rejected or whose deal had fallen through for one reason or another?
3. There was no noting of Mortgage Credit Reject in FHA Connection for the case in question. Am I also correct in that prior to completing the case transfer, it was the obligation of the prior lender to input some indication/explanation regarding what happened with the prior borrowers to explain WHY we are now processing a case on the same property for a new borrower?
4. Since USPAP does not allow an appraiser to make changes requested by the new lender when the initial appraisal request was made by prior lender, why does HUD state you don’t require the client name change reflect the final lender? It’s not made clear in ML 2009-29 that the appraiser cannot complete a final inspection, cannot provide additional commentary, additional comps, listings, or correct any errors at the request of the lender who received the transferred case and appraisal.
5. ML 2009-29 references case transfers made at the request of the same borrower electing to close with a different lender but does not address any situation where the case is tied up with a prior lender in the name of prior buyers. Why is that topic not addressed or mentioned?
As soon as I receive answers to my list of questions posed to HUD on case and appraisal transfers, I will certainly pass on more for education purposes.
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About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently 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.