Written By: Stacey Sprain, Op-Ed Writer
It’s been a busy few weeks on the FHA-Front with the release of several Mortgagee Letters as well as movement on the FHA Reform Bill on Capitol Hill in Washington. Let’s review:
Mortgagee Letter 2010-13-Appraisal Update and/or Completion Report (Fannie Mae Form 1004D/Freddie Mac Form 442/March 2005)
It was definitely a positive that HUD issues this communication because the content of this bulletin most certainly clears up confusion on appraisal validity when an existing FHA appraisal is extended by the appraiser with FNMA Form 1004D. HUD communicates one fact in ML 2010-13 that was not so clear in the first communication issued via Mortgagee Letter 2009-51: That the original FHA appraisal may only be extended one time with the use of the Appraisal Update Report.
It was also clarified that the maximum validity of the FHA appraisal is 240 days if the Appraisal Update Report is used to extend the validity of the original appraisal report. In these cases, the DE underwriter may not add an additional 30 days extension to bring validity to 270 days.
The same requirements listed in ML 2009-51 apply in that the property cannot be located in an area of market decline. That in itself wipes out much of the ability to utilize the Appraisal Update to extend the validity of FHA appraisals and in most cases, once the original appraisal ages to 120 days, a new FHA appraisal will be required instead of using the FNMA Form 1004D to extend validity.
Always be sure to check your lender’s guidelines as some lenders are not even honoring the Appraisal Update Report and will always require a new FHA appraisal once the 120 milestone is reached.
Mortgagee Letter 2010-14 Electronic Signatures on Third Party Documents
This bulletin simply clarified what’s already been accepted for a few years as far as I’m aware. FHA simply clarified in writing that they are now accepting electronic signatures on third party documentation such as verification forms and real estate contracts. Note that this does not include their acceptance of electronic signatures on applications documents and disclosures nor closing documents. These all require actual ink signatures from our borrowers.
Mortgagee Letter 2010-15 FHA Case Number and FHA Roster Appraiser Assignments
As we all know, this bulletin was long overdue since Appraiser Independence standards were effective for cases assigned on and after February 15th. This ML simply communicates the changes to FHA Connection Case Assigning data screens in that we are no longer required to enter the appraiser information in the initial stages for case assignment. Instead, we will now be entering the appraiser information with appraisal logging procedures. This is a good change in that it will eliminate the masses of errors that had been created in the past when processors and underwriters logged a different FHA appraiser than the one who was originally assigned to the case.
There is one part of this bulletin I feel is of particular importance to point out, however, and that is point number 3 at the top of the letter:
3. Requires that the effective date of the appraisal be after the case number assignment date except in certain limited circumstances.
This change is especially important for those who have established the bad habit of ordering FHA appraisals before the case has been assigned. I’ve seen this happen way too often. The appraisers should not accept orders without the case assignments but they do and often, they end up completing the appraisal before the case is even assigned. This letter communicates that HUD is no longer accepting those except for the limited circumstances outlined in the bulletin which require lender certification.
Lastly, the H.R. 5072, “The FHA Reform Act” is moving its way through Capitol Hill. It passed the House Financial Services Committee on Tuesday, April 27th and will likely end up passing into law because it has the support of a diverse group of organizations including the National Urban League, the National Council of La Raza, the National Community Reinvestment Coalition, the Mortgage Bankers Association, the National Association of Realtors and the National Association of Home Builders.
This bill proposes increasing FHA annual mortgage insurance premiums from the current .50 and .55 rates to 1.50 and 1.55 which is a substantial increase to monthly mortgage payments for potential FHA homeowners. This is a bit concerning since as we all know, up-front mortgage insurance premiums were just increased from 1.5% and 1.75% to 2.25% effective in early April. If the annual mortgage insurance is increased for FHA, it may make FHA lending more difficult as far as qualifying lower income borrowers in certain areas of the country.
In addition the bill proposes to hold lenders accountable for indemnification of loans with claims paid out whereas a determination is made that fraud was involved. (this one I couldn’t agree with more. It’s about time lenders with poor screening processes be held accountable for the fraud that contributes to bad things for all of us in the industry).
The bill also proposes that HUD has the right to terminate underwriting authority for those lenders whose default rates are determined excessive, in addition to a number of other measures that are presented to preserve and protect the mortgage insurance reserve
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.