My Appraisal Blog

By now you’re aware of the new FHA guidelines which took effect this week regarding proper procedures for the ordering, management, and completion of appraisals for FHA insured mortgages (Mortgagee Letter ML 09-28; click here to view).

As one of the “third party organizations” referred to by FHA in the letter, we provide technology and appraisal marketing services to more than 50,000 appraisers – over half of the entire profession – and are likewise a critical application service provider to tens of thousands of mortgage lenders and brokers. Accordingly, we’ve fielded many questions regarding how to incorporate the new FHA regulations into operations on both sides of the appraisal transaction. In order to save time and assist you in developing best compliance practices, we’ve compiled this short list of questions and answers.

1. Aren’t FHA’s rules the same as the HVCC? Not at all. FHA’s regulations are far more specific in numerous areas, such as the transparency of fees paid to the appraiser. FHA mortgagees must exercise caution; simply complying with the less-stringent HVCC is not sufficient. Unlike the HVCC, additional oversight of any AMCs used is required, since AMCs may no longer force appraisers to not state their own fee in the appraisal report (as just one example). Ensuring compliance with these and other rules is the responsibility of the mortgagee. Since closing cost transparency is a thorny consumer RESPA issue, there are many touchpoints where the risk may be elevated if not properly managed from the outset.
2. How can we ensure that appraisers haven’t been influenced in the selection and management process? Unlike a costly interior “firewall” or outsourcing to an AMC, our Mercury Network system features a complete “double blind” process -- a long-standing feature description of ours which was referenced verbatim in FHA's letter -- to be followed throughout the appraisal process. Lending staff can be shielded from any or all personal communication with the appraiser while still initiating the transaction and being kept informed of its status.
3. Can mortgage brokers order an appraisal without being in violation of the rules? Yes. The rules for mortgage brokers are the same as they have always been for agents or even for “any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan”. A lender would be in compliance so long as the appraiser is not “selected, retained or compensated in any manner” by the broker, agent, or commissioned staff. Mercury Network’s tools for automated blind selection and direct payment ensure compliance with the rule. Appraisers can even be kept completely anonymous if the mortgagee’s account administrator so desires.
4. The new rules require that appraisers be paid fees that are customary and reasonable for their area. How do we know what that fee would be? The authoritative guide to customary appraisal fees is our national Appraisal Fee Reference™, or AFR™. The AFR includes independent fee statistics garnered from analyzing hundreds of thousands of appraisals, and reported as median fee references in all 3,221 counties and administrative districts in the United States, the District of Columbia, Puerto Rico, and Guam. Statistics are also available at the state, census district, census region, and national levels. The AFR is free of charge even if a lender is not a Mercury Network client. It's updated monthly with fresh data and automatically e-mailed to any and all compliance staff requested. To read more about the AFR and subscribe to your own copy, go to www.mercuryvmp.com/analytics.
   
   Also, note that any time orders are placed on Mercury Network, the median fee for the target area is shown so that lenders can always be in compliance without referring to the AFR itself. The AFR is also quite useful in complying with HUD's 2010 GFE requirements, since the supporting data in it provides an objective, defensible basis for an expected appraisal fee. That's especially true when a lender may have insufficient internal data to calculate an estimate based on in-house historical averages.
5. How can we be sure that AMC fees are not mixed in with the appraisal fee, in violation of the new FHA regulations? Mercury Network is a Vendor Management Platform, not an AMC, and therefore does not add a surcharge to any appraiser's own stated fee. The appraiser only pays us a $13.75 transaction charge for use of our technology and service. Costs to the borrower are lower than in an AMC-managed transaction, and compliance with the FHA fee reporting requirements is assured.