The Department of Housing and Urban Development has revamped the appraisal process for homes being purchased with FHA-insured mortgages in an attempt to protect consumers from purchasing homes with major undetected flaws.
Dubbed the Homebuyer Protection Initiative and designed to hold FHA appraisers more accountable and cut down on fraud, the changes have caused a stir among appraisers who say HUD is asking more of them than they are qualified to do.
"I don't necessarily disagree that appraisers need to do more detailed work, but they are asking us to do some things that are out of our field of expertise," said Jack May, appraiser and owner of JEM Appraisal Services in Fallston.
Jan Ramsay, president of the Canton-based appraisal firm, Ramsay, Williams and Associates, expressed similar concerns.
"They are asking us to take on responsibilities that are far beyond our appraisal training," she said. "I think it will give the public the false impression that they are buying a home without problems."
A 1997 federal investigation found that loans were approved even though FHA appraisers ignored serious defects in homes that made them unsafe or even uninhabitable for the buyers.
The new initiative seeks to address those concerns with an expanded appraisal form, testing to ensure competent appraisers, more evaluation of appraiser performance and stricter enforcement.
The major change to the process comes in the restructuring of the appraiser's valuation condition sheet, the form on which the appraiser records information about the condition of the home.
Previously, this form was a simplistic two pages, merely listing different aspects of the house that the appraiser was supposed to check.
If an appraiser saw something wrong with the floor support system of a home, for example, he or she would simply put a check on the form indicating that a problem had been noticed.
On the new sheet, which is twice as long, an appraiser must answer specific questions about the house. For the floor support system, the appraiser must document if there are significant cracks, evidence of water leakage or damage and rodent infestation. If there are any problems noted, the appraiser is expected to describe them on the final sheet of the form.
"Oftentimes, appraisers aren't conducting as complete appraisals as they should be, causing people to buy homes that need lots of work," said HUD spokesman Victor Lambert. "The people who typically go to FHA don't have a lot of money. It's all they could do to pull together the money needed to purchase a house. These are the people who are least able to afford to fix problems."
HUD has said the initiative could mean savings of several thousand dollars for the nearly 1 million low- to moderate-income families who purchase homes each year with FHA-insured mortgages, since the FHA will not insure a mortgage until the home's defects, as determined by the appraiser, are repaired. Last year, the FHA insured 26,639 loans in the Baltimore metropolitan area.
But, while many appraisers acknowledge that some of their colleagues have not been performing appraisals as thoroughly as they should for FHA, they are concerned that what HUD is really doing is making the appraisal a substitute for a more detailed home inspection.
"There are things [on the valuation condition sheet] that certainly come right up to the line of the appraiser's ability to make a judgment," said Donald E. Kelly, vice president of public affairs for the Appraisal Institute, a professional organization with more than 20,000 members in the United States and Canada. "Appraisers are concerned that at some point it crosses the line and looks like a home inspection."
As HUD explains in a new form that FHA-insured buyers must sign before signing a sales contract, home inspections are much more detailed than appraisals. Essentially, an appraisal is supposed to determine the value of a house, not make judgments about defects.
Last year, the FHA along with Realtor and mortgage lender groups opposed a failed congressional initiative that would have made inspections by a qualified home inspector mandatory.
Though HUD strongly encourages buyers to get a private home inspection and allows borrowers to wrap into their mortgage up to $300 of the inspection's cost, it does not require an inspection because of the added expense to consumers, Lambert said. On average, a home inspection costs between $300 and $500 locally, compared with an appraisal which costs around $300.
But many in the appraisal industry predict that HUD's changes will increase an appraiser's legal liability and ultimately result in higher appraisal fees.
Jack May notes several questions on the new valuation form that make him feel uneasy, including questions about the life expectancy of the roof, the operation of heating and air conditioning systems and the presence of soil contamination.