FHA News & Info

This may be old news for some people but not everyone is familiar with the changes made by FHA.

Excerpts from MORTGAGEE LETTER 2005-ML-48 This Mortgagee Letter is effective for all appraisals performed on or after January 1, 2006.

FHA no longer mandates automatic inspections for the following items and/or conditions in existing properties:

Wood Destroying Insects/Organisms: inspection required only if evidence of active infestation, mandated by the state or local jurisdiction, if customary to area, or at lender's discretion

Well (individual water system): test or inspection required if mandated by
state or local jurisdiction; if there is knowledge that well water may be
contaminated; when the water supply relies upon a water purification system
due to presence of contaminants; or when there is evidence of:
    Corrosion of pipes (plumbing)
    Areas of intensive agriculture within 1/4 mile
    Coal mining or gas drilling operations within 1/4 mile
    Dump, junkyard, landfill, factory, gas station, or dry cleaner within 1/4 mile
    Unusually objectionable taste, smell or appearance of well water
(superseding the guidance in Mortgagee Letter 95-34 that requires well
water testing in the absence of local or state regulations)

Septic: test or inspection required only if evidence of system failure, if
mandated by state or local jurisdiction, if customary to the area, or at
lender's discretion

Flat and/or unobservable roof

Examples of conditions that will continue to require automatic inspections include, but are not limited to:

1. Standing water against the foundation and/or excessively damp basements
2. Hazardous materials on the site or within the improvements
3. Faulty or defective mechanical systems (electrical, plumbing, or heating)
4. Evidence of possible structural failure (e.g., settlement or bulging
foundation wall)

This may be old news for some people but not everyone is familiar with the changes made by FHA.

FHA's primary area of concern is in these three areas: Safety, Security, and Soundness. Properties with conditions that threaten or could threaten the health and safety of its occupants or the soundness of the property are still required by FHA to be repaired. MORTGAGEE LETTER 2005-ML-48 (effective as of January 1, 2006) lists these conditions as requiring an automatic repair:

* Inadequate access/egress from bedrooms to exterior of home
* Leaking or worn out roofs (if 3 or more layers of shingles on leaking or
worn out roof, all existing shingles must be removed before re-roofing)
* Evidence of structural problems (such as foundation damage caused by
excessive settlement)
* Defective paint surfaces in homes constructed pre-1978
* Defective exterior paint surfaces in home constructed post-1978 where the
finish is otherwise unprotected.

Effective February 7, 2008, FHA will no longer require the HUD examination on FHA reporting and examination to become eligible to do FHA appraisals. One must be licensed or certified to be placed on the roster. FHA feels that the testing required to become an appraiser is sufficient and that requiring an FHA exam is overkill. What this means is that Skippy doesn't have to bother looking up the answers online for the 10 question long "examination" required to become FHA approved anymore. Not only can Skippy do a sloppy report for the conventional market; he can mess up things in the FHA market too.

FHA already made it too easy to become FHA approved when they decided to drop the dreaded examination and replace it with the questionnaire you fill out online. I've heard horror stories about the old exam and how hard it was to pass if you didn't study and know your stuff. I studied for the exam. I lost sleep thinking about taking it. I finally mustered the courage to take it and FHA replaced it with the 10 question survey. I guess FHA dropped it all together because it was still too hard for Skippy to pass.

For those of you who don't know, Skippy is the poorly trained or unethical appraiser who does sloppy appraisal reports filled with errors, omissions, and/or lies. Skippy is the best friend of crooked loan officers, crooked real estate agents, and crooked property investors. He ALWAYS gets the value needed to make the deal work. He charges a lot LESS than than other appraisers. He is so FAST that the report is completed before he takes his lunch break. He NEVER mentions things that could kill the loan.

Now this doesn't mean that anyone who gets approved for FHA in the future is a Skippy. There are more ethical and honest appraisers out there than there are Skippies. They work hard day in and day out to keep the dirt off their names. I truly believe that in my heart. It's just that the bad appraisers fling mud in our eyes and give all appraisers a bad rap.

The real estate market is in such turmoil right now and everyone involved in it is pointing fingers at each other. It just doesn't seem prudent to relax your standards even more and allow anyone and everyone a spot on the roster without proving first that they belong there. The market is where it is now because of the relaxed standards that are in place. That's why the standards are increasing for many of us in the industry. It's too easy for greedy and fraudulent people to make a ton of money while destroying the lives of the people they are supposed to be helping.

For those of you out there who still care about the Real Estate Industry and are honest, hardworking individuals, I ask that you be careful when choosing a new appraiser. Please don't base your decision solely on how much he charges or how fast he gets you the report. When you decide on trying a new restaurant do you base your decision on how cheap the food costs or do you base it on how good the meal is? I firmly believe that you get what you pay for. Not all appraisers who are faster or cheaper than other appraisers are a Skippy. There are many great appraisers out there who have to be that way to stay competitive with Skippy.

Anyways that's just my two cents worth:

This may be old news for some people but not everyone is familiar with the changes made by FHA.

FHA has made some changes in its requirements for financing a home through their program. Gone are the old VC sheets with the pages of hoops a property must jump through. Gone are the mandatory repairs for cracked window panes, torn screens, and worn flooring. Gone are the days of counting steps to determine if a handrail is required. 

MORTGAGEE LETTER 2005-ML-48 (effective as of January 1, 2006) states: Minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, that do not affect the safety of the occupants or the security and soundness of the property no longer require a repair to bring a property into compliance with FHA Minimum Property Requirements.

Examples of minor property conditions that no longer require automatic repair for existing properties include, but are not limited to:
* Missing handrails
* Cracked or damaged exit doors that are otherwise operable
* Cracked window glass
* Defective paint surfaces in homes constructed post 1978
* Minor plumbing leaks (such as leaky faucets)
* Defective floor finish or covering (worn through the finish, badly soiled carpeting)
* Evidence of previous (non-active) Wood Destroying Insect/Organism damage where there is no evidence of unrepaired structural damage
* Rotten or worn out counter tops
* Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post- 1978
* Poor workmanship
* Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
* Crawl space with debris and trash
* Lack of an all weather driveway surface

FHA still requires certain conditions to be met in order for a property to be eligible. Check back for Part II where I discuss what is still required.