• HUD Clarifies Appraisal Policies, Shortens FHA Appraisal Validity Period

HUD has recently acted to clarify or change some aspects of the appraisal process as it pertains to FHA mortgage loans. In a mortgagee letter to lenders and appraisers (ML 2009-28), FHA reaffirms the need for independent appraisers who know the specific market area they are being asked to work in, and have access to reliable appraisal data. In ML 2009-29, FHA clarifies the rules governing portability of appraisals from one lender to another.

But in a third letter (ML 2009-30), the agency changed its policy concerning the length of time an FHA appraisal is valid to 120 days, a sharp decline from the previously-standard six months for existing homes and 12 months for homes that are planned or under construction. NAHB has advised the FHA that this shorter time frame may create situations in which a buyer with pre-approval based on a valid appraisal signs a contract with a builder for a home that takes more than four months to build. If the lender then requests a new appraisal, the buyer may find that the new appraisal may not support the previously agreed-upon mortgage, leaving both the borrower and the builder in an untenable situation.

This change, however, is not groundbreaking — it brings FHA into conformity with the requirements that Fannie Mae and Freddie Mac have had in place for a number of years. The new FHA policy is scheduled to become effective January 1, 2010.

• NAHB Holds Summit on Appraisal Issues

Earlier this week, NAHB hosted a Residential Real Estate Appraisal Summit with federal regulatory agencies and the major housing and financial institution stakeholder and appraisal organizations to discuss constructive solutions to appraisal problems. NAHB, the National Association of REALTORS, and the Mortgage Bankers Association urged the regulators to adopt and enforce clear, concise regulatory guidance on the use of distressed and/or foreclosed properties that will allow appraisers to develop realistic valuations based on sales that are truly comparable. Read NAHB's press release on this summit on this page. Read full coverage of the Summit in Nation's Building News.