40 Frustrations fly over FHA loan hangups

WASHINGTON – May 12, 2016 – At the Real Property Valuation Forum during the 2016 Realtors® Legislative Meetings & Trade Expo Tuesday afternoon, real estate professionals, appraisers and underwriters all aired grievances about the difficulty and confusing language of the FHA loan process, and specifically the new FHA single-family handbook and its effect on appraisals.

John Anderson, broker-owner of Twin Oaks Realty Inc. in Minneapolis, Minn., said he sees a huge reluctance for sellers to accept offers that will be financed by FHA loans.

“Sellers are looking the other way and saying ‘I don’t really want to deal with FHA,'” Anderson said. Still, he said some 25-30 percent of his deals are FHA-insured and noted that sometimes it’s more of a word-of-mouth reluctance than actual experience of collapsed deals. “Often it’s because of misconceptions … sellers are saying ‘I hear there’s problems with FHA appraisers.'”

Gary Eisenbraun, a housing programs policy specialist with FHA, said he does his best to explain the limits of the FHA’s power to change the process, noting that appraisers don’t decide where the home should be valued.

“The appraiser has a responsibility to tell the story,” said Eisenbraun. “It’s the underwriter that clears the property.”

While some panel experts noted that recent changes to FHA’s appraisal handbook seem to imply that the appraisers’ work is more akin to that of a home inspector, Eisenbraun disputed that. He said appraisers and lenders can always order a more experienced or capable inspector to do follow-up work to help the lender determine proper value.

“HUD would never expect anyone to put themselves in a dangerous situation,” Eisenbraun said. “We don’t expect the appraiser to be a chemist.”

Another point of contention: The practice where appraisers ask to see outside home inspection reports

“The home inspection should never be given to the appraiser,” Eisenbraun said. “That’s giving someone something they really don’t need in order to determine value and acceptability of the property to HUD.”

Perhaps the greatest number of individual audience questions centered on the working order of appliances.

The way Eisenbraun laid it out, FHA doesn’t technically require any appliances to be present or in working order. It only requires that occupants have areas in which they can sleep, eat, prepare food and bathe.

“We are not saying you have to have kitchen appliances unless they are conveyed in the context of real estate,” Eisenbraun said. “But if it’s customary in your local market, then it may be considered real estate.”

Several questions focused on appliances that weren’t in tip-top shape. Eisenbraun said the basic functionality of an appliance should be the litmus test. If the fridge can keep the milk cold, it’s working. If the icemaker doesn’t appear to be making ice, “maybe that has a defect on the overall contributory value,” but it’s not really a deal-breaker for the appraisal.

There were calls from the audience and panel participants to increase training, but Eisenbraun said there’s only so much the federal government can do at the local level, and he appealed to real estate professionals and lenders to stay involved in the appraisal process and demand a high level of performance from appraisers.

Anderson added that sales associates and brokers have a responsibility to consider future appraisals when they work with sellers to determine the price of a home.

“We have to build our cases when we list our properties, just like appraisers have to do; [otherwise] we’re not doing our fiduciary duty,” he said, telling attendees to consider the work of the appraiser throughout the listing process. “Sometimes we think, ‘We just sell them and you make it fit,’ but it doesn’t really work that way.”

Source: Meg White, Realtor Magazine

© 2016 Florida Realtors®

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