The Federal Housing Administration recently announced that it is extending some of its pandemic-driven rule changes on appraisals until at least the end of the year.
Early on in the pandemic, the FHA changed several of its lending policies to address social distancing protocols, including allowing for either exterior-only or “desktop” appraisals on FHA loan transactions.
Exterior-only appraisals are exactly what they sound like. An appraiser views a property from the exterior when valuing the property, enabling all parties involved to stay safely distanced. Desktop appraisals, on the other hand, are computer-driven property valuations where an appraiser may not visit a property at all.
The FHA announced the appraisal rule changes in March, but the agency recently announced that only one of the appraisal alternatives will continue to be allowed.
In a letter sent to lenders and servicers last week, the FHA said that the option for a desktop-only appraisal ended on Oct. 31, 2020. According to the FHA, the “effectiveness” of exterior-only appraisals made the desktop-only policy unnecessary.
When performing a valuation, an appraiser may view a property “from at least the street,” while relying on “supplemental information from other reliable sources such as Multiple Listing Service, and Tax Assessor’s Property Record.”
The FHA added that appraisers may also rely on information from “an interested party to the transaction (borrower, real estate agent, property contact, etc.)” in certain circumstances when appraising a property as long as they make a “clear appraisal report disclosure.”
According to the FHA, the policy applies to most single-family purchase and refinance mortgages.
Here are more details on the appraisal rule changes:
- FHA is discontinuing the use of Desktop-Only Appraisal inspection scope of work option.
- FHA Purchase Transactions: Most Single-Family forward and HECM for Purchase transactions (with certain exceptions) may continue to utilize an optional Exterior-Only Appraisal inspection scope of work.
- FHA Refinance and Traditional HECM: Traditional HECM, HECM-to-HECM refinances, Rate and Term Refinances and Simple Refinances of properties may continue to utilize an optional Exterior-Only inspection scope of work.
- FHA Single-Family Servicing: All appraisals made in connection with the servicing of FHA’s forward or reverse mortgage portfolios may continue to utilize the Exterior-Only Appraisal inspection scope of work. All appraisals, even Exterior-Only Appraisals, must be completed in a manner consistent with the Fair Housing Act.
- No changes are made to Streamline Refinances, which do not require appraisals or to the appraisal requirements for FHA’s Cash-Out refinance, 203(k), and certain purchase transactions.