U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                             WASHINGTON, D.C. 20410-8000
                                August 14, 1990
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
                                      Direct Endorsement Letter 90-2
     TO:  ALL APPROVED DIRECT ENDORSEMENT MORTGAGEES
     SUBJECT:  Direct Endorsement Update - Mortgagee Staff Appraisers
 
          Direct Endorsement Updates #11 and #87-1 were issued to
     define the Department's requirements concerning mortgagee staff
     appraisers.  However, we are still receiving evidence that some
     mortgagees are not in compliance with those requirements.
     Therefore, this letter is intended to remind mortgagees of
     conditions under which a Direct Endorsement mortgagee may employ a
     staff appraiser, and to advise that staff appraiser contracts will
     continue to be reviewed by our monitors and Field Offices.
 
     1. Employee: A staff appraiser must be a bona fide employee of
     the mortgagee.  The appraiser must be an employee of the lender,
     not an employee of an appraisal company owned by the lender.  An
     employee is one who performs a service for the employer for a
     fixed compensation and works during all normal working hours
     during the week.  The employee is entitled to receive all benefits
     provided by the company to other full time employees.  The
     appraiser should be provided with office space, secretarial
     support and sales data by his lender-employer.  The employer must
     withhold state and federal income taxes and social security taxes
     from the employee's compensation.
 
     2.  Compensation: The appraiser must receive a fixed salary.
     He/she may not be compensated by a draw plus commissions.  The
     appraiser should receive a reasonable base salary commensurate
     with average production and normal duties which may then be
     supplemented by incentive or bonus features.  However, some
     mortgagees have avoided the prohibition of salary and commission
     by calling commissions "BONUSES".  This practice is to be
     terminated immediately.  Any onuses should not be paid more often
     than quarterly.  The salary paid to staff appraisers must be
     commensurate with the average income of other professional
     appraisers doing similar work in the area.
 
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3.  Workplace: The mortgagee must provide workspace for the
appraiser in the mortgagee's office or in office space owned or
rented by the mortgagee.  If the appraiser is not in the
mortgagee's office, but in rental space located elsewhere by the
mortgagee, the rental space must have a sign clearly indicating
that it is the appraisal branch or component of the lender.
The appraiser may not perform appraisal services during normal
working hours for any entity other than his/her employer.
 
     HUD's Mortgagee Monitoring Division has been requested to
assure that all mortgagees with staff appraisers are in compliance
with these instructions.  Failure to be in compliance may
jeopardize a mortgagee's continued participation in the Direct
Endorsement Program.
 
                                Very sincerely yours,
 
                                C. Austin Fitts
                                Assistant Secretary for
                                  Housing-Federal Housing Commissioner