www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 November 7, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 94-54 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production: Procedures for Lenders to use to Select their own Appraisers The Department has published final regulations to implement Section 322 of the National Affordable Housing Act. That Section allows Direct Endorsement (DE) lenders to select their own appraisers in addition to the current options of using a staff appraiser employed by the DE lender itself or a fee appraiser assigned by HUD from one of its fee panels. The purpose of this Mortgagee Letter is to provide lenders and appraisers with the information they need to participate in this new appraisal procedure. A "Lender Selection Roster" of eligible appraisers will be established at each HUD Field Office. Lenders will be able to select any appraiser from the Lender Selection Roster. Lenders will be permitted to select appraisers from the Lender Selection Roster beginning with case numbers assigned on or after December 5, 1994. The policies and procedures concerning lender selection of the appraiser are as follows: I. Lender Responsibility and Accountability As is the case with a DE staff appraiser, a DE lender that selects its own appraiser must accept responsibility, equally with the appraiser, for the integrity, accuracy and thoroughness of the appraisal and will be held accountable by HUD for the quality of the appraisal. Depending upon the circumstances in a particular case, if HUD finds that the appraisal is so deficient that the adequacy of the security for the loan is compromised or that our risk has been substantially increased, the Department may look to the lender for risk mitigation. This risk mitigation may include lender indemnification for losses or other disciplinary actions. For this reason, lenders must exercise due diligence in choosing only the best qualified and knowledgeable appraisers and have in 2 place a quality control system to assure good quality appraisals. As stated in HUD's Mortgagee Approval Handbook (4060.1), the lender's quality control system must include procedures for field reviews of a sample of appraisals. This must include a reasonable sampling of appraisals performed under this new procedure. Also, HUD is not requiring appraisers on the Lender Selection Roster to have errors and omissions insurance, as it previously proposed. HUD is leaving it up to lenders to decide whether errors and omissions insurance coverage should be required from appraisers that they select. Appraisals performed under this new procedure will be tracked and monitored by our CHUMS automated system. A sampling of the appraisals will be both desk and field reviewed by HUD to assure good quality work. Those appraisers chosen most often by lenders will receive the most HUD reviews. II. Female and Minority Appraiser Participation During the development of the Department's regulations concerning lender choice of appraisers, there was considerable concern expressed by many commenters that female and minority apppraisers would not receive their fair share of appraisal assignments. Therefore, the Department's regulations on choosing appraisers state that there shall be no discrimination on the basis of race, color, religion, national origin, sex, age or disability and we expect lenders to comply with these anti-discrimination requirements. We further expect that lenders will affirmatively select female and minority appraisers for a fair share of appraisals. The Department will use its CHUMS automated system to monitor the lender's choice of appraisers and the sex and race of appraisers that are being chosen. Upon request, public reports will be made available on the number of female and minority appraisers being chosen by a specific lender. In addition, upon request, HUD will provide lists of female and minority appraisers to lenders that wish to know the names of these appraisers. Lenders are also reminded that HUD does not consider membership in any professional appraisal organization to be of any significance in judging an individual's credentials or competence to perform an appraisal. Membership in a specific appraisal organization is not to be given weight when the lender is making the appraiser selection. 3 III. Pressure on Appraiser and Conflicts of Interest The Department requires that appraisers chosen under this new procedure not be supervised or directed by any loan officers or loan production personnel. Chosen appraisers should be supervised by the lender's underwriting or management personnel. Instances of undue pressure or influence on an appraiser reported to HUD will result in appropriate disciplinary actions against the lender involved. The lender and appraiser must also avoid conflicts of interest which affect, either in reality or in appearance, the credibility of the appraisal. A lender may not choose an appraiser that has any interest, direct or indirect, in the property being appraised. In addition, a lender may not choose an appraiser that is employed by an appraisal company that owns, is owned by, is affiliated with or has any financial interest in the builder or seller of the property. IV. Appraiser Application for HUD Lender Selection Roster To be eligible for placement on the Lender Selection Roster, an appraiser must be State licensed or certified in accordance with the minimum licensing criteria established by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation. The AQB minimum requirements for licensing are 75 hours of education, 2,000 hours of experience and passing a written examination. In some states appraisers can obtain a State license without meeting the AQB minimum requirements. These appraisers will not be eligible for placement on the Lender Selection Roster. The appraiser must have the appropriate State designation that meets the AQB minimum requirements to be eligible for placement on the Lender Selection Roster. To be placed on the Lender Selection Roster and become eligible for selection by a lender, an appraiser must apply to the HUD Field Office within whose jurisdiction the appraiser intends to perform appraisals, i.e., where he or she wishes to work. To apply, the appraiser must submit to the HUD Field Office where the appraiser wants to perform appraisals: A.A completed Form HUD-92563 (a copy of this form is attached to this letter), and B.A photocopy of State license or certification. 4 You will notice that on the application Form HUD-92563, the appraiser must certify that he or she has read HUD Valuation Handbook 4150.1 REV-1. Appraisers must obtain a copy of this HUD Handbook and read it in order to become knowledgeable about HUD appraisal requirements before accepting any HUD appraisal request. A copy of this Handbook may be obtained from HUD without charge by faxing a request to HUD's Printing and Distribution Branch at telephone number (202) 708-2313. A copy may also be obtained by writing to: US Department of Housing and Urban Development Printing Branch - Room B-100 451 7th Street, SW Washington, DC 20410 HUD Office review of each appraiser's application will be limited to: (1) assuring that the appraiser is State licensed or certified in accordance with AQB minimum criteria, (2) prescreening of the appraiser's social security number in the Credit Alert Interactive Voice Response System (CAIVRS), and (3) review of HUD records to make sure that the appraiser is not debarred, suspended or in any way disqualified from participating in HUD programs. An appraiser who does not meet AQB minimum licensing criteria or who is in CAIVRS (which means that the appraiser has defaulted on a HUD insured mortgage) or is disqualified from participating in HUD programs will not be eligible for the Lender Selection Roster. To the extent possible, local HUD Field Offices will sponsor training for appraisers that are placed on the Lender Selection Roster. However, we know that in some areas it will be not be possible for HUD to accommodate, in a timely fashion, the large number of appraisers that may want such training. Therefore, we encourage local appraiser and lender trade organizations, on their own, to sponsor such training, so that all appraisers who want to participate in this new procedure can become familiar with HUD appraisal requirements and practices. Although HUD strongly encourages appraisers to attend a training session sponsored by HUD or a local trade group, we are not requiring that appraisers attend any such session prior to applying for placement on the Lender Selection Roster. Instead, the Department will rely upon lenders to assure that only knowledgeable appraisers are chosen to perform HUD appraisals and will rely on the integrity of 5 each individual appraiser. The ethics provisions of the Uniform Standards of Professional Appraisal Practice (USPAP), which all state licensed or certified appraisers must adhere to, require that an appraiser not accept an appraisal assignment which he or she is not competent to perform. The appraiser pays no application fee to be placed on the Lender Selection Roster and there is no limit to the number of appraisers that may be placed on the Roster. Appraisers on the Lender Selection Roster will not be eligible for selection if their license expires and HUD is not notified that it has been renewed. Appraisers are reminded that they must submit a copy of their State license or certification to HUD when it is renewed, so that HUD can update its CHUMS system to show that the appraiser is eligible for selection. Appraisers currently on HUD's fee appraiser panels should be placed on the Lender Selection Roster automatically. V. Procedures to be used by Lender to Choose Appraiser A DE lender will now have three alternatives for obtaining a HUD appraisal. The lender may: (1) continue to have an appraiser assigned by HUD from the fee panel, (2) use a lender staff appraiser, or (3) choose an appraiser from the Lender Selection Roster. There are no changes from current procedures if the lender continues to use the fee panel or an appraiser on the lender's staff. If the lender wishes to use an appraiser from the Lender Selection Roster, it should follow these steps: A. Using the CHUMS Lender Access System: 1. On the Receiving/Assignment Screen the lender will enter Assignment Choice "5" (Lender Select). This is a new assignment choice to indicate that the lender wishes to choose an appraiser from the Lender Selection Roster. 2. The lender will then enter the appraiser's State license or certification number. The appraiser's license number may be entered in two ways: (a) the lender can enter the appraiser's license number, or (b) the lender may use the Pull-Down Appraiser Window. To use the Pull-Down Window, press the F3 key. A scrolling appraiser name list (previously entered by the lender) will display. Next, arrow down to the desired appraiser and press "Enter." The appraiser's license number will appear in the appraiser ID field. 6 If the appraiser has license numbers in more than one state, the lender must select the license number for the state that matches the state code of the property to be appraised. Note: In order to use CLAS to select an appraiser from the Lender Selection Roster, the lender must obtain CLAS version 7.0B, which will be available in early December. B. Telephone call-in or written requests: 1. Inform the HUD Office that you wish to use an appraiser from the Lender Selection Roster. 2. Provide the identifying alpha abbreviation for the State and then the State license or certification number of the appraiser you wish to select. For example, if the lender wanted to select John Smith for a property in HUD's Philadelphia Office jurisdiction and Mr. Smith's state license number was 12345, the lender would provide the HUD Philadelphia Office with the state alpha abbreviation for Pennsylvania, which is "PA" and then the State license number for Mr. Smith, which is "12345." 3. The CHUMS system will automatically check to make sure that the requested appraiser is on the Lender Selection Roster in that Field Office and assign that appraiser to the case. After appraiser assignment, case processing will continue using the same procedures that are used now. Appraisers chosen from the Lender Selection Roster must send a copy of each completed appraisal to the local HUD Office, as is done now for all other appraisals, to assure proper monitoring and control. VI. Appraisal Fee HUD will still regulate the maximum appraisal fee for all HUD appraisals, including those that are performed by appraisers on the Lender Selection Roster. Keep in mind that HUD sets the maximum appraisal fees that can be charged by appraisers. Appraisers may charge less than the maximum. VII. Inspection by Appraiser HUD policy requires the appraiser who is assigned the appraisal to perform the site inspection of the subject property, all the comparables and to sign the appraisal 7 report. This policy does not change under Lender Selection procedures. The appraiser that the lender selects must perform the inspection of the subject property and all the comparables and sign the appraisal report. The appraiser selected by the lender CANNOT sign the appraisal report as the reviewer. If the appraiser that is selected by the lender subsequently cannot perform the appraisal, then the lender should contact HUD and make a new selection. VIII. Reciprocity with the Department of Veterans Affairs Appraisals that are performed by appraisers chosen from the Lender Selection Roster may not be eligible for conversion to VA. There is a conflict between Section 322 of the National Affordable Housing Act and VA statutes with respect to a lender selecting the appraiser. Questions concerning the eligibility of appraisals under this procedure for conversion should be addressed to the VA. IX. Field Review Contractors In some HUD Field Offices, we employ appraisal contractors to field review appraisals. In order to avoid the appearance of any conflict of interest, appraisers who have these field review contracts are not eligible for placement on the Lender Selection Roster. X. Using Appraiser Selected by Sponsor When there is a Sponsor/Correspondent relationship between the lenders, the Correspondent lender must use an appraiser chosen by the Sponsor if the Lender Selection Roster is to be used. The Sponsor will be accountable for the quality of the appraisal. XI.Removal of an Appraiser From the Lender Selection Roster The local HUD Office may remove an appraiser from the Lender Selection Roster for cause. This would include failure to inspect the property and comparables, a poor rating (numerical score of "2" or "1") on two or more field reviews in any 12 month period or for any other reason that in the opinion of the local HUD Office reflects adversely upon the appraiser's ability, integrity or reliability. 8 Removal of an appraiser from the Lender Selection Roster will result in no new assignments for that appraiser. At the discretion of the local HUD Office, appraisals assigned to that appraiser before the removal action, but not yet completed, may be reassigned to other appraisers. The cause for removal of an appraiser may indicate to a lender that it needs to intensify its monitoring of any appraisal assignments still in process with this appraiser, as well as reviewing its quality control procedures to make sure that it has an effective system to detect faulty appraisals. When a HUD Office removes an appraiser from the Lender Selection Roster it will send a written notification to the other HUD Offices where the appraiser was placed on the Lender Selection Roster and the appraiser will also be removed in those HUD Offices. XII. Use of Certified Appraisers Lenders are reminded that a State certified appraiser must be used if the property has a value of more than one million dollars or if the appraisal is considered complex. HUD does not consider any residential property to be a complex appraisal and since very few properties to be insured by HUD have values in excess of one million dollars, there will be very few instances when a certified appraiser will be needed for a transaction. Lenders should make copies of this Mortgagee Letter available to appraisers they are currently working with and wish to have placed on the Lender Selection Roster. If you have any questions concerning this letter, please contact the Chief Appraiser in your local HUD Field Office. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachment ___________________________________________________________________________ Fee or Roster Designation Application for Fee Personnel Designation ******************************************************************** * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * ******************************************************************** ___________________________________________________________________________ form VA 26-6681 form HUD-92563 (10/94) Page 1 of 2 ref. Handbook 4020.1 ___________________________________________________________________________ ******************************************************************** * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * ******************************************************************** ___________________________________________________________________________ form VA 26-6681 form HUD-92563 (10/94) Page 2 of 2 ref. Handbook 4020.1