When Perry "Pat" Turner Jr. visits a house to do an appraisal, he usually just brings a camera, a note pad and a measuring device.
But lately, the Richmond, Va., appraiser had to carry an expandable ladder with him so he can get into certain areas of the home.
That's because of changes last fall to the Federal Housing Administration handbook that gave appraisers more detailed instructions on what they need to examine.
"What I dislike about this is it appears to me that they're trying to make appraisers into the whole house inspectors and that's not what we are," said Turner, who's been charging more than he used to for FHA jobs (which already commanded a premium over regular appraisals).
The additional work "adds 30 to 40 more minutes to the inspection," he said. But in many cases, the parties ordering the appraisal "are paying the same fee they used to pay. I don't do that. My fee is $100 higher now than prior to these more stringent guidelines. So it didn't help the consumer any," since the appraisal fee is passed along to the applicant.
Stories like Turner's suggest that the appraisal changes could disadvantage the FHA in the market at a time when its volume has surged following a mortgage insurance premium cut last year. Many appraisers are either charging more or simply refusing to do FHA work, which to their minds now comes close to, if not crossing into, the remit of the home inspector.
"A lot of people have stopped doing FHA work because of the perceived inspection process. You got to test the dishwasher. You got to crawl under the house and see if there is any moisture," said Scott Robinson, an appraiser who is president of the Appraisal Institute, an industry trade group.
The agency, which guarantees low-down-payment loans for first-time homebuyers and low-income consumers, is also losing favor with larger banks following several aggressive regulatory actions by the Department of Justice over underwriting of FHA loans. Wells Fargo this week introduced a low-down-payment product with Fannie Mae that will compete with the FHA's bread and butter.
The appraisal changes are making transactions "more costly and time consuming, hindering an FHA borrower's ability to compete in today's housing markets," Tom Salomone, president of the National Association of Realtors, said in a March 18 letter to Edward Golding, the Principal Deputy Assistant Secretary for Housing at the Department of Housing and Urban Development. The FHA is a part of HUD.
As of press time, HUD had not responded to a request for comment.
To be fair, the FHA was once even more demanding in what it required from appraisers.
Until around the turn of the century, the FHA required appraisers to use something called the valuations conditions addendum, noted Frank Danna, president of Appraisal Logistics, an appraisal management company in Annapolis, Md.
"Back then, the FHA appraisal inspection was fairly comprehensive. You had to test a lot of the systems in the house to make sure they were working properly," he said. When that form was dropped, it became "a very simple inspection."
The handbook revision "reinstituted a lot of what was in existence with the prior inspection requirements," Danna said.
Given his prior experience as an FHA appraiser, he said the new rules were "nothing for me. I don't see any more liability" for the appraiser.
But feedback from a majority of appraisers who work with Appraisal Logistics found they have a problem with the new requirements.
"We're seeing everything from increased fees to just refusing to do FHA appraisals," said Dennis Ashcroft, vice president of sales at Appraisal Logistics.
The Realtor group wants HUD to remove the phrase "operate all conveyed appliances and observe their performance" and replace the phrase "observe, analyze and report" to "analyze and report" from the handbook.
In its letter, the trade group asked HUD to remove items that are "beyond the normal scope of an appraisal assignment," and better define what the role of an appraiser is, especially versus that of a home inspector.
At LRES, another appraisal management firm, while there have been some appraisers who have given negative feedback, most are still doing FHA appraisals, said senior staff appraiser Wynetta Byers.
She noted that the agency's requirements for appraisers to look at anything that affects the property's safety, security and soundness have never changed.
There was and is a lot of misinformation about the changes out in the market. One appraiser called Byers and said she didn't want to do FHA anymore "because there are now 1,100 things that she is going to have to be responsible for. And I couldn't believe it. I don't know who told her that, but it really wasn't true."
LRES sought to counter the misinformation through training, Byers said.
"FHA is not requiring them to be inspectors," she said. "I think that because it is beyond they're used to doing, they resent the additional detail. And I can understand that. But at the end of the day, you're assessing an asset for a mortgage transaction and it is your job to look at those things."
Turner, the Virginia appraiser, said that previously 15% to 20% of his work was on FHA appraisals; he now does just about one-third of that.
Right now, a stronger-than-expected spring home buying season is having a bigger effect on appraisal turn-times than the increased inspection requirements, said Tony Pale, director of valuation services at Total Mortgage Services, a lender.
TMS manages its own appraisal panel, of 400 to 450 appraisers, almost all of whom are FHA-approved.
So far, none of them have turned down FHA work. "What I am seeing is the seasonal volume has picked up tremendously and I have had some of our own appraisers say 'Back off the volume you're sending us' or 'I need a week to catch up.' But it's not being attributed to the additional requirements of FHA inspections," Pale said.
In the long term, Danna said, if not revised, the handbook changes could affect the number of people willing to take FHA work. Broadly, the appraisal profession has for years been grappling with a shortage of manpower, as older practitioners retire and fewer and fewer college graduates join.
The FHA requires the use of state-certified appraisers, a higher standard than state-licensed appraisers, who can be used for certain conforming loan transactions.
Then the appraiser needs to be willing to accept the terms and conditions that HUD has, which are different than a conventional appraisal report.
"You see appraisers that are not FHA appraisers currently and haven't been in the past. I don't think they're beating down the door of HUD to get in there and become roster appraisers," Danna said.
Turner was more direct. "There are appraisers that are just not going to put up with this," he said. "If we're not going to put up with it, either FHA is going to go back to something a little bit more reasonable or they will continue to lose good appraisers."