Announcement 19-0071: FHA Underwriting Guideline Updates

Overview

The Carrington Mortgage Services, LLC (CMS) FHA Underwriting Guidelines have been updated. Please note there are differences in the effective dates for these updates. In general, guideline changes that result in reduced documentation or clarify existing requirements are effective immediately. Guideline changes that result in increased documentation or more restrictive qualification requirements are effective for FHA Cases assigned 9/9/2019 and later.

Please Note: for details regarding the FHA Cash-out LTV reduction changes effective for FHA Cases assigned September 1, 2019 refer to Correspondent Announcement C19-0068.

FHA Guidelines

Old Requirements

Updated Requirements

Individual Water Supply Systems (Wells)

When an Individual Water Supply System is present, CMS must ensure that the water quality meets the requirements of the health authority with jurisdiction.

If there are no local (or state) water quality standards, then water quality must meet the standards set by the EPA, as presented in the National Primary Drinking Water regulations in 40 CFR §§ 141 and 142.

Requirements for Well Water Testing – Effective Cases assigned 9/9/2019

Individual Water Supply Systems (Wells)

When an Individual Water Supply System is present, CMS must ensure that the water quality meets the requirements of the health authority with jurisdiction.

If there are no local (or state) water quality standards, then water quality must meet the standards set by the EPA, as presented in the National Primary Drinking Water regulations in 40 CFR §§ 141 and 142.

Requirements for Well Water Testing

A well water test is required for, but not limited to, Properties:

·       that are newly constructed;

·       where an Appraiser has reported deficiencies with a well or the well water;

·       where water is reported to be unsafe or known to be unsafe;

·       located in close proximity to dumps, landfills, industrial sites, farms (pesticides) or other sites that could contain hazardous wastes; or

·       where the distance between the well and septic system is less than 100 feet.

All testing must be performed by a disinterested third party. This includes the collection and transport of the water sample collected at the water supply source. The sample must be collected and tested by the local health authority, a commercial testing laboratory, a licensed sanitary engineer, or other party that is acceptable to the local health authority. At no time will the Borrower/owner or other Interested Party collect and/or transport the sample.

Required Documentation

CMS must obtain a valid water test from the local health authority or a lab qualified to conduct water testing in the jurisdictional state or local authority.

FHA Guidelines

Old Requirements

Updated Requirements

Overtime and Bonus Income

Calculation of Effective Income

For employees with Overtime and Bonus Income, CMS must average the income earned over the previous two (2) years to calculate Effective Income. However, if the Overtime or Bonus Income from the current year decreases by 20 percent (20%) or more from the previous year, CMS must use the current year’s income.

Overtime, Bonus or Tip Income – Effective Immediately

Calculation of Effective Income

For employees with Overtime, Bonus or Tip Income, CMS must calculate the Effective Income by using the lesser of:

·       the average Overtime, Bonus or Tip Income earned over the previous two years or, if less than two years, the length of time Overtime, Bonus or Tip Income has been earned; or

·       the average Overtime, Bonus or Tip Income earned over the previous year.

Commission Income

Required Documentation

For Commission Income less than or equal to 25 percent (25%) of the Borrower’s total earnings, CMS must use traditional or alternative employment documentation.

For Commission Income greater than 25 percent (25%) of the Borrower’s total earnings, CMS must obtain signed tax returns, including all applicable schedules, for the last two (2) years. In lieu of signed tax returns from the Borrower, CMS may obtain a signed IRS Form 4506, Request for Copy of Tax Return, IRS Form 4506-T, Request for Transcript of Tax Return, or IRS Form 8821, Tax Information Authorization, and tax transcripts directly from the IRS.

Calculation of Effective Income

CMS must calculate Effective Income for commission by using the lesser of

 (a) the average net Commission Income earned over the previous two (2) years, or the length of time Commission Income has been earned if less than two (2) years; or (b) the average net Commission Income earned over the previous one year. CMS must calculate net Commission Income by subtracting the unreimbursed business expenses from the gross Commission Income.

CMS must reduce the Effective Income by the amount of any unreimbursed employee business expenses, as shown on the Borrower’s Schedule A. For information on analyzing the Borrower’s 1040, review Analyzing IRS Forms.

Commission Income – Effective Immediately

Required Documentation

For all Commission Income CMS must use traditional or alternative employment documentation.

Calculation of Effective Income

CMS must calculate Effective Income for commission by using the lesser of

·       either: (i) the average Commission Income earned over the previous two years for Commission Income earned for two years or more, or (ii) the length of time Commission Income has been earned if less than two years; or

·       the average Commission Income earned over the previous year.

FHA Guidelines

Old Requirements

Updated Requirements

VA Disability

For VA disability benefits, CMS must obtain VA Form 26-8937, Verification of VA Benefits, showing the amount of the assistance and the expiration date of the benefits, if any, and one of the following documents:

·       federal tax returns; or

·       the most recent bank statement evidencing receipt of income from the VA.

VA Disability – Effective Immediately

For VA disability benefits, CMS must obtain from the Borrower a copy of the veteran’s last Benefits Letter, showing the amount of the assistance and one of the following documents:

·       federal tax returns; or

·       the most recent bank statement evidencing receipt of income from the VA.

If the Benefits Letter does not have a defined expiration date, the Mortgagee may consider the income effective and reasonably likely to continue for at least three years.

Automobile Allowances

Required Documentation

CMS must verify and document the Automobile Allowance received from the employer for the previous two (2) years.

CMS must also obtain IRS Form 2106, Employee Business Expenses, for the previous two (2) years.

Calculation of Effective Income

CMS must determine the portion of the allowance that can be considered Effective Income.

CMS must subtract automobile expenses as shown on IRS Form 2106 from the Automobile Allowance before calculating Effective Income based on the current amount of the allowance received.

If the Borrower uses the standard per-mile rate in calculating automobile expenses, as opposed to the actual cost method, the portion that the IRS considers depreciation may be added back to income. Expenses that must be treated as recurring debt include:

the Borrower’s monthly car payment; and

any loss resulting from the calculation of the difference between the actual expenditures as reported on IRS Form 2106 and the expense account allowance.

Automobile Allowances – Effective Immediately

Required Documentation

CMS must verify and document the Automobile Allowance received from the employer for the previous two (2) years.

Calculation of Effective Income

CMS must use the full amount of the Automobile Allowance to calculate Effective Income.

FHA Guidelines

Old Requirements

Updated Requirements

Interested Party Contributions

Premium Pricing on FHA-Insured Mortgages

Premium Pricing refers to a credit from a Mortgagee the interest rate chosen.

Premium Pricing may be used to pay a Borrower’s actual closing costs and/or prepaid items. Closing costs paid in this manner do not need to be included as part of the Interested Party limitation.

Interested Party Contributions– Effective Cases assigned 9/9/2019

Premium Pricing on FHA-Insured Mortgages

Premium Pricing refers to the aggregate credits from a Mortgagee or Third Party Originator (TPO) at the interest rate chosen.

Premium Pricing may be used to pay a Borrower’s actual closing costs and/or prepaid items. Premium Pricing is not included as part of the Interested Party limitation unless the Mortgagee or TPO is the property seller, real estate agent, builder or developer.

Interested Party Contributions

Definition

Interested Parties refer to sellers, real estate agents, builders, developers or other parties with an interest in the transaction.

Interested Party Contribution refers to a payment by an Interested Party, or combination of parties, toward the Borrower’s origination fees, other closing costs and discount points.

Exceptions

Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an Interested Party Contribution.

Required Documentation

CMS must document the total Interested Party Contributions on form HUD-92900-LT, Settlement Statement or similar legal document and the sales contract.

Interested Party Contributions – Effective Cases assigned 9/9/2019

Definition

Interested Parties refer to sellers, real estate agents, builders, developers, Mortgagees, Third Party Originators (TPO), or other parties with an interest in the transaction.

Interested Party Contribution refers to a payment by an Interested Party, or combination of parties, toward the Borrower’s origination fees, other closing costs and discount points.

Exceptions

Premium Pricing credits from the Mortgagee or TPO are excluded from the 6 percent limit, provided the Mortgagee or TPO is not the seller, real estate agent, builder, or developer.

Payment of real estate agent commissions or fees, typically paid by the seller under local or state law, or local custom, is not considered an Interested Party Contribution. The satisfaction of a PACE lien or obligation against the Property by the property owner is not considered an Interested Party Contribution.

Required Documentation

CMS must document the total Interested Party Contributions on the sales contract or applicable legally binding document, form HUD-92900-LT, and Closing Disclosure or similar legal document.  When a legally binding document other than the sales contract is used to document the Interested Party Contributions, the Mortgagee must provide a copy of this document to the assigned Appraiser.

FHA Guidelines

Old Requirements

Updated Requirements

Governmental Entity Funds and Down-Payment Assistance Programs

Standard for MRI

CMS must ensure that the Borrower’s MRI is from a permissible source and meets the following requirements.

CMS must ensure that the source of funds for the Borrower’s MRI to be provided fully complies with the Source Requirements for the Borrower’s Minimum Required Investment.

CMS must ensure that no portion of the Borrower’s MRI is provided by:

(1) the seller of the Property;

(2) any other person or Entity who financially benefits from the transaction (directly or indirectly); or

(3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.

Governmental Entity Funds & Down-payment Assistance Programs – Effective 4/26/2019 per bulletins W19-0056 and R19-0063

CMS does not permit down-payment assistance programs.

Standard for MRI

CMS must ensure that the Borrower’s MRI is from a permissible source and meets the following requirements.

CMS must ensure that the source of funds for the Borrower’s MRI to be provided fully complies with the Source Requirements for the Borrower’s Minimum Required Investment.

CMS must ensure that no portion of the Borrower’s MRI is provided by:

(1) the seller of the Property;

(2) any other person or Entity who financially benefits from the transaction (directly or indirectly); or

(3) anyone who is or will be reimbursed, directly or indirectly, by any party included in (1) or (2) above.

(4) any down-payment assistance program including, but not limited to; governmental entities, charitable organizations, Federal Home Loan Bank Homeownership Set-Aside Grant Program. (CMS does not permit down-payment assistance programs)

Rent Below Fair Market

Rent may be an inducement to purchase when the sales agreement reveals that the Borrower in the Property has been living rent-free or has an agreement to occupy the Property at a rental amount considerably below fair market rent.

Rent Below Fair Market – Effective Immediately

A reduced rent is an inducement to purchase when the sales contract includes terms permitting the Borrower to live in the Property rent-free or has an agreement to occupy the Property at a rental amount greater than 10 percent below the Appraiser’s estimate of fair market rent. When such an inducement exists, the amount of inducement is the difference between the rent charged and the Appraiser’s estimate of fair market rent prorated over the period between execution of the sales contract and execution of the Property sale.

FHA Guidelines

Old Requirements

Updated Requirements

Required Documentation for Disbursement of Mortgage Proceeds

CMS must obtain the final Settlement Statement or Closing Disclosure, as applicable or similar legal document from the settlement agent.

Required Documentation for Disbursement of Mortgage Proceeds – Effective Cases assigned 9/9/2019

CMS must obtain the final Closing Disclosure or similar legal document from the settlement agent. If the seller’s Closing Disclosure or similar legal document is provided separately, CMS must obtain from the Closing Agent a copy of the final disclosure provided to the seller to keep in the case binder.

Streamline Refinances - Standard for Refinances with a Term Reduction– Effective Cases assigned 9/9/2019

CMS must determine that there is a net tangible benefit to the Borrower meeting the standards in the chart below for all Streamline Refinance transactions with a reduction in term.

·       The remaining amortization period of the existing Mortgage must be reduced by at least 6 months; and The combined principal, interest, and MIP payment of the new Mortgage must not exceed the combined principal, interest, and MIP payment of the refinanced Mortgage by more than $50; and

·       The combined interest rate must:

o   Decrease when refinancing from a fixed rate Mortgage to a new fixed rate mortgage, or

o   Not increase by more than 2 percentage points when refinancing from an ARM to a new fixed rate mortgage

FHA Guidelines

Old Requirements

Updated Requirements

New Construction

Definition

Early Start Letter refers to the document issued by CMS in response to a builder’s request to start construction before the appraisal is completed. The Early Start Letter indicates CMS’s approval of the Property before issuance of form HUD 92800.5B and without affecting the maximum mortgage amount. CMS can issue the Early Start Letter if local jurisdiction has issued a building permit and a case number has been assigned.

Site Built Housing and Condominiums (By Construction Status at Time of Appraisal) > Existing for Less than One Year (100 Percent Complete)

CMS must obtain:

·       copies of the building permit and CO (or equivalent); or

·       a final inspection issued by the local authority with jurisdiction over the Property or an ICC RCI or CI; or

·       an appraisal evidencing Property is 100 percent (100%) complete.

Manufactured Housing (By Construction Status at Time of Appraisal) Inspection Requirements for Maximum Financing > Existing for Less than One Year (100 Percent Complete)

CMS must obtain a final inspection issued by the ICC RCI or CI or certifying engineer or architect.

HUD will only accept inspections by a local building authority on Manufactured Housing Properties if there are no ICC RCIs or CIs, certifying engineers, or architects available to perform these inspections. CMS must document efforts to obtain an ICC RCI or CI, certifying engineer, or architect.

CMS only permits New Construction (less than one year) on Manufactured Housing when the borrower has owned the land on which the home will be placed for at least 6 months from the date of the case number assignment. Refer to Building on Own Land for additional requirements, and guidance.

New Construction – Effective Immediately

Definition

Early Start Letter refers to the document issued by CMS in response to a builder’s request to start construction before the appraisal is completed. The Early Start Letter indicates CMS’s approval of the Property before issuance of form HUD 92800.5B and without affecting the maximum mortgage amount. CMS can issue the Early Start Letter if local jurisdiction has issued a building permit, in jurisdictions that require building permits, and a case number has been assigned. CMS can issue the Early Start Letter in jurisdictions that do not require building permits if a case number has been assigned.

Site Built Housing and Condominiums (By Construction Status at Time of Appraisal) > Existing for Less than One Year (100 Percent Complete)

CMS must obtain:

·       a copy of the CO (or equivalent); or

·       a final inspection issued by the local authority with jurisdiction over the Property or an ICC RCI or CI

Manufactured Housing (By Construction Status at Time of Appraisal) Inspection Requirements for Maximum Financing > Existing for Less than One Year (100 Percent Complete)

CMS must obtain a final inspection issued by the ICC RCI or CI or certifying engineer or architect.

HUD will only accept inspections by a local building authority on Manufactured Housing Properties if there are no ICC RCIs or CIs, certifying engineers, or architects available to perform these inspections. CMS must document efforts to obtain an ICC RCI or CI, certifying engineer, or architect.

FHA Guidelines

Old Requirements

Updated Requirements

Individual Water Supply Systems (Wells)

CMS must ensure that new wells are drilled and are no less than 20 feet deep and cased. Casing should be steel or other casing material that is durable, leak-proof, and acceptable to either the local health authority or the trade or profession licensed to drill and repair wells in the local jurisdiction.

A well located within the foundation walls of New Construction is not acceptable except in arctic or sub-arctic regions.

Individual Water Supply Systems (Wells) – Effective Immediately

Definition

CMS must ensure that new wells are drilled and are no less than 20 feet deep and cased. Casing should be steel or other casing material that is durable, leak-proof, and acceptable to either the local health authority or the trade or profession licensed to drill and repair wells in the local jurisdiction.

A well located within the foundation walls of New Construction is not acceptable except in arctic or sub-arctic regions.

Requirements for Well Water Testing

A well water test is required for all newly constructed Properties.

All testing must be performed by a disinterested third party. This includes the collection and transport of the water sample collected at the water supply source. The sample must be collected and tested by the local health authority, a commercial testing laboratory, a licensed sanitary engineer, or other party that is acceptable to the local health authority. At no time will the Borrower/owner or other Interested Party collect and/or transport the sample.

Required Documentation

CMS must submit a valid water test from the local health authority or qualified lab.

Sales Transaction or New Construction

When performing an appraisal for a sales transaction or on New Construction, the Appraiser must also review and analyze the following:

·       the complete copy of the executed sales contract for the subject; and

·       documents related to New Construction, including plans, specifications, and any exhibits provided that will assist the Appraiser in determining what is to be built, or, if now Under Construction, what will be built when finished;

·       and report the results of that analysis in the appraisal report.

Sales Transaction or New Construction – Effective Cases assigned 9/9/2019

When performing an appraisal for a sales transaction or on New Construction, the Appraiser must also review and analyze the following:

·       the complete copy of the executed sales contract for the subject; and

·       documents related to New Construction, including plans, specifications, and any exhibits provided that will assist the Appraiser in determining what is to be built, or, if now Under Construction, what will be built when finished;

·       and report the results of that analysis in the appraisal report.

If the seller is not the owner of record, the Appraiser must include an explanation in the appraisal report.

FHA Guidelines

Old Requirements

Updated Requirements

Building on Own Land

Definition

Building on Own Land refers to a product of the 203(b) program used to finance the construction of a dwelling on land already owned by the Borrower for greater than 6 months from case number assignment.

Borrower Eligibility

The Borrower must have contracted with a builder to construct the improvements. The builder must be a licensed general contractor. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.

Maximum Mortgage Amount

CMS must use the lesser of the Property Value or the documented Acquisition Cost to determine the Adjusted Value.

The documented Acquisition Cost of the Property includes:

·       builder’s price or the sum of all subcontractor bids and materials;

·       value of the land as shown in the site value of the appraisal; and

·       interest and other costs associated with a construction loan obtained by the Borrower to fund construction

If the Property being constructed is Manufactured Housing, the builder’s price to build includes the sum of the cost of the unit(s), and all on-site installation costs.

Minimum Required Investment

The Mortgage is calculated using the purchase Loan-to-Value (LTV) limits. The Settlement Statement or Closing Disclosure, as applicable or similar legal document may be prepared as a refinance transaction. CMS must document any Borrower required funds to close are from an acceptable source of funds in accordance with TOTAL or manual underwriting requirements as applicable.

If the land was given as a gift to the Borrower, CMS must verify that the donor was not a prohibited source.

CMS must obtain standard gift documentation for any gift of land.

Building on Own Land – Effective Immediately

Definition

Building on Own Land refers to the permanent financing of a newly constructed dwelling on land owned by the Borrower and may include the extinguishing of any construction loans. 

Eligibility

The Borrower must have contracted with a builder to construct the dwelling improvements. The builder must be a licensed general contractor. The Borrower may act as the general contractor, only if the Borrower is also a licensed general contractor.

Calculating the Maximum Mortgage Amount

CMS must use the lesser of the appraised value or the documented Acquisition Cost to determine the Adjusted Value.

The maximum mortgage amount is calculated using the appropriate purchase Loan-to-Value (LTV) percentage of the lesser of the appraised value or the documented Acquisition Cost.

The documented Acquisition Cost of the Property includes:

·       the builder’s price or the sum of all subcontractor bids and materials;

·       Borrower-paid options and construction costs not included in the builder’s price to build;

·       interest and other costs associated with a construction loan obtained by the Borrower to fund construction, if applicable; and

·       either of the following:

o   the lesser of the cost of the land, or appraised value of the land, if the land is owned six months or less at case number assignment; or

o   the appraised value of the land if the land has been owned for greater than six months at case number assignment or was received as an acceptable gift.

For Manufactured Housing, the builder’s price to build includes the sum of the cost of the unit(s), the cost to transport the unit from the dealer’s lot to the installation site, and all on-site installation costs.

FHA Guidelines

Old Requirements

Updated Requirements

Building on Own Land (continued)

Required Documentation

CMS must comply with general New Construction requirements.

CMS must document the date of purchase of the land by obtaining the Settlement Statement or Closing Disclosure, as applicable or similar legal document.

Building on Own Land (continued) – Effective Immediately

Minimum Required Investment

Standard

The Borrower may utilize any cash investment in the Acquisition Cost of the Property or land equity to satisfy the MRI in accordance with Calculating Maximum Mortgage Amount.

Required Documentation

The Mortgagee must document that the cash investment was from an acceptable source of funds in accordance with TOTAL or Manual Underwriting requirements as applicable.

If the land was given as a gift to the Borrower, CMS must verify that the donor was not a prohibited source.

CMS must obtain standard gift documentation for any gift of land.

Required Documentation

CMS must comply with general New Construction requirements.

CMS must document the date of purchase of the land by obtaining the Closing Disclosure, or similar legal document.

CMS must obtain evidence that the funds used to pay Borrower paid options were derived from an acceptable source. The Mortgagee must obtain an itemization of the options, expenses, and cost of each item.

General Appraiser Requirements

The Appraiser must follow FHA guidance and comply with the Uniform Standards of Professional Appraisal Practice (USPAP) when completing appraisals of Property used as security for FHA-insured Mortgages.

General Appraiser Requirements – Effective Immediately

The Appraiser must follow FHA guidance and comply with the Uniform Standards of Professional Appraisal Practice (USPAP) when completing appraisals of Property used as security for FHA-insured Mortgages. The Appraiser must observe, analyze, and report that the Property meets HUD’s MPR and MPS.

Minimum Property Requirements refer to general requirements that all homes insured by FHA be safe, sound, and secure.

Minimum Property Standards refer to regulatory requirements relating to the safety, soundness and security of New Construction.

Every Property must be safe, sound, and secure so that the Mortgagee can determine eligibility. The Appraiser must note every instance where

FHA Guidelines

Old Requirements

Updated Requirements

Additional Documentation Required for Appraisals of New Construction

When New Construction is less than 90% complete at the time of the appraisal, the Appraiser must document the floor plan, plot plan, and exhibits necessary to determine the size and level of finish.

When New Construction is 90% or more complete, the Appraiser must document a list of components to be installed or completed after the date of appraisal.

Appraiser Responsibility to Report Property Compliance

The Appraiser must observe, analyze and report that the Property meets HUD’s MPR and MPS.

Minimum Property Requirements (MPR) refers to general requirements that all homes insured by FHA be safe, sound, and secure.

Minimum Property Standards (MPS) refer to regulatory requirements relating to the safety, soundness and security of New Construction.

Every Property must be safe, sound, and secure so that CMS can determine eligibility. The Appraiser must note every instance where the Property is not safe, sound, and secure and does not comply with FHA’s MPR and MPS.

Additional Documentation Required for Appraisals of New Construction – Effective Immediately

When New Construction is less than 90% complete at the time of the appraisal, the Appraiser must document the floor plan, plot plan, and exhibits necessary to determine the size and level of finish.

When New Construction is 90% or more complete, the Appraiser must document a list of components to be installed or completed after the date of appraisal.

Stationary Storage Tanks

The Appraiser must notify CMS of the deficiency of MPR or MPS if the subject property line is located within 300 feet of an aboveground or subsurface stationary storage tank with a capacity of 1,000 gallons or more of flammable or explosive material. This includes domestic and commercial uses as well as automotive service station tanks.

Stationary Storage Tanks – Effective Immediately

If the subject property line is located within 300 feet of an aboveground, stationary storage tank with a capacity of 1,000 gallons or more of flammable or explosive material, then the Property is ineligible for FHA insurance, and the Appraiser must notify the Mortgagee of the deficiency of MPR or MPS.

FHA Guidelines

Old Requirements

Updated Requirements

Mechanical Components and Utilities

The Appraiser must notify CMS of the deficiency of MPR or MPS if mechanical systems are not safe to operate; not protected from destructive elements; do not have reasonable future utility, durability and economy; or do not have adequate capacity.

The Appraiser must observe the physical condition of the plumbing, heating and electrical systems. The Appraiser must operate the applicable systems and observe their performance.

If the systems are damaged or do not function properly, the Appraiser must condition the appraisal on its repair or further inspection.

If the Property is vacant, the Appraiser must note in the report whether the utilities were on or off at the time of the appraisal.

If the utilities are not on at the time of observation and the systems could not be operated, the Appraiser must:

1. render the appraisal as subject to re-observation;

2. condition the appraisal upon further observation to determine if the systems are in proper working order once the utilities are restored; and

3. complete the appraisal under the extraordinary assumption that utilities and mechanical systems, and appliances are in working order.

The Appraiser must note that the re-observation may result in additional repair requirements once all the utilities are on and fully functional.

If systems could not be operated due to weather conditions, the Appraiser must clearly note this in the report. The Appraiser should not operate the systems if doing so may damage equipment or when outside temperatures will not allow the system to operate.

Electrical, plumbing, or heating/cooling certifications may be required when the Appraiser cannot determine if one or all of these systems are working properly.

Utilities – Mechanical Components – Effective Immediately

The Appraiser must notify CMS of the deficiency of MPR or MPS if mechanical systems are not safe to operate; not protected from destructive elements; do not have reasonable future utility, durability and economy; or do not have adequate capacity.

The Appraiser must observe the physical condition of the plumbing, heating and electrical systems. The Appraiser must operate the applicable systems and observe their performance.

If the systems are damaged or do not function properly, the Appraiser must condition the appraisal on its repair or further inspection.

If the Property is vacant, the Appraiser must note in the report whether the utilities were on or off at the time of the appraisal.

If the utilities are off at the time of the inspection, the Appraiser must ask to have them turned on and complete all requirements under Mechanical Components. However, if it is not feasible to have the utilities turned on, then the appraisal must be completed without the utilities turned on or the mechanical systems functioning.

If the utilities are not on at the time of observation and the systems could not be operated, the Appraiser must:

1. render the appraisal as subject to re-observation;

2. condition the appraisal upon further observation to determine if the systems are in proper working order once the utilities are restored; and

3. complete the appraisal under the extraordinary assumption that utilities and mechanical systems, and appliances are in working order.

FHA Guidelines

Old Requirements

Updated Requirements

Utilities – Mechanical Components (continued) – Effective Immediately

The Appraiser must note that the re-observation may result in additional repair requirements once all the utilities are on and fully functional.

If systems could not be operated due to weather conditions, the Appraiser must clearly note this in the report. The Appraiser should not operate the systems if doing so may damage equipment or when outside temperatures will not allow the system to operate.

Electrical, plumbing, or heating/cooling certifications may be required when the Appraiser cannot determine if one or all of these systems are working properly.

Public Water Supply Systems – Effective Immediately

Definition

A Public Water Supply System refers to a system that is owned by a governmental authority or by a utility company that is controlled by a governmental authority.

Standard

When a public water supply system is present, the water quality is considered to be safe and potable and to meet the requirements of the health authority with jurisdiction unless:

·       the Appraiser indicates deficiencies with the water or notifies the Mortgagee that the water is unsafe; or

·       the health authority with jurisdiction issues a public notice indicating the water is unsafe.

Required Analysis and Reporting

The Appraiser must:

·       report any readily observable or known deficiencies with the water;

·       notify the Mortgagee when water is determined to be unsafe, report, and provide a cost to cure; and

·       address any impact on value and marketability, and make the appropriate adjustments.

Community Water Systems – Effective Immediately

Definition

A Community Water System refers to a central system that is owned, operated and maintained by a private corporation or a nonprofit property owners’ association.

Required Analysis and Reporting

If the Property is on a Community Water System, the Appraiser must note the name of the water company on the appraisal report.

FHA Guidelines

Old Requirements

Updated Requirements

FHA Minimum Photograph Requirements – Effective Cases assigned 9/9/2019

HUD Real Estate Owned Properties

Insurable With Repair Escrow

If the Property requires no more than $5,000 in repair, the Appraiser must state that the Property is insurable with a repair escrow.

Uninsurable

If the cost of repairs is greater than $5,000, the Appraiser must state that the Property is uninsurable.

HUD Real Estate Owned Properties – Effective Immediately

Insurable With Repair Escrow

If the Property requires no more than $10,000 in repair, the Appraiser must state that the Property is insurable with a repair escrow.

Uninsurable

If the cost of repairs is greater than $10,000, the Appraiser must state that the Property is uninsurable.