In September 2005, the Federal Housing Administration (FHA) issued Mortgagee Letter 2005-34 , which announced the adoption of four of Fannie Mae's revised
appraisal reporting forms as well as the release of the 139 page Revised Appendix D of Handbook 4150.2, CHG-1.
FHA has shifted from its historical emphasis on the repair of minor propertydeficiencies and now only requires repairs for those property conditions that rise above the level of cosmetic defects, minor defects or normal wear and tear.
That's an IMPORTANT change for BOTH lenders and appraisers to be aware of. It's easy for both of us to keep doing business-as-usual which will ultimately result in confusion and delay the processing of the loan.
With the elimination of the HUD VC-Sheet, FHA Roster Appraisers are to report all readily observable property deficiencies, as well as any adverse conditions discovered performing the research involved in completing the appraisal, within the appraisal reporting form.
Lenders should use professional judgment and rely upon prudent underwriting practices in determining when a property condition poses a threat to the SAFETY of an occupant and/or jeopardizes the SOUNDNESS and STRUCTURAL integrity of the property, such that additional inspections and/or repairs are necessary.
As stated in the Revised Appendix D, FHA now permits an "as-is" appraisal for existing properties that serve as security for FHA-insured mortgages when minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, do not affect the safety of the occupants or the security and soundness of the property.
FHA no longer requires repairs for these types of minor cosmetic deficiencies to bring a property into compliance with FHA Minimum Property Requirements. Please review the examples on the left, to get an idea of those types of deficiencies that are now considered cosmetic.
Lenders must review the appraisal to determine whether the appraiser has
reported any property conditions that will affect the health and safety of the occupants or the security and the soundness of the property and must require immediate repair where the property condition poses a threat to these criteria.
If the appraiser reports a potential property deficiency that may pose a threat to the safety of the occupants or the security and soundness of the property, the lender should require an inspection of the condition to determine whether repairs are necessary to mitigate or resolve the problem.
Additional Reading Resouces