Appraisal News for
Mortgage Professionals


FHA Inspection Examples of minor property conditions that no longer require AUTOMATIC REPAIR
for existing properties

  • Missing handrails
  • Cracked or damaged exit doors that are otherwise operable
  • Cracked window glass
  • Defective paint surfaces in homes constructed post 1978
  • Minor plumbing leaks (such as leaky faucets)
  • Defective floor finish or covering
  • Evidence of previous (non-active) Wood Destroying Insect/ Organism damage where there is no evidence of unrepaired structural damage
  • Rotten or worn out counter tops
  • Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post-1978
  • Poor workmanship
  • Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
  • Crawl space with debris and trash
  • Lack of an all weather driveway surface

FHA property conditions that may represent a risk to the health and safety of the occupants or the soundness of the property that FHA will continue to
for existing properties include:

  • Inadequate access/egress from bedrooms to exterior of home
  • Leaking or worn out roofs
  • Evidence of structural problems
  • Defective paint surfaces in homes constructed pre-1978
  • Defective exterior paint surfaces in home constructed post-1978 where the finish is otherwise unprotected.

FHA no longer mandates
for the following items and/or
conditions in existing properties:

  • Wood Destroying Insects/Organisms
  • Well (individual water system
  • Septic
  • Flat and/or unobservable roof

FHA Inspection Examples that continue to require AUTOMATIC INSPECTIONS

  • Standing water against the foundation and/or excessively damp basements
  • Hazardous materials on the site or within the improvements
  • Faulty or defective mechanical systems (electrical, plumbing, or heating)
  • Evidence of possible structural failure (e.g., settlement or bulging foundation wall)

NEW FHA Apppraisal Reporting Requirements - FHA Handbook 4150.2 Appendix D

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

  • Mortgage Fraud Bill Introduced To Senate

    Senator Barack Obama, Illinois, introduced a bill to the Senate that would create a federal crime to be known as mortgage fraud. Currently, prosecutions for mortgage fraud at the federal level generally occur under the wire fraud, mail fraud and bank fraud statutes.

    The bill known as the Stopping Transactions which Operate to Promote Fraud, Risk and Under-Development (STOP FRAUD) Act, if adopted as written, would make it unlawful for any mortgage professional to knowingly execute or attempt to execute a scheme or artifice either (1) to defraud any personal or financial institution in connection with the offer or extension of consumer credit secured by an interest in real property or (2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property, including fees or charges, in connection with the extension of such credit.

    The maximum penalty for violation of the statute would be 35 years in prison and a $5,000,000 fine.

    Included in the definition of Morgtage Professionals are:

    • Federal National Mortgage Association
    • Government National Mortgage Association
    • Federal Home Loan Mortgage Corporation
    • Mortgage Appraisers
    • Real Estate Accountants
    • Real Estate Attorneys
    • Real Estate Brokers
    • Mortgage Underwriters
    • Mortgage Processors
    • Mortgage Settlement and Title Companies
    • Mortgage Brokers
    • Mortgage Loan Originators
    • and any other mortgage professional engaged in the mortgage industry

    The bill also provides for the establishment of a Debarred or Censured Mortgage Professional Dateabase, that may be accessed by authorized banks and mortgage professionals to determine the Federal and State bar status of mortgage professionals regulated by any Federal or State agency.

    Click [Here] to read the complete bill

    This page was written by Brian Davis - A licensed real estate appraiser.