After being told repeatedly that it's efforts to portray FHA appraisers as home inspectors were misleading, deceptive, and wrong, HUD is now beginning to pay the price.

According to The Detroit Free Press, Mike and Kim Powers are getting a new house, compliments of HUD. It seems they bought an $86,000 home through FHA but later discovered that the house had 181 building code violations.

"A Federal Housing Administration appraisal and city inspections had uncovered only minor problems," said the story. "The Inkster couple said they did not get a private inspection because a TV commercial they saw on the Learning Channel touted the effectiveness of an FHA appraisal in finding defects in a house."

The result? According to the Free Press, "the Department of Housing and Urban Development, the parent agency of the FHA, agreed to let the couple exchange the house in Inkster for a HUD home of their choice in the same price range." (See: HUD will help get new home; TV ad blamed, February 10, 2001)

It's hardly amazing that buyers in Detroit and elsewhere feel mislead. According to HUD, today's FHA appraisal is far more than a mere estimate of value.

The so-called Homebuyer Protection Plan which then-HUD Andrew Cuomo announced in 1998, was supposed to assure FHA borrowers that they are not buying a lemon.

"For the first time," said HUD, it would "require that home defects found by appraisers be disclosed to potential buyers."

Under the HUD plan, appraisers are obligated to locate "problems with plumbing, walls, ceilings, roofs, foundations, basements, electrical systems, and heating and air-conditioning systems; soil contamination; the presence of wood-destroying insects; hazards and nuisances near homes (such as oil and gas wells); lead-based paint hazards; and other health and safety problems."

The program, says HUD, "requires the appraiser to complete a new three-page form describing the physical condition of a home in unprecedented detail. HUD will give appraisers a handbook explaining the new appraisal standards."

"Under the new initiative," HUD explained, "appraisers must note the exact deficiencies – such as cracks in floors, cracks in walls and ceilings, evidence of water leakage, and evidence of damaged support structures."

Appraisers provide independent property valuations so that lenders can be certain they are not lending too much for a given home, and thus not making loans which have needlessly-high levels of risk.

Appraisers, however, are not home inspectors. They do not open electrical service boxes, climb roofs, or check furnaces. Appraisers are not licensed to perform home inspections, they are not trained for such work, and if you ask appraisers they will tell you that they are not professional home inspectors. And because the extra work and liability associated with the HUD program, many appraisers raised their fees to do FHA work while some simply refuse to do FHA valuations.

None of this is a criticism of appraisers. They have an important role in the home-buying process, but that role is not to perform home inspections.

HUD, under Cuomo, made matters worse by airing a series of television ads which suggested that buyers need not worry about the condition of a home when they bought with FHA financing because, after all, the FHA appraisal would protect them.

The HUD ad campaign, wrote Maine Senator Susan M. Collins in a letter to Cuomo last September and first reported by Realty Times columnist Lew Sichelman, "implies that the home buyer can blindly trust HUD to protect his or her interest, and that the appraisal process will disclose any and all problems with the house. Given that FHA deals overwhelmingly with persons who have no previous experience purchasing a home, I would hope that this inaccurate message troubles you as much as it troubles me.

The HUD promotions, added Collins, "border on deceptive advertising."

We now have a new Administration in Washington and HUD has a new secretary, Mel Martinez. No organization other than HUD requires appraisers to perform what are effectively home inspections. Thus the questions for HUD look like this:

• Will HUD end efforts to have appraisers substitute for home inspectors?

• Will HUD end it's HomeBuyer Protection Plan ads?

• Will HUD end any appraisal requirement established during the past four years which has not been adopted by both the Veterans Administration and conventional lenders?

Here is a chance for the new Secretary to rein in an unwanted program, better serve consumers, and cut HUD costs. Such an action would draw instant support from Capitol Hill, appraisers, brokers, lenders, and consumers.

Alternatively, you can bet that trial lawyers with college tuition to pay will look at the situation in Detroit and say, "whoa, this gives me an idea...."

If you think that problems associated with the FHA home inspection program are over, they're not. Just consider two recent e-mails received by Realty Times:

"I just recently bought a home through FHA in San Pablo, CA," says one correspondent.

"We had both the FHA appraisal and home inspection completed. We have been there 2 weeks and we are finding so many problems, such as there are no doors to the bedrooms, or closets, all the windows are nailed shut, the 2 backdoors are nailed shut, one of the back doors does not have a door frame, also they left their appliances, which do not work, and finally out of maybe 16 electrical outlets only 5 actually work, and the windows leak, and other stuff."

Here's another:

"I was wondering if there is any protection when you purchase a home through FHA regarding the roof not passing certification.

"We live on the Texas Gulf Coast that requires roofs be certified for the Texas Windstorm Insurance. A few months after we purchased our home, the Texas Windstorm Insurance said that our roof was never certified. We had a engineer come out and inspect the house, so that we could get it certified. The engineer informed us that the roof could not pass certification for the Texas Windstorm Insurance. And no insurance companies carry their our windstorm coverage. Knowing what area we live in that requires us to have windstorm insurance with a loan, why didn't the FHA inspector notify the mortgage company and buyer of the problem that existed?"

There is, of course, no "FHA inspector," a misconception which needs to be corrected.

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