Some organizations are curious as to how you feel about the Federal Housing Administration’s new Homebuyer Protection Plan.

Back in June of 1998, Andrew Cuomo, the Secretary of the Department of Housing and Urban Development, paraded Frank and Shannon Sinigaglio in front of reporters and news cameras to assist him in announcing the Homebuyer Protection Plan. The Sinigaglio’s purchased a residence in Penns Grove, New Jersey. After taking title, they learned of a number of problems which were not disclosed. According to these new owners, the cost of repairs would exceed $85,000; the price paid for the home. They claim defects, which should have been apparent to the appraiser, were not divulged. The Homebuyer Protection Plan was developed to counter such calamities.

Through the Homebuyer Protection Plan, "We are offering FHA homebuyers the best protection against bad appraisals ever available in the public of private sector," Secretary Cuomo stated. "The vast majority of FHA appraisals are accurate and have no problems. A bad appraisal can turn the American dream of home ownership into a nightmare."

The Homebuyer Protection Plan and its six key elements was rolled out in June, 1999. One key component of the plan is a new Handbook, Valuation Analysis for home mortgage insurance. Many consider its contents to be the most controversial part of the initiative. Despite assurances by HUD the Handbook is designed to clarify the myriad of rules governing the appraisal of real property for FHA Insured Loans, it has confused and confounded appraisers, brokers and lenders.

Appraisers now are required to pass a newly designed test to demonstrate their knowledge of the latest version of the Handbook and familiarity with the regulations Additionally, appraisers must now prepare "more thorough and reliable appraisals designed to uncover significant defects in homes."

Shortcomings and significant defects discovered by the appraiser which prevent the property from meeting the FHA Minimum Property Standards are reported on a newly created four page Notice To The Lender, commonly known as a VC Sheet. Unfortunately this new VC Sheet looks much like a home inspection form.

One of the first effects following the implementation of the new appraisal standards was an increase in appraisal fees. This is a logical result, considering the prolonged and more detailed observation required and the increased time necessary to complete the extended forms. Many appraisers increased fees based on their increased liability due to additional reporting requirements. Other appraisers have flatly refused to accept FHA appraisal assignments, citing liability and competency issues.

Specific concerns about the plan have been forwarded to HUD-FHA by the National Association of REALTORS®, the National Association of Independent Fee Appraisers, other organizations and many individuals.

The National Association of REALTORS has been seeking comments from members active in brokerage and appraisal about their experiences under the new regulations. Based upon these comments, NAR has pointed out to several problem areas to FHA:

Conflict with State Home Inspection Laws

Seventeen States regulate home inspectors and five have pending inspection legislation. Several State Attorneys General believe the new regulations may conflict with their home inspection laws. In at least one state, Nevada, an appraiser’s license may be in jeopardy when they complete the new VC Sheet.

Market Impacts

Increased Costs to Buyers - Seller Discouragement of accepting FHA Terms - Shortage of Qualified Appraisers - Impact on Minorities - Effect on Homeownership in Older Communities

Education and Training

Lack of Instructional Consistency - Inadequate Communication - Contradictory Terminology in Handbook and HUD Websites

The NAR has proposed solutions for each of these problem areas and is actively working to achieve resolution of them The ball is in HUD-FHA’s court.

What is your reaction to the Homebuyer Protection Plan? What have your experiences been? Have you been Confused, Bewildered, Perplexed, Irritated, Furious, Disturbed, Lost, Enthused or Excited? Post your responses below.

Published: November 15, 1999

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