HUD Cancels Termite Checks In Five States

Peter G. Miller
OurBroker®

HUD's regional office in Philadelphia has advised lenders in five states that termite inspections are no longer required for new FHA loans.

HUD's Philadelphia Homeownership Center has told lenders in New York, Vermont, New Hampshire, Maine and Michigan that termite inspections will no longer be required in dozens of counties.

The theory, according to HUD's Technical Support Branch in Philadelphia, is that termite infestations are rare in many areas, thus having professional inspectors checking every home for termites and other woodboring insects is unnecessary in many communities. Instead, says HUD, appraisers will check properties for infestations and damage. If an appraiser sees an insect problem, then a termite inspection must be ordered.

In areas where termite inspections are not required, says HUD, "appraisers are still responsible for observing all areas of a property that have potential for infestation and, if there is any evidence of infestation, require an inspection from a reputable licensed pest control firm. The appraiser must always note any infestation, any damage resulting from previous infestation and whether damage from infestation has been repaired or is in need of repair."

The HUD standard, making appraisers "responsible for observing all areas of a property that have potential for infestation" is a lawyer's delight. The problem is that not all areas of a home are observable and appraisers rarely go into crawlspaces or attics -- places where infestations and damage are possible.

The "all areas" standard is vastly broader than HUD's general benchmark for appraisers and thus a potent source of greater liability. HUD's four-page Valuation Condition statement that appraisers must give to FHA borrowers is limited to "readily observable conditions." It does not apply to portions of a home which are typically unchecked or unseen by appraisers. Appraisers in response to the greater liability they now face will likely raise rates or decline FHA assignments.

Appraisers are not trained termite investigators. Even home inspectors -- people who examine properties each day for physical defects -- don't perform termite inspections.

"Home Inspectors generally do not do termite inspections because the termite -- or more accurately the 'wood boring insect' -- inspection concentrates on indications of activity, as opposed to analysis of damage, which is the home inspector's task," says Andrew Kleeman, president of Kleeman Associates, a home inspection service with 18 inspectors active throughout the Philadelphia area.

"A good wood boring insect inspector is trained to locate even very subtle indications of termite infestation -- slight undulations and tiny holes in wall board, for example, which may indicate infestation in the paper layer of common gypsum board. Termite activity is almost always latent (to a layperson) and it often takes a special skill set to identify termite problems before they become structurally severe."

Even in areas where termite problems are rare, inspections still make sense says Kleeman, who teaches construction and environmental classes at Temple University.

"Inspection for wood boring insects, and particularly for termites, is simply good sense anywhere termites are active -- which is almost everywhere in the continental U.S. -- because of the extreme cost-to-benefit ratio," he explains. "For an investment of about $60 to $90, a prospective buyer can greatly reduce the potential for damage not apparent to a layperson -- or even to a home inspector or appraiser in most instances.

"In general, the frequency of termite activity decreases in the northern states, but even in most of the New England states, data from the National Pest Management Association defines the termite problem as 'moderate' to 'heavy.'"

The new HUD policy no doubt represents a good faith effort to knock down closing costs faced by FHA buyers. But eliminating termite inspections and increasing appraiser liability means only that valuation fees must rise.

The result is very little, if any, cost reduction for consumers along with a greater potential for missed infestations and damage. If high closing costs are the issue, then an easier and less-risky approach would be to reduce FHA's up-front mortgage insurance premium -- something that would benefit buyers in all jurisdictions.

Areas Impacted By The HUD Decision

New York: Reports required in all counties except the folowing: Clinton, Essex, Franklin, St. Lawrence, Niagra and Orleans.

Vermont: Reports required in Rutland, Windsor, Bennington and Windham counties. Excluded counties arc: Franldin, Grand Isle, Orleans, Essex, Chittenden, Lmnoille, Caledonia, Washington, Addison and Orange.

New Hampshire: Reports required in Sullivan, Merrimack, Belknap, Strafford, Cheshire, Hillsborough and Rockingham. Excluded counties are: Grafton, Carroll and Coos.

Maine: Reports required in York and Cumberland counties. All other counties are excluded.

Michigan: Reports required in all counties except the following: Alcona, Alger, Alpena, Antrium, Arenac, Baraga, Bay, Benzie, Charlevoix, Cheboygan, Chippewa, Clare, Crawfbrd, Delta, Dickinson, Emmet, Gladwin, Gogebic, Grand Traverse, Houghton, Huron, losco, Iron, Isabella, Kalkaska, Keweenaw, Leelanau, Luce, Mackinac, Marquette, Menominee, Midland, Nfissaukee, Montmorency, Ogemaw, Ontonagon, Osceola, Oscoda, Otsego, Presque Island, Roscommon, Saginaw, Sanilac, Schoolcraft, Tuscola and Wexford.

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Published: October 10, 2000

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Editor's Note: This article reflects the opinions of Peter G. Miller only and not necessarily the views of this or any other publication, organization or Website owner.