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September 28, 2005

FHA Eliminates VC, Homebuyer Summary Sheets; AI Announces Related FHA Seminar

In a September 26 Mortgagee Letter, the Federal Housing Administration announced that it is eliminating two of its appraisal-related forms and adopting four of Fannie Mae’s recently revised appraisal reporting forms. As of January 1, 2006, the FHA is eliminating both the Valuation Conditions form and the Notice to The Homebuyer (Homebuyer Summary).

Upon elimination of these two forms, all valuation conditions, including repairs, alterations and/or required inspections, must be reported within the appropriate section of the applicable Fannie Mae appraisal reporting form:

1. Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all one-unit single-family dwellings;

2. Manufactured Home Appraisal Report (Fannie Mae Form 1004C) for all manufactured homes;

3. Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all individual condominium units; and

4. Small Residential Income Property Appraisal Report (Fannie Mae Form 1025) for all two- to four-unit single-family dwellings.

These forms are available online at FHA roster appraisers should continue to use the existing (pre-March 2005) Fannie Mae appraisal reporting forms and follow existing FHA procedures for guidance in the valuation of single-family properties until the January 1, 2006, implementation date.

According to the September Mortgagee Letter (05-34), “FHA has determined that new property reporting requirements on the revised Fannie Mae and Freddie Mac appraisal forms satisfy any concerns regarding the physical property conditions of the home. This makes the use of the VC sheet unnecessary when estimating the market value of a property purchased through FHA.”

The full mortgagee letter is available at under 2005 Mortgagee Letters.

Appendix D of Handbook 4150.2, Valuation Analysis for Home Mortgage Insurance for Single Family One- to Four- Unit Dwellings, has been updated and becomes effective for all appraisals performed on or after January 1, 2006. It is available at The revision includes a “Quick Tips” section, which helps appraisers navigate the FHA property reporting requirements that used to be on the VC Sheet. Appraisers can use this instead of the VC checklist and report it on the new forms.

Bill Garber, Director, Appraisal Institute Government Affairs, said, “FHA is more or less retaining all of the physical reporting requirements for appraisers, requiring that they be written in the new forms. Lenders will have to read the appraisals to review the appraiser’s findings to determine whether to order repairs or inspections.”

Garber added that the most significant changes to the Appendix in terms of requirements include

    • If a house is 90 percent complete, appraisers will not have to use plans or specs.
    • The elimination of the FHA roof inspection requirement for all flat-roofed houses. If an appraiser sees something wrong with the roof, they should still report it, however.
    • No cost approach on one-unit houses, with discretion.
    • On manufactured homes, FHA wants to see the retail price, but otherwise, does not want the appraiser spending time tracking down numbers that are impossible to find.
    • Will not require termite inspection on existing properties, but will do so for new homes in compliance with local jurisdictions.
    • FHA will allow “as is” if there are no conditions that require inspection or repair. It is anticipated that FHA will see an increase in “as is” appraisals as a result.
    • Basically, FHA is placing less emphasis on minor repairs, but still paying attention to things that warrant replacement
    • There are four reporting choices for appraisers
      • “As is” (above)
      • Subject to completion
      • Subject to repairs
      • Subject to inspection

Bruce Kellogg, President of the Appraisal Institute, said: “We are pleased to work with the Commissioner and FHA to improve the agency's appraisal program. Greater uniformity in appraisal reporting will result in a more consistent product and benefit the home buying public.”

As a result, the Appraisal Institute will be the first education provider in the country to offer a seminar on the new changes, according to Alan E. Hummel, SRA, chair of the Appraisal Institute Government Relations Committee. Hummel made the announcement September 27, at the seventh Annual FHA Mortgage Conference in Arlington, Va., while serving on a panel addressing new FHA appraisal reforms and policies. The Appraisal Institute is partnering with the lending industry to develop the seminar “because the entire lending community—not just appraisers—need to be educated on these changes. Lenders need to understand what they’re investing in,” Hummel stated. The new seminar will be introduced in December, prior to the January 1 implementation date.

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