WASHINGTON
-- In a move to protect consumers from buying
homes with major undetected defects, Housing and
Urban Development Secretary Andrew Cuomo today
announced a Homebuyer Protection Initiative to
improve home appraisals for over 1 million
families who purchase homes each year with
HUD-insured mortgages.
The landmark
initiative will be phased into effect nationwide
over the next few weeks to give families with
mortgages insured by HUD's Federal Housing
Administration a higher level of protection
against appraisals that fail to uncover the need
for major repairs in homes up for sale.
Cuomo said the
consumer protection measure will save some
individual homebuyers thousands of dollars each
and will save homebuyers around the country
millions of dollars by giving them an early alert
to major problems in a home they are considering
buying. FHA will not insure a mortgage on a home
until defects uncovered by the improved appraisals
are repaired.
"Our new FHA
appraisals set a new standard for homebuyer
protection, making homebuying safer and making an
FHA mortgage a greater value," Cuomo said.
"We will do more than any other mortgage
insurer to safeguard the interests of hard-working
families buying homes."
Cuomo said the
Homebuyer Protection Initiative has six key
elements:
· A new consumer
education campaign about appraisals and
inspections conducted by HUD, the National
Association of Realtors, and the Mortgage Bankers
Association of America.
· Mandatory
testing of all appraisers to determine if they are
qualified to perform FHA appraisals.
· More thorough
and reliable appraisals designed to uncover
significant defects in homes.
· Mandatory
disclosure of detected home defects to homebuyers.
· Automated
evaluation of appraisals.
· Stricter
enforcement action to suspend poorly performing
appraisers from working for FHA.
In addition, under
the new initiative homebuyers will be required for
the first time to sign and date a new
informational form before they purchase a home
with an FHA mortgage. The form advises them in
plain English to get a home inspection in addition
to an appraisal.
FHA requires
appraisals by state-licensed appraisers on all
homes it insures. FHA appraisals determine the
value of a home and include a limited review of
the physical condition of the home. No other
mortgage insurer or lender requires such a
physical review.
Home inspections
are much more detailed examinations that go beyond
assessing the basic soundness and safety of a
home, and HUD's new form and public education
campaign will both strongly urge homebuyers to get
home inspections in addition to appraisals. FHA
mortgages allow homebuyers to include appraisal
and inspection costs in their mortgages.
The new initiative
is being launched in response to problems with bad
appraisals that fail to detect costly problems in
homes before a purchase. Buyers are then often hit
with thousands of dollars in unexpected repairs
after they move into a home. In some cases, buyers
have as a result defaulted on their mortgages and
sometimes declared bankruptcy.
Cuomo said the new
initiative represents a package of far-reaching
reforms conceived last year when HUD set out to
dramatically reinvent the FHA home appraisal
process.
FHA does not make
mortgage loans directly, but rather insures loans
made by private lenders to homebuyers. FHA
insurance guarantees the lender timely payment of
the outstanding loan balance, in the event the
homebuyer defaults on the loan. Because FHA
mortgage insurance protects lenders from losses,
it enables many Americans who otherwise would have
been unable to quality for mortgages to get the
loans and become homeowners. Over its six-decade
history, FHA has made homeownership available to
about 30 million families.
Today's
announcement was part of National Homeownership
Week, which will continue through Saturday. More
than 1,200 events are taking place across the
country to mark Homeownership Week, which
celebrates the fact that 69.6 million American
families own homes more than at any time in
American history. This is 7.8 million more
families than when the Clinton-Gore Administration
took office in 1993. The percentage of families
owning their homes jumped from 64 percent in 1993
to 66.7 percent in the first quarter of this year.
Here are more
details of the six key elements of the Homebuyer
Protection Initiative:
CONSUMER
EDUCATION
A new consumer
education campaign about home appraisals and
inspections will be carried out in cooperation
with the National Association of Realtors and the
Mortgage Bankers Association of America, under a
new Memorandum of Understanding signed by the
groups and HUD.
NAR represents
730,000 Realtors around the nation and the MBA
represents 3,000 mortgage lending
companies.
"I commend the
NAR and the MBA for working with HUD to better
inform homebuyers about the appraisal process and
the importance of getting a home inspection,"
Cuomo said.
NAR and MBA will
use their publications and websites to educate
consumers about the Homebuyer Protection
Initiative. The groups will also urge Realtors and
lenders to provide informational material to
customers and to discuss the importance of an
inspection with homebuyers. NAR and MBA will work
with HUD to develop a new consumer brochure,
posters and other educational materials.
APPRAISER
TESTING
The Homebuyer
Protection Initiative includes the first
HUD-mandated testing of the approximately 30,000
private appraisers around the nation who perform
mandatory appraisals before the sale of every home
financed with an FHA mortgage. Appraisers flunking
the test will not be certified to do FHA
appraisals until they pass the exam.
The exam will help
ensure that appraisers know and understand FHA
requirements.
MORE THOROUGH
AND RELIABLE APPRAISALS
The Homebuyer
Protection Initiative mandates a more thorough
appraisal that 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.
Areas covered by
the more thorough appraisals include: 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.
Here's an example
of the additional details required under the new
appraisals: Until now, appraisers needed only to
note that structural deficiencies exist in a home.
Under the new initiative, 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.
DISCLOSURE OF
HOME DEFECTS
Under the Homebuyer
Protection Initiative, homebuyers with FHA
mortgages must receive a new form written in plain
English that summarizes all defects found by the
appraisal before they purchase a home. The
homebuyer cannot receive an FHA mortgage until all
defects found by the appraiser have been corrected
protecting the homebuyer from being hit with the
repair costs.
AUTOMATED
EVALUATION OF APPRAISALS
HUD will establish
a system that enables the Department to collect
appraisal data electronically and track trends in
appraisal quality. The system is currently being
piloted in Pennsylvania and will be implemented
nationwide by the end of the year.
The new system will
enable HUD to perform high-speed
computer-generated reviews of the performance of
all appraisers, so that appraisers found to make
inaccurate appraisals can be spotted and targeted
for further review and possible enforcement
action.
HUD has developed a
series of statistical indicators to help target
its appraiser oversight activities, particularly
field review activities. The indicators work by
comparing home values derived by appraisers and
the techniques used to establish the values.
Individual indicators are then rolled into a
single appraisal score using a statistically
derived weighting system.
STRICTER AND
CLEARER ENFORCEMENT
A new appraiser
enforcement regulation will give FHA the ability
to swiftly suspend poorly performing appraisers
from doing business with FHA. This will protect
homebuyers from bad appraisers.
COMMENTS ON
HUD'S HOMEBUYER PROTECTION INITIATIVE
Sharon A.
Millet, President, National Association of
Realtors (NAR)
"Under this program, Realtors and lenders
will play an integral role in helping FHA buyers
understand the importance of a home inspection and
the difference between an appraisal and an
inspection. Homebuyers will gain a better
understanding of the appraisal and home inspection
processes and be able to protect themselves from
buying properties in need of extensive
repairs."
Donald Lange,
President, Mortgage Bankers Association of America
(MBA)
"The HUD plan is a significant step
toward protecting FHA borrowers. It demonstrates
HUD's leadership as an advocate for homebuyers,
and that this commitment is shared by the mortgage
lending and real estate industries."
Bert Thornton,
President, Appraisal Institute
"We believe that homeownership is
fundamental to the prosperity and unity of our
society. Secretary Cuomo is to be congratulated
for his dedication to this proposition. As
appraisal professionals, we are especially pleased
to have been able to contribute to this
initiative. It has been our pleasure to work with
him and all the dedicated professionals at HUD to
advance opportunities for all."
Frank Torres,
Legislative Counsel, Consumers Union
"Secretary Cuomo deserves considerable
credit for his continuing efforts to make the
homebuying process better and fairer for all. It
is important that consumers be made aware of the
condition of the house they are considering to
buy. This proposal, we feel, is a major step is
that direction."
Tom Downs,
Executive Vice President and CEO, National
Association of Home Builders
"The National Association of Home
Builders applauds Secretary Cuomo for the steps
HUD is taking to strengthen the FHA appraisal
process and better inform homebuyers. These
measures will help ensure the continued success of
the FHA single-family mortgage insurance program,
which we feel is a cornerstone of the country's
mortgage finance system."
Leonard
Brunotte, Founder & President of Guardian
Inspection & Information Services
As professional home and commercial property
inspectors, we strongly support Secretary Cuomo's
efforts to protect and to educate not only
consumers, but the real estate community at large,
of the important role of the home inspector.
Consumers need to know that the appraiser and the
inspector perform two entirely different but
equally important tasks. Both of which are
vital to providing information to the homebuyer to
assist in making an informed purchase
decision."
End
of Story
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