Second Appraisals No Longer Required for High Dollar FHA Loans

Realtors and lenders celebrate the death of the dreaded second appraisal rule.

Until recently, FHA loans in excess of $417,000 in declining market areas required two appraisals, regardless of whether they were for purchases or refinances. This practice was troublesome in the Santa Clarita area, since often the second appraiser was less experienced and less local than the first appraiser was.

Thankfully, FHA Mortgagee Letter 2008-09, Second Appraisal Requirements, has been rescinded in its entirety as of November 18, 2009. This applies to new purchases, refinances and cash-out refinances of homes in what the FHA considers to be declining market areas.

Second appraisals are still required for suspected property flipping as defined in FHA Mortgagee Letter 2006-14, Property Flipping Prohibition Amendment. In this ruling, the FHA requires a second appraisal when a property is resold between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or more) higher than the price paid by the seller when the property was acquired. Or, in other words, if the homes is resold for a profit. Rehab and other fix-up costs may be considered for the appraisal if submitted by the lender.

So, what is a declining market area? Nobody seems to know for sure, as there aren’t any clearly established guidelines. It’s up to the appraiser to decide, and often the appraisers are more concerned about covering their fannies (CYA) than they are about giving an accurate picture of the property’s value. Until this new FHA ruling, a little checkbox on the appraisal report would send the entire file into mortgage hell, often resulting in the financing being denied.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.