FHA Jumbo Appraisal           

Second Appraisal Requirements in Certain High-Cost Areas

     Recognizing FHA’s counter-cyclical role in the mortgage market, and its ability to help stabilize declining housing markets, FHA is not at this time establishing higher downpayment requirements or borrower credit bureau score thresholds for properties located in declining areas.  However, to mitigate risk to the FHA insurance fund as well as FHA borrowers, FHA will require a second appraisal for higher balance loans secured by properties in declining markets as indicated on the appraisal report or determined by the lender using other sources.

When is a Second Appraisal Required? 

A second appraisal will be required when:

·        The loan amount, excluding the upfront mortgage insurance premium, will exceed $417,000, and

·        The LTV, excluding upfront MIP, equals or exceeds 95%, and

·        The property is determined as being in a declining market.

How is a declining market determined? 

• By the appraiser:  The appraisal report requires the appraiser to indicate if the property is located in a declining area in both the neighborhood section of the appropriate appraisal form as well as in the housing trend section, and/or determine if there is an “over-supply” of properties.  The certifications contained in the appraisal reporting forms are supplemental standards to the Uniform Standards of Professional Appraisal Practice (USPAP) and Certification # 14 specifically requires an appraiser to consider and report on all conditions that impact value.  Appraisers must provide specific support for any conclusions noted in the Housing Trend section of the appraisal report and research local price trends, relying upon such services as local Multiple Listing Services or others as described below.

• By the lender:  The lender may determine through services such the S&P/Case-Schiller Index, Office of Federal Housing Enterprise Oversight (OFHEO) Index or National Association of Realtors (NAR) statistics, or through an automated underwriting system, e.g., Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector, that the property is located in a declining market area.

 Who can perform the second appraisal?

     The second independent appraisal must be completed by a FHA

roster appraiser selected by the Direct Endorsement lender that is underwriting 

the mortgage. The lender independently engages the appraiser and is not to

request a second case number through FHA Connection.  The fee for the 

appraisal may be passed onto the borrower as any other closing cost.

What form must be used for the second appraisal? 

     If the property is a one-unit detached house, the second appraisal may be an

exterior-only appraisal using form Fannie Mae/Freddie Mac 2055; any repair

requirements noted in the original interior-exterior appraisal report must be 

adhered to if the second appraisal is an exterior-only appraisal. Condominium 

units including detached site-condominiums; manufactured housing; and 2-4 unit

properties are not eligible for exterior-only second appraisals and must be

completed on the appropriate appraisal form. 

When must the mortgage amount be reduced?

     If the second appraisal has an estimated value more than 5 percent lower than

the original appraisal, the maximum mortgage must be predicated upon the lower 

of the two appraised values.  

Pressure on Appraiser and Conflicts of Interest

     The lender and appraiser must also avoid conflicts of interest which affect, 

either in reality or in appearance, the credibility of the appraisal.  A lender may not 

choose an appraiser that has any interest, direct or indirect, in the property being 

appraised.  In addition, a lender may not choose an appraiser that is employed 

by an appraisal company that owns, is owned by, is affiliated with or has any 

financial interest in the builder or seller of the property. Instances of undue pressure 

or influence on an appraiser reported to FHA will result in appropriate disciplinary

actions against the lender involved.