The
problem took a turn for the worse in 1999 when FHA adopted a new set of rules
regarding appraisals that it trumpeted as a triumph for consumer protection. The
agency described the new program on its web site as follows.
"We are offering FHA homebuyers
the best protection against bad appraisals ever available in the public or
private sector. The new appraisal system we are establishing creates a new
level of consumer confidence in the home buying process. It answers the two
biggest questions facing most homebuyers: Is the house I want to buy worth the
sale price? Is the house in good condition?
The Homebuyer Protection plan that HUD
is implementing to cover all homes purchased with FHA-insured mortgages will:
Require a more
thorough basic survey of the physical condition of the home to uncover
potential problems in a home.
For the first time require that home
defects found by appraisers be disclosed to potential buyers.
Impose stricter accountability on all appraisers and tougher sanctions on
those who act improperly - ranging from barring them from doing more FHA
appraisals to steep fines and potential prison sentences in the most extreme
cases�
"But one
must read further. Elsewhere on its site, FHA says:
The appraisal is
performed for the use and benefit of HUD, and the lender involved in an FHA
transaction� HUD/FHA MAKES NO WARRANTIES AS TO THE VALUE AND/OR CONDITION OF
ANY FHA-APPRAISED PROPERTY, therefore buyers/borrowers must determine for
themselves that the price of the property is "reasonable" and that
it's condition is "acceptable"�
Borrowers should be encouraged to
obtain a detailed home inspection of the property. Borrowers should complete
sufficient research of home inspector�s qualifications and designations to
ascertain that they feel comfortable with the individual they hire. HUD does
not maintain lists of approved Home Inspectors.
In other words, FHA has this great
program for protecting consumers, but don�t expect it to assume any
responsibility.
The bottom line is that FHA does not
guarantee the value or condition of a home, FHA appraisals are to protect FHA,
and homebuyers should protect themselves by ordering a home inspection.
To drive home the last point, FHA last
year developed a new form that must be signed by all purchasers of existing
houses that involve an FHA mortgage. The form is entitled: "For Your
Protection: Get a Home Inspection". It says that "FHA does not
guarantee the value or condition of your potential new home�That�s why its
so important for you, the buyer, to get an independent home inspection."
The form must be signed on or before the
date of the sales contract. Immediately above the signature, it reads "I
understand the importance of getting an independent home inspection. I have
thought about this before I signed a contract with the seller for a home."
You signed the form, even though you may not have read it, so you�re
responsible.
But FHA should be taken to the woodshed.
To garner favorable PR for itself as a champion of the consumer, it
strengthened the widespread misperception that appraisals protect FHA borrowers.
Then, to try and repair the damage, it added one more to the mountain of forms
that borrowers must deal with at closing. This is not government at its best.
Copyright Jack Guttentag 2002
