Single-Family Housing: Weaknesses in HUD's Oversight of the FHA Appraisal Process
RCED-99-72
Published: Apr 16, 1999. Publicly Released: May 17, 1999.
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Highlights
Pursuant to a congressional request, GAO reviewed the Federal Housing Administration's (FHA) appraisal process, focusing on: (1) how well the Department of Housing and Urban Development (HUD) is monitoring the performance of the appraisers on its roster and implementing procedures for addressing consumers' complaints about FHA appraisals; (2) the extent to which HUD is holding appraisers accountable for poor-quality FHA appraisals; (3) the extent to which HUD is holding lenders responsible for the quality of the FHA appraisals they use; and (4) how HUD ensures that appraisers on its roster are qualified to perform FHA appraisals.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Housing and Urban Development | To reduce the financial risks assumed by FHA and to improve HUD's oversight of appraisers on FHA's roster, the Secretary of HUD should direct the Assistant Secretary for Housing-Federal Housing Commissioner to achieve better field review coverage of FHA's appraiser roster by: (1) ensuring that each HOC field reviews the required percentage of the FHA appraisals conducted annually within its geographic jurisdiction; and (2) requiring that when selecting appraisals for field review, HUD staff give higher priority to the work of appraisers who have done a substantial number of FHA appraisals but have not been field reviewed within the past year. |
In fiscal year 1999, each of HUD's homeownership centers exceeded the requirement that it conduct field reviews of 10% of the FHA appraisals performed in its jurisdiction. Also, in June 2000, HUD adopted a new appraisal oversight system. One criterion used by the system to target appraisers for field review is whether the appraiser had been field reviewed in the last year. A second phase of the system, planned for October 2000, will target appraisers for field review based both on their last field review date and the appraisal volume.
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| Department of Housing and Urban Development | To reduce the financial risks assumed by FHA and to improve HUD's oversight of appraisers on FHA's roster, the Secretary of HUD should direct the Assistant Secretary for Housing-Federal Housing Commissioner to make field reviews of appraisals more timely by establishing a process to ensure that HUD staff obtain copies of appraisal reports and perform field reviews prior to FHA's approval of mortgage insurance. |
HUD disagreed with this recommendation. HUD stated that performing field reviews of appraisals prior to FHA's approval of mortgage insurance would unduly delay the insurance endorsement process for a significant number of FHA loans, could negatively impact the sale of FHA loans on the secondary market, and would add bureaucratic encumbrance to the insurance program. Also, according to HUD, its Homebuyer Protection plan will require lenders to submit certain appraisal data electronically and this electronic processing of appraisal data will speed up the field reviews process and help to satisfy GAO's concerns about the timeliness of field reviews. HUD has a pilot under way in which selected FHA lenders are electronically providing appraisal data that relate to the performance indicators that HUD will use to select appraisals for field review. HUD's plans are to require that all lenders begin providing appraisal data electronically in late 1999.
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| Department of Housing and Urban Development | To reduce the financial risks assumed by FHA and to improve HUD's oversight of appraisers on FHA's roster, the Secretary of HUD should direct the Assistant Secretary for Housing-Federal Housing Commissioner to better assess the quality of appraisal field reviews by insuring that a portion of each field review contractor's work is verified through on-site evaluation of properties field reviewed by the contractor. |
In June 2000, HUD's Real Estate Assessment Center (REAC) implemented a quality assurance process to monitor the work of its national field review contractors that includes the on-site evaluations of field reviewed properties. The REAC quality assurance process provides that HUD will review each field review contract area twice a year. During these reviews, staff will visit and conduct on-site evaluations of properties that have been field reviewed by the contractors to verify the accuracy of the contractor's work. HUD plans to conduct 900 of the on-site reviews every year.
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| Department of Housing and Urban Development | To improve HUD's oversight of lenders participating in FHA's programs, the Secretary of HUD should: (1) determine the Department's authority to hold FHA-approved lenders accountable for poor-quality FHA appraisals performed by the appraisers they select from FHA's roster; and (2) issue policy guidance that sets forth the specific circumstances under which and actions by which HUD may exercise this authority. |
In December 2002, HUD issued a proposed rule clarifying and strengthening HUD's regulations concerning the reponsibilities of lenders in selecting appraisers. The proposed rule would codify existing HUD policy, which states that lenders are responsible, equally with the appraisers they select, for the quality of appraisals on properties that secure FHA-insured mortgages. The proposed rule would also change existing HUD regulations by making lenders who obtain and submit appraisals that do not meet FHA's requirements subject to administrative sanctions by HUD's Mortgagee Review Board. HUD believes that the proposed changes will help protect the FHA insurance fund, ensure better compliance with appraisal standards, and help ensure that homebuyers receive an accurate statement of appraised value.
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AccountabilityAppraisalsContract oversightFair market valueLending institutionsMortgage programsMortgage protection insurancePerformance measuresReporting requirementsMortgage insurance