FHA Begins Requiring Second Appraisals
HUD released a letter to all lenders on April 1, 2008 announcing circumstances where a second appraisal will be required. We saw a similar move by HUD a few years ago to combat real estate flipping, where certain properties that were being resold too quickly after the last sale required two appraisals.
In this move HUD is targeting loans over the current conforming loan limit. The HUD Limits were temporarily raised to include much higher loan amounts in many areas.
A second appraisal is required when:
The loan amount, excluding the MIP will exceed 417l
AND
The LTV exceeds 95%
AND
The property is in a declining market
The nice thing is that the loan amount only has to be adjusted if the second appraisal has a value more than 5% below the original appraisal. That sounds great in theory but I doubt many lenders are going to base the LTV on the original appraisal if a second appraisal comes in even $1.00 less than the original appraisal.
This is particularly true with all of the current controversy surrounding appraisals and appraisal fraud.