The Federal Housing Administration toughened lending procedures Friday with new regulations requiring appraisers to alert prospective home buyers of leaking pipes, cracked ceilings and other potentially costly defects.
The rules are designed to protect consumers, but they come with a price. Most local home appraisers have raised fees for an FHA inspection by about $100 because of the additional work.
The stricter appraisal requirements are getting mixed review on the Niagara Frontier.
"I think overall it's good. The purpose is to improve the quality of the insured portfolio," said Joseph Whittington, of Northeast Appraisal Associates in Amherst and president of the New York State Association of Realtors. "They don't want the buyer to get in there, get hit with a $2,000 or $3,000 surprise, and not be able to make the first mortgage payment."
Some local appraisers and mortgage lenders think the new requirements simply add more time and money to the cost of getting an FHA loan.
"It's going to take appraisers an extra 35 to 40 minutes and that's going to cost the home buyer money. To the average consumer, they're going to find more deals are going to fall through," said James Kirchmeyer, president of Kirchmeyer & Associates of Buffalo.
Kirchmeyer's FHA appraisal fee rose from $200 to $300 Friday.
Appraisers traditionally walk through a home with an eye toward gauging market value. FHA now asks them to look for defects in the plumbing, walls, ceilings, roof, foundation, basement, electricity, heating, and soil.
The appraisers have to run the furnace, turn on faucets, open windows and complete a three-page form describing the home's physical condition. Any defects must be fixed before FHA insures the mortgage.
The FHA would require leaking plumbing to be patched, structural problems be repaired and environmental hazards be eradicated, officials said. Those repairs could add to the cost of buying a home.
"Usually in a situation where there is a buyer-seller contract, and there are repairs required, the buyer usually ends up paying for part, if not all of them, before they can move into the home," said Brian Mapley, vice president for retail operations at HSBC Mortgage Corp.
The appraisal requirements get down to specific details, such as sticking a hand in front of a descending garage door to test the electronic door opener for an auto reverse feature.
The regulations ask appraisers to inspect systems typically covered in a separate home inspection, which home buyers have the right to purchase. Appraisers have to pass a new test by Jan. 30, 2000, to remain certified as FHA appraisers.
"I think the idea is good, but if they wanted to achieve it, they should have just required every FHA mortgage to have a home inspection done," said Pierre LaPres, regional wholesale manager for United Capital Mortgage in Williamsville.
Another unsettling change: The FHA codified penalties for appraisal mistakes.
For example, making a 10 percent error in measuring a home's square footage could get an appraiser suspended from FHA work for up to six months, Whittington said.
The FHA, operated by the Department of Housing and Urban Development, typically serves low and moderate-income buyers because of its lower down payment requirements. The maximum mortgage limit for an FHA loan in the Buffalo-Niagara Falls metropolitan area is $127,300.
HUD officials believe the new rules will save some individual home buyers thousands of dollars. The fee increases by appraisers may be a little disingenuous, HUD spokesman Lemar Odom said.
"We have heard some appraisers might do that, but we're not convinced that is absolutely necessary. I think some of them might be over-reacting," Odom said.
Appraiser Todd Potter said his company, Empire Appraisal and Home Inspection Service of Kenmore, raised its FHA fee from $225 to $300 because the work now takes about 40 minutes longer. But Potter said consumers get a much more detailed appraisal report for their money.
"The new FHA appraisal is pretty much a mini home inspection. There's really not an excuse for an appraiser to miss anything," Potter said.