Homeownership: Information on Changes in FHA's New Single-Family Appraisal Process

RCED-97-176 Published: Jul 25, 1997. Publicly Released: Jul 25, 1997.
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Pursuant to a congressional request, GAO provided information on the Federal Housing Administration's (FHA) appraisal process, focusing on: (1) how appraisals of FHA-insured single-family homes were assigned before December 1994, who assigned appraisal work, and why the appraisal assignment process changed; (2) what the reactions to this change have been from the affected parties--former FHA fee panel appraisers, FHA, and FHA lenders; and (3) what problems have been identified by the Department of Housing and Urban Development (HUD) since the implementation of the new appraisal assignment process. GAO did not attempt to verify any allegations of the former fee panel appraisers.

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Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Housing and Urban Development To reduce the financial risks assumed by FHA, the Secretary of Housing and Urban Development should reestablish a requirement that each HUD field office responsible for overseeing appraisals randomly select a specific percentage of completed FHA appraisals for field and desk review by either HUD staff or a licensed or certified appraiser who is not a member of FHA's roster of appraisers for lenders' selection.
Closed – Implemented
HUD established a policy that requires the field offices to review no less than 10 percent of all the appraisals conducted within their jurisdiction. HUD made this action part of its fiscal year 1998 Management Objectives.
Department of Housing and Urban Development The Secretary of Housing and Urban Development should establish a process to ensure that such field offices meet this appraisal review requirement.
Closed – Implemented
According to a HUD official, because HUD has made the 10-percent requirement part of the criteria used to rate the performance of field office staff, field performance relative to this requirement will be tracked.

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