Single-Family Housing

Numerous allegations and complaints about the poor quality of appraisals conducted for the purposes of mortgage insurance issued by the Department of Housing and Urban Development (HUD) Federal Housing Administration (FHA) have raised concerns about FHA's appraisal process. In fiscal year 1998, HUD insured mortgage loans for single-family housing totaling about $100 billion. This report answers the following questions: (1) How well is HUD monitoring the performance of the appraisers on its roster and implementing procedures for addressing consumers' complaints about FHA appraisals? (2) To what extent is HUD holding appraisers accountable for poor-quality FHA appraisals? (3) To what extent is HUD holding lenders responsible for the quality of the FHA appraisals they use? (4) How does HUD ensure that the appraisers on its roster are qualified to perform FHA appraisals? GAO found that HUD is not doing a good job of monitoring the performance of appraisers and is not holding appraisers accountable for the quality of their appraisals. The agency has not aggressively enforced its policy to hold lenders equally accountable with the appraisers they select for the accuracy and thoroughness of appraisals because of disagreement within HUD over its authority to do so. HUD has limited assurance that the appraisers on its roster are knowledgeable about FHA's appraisal requirements.

GAO noted that: (1) HUD is not doing a good job of monitoring the performance of appraisers; (2) on-site evaluations of completed appraisals, known as field reviews, are HUD's principal tool for assessing the quality of appraisers' work; (3) in fiscal year (FY) 1998, HUD performed about 81,000 of these reviews, but three of the four HUD homeownership centers (HOC) did not meet HUD's requirement to field review no less than 10 percent of the FHA appraisals performed within their jurisdictions; (4) although HUD's guidance states that timeliness is essential to ensure quality field reviews, half of the field reviews conducted in FY 1998 did not occur until more than 2 months after the appraisals had been performed; (5) moreover, HUD did not learn about problems with some appraisals until after it had already approved mortgage insurance for the properties; (6) the Philadelphia and Denver HOCs' records for 126 field reviews that rated the appraisals as poor showed that HUD approved mortgage insurance for 96 of the homes covered by these reviews; (7) HUD staff did not routinely visit appraised properties to determine the accuracy of the field review contractors' observations; (8) the Philadelphia and Denver HOCs did not fully implement guidance on the handling and tracking of consumers' complaints, including those relating to appraisals; (9) HUD is not holding appraisers accountable for the quality of their appraisals; (10) contrary to HUD's policy, appraisers who received two or more poor ratings in field reviews were frequently not prohibited from conducting further FHA appraisals; (11) a poor field review score indicates that the appraiser made errors and omissions that could result in an unacceptable insurance risk to FHA; (12) HUD has not aggressively enforced its policy to hold lenders equally accountable with the appraisers they select for the accuracy and thoroughness of appraisals because of a disagreement within HUD over its authority to do so; (13) HUD has limited assurance that the appraisers on its roster are knowledgeable about FHA's appraisal requirements; (14) HUD relies largely on the states' licensing process to ensure that appraisers are qualified, but the states' minimum licensing standards do not include proficiency in FHA's appraisal requirements; and (15) HUD is revising its appraisal guidance and forms to better clarify the roles and responsibilities of appraisers and is adopting a testing requirement for appraisers to ensure their competency in FHA's appraisal standards.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Team: Phone: