James S. Graner


FHA To Now Requires Second Appraisals for Many Cash Out Refinances!


The FHA Appraisal is now required to be performed by two seperate appraisers on many cashout FHA refinances. While this could be a hardship to some borrowers as payment for such FHA appraisal reports can be expensive. Loans insured by FHA mortgage insurance that are cash out refinances now require two FHA seperate appraisals. A second appraisal may be performed on am 2055 appraisal form (FHA Driveby Appraisal)

This appears to be another step in HUD trying to keep the FHA mortgage process from falling into trouble. Overall this could be less risk for the FHA mortgage insurance program and cost control for the mortgage insurance program.

This is a portion of MORTGAGEE LETTER 2008-40

•·       Second Appraisal Requirements/Loan-to-Value Limits for Cash-Out Refinances:  The instructions in ML 2008-09 regarding when a second appraisal is needed, and the requirements for that second appraisal, as well as the 85 percent limitation on cash-out refinances when the loan balance will exceed $417,000, remain in effect. 

In addition, FHA will now require a second appraisal for all cash-out refinances where the LTV, exclusive of the UFMIP, will exceed 85 percent of the appraiser's estimate of value.  This second appraisal requirement applies regardless of the loan amount or the location of the property, i.e., whether the property is in a "declining area" or is not.  This second appraisal requirement for cash-out refinances is effective for all case number assignments on or after January 1, 2009 and is to adhere to the instructions set forth in ML 2008-09.  Please also note that cash-out refinances with LTVs exceeding 85 percent will be over-selected for post-endorsement technical reviews (PETR) to assure the quality of the underwriting.

This is a portion Mortgage Letter 2008-09 What form must be used for the second appraisal? FHA Drive by Appraisal Report If the property is a one-unit detached house, the second appraisal may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055; any repair requirements noted in the original interior-exterior appraisal report must be adhered to if the second appraisal is an exterior-only appraisal. Condominium units including detached site-condominiums manufactured housing; and 2-4 unit properties are not eligible for exterior-only second appraisals and must be completed on the appropriate appraisal form. When must the mortgage amount be reduced? If the second appraisal has an estimated value more than 5 percent lower than the original appraisal, the maximum mortgage must be predicated upon the lower of the two appraised values.
Comment balloon 5 commentsJames Graner • January 02 2009 10:00PM


Thank you for the post, this is another bit of helpful info.

Posted by Steven Wright, CRS - Home Real Estate - 720-989-5283 (Home Real Estate) almost 10 years ago


Thank you for stopping by at my blog!

Posted by James Graner (Residential Services: http://appraisalmo.com) almost 10 years ago

Thanks for the 411!

On another note, I was recently asked by a colleague if FHA was adopting the new HVCC or not?  I have not heard.  Is the new HVCC only for convetional lending/lenders and NOT for FHA?

If you have any info I'd appreciate it!  Thanks

Posted by Jeremy Cowin (Jeremy Cowin Appraisals) almost 10 years ago


HVCC is for Fannie and Freddie. HUD has no known plans of adopting any plan similar to HVCC. It is possible that many lenders will adopt a similar policy to HVCC as they are forced to adjust anyway. Perhaps B&C lenders will adopt similar policies as well, since the industry must accomodate this anyway.

Thank you for stopping at by blog!

Posted by James Graner (Residential Services: http://appraisalmo.com) almost 10 years ago

How many days/months off MLS (recently listed properties) does a SFR need to be in order to do a FHA cash-out refi to 95%?  3 months or 6 months?  property in CT

Posted by robert almost 10 years ago