Appraisals and Property Valuation; Final Rule

SUMMARY: This final rule establishes minimum standards for real estate

appraisals made by staff, fee panel and contract appraisers in

determining the maximum insurable mortgage amount in most HUD/FHA

single family (one-to-four family) and multifamily transactions; and

establishes criteria for the selection of appraisers by mortgagees. The

rule also distinguishes those appraisals that may be performed by state

licensed appraisers from those that must be performed by state

certified appraisers.

DATES: Effective Date: December 2, 1994.

Applicability date: Section 267.10 is applicable to HUD employees

who qualify as certified general appraisers not later than December 31,

1996, unless the Assistant Secretary-Commissioner specifies otherwise

in a specific case.

FOR FURTHER INFORMATION CONTACT: For single family programs: Morris

Carter, Director of the Single Family Development Division, Room 9270,

Department of Housing and Urban Development, 451 Seventh Street, SW,

Washington, DC 20410-8000, telephone, voice: (202) 708-2720; (TDD)

(202) 708-4594. (These are not toll-free numbers.) For multifamily

programs: Linda Cheatham, Director, Office of Insured Multifamily

Development, Room 6134, Department of Housing and Urban Development,

451 Seventh Street, SW, Washington, DC 20410-8000, telephone, voice:

(202) 708-3000; (TDD) 708-4594. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Information Collection

The information collection requirements contained in this final

rule have been submitted to the Office of Management and Budget for

review under the Paperwork Reduction Act of 1980. No person may be

subjected to a penalty for failure to comply with these information

collection requirements until they have been approved and assigned an

OMB control number. The OMB control number, when assigned, will be

announced by separate notice in the Federal Register. See the ``Other

Matters'' section of this preamble for further information on the

information collection requirements.

II. Publication of the Proposed Rule

On September 16, 1993, the Department published in the above

Docket, at 58 FR 48556, a proposed rule entitled ``Appraisals and

Property Valuation''. The proposal, among other things, would

promulgate a new part 267 to title 24 of the Code of Federal

Regulations containing minimum standards for HUD real estate appraisals

and criteria for the selection of appraisers by mortgagees. The

preamble to the proposed rule describes, in greater detail than below,

the legislative background for this rulemaking and set the rulemaking

in the context of certain administrative changes that the Department

had been considering on its own initiative. The preamble also explains

the significant provisions of proposed part 267 as well as certain

conforming amendments to other parts of HUD regulations.

Interested persons were invited to submit comments in Docket No.

FR-3027 on or before Nov. 15, 1993.

III. Description of this Final Rule

Background

This rule implements two statutory provisions. Section 142 of the

Department of Housing and Urban Development Reform Act of 1989 (Reform

Act) requires that the appraisal of all property securing an FHA-

insured mortgage be performed in accordance with generally approved

appraisal standards.1 Section 322 of the Cranston-Gonzalez

National Affordable Housing Act (Cranston-Gonzalez) provides that

single family Direct Endorsement (DE) mortgagees may choose the

appraisers who evaluate properties securing FHA-insured mortgages and

states that those appraisers may be legal entities as well as natural

persons.2 Furthermore, as explained in the proposed rule, HUD, on

its own initiative, has been revising its procedures for qualifying

appraisers and for requiring their use in various FHA programs. The

objective is to identify under each program the particular method of

determining who is qualified to perform the appraisal, consultancy or

other type of evaluation, based on differences inherent in the broad

range of insurance programs that comprise Titles I and II of the

National Housing Act (Act, NHA).

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\1\Section 142 of the Reform Act added section 202(e) to the

National Housing Act (NHA, Act), 12 U.S.C. 1708(e).

\2\Section 322 of Cranston-Gonzalez amended section 202(e).

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As a consequence of the Congressional mandates and its own

initiatives, the Department published the proposed rule which elicited

384 written public comments. Some of these comments raised a single

issue, while others expressed multiple questions or concerns. Many were

repetitive. In this rule, a number of changes are the direct

consequence of, or are easily traceable to, public comments, as

explained below. Also being adopted are changes originated by the

Department as a result of having further considered its proposal.

Mainly, these modifications are designed to simplify the rule in its

final form and to address comments which objected to the burdensomeness

of several proposed requirements. In addition, there are a number of

editorial revisions that were needed to correct errors and improve

readability; they are self-explanatory and are not discussed.

Differences Between the Proposed and Final Rules

This rule differs from the proposal in two general respects. The

first difference is in response to a view expressed by several

commenters that the proposed rule was difficult to follow and should be

split into separate rules covering single family and multifamily

programs, respectively. HUD does not believe that such radical

restructuring is necessary but does recognize that FHA's single and

multifamily programs differ enough that a division of the proposed

rule's content along those lines would be helpful. Consequently, the

final rule has reorganized the new part 267 into three subparts.

Subpart A includes material common to both single and multifamily

programs, subpart B relates exclusively to single family programs and

subpart C relates only to multifamily programs. This revision has

necessitated a technical, non-substantive redrafting of various

proposed sections, e.g., the definition of ``appraisal'' has been

tailored to fit subparts B and C, but these changes do not affect

meaning.

Not as obvious is a shift in the final rule toward a less incursive

regulatory posture that gives greater recognition to accepted industry

standards and practices. Several HUD standards contained in the

proposal are being deleted and the Departure Provision of the Uniform

Standards of Professional Appraisal Practice (USPAP) is being

acknowledged with respect to single family programs. Regarding this

latter change, FHA currently requires that all single family appraisals

be ``complete appraisals'', as that term is defined under Standard 1 of

USPAP, but instances may arise when the Departure Provision will be

invoked to authorize ``limited appraisals'' under specific

circumstances and on a case-by-case basis. In general, we are

increasingly convinced that, with legislative prompting, the appraisal

profession is moving in the direction of effective self-regulation and

that HUD should limit its role to adapting industry requirements and

practices to particular FHA needs rather than competing with broader

ongoing efforts to improve the reliability of residential appraisals

and the overall performance of the appraisal industry.

Set forth below is a discussion of significant changes from the

proposed rule contained in each of the three subparts of new part 267.

Subpart A--General

In Sec. 267.1 (applicability), paragraph (b)(2) has been changed to

add a reference to Sec. 201.23(b)(3) regarding the ``trade-in'' of a

borrower's equity in a manufactured home. As a result, part 267 now

excludes appraisals used in determining the borrower's equity in an

existing manufactured home traded for a new manufactured home to be

purchased with a Title I loan. This reference was inadvertently omitted

from the proposed rule. Also, in paragraph (b)(3) of Sec. 267.1, the

exception for property improvement loans has been broadened by changing

the phrase ``one- to-four family dwellings'' to ``property'' since the

exception should cover Title I commercial and multifamily property

improvement loans as well as one-to-four family dwellings. The

paragraph has also been revised to reflect a recent decision by the

Department to enhance the Title I program.3 Specifically, the

$15,000 threshold of borrower equity in the property undergoing

improvement, below which no mortgage is required, has been eliminated.

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\3\See News Release issued by the Department on June 28, 1994.

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``FIRREA'' (Title XI of the Financial Institutions Reform, Recovery

and Enforcement Act 1989) has been included as definition (d) under

Sec. 267.2 to aid the reader.

A broad description of ``Single family program'' has been included

as definition (j) under Sec. 267.2.

``USPAP'' has been included as definition (l) under Sec. 267.2 and

to it has been added the provision of former Sec. 267.4(c)(4). That

provision states the Department's policy of recognizing any changes or

additions to USPAP which the Appraisal Standards Board may from time to

time adopt, unless HUD publishes in the Federal Register its decision

not to recognize a change or addition.

In Sec. 267.3, paragraph (b)(1) [formerly Sec. 267.6(b)(1)]

prohibits certain discriminatory acts. It has been extensively revised

in response to numerous comments about the burdensomeness for

mortgagees of reporting on the relative frequency with which they use

women and minority status appraisers. At the same time, we have been

careful to ensure the public availability of the data which would have

been provided by those reports and which for single family programs the

Department will now obtain elsewhere in accordance with paragraph

(b)(2) of Sec. 267.3. The Department will be scrutinizing that data

carefully. We will not countenance discrimination by lenders against

female and minority status appraisers.

For single family programs, HUD will compile an annual report

directly from information which the Department will maintain for each

appraiser listed on the Roster. Information with respect to gender and

minority status will be furnished by the appraiser at the time he or

she applies for listing. This is permitted by the newly-added reference

to ``such further information as HUD may require'' in Sec. 267.8(d)(2).

When the mortgagee accesses the Computerized Homes Underwriting

Management System (CHUMS), giving the appraiser's certification or

license number, the information on the appraiser will be recorded from

the Roster data bank. For fee panel appraisers, HUD will record the

information from the Roster data at the time the panelist is assigned.

The Department will be able to prepare the annual report directly from

this information and will make it available to members of the public

upon request. See Sec. 267.3(c).

With respect to multifamily programs, there do not exist systems

analogous to CHUMS and the Roster, and consequently the data must be

furnished by Delegated Processors, contract appraisers and consultants,

and each housing finance agency (HFA) participating in the Department's

HFA Risk-Sharing Program. Since the number of multifamily cases

processed is considerably less than single family activity during a

given time span, this burden should not be unreasonable. Details of

this reporting requirement will be specified in one of the terms of the

contract/agreements which HUD executes with its Delegated Processors,

contract appraisers and consultants and HFAs. Because reporting under

multifamily programs is being implemented by contractural obligation,

and because that obligation is not set forth under existing contracts,

the data will not become immediately available when this rule takes

effect. As of the effective date provided at the beginning of this

preamble, however, all new contractural agreements and all renewals or

renegotiations of existing agreements will provide for the data to be

furnished thereafter. See Sec. 267.3(c)(5).

Proposed Sec. 267.6(c) relating to competency is now paragraph

Sec. 267.3(d).

A new Sec. 267.4, entitled `` waiver'', has been added at the end

of subpart A. The section authorizes the Assistant Secretary-

Commissioner to waive any requirement in part 267 not mandated by

statute when enforcement of that requirement would adversely affect the

purposes of the NHA. It is unlikely that this waiver authority would be

invoked often under part 267. However, HUD has been including a similar

waiver provision in many recently adopted rules because it does permit

administrative flexibility in unusual circumstances when invariable

application of a rule would be unfair or contrary to program

objectives.

Subpart B--Single Family Programs

In Sec. 267.5, entitled ``Definitions applicable to single family

programs'', paragraph (a), defining ``Appraisal'', no longer includes

the phrase ``as estimated by HUD staff or an appraiser under contract

with HUD'' which appeared in proposed Sec. 267.2(b)(2). The effect of

this change is that the DE lender, not HUD, will be responsible for

estimating replacement cost under the section 220 single family

program.

In customary usage, the term ``single family'' is well established.

However, there are FHA programs that do not fit the usual concept of

one-to-four family dwellings, yet are governed by one-to-four family

appraisal standards and procedures, specifically, Title I multifamily

and non-residential property improvement loans. The revised definition

(c) under Sec. 267.5, ``one-to-four family residential property'',

covers this anomaly. Note that there is no parallel definition of

multifamily programs, which simply include all other FHA mortgage

origination transactions.

Section 267.6 follows proposed Sec. 267.3, but with minor editing

to improve readability and clarity.

Section 267.7, Appraisal standards, represents an extensive

revision of proposed Sec. 267.4 on this subject. Specifically:

(1) The proposed rule stated that the USPAP Departure Provision

would not apply to FHA single family appraisals. The preamble to the

proposed rule stated a concern that the Provision might be used to

dispense with important information gathering. (See 58 FR 48560). After

considering the matter more fully, we have decided that this concern is

unjustified. Each of the appraisal forms permitted by HUD makes clear

what information is required and any deficiency should be readily

noticed by the review appraiser or underwriter. Also, the Provision

will only be invoked under unusual circumstances, subject to mutual

agreement of the mortgagee and appraiser, after obtaining consent from

the local HUD office. Should appropriate circumstances arise and a

complete appraisal not be required, the Provision gives HUD the

administrative flexibility to save the parties needless expense. The

Department expects that eventually, as experience is gained, a handbook

addition or other directive will be issued with respect to Departure

situations in single family programs. In view of the foregoing, the

Provision is being given recognition for single family programs and

reference to it (as being inapplicable) has been dropped from former

Sec. 267.4(a)(1), now Sec. 267.7(a)(1).

(2) Section 267.4(a)(3) of the proposed rule is being deleted as

unnecessary and somewhat redundant since Sec. 267.7(a)(8) of the final

rule covers the question of property valuation methods in greater

detail.

(3) Section 267.4(a)(4)(i) of the proposed rule described the

appraisal report forms. That section has been revised in Sec. 267.7(a)

of the final rule to extract the language pertinent to single family

programs. Two Federal National Mortgage Association forms are also

being added as acceptable for FHA single family purposes; these are

somewhat more detailed than the Uniform Residential Appraisal Report

and offer an alternative means of presenting the data. In addition,

former Sec. 267.4(a)(4)(iii) required sufficient ``depth of analysis''

to reflect the complexity of the property. HUD has concluded that the

data necessary for an appraisal which satisfies the other FHA standards

will necessarily reveal whether the property is complex so as to

require a certified rather than a licensed appraiser. Therefore, the

need for this separate and rather vague standard is avoided and the

language of proposed Sec. 267.4(a)(4)(iii) has been dropped from this

final rule.

(4) Proposed Sec. 267.4(a)(7) is being deleted as not really

pertinent for single family programs.

(5) Proposed Sec. 267.4(a)(11) is being deleted to simplify the

appraiser's responsibilities. We agree with several commenters that the

added burden of requiring the appraiser to check the property's legal

description is not justified by the remote likelihood of a mistake in

the address.

(6) Section 267.7(a)(8) still requires the appraiser to certify

that the racial/ethnic composition of the neighborhood has in no way

affected the appraisal determination. However, the phrase ``or

socioeconomic'' has been dropped as part of this certification. The

term was not susceptible to a clear understanding. It was, in fact,

misleading, since the economic composition of the surrounding

neighborhood, e.g., level of property maintenance, is a valid

consideration in determining value, whereas any consideration of the

social mix and demographics is precluded by the rule's explicit warning

that the appraiser must not give weight to racial and ethnic aspects of

the neighborhood4. A similar change has been made with respect to

the certification for multifamily programs in Sec. 267.11(a)(9).

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\4\In addition to the certification requirement of

Sec. 267.7(a)(8) it should also be noted that the Uniform

Residential Appraisal Report Form states in bold type that ``[r]ace

and the racial composition of the neighborhood are not appraisal

factors.''

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(7) Proposed Sec. 267.4(a)(12), now Sec. 267.7(a)(9), describing

valuation methods, has been revised to extract the relevant single

family provisions.

Section 267.8(a)(1)(i)(A) of the rule contains a parenthetical

phrase to make clear that a mortgagee selecting an appraisal

organization may also select a particular employee within that

organization to perform the appraisal.

Section 267.8(c)(1) embodies the prohibitions of proposed

Sec. 267.5(c), but has been simplified in one respect. Proposed

Sec. 267.5(c)(1) addressed contracts between the mortgagee and the

appraiser if the two were affiliated. While this relationship is still

prohibited in multifamily cases, in single family programs, where DE

mortgagees may employ staff appraisers, it is inconsistent with much of

the lending industry's practice. The prohibition has therefore been

dropped from Sec. 267.8(c).

In Sec. 267.8(d)(1), the list of legal entities which, together

with natural persons, comprise eligible types of appraisers has been

expanded from the list in Sec. 267.5(d)(1) of the proposed rule to

include joint ventures, limited liability companies and other

organizations. In addition, Sec. 267.8(d)(1) has been redrafted to

explain the options available to a DE mortgagee in need of an

appraiser, i.e., an independent contractor, a staff employee or a fee

panelist. Section 267.5(d)(1) of the proposed rule did not cover these

options; paragraphs (d)(1)(i), (d)(1)(ii) and (d)(1)(iii) focused

instead on appraiser qualifications, which made them somewhat redundant

since appraiser qualifications were also set forth in Sec. 267.5(d)(2),

now Sec. 267.8(d)(2), describing the Roster.

Proposed Sec. 267.5(d)(1)(iv) has been incorporated into Sec. 267.8

(d)(1) of this rule and revised to make it clear that the mortgagee and

appraiser share not only concurrent but also equal responsibility for

the accuracy and thoroughness of an appraisal.

In Sec. 267.8(d)(2), the appraiser, rather than providing evidence

of compliance with the items listed in proposed Sec. 267.5(d) (2)(i)-

(vi), may now certify that he or she satisfies the requirements of that

paragraph. Also, two of the proposed requirements have been dropped:

there is no obligation to obtain errors and omissions insurance unless

the mortgagee requires it and there is no fee for being listed on the

Roster.

Section 267.8(f)(1) [proposed Sec. 267.5(h)] no longer requires as

a condition to transferring an appraisal that the accepting mortgagee

have ``adopted appraisal review procedures in accordance with this

part''. Inclusion of this condition in the proposed rule was an error.

There is no appraisal review procedure contained in the rule.

Section 267.5(f) of the proposed rule, regarding the extent to

which others may assist the appraiser, has been deleted. As explained

above, the thrust of many changes which distinguish this rule from the

proposal is to place a greater reliance on USPAP and, wherever

possible, to achieve compatibility with generally accepted practices of

the appraisal industry. Consistent with this approach, the Department

looks to USPAP to set criteria for the ``assistance of others''.

Finally, mention should be made of the conforming amendment under

24 CFR part 204, Coinsurance, contained in the proposed rule (58 FR

48566). On March 30, 1994 (59 FR 14809, Docket No. R-94-1717), the

Department proposed termination of its single family coinsurance

program but the proceeding in Docket No. R-94-1717 is still open. Until

final action is taken, part 204 remains in effect and is being amended

by this rule.

Subpart C--Multifamily Programs

Section 267.9, Definitions applicable to multifamily programs,

extracts from Sec. 267.2 of the proposed rule those definitions

pertinent to multifamily programs. As with Sec. 267.5, some editorial

changes have been required to accommodate this separation of the

definitions from the format in which they were proposed.

Section 267.10, Qualified appraisers and appraisals, derives from

Sec. 267.3 of the proposal. It has been redrafted to fit exclusively

multifamily programs. Note also that paragraph (a) provides for HUD

employees performing multifamily appraisals to be qualified as

certified general appraisers not later than December 31, 1996, unless

the Assistant Secretary-Commissioner specifies otherwise in an

individual case. It is FHA's goal to qualify its staff appraisers in

accordance with the standards of a state as soon as possible. However,

the Department is currently undertaking an extensive reorganization and

restructuring of its field office functions and jurisdictions. Very

likely, a number of HUD Multifamily appraisers, including some who have

already attained certified general status, will be retiring in the near

future. Time is required to recoup such losses and our current estimate

is that we will not be able to achieve comprehensive certification of

multifamily appraisers until the end of 1996. Some currently certified

employees will remain, of course, and others will become certified

before that time, but we cannot set a precise schedule because

available training funds for the 1995 and 1996 fiscal years are not

known nor is the retirement rate predictable with much accuracy.

Moreover, the dispatch with which HUD can accomplish conprehensive

certification of its staff appraisers will be directly proportional to

the extent of training and experience required by different states so

progress will undoubtedly vary from one field office to another. We

have set a date of December 31, 1996 for achieving full staff

certification in multifamily programs; however, in the event funding

and attrition rates differ appreciably from our projections, we will

adjust the effective date to make it earlier if possible, later if

necessary.

As is the case with Sec. 267.7, which sets standards for single

family appraisals, Sec. 267.11 has been extensively revised both to

reduce requirements and to extract specific--in this case multifamily--

appraisal standards. In most respects, Secs. 267.7 and 267.11 are

alike, except that in Sec. 267.11: 1) the prescribed appraisal forms

are different; 2) the review of historical sales prices covers a three-

year (or more), rather than a one-year, time span; 3) proposed rule

paragraphs 267.4(a)(7) and (a)(8), concerning marketing period and

factors that affect income and the absorption period, are relevant for

multifamily sales and are included; and 4) the reference to valuation

methods focuses on the greater concern with replacement cost in

multifamily programs.

For the reasons cited above in the description of Sec. 267.8, the

provision regarding the assistance of others, Sec. 267.5(f) of the

proposed rule, has been deleted. However, Sec. 267.12 contains a new

paragraph (b)(2), inadvertently omitted from the proposed rule, that

outlines the relationship between an appraiser and a Delegated

Processor. Paragraph (b)(2) explains that HUD must review and approve

each appraiser who works for a Delegated Processor, either as an

employee or as an independent contractor. We also review and approve

each appraiser employed under a Technical Discipline Contract (TDC).

Discussion of the Comments Received

The Two Main Issues

Most of the comments addressed one or both of the principal

objectives of the rule: to require the certification or licensing of

appraisers for FHA-insured mortgages and to enable DE mortgagees to use

appraisers of their own choosing for FHA transactions.5

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\5\ Several commenters used the rulemaking as an occasion to

raise matters outside the scope of this proceeding. It would be

inappropriate to dispose of those matters at this time, but to the

extent HUD deems appropriate, they may be the subject of subsequent

administrative action.

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The Certification/Licensure Issue

As was pointed out in the proposed rule, the requirement that FHA

appraisers must be certified or licensed, depending upon the nature of

the transaction, is based on section 142 of the Reform Act, and

parallels a similar Congressional mandate in FIRREA that only certified

general, certified residential or licensed persons may perform

appraisals involving federally related transactions. Thus, when section

142 was enacted, a system of state certification and licensing was

already under development. This was beneficial in two respects. First,

it obviated the need for HUD to develop its own regulatory structure

with a resultant drain on staff and budgetary resources. Second, by

drawing upon the FIRREA system as an established resource, HUD could

fulfill its regulatory responsibility with a minimum of added expense

to homebuyers. We believe that most appraisers will soon be certified

and/or licensed in order to participate in the broad range of federally

related transactions and also to enhance their own professional

stature. The cost of added training and membership will then be

distributed over a wide base of consumers. Moreover, there will

probably be a dwindling pool of unlicensed and uncertified appraisers

upon which mortgagees can draw so that, quite apart from the mandate of

section 142, debate over the need for such accreditation in FHA

programs will become academic. In any event, HUD retains its control

over appraisal fees permitted for single family programs to make sure

that they do not rise disproportionately.

The Appraiser Selection Issue

With respect to the DE mortgagee's right to choose appraisers, we

specifically requested comment from the public. It is not possible for

HUD to preclude that choice by rulemaking, since the mortgagee's right

to choose has been mandated by Congress and is therefore beyond the

scope of agency policy. However, we wanted to assess the extent and

weight of public opinion in order to ascertain if there were a good

case HUD might present to Congress for repealing the provision. We

found that public opinion was fairly well balanced between support and

opposition. Some commenters argued that lender choice would lead to

abuse and distorted valuation; others that it would do no more than

serve to simplify and speed the appraisal process. We turned,

therefore, to an analogy with experience already gained, inferring that

use of the staff appraisers employed by many major lending firms should

have the same potential for abuse and the same tendency to encourage

lender-dictated property values. Yet increasing experience with this

practice has not indicated that the accuracy or thoroughness of lender

staff appraisals has been compromised by pressure on the employee. We

have concluded that serious concern about the integrity of lender-

selected appraisers is not supported by current evidence and we do not

plan to pursue the matter legislatively at this time.

Specific comments. Some of the public comments raised specific

issues that should be addressed.

Comment on review appraisers: The Department has not adequately

addressed the need for qualifying review appraisers. Furthermore, there

is no recognition of the difference between a technical review and an

administrative review as those terms are understood within the

appraisal industry.

Response: HUD has given considerable thought to the general

question of appraisal reviews and who performs them. For FHA purposes,

reviews are essentially of two types. First are those incidental to the

duties of the DE underwriter. In these instances, the appraisal is

accepted on its face, while certain factors are weighed into the

decision of whether or not to underwrite, and if so, whether to change

the loan amount on the basis of an adjustment to value. This is not an

appraisal action; it is an underwriting judgment as we explained in the

proposed rule. Along with these judgments, the underwriter exercises

administrative review responsibilities, checking to see if the

appraiser has properly completed the form, noting the comparables used,

etc. We see no element of technical review in this role of the

underwriter, who is not certified or licensed in most cases.

The second type of review is technical, as compared to

administrative. With respect to multifamily transactions, technical

reviews are conducted by HUD staff or by a contractor and may result in

a revision of the appraisal report. In the case of single family

transactions, they are conducted by HUD staff and may provide a basis

for administrative sanctions, but they do not materially affect the

appraisal report. Whether a technical review is performed by a

contractor or by HUD staff, the reviewer must be certified in the case

of multifamily programs and either certified or licensed, as is

necessary, for single family programs. In order to make HUD's own

internal practices consistent with the standard that we apply to

private sector appraisers, the Department intends that over the next

several years, every FHA multifamily and single family staff appraiser

who performs reviews will become either certified or licensed,

whichever is appropriate for the nature of the reviews that he or she

performs.

Comment on loan correspondents choosing appraisers: The proposed

rule does not clarify whether loan correspondents or their sponsors

should choose the appraiser.

Response: The Department expects sponsors to be responsible for

underwriting single family loans submitted by their loan

correspondents. Consistent with this approach, the sponsor must select

the appraiser.

Comment on limiting market value with replacement cost: It is ill-

advised and inconsistent with USPAP for HUD to stipulate that market

value shall not exceed replacement cost.

Response: The Department agrees with several of the commenters that

there are instances when replacement cost does not keep step with

market value, and this is precisely why a limitation is needed. We do

not agree that a property can adequately secure a debt for any sum

greater than is sufficient to replace the property. For purposes of

mortgage financing, value must be ascertained prudently. It is not the

same, for example, as the value assigned to property when setting a

market price. For FHA purposes, it is fair and sensible to limit market

value by replacement cost, particularly since it will be supported by

an actual construction contract.

We are puzzled by the assertion of one commenter that HUD's policy

is inconsistent with USPAP. Standards Rule 1-5 of USPAP states that the

appraiser must consider and reconcile the quality and quantity of data

available and analyzed within the approaches used and the applicability

or suitability of those approaches which are set forth in Standards

Rule 1-4. For FHA, the acceptable approach is market value, although

replacement cost is recognized as a limit to data acquired from the

sales of comparable properties. We see no conflict with USPAP in this

regard.

Comment on reporting market conditions and trends: Why require the

appraiser to analyze and report on current market conditions and trends

if, as stated in the preamble to the proposed rule, such conditions and

trends should not be factored into the estimate of value?

Response: In the preamble to the proposed rule, we stated that:

* * * while the appraiser should indicate observed market trends as a

part of the appraisal report, a trend should not be factored into the

estimate of value.

This statement failed to make a basic distinction between what is meant

by ``trend'' in multifamily compared with single family programs, and

caused several commenters to question the usefulness of trending in

single family appraisal work.

A multifamily appraiser must give consideration to long-term

projections of market changes in order to estimate, for example,

project income from rents over the life of the mortgage. Trends are

therefore of twofold significance in multifamily cases: they address

projected changes in both the intrinsic value of the property and in

its earning ability. Hence, they are essentially forward-looking.

By comparison, the existence of rapidly rising or declining prices

for single family properties can be ascertained by analysis of recent

sales data. Looking at sale prices within the preceding six months, the

appraiser can estimate the rate of increase or decrease in an area.

These rates of change will have an effect on the value of the subject

property and must be taken into consideration.6

---------------------------------------------------------------------------

\6\ The URAR provides for the appraiser's perception of ``Market

conditions in the subject neighborhood (including support for the

above conclusions [regarding marketability] related to the trend of

market values * * *)'' (Emphasis added.)

---------------------------------------------------------------------------

For both single family and multifamily transactions, however, it

should be borne in mind that conditions and trends are ephemeral

elements in any economy whether viewed from a local or national

perspective and they reflect assumptions which may or may not be

vindicated by subsequent events.

Comment on reporting the use of minority appraisers: Reporting on

the use of minority and female appraisers is burdensome, unnecessary

and if nevertheless adopted, should be HUD's responsibility.

Response: This is an important initiative. It is intended to

address two matters of concern. One is the perceived underutilization

of minority and female appraisers in general. Second is a perceived

underutilization of minority appraisers in communities where they might

be more knowledgeable about trends and conditions and more sensitive to

community problems. However, the Department recognizes the burden this

reporting requirement places on mortgagees, especially in FHA's high

volume single family programs. We have therefore revised the

requirement so that HUD will accept virtually all responsibility for

compiling and reporting the information for those programs.

Comment on differing appraiser classifications: Why does the

proposed rule not distinguish between the different levels of

certification, such as a Certified General Appraiser compared with a

Certified Residential Appraiser?

Response: We do distinguish between certified general and certified

residential appraisers in those instances where the distinction must be

made. Thus, when the reference is to multifamily programs, ``certified

general'' is intended and the rule will usually so state. When we are

referring to single family programs that require the services of a

certified appraiser, as described in Sec. 267.5(b), the rule makes no

distinction because either a certified general or a certified

residential appraiser would be appropriate for the assignment. Some

jurisdictions have provided for other variant classifications which

this rule does not seek to distinguish. We rely instead on the state

accreditation agencies--prompted by the benefits of reciprocity and

guided by the Appraiser Qualifications Board--to maintain comparable

standards within the different classifications for use by FHA, the

Federal Financial Institutions Examination Council members and other

interested agencies such as the Department of Veterans Affairs (DVA)

and the Farmers Home Administration.

Comment on continuing the use of DVA certificates of reasonable

value (CRVs) and HUD conditional commitments: According to HUD's Direct

Endorsement regulations, in particular 24 CFR 203.5(e): ``In lieu of

appraising the property, the mortgagee may utilize a HUD conditional

commitment (for proposed construction only), or a Department of

Veterans Affairs certificate of reasonable value.'' Will this continue

to be the practice under the Roster system?

Response: Lenders may continue to rely on conditional commitments

and CRVs. Part 267 will not affect this interchangeability. For some

time now, both HUD and DVA, by administrative instructions, have

required certified or licensed appraisers for single family appraisals.

Moreover, appraisals for veteran housing programs must comply with

USPAP. Thus, DVA and FHA requirements are comparable in key respects

and are mutually acceptable. Of course this interchangeability could

end if either agency were to lessen its standards for appraisers or

appraisals. We point out also that HUD requires virtually all

applications for mortgage insurance to be processed under the DE

program, so very little use is made of HUD conditional commitments.

This fact tends to discourage the mutual recognition of CRVs and

conditional commitments (or at least DVA's recognition of HUD

commitments) since 38 U.S.C. 1831 requires that CRV appraisers be

assigned on a rotational basis from a fee panel selected and maintained

by DVA--a requirement incompatible with the DE lenders' freedom to

select their appraisers.

Comment on the integrity of DE staff appraisers: It is naive and

pointless to require that DE lenders separate the appraisal function

from their underwriting operations in order to protect the autonomy and

integrity of staff appraisers. Policy and decisionmaking for every

corporate component coalesce at the top of the business structure and

filter downward; a staff appraiser cannot avoid being influenced.

Response: We are aware of the potential for pressure on staff

appraisers, but short of prohibiting the practice altogether, there is

no completely satisfactory solution. We believe that by removing the

appraiser from the direct supervision of the loan production

department, two advantages accrue.

First, the appraiser is at least free from the everyday case-by-

case control of loan officers. An appraiser may sense that too many

unfavorable appraisals can impede on his or her career track (of

course, a self-employed appraiser under contract with a lender can feel

similar pressures), but there will at least not be instances where

one's immediate supervisor looks for a specific value in every case

assigned.

Second, when the nexus of decisionmaking shifts upward, if undue

influence is manifest, it is usually easier to fix accountability. If

there is a consistent problem, it will very likely have originated at

upper corporate levels. Top management of a maleficent lending

institution will find it more difficult to avoid culpability by

claiming that fraudulent or misleading appraisals are the result of

nothing more than faulty supervision or insensitivity to potential

trouble at the loan officer level. Of course none of our precautions,

including appraiser independence, can guarantee that a staff (or

contract) appraiser will escape undue pressure. Ultimately, we look to

the integrity and long-range business judgment of the mortgagees

themselves to counter serious abuse and destructive practices. As we

have observed previously, there has been a very good overall record on

the part of mortgagees and staff appraisers in this regard.

Comment on the advisability of the Roster system: The idea of

establishing a Roster for single family appraisers appears to be an

offshoot of the fee panel system and is therefore a repudiation of the

mortgagee's right to select the appraiser.

Response: The Roster and the fee panel are in fact totally

different in concept and purpose. The fee panel was initiated as a

means of controlling the quality of appraisers in terms of training,

diligence, judgment and professionalism. It functioned mainly at a time

when there was little other assurance in these respects. It afforded a

means of training appraisers in FHA requirements and procedures and it

also served to limit the pool of appraisers so that panelists could be

kept active in FHA programs and their experience level would benefit

accordingly.

Circumstances have now changed completely. First and most

importantly, FIRREA has raised and standardized the level of appraiser

competence nationwide so that it is no longer a major concern. Second,

the law now permits DE mortgagees to select appraisers. This means that

a system of assigning panelists, unless the mortgagee requests the

assignment or is not DE approved (and most now are) would be illegal--a

fact which is overlooked by those commenters who urge HUD to retain the

strict panel assignment system. In a practical sense, it also means

that there are far more potential FHA single family appraisers than

this agency, with its increased budget constraints, could hope to train

in the manner that it once did. We must now rely on FIRREA and State

accreditation boards to do much of what HUD has done in the past. The

fee panel will continue in a diminished role, and only for those

lenders who wish to continue using it. This does not mean that HUD will

abdicate its responsibility for guarding against poor appraisal work.

We are instituting the Roster as a means of monitoring and quickly

remedying problems. However, unlike the fee panel system, the Roster

will list any applicant who holds current credentials under state

certification/licensing law, who has acquainted himself or herself with

FHA program requirements, and who has a good professional record,

including competency in performing FHA assignments. The Roster will

thus provide a rapid means of confirming that the appraiser is in good

standing at the time the mortgagee requests an FHA case number and

identifies the appraiser selected. That is its purpose--it is a

monitoring control, not a system for training and qualifying FHA

appraisers.

Comment on the need to list fee panelists on the Roster: The

proposed rule does not clarify whether fee panelists must be listed on

the Roster.

Response: Section 267.8(d)(1) now clarifies that fee panelists must

be listed on the HUD Appraiser Roster. Otherwise, minority and female

panelists could not be tracked for the report compiled by HUD pursuant

to Sec. 267.3(b)(2).

Comments on the scope of the Roster: Must an appraiser apply for

listing on the Roster in every state where the appraiser may do

business? Also, if an institutional appraiser applies, must the

individual employees of that firm apply for listing as well?

Response: The appraiser must apply to the HUD Office (or to any one

of the state's HUD Offices if there are several) in each state where he

or she intends to perform an appraisal. The reason is that every state

has its own numbering system and the only practical means of

correlating the Roster data and the record of state accreditation is to

maintain a list of all the various certification and/or license numbers

pertaining to that appraiser. Individual employees as well as the

employing institution must be listed since the performance of both will

be monitored.

Comment on removal from the Roster: If HUD needs to remove an

appraiser from the Roster for any reason, it should report that fact to

the state licensing board. Two commenters, in fact, suggested that HUD

``punish'' a disqualified appraiser.

Response: It is HUD's intention to report cases of fraudulent or

incompetent appraisals and other serious violations of appraisal

professional conduct to state accrediting boards. However, the

commenters who favor ``punishment'' mistake the purpose of the Roster.

As we said previously, it is not a device for applying sanctions; it is

simply a quality control measure to assure that appraisers who have not

maintained their credentials, or who for some reason have not met FHA

standards, are removed from the system where they can cause a problem.

Congress did not make HUD a watchdog or enforcer for the appraisal

industry when it enacted section 142 of the Reform Act, and it would be

inappropriate to base a punitive process on the Roster system. When we

discussed the Roster in the Proposed Rule, we explained that 24 CFR

part 24 relating to Government debarment and suspension procedures does

not apply to the removal of an appraiser from the listing, but we also

cautioned that the Department will invoke part 24 whenever

circumstances call for remedial action and Sec. 267.8(d)(3) so states.

Comment on training for special HUD programs: How will HUD train

non-panelists with regard to special FHA requirements such as lead

based paint detection and abatement?

Response: This is a matter that has not been resolved. The

Department is exploring several means of helping appraisers who have

not been through fee panel training to become knowledgeable about

specific program requirements. We are expediting this matter and will

advise interested members of the public as soon as there is further

information. In the meantime, appraisers should bear in mind that it

would be a violation of USPAP's Competency Provision to undertake an

assignment for which the appraiser has not been adequately trained and

is not qualified.

Comment on membership in professional organizations: Even though

the Department may not wish to predicate an individual appraiser's

competence solely on the basis of his or her membership in a

professional organization, such membership should be given weight.

Response: We disagree. There is simply no correlation in our view

between an appraiser's competence and which professional organizations,

or the number of professional organizations, that an appraiser may

choose to join. Our conclusion in the proposed rule on this point

remains unchanged.

Comment on appraising Secretary-held properties: It is short-

sighted and ill-advised for HUD to exempt the sale of Secretary-held

properties from part 267.

HUD disposition properties are indeed exempted from the

requirements of part 267, but they are nonetheless subject to a

valuation process in determining what would be an acceptable return on

the disposition sale. Moreover, if FHA mortgage insurance is used to

finance that sale, the maximum allowable mortgage is based on the bid

amount capped by the FHA mortgage limit applicable to the area. No

appraisal is required, and should the mortgagee on its own initiative

call for one, this part 267 would not apply.

IV. Other Matters

A Rule Recently Adopted by the Federal Financial Agencies

On June 7, 1994 (59 FR 29482) the Office of the Comptroller of the

Currency, the Board of Governors of the Federal Reserve System, the

Federal Deposit Insurance Corporation and the Office of Thrift

Supervision (the Agencies), after publishing a proposed rule for public

comment, amended their respective parts of title 12 of the Code of

Federal Regulations regarding the appraisal of real property pursuant

to FIRREA. These amendments increase from $100,000 to $250,000 the

minimum threshold for residential real estate appraisals as provided by

that statute and also broaden existing exemptions from various other

appraisal requirements. In addition, the amendments revise existing

provisions with respect to appraisal content and appraiser

independence.

In developing this final rule, HUD took the Agencies' amendments

into consideration. However, we do not believe it would be appropriate

for the Department to adopt a threshold mortgage amount that triggers

the need for an appraisal. HUD is charged with a specific Congressional

mandate under section 202(e) of the NHA to assure the quality of each

appraisal used in determining the value of the security for an FHA

insured mortgage. The Secretary's accountability in this regard is more

immediate and direct than that of the Agencies in establishing a system

of state accreditation under FIRREA. Moreover, protection of the FHA

insurance funds is a duty of the greatest importance to HUD. We do not

believe that we could fulfill these responsibilities by accepting as

security for FHA insured mortgages properties that have not been

thoroughly appraised.

The Department will therefore require appraisals for single family

and multifamily programs as set forth in Sec. 267.1, without exception.

Various considerations that underlie the Agencies' other amendments

with respect to appraisal standards, appraiser independence and

miscellaneous related matters are, we believe, comprehensively

addressed in this rule. Therefore, specific changes to the Agencies'

regulations need not be discussed or included in this rulemaking which

alone governs requirements for FHA mortgage insurance transactions.

Executive Order 12866

This rule was reviewed by the Office of Management and Budget under

Executive Order 12866, Regulatory Planning and Review. Any changes made

to the rule as a result of that review are clearly identified in the

docket file which is available for public inspection in the office of

the Department's Rules Docket Clerk, Room 10276, 451 Seventh Street,

SW, Washington, DC 20410.

Regulatory Flexibility Act Analysis

In accordance with the Regulatory Flexibility Act, 5 U.S.C. 605(b),

the undersigned hereby certifies that this rule does not have a

significant economic impact on a substantial number of small entities.

The eligibility and performance requirements contained in this rule are

consistent with requirements already established by other government

agencies for lender eligibility. Accordingly, the economic impact of

this rule would be minimal, and would affect small and large entities

equally.

Environmental Impact

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations in 24 CFR part 50 that

implement section 102(2)(C) of the National Environmental Policy Act of

1969 (42 U.S.C. 4332). The Finding of No Significant Impact is

available for public inspection and copying Monday through Friday, 7:30

a.m. until 5:30 p.m. in the office of the Rules Docket Clerk, Office of

General Counsel, Room 10276, Department of Housing and Urban

Development, 451 Seventh Street, SW, Washington, DC 20410.

HUD's Semiannual Agenda. This rule was listed under Office of

Housing as sequence number 1589 in the Department's Semiannual Agenda

of Regulations published on April 25, 1994 (59 FR 20424, 20448) under

Executive Order 12866 and the Regulatory Flexibility Act.

Executive Order 12612, Federalism. The General Counsel, as the

Designated Official under section 6(a) of Executive Order 12612,

Federalism, has determined that the policies contained in this rule do

not have federalism implications and thus are not subject to review

under the Order. The rule is limited to imposing additional eligibility

and performance requirements on private lenders. The only point of

policy contained in part 267 with even an indirect implication for

federal-state relationships is the decision that a HUD appraiser should

be subject to the certification requirements of any one state, but not

necessarily other states in which he or she is assigned to perform

appraisals. As explained previously, the standards of various

jurisdictions developed pursuant to FIRREA should result in a

reasonably uniform level of competence, and qualifying HUD employees in

every jurisdiction would involve many dollars and staff hours spent on

a largely duplicative effort. For purposes of section 142 of the Reform

Act, certification by any one state should therefore be sufficient. In

reaching this conclusion, HUD parallels OMB's decision with regard to

FIRREA that:

Federal employees who choose to become state-licensed or

certified real estate appraisers need only be licensed or certified

in one state or territory to perform real estate appraisal duties as

Federal employees in all states and territories.7

---------------------------------------------------------------------------

\7\ OMB Bulletin 92-06, March 16, 1992.

The Department is working toward assuring that its employees who

perform appraisals or consultations on multifamily projects become

qualified as certified general appraisers as soon as possible.

Executive Order 12606, the Family. The General Counsel, as the

Designated Official under Executive Order 12606, The Family, has

determined that this rule does not have a potential significant impact

on family formation, maintenance and general well-being, and, thus is

not subject to review under the Order. No significant change in

existing HUD policies or programs, as those policies relate to family

concerns, will result from promulgation of this rule.

Paperwork Reduction Act Statement. The information collection

requirements contained in this rule have been submitted to the Office

of Management and Budget for approval under the Paperwork Reduction Act

of 1980 (44 U.S.C. 3501-3520). The form shown in the matrix below has

been determined by the Department to contain collection of information

requirements:

----------------------------------------------------------------------------------------------------------------

Number of

Form Number of Responses per Hours per Total hours

Respondents Respondents Respondents

----------------------------------------------------------------------------------------------------------------

Form HUD 92563.................................. 50,000 1 .5 25,000

---------------------------------------------------------------

Total Annual Burden......................... .............. .............. .............. 25,000

----------------------------------------------------------------------------------------------------------------

List of Subjects

24 CFR Part 200

Administrative practice and procedure, Claims, Equal employment

opportunity, Fair housing, Housing standards, Incorporation by

reference, Lead poisoning, Loan programs--housing and community

development, Minimum property standards, Mortgage insurance,

Organization and functions (Government agencies), Penalties, Reporting

and recordkeeping requirements, Social security, Unemployment

compensation, Wages.

24 CFR Part 203

Hawaiian Natives, Home improvement, Indians--lands, Loan programs--

housing and community development, Mortgage insurance, Reporting and

recordkeeping requirements, Solar energy.

24 CFR Part 204

Mortgage insurance.

24 CFR Part 206

Aged, Condominiums, Loan programs--housing and community

development, Mortgage insurance, Reporting and recordkeeping

requirements.

24 CFR Part 267

Appraisals, Mortgage insurance, Property valuation, Reporting and

recordkeeping requirements.

Accordingly, the Department amends CFR parts 200, 203, 204, and

206, and adds a new part 267, consisting of subparts A through C, as

follows:

PART 200--INTRODUCTION

1. The authority citation for 24 CFR part 200 is revised to read as

follows:

Authority: 12 U.S.C. 1701s, 1701-1715z-18a, 1715z-11; 42 U.S.C.

3535(d), 3543, and 3544.

2. Section 200.810 is amended by revising paragraph (b), to read as

follows:

Sec. 200.810 Single family insurance and coinsurance.

* * * * *

(b) Appraisal. The appraiser, who shall be listed on the HUD

Appraiser Roster under Sec. 267.8(d)(2) of this chapter, shall, when

appraising a dwelling constructed prior to 1978, inspect the dwelling

for defective paint surfaces.

* * * * *

PART 203--SINGLE FAMILY MORTGAGE INSURANCE

3. The authority citation for 24 CFR part 203 is revised to read as

follows:

Authority: 12 U.S.C. 1709, 1715b; 42 U.S.C. 3535(d).

4. Section 203.5(e) is revised to read as follows:

Sec. 203.5 Direct endorsement process.

* * * * *

(e) Appraisal. A mortgagee shall have the property appraised in

accordance with the requirements of part 267 of this chapter.

PART 204--COINSURANCE

5. The authority citation for 24 CFR part 204 is revised to read as

follows:

Authority: 12 U.S.C. 1715z-9; 42 U.S.C. 3535(d).

6. Section 204.3(b) is revised to read as follows:

Sec. 204.3 Authority to determine eligibility.

* * * * *

(b) In making the determination set forth in this section the

mortgagee shall utilize an appraiser who meets the requirements of part

267 of this chapter and mortgage credit examiners and inspectors

approved by the Commissioner.

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

7. The authority citation for 24 CFR part 206 is revised to read as

follows:

Authority: 12 U.S.C. 1715b, 1715z-20; 42 U.S.C. 3535(d).

8. Section 206.3 is amended by adding at the end of the definition

of ``Maximum claim amount'' the following sentence:

Sec. 206.3 Definitions.

* * * * *

Maximum claim amount * * * Appraised value shall be determined by

an appraisal performed in accordance with part 267 of this chapter.

* * * * *

9. A new part 267, consisting of subparts A through C, is added to

read as follows:

PART 267--APPRAISAL AND PROPERTY VALUATION

Subpart A--General

Sec.

267.1 Applicability.

267.2 Definitions applicable to both single family and multifamily

programs.

267.3 Professional association membership; nondiscrimination;

lender reporting and competency.

267.4 Waiver.

Subpart B--Single Family Programs

267.5 Definitions applicable to single family programs.

267.6 Transactions requiring a state certified or state licensed

appraiser.

267.7 Appraisal standards.

267.8 Selection of appraisers by mortgagees; HUD Appraiser Roster;

appraiser independence.

Subpart C--Multifamily Programs

267.9 Definitions applicable to multifamily programs.

267.10 Qualified appraisers and appraisals.

267.11 Appraisal standards.

267.12 Selection of appraisers; appraiser independence.

Authority: 12 U.S.C. 1708(e), 1715b; 42 U.S.C. 3535 (d).

Subpart A--General

Sec. 267.1 Applicability.

(a) General rule. If the maximum insurable amount for a mortgage

insured under any National Housing Act program covered by this

subchapter is based in whole or in part upon the value of security as

determined by an appraisal, the appraisal must comply with this part

267.

(b) Exceptions. This part does not apply:

(1) If title to the property is held by the Secretary and a

determination of value is needed for disposition of the property or for

an insured mortgage to finance the property;

(2) To appraisals of manufactured homes under Sec. 201.10 (b) or

(d) of this chapter or Sec. 201.23(b)(3) of this chapter where the

manufactured home is classified as personal property;

(3) To appraisals of property for purposes of property improvement

loans under Title I of the National Housing Act if the principal

balance of the loan is not required to be based on the borrower's

equity in the property; or

(4) If the insured mortgage is secured by a hospital.

Sec. 267.2 Definitions applicable to both single family and

multifamily programs.

The following definitions apply to subparts A, B and C of this

part:

Appraisal Foundation means the Appraisal Foundation established on

November 30, 1987, as a not-for-profit corporation under the laws of

Illinois.

Appraisal Subcommittee means the Appraisal Subcommittee of the

Federal Financial Institutions Examination Council.

FIRREA means Title XI of the Financial Institutions Reform,

Recovery and Enforcement Act of 1989;

Market analysis means a study of real estate market conditions for

a specific type of property.

Market value means: (1) The most probable price which a property

should bring in a competitive and open market under all conditions

requisite to a fair sale, the buyer and seller each acting prudently

and knowledgeably, provided that the price is not affected by undue

stimulus. Implicit in this definition is the consummation of a sale as

of a specified date and the passing of title from seller to buyer under

conditions whereby:

(i) Buyer and seller are typically motivated;

(ii) Both parties are well informed or well advised, and acting in

what they consider their own best interests;

(iii) A reasonable time is allowed for sales exposure in the open

market;

(iv) Payment is made in terms of cash in U.S. dollars or in terms

of comparable financial arrangements; and

(v) The price represents the normal consideration for the property

sold unaffected by special or creative financing or by a sales

concession from anyone associated with the sale.

(2) For purposes of this definition, market value cannot exceed

replacement cost, i.e., the reasonable estimated cost of replacing the

property.

Mortgage means a mortgage as defined in this chapter, or a loan

authorized for insurance under the National Housing Act.

Mortgagee means the holder of a mortgage and includes a lender

holding a Title I contract of insurance and a Title I loan

correspondent.

Replacement cost means the Secretary's estimate of the construction

cost of the property or project when the proposed improvements are

completed. The replacement cost may include the land, the proposed

physical improvements, utilities within the boundaries of the land,

architect's fees, taxes, interest during construction, and other

miscellaneous charges incident to construction and approved by the

Secretary. For substantial rehabilitation proposals, the replacement

cost estimate includes the ``as is'' value of the property before

rehabilitation, plus the cost of rehabilitation and appropriate

carrying and financing charges.

Single family program means a mortgage or loan insurance program

authorized by the National Housing Act for one-to-four family

residential property as defined in Sec. 267.5(c).

State means any state of the United States, any territory of the

United States, the District of Columbia, Puerto Rico, Guam, American

Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands,

and the Northern Mariana Islands.

USPAP means that edition of the Uniform Standards of Professional

Appraisal Practice most recently promulgated by the Appraisal Standards

Board of the Appraisal Foundation at the time the Standards are

applied. The term also includes such changes and additions to USPAP as

the Department shall recognize. In general, HUD will recognize a change

or addition to USPAP. If, after opportunity to consider the

applicability and consequences of the change for HUD programs, HUD

should decide that it will no longer recognize the change or addition,

that decision will be published in the Federal Register.

Sec. 267.3 Professional association membership; nondiscrimination;

lender reporting and competency.

(a) Membership in appraisal organizations. A state certified

general or certified residential appraiser or a state licensed

appraiser may not be excluded from consideration for an assignment

solely because of membership or lack of membership in a particular

appraisal organization.

(b) Discrimination prohibited. In the selection of an appraiser,

there shall be no discrimination on the basis of race, color, religion,

national origin, sex, age or disability.

(c) Single family report and multifamily information; public

availability. (1) Based upon data compiled pursuant to paragraphs

(c)(3) and (c)(4) of this section, HUD will develop gender and minority

status information and will publish a report summarizing with respect

to each mortgagee the total number of appraisals performed within the

applicable reporting period and of that total the number of appraisals

performed by female appraisers and the number of appraisals performed

by minority status appraisers as defined in paragraph (c)(3)(iii) of

this section.

(2) Based on data compiled pursuant to paragraphs (c)(3) and (c)(5)

of this section, HUD will develop gender and minority status

information with respect to each housing finance agency participating

in the Risk-Sharing Program, each Delegated Processor, and each

appraisal company and individual appraiser contracting directly with

the Department. The information will disclose for each of the parties

described above the total number of appraisals performed within the

applicable reporting period and of that total the number of appraisals

performed by female appraisers and the number of appraisals performed

by minority status appraisers as defined in paragraph (c)(3)(iii) of

this section.

(3) Each institution or individual who conducts or contracts for

appraisals covered by this part will be monitored by HUD with respect

to the number of appraisals which it has performed or contracted for

during the reporting year by:

(i) Staff appraisers;

(ii) Appraisers assigned from a fee panel;

(iii) Appraisers whose services it has contracted for; in order to

determine the number of appraisals conducted for the mortgagee by

female and minority persons within the reporting period. A minority

appraiser is one who is: Hispanic, Hispanic black, Non-Hispanic black,

Asian/Pacific Islander, Asian Indian American, or American Indian/

Alaskan Native.

(4) With respect to single family programs, the information

contained in the report will be extracted by HUD from data kept on

record with respect to each appraiser listed on the HUD Appraiser

Roster described in Sec. 267.8(d)(2). The data will be maintained so as

to record the identity of the appraiser when the mortgagee requests an

appraisal assignment.

(5) With respect to multifamily programs, information will be

extracted by HUD from data kept on record for each Review Appraiser and

Field Appraiser performing appraisals or consulting for housing finance

agencies (HFAs), Delegated Processors, and the Department on a contract

basis. The information will be submitted within the following time

limits:

(i) HFAs participating in the Risk-Sharing Program will be required

to submit data early in the process (generally at the time of the

request for HUD-Retained Reviews);

(ii) Delegated Processors will be required to submit data within

three business days from receipt of the Task-Delivery Order;

(iii) Contract appraisers (Technical Discipline and Purchase

Orders) will be required to submit data within three days from receipt

of the Task/Delivery/Purchase Order. Institutions or individuals who

are currently under contract to HUD will be required to furnish this

additional information when exercising an option to renew or at any

other time which involves a change in a negotiated price. HFAs will be

required to submit the additional data as soon as possible after the

final rule in the Risk-Sharing Program becomes effective.

(6) The single family report and the multifamily information will

be available for public inspection during regular business hours at the

Office of Insured Single Family Housing, Single Family Development

Division, U.S. Department of Housing and Urban Development, 451 7th

St., S.W., Washington, D.C. 20410.

(d) Competency. Although appraisers performing appraisals covered

by this part must be either state licensed or certified, as

appropriate, an appraiser shall not be considered competent or suitable

solely by reason of having been licensed or certified by a state. Every

determination of competency shall be based upon the appraiser's

individual qualifications and character and upon his or her experience

and educational background as they relate to a particular appraisal

assignment.

Sec. 267.4 Waiver.

The Assistant Secretary for Housing-Federal Housing Commissioner,

or an official designated to act on behalf of the Assistant Secretary-

Commissioner, may waive any requirement of this part not mandated by

statute upon a finding that application of such requirement would

adversely affect the purposes of the National Housing Act. Each waiver

pursuant to this section shall be in writing and shall be supported by

a statement of the facts and reasons that are the basis for the waiver.

The authority conferred under this section may not be redelegated.

Subpart B--Single Family Programs

Sec. 267.5 Definitions applicable to single family programs.

In addition to the definitions in Sec. 267.2, the following

definitions apply to single family programs:

Appraisal means a written report independently and impartially

prepared by a qualified appraiser setting forth an opinion as to the

market value of an adequately described property as of a specific

date(s), which statement is supported by the presentation and analysis

of relevant market information; except that, in the case of a property

which is not valued on the basis of economic soundness, the appraisal

shall be based on replacement cost.

Complex one-to-four family residential property appraisal means an

appraisal in which the nature of the property, the form of ownership,

or the market conditions are atypical.

One-to-four family residential property means a manufactured home

lot or real property upon which is located a structure containing not

less than one, nor more than four, dwelling units (or 11 units for a

mortgage to be insured under subpart A of part 220(h) of this chapter),

including, for purposes of a mortgage to be insured under Sec. 203.50

of this chapter, a structure that will contain such units after

rehabilitation and for purposes of a mortgage to be insured under part

201 of this chapter, any property regardless of size or nature. The

term includes a manufactured home and lot classified as real property,

or a manufactured home lot which meets the requirements of

Sec. 201.2(v) of this chapter.

State certified appraiser means any individual who satisfies the

requirements for certification in a state which has adopted criteria

that currently meet or exceed the minimum certification criteria issued

by the Appraiser Qualifications Board of the Appraisal Foundation. The

state criteria must include a requirement that the individual have

achieved a satisfactory grade upon a state-administered examination

that is consistent with and equivalent to the Uniform State

Certification Examination issued or endorsed by the Appraiser

Qualifications Board of the Appraisal Foundation. Furthermore, if the

Appraisal Subcommittee has issued a finding that the policies,

practices, or procedures of the state are inconsistent with FIRREA, an

individual must comply with any additional standards for state

certified appraisers imposed by HUD under Sec. 267.7(c)(2).

State licensed appraiser means any individual who satisfies the

requirements for licensing in a state which has adopted criteria that

currently meet or exceed the minimum licensing criteria issued by the

Appraiser Qualifications Board of the Appraisal Foundation. The state

criteria must include a requirement that the individual have achieved a

satisfactory grade on a state-administered examination that is

consistent with, and equivalent to, the Uniform State Licensing

Examination issued or endorsed by the Appraiser Qualifications Board of

the Appraisal Foundation. Furthermore, if the Appraisal Subcommittee

has issued a finding that the policies, practices, or procedures of the

State are inconsistent with Title XI of FIRREA, an individual must

comply with any additional standards for state licensed appraisers

imposed by HUD under Sec. 267.7(c)(2).

Sec. 267.6 Transactions requiring a state certified or state licensed

appraiser.

(a) Appraisal by either a state certified or state licensed

appraiser. Every appraisal shall be performed by either a state

certified appraiser or a state licensed appraiser, except as provided

in paragraph (b) of this section. With respect to appraisals performed

by HUD employees, this requirement is satisfied whether or not the

property is located in the certifying or licensing state.

(b) Appraisal by a state certified appraiser only. An appraisal

shall be prepared by a state certified appraiser if it is:

(1) Required in connection with a mortgage of $1,000,000 or more;

or

(2) A complex one-to-four family residential property appraisal.

(c) Recognition of appraisals not governed by this part. An

appraisal of a one-to-four family residential property prepared in

accordance with standards prescribed under FIRREA, and in response to

the requirements of any Federal Financial Institution Regulatory

Agency, viz., the Office of the Comptroller of the Currency, the Board

of Governors of the Federal Reserve System, the Federal Deposit

Insurance Corporation, the National Credit Union Association or the

Office of Thrift Supervision, or with standards of the Resolution Trust

Corporation will comply with this section.

Sec. 267.7 Appraisal standards.

(a) Minimum standards. Each appraisal shall follow the requirements

of this Sec. 267.7. The appraisal shall, at a minimum:

(1) Conform to USPAP, except to the extent that such compliance may

conflict with the provisions of this part 267.

(2) Disclose any steps taken that were necessary or appropriate to

comply with the Competency Provision of USPAP.

(3) Be written and presented on the Uniform Residential Appraisal

Report form, the Federal National Mortgage Association (FNMA) Small

Residential Income Property Appraisal Report form, the FNMA Individual

Condominium Unit Appraisal Report form or any other format that is

acceptable to the Secretary.

(4) Analyze and report in reasonable detail all prior sales of the

property being appraised that occurred within one year preceding the

date when the appraisal is prepared.

(5) Analyze and report data on current revenues, expenses, and

vacancies for the property if it currently is, and will continue to be,

income-producing.

(6) Analyze and report on current market conditions and trends that

will affect income or the absorption period, to the extent they affect

the value of the property.

(7) Contain sufficient supporting documentation with all pertinent

information reported so that the appraiser's logic, reasoning,

judgment, and analysis in arriving at a conclusion indicate to the

reader the reasonableness of the value reported.

(8) Include in the certification required by USPAP a statement that

the appraisal is not based on a requested minimum valuation, a specific

valuation or range of values, or the approval of the loan. The

certification shall also include a statement that the racial/ethnic

composition of the neighborhood surrounding the property in no way

affected the appraisal determination.

(9) Follow a reasonable valuation method that, except for an

appraisal with respect to a mortgage to be insured under part 220 of

this chapter, addresses the direct sales comparison, income, and cost

approaches to market value required by the Secretary, reconciles or

explains any differences those approaches yield in determining the

value of the property in question, and gives the reason(s) for

rejecting each approach that was not used.

(b) Unavailable information. If information required by this

section is not available, that fact shall be disclosed and explained in

the appraisal report.

(c) Additional standards. In addition to the minimum standards set

forth in paragraph (a) of this section:

(1) A Direct Endorsement mortgagee may adopt generally, or may

impose in specific cases, such supplementary standards as are

reasonable, appropriate, and consistent with this part 267.

(2) HUD may, in instances where the Appraisal Subcommittee has

determined that the policies, practices, and procedures of a certifying

or licensing state are inconsistent with FIRREA, impose such

supplementary requirements as may be appropriate.

(3) HUD may, in instances where the Appraisal Subcommittee has

determined that the requirements of FIRREA may be waived in accordance

with 12 U.S.C. 3348(b), impose such supplementary requirements as may

be appropriate.

Sec. 267.8 Selection of appraisers by mortgagees; HUD Appraiser

Roster; appraiser independence.

(a) Selection method. (1) The method of selecting the appraiser

depends upon the program involved.

(i) For a mortgage insured under Title II of the National Housing

Act, the appraiser may be:

(A) Employed on the staff of the Direct Endorsement mortgagee or

selected by the Direct Endorsement mortgagee (which includes being

selected as an individual from the staff of a selected appraisal

organization), provided the appraiser is listed on the Appraiser Roster

provided under this Sec. 267.8; or

(B) Assigned by HUD from membership on one of its fee panels.

(ii) Reserved.

(2) The criteria in paragraph (d) of this section govern the

selection of the appraiser.

(3) For the appraisal of a manufactured home which is to be insured

under Title I of the National Housing Act and is classified as personal

property, the appraisal shall be carried out under the terms and

conditions of a contract between HUD and a contractor selected to

perform such appraisals.

(b) Direct Endorsement staff appraisers. An appraiser who is a

staff employee of a Direct Endorsement mortgagee shall be independent

of the loan officers and the loan production operations of the

mortgagee.

(c) Mortgagees, staff and fee appraisers: conflicts of interests.

(1) A mortgagee must avoid conflicts of interest and other

relationships which affect, either in reality or in appearance, the

credibility of the appraisal. Accordingly, a mortgagee may not contract

with an appraiser or appraisal organization to perform an appraisal of

a property if the builder or seller of the property owns, is owned by,

is affiliated with, or has a financial interest in the appraiser or

appraisal organization.

(2) An appraiser must avoid conflicts of interest and other

relationships which affect, either in reality or in appearance, the

credibility of the appraisal. Accordingly, a fee appraiser may not have

any interest, direct or indirect, in the property being appraised. A

staff appraiser of a Direct Endorsement mortgagee may not have any

direct interest, financial or otherwise, in the property being

appraised, and is permitted an indirect interest only by reason of his

or her employment by a mortgagee that has its appraisal operations

isolated from its other activities in accordance with paragraph (b) of

this section.

(d) Eligible fee appraisers. (1) General rule for Direct

Endorsement cases. If a mortgage is to be processed by Direct

Endorsement, the mortgagee may:

(i) Contract with a fee appraiser to perform appraisal services.

The contract may be with an individual, a corporation, a partnership, a

sole proprietorship, a joint venture, a limited liability company, or

any other legal entity recognized for the purpose by the state, which

the mortgagee has chosen at its sole discretion, provided that the

individual appraiser selected to perform the appraisal is listed on the

current HUD Appraiser Roster set forth in paragraph (d)(2) of this

section. The mortgagee, concurrently and equally with the appraiser

whom it has chosen, accepts full responsibility for the accuracy,

integrity and thoroughness of the appraisal.

(ii) Use an appraiser employed on its staff, provided that the

appraiser is listed on the current HUD Appraiser Roster.

(iii) Request HUD to assign an appraiser from one of its fee

panels. Fee panelists must be listed on the HUD Appraiser Roster.

(2) HUD Appraiser Roster. (i) HUD will maintain a nationwide

listing on an Appraiser Roster of appraisers who are permitted to

perform appraisals in connection with HUD's single family programs.

Being listed on the Roster does not indicate a warranty or endorsement

by HUD of any appraiser or appraisal, and Sec. 200.145(c) of this

chapter applies to each appraisal performed in accordance with this

part. Each applicant for listing or periodic relisting must certify

that he or she:

(A) Holds a current certification or license from a state whose

qualification standards are in compliance with FIRREA, as determined by

the Appraisal Subcommittee (and must include his or her current

certificate or license number);

(B) Has read HUD Handbook 4150.1 and related Mortgagee Letters;

(C) Is not listed on HUD's Credit Alert Interactive Voice Response

System; and

(D) Is not debarred, suspended or in any way disqualified from

participating in HUD programs.

(ii) In addition, the applicant must submit such additional

information as HUD may require. Application to be listed on the Roster

must be made at any HUD Office in each state where the applicant will

perform appraisals.

(3) Removal from the Roster. HUD may at any time remove the

appraiser from the Roster for cause. Cause includes, but is not limited

to, significant deficiencies in appraisals, failure to maintain

standing as a state certified or state licensed appraiser and

prosecution for committing or attempting to commit fraud,

misrepresentation or other offence that may reflect on the appraiser's

character and integrity. Such removal shall not be governed by the

procedures of part 24 of this Title. The appraiser shall, however, be

subject to other sanctions in accordance with part 24 of this title.

(4) Fee panels. If a mortgage is not processed by the Direct

Endorsement procedure, the appraiser will be assigned from a fee panel

or otherwise designated by HUD. A mortgagee using the Direct

Endorsement procedure may also request HUD to assign an appraiser from

a fee panel.

(e) Appraisal fees and charges. The appraisal fee charged to the

borrower or other party shall be reasonable. The fee may be prescribed

by rule or other HUD issuance.

(f) Transfer of appraisals between mortgagees. A Direct Endorsement

lender may accept an appraisal that was prepared by an appraiser

engaged directly by another mortgagee, provided that the appraisal was

performed in accordance with this part and that the mortgagee accepting

the appraisal has:

(1) Reviewed the appraisal report under its review procedures; and

(2) Found the appraisal to be acceptable.

Subpart C--Multifamily Programs

Sec. 267.9 Definitions applicable to multifamily programs.

In addition to the definitions in Sec. 267.2, the following

definitions apply to multifamily programs:

Acceptable risk refers to a program in which the project's net

operating income covers the mortgage debt service requirement and

provides an appropriate return to the owner's equity. The term assumes

that the mortgage does not exceed the appropriate percentage of

estimated replacement cost and any other supplemental standards

concerning particular programs contained in handbooks and other

directives.

Appraisal means a written report independently and impartially

prepared by a qualified appraiser setting forth an opinion:

(1) In the case of a project requiring economic soundness, as to

the market value of an adequately described property as of a specific

date(s), which statement is supported by the presentation and analysis

of relevant market information, and is in accordance with the

supplemental standards as set forth in HUD's appraisal instructions; or

(2) In the case of a project which does not require a determination

of economic soundness, that is based on replacement cost, as estimated

by HUD staff or by an appraiser who has contracted with HUD to perform

a real estate consultation pursuant to Sec. 267.12(b).

Consultant, which refers to an appraiser performing a real property

consultation for HUD, means the person who provides such information,

analysis, recommendations or conclusions.

Consultation or consultancy means the act or process of providing

information, analysis of real estate data, and recommendations or

conclusions on diversified problems in real estate, other than

estimating value.

Economic soundness refers to a program under which a project has

had its underwriting risk analyzed on the basis of three approaches to

value.

Multifamily project or multifamily property means a project

containing five or more family units (or in the case of a mortgage to

be insured under section 220(h) of the National Housing Act, two or

more rental units), a nursing home, an intermediate care facility, a

board and care home or a project insured under section 232 of the NHA.

State certified appraiser means any individual who satisfies the

requirements for certification as a certified general appraiser in a

state which has adopted criteria that currently meet or exceed the

minimum certification criteria issued by the Appraiser Qualifications

Board of the Appraisal Foundation. The state criteria must include a

requirement that the individual have achieved a satisfactory grade upon

a state-administered examination that is consistent with and equivalent

to the Uniform State Certification Examination issued or endorsed by

the Appraiser Qualifications Board of the Appraisal Foundation.

Furthermore, if the Appraisal Foundation has issued a finding that the

policies, practices, or procedures of the state are inconsistent with

FIRREA, an individual must comply with any additional standards for

state certified appraisers imposed by HUD under Sec. 267.11(c)(1).

Sec. 267.10 Qualified appraisers and appraisals.

(a) Appraisal by a state certified general appraiser. Every

appraisal shall be performed by a state certified general appraiser.

With respect to appraisals performed by HUD employees, this requirement

is satisfied whether or not the property being appraised is located in

the state which certified the HUD employee. Each HUD employee who

performs appraisals or consultations or who reviews appraisals or

consultations will be qualified as a certified general appraiser under

the laws of one or more states not later than December 31, 1996,

unless, in an individual case, the Assistant Secretary for Housing-

Federal Housing Commissioner decides that a different date is

appropriate. All appraisers shall comply with HUD policies and

procedures as set forth in HUD handbooks and other issuances.

(b) Only appraisals and consultations complying with this part are

recognized. Appraisals or consultations performed in accordance with

the requirements of other agencies will not be recognized for HUD

multifamily transactions that require appraisals or consultations

complying with this part 267 unless those appraisals or consultations

so comply.

Sec. 267.11 Appraisal standards.

(a) Minimum standards. Each appraisal or real estate consultation

shall follow the requirements of this Sec. 267.11 as supplemented from

time to time by HUD processing instructions which comprise supplemental

standards authorized in accordance with USPAP. The appraisal shall, at

a minimum:

(1) Conform to USPAP, except to the extent that such compliance may

conflict with the provisions of this part 267.

(2) Disclose any steps taken that were necessary or appropriate to

comply with the Competency Provision of the USPAP.

(3) Apply USPAP Standard 2, Real Property Appraisal Reporting;

except that under the Supplemental Standards Provision of USPAP,

reports by appraisers or consultants shall be in writing using the

following forms:

(i) HUD-92264, HUD-92264(RCF) or HUD-92264B, with attachments as

required;

(ii) Trial form HUD-92264A.

(4) Analyze and report in reasonable detail all prior sales of the

property being appraised within three years preceding the date when the

appraisal is prepared, or beyond three years if necessary to include

the last arms-length transaction.

(5) Analyze and report data on current revenues, expenses, and

vacancies for the property if it currently is, and will continue to be,

income-producing.

(6) Analyze and report a reasonable marketing period for the

subject property.

(7) Analyze and report on current market conditions and trends that

will affect income or the absorption period, to the extent they affect

the value of the property.

(8) Contain sufficient supporting documentation with all pertinent

information reported so that the appraiser's logic, reasoning,

judgment, and analysis in arriving at a conclusion indicate to the

reader the reasonableness of the value reported or of the consulting

recommendations or conclusions provided.

(9) Include in the certification required by USPAP a statement that

the appraisal is not based on a requested minimum valuation, a specific

valuation or range of values, or the approval of the loan. The

certification shall also include a statement that the racial/ethnic

composition of the neighborhood surrounding the property in no way

affected the appraisal determination.

(10) Follow a reasonable valuation method that:

(i) With respect to a program based on market value, addresses the

direct sales comparison, income, and cost approaches to market value,

reconciles or explains any differences those approaches yield in

determining the value of the property in question, and gives the

reason(s) for rejecting each approach that was not used;

(ii) With respect to a program based on replacement cost,

determines the acceptable risk using estimated replacement cost

together with supplemental standards set forth in HUD handbooks and

other program directives.

(b) Unavailable information. If information required by this

section is not available, that fact shall be disclosed and explained in

the appraisal report.

(c) Additional standards. In addition to the minimum standards set

forth in paragraph (a) of this section:

(1) HUD may, in instances where the Appraisal Subcommittee has

determined that the policies, practices, and procedures of a certifying

or licensing state are inconsistent with FIRREA, impose such

supplementary requirements as may be appropriate.

(2) HUD may, in instances where the Appraisal Subcommittee has

determined that the requirements of FIRREA may be waived in accordance

with 12 U.S.C. 3348(b), impose such supplementary requirements as may

be appropriate.

Sec. 267.12 Selection of appraisers; appraiser independence.

(a) Basis for selection. The appraiser or consultant may be:

(1) A member of HUD's staff;

(2) Selected by the Delegated Processor in accordance with terms

and conditions agreed to in writing by HUD and the Delegated Processor;

(3) Selected to perform appraisals in accordance with the terms and

conditions of a formal contract between HUD and an institution or

individual performing the services, or in accordance with the terms and

conditions of a Purchase Order; or

(4) Selected by an HFA which has been approved to participate in

the Department's Risk-Sharing Program.

(b) Qualifications. HUD exercises contractual control over the

qualifications of those individuals and organizations that perform

appraisal and consultation services in FHA multifamily programs.

(1) Appraisers and consultants performing services under HUD

contracts for Delegated Processing and Technical Discipline assignments

will be selected on the basis of criteria and procedures set forth in

the solicitation, pursuant to the Federal Acquisition Regulations, 48

CFR Chapter I.

(2) Under the Delegated Processing Program HUD contracts with a

HUD-approved processing company to perform mortgage insurance

underwriting processing and to make a recommendation to HUD. HUD makes

the final underwriting determination. The Delegated Processor must

identify the staff or contract review appraiser(s) and consultant(s)

and must submit their qualifications, based upon requirements as set

forth in the contract between HUD and the Delegated Processor, for

review and approval. The Delegated Processor may subcontract appraiser

and consulting functions, but must identify, prior to performing the

appraisal or consultation, the appraiser or consultant selected under

the subcontract and must provide a resume or qualifications for review

and approval by the HUD field office concerned.

(3) Under the Housing Finance Agency Risk-Sharing Program, HUD

delegates to state and local housing finance agencies the authority to

originate and service loans that are fully insured by FHA. Under this

program, participating agencies share in the risk associated with

monetary losses that may be incurred as a result of loan defaults. An

HFA may use either in-house or contract appraisers who meet

certification requirements. The Risk-Sharing Program requires

compliance with USPAP and therefore requires that appraisals be

performed by certified general appraisers accredited by the state in

which the project is located.

(c) Delegated Processor appraisers: conflicts of interests. A

Delegated Processor or Consultant must avoid conflicts of interest and

other relationships which affect, either in reality or in appearance,

the credibility of the appraisal. The Delegated Processor or Consultant

may not:

(1) Contract with an appraiser or appraisal organization to perform

appraisals, if the Delegated Processor or Consultant owns, is owned by,

is affiliated with, or has a financial interest in the appraiser or

appraisal organization; or

(2) Contract with an appraiser or appraisal organization to perform

an appraisal of a property if the builder or seller of the property

owns or is owned by, is affiliated with, or has a financial interest in

the appraiser or appraisal organization.

(d) Appraiser independence. An appraiser may not have any interest,

direct or indirect, in the property being appraised.

(e) Non-transferability of appraisal. Appraisal materials and

reports may not be transferred between mortgagees with respect to a

property involved in a multifamily transaction.

Dated: September 16, 1994.

Jeanne K. Engel,

General Deputy Assistant Secretary for Housing-Federal Housing

Commissioner.

[FR Doc. 94-24327 Filed 9-30-94; 8:45 am]

BILLING CODE 4210-27-P