Every 10 years or so, a serious threat or opportunity arises that could hurt or help the professional inspection industry. In the 1970s, the Federal Housing Administration (FHA) helped create the professional home inspection industry in the United States by getting appraisers to require plumbing, heating, electric, roofing and termite certifications as part of most FHA mortgage approvals. In the late 1970s and early 1980s, it was government legislation banning the production of lead-based paint that gave rise to a new industry of lead-based paint inspections with X-ray fluorescent analyzers. In the late 1980s and early 1990s, the government's concern about radiation found in houses resulted in the creation of the radon inspection industry. Ten years ago, there was a threat of appraisers being mandated by the U.S. Department of Housing and Urban Development (HUD) to take over the important, demanding job of professional home inspectors. Working with the Appraisal Institute, we were able to convince HUD that this wasn't a wise move.
Today, our challenge comes from the government-sponsored enterprise, or GSE, a financial services corporation created by the U.S. Congress (Fannie Mae and Freddie Mac). It comes from the new Appraisal Quality Ratings promulgated by the Uniform Appraisal Dataset (UAD) of the GSE, which we were blindsided by when it went into effect in March of 2012. As a result of this challenge, the National Association of Home Inspectors (NAHI) and ASHI wrote a letter to Fannie Mae, Freddie Mac, the Appraisal Standards Board and the Appraisal Institute. In it, we expressed our concerns about unintended consequences.
"We believe that the new condition and quality rating definitions found in Appendix D of the revised appraisal report form will have serious unintended consequences:
• Homebuyers and borrowers are likely to be confused by perceiving they can rely on the appraisal to determine property condition and quality. Such confusion has been documented by a Government Accounting Office (GAO) study.
• The use of qualified home inspections is implicitly discouraged.
• There is an inherent contradiction between the UAD and the appraisal conditions and both legislative- and GSE-published advice to prospective homebuyers and borrowers. The Dodd-Frank Act contains a requirement that HUD approved counselors advise homebuyers to engage a professional home inspector to check the property's condition, safety and soundness. In addition, Fannie Mae, Freddie Mac and HUD encourage purchasers to "Hire Professional Home Inspectors."
• Complying with the UAD may well put lenders and appraisers in the position of circumventing various professional licensing laws in the many states that license home inspectors and appraisers.
• Appraisers are exposed to unnecessary and increased liability and potential increased insurance costs to address that liability."
Download the letter here.
Update: Since this letter was sent, ASHI has entered into serious discussions that we have hopes will lead to a new era involving a much closer relationship between appraisers, inspectors, the GSE, mortgage companies, homebuyers and investors. An era where all the parties recognize the serious, positive contribution of millions of home inspections that are done for homebuyers each year.