What are we supposed to do about inspections during Covid-19? There is all sorts of conflicting data about inspections, for example, but there is no requirement for the GSEs coordinate with each other on when to inspect and when not to inspect (so they don’t). But before we get into any details, I have a CYA, really a C my A, and that’s why I’m confused about all this stuff, too. This blog contains my best guess on this stuff and is valid as of the end of March 2020. I have no clue what will happen tomorrow.
I have an inspection cheat-sheet on what this blog covers. I hope it covers everything relative to inspections in the time of C-19. It’s on my All Star Team private library (which you can access for free using the coupon code FREE30ALLSTAR).
Fannie and Freddie have put out their own instructions on exterior and interior inspections, desktops, drive-bys, etc. (See Fannie Mae LL-2020-04). Interior must be done when the client orders it, based on a detailed matrix. Exteriors and desktops may be done when the client orders it, based on a detailed matrix. These two are the only GSEs that do not leave it up to the appraiser when and how to inspect. This scope of work issue is entirely Fannie’s and Freddie’s call (of course, you can refuse the assignment). If they order an interior inspection, and you accept the assignment, then you shall inspect the interior. That means you personally, not a drone. The level of inspection, i.e., the scope of work is not up to you; it’s up to the client if the ultimate lender is Fannie or Freddie. Your choice is to accept or reject the assignment.
Further, you will use the 1004 or the 1073 form, and no others! You just mark “desktop” or “exterior” in the map reference line, and then include the modified scope of work and modified certification in the report. You get these on Fannie’s and Freddie’s websites If you use the 2055 form, their portals will not upload it, so you’ll have wasted a lot of time and effort if you even try to use the 2055 form. However, 1004D can be completed using a letter and photos from the borrower; but USPAP’s requirements for a credible appraisal and a non-misleading report still apply. In sum, you cannot change the scope of work. You can accept or reject the assignment. Those are your only choices.
Now, let’s go to FHA/HUD, a letter dated March 27, 2020 (Mortgage Letter 2020-05; see the link for the modified scope and cert). Per this source, interior inspections MUST be done for:
- New construction;
- Building on owned-land;
- All 203K refinance and purchases;
- All cash-out refinances
When can an Exterior or Desktop be done for FHA/HUD?
- In traditional (re)financing situations where local authorities permit outside or essential activities;
- Reverse mortgages (same conditions)
- Purchases (same conditions)
FHA/HUD does not determine if you must inspect the interior of the property personally. If you get an assignment calling for an interior inspection, but you do not feel safe with that, or local authorities say you cannot go outside for whatever reason, you can change the scope of work to an exterior (i.e., drive-by) or desktop. FHA/HUD give you this leeway (but, be open with the client about what is happening). With FHA/HUD loans, go to the website and download the modified scope of work and certification. Continue to use the 1004 and 1073 forms for the same reason, along with the words “exterior” or “desktop” in the map reference field. USPAP’s Standards 1 and 2 still apply. Complete the report “as is” if you can’t inspect the interior or you are not happy with the interior data somebody provided you. In certain situations, the 1004D can be done via a letter and photos from the borrower.
Finally, let’s talk about VA, Circular 26-20-11, dated March 27, 2020. Interior inspections must be done
- For purchases where the home is vacant (unless local authorities have restricted outside travel);
- For occupied or refinance properties unless someone in the house is sick, or authorities have restricted travel; or if the borrower or the appraiser conclude an interior inspection is not a good idea;
Exteriors for VAs can be done:
- In areas which are restricted by authorities; and
- If someone is sick or the appraiser or borrower thinks an interior inspection is a bad idea;
VA permits desktops when the lender assigns it and the appraiser agrees. The appraiser will always determine the scope of work for the assignment. The lender may not direct the appraiser to do an interior inspection. VA allows the use of the 2055 and 1075 forms. USPAP still applies. Make it clear that the appraiser did not do an interior inspection due to Covid-19. VA did not mention how to complete 1004D forms.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 526 Covid-19 Inspection Protocols