Covid-19 Inspection Cheat-Sheet

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:

  1. New construction; 
  2. Building on owned-land;
  3. All 203K refinance and purchases;
  4. All cash-out refinances

When can an Exterior or Desktop be done for FHA/HUD?

  1. In traditional (re)financing situations where local authorities permit outside or essential activities;
  2. Reverse mortgages (same conditions)
  3. 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

  1. For purchases where the home is vacant (unless local authorities have restricted outside travel); 
  2. 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:

  1. In areas which are restricted by authorities; and
  2. 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. 

Confused much?

 

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 526 Covid-19 Inspection Protocols

http://traffic.libsyn.com/theappraisercoach/526_Covid19_Inspection_Protocols.mp3

 

7 Comments on “Covid-19 Inspection Cheat-Sheet”

  1. I believe this statement to be Incorrect. “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.”

    This is directly from the FNMA Seller & Servicing Guide; “For Exterior-Only Appraisals Using COVID-19 Temporary Flexibilities and Reported on Fannie Mae Form 2055, 1075, 2095, 1004C, or 1025.”

    Please refer to FNMA Lender Letter – LL-2020-04, Impact of COVID-19 on Appraisals (05/05/2020)

    The “Desktop” DOES GO go on the 1004.

    Or maybe I am confused……………….

  2. According to USPAP the scope of work is determined by the appraiser not the client.
    An appraiser must properly identify the problem to be solved in order to determine the appropriate
    scope of work. The appraiser must be prepared to demonstrate that the scope of work is sufficient to
    produce credible assignment results.

  3. Doesn’t VA Circular 26-20-13 replace or supersede VA 26-20-11. Unless I’m interpreting VA 26-20-13 wrong it says to do exterior when occupied (purchase or refinance). Only do interior when vacant (purchases). I also have a copy from my RLC (St Petersburg FL) that confirms my interpretation.

  4. I agree with Pierce. Exterior appraisals during Covid-19 for single-family homes go on the 2055 with the modified scope attached not the 1004.

  5. Dustin – On this topic here is an important comment from FANNIE your readers may be interested in – even though an appraiser is performing an appraisal in which an exterior inspection was performed s/he is required to obtain information regarding the interior condition of the home. Appraisers need to be aware that when working for FANNIE an “exterior only” no longer means an “exterior only”. Per FANNIE:
    “As Fannie Mae has begun to examine appraisals completed using our temporary appraisal flexibilities in Lender Letter LL-2020-04, Impact of COVID-19 on Appraisals, one issue we’ve observed is that some appraisals rely on assumptions about the subject property condition. Whether completing an exterior-only or a desktop appraisal, the appraiser must have a data source for all the relevant characteristics including interior condition. Obtaining that information, whether it be from homeowners or other sources, is not only encouraged, but is required. This is addressed in the FAQs regarding the temporary flexibilities (Q47)”

  6. I agree with Pierce, Brian, and Ken and stopped listening once you said this. Have you looked into the 1004 versus 2055 issue?

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