The Federal Housing Authority (FHA) will now require a second appraisal for properties in declining markets in which the mortgage exceeds $417,000.

The move comes on the heels of the FHA’s oversight agency raising to $793,750 the amount on loans the agency will guarantee in some areas.

“Now, with FHA in position to insure mortgage amounts greatly in excess of what has been its experience as a mortgage insurer, we believe it prudent to set forth additional underwriting and collateral assessment practices for “high-balance” loans,” the FHA wrote in a three-page letter to approved mortgagers and appraisers on the agency’s roster.

According to the letter, the second appraisal will be required when:

• The loan amount exceeds $417,000, and;
• The loan-to-value ratio equals or exceeds 95 percent, and;
• The property is located in a declining market.

“The second independent appraisal must be completed by a FHA roster appraiser selected by the Direct Endorsement lender that is underwriting the mortgage,” the letter states. “The lender independently engages the appraiser and is not to request a second case number through FHA Connection. The fee for the appraisal may be passed onto the borrower as any other closing cost.”

If the property is a one-unit detached house, the second appraisal may be an exterior-only appraisal using Fannie or Freddie’s 2055 form, according to the letter.

The letter was signed by Brian Montgomery, the assistant secretary for housing with the Department of Housing and Urban Development.