Loan Modification

New FHA Standards For Home Inspections Likely

By Peter G. Miller

The latest — and final — version of the Wall Street reform bill has now passed the House and will be considered later this month by the Senate. Buried in the bill is a new emphasis on home inspections and the FHA loan program.

Turn if you will to page 2,181 (honest, the bill runs 2,323 pages and the paper version likely weighs as much as a Toyota) and there you can find something entitled “Sec. 1451. Home Inspection Counseling.” This is the germ of a very good idea, the thought that home buyers ought to get professional inspections before they commit to the purchase of a lifetime.

The FHA involvement works this way: If the bill passes HUD will be required to “take such actions as may be necessary to inform potential homebuyers of the availability and importance of obtaining an independent home inspection.” This will be done by publishing pamphlets for both FHA loan borrowers and non-FHA borrowers touting the merits of professional home inspections. HUD counselors will be required to present the information.

The legislation will also require FHA lenders to “provide prospective homebuyers, at first contact, whether upon pre-qualification, pre-approval, or initial application” the home inspection materials.

Why Home Inspections

Homes are complex and buyers are at a huge disadvantage when looking at the condition of a property. Most do not have construction skills while they do have an emotional perspective that can distort their view of the property. Real estate brokers are not hired to do property inspections, nor are appraisers — though years ago HUD tried to expand the role of appraisers to include an inspection function. Remarkably, one Detroit home with an FHA loan and a HUD-approved appraisal/inspection was found by to have 181 building code violations according to the Detroit Free Press. The condition of the property was so awful that HUD actually allowed the owners to trade the property for another owned by HUD. The expanded appraisal idea then disappeared….

Not Without Problems

While the concept of an independent, professional home inspection is valid, the actual execution can be mixed. The American Society of Home Inspectors has a list of states that license home inspectors — but not all states require such licensure.

Moreover, inspections need to be seen in context. No home is perfect and little dings and problems are normal, even with new homes. As a buyer you want the seller to fix everything you can get them to repair, but also not to worry about $6 flaws.

HUD & The Future

Let’s imagine that Wall Street reform passes. In that case we know what will be required of HUD.

But let’s also imagine that the Senate does not pass the reform bill. That’s a possibility. If it happens then look for HUD to simply adopt the home inspection ideas through regulation and make them a part of the FHA loan program.

And If Wall Street Reform Passes

Full post as published by FHA Mortgage Guide on July 06, 2010 (boomark / email).