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U. S. Department of Housing and Urban Development
Washington, D.C. 20410-8000

 
                        December 8, 1997
 
OFFICE OF THE ASSISTANT SECRETARY
FOR HOUSING-FEDERAL HOUSING COMMISSIONER
 
MORTGAGEE LETTER 97-46
 
TO: ALL APPROVED MORTGAGEES
 
SUBJECT:  Single Family Loan Production:
            Appraisal Management Firms
 
     This mortgagee letter revises the Department's policy
governing appraisal fees and the use of third-party entities
providing appraisal services.  The instructions in this mortgagee
letter are effective immediately.
 
     In Mortgagee Letter 97-22 , FHA stated that it would no
longer establish maximum dollar limits on appraisal fees and also
limited the fee that could be charged to the mortgagor to the
amount actually paid to the appraiser when a third-party
appraisal management firm was used.  Since that time, however,
FHA has further considered the fact that management firms,
appraisal service providers, cooperatives and similar entities
may provide a host of services that expedite and improve the
quality of the appraisal.  Consequently, the Department will
allow the mortgagor to pay a fee for the appraisal which may
encompass fees for services performed by an appraisal management
firm as well as fees for the appraisal itself.  However, the
total of these fees is limited to the customary and reasonable
fee for an appraisal in the market area where the appraisal is
performed.  Such arrangements must comply with all aspects of the
Real Estate Settlement Procedures Act (RESPA) and its
implementing regulations, including restrictions against (1)
kickbacks and referral fees; (2) charges for settlement services
other than for services actually performed; and, (3) payments in
affiliated business arrangements other than return on ownership
interest or franchise relationship.
 
     Please also note that the Department intends to draft
regulations to clarify the role of third-party entities with
regard to their responsibilities in the appraisal process.
 
     If you should have any questions concerning this Mortgagee
Letter, please contact your local FHA Office.
 
Sincerely yours,
 

Nicolas P. Retsinas
Assistant Secretary for Housing-
Federal Housing Commissioner