FHA re-issues property inspection guidance after mistakenly omitting HECMs

The re-issued letter includes details of impacts on the HECM program, according to FHA

The Federal Housing Administration (FHA) on Tuesday published Mortgagee Letter (ML) 2023-20 updating the amounts allowable for property inspection fees for property preservation and protection to align with industry standards.

Two days later, FHA issued a corrected version of the same ML since the original version incorrectly omitted Home Equity Conversion Mortgages (HECMs) from the list of affected programs.

“The list of affected programs inadvertently omitted [HECMs] even though the HECM program, in addition to the forward mortgage program, utilizes the fee schedule found in the Single Family Housing Policy Handbook 4000.1,” an FHA INFO notice explained. “Therefore, the ML has been corrected to ensure the list of affected programs properly accounts for the changes this will make for the HECM program as well.”

The main function of the new ML guidance is to update inspection fees for property preservation and protection.

“HUD requires mortgagees to perform property inspections to determine occupancy status, ascertain property condition and to maintain property preservation,” the ML said. “Property inspections ensure the condition of FHA-insured properties do not contribute to neighborhood blight but support vibrant communities while safeguarding the Mutual Mortgage Insurance Fund.”

The U.S. Department of Housing and Urban Development (HUD) recognizes that FHA’s reimbursable expenses for inspection costs have not kept pace with industry costs, the letter said.

“Through this ML, HUD is increasing the allowable inspection fees to align with industry standards,” it reads. “HUD will continue to review its maximum property preservation allowances to ensure the allowable fees align with industry standards.”

The letter functionally updates Appendix 7.0 in the Single Family Housing 4000.1 handbook, changing fees associated with initial occupancy inspection and occupancy follow-up inspections ($30/$20 per each additional unit), as well as ongoing vacant inspections, both first-time and follow-up inspections ($45/$30 per additional unit).

Despite the later publication date of the revised version, the effective date of Nov. 14 remained unchanged in the revision.

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