It’s been just a few weeks since the Federal Housing Administration announced that it will now require a second appraisal on select reverse mortgage loans, but lenders are already feeling the effects.
And so far, it’s not all that bad.
On October 1st, FHA began pulling HECM loan appraisals that were flagged by its system as potentially having an inflated property valuation.
The industry was abuzz with speculation as to just how many files would be flagged, with appraisal experts predicting percentages on opposite sides of the spectrum.
But some lenders say, so far, it hasn’t been that bad.
Laura Almohandis, AVP of wholesale operations and underwriting at Finance of America Reverse, said FAR is diligently tracking its responses from HUD.
“So far, we have only seen about 15-20% where HUD’s requiring a second appraisal, and we usually get those answers back within 24 hours, sometimes the same day,” Almohandis said.
Nancy Davidson, VP of reverse operations at HighTechLending, also said their number of appraisals flagged was falling in the 15% range.
“We have sent a total of seven appraisals to HUD, and out of the seven we’ve only seen one come back needing a second,” Davidson said. “And we knew we were going to run into a problem with that appraisal, so it’s really not concerning to us.”
Davidson also said the turnaround time was fast, with HUD letting them know within 24 hours that a second valuation was required.
Deborah Moran, principal at Reverse Mortgage Funding, also estimates that RMF has seen about 15% of its loans flagged so far.
“The turn times have been less than a day, too,” Moran said. “It is way too early to tell, but this is definitely less impactful than PLF cuts or anything like that.”
Mark Reeve, vice president of reverse mortgages at Plaza Home Mortgage, said they are seeing a range closer to 30%, with three out of 10 recent appraisals getting pinged for a second look.
Reeve said one flagged appraisal was for a property located in Santa Monica, California, and valued at $1.3 million. His team contacted HUD to ask that it reconsider because of the high-value location.
“We sent an email to HUD asking for a waiver on it because of the max claim difference,” Reeve said. “They responded and basically said that’s not part of the criteria at this time, that’s not a consideration.”
Max claim differences aside, Reeve said he was not too worried about the impact of the new rule.
“I think we have a good record, our folks are good,” he said. “I’m not too concerned at this time.”
The new requirement was put into place after FHA Commissioner Brian Montgomery revealed that the agency’s analysis showed bias on a significant number of HECM appraisals.
Of the 134,000 appraisals FHA inputted into its automated valuation model, approximately 50,000 (37%) were inaccurate by at least 3%, Montgomery said.
He also said it was unclear as to how many appraisals FHA expected to require a second look, as the pronounced levels noted by the agency were from loans originated in 2008, 2009 and 2010.
In an interview with Valuation Review, FHA’s Deputy Assistant Secretary for Single Family Housing Gisele Roget acknowledged that the appraisal issues identified by the agency were from dated books of business, but said there is “a moral hazard for inflated home values for both refinance mortgage loans and HECM loans.”
“There is an understanding that HECMs are vulnerable to over-inflated appraisals,” Roget said. “In light of this fact, published HUD research and additional FHA analysis, we had to take action.”
FHA is staying mum on the methods it is using in its risk assessment, calling them “proprietary and confidential,” leaving the industry without a clear sign as to how particular its process will be.
But rest assured, lenders will be following closely, assessing all the data once the results of those second appraisals come rolling in.
“We’ll be tracking everything – where the property is located, whether it’s urban, suburban or rural, what type of property it is, if its single-family a condo a manufactured home, what state it’s in,” Almohandis said. “We’ll be looking for trends.”