Reverse Mortgage Appraisals Fall Further Than National Average—But Why?

Originators have experienced a decline in reverse mortgage appraisals aligning with today’s tough housing climate. How low Federal Housing Administration reverse mortgage appraisals have fallen with respect to home prices overall is another question with recent data that sheds some light on the issue.

According to data compiled by Ibis Software Corp., the three-month moving average for HECM appraisals in September 2009 was $292,177.

Today, that average remains down nearly 13%, measuring $254,452 in June 2011, up slightly from the previous month’s average, but still down 3% from June 2010.

Advertisement

The figures compare with higher HECM home appraisals directly after the loan limit increase mandated by HUD in 2009, when the average appraisal saw an uptick to as high as $350,747 and $336,805 in the months following.

But average home values in the United States, while still uncertain, have suffered less according to the Case-Shiller Home Price Index, a monthly measure of home values over time. Case-Shiller data, which measures home values in major metropolitan areas and for the U.S. as a whole, shows regionally, average home prices are down closer to 5% over the same time period.

“Supposedly the housing crash had happened by December 2009, yet HECM appraisals are down 12% since then,” says Jerry Wagner of Ibis. “Case-Schiller says home values are only down 5% over this same period. I suspect that FHA appraisals have gotten tougher. And I’ve also heard that feeling from lenders.”

FHA appraisals in general should be in line with other home valuations, says Erik Richard, CEO of appraisal management company Landmark Network. However, there are a few factors that may cause reverse mortgage appraisals to come in lower than the national average home values.

“FHA programs draw in borrowers with much lower down payments and equity,” Richard says, as one possible cause for the discrepancy.

The average age of HECM properties, which tends to be higher, is another factor, as are the HECM loan limits, currently set at $625,500. Additionally, property conditions tend to be an issue, with many HECM properties having lower values due to need for repairs or being dated.

Traditional FHA products include new and newer properties that meet or exceed typical market standards in relation to quality and condition, according to Landmark. This may cause even the average FHA appraisal to come in slightly higher than the HECM average.

Written by Elizabeth Ecker

Join the Conversation (9)

see all

This is a professional community. Please use discretion when posting a comment.

  • I also wonder if there is a fall back from desk reviews.  Every appraisal I have seems to go through more and more scrutiny.  When did underwriters and a person behind a desk become area market experts to deem what a value should be?

  • Can someone identify what is an average MSA?  The reason why no one can is that it does not exist.  Also HECM originations are not spread evenly over the country based on the concentration of seniors in MSAs.

    National averages are based on closed sales which may not be representative of home values as a whole.  Appraised values must also be tempered by ask and bid prices if there appears to be trends impacting current values which may not have impacted the price of closed sales.

    In a falling market one would expect appraised values to be lower then closed sales prices.  One would normally not expect that difference to be more than a few percentage points different.

    Some of the ideas expressed in the article not only seem odd but do not apply to HECMs at all such as low down payments, etc.  What do lending limits have to do with appraised values?  While a 7% may not mean much to lenders or originators but it may mean a whole lot to borrowers.

  • I have to wonder where Ibis is getting their data, and what data they are really talking about.  Maximum claim amounts on loans endorsed by HUD?  Average appraised value on HECM loans that closed? Average appraised value on all HECM applications, whether the loans ever closed or not?  I’m going to assume average MCA, since that is probably public data maintained by HUD.

    The lending limit change would have caused a very significant jump in average MCA after the change, as people with homes valued above the old $362,790 limit applied for loans or refinanced their HECMs.  After an initial surge, there may have been a falling off of average MCA, once some of the pent-up demand from high-value homeowners was satisfied.   The average MCA may also have been dragged down by the fact that homeowners with lower value homes may be more impacted by job losses and continuing economic malaise, pushing them into doing a reverse mortgage as a way of avoiding foreclosure. 

    These are just hypotheses, and notice that none of this would require any change in the underlying appraised value of real estate itself — just a change in the population of homeowners that choose to get reverse mortgages.  A drop in average MCA does not necessarily tell you anything at all about how appraisals are turning out, relatively to what an appraisal on the same house would have been 3 years ago. 

    However, we also know that home prices have been dropping, and **news flash** this process did not stop in 2009.  Home prices in many parts of the country are continuing to fall as we speak. 

    My point is that, if you are comparing the average MCA in 2009 to the average MCA in 2012, there are a variety of reasons why the reported drop may have taken place.  The article doesn’t really present a cogent analysis of the factors involved. 

    • rmcounselor,

      HUD provides appraised values (at origination) on endorsements as part of its Home Equity Conversion Mortgage Characteristics report.  For example, look under the tab “Summary” in the January 2012 report at:

      http://portal.hud.gov/hudportal/documents/huddoc?id=hecm0112.xls

      Where there was an average difference between appraised value and average MCA of over $54,000 on endorsements during the fiscal year 2006, that difference is less than $12,000 this fiscal year.

      You bring up 2009 but which 2009, the calendar year or fiscal year?  The average MCA in each period would be much different.  During the calendar year 2009, less than two months had a lending limit of $417,000 but for the fiscal year ended 9/30/2009, the $417,000 lending limit was applicable for almost five months. 

  • Actually, the increase to $417,000 was in effect for loans closing November 6, 2008 or later, so it was in effect for less than 4 months, until the (temporary) increase to $625,500, which became effective February 24, 2009.   All but about a month of FY 2009 had a limit of either $417,000 or $625,500 (since FY2009 began on October 1, 2008).  So the data for loans closed in FY 2009 should mostly reflect the higher limits. 

    • rmcounselor,

      The main point is not MCAs but overemphasizing it since information is available on average fair market value for endorsements at least on a fiscal year basis for all fiscal years (but on a cumulative month by month basis more recently).  The fact is HUD does in fact publish average appraised value information on HECM endorsements fiscal year by fiscal year.

      As to those 37 days in calendar year 2008 you are right but here in LA County, there was little difference in a lending limit of $417K and $362,790 but a huge difference between $625,500 and $417K (and somewhat more at $362,790).

  • Actually, the real point was simply that the article did not make clear what the source of the data was, or what values were being referenced.  In any case, regardless of whether we are discussing MCA or average appraised values, the point was that there are multiple factors that might have influenced the decrease, including, but not only, the change in home values in the real estate market as a whole.

    • rmcounselor,

      You start out your first comment by saying:  “I have to wonder where Ibis is getting their data, and what data they are really talking about.”  You get so caught up in MCAs in that comment that you end it with:  “My point is that, if you are comparing the average MCA in 2009 to the average MCA in 2012, there are a variety of reasons why the reported drop may have taken place.  The article doesn’t really present a cogent analysis of the factors involved.”
        
      My response to you was that in fact HUD does provide average appraised values on endorsements at least as frequently as each fiscal year. Beyond that, Mr. Wagner at Ibis is a very capable data analyst, certainly more competent than I.  I strongly believe he knows the difference between appraised values and MCAs. 

      You state in your last comment:  ” Actually, the real point was simply that the article did not make clear what the source of the data was, or what values were being referenced.”  

      Yet the second paragraph of the story says:  “According to data compiled by Ibis Software Corp., the three-month moving average for HECM appraisals in September 2009 was $292,177.”  Other data such as that coming from Case-Schiller seems properly labeled or referenced.

      As to constructively criticizing the story, I will leave that in your very capable hands.

string(107) "https://reversemortgagedaily.com/2012/03/11/average-reverse-mortgage-appraisals-lower-than-average-but-why/"

Share your opinion