To help clarify the latest changes to the Home Equity Conversion Mortgage appraisal process, the Federal Housing Authority has published new Frequently Asked Questions to help make the transition smoother.
The FAQs touch on the expected time frames, property-flipping cases, financing, and other guidance around the new appraisal rule.
This newest appraisal change put forth in Mortgagee Letter 2018-06 became effective on October 1 and requires all HECM appraisals to go through FHA’s proprietary collateral risk assessment. Under the rule, if the first appraisal is deemed to potentially be inflated, a second appraisal must be ordered and the lesser of the two must be used. The changes came following principal limit factors cuts implemented in October 2017, which FHA Commissioner Brian Montgomery said were not enough to stop losses to the Mutual Mortgage Insurance Fund. He told press last month that the FHA looked for another way to stop these MMI losses and the appraisal change was the least impactful of all considered tactics. He said that FHA aims for this entire process to be automated by December 1.
The FHA’s HECM Collateral Assessment FAQ page confirms that the risk assessment will be “reviewed periodically and modified as needed,” and adds that because it is a proprietary assessment, lenders will not be able to obtain a copy.
One concern that the industry has raised is in regards to how much additional time this assessment and potential second appraisal could add to the loan process, and the FAQ page offered some guidance.
“During the Interim Protocols period, the FHA Resource Center will respond to Mortgagee emails within approximately 3 business days of receipt to notify the Mortgagee if the collateral risk assessment determines that a second appraisal will or will not be required,” it reads. “Once the fully-automated system is in place, the Mortgagee will be immediately notified after logging the appraisal in FHA Connection.”
A response will be given regardless of whether a second appraisal is needed, so a mortgagee cannot assume that no response means no second appraisal is needed, according to the FAQs.
Last month, Commissioner Montgomery said FHA will assess the process a few times over the course of the year to see if it is effective, and the FAQs confirm that the agency will continue to examine the process.
Along with confirming that the costs of a second appraisal can be financed into closing costs, the FAQs also offer guidance on HECM property flipping requirements and whether three appraisals would now be needed for these applications.
“Per Mortgagee Letter 2018-06, for all HECMs assigned on or after October 1, 2018, additional valuation protocols required for re-sales occurring between 91 and 180 days following acquisition are superseded,” the page reads. “The 90-day prohibition remains in place. Property flipping HECM cases are subject to FHA’s collateral risk assessment.”
Written by Maggie Callahan