The reverse mortgage appraisal rule change is less than a month old, and early numbers indicate that approximately 19% of Home Equity Conversion Mortgages are being flagged for a second appraisal, according to a panel discussion at the annual National Reverse Mortgage Lenders Association conference.
HECM originators were unsure how many loan appraisals would be subject to a second evaluation when HUD’s collateral risk assessment requirement took effect October 1, said Elly Johnson, the co-chair of NRMLA’s HUD Issues Committee.
“The good news is what we’ve found so far is not every loan requires a second appraisal,” she said.
Referring to the newest HECM change as the “elephant in the room,” Johnson explained that the process requires all HECM appraisals go through HUD’s proprietary collateral risk assessment. Those that seem to have been inflated are required to get another appraisal, and the lower of the two appraisals must be used.
To address the process and uncertainty when Mortgagee Letter 2018-06 was implemented, the HUD Issues Committee formed a working group to ask a range of questions, The working group, which has representation from five different reverse mortgage companies, is tracking the dates submitted, dates received, whether a 2nd appraisal is needed, and other details like type of HECM product and property type.
Of the data’s 70 cases where a collateral risk assessment was done, only 13 — or about 19% — needed a second appraisal, said Johnson, who is also the COO of United Northern Mortgage Bankers Ltd.
When the changes were announced, HUD officials said that mortgagees would know within three days whether a loan would require a second appraisal.
“The other good news is lenders are seeing turn times as quickly as 30 minutes and up to 24 hours,” Johnson said, adding that, “The interim protocol is working really smoothly.”
Jim Cory, senior vice president of Live Well Financial, was also on the panel and his numbers showed manufactured homes and 2-to-4 family homes were flagged more often than single-family homes. Of the 12 properties of those types, 10 of them required a second appraisal.
“83% are being flagged for a second appraisal,” he said.
Cory said they also looked at the second appraisal rulings by location, and Florida had the most at 38%.
“I think a lot of it has to do with appreciation,” he said.
When it comes to the mortgagees responsibility during the appraisal process, Johnson said they must clear up inconsistencies between the appraisals, especially when they will make a difference in the value or the condition of the property. An example would be repairs required in one appraisal and not required in the other.
“You’re responsible for reconciling that,” Johnson said.
The panelists also offered their speculation about how the collateral risk assessment is performed, and they were in general agreement that some type of AVM or other automated process is being used. But they all admitted that it is a guessing game at this point
“I would guess that it is not a human review because it’s coming back pretty quickly,” Cory said.
Because HUD officials said they will review the process throughout the year, Johnson said the working group wants to be prepared with their data and be able to to speak with them at the review times.
Written by Maggie Callahan