Early Data Shows 19% of HECMs Require 2nd Appraisal

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

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  • I understand why FHA implemented this change but I’m surprised that they don’t see it as a form of redlining. AVM’s are almost never accurate in rural areas so for markets like mine that have alot of Rural Cities are almost guaranteed a required second appraisal. I see this as an issue because an extra $600 expense is a lot for people doing a Reverse on a $100,000 home. I think if this change is in FHA’s interest and not the borrower’s, FHA should be willing to help shoulder the cost.

    • Trevor,

      If HUD is predicting an average loss per each new endorsement for fiscal 2019, why would it shoulder the cost? If the borrower should not shoulder this contingent cost, why shouldn’t the lenders? (Of course that cost would most likely be passed down to the originator.)

  • With such a low sample, how is any of this meaningful as to the number selected or any ultimate value change? This MAY give some idea about turn times but 70 is not a large selection even in an era when there is not much likelihood that endorsements will reach 3,500 for a month until near midway through fiscal 2019, if then.

  • So far the news is good. However, it is still to soon to tell. We need time to measure the true results.

    It was good to hear the turn around time was so quick! The part that will be interesting will be to see how the second appraisals come in as far as the value is concerned?

    Once again, all of this data will take time to measure such things as, the turn time to get the second appraisal back, the percentage of required appraisals that come in lower than the first one and the true percentage of those loans submitted that will actually require a second appraisal!

    Hopefully the 19% range will hold true or be lower?

    John A. Smaldone

  • Quote from the article:
    “im 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.” END QUOTE

    There is a very high percentage of the overall housing stock in the metro Boston area that meets the multi-family description reference above.

    The values of these types of homes have skyrocketed. The reason being is that they’re predominantly located close to Boston (very high availability of high paying jobs) and the sheer square footage (high on buyers’ priority lists) that accommodates second income-rental opportunity as well as redesign options (condo conversion).

    A two-family home in Somerville, ma: $700,000; renovated: $800,000; condo-converted: $500,000 each.

    From a historical perspective, these homes were at one time in ”working class” neighborhoods of “blue collar workers” and were at the lower end of the housing-value spectrum.

    That is to say, the “single family” home in the same period of time (say, up until the late 90s/2000s) were the higher valued homes of the semi-affluent/affluent suburbs; the square footage differential was of much less consideration with regard to home value; as “location (in the nice suburbs of the shining, new malls and golf courses)” ruled and long-ride “commuting” was king. Also helped, home-value-wise, by the proximity to the high-tech/computer company “region” of Route 128 that runs-through these suburbs.

    That changed. The gentrification of the close-to-Boston cities became a stark reality of proportions much beyond just the snappy title of a featured, Sunday Globe newspaper’s Real Estate Section. The next-to-Boston Cambridge and Somerville working class homeowners became home-equity lottery winners as young-professionals coveted these locations as a no-brainer for the ideal location for a lifestyle of rapid transit-minutes-to-work, and savoring the “walkaround,” restaurant/bistro-rich neighborhoods.

    This phenomena, as home prices climbed, spread through abbuting cities where buyers could find a relatively, substantial discount just by going a little “farther-out.”

    It seems that the FHA, etc’s. “new appraisal system” is once again a “new rules change” designed to give the extreme shaft to the luckiest of senior citizens; by zeroing-in on the highest home-value segment they can find to unfairly reduce their own program’s “risk-exposure.” They’re completely ignoring, or are ignorant of the fact that these homes of high second-appraisal frequency aren’t over-value-appraised, they ARE worth more.

    • Ed,

      We know manufactured homes are very risky for any reverse mortgage lender. As to owners of 2 to 4 unit properties that get HECMs, the percentage of collateral on HECMs for such properties is very low.

      What is wrong with second appraisals? The only problem is when those appraisals come in lower than their related first appraisal. So far no one has given us those stats on the percentage of second appraisals that come in lower nor have they provided the average percentage reduction to the Maximum Claim Amount from second appraisals.

      As to Boston, it is not a particularly strong market for HECMs anyway.

  • Can someone please tell me the rational being used to select files for a second appraisal. I have a home (we’re doing a HECM) that appraised at $1.6M that is being flagged for a second appraisal. We’re in Boulder, CO where the average home price is $`1M. It really doesn’t make a difference if the second appraisal comes in at $1.2M (let’s say) since obviously $679,650 is the limit anyway. Help me understand what sense this makes?

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