With a month of experience with the Department of Housing and Urban Development’s new collateral risk assessment for reverse mortgage properties, lenders have reported a relatively smooth process in submitting appraisals to HUD and receiving responses as to whether a second appraisal is needed. And an industry working group has been studying the process, finding that roughly 20% of submissions are requiring a second appraisal. Yet explaining the process and implications to borrowers remains a challenge, originators say, and one that should be addressed upfront.
“Don’t wait until you need another appraisal until you open that door,” said John Luddy, SVP of reverse mortgage lending for Norcom Mortgage, in addressing a National Reverse Mortgage Lenders Association annual conference panel in San Diego in late October.
The impact to borrowers in need of a second appraisal is twofold: the first being a second visit from an appraiser to the home, and the second being the cost of the appraisal, which can be several hundred dollars more than initially anticipated.
“Seniors are concerned about someone else coming into the home,” said Loren Riddick, a reverse mortgage loan officer with New South Mortgage, in addressing that same panel on the appraisal changes.
There are several items that can be addressed with borrowers upfront in order to prevent questions down the road, industry participants explained.
1. Give borrowers a heads up. “Let them know there could be another appraisal,” Luddy says. Originators can also explain the timeline for a second appraisal as well as the time frame for submission to HUD, which most lenders are finding is completed within 24 hours. Some property types, such as those with more than a single housing unit, are more often requiring a second appraisal than single-family units, according to the working group.
2. Explain what happens when the second appraisal is higher than the first. Some lenders and borrowers have questioned whether a second appraisal that comes in higher than the first can be used as the final appraisal. HUD has specified in its FAQs that a higher second appraisal cannot be used.
3. Be proactive by using estimates and managing expectations. Use of Zillow and other online tools can be a way for borrowers and originators to gauge a rough value or note items about the property that are likely to be identified by the appraiser. Those influences might be proximity to a gas station or signs of disrepair that could impact the appraised value.
Correction: A previous version of this article included comments from John Dingeman of Landmark Network that were attributed in error. The comments have been removed and RMD regrets this error.
Written by Elizabeth Ecker