In late September, the Federal Housing Administration (FHA) announced the creation of a new appraisal requirement for Home Equity Conversion Mortgage (HECM) lenders that resulted in some loan applications requiring a second appraisal. The rule was implemented with the aim of stemming losses to the Mutual Mortgage Insurance (MMI) fund, and was in effect for all case numbers assigned beginning on October 1 of this year.
Now that reverse mortgage originators have had a couple of months to acclimate to the possibility of requiring a second appraisal, many of them are taking a client-first approach to informing their borrowers that they may need one, and in some cases are even taking further steps to mitigate the accompanying out-of-pocket costs that can add up to a significant amount of money for their clients.
Mike Peerless, Reverse Mortgage Director at Holland Mortgage Services, Inc. in Ormond Beach, Fla., has not yet been required to submit a second appraisal, but tells RMD that he understands that his state has a statistically higher likelihood of encountering a property which will require one. So, he finds himself preparing for it.
“I haven’t encountered it yet,” Peerless says. “Florida, it’s been said, is the number one state that will have the second appraisal, I think with a 38% chance […] I have not encountered it yet, but one thing I do is let my clients know upfront that it’s possible [they] might have a second appraisal.”
Peerless also says that because of the higher risk of encountering a second appraisal in his state, he informs his clients of the possibility immediately.
“I make sure that I let them know that [it’s a possibility] upfront, because if an originator dances around that and doesn’t let them know that, that will only make things worse later on. It’s better to be forthright and get it out right there at the time you’re speaking to them,” he says.
Immediately informing a client about the potential for a second appraisal is also a self-imposed guideline for Sue Milligan of Bank of England, based in Metairie, La. Milligan puts a great deal of importance on her ability to communicate the details of the HECM product to her clients. She also has a unique opinion concerning who the accountable party is for the cost of getting a second appraisal.
“Borrowers have no control over this new ruling, so I think it’s absurd for a borrower to pay over $1,000 on an [appraisal],” Milligan told RMD. “I think it needs to be a lender-paid thing. I’ve already mentioned it to my boss, and if I have one that comes up, we’ll eat the fee and end up paying for it.”
Also at issue for originators is the provision in the rule for the lower of the two appraisals to always be favored over the higher one. This was of particular concern to Richard Pinnell, an originator at Vitek Mortgage Group based in Redding, Calif.
“I’ve only had one loan affected thus far, and [the second appraisal] came in on-value with the first,” Pinnell told RMD. “I understand why they’re doing it after looking at a lot of the loans made prior to 2013, and they found a certain amount of loans with appraisals higher than they should’ve been. […] I think it’s very unfair that they don’t use the higher of the two appraisals. When you can only use the lowest one, that’s hard for people to understand,” he said.
Pinnell expressed his idea that the second appraisal rule makes the original intention of the reverse mortgage product harder to realize for clients.
“It’s just out of the customer’s pocket,” he says. “I have a customer who has to pay $650 on the second appraisal, and where is that money supposed to come from? They’re trying to use the equity in their home to age in place, and we’re making it tougher and tougher to do so.”
Malcolm Tennant, president and co-founder of Access Reverse Mortgage Corporation based in Clearwater, Fla., also sees the second appraisal rule as adding additional and unneeded complexity to the reverse mortgage program.
“The second appraisal rule seems like overkill to me,” Tennant told RMD, citing the fact that already, appraisal bias should be prevented with the use of appraisal management companies (AMCs).
“If FHA thinks they’re having a problem with inaccurate appraisals, I think we all prefer to see them focus on the trouble spots geographically, or with different AMCs to then try and clamp down on the whole industry,” he said.
Written by Chris Clow