How Reverse Mortgage Appraisals Could Change After the Pandemic

Property appraisals are an integral part of the process in getting a reverse mortgage loan closed, since the professionally-determined value of the property driving the loan determines a lot of the individual attributes. Completing appraisals for reverse mortgages is a crucial step that must be taken, but appraisals have been challenged by the ongoing effects of the COVID-19 coronavirus pandemic.

Still, recognizing the necessity of the appraisal process, the federal government has instituted a number of relief measures designed to keep appraisals moving in the midst of a pandemic that requires safety precautions like social distancing and the necessary limitation of direct contact with borrowers, who are part of a demographic that is at higher risk of serious illness if they contract COVID-19.

To get an idea of how appraisals can change when the country manages to put the virus in the rearview mirror, they share their perspectives about the things that should – and shouldn’t – change as a result of the pandemic.

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Embracing new technologies should continue

The necessity of innovation by appraisal management companies (AMCs) has allowed appraisals to continue while observing necessary restrictions instituted in response to the pandemic, and leaning on many of these new technologies is an overall benefit to the appraisal business. This is according to Dennis H. Ashcroft, EVP of sales at Appraisal Logistics based in Annapolis, Md.

“COVID increased everyone’s risk, not just in terms of their health, but also in terms of the valuation of their most valuable asset, their home,” Ashcroft tells RMD. “Consumers began to see appraisers and others seeking access to their homes as potential disease carriers and the mortgage industry was at risk of shutting down.”

That apprehension is understandable, but the innovation of new technologies being introduced into the appraisal process to allow for sessions to continue proliferate safety between appraiser and client, and that’s what should continue even after the pandemic gets under adequate control, Ashcroft says.

“New technologies offered by AMCs put these firms in a position to safely connect the lender, appraiser and homeowner to keep things moving,” he explains. “The GSE appraisal waivers played a role, but only for a segment of the market. Today, AMCs have become a risk mitigation partner for both the lender and appraiser. The AMC’s ability to effectively manage drive-bys, interior contact-free inspections and other collateral valuation tools, as well as providing appraisal reviews, allows them to return accurate opinions of value to lenders.”

A return to normality would be welcome

That’s not to say that appraisers lack anxiety in anticipation of pre-pandemic normality. While new methods and technologies were – and are – useful for keeping things moving during COVID-19, some of the relief measures and necessary concessions create a degree of confusion for clients. This is according to Joshua Van Horn, SVP and chief appraiser at Mortgage Information Services, Inc. (MIS) based in Cleveland, Ohio.

“While we understand the need for these products during the pandemic, we are anxious to see things become more consistent by getting back to traditional appraisals,” Van Horn tells RMD. “There is a potential that some of the alternative processes may be useful in the future. However, rolling out the alternatives in the quick manner required due to COVID-19 caused a lot of confusion for appraisers as well as the users of the appraisals, and that confusion still exists today.”

Appraisers themselves can also be unsure of how guidelines differ between the Federal Housing Administration (FHA) and the GSEs on the conventional lending side, Van Horn says. The clients themselves also have different ideas for how the FHA guidelines apply, which only exacerbates the problem.

“Appraisers are also having to contend with the different interpretations of the FHA guidelines from their clients, additional requirements from their different clients regarding the level of inspection the lender allows,” he says. “[This is] all while still struggling to ensure that they are meeting their basic Uniform Standards of Professional Appraisal Practice (USPAP) obligations of providing a credible appraisal analysis. This all causes a lack of consistency for the appraisers as well as the users of appraisals.”

Alternative appraisal methods

Some of the relief handed down by FHA over the past six months includes the allowance of both desktop-only and exterior-only appraisers in order to limit the spread of COVID-19.One appraiser may believe that it is acceptable to assume a property’s interior condition based only on an exterior inspection and a phone interview with a borrower, that’s not always the case, Van Horn says.

“Many will not accept the information being provided by an interested party as credible unless there are photos or other evidence to back up the information provided,” Van Horn explains. The alternative methods currently allowed for appraisers to utilize information provided by a party interested in the transaction can have a material impact upon the credibility as well as the accuracy of the appraiser’s assignment results.”

This is why for MIS, any permanent changes on this front should be precipitated by a return to the traditional process first, Van Horn explains. FHA and the U.S. Department of Housing and Urban Development (HUD) have the capability to determine any weaknesses which may have arisen in the relaxed process over the course of the pandemic, and it would be prudent to use that information in the crafting of a new policy that takes lessons from COVID-19, he says.

“[FHA and HUD] can use what they have observed to plan for a more controlled pilot program for any potential long term changes going forward,” he says.

Still, the exterior-only appraisal process that has emerged from the pandemic has a degree of consistency that could be maintained going forward, he says.

As of now, the one alternative that seems to be more consistent is the allowable Exterior-Only option for purchases,” Van Horn says. “With a purchase, there is typically a bit more reliable data available to the appraiser via MLS and the agents involved. The most credible appraisal results will always involve the appraiser physically inspecting the property. However, the exposure to the open market, availability of verified property photos, and ability to speak with agents involved allows a layer of additional confidence for an appraiser with regard to the physical characteristics and overall credibility of the assignment results.”

After handing down appraisal relief in the forms of exterior-only and desktop-only appraisals at the start of the pandemic, FHA recently extended the exterior option only, allowing the desktop-only option to expire at the end of October.

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  • It is doubtful if the exterior appraisal will have a positive impact on the MMIF. There is little doubt that loans which should never have qualified have qualified due to lower reductions for repairs than would occur with an in home inspection.

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