The mortgage industry universally has reported instances of difficulty when it comes to the appraisal of properties, affecting appointment availability, turn times and costs associated with the proper inspection and valuation of homes across the country. This also applies to the reverse mortgage industry, a unique player in the mortgage space due to the valuations playing a major role in the amount of money that can be lent to a borrower, and the sometimes arduous additional regulatory realities that accompany reverse mortgage-based property valuations.
Stemming from the impact on the general mortgage market when it comes to appraisals, reverse mortgage lenders are encountering a series of difficulties related to their efforts to have homes properly appraised. To explore the current issues affecting the appraisal side of the reverse mortgage industry specifically, RMD spoke with several leaders and loan officers at reverse mortgage lending companies as well as appraisers themselves to get as full a view as possible regarding the sources behind the current wave of difficulties.
This first part presents the perspective of reverse mortgage professionals, with a story reflecting the appraiser perspective to come in the future.
Bottlenecks in the appraisal process
One thing that lenders from across the country consistently report when it comes to appraisal issues centers on what appear to be bottlenecks in the appraisal pipeline from those approved to conduct FHA appraisals; which can be more work-intensive than others. One such organization seeing appraisal bottlenecks is Open Mortgage, a lender which operates on both the forward and reverse sides nationally but which is seeing particular appraisal difficulties in reverse.
“There are clearly bottlenecks with appraisals right now,” says Patty Wills, national retail sales manager for reverse at Open Mortgage. “Though it varies by area, the cost of appraisals has risen, with some parts of the country worse off than others. In some cases, certain areas have seen costs double. The appraisal fee tends to increase if a property appears to be difficult to appraise, such as if it’s in a rural area or difficult location or has unusual characteristics, extending the time for an appraisal to be completed.”
In California, issues with appraisals are also being observed by Scott Harmes, national manager of the C2 Reverse division of C2 Financial Corp.
“The lenders are underwriting on a timely basis, escrow and title are operating and all the notaries are out there,” Hermes tells RMD. “So, the weak link in getting transactions done at the moment is in the appraisal process. It has taken longer, sometimes [extended by a period of] weeks, and the appraisals have spiked in price. That’s not just true for reverse, that’s true for the forward industry as well. That’s the one area of capacity that’s being strained is the appraisal service.”
These difficulties are also being observed by reverse mortgage lender Ennkar, according to its branch manager and co-founder Omar Ennabe who operates out of Orange, Calif.
“Turn times have nearly doubled in every market, and they have even tripled in a few as well,” Ennabe says.” What was taking us two weeks from order date to delivery date is now closer to four weeks. Appraiser availability seems more scarce than it has in the past decade.”
In terms of the overall cause of the trouble, Ennabe sees it as a matter of lower rates spiking a general run on mortgage applications industry-wide, from forward through reverse.
“Ennkar attributes it to lower rates caused by the pandemic and the subsequent increase in mortgage applications. You see, many FHA-licensed appraisers are dually licensed to perform both FHA and conventional appraisals,” Ennabe explains. “We believe the appraisers are choosing the easier, less stringent conventional appraisal orders and declining the FHA orders because FHA appraisals are more work upfront and have more corrections needed down the line.”
Client relations, second appraisals
The extended time needed to fill appraisal orders has also followed the origination pipeline down to customer satisfaction in some regions and with some lending organizations, including Ennkar, Ennabe says. This is particularly true because of the necessity on the reverse side — in some instances — for a second property appraisal.
“It has been very aggravating for clients and definitely straining on the client relationship for our associates,” he says. “The worst is after waiting 4-6 weeks for an appraisal, the FHA requires a second appraisal. The already frustrated borrower is at the rope’s end. Managing expectations is extremely important.”
Difficulties with second appraisals are also being observed by Open Mortgage, according to Wills.
“An additional complication is that it is often these more difficult appraisals that are subject to the HECM second appraisal requirement, leading to both additional cost and extended time delays,” she tells RMD. “It does seem that in very recent weeks, as summer ends, the appraiser market may be getting back to a more reasonable balance in much of the country.”
Still, the second appraisal itself seems to be a source of consternation from borrowers, and when that requirement is coupled with the increased appraisal difficulties taking place nationwide, it can cause problems to snowball. This was seen recently by Jeff Foody, president of Northwest Reverse Mortgage in Clackamas, Ore.
“I have a client that has a relatively unique property and is of a higher value. We got the appraisal done, it took six weeks before an appraiser could get out there, and it took another two weeks to get the appraisal back,” Foody says. “We’re already two months out [from initial contact] at this point, then the appraisal took them a while to get some of the conditions back.”
During the underwriting process, FHA determined that the property would require a second appraisal, which at last measure tends to happen in an average of about 16-18% of all cases according to previous estimates in the summer of 2020.
“So, a second appraisal comes out, [and by this point] we’re at six weeks,” Foody says. “They come out and re-inspect the property. By the time we got the second appraisal back, the first appraisal had expired, so we had to start the process all over again with a new FHA case number, new application, and all-new appraisals. So both of those two appraisals [ended up being] null and void.”
If you’re a reverse mortgage professional or an appraiser and want to share your story about the current situation with RMD, feel free to contact us. Look for an additional story on the appraisal situation soon.