Stalled Bill Could Alleviate Pressure on Reverse, Forward Mortgage FHA Appraisals

A law passed earlier this year in the U.S. House of Representatives but which has stalled in the Senate contains promise for those hoping to alleviate much of the pressure currently being felt in the appraisal industry for FHA-backed mortgages, and could help to bolster the depleted ranks of those licensed to perform appraisals for residential forward and reverse mortgage transactions.

This is according to a panel discussion this week at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting. Featuring appraisal professionals and leaders of appraisal management companies (AMCs) operating on the forward and reverse sides of the mortgage business, the vital issue exacerbating the appraisal delays being experienced by the mortgage industry could potentially be alleviated by a bill that would open as many as 7,500 additional appraisals to work on FHA-backed transactions, lowering pressure on a corps of field appraisers which has had stagnant ranks for several years.

Action on the bill since its passage in the U.S. House in May has been stagnant since delivered to the U.S. Senate, however, but appraisal professionals encourage reverse mortgage industry participants to reach out to their representatives.

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The issue with appraisals: a shortage in the ranks

Citing information from Government Sponsored Enterprise (GSE) Freddie Mac, appraisals submitted to the relevant GSE portals have increased each year significantly from 2019, 2020 and 2021. The spike in 2021 is similar to the 2020 spike of 53%. While demand for appraisals has risen, the corps of field appraisers equipped to meet the demand has remained generally stagnant according to John Dingeman, chief appraiser at AMC Class Valuation.

“The number of appraisers that are submitting to the portals is 40,000 and it’s remained rather stagnant [for several years],” he says. “So this is again, just Fannie and Freddie. It’s not including FHA, USDA, VA or any other appraisal assignment.”

To further the point, Dingeman chose the appraisal activity in his home state of Arizona to illustrate the additional pressure for valuations on a stagnant number of active appraisers approved for the relevant transactions.

“The Arizona appraisers prior to 2020 were completing about 192 appraisals per year. In 2020, they were completing 287,” he says. “All of the increases [across the country] are anywhere from 48% to 70%. That’s an increase in value for each appraiser and again, this is just GSE value. And if you consider that appraisers claim – and this is based on a NAR survey – that it takes approximately six to eight hours to complete an appraisal on a standard property, that’s about 200-300 appraisals per year.”

This has resulted in appraisers in certain states, including Arizona, California, Texas, Utah and Colorado to operate at capacity if they’re only completing their assignments, Dingeman explains.

The proposed law, stalled in the House

One possible way the general shortage of appraisers could be relieved by expanding the ranks quickly is a proposed law, House Resolution (H.R.) 3008 known as the “Homebuyer Assistance Act of 2021.” The bill would “amend the National Housing Act to authorize State-licensed appraisers to conduct appraisals in connection with mortgages insured by the FHA and to require compliance with the existing appraiser education requirement, and for other purposes,” according to the text of the bill itself.

In terms of how that translates to the current shortages experienced by the appraisal industry and the inflated turn times of reverse mortgage appraisals specifically, thousands of additional appraisers would become available to assist in FHA-backed mortgage appraisals, Dingeman explains.

“The bill will once again allow an appraiser to complete FHA as a state license rather than [as a] state-certified appraiser,” he says. “What that means is the 7,500 licensed appraisers across the U.S. would once again be eligible to appraise for FHA, and that would be a good thing for all parties, including those that are impacted in rural areas where those appraisers just never have any intention of participating as a certified residential appraiser.”

When asked by Regina Eldridge of Success Mortgage Partners if the bill’s passage would “literally free up 7,500 appraisers” to be able to assist the reverse mortgage industry, Dingeman responded in the affirmative.

“It would,” he said. “They would be able to join the FHA roster and participate. Many of them used to be on the roster; they just aren’t today.”

The House version of the bill has bipartisan sponsorship, introduced by sponsor Rep. Brad Sherman (D-Calif.) and co-sponsored by Rep. Van Taylor (R-Tex.). It was passed on May 18 but has yet to receive consideration in the Democratically-controlled Senate.

LO frustrations, FHA measures

Reverse mortgage leaders and loan originators previously detailed for RMD how the appraisal shortages have manifested for the reverse mortgage business, with costs and turn times being the most continuously cited attributes affected.

“There are clearly bottlenecks with appraisals right now,” said Patty Wills, national retail sales manager for reverse at Open Mortgage to RMD in September. “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.”

Exacerbating the issues on the reverse mortgage side is the requirement for some transactions to get a second appraisal on specific properties, which at last count comprised roughly 16-18% of all cases according to previous estimates in the summer of 2020 for reverse mortgage lenders nationally, depending on the locality and availability of comparables.

One recent way FHA has aimed to smooth out operations related to appraisals came in the form of Mortgagee Letter (ML) 2021-23, which detailed that FHA’s “Catalyst” software now can include reverse mortgage appraisals in the submissions it can take on behalf of FHA electronically.

This is being done to streamline the methods available to the reverse mortgage industry for such submissions. Unless otherwise noted, HECM appraisals will need to follow the same timeframes outlined in the ML, which also applies to the single-family forward mortgage program managed by FHA.

This new functionality follows a series of updates that the agency has made to the software this year, including a previous update that allowed mortgagees to respond more quickly and accurately to FHA’s request for case binders on both the forward and reverse sides of the mortgage business.

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