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FHA changes appraisal validity period for forward and reverse mortgages

The changes were encouraged by industry feedback to lessen administrative and financial burdens, the agency said

The Federal Housing Administration (FHA) on Tuesday announced an increase in the appraisal validity period for all Single Family Title II forward and Home Equity Conversion Mortgage (HECM) transactions, increasing the period specifically for the HECM reverse mortgage program from 120 days to 180 days. This is according to the publication of Mortgagee Letter (ML) 2022-11.

The letter – signed by FHA Commissioner Julia Gordon – explains that the change is being made to streamline the administrative processes related to such programs, and reduce associated costs and document challenges that can arise from such matters.

“Industry feedback has encouraged FHA to simplify the appraisal validity policy and align with other agencies,” the ML reads in part. “Increasing the appraisal validity periods decreases administrative and financial burdens associated with obtaining appraisal updates. This change will also more closely align FHA’s initial validity period with the U.S. Department of Veterans Affairs (VA) Notice of Value validity period and the total validity period of appraisals for the Government Sponsored Enterprises (GSEs).”

The official HUD portrait of FHA Commissioner Julia Gordon, who oversees the reverse mortgage program at FHA as of 2022.
Julia Gordon

Since market conditions are currently volatile, FHA also says that it is monitoring the ongoing situation in the broader market and any ramifications that could come from this change.

“FHA recognizes the need to balance this additional processing time with potential changes in property and market conditions over that same time,” the ML reads. “FHA will continue to monitor the economic outlook and housing market trends, making appropriate adjustments to ensure the fiscal soundness and mitigate unreasonable risk to the Mutual Mortgage Insurance Fund (MMIF).”

Reverse mortgage industry professionals were pleased to hear that the new guidance included the HECM program based on conversations on-site at the National Reverse Mortgage Lenders Association (NRMLA) Eastern Regional Meeting in Baltimore, Md. on Tuesday.

Areas of effect

The changes of this ML are broken down into three general categories of effect: for origination through post-closing and endorsement; for servicing and loss mitigation; and for the HECM reverse mortgage Financial Assessment and Property Charge Guide.

In terms of both the origination through post-closing and endorsement and reverse mortgage FA and Property Charge Guide, the ML applies to case numbers assigned on or after June 1, 2022 and updates the appraisal validity period from 120 days to 180 days from the effective date of the appraisal report, and extends the appraisal update validity period from 240 days (eight months) to one year. The optional 30-day extension, as a result, has been removed.

The update from 120 days to 180 days also takes effect related to servicing and loss mitigation, and applies to appraisals with effective dates on or after July 12, 2022.

These updates are being incorporated into the relevant sections of the Single Family Housing 4000.1 Handbook, including in the “Maximum Age of Mortgage Documents” section, as well as in the “Pre-closing Appraisal Validity in Disaster Areas” section.

Reverse mortgage-specific guidance incorporates the extended time period from 120 days to 180 days in all relevant sections, and specifies the parameters of when an appraisal update is allowed.

“The initial appraisal validity period is 180 Days from the effective date of the appraisal report. An appraisal update may be performed when the initial appraisal validity period report is inadequate to meet the Disbursement Date,” the new guidance reads for the “Maximum Age of Mortgage Application Documents” section.

Necessity of changes, effects on FHA Connection

FHA put a finer point on what it hopes to accomplish through this ML in an informational notice accompanying its publication.

“These changes align FHA appraisal validity periods with industry practices, making it easier for lenders to operationally manage appraisal validity while potentially reducing appraisal costs for mortgagees and ultimately, borrowers seeking FHA-insured mortgage financing,” the notice reads.

These changes will also affect the appraisal functionality of FHA Connection (FHAC), the agency explains.

“For all case numbers assigned on or after September 6, 2022, the Appraisal Effective Date field on the FHAC Appraisal Logging screen will no longer be editable,” the informational notice reads. “Appraisal Logging for this field is automatically pre-filled with the information submitted from the electronic appraisal report.”

There will also be impacts on the kinds of changes that can be made or accepted by FHA, according to the notice.

“The effective date of the appraisal must be reported accurately on the appraisal report and in FHA systems,” the notice reads. “A revised appraisal submission will be required for any changes to the Appraisal Effective Date field in FHAC. Edits to this field submitted through the Business-to-Government (B2G) connection, for case numbers assigned on or after September 6, 2022, will not be processed.”

Read ML 2022-11 and the accompanying INFO notice at FHA.

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