Appraisals across the mortgage market — from forward on through reverse — are facing a bind, and that bind has resulted in much tighter levels of availability for appraisers themselves as well as inflated turn times and prices for a necessary component of the mortgage process. For the more consultative reverse mortgage industry, however, loan originators are arguably exposed to these difficulties in different ways when compared to originators of traditional mortgages, which can have an effect on a customer’s perception of how well they are being served by their originator or lender.
This is according to interviews with reverse mortgage professionals conducted by RMD over the past few weeks, who have shared a degree of frustration with much of the new difficulties that have been plaguing them and their forward mortgage counterparts a lot recently. On top of that, new data has emerged and documented about a general shortage of appraisers themselves, exacerbating the issues faced by mortgage professionals, borrowers and home buyers alike.
How certain lenders are responding to current conditions
When it comes to the reverse mortgage business, many professionals will point out that there isn’t a lot about the transaction on the Federal Housing Administration (FHA)-sponsored side that remains in their total control, but to the extent that lenders can try and respond to some of the current appraisal difficulties, they are doing what they can.
“Setting up very clear expectations from the offset is how we have been helping clients understand everything going on,” says Omar Ennabe, co-founder and branch manager with reverse mortgage lender Ennkar based in Orange, Calif. “We never promise something that is outside of our control and we explain to the client how appraisers are independent contractors selected by an [appraisal management company] (AMC).”
While not ideal, Ennkar has also been taking an additional step of pruning its list of approved appraisers for those who may have excessively missed deadlines or are “constantly” late, as Ennabe explains it.
“This eliminates the chance of another order in the future being assigned to an appraiser that is unable to deliver a quality report in a timely fashion,” he says.
Regional issues, second appraisals
As RMD detailed in a prior story on these current difficulties, certain lenders do see larger problems emerging because of the HECM program’s collateral risk assessment, which sometimes results in the need for a second property appraisal. After RMD’s initial story was published, one originator reached out to detail difficulties he is experiencing in his local market in Northern California.
“The number of second appraisals required is much higher [than what some others are seeing],” says Rich Pinnell, reverse mortgage originator with Primary Residential Mortgage, Inc. (PRMI) based in Redding, Calif. “In northern California, I have been running well in excess of 50% of my loans receiving a notice of second appraisal. I understand that a lot of the issue is the rapid rise of property values across the country but [this feels excessive].”
In terms of material impact on property values between the first and second appraisal, Pinnell reports that the difference appears very minor in most anecdotal cases. Interestingly, however, he also says that in as many as half the cases he has had to submit or a second appraisal, the value actually comes in higher than the first appraisal.
“So, [the U.S. Department of Housing and Urban Development] (HUD) is not getting a lot of adjustments on loan amounts, and the second appraisal is causing two additional issues: increasing the cost to the client (even if the second appraisal is covered by the AMC or lender), and it’s backing-up the already overworked appraisers even more.”
Appraiser shortage, alternatives
Some in the appraisal community have attributed much of the general difficulty that mortgage professionals and borrowers are experiencing is descended from one key factor: there simply are not enough appraisers available to meet the demands of a highly active housing market. This is according to Christian Adams, a former real estate broker and current CEO of A.I. home inspection business Repair Pricer.
“By refusing to train new home appraisers to meet licensing requirements, existing appraisers are able to control the market, creating staggering price increases and massive issues for buyers and their agents,” Adams said according to a report at RealHomes.com. “There isn’t enough incentive for experienced appraisers to take on apprentices, as they earn less if they do the appraisals with an apprentice present.”
Sidestepping the issue may be possible, Ennabe believes.
“Because the location is one of the most important aspects of a home’s value, borrowers should have a choice to waive the appraisal requirement but receive a lower principal limit as a result of that choice,” Ennabe says. “Automated Valuation Models (AVMs) and tools like Zillow or Redfin can accurately predict a home’s value within a fairly narrow range. As a result, borrowers should have the ability to waive an appraisal and in exchange accept a lower principal limit to offset the risk. This would help many borrowers without having a big impact on the Mutual Mortgage Insurance (MMI) Fund.”
A lower principal limit, Ennabe says, could mean lower risk that the loan would mature “upside down” and negatively draw on the MMI Fund.
One recent way that 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 has the ability to include reverse mortgage appraisals in the submissions it can take on behalf of FHA electronically.
This is being done in an effort 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 on from a series of updates that the agency has made to the software this year, including a prior update which allowed mortgagees to more quickly and accurately respond to FHA’s request for case binders on both the forward and reverse sides of the mortgage business.