FHA Changes Reverse Mortgage Appraisal Rules Through September 2019
Home Equity Conversion Mortgages, also known as FHA HECM loans or FHA reverse mortgages, now have an FHA-required mandate for a second appraisal when circumstances warrant.
FHA reverse mortgages with case numbers assigned between October 1, 2018 and September 20, 2019 will require a second appraisal in cases where the FHA determines there has been an inflated property valuation.
According to the press release on the HUD official site, “FHA will perform a risk assessment of appraisals submitted for use in new HECM originations.
Based on the outcome of that assessment, FHA may require a second appraisal be obtained prior to approving the reverse mortgage for an insurance endorsement.”
The new policy requires participating FHA lenders to refrain from approving or closing an FHA HECM loan without a “collateral risk assessment” and a second appraisal, where considered necessary by the FHA. In cases where the second appraisal is required, FHA rules dictate that the lender use the lower value of the two.
One motivation for this policy change is mentioned in the HUD press release; in 2017 there were higher-than-anticipated losses for the FHA HECM program. These losses are blamed in part on “optimistic estimates of collateral value driven by exaggerated property appraisals when the loan was originated” according to HUD.
While the current policy revisions mentioned above have a specific start and stop date, the FHA and HUD reserve the right to extend the policy and have announced that the policy will be reviewed for continued implementation based on the success or lack of success with the new second appraisal approach.
Borrowers should know that the new policy does require the FHA loan applicant to pay for the second appraisal, but the cost of this may be financed into the HECM loan.
This appraisal requirement will not necessarily apply to all FHA reverse mortgages; in cases where the FHA determines that the original appraisal is not inflated or that over-valuation of the property has not occurred, the second appraisal may not be required.
The FHA will have the final say as to which FHA reverse mortgages will require the second appraisal and which do not.
Your Mortgage Payment Schedule Is Called Amortization
Information About the Balloon Payment
Reliable Borrowers Can Qualify for a Cash-Out Refinance
Do you know what's on your credit report?
Learn what your score means.