Home >> Daily Dose >> Reverse Mortgage Rules Receive an Update
Print This Post Print This Post

Reverse Mortgage Rules Receive an Update

The Federal Housing Administration (FHA) recently announced that it will begin requiring lenders originating new Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages, to provide a second property appraisal under certain circumstances. According to the FHA, lenders must now provide a second independent property appraisal in cases where the Administration determines there may be inflated property valuations.

The new requirement applies to case numbers assigned on or after October 1, 2018 through September 30, 2019. FHA will periodically review this guidance and, based on the results, may renew these after 2019.

The 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.

Under the new policy, lenders must not approve or close a HECM before FHA has performed the collateral risk assessment and, if required, a second appraisal is obtained. Where a second appraisal is required by FHA, lenders must use the lower value of the two appraisals.

The FHA states that this new appraisal validation policy will further reduce risks to FHA’s Mutual Mortgage Insurance Fund (MMIF) and protect the health of the HECM program.

The FHA notes that the financial soundness of FHA’s reverse mortgage program is contingent on an accurate determination of a property’s value and condition. The property value is used to determine the amount of equity that is available to the borrower and it is also used by FHA to determine the amount of insurance benefits paid to a mortgagee.

Additionally, he Department of Housing and Urban Development (HUD) and its paper titled “Reverse Mortgage Collateral: Undermaintenance or Overappraisal?” notes that the higher-than-expected losses in the HECM program can be attributed to optimistic estimates of collateral value driven by exaggerated property appraisals when the loan was originated.”

The FHA’s letter to mortgagee’s can be found here.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
x

Check Also

Mortgage Applications Rise

While mortgage applications have increased, conforming balances on some loan types have reached the lowest level since September 2018. Click through to learn more.

GET THE NEWS YOU NEED, WHEN YOU NEED IT.

With daily content from MReport, you’ll never miss another important headline in originations, lending, or servicing. Subscribe to MDaily to begin receiving a complimentary daily email containing the top mortgage news and market information.