Reverse Mortgage News

Collateral Risk Assessment Update

Collateral Risk Assessment Update: All Home Equity Conversion Mortgages (HECM) will have the appraisal reviewed by FHA.

A couple of weeks back I attended the Western Reginal Meeting for the National Reverse Mortgage Lenders Association (NRMLA) in California.

One of the topics at this meeting was an update of the Collateral Risk Assessment program that FHA instituted last October. In case you don’t recall me
discussing this, you can read it here on my blog, but
in case you’re short on time, here is a brief overview.

Last September, HUD issued Mortgagee Letter (ML 2018-06), stating the following:

“For all HECM’s, FHA will perform a collateral risk assessment of the appraisal submitted for use in the HECM origination. Based on the outcome of the
assessment, FHA may require a second appraisal be obtained prior to approving the HECM.” The Letter continues, “Where a second appraisal is required
by FHA and provides a lower value, the mortgagee must use the lower value of the two appraisals in originating the HECM.”

What this means is that all Home Equity Conversion Mortgages (HECM) will have the appraisal reviewed by FHA. They have a computer system called an Automated
Valuation Model (AVM), that reviews the appraisal. This is similar to what Zillow and other on-line valuation web-sites use. If the actual appraisal
falls outside of certain data points (we don’t know what these are), FHA will require a second appraisal.

NRMLA has been collecting data on the number, styles of homes and areas that have required a second appraisal and presented this information at the conference.

Second Appraisal Values Compared to Frist Appraisal

Over the last five months (October 2017 – February 2018), they reviewed 5,700 loans. Of these loans, 1460 (25.6%), required a 2nd appraisal. Of all the
second appraisals, 39% came in at a higher value than the first appraisal, 56% came in lower, and 5% came in at the same value.

22% of the 2nd appraisals came in lower than the first by more than 10%. This is disturbing because 10% is a big variance from one appraisal to the next.
Of the appraisals that came back higher than the first, 10% were more than 10% higher. In my mind, these differences in values show just how subjective
appraisals can be. Appraisals are simply educated opinions of value. Is the lower value actually better? FHA seems to think so. On average, the second
appraisals were 2.6% lower than the first appraisal.

Property types

92% of the 5,700 files reviewed were single family residences.
1.4% were 2-4 unit property types and of that number, 83% required a second appraisal.
2.3% were mobile homes with 58% of these requiring a second appraisal.

Location Types

Almost 2/3 of the files reviewed were in suburban locations.
14% were rural locations, and of these, 45% required a second appraisal.
NOTE – 11.7% of the loan did not identify property type.

Loan Purpose/Product Type

86% of the files were traditional HECM reverse mortgages with 25% of these requiring a second appraisal.
About 2.5% of the loans were used to purchase a home (called the HECM for Purchase), 36% of these files required a second appraisal.

Kentucky (55%), Kansas, (55%) and Louisiana (44%) were the states with the highest percentage of second appraisals required. The reason is probably because
they have a more rural population and my guess is that they probably have more manufactured housing in these states as well.

Unfortunately, the speakers did not provide a list of all the states and I did not have a chance to talk with them after the session, so I didn’t get a
good picture of where Colorado stands on the percentage of second appraisals required. I do keep my own numbers, which are limited, but currently,
through March, 21% of the loans I’ve originated have required a second appraisal with exactly half coming in lower and half higher. The largest variance
I’ve seen for my loans has been $10,000.

Conclusion

The way I approach the whole issue of the second appraisal with my customers is to let them know up front, either before the application or at the application,
they have about a one-in-four chance of being required to have a second appraisal on their home. If one is required, it can add about a week to the
processing time and they will not be charged for the appraisal. Overall, this is not usually a big deal. It can be a big deal though for someone who
needs as much money as possible to pay off an existing mortgage. If the first appraisal comes in at the needed value but the second appraisal comes
in much lower, it could mean the difference of getting the reverse mortgage or not. Luckily, that hasn’t happened to any of my customers. I’ll keep
you updated to any changes to this policy as FHA is supposed to review it after it’s been in place for nine months.

Bruce Simmons

I absolutely love what I do - working with senior homeowners to help them live a more comfortable, flexible and secure retirement. I have the absolute best customers in the world, and even though I worked in the forward mortgage business for a number of years, I could never go back to doing conventional loans. I'm a 100% reverse mortgage specialist.

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Bruce has been serving my interest over and above what one might expect during the whole process of handling my reverse mortgage dating back to 2010 and continues to be available at present whenever a question may arise. He is one of the most reliable, trustworthy and knowledgeable experts regarding reverse mortgages that I have had the privilege to do business with! I would highly recommend Bruce to anyone who is considering a reverse mortgage. Thank you Bruce!

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We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

Mary Bernard

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

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I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!

Collateral Risk Assessment Update