BREAKING- New Collateral Assessment may require 2nd appraisal


FHA’s New Collateral Risk Assessment will require a 2nd appraisal when determined that 1st appraisal is ‘inflated’

BREAKING- FHA announced today the enactment effective October 1st that all HECM loans must undergo a Collateral Risk Assessment to determine if the first appraisal is inflated or at market values. If it is determined that the appraisal exceeds the assessment’s guidelines, then a second appraisal will be required which can be financed into the closing costs of the loan. Read the mortgage letter


Larry Thompson September 28, 2018 at 1:39 pm

I suggest FHA does a root cause analysis to determine where the (in their minds) excessively high appraisals are coming from, and then address those specific problem creators.
from several specific geographies ?
from several specific AMCs ?
from several specific appraisers (all of whom are FHA qualified) ?
That to me is a better approach than instituting a review program that is difficult to administer and more disruptive to normal business flow…and one that creates more uncertainty for our Senior clients and business partners (especially Realtors and builders).

Larry Thompson

Shannon Hicks September 28, 2018 at 1:59 pm

Thank you Larry for your inputs on this breaking development.

The September 28, 2018 at 6:31 pm

Hey John,

Yet NRMLA applauded the change.

BUT far more fundamental than getting wrapped up in the nuances of Mortgagee Letter 2018-6 is the need to understand why it was issued. This requirement cannot possibly influence the losses generated by prior endorsement periods, can it? So why would HUD and NRMLA be so concerned about appraisals for HECMs receiving case number assignments after 9/30/2018?

The answer is clearly the new book of business for fiscal 2018 was produced at a high projected MMIF loss per HECM endorsed. The fiscal year ends on Sunday but HUD has taken some looks at expected returns for fiscal 2018 and they obviously did not like what they saw DESPITE the 10/2/2017 changes made in Mortgagee Letter 2017-12. Someone (obviously NRMLA) created an alternative to lower PLFs. But is their daydream like most other NRMLA suggestions, more fluff than substance?

While I strongly believe some loss might be lowered by this herky jerky methodology, it has no proven success in reducing MMIF losses on HECMs in the year of their endorsement. It does sound feasible but Its chance of reducing loss is more hit and miss than scientifically or logically reasoned. What if the methodology results in indirect patterns of mortgage discrimination? What if the methodology results in homes in historically high appreciation rate areas of the country getting hit the hardest? Isn’t even probable?

Then the issue of additional time to process the loan raises its ugly head. Will this help or hurt the origination of H4Ps, for example? How will builders feel about an appraisal that indicates a significantly lower value than the selling price of their homes? For example, a borrower gets the news that the second appraisal came up with a value of say $20,000 lower than the selling price. If I was the borrower, I would go to the builder and say that he has to drop my purchase price by $20,000, after all just look at the value the second HUD appraiser says your home is worth.

Will the 10/1 change lower endorsement counts? Is it prone to improve referral source relationships in the financial advising community? Hardly. What about Realtors who had a deal put together on a resale home acquisition but now the appraiser is saying that the home is worth $25,000 less than the agreed sales price? Time is a factor we must try to trim down but how do we deal with unknown required appraisals that cause disruptions for our Realtor and financial advising referral sources? This is bound to do some permanent damage. Again we will be informing them in some cases after they have the interest of their clients and customers. Personally, I do not see the change as a healthy result for industry. NRMLA needs to educate on just how that proposal helps if the result of next year’s book of business does not substantially reduce the average per HECM projected loss for fiscal year 2019.

George September 28, 2018 at 2:12 pm

Yet one more fee for our seniors.

George Owens September 28, 2018 at 6:59 pm

Hey George,

Maybe the senior? But what happens if the senior defers payment by having that cost considered a financed loan cost and the loan does not go through? Isn’t that second appraisal a potential cost to the lender or maybe worse, the originator? You just have to love the folks who thought of this change and I don’t mean HUD!!!

John B September 28, 2018 at 2:28 pm

They just can’t leave the program alone. Why is it, every Oct it seems, they take yet another step to try to kill the program? Now we are being flooded with private loan programs that are not insured, simply because HUD/the government has made the HECM even higher in FHA/Gov fees. What happens to those private reverse loans, when we have another economic downturn? What happens to those uninsured private loans if private companies close?
Lots of new Baby Boomers retiring every day with real financial needs; home values up across the Country; a perfect time to kill a good product with overreaching government bureaucracy, yet again, suffocating private industry. Just so very sad at all the lives impacted by the continued over regulation; not just seniors, but all the men, women, and their families whose livelihood is drastically changed.

John A. Smaldone September 28, 2018 at 4:43 pm

My friends,

I can’t say I am happy about this announcement, sure not much notice and no real time given for comments and rebuttals! Peter Bell and NRMLA is supporting this move, I can understand one bit of logic and that is it is better than having another cross the board PLF reduction.

However, Has NRMLA and everyone taken in consideration that after October 1st, every loan, before it can close, must be reviewed by a Desk appraisal review board of HUD/FHA! First off, how much time is this going to take? This is now is another step in the process that will slow things down. As it is, reverse mortgages do not move along as swiftly as forward loans do! We do not know how long this process is going to take, 3 days, 5 days, a week, two weeks, we don’t know folks!!! Then if another appraisal is required, how much more time are we facing, again, we do not know. We have not been given this information!

Also, have we all really analyzed what impact this will have on our seniors. Sure, they say a second appraisal cost can be financed into the loan, fine and dandy! What if the second appraisal comes in lower, which could knock the loan out of the box. Bingo, now the senior is out of pocket for two appraisals!!

It is great we are not seeing a cross the board PLF reduction as NRMLA puts it, but how many appraisals are going to require second appraisals, how many values are going to be dropped and how many indirect reductions to the PLF’s will be seeing?? Remember, if the second appraisal comes in lower than the first, the second appraisal is what will be used.

For an example, if the first appraisal came in at $295,000 and the second appraisal came in at $278,000, we now have a value that will be used of $17,000 less. Guess what, the principle limit will now be based on the value of $278,000. Guess what else just happened, yup, we had a reduction in the PLF with out actually having to call it a reduction the PLF!

Is this a subterfuge or what??? I am generally the never ending optimistic one in my comments on our publications of the industry but in this incident, I feel I am calling as I see it and adding 2 + 2 together and coming out with 4!!

I am not saying this is the killer of all killers but it will play havoc once again on our seniors ability to qualify for a HECM and it will eliminate another percentage of the market we once had to work with!

We have to ask ourselves, does HUD really want the HECM survive or does it want it to go away, that is the 64,000 question?? The HECM needs to be left alone, no more changes, I repeat myself, no more changes. This goes for HUD, FHA and NRMLA!! Enough is enough, I understood why some changes had to be made to the HECM, I also understand the trouble the fund is in. However, are there possably other reasons for the vast losses in the fund that we are all not really aware of???

I am not giving up on the HECM, on the contrary. There are still to many opportunities out there, plenty of equity to tap into and a lot of senior homeowners with little or no debt on their properties. This has to be our targeted market, forget where we were, the borrower we used to fill the need for are getting fewer and fewer. We MUST be aggressive, we MUST go after the higher value properties with little debt in relationship to the home value.

Also, utilize all the new proprietary programs coming into the industry, they fill many need for the senior homeowner that the HECM did not. Sure, you have to target the more affluent, the high valued properties and those with low debt on them. The good thins is, they are out there!

This is my evaluation of what has taken place, it is only my opinion, agree or disagree, it is your choice, I am only calling it the way I see it from my point of view.

Thanks to all of you that read my comment in its entirety!

John A. Smaldone

The Positive Realist September 28, 2018 at 6:55 pm


The big difference between your frowned upon choice of lower PLFs and NRMLA’s celebrated second appraisals is one thing, certainty. With lower PLFs, we know what the loan will look like at the end of the first appraisal. We can help prospects decide quickly if the HECM is for them or not with the cost of just one appraisal. Imagine if the loan does not go through, who will pay the cost of the second appraisal, the originator?

Now we come to NRMLA’s stepchild, second appraisals. Here everything is iffy UNTIL HUD tells us what we need to do. Financial advisers do not want someone providing a product with so little certainty as THE NRMLA Generated Second Appraisal creates. How about Realtors and builders? Imagine what happens when the loan is delayed two weeks (if not four weeks) for the demand for a second appraisal and the second appraisal comes in $25,000 less with the potential buyer now saying that either the seller (or builder) lowers the price by $12,000 or $16,000 in order to make the numbers work. NRMLA’s raucous idea is worse than lower PLFs in far too many situations.

Got to love NRMLA for its original thinking that most likely won’t reduce MMIF losses by much unless production really drops once more. Quite frankly, this leaves me so cold, that it is irrational to conclude that the endorsements for fiscal 2019 will exceed those of fiscal 2018; the fiscal 2019 endorsements may even be less. What a great thing that NRMLA has may succeed in terminating our current pattern of secular stagnation by erasing what should be a year of increased endorsements. NRMLA will tell you that people like me are harmful for the industry (which really means them).

Bill October 1, 2018 at 11:21 am

It’s death by a thousand paper cuts!!!

Jerry Hanley October 1, 2018 at 9:49 am

I spent the better part of the day, between phone calls,etc. writing a lengthy comment, only to come to the conclusion this new rule is nothing but a ruse. A political move to satisfy the powers that be (Foggy Bottom) the HECM program issues are being dealt with in a proactive mannor, the ship is being righted and all is well in the world, until the real fixes for the HECM are in place. This second apprasial non-sense othewise makes no sense at all.
I do want to commend the fellow that pointed out the impact on H4P this will have. Builders and Realtors already have issues with the Amendatory Clause, a second apprasial lurking in the background will just make it harder to sell the H4P product. Oh well, we can always do a refinance after the purchase has taken place, albeit with a second appraisal!

Jerry October 1, 2018 at 11:35 am

Another change that will likely reduce loan amounts and increase cost. So let’s get this straight… FHA approved appraisers prepare a report that will be reviewed by FHA approved underwriters that must go thru another FHA review and if the FHA review seems necessary, a second appraisal will be required by a FHA approved appraiser to be reviewed by a FHA approved underwriter.

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Cyndy Wilson c/o Peoples Mortgage October 2, 2018 at 9:00 am

Who will be responsible for 2nd appraisal fee. Currently the borrower is not allowed to pay for a 2nd appraisal. Will FHA be updating guidelines allowing borrower to pay or will the mortgage companies be responsible for additional appraisal fee?

Shannon Hicks October 2, 2018 at 9:05 am

Cyndy- the second appraisal (if required) would be financed into the loan as a mandatory obligation. In essence, the borrower pays twice in such a scenario.


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