Debate grows over second appraisal rule for reverse mortgages

"The rule has been in place since October 2018, when the Federal Housing Administration (FHA) began requiring lenders to conduct a collateral risk assessment on a property before a HECM loan can be closed. In cases where the initial appraisal is determined to have been overvalued, a second appraisal is needed. Lenders are required to use the lower of the two appraised values, and the costs associated with the second appraisal are rolling into the closing costs of the loan."

"DiBiasio and Rodgers also believe there are benefits for secondary market participants in the HMBS program. Investor confidence in HMBS relies heavily on accurate and consistent valuations, they wrote. The second appraisal requirement strengthens collateral certainty and helps maintain liquidity in this specialized market. Eliminating it could introduce volatility and weaken issuer participation. While more recent data on the share of HECM loans that require a second appraisal isn't available, former FHA Commissioner Brian Montgomery told HousingWires Reverse Mortgage Daily in 2019 that roughly 20% did."

Second appraisals serve as a safeguard against property overvaluation in Home Equity Conversion Mortgage (HECM) lending, addressing long-term repayment risk tied to collateral value. The Federal Housing Administration instituted a collateral risk assessment in October 2018, requiring a second appraisal when initial valuations appear inflated, with lenders using the lower appraised value and rolling second-appraisal costs into closing. The requirement supports investor confidence and liquidity in the Home Equity Mortgage-Backed Securities (HMBS) market by strengthening collateral certainty. Removing the second appraisal could heighten risk to the Mutual Mortgage Insurance Fund, reduce protections for senior homeowners, and increase market volatility.

Read at www.housingwire.com