If youâ€™ve had a mortgage, you understand that Appraisals are a basic requirement for the majority of Home Lending. Reverse Mortgages are no different and every Reverse Mortgage requires an Appraisal. Whatâ€™s different about Reverse Mortgages however is that sometimes FHA requires two appraisals.
In October of 2018 FHA announced they would begin doing appraisal reviews on every Reverse Mortgage. FHA requires two appraisals when it feels the first appraisal is inflated as compared to other homes in the area.
The purpose of this decision is to protect FHAâ€™s position in the Reverse Mortgage. If the true value is below what the appraisal identifies, the home could eventually go upside down. When a Reverse Mortgage goes upside down, FHA is responsible to pay any losses to protect the bank involved. For this reason, FHA is anxious to know the value of the home is accurate.
Is it working?
From a risk standpoint, I understand why FHA implemented this change. I donâ€™t often disagree with FHAâ€™s guidelines but this is one example where I feel this policy creates more harm than benefit.
I estimate roughly 5% of files with two appraisals have a dramatic difference in value between the two reports. In almost every instance the second appraiserâ€™s opinion of value is right in line with that of the first. The real impact of this requirement is delayed closings and additional costs to the borrower of around $600.
I estimate that about 25% of our clients have to do a second appraisal. Friends of mine in the industry say they feel itâ€™s as high as 50%. We typically pay the cost of the second appraisal for our borrowers, But we canâ€™t do anything about the 2-4 week delay this requirement can cause in closing the loan.
Iâ€™m hopeful that this requirement will be temporary but after three years Iâ€™m starting to lose hope. Like most things run by the government changes and needed improvements tend to take years longer than they should.
This link is to another article with helpful information. Although a little old the information is accurate.
If you or someone you love is considering a Reverse Mortgage give us a call. Weâ€™re here to help you live better and answer all of your Reverse Mortgage Questions.
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
Heritage NMLS #1497455 Trevorâ€™s NMLS #: 267962
1060 South Main Street Bldg. A Suite 101B
St George Utah 84770