Reverse Mortgage Appraisal Changes During Coronavirus Bring New Relief, Challenges
Having a prospective property appraised is a key component of ultimately closing a Home Equity Conversion Mortgage (HECM) loan, since the appraisal ultimately helps to determine the amount of equity and proceeds that a borrower will be able to get. The appraisal process often involves an appraiser coming to the home of the prospective borrower, along with a thorough examination of both the exterior and interior of the property in order to adequately determine the home's value.
In the age of the COVID-19 coronavirus pandemic, however, the idea of a senior - part of a population determined to be more susceptible to serious illness if they contract the virus - inviting a stranger into his or her home is both less likely and less viable. The necessity of the appraisal process to the closing of a reverse mortgage, however, has not diminished.
In light of both new guidance from the U.S. Department of Housing and Urban Development (HUD) and new precautionary measures being taken by appraisers and appraisal management companies (AMCs), the leadership team at national AMC Mortgage Information Services, Inc. (MIS) spoke with RMD about what the realities for reverse mortgage appraisals look like in the age of coronavirus.
Precautions and sensitivities
Naturally because of the reverse mortgage product's primary demographic, changing the overall approach to fulfilling appraisals even before additional guidance handed down by the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) remained a top priority. This is according to Aaron Stein-Sapir, chairman and CEO of MIS.
"Given that the demographic for reverse has been identified as one of the demographics that is seriously affected by the virus, of course it's caused concern with appraisers going into houses, and it's something we've been very sensitive to," Stein-Sapir tells RMD. "It also encompasses getting disclosure documents signed and the actual closings, along with other proximity issues. We're doing our best to relay to our vendors everything from the CDC and the government to make sure that we're following the strictest safety standards for any interaction."
Recognizing the necessity of the appraisal process has also led to many AMCs being labelled as essential businesses, even before the additional guidance from HUD was handed down. This has allowed the work of appraisals to continue, and to ensure that reverse mortgage borrowers who have a financial need can still get access to a loan's proceeds. This is according to Joshua Van Horn, SVP and chief appraiser at MIS.
"Aside from the mandates that say we're an essential business, we are essential to the infrastructure and also essential to our customers," Van Horn tells RMD. "We understand and appreciate that the majority of borrowers in the reverse mortgage demographic are getting the money because of a health situation, whether it's for hospice care or home health care that helps keep them out of these other retirement communities or the hospital. By performing our services as appraisers as safely as possible, we can help even protect these borrowers who otherwise may not have another option if they don't get the money to get their home healthcare."
Guidance from FHA and HUD, and effects on appraisals
At the end of March, FHA and HUD released a Mortgagee Letter offering new guidance for how to conduct property appraisals while the country remains vigilant about the coronavirus pandemic.
Appraisals for properties on most new traditional forward mortgages and HECMs can now be conducted through either exterior-only inspections or through desktop-only appraisals in an effort to minimize contact and potential transmission of the virus between people, allowing for appraisals to still take place while observing social distancing guidelines and other COVID-19 mitigation efforts as recommended by the Centers for Disease Control and Prevention (CDC).
While these additional measures are aimed at providing relief for both borrowers seeking appraisals and the organizations charged with conducting them, the short-term will likely see additional complications while the new norm is being adjusted to, Van Horn says.
"We have files in 'limbo' that were ordered prior to the change but before an inspection appointment was set," he says. "There are also unknowns such as what appraisers will be charging for these and if the appraisers are clear on what forms to use."
The forms required by FHA differ slightly from the requirements on GSE's that appraisers were just becoming accustomed to, Van Horn says. However, once AMC and appraisers have a better idea of what the revised process entails, this could come with some positive improvements particularly as it relates to overall turn times, Van Horn says.
Continued 'regular' appraisals, sufficiency of the new changes
While "regular" property appraisals have not strictly been disallowed, the amount of regular appraisals proceeding during this crisis will likely significantly diminish. It also depends on the guidance that AMCs receive from their lender partners, according to David Stroop, SVP of business development at MIS.
"Based on what we are seeing today, we believe that most [new appraisals] will be exterior or desktop, but that is strictly conjecture at this point," Stroop says.
The new guidance from FHA isn't expected to create any additional problems for appraisals or AMCs, Stroop says, but there are some potential gaps that could have been addressed in the guidance according to Van Horn.
"With any set of new guidelines, we could find things that maybe could have been further addressed, such as the removal of the appraiser certification #10, which seems to allow information to be considered from the borrower/interested parties," Van Horn says. "Perhaps a clear statement on this matter could help guide appraisers and lenders regarding the extent of information that should be considered when it is provided directly by the borrower or interested party as well as any documentation or photos that FHA would require as support."
Because of the quickness with which the measures are being put into place, it's understandable that some gaps in the guidance exist since the safety of appraisers, the public and the economy are being taken into account, he adds. This makes clear that the efforts of FHA and the GSEs should be applauded.
"It is up to us working with FHA to ask the right questions and hope that they are working on COVID-19 related FAQs," Van Horn says.
How values can be affected by exterior-only and desktop-only appraisals
It goes without saying that the processes observed for exterior-only and desktop-only appraisals are different from an appraisal conducted normally, where an in-person appraiser thoroughly examines the interior and exterior of a home before making a final determination. That means that the determinations themselves may be affected by these alternative appraisal methods, Stroop says.
"There are certain things, such as improvements/renovations or, on the other side of that equation, damage that an interior inspection would be needed to identify and analyze the market reaction/impact upon the value opinion in a traditional process," Stroop explains. "Not seeing the interior could have a positive or negative effect depending on what that inspection would reveal."
This is also the point at which some of the alternative methods of seeing a home's interior - such as owner-provided photos or video conferencing - may come into play, Stroop says. However, it's also difficult to know how those kinds of technologies would be used, which factors into the value determination.
"Traditionally, appraisers are not permitted - nor are they comfortable with - using information provided by an interested party that could impact the value without verification from a credible disinterested source," Van Horn says. "Now that this certification has been removed for these modified appraisal options, it is unclear at this time to what extent FHA or the lenders will want or allow borrower-provided information to be used."
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