FHA to Mandate Appraisal Checks on Certain HECMs

David Deem
714-997-3486

Effective now through Sept. 30, 2019, the Federal Housing Administration (FHA) is directing lenders to complete a second appraisal on certain home equity conversion mortgages (HECMs), or reverse mortgages, in cases in which there could be an inflated property valuation. The mandate applies to cases established on or after Oct. 1, 2018.

According to FHA, the goal of the mandate is to "reduce risks" to the Mutual Mortgage Insurance Fund (MMIF) and "protect the health" of the HECM program. In 2017, the U.S. Department of Housing and Urban Development (HUD) discovered that the losses the program sustained were likely in part due to inflated values, and FHA found that its HECM portfolio had a 19.84 percent negative capital ratio, and a negative net worth of $14.5 billion.

In accordance with the mandate, FHA will assess appraisals on HECM originations to determine if a second appraisal is required. Under the policy, lenders are not permitted to approve or close a HECM before FHA has completed its review, and the second appraisal has been completed, if required. If a second appraisal is needed, lenders must use the lower value of the two, according to FHA.

Source: U.S. Department of Housing and Urban Development (HUD)

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