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HUD sets the timeframe for the effective dates of documentation on the HECM reverse mortgage program, and currently appraisals are valid for 180 days.  They have used 120 days in the past, they also allowed a short extension with underwriter discretion at one point and if values begin to fall or if the market became unstable, HUD could change their parameters to a different timeframe at some point in the future.  But as of this date, the appraisal is valid for 180 days.

Hello Michael,

I wish I could tell you that this is an extremely rare occurrence, but unfortunately, it happens in about 20% of reverse mortgage applications, and it used to be an even higher percentage.  HUD implemented a policy several years ago in response to what they perceived as an unacceptably high incidence of errors and appraisal misdeeds.  Now, all appraisals for reverse mortgages must be submitted through the HUD Electronic Appraisal Delivery System (EAD), allowing HUD to receive the appraisal directly from the appraiser before the lender does.

Lenders cannot issue a loan approval to the borrower until HUD approves the appraisal.  If there are red flags in the appraisal, such as sales being too old, excessive adjustments, sales too far from the property being appraised, or other anomalies that could indicate value issues, HUD will require a second appraisal.  The lender must use the lower of the two appraised values, even if the second appraisal suggests a higher value.

HUD was concerned about the program's viability due to over-valuations.  The changes to the appraisal process were implemented to ensure the program's longevity for the benefit of all borrowers. I'm sorry that you are among the roughly 1 in 5 borrowers who need to undergo a second appraisal, but I assure you, lenders are not pleased with these requirements either.  However, these changes were deemed necessary to prevent the program's shutdown, which many in Congress had advocated for when the reverse mortgage program was experiencing excessive losses, posing a risk to the FHA Mortgage Insurance Premium (MIP) fund before the adjustments were made.

Hello Lori,

This is one of the little secrets that some originators won’t tell borrowers that really bothers me, but many times, borrowers don’t know about it until it is too late.   The issue may only result from the fact that you moved the loan, and it may have been there all along but just not relayed to you before your transfer.  Let me explain.

Firstly, I don’t know where you were in the loan process with your first lender when you made the move. 

The lender orders every appraisal obtained for the HUD HECM loan program through a HUD-approved appraiser. It is delivered to HUD through their Electronic Appraisal Delivery Portal or EAD.  HUD then decides if a second appraisal will be required on the property based on the first appraisal.  Depending on the timing, HUD may have already decided a second appraisal would be required for your property, but your first lender just had not conveyed that information to you before you transferred the loan to another lender, and it became their issue.  That’s one thing that could have happened.

Secondly, the appraiser is not required to work with any subsequent lenders.  If your initial appraisal was somehow deemed deficient by your new lender and they needed the appraiser to supply new or corrected information. If the appraiser refused to work with the new lender, the new lender would be forced to throw that appraisal out and start with a new one.  Surprisingly enough, HUD not only condones this action but they support it.  Some very large lenders figured out long ago that they could become owners or part owners in appraisal management companies, and appraisals completed by appraisers working for those companies would never work with new lenders. 

After a while, we made sure that borrowers were ready to obtain a new appraisal if needed, or we stopped accepting loan transfer requests from some lenders after appraisals had been completed because there was always something wrong with the existing appraisal.  That could be your issue as well.  If the existing appraisal had problems and your new lender had to order a new one, HUD requires lenders to use the lower two values (even if the old appraisal is thrown out!).  In many markets, values have declined recently, so a slightly lower value on a more recent appraisal would be normal.  

Thirdly, it could be a difference of opinion between appraisers.  If that’s the case, if the second appraisal is the requirement of the new lender’s underwriter, it would be subject to a new set of eyes.  There is always a chance that one appraisal can differ from another even if the market is stable, there are ample sales, and no change to the market.  You are entitled to receive a copy of any appraisal used on your property, and I find it odd that you have not received either appraisal (you said you had not been given a copy of the second appraisal “either,” so I take that to mean you didn’t receive the first appraisal as well).  We send out the appraisals to borrowers the moment we receive them, so you should make your request for all appraisals firmly.  

Finally, I suspect the new lender who told you the appraisal was acceptable made that determination by checking to see if the date of the appraisal was within the acceptable date range (not expired) and that that lender didn’t have anything anywhere that would render the Appraisal Management Company or the individual Appraiser ineligible to submit appraisals to their company.  I do not believe they underwrote the appraisal with their DE Underwriter to ensure it was okay, met all HUD specifications, and would not warrant further review (including a possible second appraisal).  The underwriter may have found issues in the body of the appraisal itself or in the report details that might make them require a new appraisal by the time the loan was submitted to underwriting with the rest of the loan documentation.  

These are four “educated guesses” for why the new lender could have required a new appraisal.  The most challenging part is that some originators regularly make it a point to try to get borrowers to move their loans from other originators mid-process.  And there are times when a move does make sense, but not as a rule.  If your loan is impasse, your lender will not return your calls, or you discover that your loan terms are highly unfavorable. Your current lender is unwilling to negotiate. There might be times when you find it necessary to seek the help of another lender. Still, even then, you need to be cautious and consider all ramifications.  Some originators will try to persuade people to move their loans when the move isn’t advantageous, and they aren’t telling the borrower all the pros and cons.  If your loan was underwritten at the first lender, you may not have had to have another appraisal.  If you meet an originator who is immediately trying to persuade you to move your existing application to their company and doesn’t even know your circumstances yet, chances are they are looking for the income they will make and not how (or even if) they can resolve your issues.

And you haven’t mentioned it, but another risk of moving a loan that we see borrowers finding out only after they have been talked into moving their loan is that in a market where rates are rising, they lose their lower expected rate lock and receive less money with the loan with the new lender’s loan terms once they start over.  We urge borrowers to look at the entire situation before they cancel an existing expected rate loan in a rising interest rate market (as is the case now) because you can’t reinstate the old, expected rate lock once it is canceled.  No one likes conflict so often that it is much easier to sign the case number transfer letter, but sometimes that transfer is not in your best interest.  I do not know if that is the case here, but I hope it didn’t needlessly cost you the price of a second appraisal and less money available due to the lower value.

Hello Mary,

The lender must use the appraised value and adjust your available numbers. This can be as simple as a difference of opinion or more/ more recent information the appraiser had available that indicated a lower value. In that case, the lower value is accurate and warranted.  Of course, you can continue or cancel the loan if you feel it no longer makes sense.

If the appraisal contains errors that you believe have caused the appraiser to come to a lower value conclusion than is accurate, you have the right to rebut the assessment.  You cannot suggest a value but point out factual errors and request a reconsideration of value based on the correct information.  For example, suppose the appraiser said you have two bedrooms and two bathrooms and used two bedrooms and two-bathroom sales to determine your value but in reality. In that case, you have three bedrooms and 2 1/2 bathrooms, and the square footage is miscalculated; the appraisal is inaccurate and subject to rebuttal. If you think your house is more valuable than the sales the appraiser used because you believe it is in better condition or has better landscaping, etc., those are opinions and things the appraiser considered in the first report and, therefore, would not be grounds for rebuttal.  

Lenders can’t tell you what value the value will be until the appraisal is done and delivered.  We are not appraisers looking at the borrower’s home and comparing it to recent sales. We can look at the online data for current sales and usually estimate well. Still, we can’t see sales that are not recorded yet, and in a flat or declining market, that can tend to show higher values than the current market conditions.    So, the bottom line is that lenders need to be honest with borrowers and let them know everything they see in the market from the start, not just the highest sales.  

If your lender gave you all the information for sales, they could see in the area at the time; you need to look at the appraisal and decide if any significant inaccuracies warrant a reconsideration of the value.  Absent that, your only option would be to consider the funds available at the actual value and decide if you wish to proceed or cancel without further cost. 

There are three different methods an appraiser can use to determine the value of a property.  The method that will ultimately be used by the lender or the person/company that needs the appraisal will depend on the reason they ordered the appraisal in the first place.   For example, the first method we will touch on is the income approach to valuation.  This method is not a good indicator of single-family homes as it determines the value of a property based on the income the property will generate.  Therefore, this method of appraisal is used for commercial properties and multiple unit residential (such as larger unit apartments).

The next method is the replacement cost method.  The premise of this method of valuation is what would it cost to replace the property.  In this valuation, the appraiser must determine the cost of the improvements separate from the land value and then the total value of the two when considered as a whole.  This valuation method is more useful for insurance purposes so that insurance companies can determine likely losses in the event of a fire or other disaster but is not a good indicator of the property’s value upon sale on the open market.

This leaves us with the final method which is the sales comparison approach which uses the information about recently sold similar properties with known selling prices to determine the likely value of other properties.  By using a matrix of known attributes or property characteristics, appraisers compare your property to others in the area and adjust for differences within acceptable tolerances.  For example, HUD, FNMA and other agencies will allow appraisers to compare 3-bedroom, 2 bathroom properties that are close in size but may be different with an adjustment for the larger/smaller homes with different features but typically will not allow the appraiser to compare a 3 bedroom 2 bathroom home to a 1 bedroom 1 bathroom home with adjustments because the same purchaser would not be looking for those two homes.  It is by comparison of three or more similar homes with known adjustments in familiar markets that appraisers can determine their estimate of value for a property.  

It is easier for an appraiser to determine a value when they have a purchase transaction that conforms to the neighborhood with recent sale prices because they have a meeting of the minds between an informed buyer and seller.  But with a refinance transaction where there is no meeting of the minds between buyer and seller there is no “starting point”.  Then if the sales in the area are not tightly grouped, the sales can be spread out and can be much more subjective (as could be the case with all original homes whose sales can be wide ranging due to their individuality rather than “cookie cutter” tract homes that tend to sell in a tighter range).  At that point, it is up to the appraiser’s knowledge of the area, the validity of the sales data and the adjustments that the appraiser uses to determine the value of the property he/she is appraising.  

Hello Paula,

It is the borrower’s responsibility to pay for the appraisal, credit report and any other closing costs for the loan.  You may however be able to bet some credits from the lender to help pay your costs. 

You need to ask your originator when you are first applying for your loan if any lender credits to pay for loan costs are available.

Hello John,

To be able to order an appraisal to establish a value that would be able to be used for reverse mortgage purposes, a borrower needs to complete their counseling and the lender must request a HUD case number first after a borrower completes an application. 

Then the lender can order the appraisal and borrowers can continue or cancel with no further obligation if they do not like the value.

Hello Gerry,

The appraiser will be looking for things that affect the value of the home.  This would include deferred maintenance, overall condition, quality of construction, appeal, etc.  If your home’s condition is acceptable and maintenance is not deferred (like the paint is not peeling, all electrical and plumbing are operable and in good shape, cabinet doors are all in, etc.) then you do not need to worry about taking things out to make it show like a model. 

Now having said all that, appraisers are human too!  If you have beautiful wood floors and they can’t see them because there is too much stuff laying around, the appraiser may not give you credit for them.  If your bathrooms are updated but there is so much stuff hanging in the bathroom that the appraiser can’t see the modernization, you may not see the return of the improvements. 

Sometimes a little sprucing up does go a long way, especially if it is correcting any deferred maintenance items that you may need to fix before closing anyway.

Hello Kim,

There are only a few things lenders can withhold funds for completion and those typically are related to items that cannot be finished due to weather issues.  Flooring is not something that HUD would consider a valid hold-back item nor would anything that is considered a health or safety issue.  A closet door should be something you can resolve quickly but if it is something that is held up due to the supply chain issues at this time, I think a case could be made for a withhold with documentation to support the door has been ordered.  The flooring is another matter though and I believe they will stand strong that it will need to be installed.

With regard to the appraisal, no, not every property needs two appraisals.  However, every appraisal must be delivered to HUD through their EAD (Electronic Appraisal Delivery) portal before the lender ever receives the report.  Under the HUD rules, the lender is not allowed to even give an underwriting approval until the appraisal has passed this process and HUD does require a second appraisal on about +/- 20% of the appraisals they receive. 

If they review the appraisal and feel in their sole discretion that there are factors in the appraisal that present unacceptable risks, they will require a second appraisal.  That may be because of the first appraiser’s work or the property itself.  You should ask the lender you are working with if the requirement is from HUD and if so, the truly have no control over the need for a second appraisal in this case and if you move to another lender, they need to use the same appraisal until the first one is expired (4 months) and that would mean a second appraisal as well.

Hello Marianna,

The appraiser need only use nearby, recent sales of similar properties and then adjust for differences between the sale and the property being appraised.  In some cases, the type of financing may result in an adjustment of some sort if warranted, but the appraiser can use any bona fide sale for which the terms can be verified if the property is deemed to be truly comparable to the property they are appraising. 

In other words, you cannot use a 6-bedroom 4-bathroom, 5000 square foot home to determine the value of a 3-bedroom 2 bathroom 2,000 square foot property because the houses are not similar.  You could not use a brand-new home to compare to a 58-year-old home with no upgrades to determine the value of the older home because in these examples, the homes are too dissimilar. 

You can use the same 3 bedroom 2 bath, 10 year old homes in the same tract one street apart that sold within a few months of one another when one buyer used a conventional loan and one used an FHA loan even though the appraiser may or may not feel that an adjustment was warranted because the seller of the home sold with the FHA financing had to pay points for the purchaser to be able to use that loan. 

Hello Rita,

Yes, unfortunately, it is true.  HUD implemented a new procedure a few years back which requires lenders to log their appraisals into their electronic system when ordered and then the appraiser delivers the appraisal directly to HUD before the lender even receives it. 

HUD does a review for several items and if the appraisal is flagged for second appraisal, the lender must order another appraisal and is prohibited from even giving a loan approval to the borrower until the second appraisal has been received and approved.  The value that the lender must use is the lower of the two appraised values.

HUD felt that there were still too many properties being over-valued and they determined this was one of the reasons that they were having such large losses to the MIP fund.  If the properties were over-valued from day one, there was that much more opportunity for losses later when the loan settled, and HUD was paying very large claims.  Initially, almost 25% of all appraisals were flagged for second appraisals, but it now seems to be a little below 20%. 

We do not know exactly what will trip the HUD flags that make the system require the second appraisal in all instances but we do see some common issues such as all sales used for comparison required excessive adjustments, all the sales being bigger or farther away (especially if the appraiser indicates the home is in a suburban setting where close, recent sales of similar properties should be plentiful), or the appraiser used objective adjustments for items with no sales information to support their value assessment (i.e. view adjustments for all comparable sales with no properties sold that had similar views that support the appraiser’s opinion of the adjustment for the view versus no view).    

But in any case, HUD does call for a second appraisal and the lender must comply when they do and the lower of the two values must be used.  You do have the right to rebut the value of an appraisal you believe to be invalid but only if you can find inaccuracies in the report.  For example, if the appraiser who gave the lower appraised value used the wrong square footage or room count, etc., you would be able to rebut the value to that appraiser based on those errors. 

You cannot rebut a value though just because you do not agree with the appraiser.  You can also stop the process and wait for the appraisals to expire (120 days) and then start over with a new appraisal, but there is no guarantee of the value at that time, and you will be subject to the same rules but at least then the appraisers will be able to use the most recent sales to compare at that time. 

If the recent sales then support at least as high or higher value, it may work out well for you.  If, however the values begin to soften as is sometimes the case after the end of the summer months, it could work against your to wait as well.  Remember, an appraisal is a value based on a moment in time – a snapshot if you will - and that value later could be the same, higher or lower and no one can tell you for sure which will be the case.

Hello RK,

There is never a right or wrong way to handle something like this.  You do not want to try to hide anything, but you also do not know how it may affect an appraiser if you point something out to him/her that may not have been an issue before you do it. 

I cannot advise you because I cannot see the repair, nor can I get inside the appraiser’s head and know what they will think or say when they see the area in question.  I think if it was me, it would depend on how noticeable the repair is. 

If you feel it is very noticeable, you may want to wait until the appraiser is in that area and when it is apparent that he/she is looking at the affected repairs, present the repair paperwork at that time.  If they never go anywhere near it, maybe you don’t.  I think you will need to make that call at the time.

Hello Sofia,

The report is sent first to HUD and then to the lender on a HUD HECM reverse mortgage.  The lender is required by law to send you a copy of the report.  If you have not received a copy of the report, you should make a formal request and the lender must give you a copy. 

We send an electronic copy to all borrowers immediately upon our receipt, even before the borrower requests it.  Some lenders will not send the electronic copy as it gives the borrowers a digital “original” report with original color photos, but we feel that the borrower deserves this and should not have to wait for a copy in the mail. 

If your lender refuses to give you the appraisal, you need to ask them why but just know that they are required by law to give you at least a copy of the report.

Hello Catherine,

I wish I could tell you that this never happens, but especially now when the lending market is so busy for both forward and reverse mortgages and we are still in the middle of a pandemic, this is becoming an all-too-often issue in rural areas. 

Some areas are underserved by FHA approved appraisers to begin with and if the appraisers are not available or do not accept the assignments, lenders cannot proceed with the loan. 

There have been times when appraisal management companies have given 2 months or longer turn time estimates for appraisals and other times when the estimated cost for the  appraisal has been extremely high due to the travel and time involved to get an appraiser to accept the assignment. 

If your lender has no other management companies with whom they work, you can always call other lenders to see if they work with other appraisal management companies that might have a different roster of available appraisers but this is not even a guarantee that they would have one available since most appraisers do accept assignments from multiple companies. 

I wish I had more concrete solutions for you and wish you the best.

Hello Wanda,

If you are talking about doing a refinance of your loan, yes, a new appraisal is required for every reverse mortgage you do. 

This would be true even for a refinance of an existing reverse mortgage loan in markets where values have increased. 

If you are saying that the servicer is requesting an appraisal on the existing home, this usually only happens when you are requesting a loan payoff and there is some question as to whether the property value is higher or lower than the amount owed. 

If neither of these are the case, I honestly cannot tell you why the lender would be asking at this time and suggest you ask them. 

Hello Jim,

This is a difficult question to answer based solely on the information given and the answer may not be illegal but alarming and may not be nothing at all.  A lender must take the appraisal process completely out of the control or influence of the origination arm of the company. 

In other words, the originator or the sales function of the lender may not choose the appraiser or have any influence over the appraisal or valuation of the home. 

Most lenders use an Appraisal Management company who in turn hires the actual appraiser.  In some cases, if there are very few appraisers in your area, they may be limited to just a few individuals who are HUD approved from whom they can choose. 

Some lenders still have their own staff appraisers and although this is not prevalent now, it is possible in your case and then they can use the same staff appraiser.  I have no way of knowing based on the information provided.

As for the multiple appraisals, if an existing appraisal is over 120 days old, is it outdated, and a new appraisal must be performed using the current sales data to determine the value of the home.  New appraisals often support higher and lower values based on the current market activity. 

If other properties have sold since the last appraisal that are similar to your home, the appraiser would now use the more recent data to determine the current value of the home (which could be higher or lower than the last appraisal). 

So, your question of “is it legal”, not only is it legal to reappraise a home multiple times over a period of 12 months using new sales to support a new value, it is required.  I just cannot tell you if the use of the same appraiser is typical in your instance or if it is something about which you should question.  It is not illegal though.

Hello Karen,

Part of the appraisal process is known as the comparable sales method of determining value.  This means the appraiser will find sales that have closed with similar properties that have similar amenities and views and possibly those that have not. 

He or she will adjust the selling prices of those homes as compared to your home for the differences that the sales with those amenities typically bring on the open market.  In other words, he or she will try to find homes in the area that have views and use those for the sales when they determine the value of your home.  If all the sales have similar views, there would not need to be any adjustments made. 

He or she would need to find at least one sale with similar views that sold for more than other homes without the views to support what that appraiser believes the view to be worth.  They cannot simply assign a subjective value for what they believe the view ought to be worth without any supporting documentation to support that opinion of value.

For example, if all homes in a development with views sell for $200,000 – 225,000 and homes without views sell for $185,000 to $210,000 (and all other things being somewhat equal), the appraiser can adjust for any dissimilarities in the homes (square footage, condition, etc.) and give the comparable sale property without a view a positive adjustment to support their higher value of the subject property with a view to be more equal to other homes that sold for higher prices that also had views. 

This is because there is ample sales data to support what additional value a view property would bring at time of sale.  If however, properties with a view and without a view sell for similar prices and there was no discernable difference or there is no data available, even if the appraiser strongly believes the view would bring additional value to the homeowner on a sale, if they cannot support this with factual data, HUD will not allow them to adjust the subject property’s value upward for the view. 

The same is true for things like outbuildings and other additional property features.  If the appraiser can find no sales whatsoever that have similar amenities to support their opinion of what they amenity would be worth, according to HUD rules, they cannot give the property additional value for an unsupported adjustment.  And if the view is used to provide additional value, the appraiser should have a picture of the view in the report with the other photos.

Hello Jim,

No, the loan will not cover the entire purchase price.  Just like a forward loan, the HUD calculations use the lower of the purchase price or the appraised value to determine the eligible mortgage amount or Principal Limit the borrower will receive.  In your example, the lower of those two figures would be the purchase price of $175,000 so the mortgage would be a percentage of that number based on your age, etc.

The assessment value and the appraised value for lending purposes are often very far apart.  The appraised value for lending is supposed to be the most reasonable value for which the home could be expected to sell (land included) based on a research of similar properties with similar characteristics that have sold recently. 

The assessed value could be anything from an amount higher than the current sales price in a market that allows the assessed value to exceed the actual sales price such as California that under proposition 13 can assess a home at 1.25% of the sales price.  This same proposition can keep the assessed value considerably below the current market value on a home that has not sold for the last 30 years, originally sold for $50,000 and the selling prices are now $400,000.  Even with the 2% per year raises allowed, the assessed value would not be near the $400,000 market value of the home. 

That might also be why your tax assessment value is considerably lower than the actual value of the home.  You are luckier than some in other states.  We have seen some states where the assessor appraises the current value of the home and taxes accordingly.  The tough part about that is that it seemed the values going down when the market values fell never seemed to go down as fast with the taxes as they market did at the time and we constantly had borrowers with tax assessed values exceeding appraised values in 2010 – 2012 in some parts of the country.

Hello Ernie,

The cost of the appraisal is a homeowner expanse but every so often the situation allows for the lender to provide a credit to the borrower to pay for this expense on their behalf.  It just depends on the circumstances and the value of the loan as to whether the lender can do this for the borrower. 

Before HUD made all the changes in their last round of cut backs, it was much more common for lender to be able to give borrowers credits to pay costs and in many instances, lenders to get the costs of loans to almost no initial cost at all.  It is not as easy any longer as the value of the loans for lenders has dropped considerably since that time, but you should still shop around to see what is available at the time you wish to originate your loan for the type of loan you are looking to close.

Hello Dian,

When you say a list to look at from an appraiser, I’m not sure what you mean.  Do you mean a list of appraisers?  If so, no, the homeowner is not permitted to choose the appraiser and in fact, the originator also cannot choose the individual appraiser.  Under the Appraiser Independence Rules, the appraiser is chosen by an Appraisal Management Company so that there is never any influence on the valuation process.  After the market melted down in 2009, HUD and others determined that the valuation process was under too much pressure to hit certain numbers. 

One way to ease this pressure was to remove the borrower and loan originator from being able to place any pressure on the appraiser to arrive at any value by holding their compensation other their head.  The constant pressure of having to produce desired results for future business or to ensure payment was thought to be a problem with the valuation process and so HUD, FNMA, FHLMC and state regulators developed rules and passed laws to eliminate this possibility.

You can refuse to allow an appraiser to appraise your home if you have prior knowledge of an individual and make your objections known to the Management Company before the appraisal is performed but if you wait until after the appraiser has come to your house and done the appraisal, the appraisal will stand.  This is how HUD keeps borrowers from “appraisal shopping”.  In other words, they will not allow borrowers to request multiple appraisals until they receive the results they desire. 

Hello Paul,

HUD has instituted a new process for appraisals now and all must be submitted to HUD for review.  Hud announced that they felt that a significant number of appraisals were still coming in above actual value and with the risks to the MMI fund, they felt they had to do something to curb the excessive valuations.  They now require lenders to submit all appraisals to them for review before the lender may even give borrowers a loan approval.

Most are reviewed and cleared within a 24 – 48-hour period but HUD reserves the right to request an additional appraisal if they feel that there are problems with either the property or the initial appraisal.  If this happens, they will notify the lender and the lender will have to in turn tell the borrower that a second appraisal will be required before the loan may be approved and closed. 

When this is the case, the lender must use the lower of the two appraised values for the loan.  Lenders have no leeway in this process and borrowers cannot simply choose another lender thinking this will get them around the issue – the requirement is coming straight from HUD based on the Case Number and property and any new lender would have the same requirement.

This policy is less than 45 days old.  At this time the process is manual, but HUD hopes to have the process automated within the next 30 days which would make the turn times faster when second appraisals are not required.  But we have yet to see how many appraisals will require a second appraisal or what HUD will be specifically zeroing in on in their review, so we really don’t know what the impact will be on the borrowers yet.  Hopefully yours will be one of the ones that sails through with no delays!

Good Afternoon,

If it is your appraiser talking about it, I can only guess he is referring to HUD’s new second appraisal policy of reviewing all appraisals for reverse mortgage loans.  HUD issued a new set of procedures for lenders and appraisers with reverse mortgages whereby HUD also reviews the appraisal now BEFORE the lender can even issue a loan approval.  Under all other programs and the reverse mortgages as well in the past, lenders have always been responsible for underwriting and approving the appraisals. 

In 2010 HUD changed the rules and implemented Appraiser Independence Rules which prohibited originators from interacting with appraisers (a move that most states also followed with state laws that made similar prohibitions), within the past 2 years, all appraisals for HUD HECM reverse mortgages had to be delivered through the HUD website at the same time it was going to the lender, and now lenders have to get HUD’s OK to issue an approval on the loan based on their review of the appraisal.

Borrowers have often felt that reverse mortgage lenders have been too tight on values when in fact, lenders have not supposed to ever have any input in the independent valuation process and have absolutely been isolated from it since 2010.  HUD feel that the values they have seen are still too generous by and large and therefore the losses to the MIP fund have been too great. 

Appraisers are starting to feel the heat as HUD begins to kick out appraisals and is now requiring new appraisals in many instances.  And unfortunately, borrowers are left to wonder why the additional delays if there is a second appraisal required by HUD (oh and if a second appraisal is required, lenders are required to use the lower of the values given). 

We wrote a blog response to the new procedures when announced by HUD because we do not believe the loss issues are going to be present on loans originated since all the HUD changes.  It’s hard to say for sure, but HUD has made so many cutbacks and changes to the program over the past 4 years and although we do not have the data to prove our premise, we honestly do not believe those changes have not had time to fully factor in to cut the losses. 

It stands as logical to believe that any losses HUD is still seeing probably stem primarily from loans originated prior to the last 3 or 4 years.  We believe that HUD needs to crack down on their servicing policies on existing loans.  We hear daily about reverse mortgage borrowers long gone and family members who have been living in the property for years without making payments, properties being rented long after the owners moved out and those owners or their heirs are gaming the system. 

We believe that the losses that we see by people who are doing everything they can to cheat the system are hurting all those who need the program now.  I think the additional underwriting the appraiser is telling you about is a result of losses HUD is seeing and unfortunately, I don’t think they are even concentrating on the areas where they are being hit the hardest.

Hello Linda,

I have to guess at the context you are using here but if I just use the absolute definitions, I would have to say that you are talking about two different appraisals done at two different times.  The old appraised value would pertain to the value done at a time in the past and the new appraised value would refer to the value given when a new appraisal was performed.  Keep in mind that an appraisal is a value given at a snapshot in time.

Each appraisal specifically states the date on which that appraised value is estimated.  This is because additional properties could sell even in the next month or two after an appraiser estimates a property’s value that might indicate that the values in the area are increasing or decreasing.  A new value done with new supporting sales could be higher or lower based on the most recent data and in many cases, in very active markets can change quickly. 

Over a long period of time, you will definitely see differences in the market sales in most cases and the original appraisal done on a property 4 years ago might be drastically different than one done on the same property today.  In that instance, the value stated in the one four years ago might be called the old appraised value and the one today might be termed the new appraised value for refinance purposes.

Hi Jim,

HUD only allows the appraiser to value amenities that are common for the area and for which he/she can justify the value given based on closed sales supporting the appraiser’s estimate of the value.  For example, if the appraiser is going to appraise a home and there are no other properties that sold with barns or outbuildings, HUD will not allow an appraiser to simply say he thinks the value is $10,000 with no supporting sales.

That would require the appraiser to make an unsupported adjustment across the board for all of the sales used of $10,000 and HUD does not allow across the board subjective adjustments (subjective adjustments being one that is subject to the appraisers opinion rather than an objective adjustment such as one that is supported by data).  The appraiser would have to be able to find sales both with and without barns where the sales with barns sold for higher prices than without to support the value conclusion.  Or ideally, all the sales have the similar amenities and no adjustments are required.

We know that it costs money to build barns and other buildings, but the real question is how much is that extra building actually worth to the average buyer in that market?  When you are looking at real estate in some areas, barns and outbuildings are almost necessities such as if you are in an equestrian neighborhood and you plan to bring your horses but what if you have no horses?  Then a barn might not be worth anything to you, no matter what the previous owner paid to have it built. 

HUD insures loans on residential property and not agricultural or commercial so it wants to be certain that if any value is given to an outbuilding, that amenity actually brings value in that market to the average knowledgeable buyer, not just to a special few and the only way to do this is for the appraiser to be able to find ample sales with similar amenities.  If those sales exist, then the value of the amenity is reflected in the selling prices of the homes in the area.  If some sales do have similar amenities and some don’t, the appraiser can then determine by the differences in the selling prices what the buyers are willing to pay for the presence of the outbuildings.  If the other homes do not have the same outbuildings, determining a value is difficult and certainly impossible to substantiate.

Therefore, it would be given the value as shown by the supporting sales in the market with similar amenities but would not be given any value under HUD rules without other sales to support the value.

Hello-

You do have to commit to a lender to begin the process and for an appraisal to be ordered.  Only one lender at a time can hold your FHA (HUD) Case Number and you need that Case Number to begin the loan and to get the appraisal.

Secondly, you can always change reverse mortgage lenders and the case number, along with the appraisal is assigned to the new lender. You have to start the application process over though so it’s not quite as quick as you might think.

Thirdly, not only CAN you use the same appraisal, but you HAVE to use the same appraisal.  HUD receives and logs the appraisals from all lenders and even decides if they will accept it as is or require a second appraisal and to prevent borrowers from “appraisal shopping” by stopping the process with one lender if they don’t like the value they received.

And finally, the appraisal is good for 120 days.  In some instances where the loan is ready to close the lender can get an extension when needed, but in no case can they cancel the appraisal and order a new one in less than that amount of time in the hope that they may get a different value.  Hope this helps!

Hi Gloria,

The land value is considered in the appraisal conducted by the HUD approved appraiser.  Having said that though, HUD does not insure land loans or loans made on properties where the value is overly weighted by the land and not the improvements if that is not common for the area.  Examples of areas where the value is very heavily in the land but the property still only makes sense as a residential property are suburban residential neighborhoods with small lots but the land is still extremely valuable, properties located near beaches and some areas such as the silicon valley in California.

Properties that have very large lots consisting of many, many acres that may be better suited for agriculture or other purposes might not even meet HUD guidelines.  Excess acreage that may not necessarily be suited for agriculture may also be excluded from the value or may even be unacceptable if the property cannot be compared to any similar properties due to it’s uniqueness or size.  However, for all typical residential homes, the land is part of the valued parcel and considered when determining the reverse mortgage benefit.

Hi Lilia,

When doing an appraisal for a reverse mortgage, the appraiser will be giving the home his ratings on the home’s overall condition as part of the value.  The house does not have to be scoured for the appraiser.  When you say “beautiful and clean”, keep in mind that if the items that are not cleaned make the appraiser believe that the home’s overall condition suffers as a result, it could be reflected in the final value he/she assigns to the home if the appraiser feels that it is lowering the amount a buyer will pay for the home.

For example, if there are items left out and the lawn could use mowing, the appraiser would not make any value adjustments for those issues.  If, however, the cabinets in the kitchen were broken, the house needed painting, etc., the appraiser might feel a condition adjustment was warranted from other sales used to determine the value.  It really depends on the sales the appraiser used to compare your home to and whether or not they were in similar condition as your home or whether they were in better overall condition.  So when you say beautiful and clean, a little clutter and dust should not affect anyone’s value but things that require repair, etc. can. 

Also See: https://reverse.mortgage/appraisal-tips-laws-requirements

Hi Richard,

I'm going to give you an answer you may not like. HUD requires the appraiser to be able to substantiate the value with similar sales of similar homes. You may have a fantastic home, but if there are no like sales available, it will not meet HUD requirements for a HUD insured loan. The only thing you really can do is allow a lender to order an appraisal from a HUD-approved appraiser to see if he or she can find the required sales.  MOST appraisers and Appraisal Management Companies will notify the lender if they will not be able to successfully complete the assignment but there is no guarantee of anything until they try.

Hello Brett,

For such a short question, this really opens a number of different ways to respond.  In a quick response, you could just say “yes, there are differences in the appraisal requirements” but theoretically, they both have the same function and appraisal is supposed to be a fairly standard process.  Both appraisals are designed to determine a value based on one of three different approaches; the income approach, the replacement value approach and the market data comparison approach.  The income approach is really only valid for income producing properties and so this method is all but ignored on a residential appraisal.  Additionally, the replacement value approach is great to determine how much insurance you might need, but of little value to lenders and most borrowers for anything else.  So appraisers and lenders concentrate almost exclusively on the market data comparison approach which consists of comparing your home to others in your area that have sold, making adjustments for differences and determining a value based on what the known willingness of buyers is to pay for similar homes in that area and then trying to adjust for differences from house to house.

The FHA (reverse mortgage) appraisal and the conventional appraisal both use the same sales and so they are alike in that respect, but then they do differ based on the rules the appraisers have to follow and the method by which the appraisal is delivered.  Appraisers must perform many more inspections for FHA/reverse mortgage appraisals than most appraisers do with a conventional loan.  They must do a head and shoulders inspection of the attic space, they are supposed to check the cabinets to see that they are in working order and turn on and off the water in each location among other things.  FHA appraisers must call out things that HUD requires to be repaired and then reinspect the home to be certain they are completed prior to the loan closing such as chipping and peeling paint, earth to wood contact and health and safety issues that might go unmentioned on a conventional appraisal or merely mentioned as a side-note. 

The FHA reverse mortgage appraisal is also delivered directly to HUD as well through the electronic portal set up by HUD.  Lenders must log the appraisal when it is ordered and the appraiser sends it to HUD through the electronic portal so HUD has the appraisal even before the lender receives it.  Conventional appraisal reports go straight to the lender who ordered the appraisal.  This doesn’t usually create delays of more than 24 hours, but it can.  Ideally both appraisals will take into consideration the same factors and the value should be very similar (keep in mind that an appraisal is an estimate of value on a given day in time so estimates can vary based on appraiser, which sales they considered and the date of the assignment).  Lenders and especially their licensed loan officers can no longer dispute a value or even discuss values with appraisers after appraiser independence rules were adopted by various states, federal laws and HUD, FHLMC and FNMA.  If an appraiser feels that he/she is being pressured in the appraisal process, they have several ways to report the undue influence.  Borrowers can still dispute a value estimate once given by an appraiser, but only by using specific data that they feel the appraiser may have missed or mistakes the appraiser may have made.  But then those borrowers have to provide specific evidence of their assertions (i.e. other houses the appraiser did not use in the report that the borrower feels the appraiser missed that are more similar, are closer and sold more recently than the sales the appraiser used). 

One way in which the two appraisals are similar but can be different in the way they turn out is this comparison and adjustment process.  Both HUD and conventional sources have rules about how much a comparable sale (comps) may be adjusted and still be considered comparable.  But HUD is more strict in that they do not allow what they determine to be “subjective” adjustments.  If the appraiser feels that an adjustment to the value is warranted, he/she must be able to support that adjustment with sales data.  In other words, if the appraiser believes that a house with a 3 car garage is worth $2,000 more than a house with a 2 car garage, HUD expects that appraiser to have at least one comp that sold with a 3 car garage supporting that $2,000 difference.  This is especially true with outbuildings and other differences that are not as easy to quantify as a bathroom or a bedroom might be (but even then, if you have a 2 bedroom home, you cannot use all 3 bedroom comps and try to adjust for the difference because HUD believes there is no way to know the true value or the marketability of the home if there are no other 2 bedroom sales available). 

One last difference to note here is that because of the added level of detail and inspections required, most FHA/reverse mortgage appraisals tend to cost more than conventional appraisals.  Because reverse mortgage appraisals must be performed by an FHA-approved appraiser, in some areas there may be a severely limited number of appraisers eligible to provide the service.  In those instances, the appraisals may take a lot longer, appraisers may have to come from other areas to complete the report and the costs may be higher. 

Hi Gloria,

I'm sorry, I don't know how to answer this. If it's your property and you have a loan on it, there is no need to buy it from the bank, they don't own it.  You do. 

Hi Chuck,

The HUD HECM program has no value at which a second appraisal is required.  Private or proprietary programs may set different guidelines and are subject to change based on program and secondary market requirements. 

Hello Ruth,

Values are often one of the areas where borrowers are the most unrealistic in their expectations. HUD has a system set up called Appraiser Independence where the originator doesn't even get to choose the individual appraiser, that is done by a third party Appraisal Management Company and the appraisal is downloaded into the HUD  system before it even goes back to the lender to be certain that the appraiser has no pressure from borrower or lender to come in at any particular value - high or low. 

Now having said that, you can look at the actual recent sales of similar homes in your neighborhood to get an idea if the values are up and what a likely appraised value would be.  You need to be honest with yourself when you look. If your home is 35 years old and has not been remodeled or renovated, is 2300 square feet and has 4 bedrooms and 2 bathrooms, don't compare your home to one that is 2700 square feet, completely remodeled/renovated at a cost if $200,000, 5 bedrooms and 3 bathrooms all new appliances, etc. and try to use this sale to support a higher value for your home.  Borrowers sometimes do this and then are disappointed after paying for an appraisal especially if there are other sales available of similar homes that support lower values that the borrower did not consider..

However, if you see homes that are very similar to your home that are selling for $600,000 now ( and not just listed but are actually selling for that amount) then you also have a good chance of receiving a similar value on your home's appraisal.  Give is a call and let us look at recent sales for you.  We can't promise you a value, only the appraisal can assess the value for the loan but we can certainly let you know if public records show sales of similar homes and what they tend to indicate.  You may now be at a value that supports what you need to complete the loan without having to come in with cash to close the loan.

If you would like to receive a quote today follow me and I'll run your numbers and check your current home estimate at my reverse mortgage calculator. 

Hello Kenneth,

The Realtor may be able to help if she has some comparable sales that are more similar, sold more recently and are better than the ones the appraiser used that indicate a higher value.  You certainly have the right to send in a rebuttal using those sales and request an adjustment to the value based on better information the appraiser did not consider.  However, if the sales the Realtor is considering are not the same age, (your home is older than the higher priced sales) larger or are more renovated and it is her opinion that the appraised value is lower than it should be and the appraiser used current sales of homes that are more like yours, the rebuttal will not be very successful if at all.  

Read more on this here: https://reverse.mortgage/appraisal-process-laws-appeals

Hi Ronald,

Unless some arrangement can be made with the lender, the cost is borne by the borrower.  The appraisal is an FHA full appraisal and so the cost typically runs between $500 and $650 depending on the property location.  However, some areas that are particularly remote do not have FHA-approved appraisers available in the immediate area and then appraisers have to travel from other areas to perform the appraisal.  In this case, many times they have to incur additional costs to access data that they do not already receive and they will often charge time and travel premiums for the reports.  The appraisal management company from whom the lender orders the appraisal would be notified of this at the time of the order though and you would have the opportunity to accept or deny the appraiser’s stated charges for your home before you incurred any expenses.

Hello John,

I'm not sure what you mean by "this amount was based on property tax records".  An FHA appraisal does not even take into consideration the property tax assessment when determining the value for lending purposes.  You should have gotten a copy of the appraisal done at the time and the appraiser would have to include the comparable sales that he/she used to determine the value of your home.  The appraiser does not determine his/her value based on the taxes you pay, but rather by what homes of similar size, condition, age and utility actually sold for in your market area and then adjust for minor differences. 

The reason I say minor differences is because if the differences are too vast, the home is not considered comparable and the appraiser cannot use it under HUD rules to set a value for your home.  You cannot compare a 4 bedroom 3 bathroom 3,000 square foot home to a 2 bedroom 1 bath 1500 square foot house and then just "adjust" to a value.  The houses should have the same bedroom count and as close to the same square footage as possible. 

There is no "renegotiation" available for existing loans however, you may be able to refinance your loan with a new reverse mortgage as long as a new loan would give you ample benefits.  All you would need to do in order to determine if a refinance would work in your circumstances is to contact a lender with your most recent statement and have them run the numbers based on the current HUD program parameters.

Hi John,

If the land is also encumbered by the reverse mortgage (or any loan for that matter), it was considered and used as collateral for that loan.  If you wish to have a portion of the land released from an existing loan, whether it be a reverse mortgage or any loan, it would take a partial reconveyance from the lender to release a specific portion of the lot.  Most lenders would be unwilling to do this unless the portion of the land was such that it was never considered in the first place (as in a very large parcel on which the lender may have only valued a certain number of acres) or a portion of the loan was paid down at the time or the reconveyance.  To determine if this is possible or what you may have to pay down on the existing mortgage you would have to contact your servicer.

As a side note, if you have a parcel with excess land that does not add any value to the homestead on which you are considering obtaining a loan, you may want to think about any lot splits before you place a mortgage encumbering the entire lot.  Especially if the additional land will not get you additional funds in the loan, the split may be easier to complete if it is just you and the city/county before there is a third party like a lender involved.

If it was for a reverse mortgage case, then yes it is still valid and the lender could still use that appraisal.  The case number would have to be transferred to the new lender if you were not going through the existing lender but they would still use the same appraisal as well with the transfer.  

Hi Sandra,

Appraisals vary by location, property characteristics and scope of the project.  Most FHA appraisals for single family properties in areas that are considered urban or suburban are typically between $500 - and $650, depending on where you live.  If the property is located in a rural area and appraisers must travel great distances just to get to the property and the comparable sales, it could be higher and we do not know that amount until the company tells us what the assignment would cost.

Hi Raymond,

HUD does not allow any services to be performed in conjunction with a reverse mortgage until after a borrower has been counseled, an application has been taken by a lender and a Case Number has been assigned by HUD.  Any appraisal that you had completed would not be valid for the purpose of the reverse mortgage.  And since market data changes and the appraised value is an opinion of value based on the current sales data, a new appraiser could uncover more recent sales that indicated a higher or lower value that would render a previous opinion of value worthless anyway.  An appraisal is a snapshot in time and paying for a second appraisal is not the best way to go since it does not insure anything.

However, no one should ever feel "trapped" after the appraisal phase of the loan.  There is no cancellation fee for a reverse mortgage and if you are planning on paying for an appraisal anyway, why pay for two?  You can always cancel the transaction with no charge to you other than the appraisal and any counseling costs you paid (usually $125 or less but I've never seen it higher than $150 for counseling).  If your plan was to pay for an appraisal that you can't use anyway and then a second appraisal with the loan, it is much more cost effective to begin the loan and cancel the transaction if you do not wish to proceed.

I don't know what they would be referring to as "not allowed".  It would all depend on the type of improvements you intended to make, whether or not they were done with permits and what that did to the property.  A good example would be a 1200 square foot home in a neighborhood of 2500 square foot homes.  You could add a permitted addition of 1300 square feet that added functional space and upgraded the home so that it was very similar to the other properties selling in the area.  This is absolutely allowed and would not be an issue provided the work was complete and the certificate of occupancy had been issued by the city/county where the property is located. 

However, if the work is not done is a quality manner, does not conform to the neighborhood or there are no sales to support the new improvements, that could actually hurt the owner's chances of obtaining a reverse mortgage.  Another example of this would be a borrower who added a second unit without permits to a property that was zoned for only one unit and therefore the new improvements did not conform to the local zoning laws. 

Even having made this distinction, remember that improvements rarely bring a dollar for dollar value to a home.  The best way to get an idea of what your planned improvements might actually bring you in an appraisal is to find houses in your immediate area that have sold in the past 3 - 4 months that are similar to what your house would be with the planned improvements.  These are the sale comparables that an appraiser would have to consider when appraising your home.  If houses with the improvements you are contemplating bring $40,000 more on the market but your cost would be $60,000, you would not realize the full value of the cost of the improvements.  The times when this does not seem to be the case is like in the first example above, when the improvements put the home into a whole new category of property that commands a much higher price.  But keep in mind that there is such a thing as an over-improvement for the neighborhood and you need to make sure that your improvements are common with the properties in your immediate area and sales with similar amenities are available or once again, you would not realize the cost of the improvements in an appraisal.