HUD to Require Second Appraisal on Some Reverse Mortgages

March 21, 2022

HUD announced today that reverse mortgage lenders could not close loans to be insured under the HECM program unless they have the reverse mortgage appraisal submitted and approved by FHA in advance. Note that this does not say until HUD does something. It says that the loans cannot be closed unless HUD does something on the loan before it is approved or closed.

This was a huge announcement. For the first time, HUD is stepping into the origination process of the loans and requiring lenders to submit a loan or a portion of the loan to them for approval before the loan can be approved or closed.

HUD has always stated that they are not part of the lending process and that they insure the loans that lenders close, but this puts them squarely in the middle of the process and the decision to lend. HUD states these actions are pursuant to the authority granted in the Reverse Mortgage Stabilization Act of 2013 in the Requirement to Validate Collateral.

They go on to state that changes made to the program in 2017 did not sufficiently mitigate the projected losses to the mortgage insurance fund and that these new procedures are needed to mitigate anticipated losses further and protect the program’s financial soundness.

Table of Contents

• Possibility of a Second Appraisal for Reverse Mortgages

• Reverse Mortgage Lenders Must Log Appraisals into the EAD System

• Alert from NRMLA

• HECM Second Appraisal Protocols Become Automated Effective November 30

Possibility of a Second Appraisal for Reverse Mortgages

HUD announced in their Mortgagee Letter 2018-06 that HUD through FHA will now do a collateral assessment on all appraisals submitted for use in originations of HECM loans, starting w If the second appraised value is lower, the lower value must be used. We applaud HUD for being proactive in ensuring that the reverse mortgage program is available to seniors for years to come, but we question the methodology of this new change.

Reverse Mortgage Lenders Must Log Appraisals into the EAD System

This new procedure requires lenders to log the appraisal into the FHA Electronic Appraisal Delivery (EAD) portal just as we do now, but then we must also send an email to a second HUD address to inform them that the appraisal is complete and ready for assessment.

Each appraisal notification must be sent under a separate email. No one wants to be skeptical without giving HUD a chance to perform, but one has to wonder what it will be like when they start receiving thousands of appraisal requests and how lenders will follow up if the answers do not appear on the FHA Resource Center site in a timely manner.

HUD feels that there will be a fully automated process by December 1, 2018, which should eliminate the propensity for all the manual input and the possibility for lost or overlooked requests at FHA, which would most certainly help.

What do borrowers need to know regarding this change? The timeframe will almost certainly be affected, especially if your appraisal is one of the ones that FHA identifies as needing a second appraisal. Even if your value is not contested, it will cause some delay in the processing of all HECM loans.

Your lender will have even less ability to contest a value that borrowers feel was understated, especially if the FHA review comes back as requiring a second appraisal. If you disagree with the value, the HUD Mortgagee Letter does not mention a rebuttal process.

All lenders have been severely limited on the degree to which they could become involved in the valuation process since the Appraiser Independence Laws were passed almost 10 years ago now, but this will most certainly take all but the correction of the most egregious mistakes away from the lender/borrower to complete.

We are not faulting HUD for ensuring the future of the program and that the financial status of the Mutual Mortgage Insurance Fund remains stable; we want borrowers to know and understand the ramifications of these changes and what they mean to lenders and borrowers alike.

Alert from NRMLA

As part of its ongoing efforts to reduce risks to the Mutual Mortgage Insurance Fund (MMIF) and protect the health of the Home Equity Conversion Mortgage program, the Federal Housing Administration announced today that it will require lenders to provide a second property appraisal in cases where FHA determines there may be inflated property valuations. Mortgagee Letter (ML) 2018-06, Home Equity Conversion Mortgage (HECM) Program — Changes to Appraisal Submission and Assessment for All HECM Originationsspecifies that FHA will perform risk assessments of all appraisals for case numbers assigned on or after October 1, 2018. Based on the outcome of that assessment, FHA may require a second appraisal to be obtained before approving the reverse mortgage for insurance endorsement. Under the new policy, mortgagees must not approve or close an HECM before FHA has performed the collateral risk assessment and, if required, a second appraisal is obtained. If FHA communicates that a second appraisal is required, the mortgagee must use the lower of the two appraisal values to underwrite the loan. The cost of the second appraisal, if required, is then eligible to be financed as part of the HECM closing costs. This policy becomes effective for all HECM originations with FHA case numbers assigned on or after October 1, 2018, through September 30, 2019. FHA will renew the requirements beyond Fiscal Year 2019 pending an evaluation of these program changes at 6 and 9 months to determine if the goals of the guidance have been met. ML 2018-06 also describes the interim procedures that will be in place beginning October 1 until the fully automated protocols become operational on or before December 1, 2018. If the automated protocols are in place before December 1, FHA will communicate this updated information to its stakeholders through standard communication channels. “This is a step that has become necessary due to HUD’s analysis of appraisals on properties subject to an HECM,” said Peter Bell, President and CEO of the National Reverse Mortgage Lenders Association. “It is a logical step to address the concerns they’ve identified. We appreciate that they’ve implemented this while avoiding any decrease in Principal Limit Factors or increase in Mortgage Insurance Premiums.”

HECM Second Appraisal Protocols Become Automated Effective November 30

Today, the Federal Housing Administration announced in FHA Info #18-47 that effective tomorrow, Friday, November 30, 2018, the protocols that had been in place on an interim basis for the HECM second appraisal requirement will become fully automated. Automation of the second appraisal protocols was first announced in FHA Info #18-41, dated September 28, which announced the publication of Mortgagee Letter 18-06.

FHA published FHA Info #18-47 as a reminder for appraisal logging guidance, along with the effective date for the automation of the HECM second appraisal protocols. For additional information, refer to the Fully Automated Protocols outlined on page five of Mortgagee Letter 18-06.

All appraisals logged in FHA Connection (FHAC) through today, Thursday, November 29, 2018, will continue to be processed using the Interim Protocols described in Mortgagee Letter 18-06. The Interim Protocols must be followed in these cases throughout the entire process.
Initial appraisals logged in FHAC for the first time, beginning tomorrow, Friday, November 30, and thereafter, will be processed under the Fully-Automated Protocols as described in Mortgagee Letter 18-06. The new protocol is effective even if the initial appraisal was uploaded into the Electronic Appraisal Delivery (EAD) system before Friday, November 30, but not logged in FHAC until November 30 or thereafter.

For appraisals processed under the Fully-Automated Protocols (initial appraisal logged in FHAC November 30, 2018, and thereafter), once the appraisal logging is completed, a lender will immediately receive one of the following messages on the FHAC Logging Screen
- A: SECOND APPRAISAL IS NOT REQUIRED
- B: PROPERTY SUBJECT TO HECM APPRAISAL RULE SECOND APPRAISAL REQUIRED(see Fully-Automated Protocols in Mortgagee Letter 18-06)

Depending on the message received, the lender should proceed accordingly. No further action is required if message A is received. However, if message B is received, the lender must obtain and upload a second appraisal into the Appraisal Slot 2 position.

When a second appraisal is needed under the Fully-Automated Protocols, it must always be uploaded into the EAD in Appraisal Slot 2, regardless if the new value is equal to, more than, or less than the initial appraisal. FHAC will automatically calculate the lowest value to be used for insuring.
Under no circumstances should a second appraisal be uploaded into the EAD in Appraisal Slot 1; it must be uploaded into Appraisal Slot 2.

For questions or additional information about FHA’s new automated appraisal logging procedures for HECMs, contact the FHA Resource Center.

ARLO recommends these helpful resources:

How the Appraisal Process, Laws & Appeals Work

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15 Comments on this Article

Bennie R.
October 6th, 2022

Hello Arlo,

I have completed my reverse mortgage. After paying for the first appraisal, the lender decided to send out, at my expense, a second appraiser. The second was $30,000 higher than the first. The lender accepted the first one. Both were HUD approved. This amounted to "appraisal shopping" by the lender-and charging me for both. Doesn't seem fair, at all.
Reply to Bennie
- Michael Branson
  October 6th, 2022
  
  Hello Bennie,
  
  I honestly can't render an opinion as to why the lender may have requested an additional appraisal and there are so many legitimate reasons for why this may have occurred. The single largest reason is that HUD required it. HUD felt that they were still receiving too many deficient appraisals so in 2018 HUD announced that as of October 1, 2018, HUD would do a collateral assessment for every appraisal on every loan being originated for the HECM reverse mortgage program (Mortgagee Letter 2018-06). The Mortgagee Letter stated that the review program was in effect until the end of fiscal year 2019 and would be reviewed pending evaluation. The program has been in effect since then and has not been removed by HUD.
  
  Basically, what happens is that the appraisal for all loans is submitted to HUD through the Electronic Appraisal Delivery (EAD) Portal and lenders are not permitted to even give borrowers loan approval until their appraisal clears HUD review of the appraisal. If the appraisal does not clear review, another appraisal is required from a different appraiser who is not associate with the same appraiser or company as the first appraiser. It is the HUD requirement that lenders use the lower of the two appraised values. Both values are entered into the HUD system and lenders could not allow you to use the higher value even if they felt the higher value was warranted in their opinion.
  
  As for the cost, you can always check with your originator and request whether there is anything they can do to help you with the cost of the appraisals. Appraisals are typically a cost of the homeowner and HUD does allow this second appraisal fee to be charged to borrowers. However, many times lenders will work with borrowers to help absorb some or all this cost. My advice to you is to check with your lender to see if they are willing to help you with this expense.
  Reply to Michael
Bill W.
March 19th, 2022

My Reverse Mortgage lender has advised me that the FHA has randomly requested a second appraisal on the home we are buying in Florida. The first appraisal came in at $355k and we are buying the home for $370k. Did our lender know in advance about this second appraisal and if the second one comes in lower which appraisal will they use?
Reply to Bill
- Michael Branson
  March 22nd, 2022
  
  Hello Bill,
  
  Every appraisal ordered under the HUD HECM program is sent to HUD electronically before it even goes to the lender. HUD performs a review and orders second appraisals on a little less than 20% of all the appraisals they review currently (it used to be higher).
  HUD does not allow lenders to even give an approval to borrowers under the reverse mortgage program until after they have approved the appraisal for underwriting.
  That doesn't mean that the DE underwriter may not have additional requirements for the appraiser, that means that HUD has done their review and the appraisal has passed the cursory review of the value, the percentages of the adjustments, the age of comparables, etc. and has let the appraisal proceed to regular underwriting. If HUD does not allow the appraisal to proceed, they will require a second appraisal.
  
  The lender does not know in advance when HUD will make this requirement as it depends on their review of the appraisal they receive. And no one really knows all the factors that go into HUD's determination of the second appraisal requirement. We know by looking at appraisals that those factors listed above will cause a need for a second appraisal if they are not in line with HUD expectations, but there may be other issues that lenders for which lenders have no forewarning.
  For example, the property may be located in an area where HUD has taken excessive losses, received what they consider over-valuations or has seen rapid value loss. They might even have issues with the particular appraiser that have not been shared with lenders yet, we don't know. But we usually can tell after we get the appraisal what set HUD off on it and I would be surprised if your lender was not able to determine what factors caused HUD to require a second appraisal in this case.
  
  The HUD rules when it comes to second appraisals is that the lender must use the lower of the two appraised values. If the next appraisal were to come in even lower, that lower value is the one the lender would need to use to determine the loan amount.
  Reply to Michael
Mike B.
January 1st, 2022

My 2nd appraisal was 45% less than the first. Think about it. Hud has a real problem here. Every single real estate professional I talked to agreed with the 1st appraisal, most feeling it was a bit low. The whole process of getting a reverse mortgage was the most agonizing, stressful and inconsistent bit of business I've ever experienced. (This is how they help seniors?). I was royaly screwed and had no choice but to sign anyway. --- forty five % !
Reply to Mike
- Michael Branson
  January 11th, 2022
  
  Hello Mike,
  
  Appraisals have been a tough issue for lenders as well since HUD implemented their review and second appraisal policy, but you always have choices. Let me explain. Firstly, there is a rebuttal process for any appraisal on which the appraiser has made errors and you feel he/she reported an erroneous value as a result.
  Let's define what constitutes "errors" that would allow a successful rebuttal and might be expected to result in a successful challenge to the value assigned. Other "real estate professional's" opinions of value will not get you a reconsideration of value. Other real estate professionals are usually salespeople and are not licensed, HUD approved appraisers and their opinions do not count. After all, an appraisal is just an opinion of value as of a certain date and time, a snapshot if you will by a trained and licensed appraiser.
  If you are talking to real estate agents and lenders, their opinion is no better than the appraiser's and they probably don't have an appraiser's license and that's why they can't legally give you an appraisal of your property - they are not licensed to give you an appraisal of your home. Does that mean they are wrong? Not necessarily, but HUD doesn't honor real estate licensee's opinions of value (and so that you know I am not knocking them, I have over 40 years' experience as a lender, more than 35 years' as a real estate broker and in a past life held a designation as a real estate appraiser and they don't honor my opinion either!).
  
  But every borrower can rebut the value of their home if they have the supporting documentation. But here is where it gets a little tricky. Those both you and the people you speak with must be able to support your opinions with facts in a format that is acceptable to HUD and appraisers if you expect a reconsideration. To be able to rebut an appraiser's opinion of value and expect to get him/her to reconsider their value, you must be able to either show that the appraiser committed errors on the appraisal or that there are additional sales of homes that are more similar, closer and/or sold more recently to your home.
  In other words, if there are two houses right on your block that sold that are model matches that are about the same condition that sold within the past 6 months that the appraiser did not consider and used sales farther away, or called your home a 2 bedroom 2 bath home of 1500 square feet when it is really a 3 bedroom 3 bath home of 1900 square feet and he/she made an error, then you have valid reasons for a reconsideration of value.
  If however, you think your landscaping is worth more or you are using sales of homes that are completely remodeled and your home is all original and the second appraiser did not think they were comparable and used other sales of original homes that brought the value down, or any other of a number of opinions that are not fact based for why you just believe your home is worth more, you will not be successful in your attempt to rebut the value.
  
  You are entitled by law to receive copies of both appraisals. If you have professionals who are telling you that they do not agree with the second appraisal, let them see the sales the appraiser used and give you hep finding the sales they believe are more similar to your home that would support the higher value. Don't rely on having to use higher sales that require significant adjustments, that is probably what triggered HUD to necessitate the second appraisal in the first place.
  
  And then finally, you are never "forced" to sign anyway and take the loan at the value. The appraisal expires in 120 days (4 months). If you really believe that the value is there and that there are other homes just like yours selling for 45% higher than the amount for which your home appraised and the appraiser just won't budge in the face of your evidence, you still have options. Firstly, if your evidence is strong enough, the lender can appeal to the Appraisal Management Company for whom the appraiser works.
  If you can show sufficient evidence that the appraiser committed egregious mistakes or ignored more recent or comparable sales, they can assign it to another appraiser. One would think though that your lender had already exhausted that avenue and those sales were not available and that the property data matched the first appraisal and that there was no disparity there. But rather than being forced to close the loan, you can cancel the loan and start again in 120 days.
  The appraisal expires in 120 days and is no longer used and at that time, any lender would order a new Case Number and a new appraisal. You can also always look into a refinance later, but I would never advise someone to close the loan they were obviously displeased with on the premise that they had to refinance it in the future. While it may be an option and may work out well for you at a future date, you never know what future rates will do, what HUD may do with the program or what values may do.
  I think you need to make your decisions based on the best available information at the time and if the current loan meets all your needs but a future refinance at a higher value would just be that much better, great but if the current loan does not meet your needs, I advise you to rethink your plans.
  Reply to Michael
  - Kathy F.
    April 17th, 2022
    
    Thanks Arlo! Your reply was exactly the information I needed to consider in deciding not to move forward at this time with a HECM refinance. Kate
    Reply to Kathy
Ken
October 27th, 2021

Why would a third appraisal be ordered before the second appraisal is received and should the applicant be given the reason for the second and third appraisal?
Reply to Ken
- Michael Branson
  October 27th, 2021
  
  Hello Ken,
  
  I am afraid I cannot answer your question, and this is one you should direct to your lender. I cannot think of a time when we have ever ordered a third appraisal before we received the reports we had ordered previously. Perhaps they have received the reports and there were issues, but I honestly cannot say. HUD determines if there will be a second appraisal requirement on all HECM reverse mortgages.
  Lenders must download their appraisal requests into the HUD EAD (Electronic Appraisal Delivery) Portal and the appraisers upload the appraisal back through the same portal before it even goes to the lender. Lenders are not permitted to even give a borrower a loan approval under the HECM program until they have received approval from HUD on the appraisal and HUD often requires a second appraisal if the first appraisal contains something in the report that sets off their algorithms.
  That could explain the second appraisal requirement, but I cannot guess what the need of a third appraisal would be, especially if they really are ordering them before the others have been received, but there is no reason you cannot just ask your lender to explain and they should have no problem telling you the truth if they were required to order additional reports for some reason.
  Reply to Michael
Georgia
July 21st, 2019

I am attempting to obtain a HECM loan. The second appraisal came in 25% lower than the first (ap. $50,000 less. I have not reviewed the second appraisal; however, this appraiser wanted no information from us (homeowners) and as a matter of fact, placed their hand in my face and told me not to give any information (personal or otherwise). I was using the HECM for a new roof, college for a dependent, and good insulin meds that I cannot otherwise afford. Do I have any recourse, or can ONE individual dictate my future finances in this manner?
Reply to Georgia
- Michael Branson
  July 21st, 2019
  
  Hello Georgia,
  
  You do have the right to rebut the appraisal but let me tell you what it will take to be successful. You would need to get the appraisal and review the information the appraiser used to determine a value and you would have to be able to find better, closer more similar and/or more recent information that would indicate that the value assigned was not accurate.
  For example, if the appraiser used comparable sales to determine a value that were all 30% smaller and were farther away than homes closer to your house that had sold recently that were the same size, you could reasonably say that the closer and more similarly sized homes might be a better indication of value.
  You must be careful though in that you must make sure the sales you choose are more similar to your home than the ones the appraiser used. If you choose newer houses or homes that are highly upgraded recently and your home is mostly original, the appraiser can simply state that you have chosen sales that are not similar and discount your objections.
  
  Another way you can rebut the appraiser's opinion of value is if there are errors in the report. If the appraiser says your home is 1500 square feet and 3 bedrooms 1 bath and it is 2,000 square feet and 4 bedrooms and 2 baths, then you can request that they use other sales to determine a value based on faulty data. You would be even better if you could find sales of similar homes that were also around 2,000 square feet and 4 bedrooms, 2 baths that support your opinion.
  
  If you just believe the appraiser is wrong but have no supporting documentation for your opinion, you will not win in your attempt to rebut the value. I have to believe the reason a second appraisal was required in the first place is that HUD or the underwriter determined there were serious flaws in the first report and could have even seen other sales that led them to believe the first appraisal was over-valued.
  If you want a request for reconsideration to be considered, you are going to have to be sure that the request is fact-based and not an emotional plea. There have been times when rebuttals were successful but only when errors and/or better data than the appraiser used were brought to light in that rebuttal.
  Reply to Michael
Kate
June 13th, 2019

I had an appraisal done and had the written report sent to me as well as the updated good faith estimate/loan comparison. My appraised value was lower than I expected. More on this later. This was a couple weeks ago and sense something up. Today I got in the mail another redone GFE AND my home value has been decreased again by $50k. No 2nd appraisal. No explanation. What's up? I'll be calling them tomorrow. Back to value. I had my home on market and had an offer just a month ago just as I started Reverse mtg process. My written offer is more than the appraised value. Can I bring this to their attention? Thank you.
Reply to Kate
- Michael Branson
  June 13th, 2019
  
  Hello Kate,
  
  You really need to contact the lender to ask them what is happening. HUD now receives every appraisal even before the lender and they reserve the right to require a second appraisal based on their review of that report.
  The last time we looked at the results, they were requiring a second appraisal on about 20 -25% of all the appraisals they received. But the lender cannot issue an approval and should not have forwarded the first appraisal until they knew that it was accepted by HUD and you certainly would have known if a second appraisal had been performed so I honestly can't tell you what is happening.
  
  Every borrower has a right to request a reconsideration for an appraised value. However, to be successful in your request, you will need facts to support your assertion that the value should be higher. An offer is not a sale, and anyone can write up an offer, but that does not mean that the sale would close at that price. To be successful, you would need to find factual errors in the appraisal that if corrected, would indicate a higher value or sales of homes that are more like yours, more recent and support a higher value that the appraiser missed and didn't use.
  If you try to use sales that are larger, newer, more highly upgraded, are older sales or farther away than the appraiser used to determine his/her estimate of value, you would not be successful in your rebuttal. Unfortunately, homes receive offers all the time then end up falling out of escrow and do not close for one reason or another nor could they verify the terms since it would not be a bona fide recorded sale and so a written offer probably would not sway the appraiser's opinion of value.
  Reply to Michael
Linda van akin
December 27th, 2018

This new requirement may cost me my home. I have a foreclosure (sale date 1/1/6/2019)from my deceased mother's HELOC of $130k on mfg. home valued at $350k on 1st appraisal ($25k under comps and current sales in the park). I cannot afford $650 and repair costs to complete the reverse mortgage process I am way into that will save the house and pay off Wells Fargo and related HOAs, taxes, etc. Time is as big a factor as $.
Is there any recourse, reevaluation, waiver process, or government fund or loan for the elderly in hardship. It is not their intent to make me homeless it is discriminatory in the $ sense. It is the elderly that qualify for these reverse loans and desperately need them. How can the homeowner lose their home over this new requirement?
Reply to Linda
- Michael Branson
  December 27th, 2018
  
  Hello Linda,
  
  I am sorry to advise you that I am not aware of any waiver or appeal process available to HUD's second appraisal requirement if your home has been selected as needing a second appraisal. And to make matters worse, with the current shutdown of the government, I am afraid nothing would move very quickly at this point if you were trying to find someone in the HUD hierarchy who might be willing to consider such a request.
  I do not know what the cost of the needed repairs you mention are so I really can't comment on the availability of funds but there may be a better opportunity for financial support through a non-governmental agency at this point given your time crunch. Have you got any family, church or others to whom you can turn for possible short-term assistance until the loan can close? You can also contact the counselor who did your counseling as they are usually aware of other assistance programs but my concern with that is, they may not be able to move quickly enough, and your deadline is approaching soon.
  
  Your lender can pay for the appraisal and allow you to reimburse the cost at closing. There are also repair companies familiar with HUD programs that may be able to do any needed repairs and allow the payment to be made after the loan closes, but they usually are not the lowest price contractors. Your originator may very well know of some of these contractors in your area with whom he can put you in contact, but you need to be sure you have ample time to do everything and that it will not be completed after the sale date of the foreclosure. That may take an extension from Wells Fargo, so you also need to get them on board with an extension.
  Your lender needs to be 100% honest with you and let you know that the reverse mortgage is either completely ready to go except for the second appraisal or if there are other issues that also must be resolved and then you can make decisions as to how aggressively you wish to proceed. The time to do all this was before the foreclosure was started but now you need to do everything possible to complete it before the sale date and it might also take the intervention of a licensed attorney to delay that date.
  Talk to your lender and if he/she tells you that you really are about to be ready to close and they let you know exactly what you will need and it is within your power to complete, then it might be best to speak with an attorney and possibly it will have to be a free legal aid but get someone to let you know if you can delay the sale date as well. I wish you the best.
  Reply to Michael

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