What’s New in 2025 — FHA Simplifies Second Appraisal Rules

Updated March 2025 — HUD refined its second appraisal rules for reverse mortgages, removing the 2024 borrower-initiated appeal system and simplifying the review process. A second appraisal may still be required if the first appraisal contains material deficiencies that affect value. All FHA-insured reverse mortgages must continue to meet HUD’s property standards that ensure the home is safe, sound, and secure.

HUD to Require Second Appraisal on Some Reverse Mortgages — Updated 2025

HUD announced in 2018 that reverse mortgage lenders could not close loans under the HECM program unless the appraisal was submitted to FHA for review, and in some cases, a second appraisal was required.  This was a major change because it placed HUD directly in the origination process to verify property values before a reverse mortgage could be closed.

At the time, HUD implemented these second appraisal rules under Mortgagee Letter 2018-06 as a risk-management tool to protect the Mutual Mortgage Insurance Fund (MMIF) after rising claims and concerns about inflated property values.  The system required lenders to log every appraisal into FHA’s Electronic Appraisal Delivery (EAD) portal and wait for a collateral risk assessment to be completed.  If FHA flagged a risk, a second appraisal had to be ordered, and the lower of the two values was used to determine the borrower’s available loan amount.  The cost of a required second appraisal could be financed as part of the HECM closing costs.

What Changed in 2025

HUD’s latest update (Mortgagee Letter 2025-08) simplified the second appraisal process and reduced regulatory burden while keeping key protections for borrowers:

• Second appraisals remain, but are more targeted: FHA can still require a second appraisal, but now it’s limited to clear, material deficiencies in the first report — such as failure to note safety or structural issues, use of poor or outdated comparable sales, or other obvious inaccuracies.

• Simplified Reconsideration of Value (ROV): HUD has removed the 2024 borrower-initiated ROV rules that added complexity. Underwriters can still ask for a reconsideration if the original appraiser missed relevant data, but homeowners are not responsible for extra fees when that data wasn’t available at the time.

• Core safety standards reaffirmed: FHA reinforced that every HECM property must be “safe, sound, and secure,” and appraisers must clearly report any deficiencies that affect health, safety, or structural integrity.

What This Means for Borrowers Now

• If your reverse mortgage appraisal passes FHA’s risk checks and is complete and accurate, a second appraisal will not be needed.

• If a second appraisal is required because the first report is materially deficient.

• The process should now be faster and less costly than the original 2018 protocols while keeping the program’s protections intact.

• You can still ask your lender to submit additional data for a value reconsideration if you believe the first appraisal missed important information.

These updates aim to maintain the financial soundness of the HECM program while making the appraisal process clearer and fairer for homeowners.

Considering a Reverse Mortgage?  Understanding how appraisals work is just one part of getting the most out of your home’s equity.  If you’re exploring a reverse mortgage in 2025, our free reverse mortgage calculator can show you real numbers — loan amounts, current interest rates, and closing costs — without asking for personal information.  If you’re ready to see what you could qualify for, try our reverse mortgage calculator now or call us toll-free at (800) 565-1722 to speak with an experienced reverse mortgage specialist.

-Original Article-

HUD announced today that reverse mortgage lenders cannot close loans to be insured under the HECM program unless they have submitted and received approval for the reverse mortgage appraisal from FHA in advance.  Note that this does not imply that HUD must take action.  It states that the loans cannot be closed unless HUD takes action on the loan before it is approved or closed.

This was a huge announcement.  For the first time, HUD is entering the origination process of 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.

Possibility of a Second Appraisal for Reverse Mortgages

HUD announced in its Mortgagee Letter 2018-06 that HUD, through FHA, will now conduct a collateral assessment on all appraisals submitted for use in the origination of HECM loans, starting with. 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 they do now. However, they 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 believes that a fully automated process will be in place by December 1, 2018, which should eliminate the need for manual input and reduce the risk of lost or overlooked requests at FHA, thereby providing significant benefits.

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 requires 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, 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 maintaining the stable financial status of the Mutual Mortgage Insurance Fund. We want borrowers to understand the ramifications of these changes and their impact on lenders and borrowers alike.

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 interim protocols for the HECM second appraisal requirement will become fully automated.  The automation of the second appraisal protocols was first announced in FHA Info #18-41, dated September 28, which also 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