Recently, the Federal Housing Administration (FHA) published multiple policy updates to its Home Equity Conversion Mortgage (HECM) program, the FHA announced.
After reviewing new appraisal requirements issued last fall, FHA said the changes on reverse mortgage appraisals are working and the new requirements will continue.
The changes require a second appraisal of a property where a collateral risk assessment by FHA of the initial appraisal submitted for use in the HECM origination determines that additional support for the collateral value is required.
“FHA has evaluated the HECM program requirements implemented under ML 2018-06 and has determined that the collateral risk assessment requirement is having the desired effect of mitigating significant collateral valuation risks posed to the Mutual Mortgage Insurance Fund (MMIF) and borrowers,” FHA announced. “The findings from the six-month and nine-month evaluations provide evidence of policy effectiveness and support the continuation of the collateral risk assessment requirement. The six-month and nine-month policy review evaluated specific measurable costs to HECM borrowers, American taxpayers, and mortgagees.”
Examining all cases since implementing the collateral risk assessment policy, regardless of whether the case was flagged for a second appraisal, appraisal values are 1.8 percent lower than prior to policy implementation. Additionally, FHA said the estimated cost of the collateral risk assessment to HECM borrowers is $2.85 million per year.
“Lower appraisal values for all HECM cases provide an estimated reduction of FHA’s exposure of approximately $250.3 million per year, resulting in lower expected losses to the MMIF and the American taxpayer,” FHA added. “FHA’s actuarial model shows a projected reduction in appraisal inflation will lower lifetime default rates and increase lifetime recoveries. An indirect cost of requiring a second appraisal is the impact to mortgagees from a potential delay in receipt of profits from originating a HECM. Data indicates that cases flagged for a second appraisal take longer to close than those not required to obtain a second appraisal, but also indicate that mortgagees have adjusted processing times to accommodate for a potential second appraisal.”
Consequently, HECM cases on average are closing faster than prior to the implementation of the collateral risk assessment, FHA reported, and this indirect cost is not being sustained beyond the fixed cost mortgagees incurred to adjust the origination process.
Thus, continued FHA changes include:
- Eliminating the interim Mortgagee Optional Election (MOE)Assignment election and assessment deadlines, along with associated notification requirements;
- Eliminating the 120-day timeframe for bringing current all property charges on a HECM loan that is subject to a pre-existing loss mitigation repayment plan;
- Establishing a 180-day reasonable diligence timeframe to initiate an MOE Assignment;
- Eliminating the requirement for an eligible surviving non-borrowing spouse to obtain good and marketable title to the property that secured the HECM or demonstrate the legal right to reside in the property for life, and modification of related certifications and assignment criteria;
- Updating the definition of eligible non-borrowing spouse; and
- Requiring mortgagees to request information from borrowers to attempt to identify non-borrowing spouses.
“This set of changes is designed to facilitate a more streamlined HECM MOE process for mortgagees, which, in turn, will allow them to more effectively assist eligible HECM non-borrowing spouses avoid foreclosure,” FHA said.