A new analysis of second appraisals on Home Equity Conversion Mortgage (HECM) transactions under the new collateral risk assessment rule reveals that the overall frequency has jumped 5 percentage points to 26 percent from October 2018 to February 2019. This is according to data presented by valuation professionals at the National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting in Huntington Beach, Calif. this week.
The dataset used to make this conclusion came from at least five reverse mortgage lenders, analyzing over 5,700 loans originated during the five-month period. Breaking the homes out into different categories of property type also revealed that some kinds of homes saw higher frequencies of second appraisals than others.
By state, the most second appraisal activity was concentrated in Florida, where 29 percent of HECM transactions required one. It was followed by Texas at 26 percent, and California at 18 percent.
Overwhelmingly, single family residences made up 91.9 percent of the homes counted in the 5,700 loans. 1.4 percent of the properties consisted of two-to-four unit properties and of that number, 83 percent required a second appraisal.
“Depending on the property type, a higher percentage of second appraisals is required,” said Elly Johnson, president of All Reverse Pro Consulting in Atlanta, Ga.
More than two thirds of the recorded second appraisals also occurred in suburban areas, while 14 percent were in rural areas. 11.7 percent of the population and type of property was not able to be identified based on the recorded data.
“This data seems pretty aligned with our [internal] review,” said Erik Richard, Chief Operating Officer of the Pacific region at Class Valuation. “Our data was pretty much in line with what we were seeing across all our lenders.”
The more data collected, the more likely it is that the automation FHA is using can be more precise in identifying the appraisals that should require further scrutiny, Richard added.
When asked on the panel whether or not the second appraisal requirement made things better for the industry at-large, responses were mixed.
“I don’t think so,” Johnson replied. “You may order a second appraisal, but that second appraisal may not necessarily be good [or accurate] either. Is it really a better appraisal? I think that’s a question that needs to be asked.”
“After thirteen years in the valuation space, I finally found something people hate worse than the appraisal,” Richard added. “The second appraisal.”
The data gleaned from this report has also been shared with the Department of Housing and Urban Development (HUD), Johnson said.
“HUD was interested in the data we had, and we’re sharing it with them,” Johnson said. “They’ve indicated they’re reviewing at six and nine months and have asked if there’s anything we can help them with going forward, so we’re working very closely with them on this.”
