Even in the midst of the COVID-19 coronavirus pandemic, second appraisals on Home Equity Conversion Mortgage (HECM) transactions under the recently-extended collateral risk assessment (CRA) rule are still a reality that the reverse mortgage industry has to contend with. Fortunately however, the instances of second appraisals being required do not appear to be increasing at least based on measurements from one national appraisal management company (AMC).
While the impacts of the pandemic have been seen across multiple aspects of the reverse mortgage industry, recent relaxation of regulations governing property appraisals have allowed for some relief to extend to second appraisals for the duration of the national emergency related to the outbreak.
Coronavirus has not eliminated possible second appraisals
In late March, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) announced that appraisals for properties on most new traditional forward mortgages and Home Equity Conversion Mortgages (HECMs) can now be conducted through either exterior-only inspections or through desktop-only appraisals in an effort to minimize contact and potential transmission of the virus between people.
These relaxed rules allow for appraisals to still take place while observing social distancing guidelines and other COVID-19 mitigation efforts as recommended by the Centers for Disease Control and Prevention (CDC).
“We are not seeing any significant spike in the amount of second appraisals being ordered at this moment,” says Joshua Van Horn, chief appraiser and SVP at Mortgage Information Services, Inc. (MIS) when asked about whether or not second appraisal requests had been affected by the current state of events.
MIS is a national AMC, with coverage to handle appraisals nationwide in every county, and is licensed in all 50 states and the District of Columbia.
In the last major update to second appraisal instances RMD published, December data from All Reverse Pro Consulting in Atlanta, Ga. indicated that approximately 24% of HECMs required a second appraisal under the CRA. This represented a drop of about 2% compared to the figure recorded in early 2019.
FHA Commissioner Brian D. Montgomery also reported an approximate figure of 20-21% in remarks at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in November, 2019, down from an estimated figure of 25%.
Logistical challenges
While some might think that any change in appraisal regulations might be a cause for some kind of disruption to the way that the business is handled, thankfully the relaxation of appraisal rules has not had a negative effect thus far on placing an assigned property with an appraiser, according to MIS and Joshua Van Horn.
“The second appraisals are not causing us any more logistical challenges than the first appraisals at this time,” Van Horn says. “Since HUD allows an exterior-only option, the appraisals (in some form or fashion) are able to be placed with appraisers.”
AMCs have also been recognized in parts of the country as “essential businesses,” which has allowed them to continue to operate even as other parts of the economy have closed down in an effort to further ensure social distancing guidelines are observed, according to Van Horn.
“By performing our services as appraisers as safely as possible, we can help even protect [senior] borrowers who otherwise may not have another option if they don’t get the money to get their home healthcare,” Van Horn previously told RMD.
One normally-completed appraisal then requiring a second
The current situation has presented a unique possibility: a property that may have had a normal appraisal completed prior to the national emergency stemming from the coronavirus, now requiring a second appraisal due to the collateral risk assessment. While this situation is undoubtedly more complex, the fact that the first appraisal was completed may be helpful if a second is ultimately required, Van Horn says.
“This is the area that is a bit more challenging to navigate, but having a full appraisal on hand that was recently completed is actually helpful in many cases when the second appraisal is exterior-only or desktop-only,” he explains. “This provides the second appraiser with a source of data that is not coming from an interested party. It should be understood that the entire appraisal and assignment results should not be provided to the new appraiser, as we do not want the information or opinions of another appraiser to influence the value in any way.”
That being said, since the same property is basically going to be getting a second look, there are some things about that property that simply would not or could not have changed in the intervening time between the first and second appraisals. This can be potentially advantageous for the appraiser on the assigned second go-around, Van Horn says.
“The factual and objective property characteristics are useful when trying to gather the information needed to provide the most credible opinion possible,” he says. “Even without physically inspecting the property.”
