FHA Changes Appraisal Policy on HECM Properties

The Federal Housing Administration (FHA) will now requiring lenders originating new Home Equity Conversion Mortgages (HECMs) to provide a second property appraisal in cases where the agency believes there could be inflated property valuations.

 

According to the FHA, the new policy is designed to reduce risks to its Mutual Mortgage Insurance Fund and protect the health of the FHA’s HECM program. In a 2017 evaluation, the Department of Housing and Urban Development found what it called higher-than-expected losses in the HECM program that could be partially blamed on “optimistic estimates of collateral value driven by exaggerated property appraisals when the loan was originated.” The FHA’s Fiscal Year 2018 Annual Report to Congress found the agency’s reverse mortgage portfolio had a negative capital ratio of 19.84 percent and a negative net worth of $14.5 billion.

 

The new requirement takes effect for case numbers assigned on or after Oct. 1 and will be in effect through Sept. 30, 2019. The FHA added that would will periodically review this guidance and might renew these requirements beyond fiscal year 2019 if it believes it is necessary.