At the end of October, I attended the National Reverse Mortgage Lenders Association (NRMLA) annual conference. We discussed FHA’s new “Collateral Risk Assessment (CRA) at length and I wanted to update you on what I learned.
Early results from just less than a month in, show that one in five appraisals are being pulled for a 2nd appraisal. Of those 2nd reviewed appraisals, one-third are coming in with a higher value than the first, one-third are lower and one-third right about the same. Unfortunately, the lenders are required to use the lower value, even if the 2nd appraisal comes in higher.
I understand the concern from FHA’s viewpoint, but the reports I saw of 37% of the appraisals reviewed that were in question were appraisals from 8-10 years ago before we had Home Value Code of Conduct, (HVCC). HVCC was a law that became effective in 2010 to prevent loan officers from trying to persuade appraisers to increase the value of the home. Also, appraisals completed 8-10 years ago were done during a market downturn that could have affected the overall value the appraiser ultimately decided upon.
My whole issue with the HECM changes over the last 4-5 years is that FHA does not allow previous changes to take effect before they decide to make more.
In 2013, FHA made the largest adjustment to the principal limit factors, (PLF) to that point. Reductions to the PLF table lower the amount of money a borrower can receive. Just 18 months later, they came out with financial assessment, making it more difficult for borrowers with limited income and/or credit issues to qualify. Then just 18 months after that, October 2017, FH came out with another lowering of the PLF table, (the fourth since 2009), as well as lowering of the floor rate, which dramatically reduced the amount a borrower can receive from a reverse mortgage. Now this Collateral Risk Assessment change, with the hint of more changes on the horizon.
I don’t know for sure, but to my understanding, these changes are mostly based on the book of business from about 2006 – 2014. Most of these loans were made before CVCC and all were made before financial assessment (FA) began. In my opinion, we should let the old book of business age out and compare it to what’s happened since FA before we make so many changes to the program that it’s not even worth it for customers to do.
What is maddening from a loan officer’s point of view is that it is very difficult to do business when the rules are constantly changing. The one bright spot to all these changes FHA is making is that it’s opening the market for more proprietary loan programs that are not reliant on the federal government.
Please stay tuned and I’ll make sure to keep you up to date on all relevant changes in this constantly changing industry. Also, if you are considering a reverse mortgage, now is a great time to take a closer look while rates are still low and values are still strong…and before any more changes take place.