This week, the Federal Housing Administration (FHA) announced that it would allow property valuations through external inspection, a major component of assistance to the reverse mortgage industry implemented at the onset of the COVID-19 coronavirus pandemic. expires at the end of June, as indicated in the letter to the mortgagee (ML) that last extended this practice, according to an announcement issued by the agency.
ML 2020-05 published In March 2020, COVID-19 assessment facilitation measures were put in place to minimize contact between senior borrowers and appraisers in light of the fact that the disease that can result from COVID-19 over-affects older people in according to the guidelines of the Centers for Disease Control and Prevention (CDC).
Expiration of the term of external expertise only
Specific changes to the FHA appraisal protocols include that from a reverse mortgage perspective, most HECM-to-purchase (H4P) transactions will be able to use external-only or desktop-only valuation options, while traditional HECM and HECM-to-HECM refinancing will only be eligible for a visual inspection.
In accordance with the original guidance dated March 2020, all evaluations made in connection with FHA forward or reverse mortgage portfolios can be either external or desktop evaluation options. The option only from the outside allowed expire at the end of October 2020
Recent internal data from the FHA indicates to the agency that the amount of use currently demonstrated by the external rating option makes the current on-site shelf life of June 30 acceptable.
“[T]The Federal Housing Administration (FHA) recalled that interim guidance regarding FHA re-screening on hiring and job selection policy for external evaluation only expire as anticipated on June 30, 2021, ”FHA said in FHA INFO 21 . -44. “This interim guidance was first announced on March 27, 2021 in ML 2020-05. […] As the latest figures reflect low usage, FHA believes that the expiration of this guideline will have minimal impact on the industry. ”
The valuation clauses originally set out in ML 2020-05 have been renewed several times over the past 16 months. Previously, the desktop grading and curbside grading surcharge was valid until May 17 according to ML 2020-05 published in late March, extended until August 31st from ML 2020-20 and last extended until October 31st in ML 2020-28. Politics was last extended until June 30, 2021, until ML 2021-06 in February.
Appraisers with experience in reverse appraisal of real estate for specific mortgages are generally optimistic about this move by the FHA as an illustration of the progress made in coming out of the pandemic, but this does not mean that there will be no necessary adjustments during this period.
In one respect, FHA facilitation was not particularly widespread from the outset, according to John Dingeman, chief evaluator for Class Valuation in Troy, Michigan.
“One of the problems in appointing an FHA relates to the condition of the property, and for many appraisers, performing only an external examination did not allow them to correctly identify the relevant characteristics of the property and to form a reliable opinion of value,” says Dingeman RMD. … “As a result, the use of flexibilities was already limited.”
Another evaluator is pleased that these measures are expiring due to a renewed demand for overall levels of consistency in the market, which in some respects was lacking during the pandemic.
“Overall, I am delighted to see that only external evaluations are coming to an end,” said Joshua Van Horn, senior vice president and chief evaluator at Mortgage Information Services, Inc. (MIS) located in Cleveland, Ohio. “This is especially true with the need for consistency in the appraisal industry. GSE ended its interim flexibility at the end of May and it therefore seems logical that FHA has ended its flexibility as well. Although the need for external choice was well understood, the problems with these types of assignments did not become less difficult over time. ”
Disadvantages of flexibility
There were other potential drawbacks to using certain FHA flexibilities, Dingeman said, including creating unnecessary confusion on the part of certain stakeholders.
“Flexibility has also created confusion in the marketplace,” explains Dingeman. “They were indeed set for the appraiser (and not for the mortgagee or consumer), but appraisers were often asked to use flexibilities, even when they felt it was inappropriate. Based on this, also the number of regions that have fully opened their state, and the level of vaccination – I do not think that this will have a significant impact. “
Van Horn also noticed this confusion, and this problem was potentially exacerbated by the repeated expansion of valuation policies, as well as potential conflicts with other government requirements that valuers must comply with.
“It seemed that as the weeks turned into months and then into a year, there was still a lot of confusion about the minimum expectations of evaluators about the level of validation and when it was appropriate to use assumptions in the evaluation process,” says Wang. … “In addition, the FHA and GSE requirements were also at odds with the use of assumptions. This led to constant confusion and frustration among evaluators who worked hard to navigate the requirements, in addition to the huge volumes they faced during this time period. ”
Another challenge faced by evaluators is the comparison of external inspection data with other sources of information created before the pandemic and, accordingly, the new policy for assisting evaluation.
“Another issue that continued to emerge was concerns about discrepancies between the data the evaluator was able to obtain compared to previous internal estimates or publicly available data,” explains Van Horn. “It has been a struggle between appraisers and appraisers throughout the process, and a return to internal inspections and on-site property performance checks will be a return to the added confidence in the validity of appraisal assignments that can only be obtained from a visual inspection of the property.”