Appraiser Income

New policy designed to reduce ‘appraisal inflation’

WASHINGTON – The Federal Housing Administration (FHA) today announced that it will begin requiring lenders originating new Home Equity Conversion Mortgages (HECMs), commonly referred to as reverse mortgages, to provide a second property appraisal under certain circumstances. FHA is instructing lenders to provide a second independent property appraisal in cases where FHA determines there may be inflated property valuations.

FHA’s new requirement takes effect for case numbers assigned on or after October 1, 2018 through September 30, 2019. FHA will periodically review this guidance and, based on the results, may renew these requirements beyond fiscal year 2019. Read FHA’s Mortgagee Letter.

FHA will perform a risk assessment of appraisals submitted for use in new HECM originations.  Based on the outcome of that assessment, FHA may require a second appraisal be obtained prior to approving the reverse mortgage for an insurance endorsement. Under the new policy, lenders must not approve or close a HECM before FHA has performed the collateral risk assessment and, if required, a second appraisal is obtained. Where a second appraisal is required by FHA, lenders must use the lower value of the two appraisals.

The appraisal validation policy announced today will further reduce risks to FHA’s Mutual Mortgage Insurance Fund (MMIF) and protect the health of the HECM program. The financial soundness of FHA’s reverse mortgage program is contingent on an accurate determination of a property’s value and condition. The property value is used to determine the amount of equity that is available to the borrower and it is also used by FHA to determine the amount of insurance benefits paid to a mortgagee.

In a 2017 evaluation, the U.S. Department of Housing and Urban Development (HUD) found higher-than-expected losses in the HECM program could be attributed in part to “optimistic estimates of collateral value driven by exaggerated property appraisals when the loan was originated.” Read Reverse Mortgage Collateral: Undermaintenance or Overappraisal?.

FHA is addressing the accuracy of appraised property values due to continuing volatility in the HECM program. Last year, 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. To begin to address the financial solvency of the program, FHA instituted several reforms to the HECM program to improve its financial health and to ensure reverse mortgages remain a resource to allow senior borrowers to remain in their homes and age in place. FHA is continuing to analyze the impact of these reforms and expects to provide an assessment in its Annual Report on the financial status of the MMIF.

MCLEAN, Va., Sept. 27, 2018 (GLOBE NEWSWIRE) — Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey^® (PMMS^®), showing that mortgage rates in the past week surged to their highest level in over seven years.

Sam Khater, Freddie Mac’s chief economist, says the 30-year fixed-rate mortgage rose for the fifth consecutive week to 4.72 percent – a high not seen since April 28, 2011 (4.78 percent). “The robust economy, rising Treasury yields and the anticipation of more short-term rate hikes caused mortgage rates to move up,” he said. “Even with these higher borrowing costs, it’s encouraging to see that prospective buyers appear to be having a little more success. With inventory constraints and home prices starting to ease, purchase applications have now trended higher on an annual basis for six straight weeks.”

Added Khater, “Consumer confidence is at an 18-year high, and job gains are holding steady. These two factors should keep demand up in coming months, but at the same time, home shoppers will likely deal with even higher mortgage rates.”

News Facts

• 30-year fixed-rate mortgage (FRM) averaged 4.72 percent with an average 0.5 point for the week ending September 27, 2018, up from last week when it averaged 4.65 percent. A year ago at this time, the 30-year FRM averaged 3.83 percent.
• 15-year FRM this week averaged 4.16 percent with an average 0.5 point, up from last week when it averaged 4.11 percent. A year ago at this time, the 15-year FRM averaged 3.13 percent.
• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.97 percent with an average 0.3 point, up from last week when it averaged 3.92 percent. A year ago at this time, the 5-year ARM averaged 3.20 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders, investors and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

MEDIA CONTACT: Adam DeSanctis
703-903-2786
Adam_DeSanctis@freddiemac.com

A photo accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/393afe40-c2da-4183-9b1f-bbedda97898c

The FHFA has released a new paper, authored by Jessica Shui and Shriya Murthy, that examines how appraisals conducted by appraisal management companies compare to those conducted by lenders themselves. What’s the verdict? According to the FHFA paper, “the results indicate no clear evidence of any systematic quality differences between appraisals associated and unassociated with AMCs.” In other words, the FHFA data suggests that the appraisal results provided by AMCs are statistically very similar to those provided by lenders working without a middleman. …continue reading the rest of this post: FHFA Working Paper Compares AMC, Non-AMC Appraisals

The Appraisal Subcommittee unanimously rejected a temporary waiver request from TriStar Bank of Dickson, Tennessee, during a special meeting April 23 in Washington. The Appraisal Institute led industry efforts opposing the bank’s request for a waiver of certification requirements, which would have allowed appraisals to be completed by non-certified appraisers. …continue reading the rest of this post: The Appraisal Subcommittee Denies Bank’s Request for Appraisal Waiver

Federal Agencies Approve Rule Doubling Appraisal Threshold for CRE

The Federal Deposit Insurance Corporation on March 20 approved a final rule that will double the appraisal threshold for commercial real estate transactions. The Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System are expected to adopt the rule soon.

The federal banking regulatory agencies maintained the $250,000 threshold level for one- to four-unit single family residential loans. They also maintained the $1 million threshold level for business (owner occupied commercial real estate) loans. …continue reading the rest of this post: Appraisals are not required for commercial real estate transactions from $250,000 to $500,000

CoreLogic, a property information, analytics and data-enabled services provider, announced Thursday that it acquired a la mode technologies.

a la mode provides subscription based software solutions to more than 40,000 appraiser professionals across the U.S. The software solutions provided by the company facilitate the aggregation of data, imagery and photographs in a GSE-compliant format for the completion of residential appraisals. …continue reading the rest of this post: CoreLogic buys a la mode

Appraisal Institute Requests Appraisal Standards Board to Rework Q&As

The Appraisal Institute in an April 13 letter to the Appraisal Standards Board formally requested changes to or the retraction of Q&A 2018-12, Employing an Extraordinary Assumption when a Client Provides Inspection Data andQ&A 2018-13, Appraisal Reporting — Certifications and Signatures.

The Q&A 2018-12 originally was released this past January but retracted by the ASB shortly thereafter to clarify information and interpretations. It was re-released March 29, the same day that Q&A 2018-13 was released.

The Appraisal Institute’s Professional Standards and Guidance Committee expressed concern that the Q&As may be amending Uniform Standards of Professional Appraisal Practice definitions and creating new requirements rather than interpreting USPAP itself. This situation could potentially expose appraisers and others to unnecessary liability. …continue reading the rest of this post: Appraisal Institute Requests Appraisal Standards Board to Rework Q&As

Bank Regulators Just Raised Appraisal Threshold to $500,000, Evaluations Now Required for Smaller Transactions

On Monday, April 9, 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation published the final rule officially amending regulations requiring appraisals of real estate for certain transactions. Here’s what you need to know:

1. The final rule increases the threshold level at or below which appraisals are not required for commercial real estate transactions from $250,000 to $500,000.
2. For transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral “that is consistent with safe and sound banking practices.”
3. This is the agencies’ first change to the $250,000 threshold since it was first established in 1994.

…continue reading the rest of this post: NEW APPRAISAL THRESHOLD ON COMMERCIAL EFFECTIVE APRIL 9TH