FHA Mortgages

FHA: Exterior-Solely Value determinations Will Be Allowed to Expire, Appraisers React


The Federal Housing Administration (FHA) announced this week that property valuations can be conducted on an outside-only tour – a key relief component for the reverse mortgage industry, which was implemented at the start of the COVID-19 coronavirus pandemic and will expire in late June, as in a mortgage letter (ML) that last extended the practice, the agency said.

ML 2020-05 released in March 2020 has put in place the relief measures for the assessment related to COVID-19 in order to minimize the cases of contact between senior borrowers and appraisers since the illness that can result from COVID-19 is excessive for seniors concerns according to the guidelines of the Centers for Disease Control and Prevention (CDC).

Expiry of external reports only

Specific changes to the FHA assessment protocols included that, with respect to reverse mortgages, most HECM-for-purchase (H4P) transactions could either use the outdoor-only or desktop-only rating options, while traditional HECMs and HECMs to-HECM refinances only qualify for external inspections.

All valuations made in connection with FHA’s forward or reverse mortgage portfolios can use either the external-only or desktop-only valuation options, as per the original guidelines dated March 2020. The exterior-only option was allowed to expire at the end of October 2020.

Recent internal data from FHA shows the agency that the amount of usage that the external rating-only option currently has makes the current June 30 expiration date acceptable.

“[T]The Federal Housing Administration (FHA) is issuing this reminder that the FHA Temporary Employment Reconsideration Instructions and Guidelines for Only Scope Assessment of Work Options expire on June 30, 2021, as envisaged, “FHA said in FHA INFO 21-44. “This preliminary guidance was first announced on March 27, 2021 in ML 2020-05. […] With the latest data reflecting low usage, FHA believes that phasing out these guidelines will have minimal impact on the industry. “

The assessment provisions originally contained in ML 2020-05 have been extended several times in the last 16 months. Previously, the tax exemption for desktop and curb ratings was valid until May 17 per ML 2020-05, published at the end of March, extended to August 31 with ML 2020-20 and finally until October 31 in ML 2020-28. The policies were last extended to ML 2021-06 in February to June 30, 2021.

Reviewers respond

Valuers with professional experience in reverse mortgage property valuations are generally optimistic about this move by the FHA as an example of progress in overcoming the pandemic, but that does not mean that this period will be without adjustments.

In one way, the relief that the FHA provided to the valuation process wasn’t particularly widespread initially, according to John Dingeman, chief appraiser for Class Valuation based in Troy, Michigan.

“One of the challenges for FHA assignments concerns the condition of the property, and for many appraisers who do a purely external visit, they have not been able to properly identify relevant properties of the property and provide a credible appraisal,” Dingeman told RMD . “As a result, the use of the flexibilities was already restricted.”

Another valuation expert welcomes these measures to be phased out as a general level of consistency is once again required in a market that in some respects did without them during the pandemic.

“Overall, I’m glad to see that the examinations only end at this point,” said Joshua Van Horn, SVP and chief reviewer at Mortgage Information Services, Inc. (MIS) based in Cleveland, Ohio. “This is especially true because of the need for consistency within the valuation industry. The GSEs ended their temporary flexibilities in late May and so it only makes sense for the FHA to end theirs as well. While the need for an external option was well understood, the challenges of this type of task did not diminish over time. “

The disadvantages of flexibility

Leveraging certain FHA flexibilities also had other potential drawbacks, including creating unnecessary confusion for certain stakeholders, Dingeman says.

“The flexibility has also created confusion in the marketplace,” explains Dingeman. “They were really set up for the appraiser (not the mortgagee or the consumer), however appraisers were often asked to use the flexibility even when they felt it was inappropriate. Based on that, the number of regions that have fully reopened their state and the vaccination rate – I don’t think this will have a significant impact. “

Van Horn saw this confusion as well, a problem that may have been exacerbated by repeated expansions of the assessment guidelines as well as potential conflicts with requirements of other government agencies that assessors are required to adhere to.

“As the weeks turned into months and then into a year, there still seemed to be a lot of confusion about the reviewers’ minimum expectations regarding the scope of the audit and the use of assumptions in the assessment process,” said Van Horn says. “Furthermore, the requirements of the FHA and GSE also remained at odds with regard to the use of assumptions. This created continued confusion and frustration among the reviewers who worked hard to meet the requirements, in addition to the overwhelming volumes they experienced during that time. “

Another problem for experts was the comparison of data from an external visit with other sources of information that were created before the pandemic, and thus with new measures to relieve experts.

“Another problem that persisted was concerns about discrepancies between the data the appraiser was able to obtain compared to previous indoor assessments or public data,” explains Van Horn. “This has consistently been a struggle for appraisers and appraiser users, and the return to interior visits and on-site inspection of property features will be a return to the added confidence in the credibility of the appraiser assignment results that can only be obtained with one Visual inspection of the property. “