There are a number of unique requirements for appraisal companies operating in the reverse mortgage space and to meet those demands valuation firms are turning to technology.
The leading reverse mortgage product is the Home Equity Conversion Mortgage, a Federal Housing Administration-insured loan for borrowers 62 and older that provides a lump sum of cash, monthly payments, a line of credit or a combination of the three that doesn’t have to be repaid until the borrower no longer lives in the house, typically after moving or passing away.
One of the biggest challenges for appraisal companies is getting paid for their work. Many times, whether a borrower is eligible for a reverse mortgage is highly dependent on the property valuation. An older borrower, especially a retiree on a fixed income, may not have the means to pay $450 for a full appraisal, especially if there’s a chance the valuation won’t be enough for the lender to justify originating the HECM.
"I've had clients—good, honest brokers— that for 15 years would call me and I’d give them an estimate of what the value would be and we'd see if it's worth the borrower's time and money to go forward with the appraisal," said Len Fishman, founder of AllReverseAppraisals.com, an appraisal management company that specializes in reverse mortgage valuations. "Now the seniors are having to foot the bill for an appraisal without knowing any range of value or if they’ll qualify for the loan."
In 2007, Fishman founded ReverseMortgageAppraisers.com, an online registry of appraisal professionals. He sold the site to Landmark Loan Services, a Los Angeles-based firm that does reverse mortgage appraisals through its Landmark Reverse subsidiary.
To fill the demand for valuation services when prospective reverse mortgage borrowers, some appraisal companies are offering limited, or restricted use appraisals that combine technology with an appraiser’s knowledge of a market to create a valuation report that’s less expensive than full appraisals, explained Brian Coester, CEO of Coester Appraisal Group, a national appraisal management company based in Rockville, Md.
“Instead of doing the full appraisal and have them pay $450 up front, we do a desktop appraisal,” Coester said. “If it looks reasonable that the borrower could qualify for a reverse mortgage, then we go and do full appraisal and apply the $100 fee from the desktop appraisal to the price of the full appraisal.”
By using various valuation technologies like Web-based Multiple Listing Service data, along with free services like online photos from Google Maps and Google Earth, the appraiser creates a limited-scope appraisal with an estimated value that is typically within 5% of the valuation derived during the full appraisal, where interior conditions and other factors from the on-sight inspection are considered, Coester said.
“It’s not for an underwriter to use to close a loan, but it gives the borrower some intelligence up front before they move forward with the reverse mortgage,” he said.
Coester’s firm has conducted a “couple hundred” reverse mortgage appraisals every month since it got into the space earlier this year. In response to the growing demand, the company launched a website, CoesterReverse.com, to promote that the company can accommodate the nuances of reverse mortgage valuations. On the site, reverse mortgage lenders can order various appraisal products and he added consumers can individually go and order the desktop appraisals as well.
“The differences are enough to where it would be better to segment it because it’s not like doing a conventional or forward FHA mortgage,” Coester said. “The process is different and the tempo is slower because the borrowers aren’t as urgent to get it done.”
To originate a HECM, underwriting standards call for a full appraisal with the same standards and forms expected in a forward FHA single-family valuation, including noting any damages and estimated repair costs. But repairs that cost less than 15% of the maximum loan amount can be performed after closing, when the borrower has the funds to make the repair.
“If something is damaged and needs to be repaired that’s not a safety or hazard issue, the lender can do the loan and escrow the repair costs at closing so the borrower can still get the loan,” Coester said. “In the forward space, that’s not possible.”
A constant in both the forward and reverse mortgage industries are appraisal independence mandates by federal regulators and the government-sponsored enterprises.
Fannie Mae is one of the largest purchasers of HECM loans and the appraiser independence requirements set forth in the Home Valuation Code of Conduct applies to all mortgages, including reverses. The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated the HVCC, requiring new appraisal independence guidelines take its place for all mortgages. Again, that includes reverses.
On Fishman’s AllReverseAppraisals.com and the new CoesterReverse.com sites, lenders can go online and order appraisals for their reverse mortgage originations. Fishman said he uses a la mode’s Mercury Network to track and assign appraisal work, as well as payments.
“Lenders place their orders online and I assign it from the system,” Fishman said. “When the appraisal comes in, I mark it as approved and the lender finds it in their queue.”
Coester agreed that the Web-based ordering of both the desktop and full appraisal services his company offers to reverse lenders is an ideal way to ensure appraisers don’t aren’t unduly pressured by anyone in the process, protecting all parties involved.
“We’re very above the board with these kinds of things,” he said. “There’s nothing that’s even close to influence.”
