HUD Reverse Mortgages Discriminate Against Financially Disadvantaged Seniors

Thousands of disadvantaged or fixed income seniors nationwide who would benefit from the HUD program will be denied access because borrowers will soon be required to pay for an appraisal up front to the tune of $600.00 plus and they simply won't be able to afford it and that is discriminatory. In the past, appraisal costs were simply rolled into the reverse mortgage and paid at closing. No senior was excluded under that scenario. While this action primarily affects seniors it also has a huge impact on those agencies brokering the loans and of course working appraisers, both of whom will lose income opportunity in the worst of all possible times. Here's how this impending disaster developed.

In January of 2010, HUD will have transferred the ordering of all appraisals done in a reverse mortgage to mortgagees instead of brokers using a program called Home Valuation Code of Conduct (HVCC). This program has been a dismal failure in the conventional or forward lending industry and is about to be shut down on that side of the lending world, so why would HUD intentionally insert it into reverse mortgages? Well, the truth of it is, they didn't create this clearly prejudicial situation directly. When they took away the broker's access to ordering appraisals, they handed it to the mortgagees. For whatever reason, mortgagees decided to have Appraisal Management Companies (AMCs) handle all all appraisals for an added fee, of course, that is added to the appraisal cost and will be passed directly to the senior borrower. This was solely a mortgagee decision. In fact HUD mortgagee letter 9-28ml says FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence. That said, HUD still bears the brunt of responsibility of putting appraisal ordering in the hands of the mortgagees without doing their homework. They need to fix this situation before it impacts potential borrowers and the industry as a whole by significant reductions in the numbers of reverses applied for, unless that is their overall intention. If so, why don't they say so and that becomes a whole different matter.

It might further be noted that the appraisal, even though paid for by the borrower, never is made available to the borrower during the course of the reverse. How can any senior make an informed decision about whether the reverse is a good decision or even if the lender is the right one for them?

Solutions? (1)One choice is to put appraisal ordering back in the hands of the brokers with stringent controls and clear elimnination of upfront paying for appraisals by the senior. (2) Have the broker provide each borrower with a copy of the HUD/FHA list of approved appraisers for their area and let the borrower pick one from that list with the understanding that the appraiser will be paid at the close as before. It really wouldn't make any difference which appraiser they pick as long as they are on the list. The latter makes a lot of the politics and opportunities for deception go away.

No matter the decision, the looming discrimination against disadvantaged and fixed income seniors is real and must be addressed immediately. It would appear in direct opposition to the President's approach to getting country back on its feet.