Reverse Mortgage Valuations (a process in need)

Reverse Mortgage Valuations
(a process in need)


There is at least one systemic issue in Reverse Mortgages that poses the threat of killing the program altogether. It is the valuation process and it will go from a situation where brokers are authorized to initiate appraisals to one that (according to the latest HUD letter on the subject) will direct that mortgagees have that authority exclusively starting January 1, 2010. While the former may not have been the best choice, the latter leaves wolves ilo foxes tending the sheep and senior citizens are the sheep. Here are some points in support of the systemic issue claim:
Valuations are flawed from the very beginning as borrowers are required to pay for their appraisals but have no chance to know thewir home's fair market value in the process and in fact rarely get to see the appraisals done regarding their rev erse mortgage. They either need to be able to participate in the process or the mortgagees pay for the appraisal as a cost of doing business.
Mortgagee underwriters are already challenging FHA certified appraisers as to valuations assigned in many cases and I have documentation clearly showing just one instance where an underwriter told the broker that she had arbitrarily lowered the value on the appraisal by 25% following an online search of unknown sources (see attached appraisal and UW condition report). An underwriter with no knowledge of the market searching some online real estate listing source in an effort to determine a value makes absolutely no sense at all. What is currently listed for sale on an online real estate listing website has no bearing on the property in question or comparable sales. Only actual similar properties that have sold can establish a parameter for valuation. In addition she had never seen the property. That conflicts directly with USAPAP and FHA appraiser requirements (MORTGAGEE LETTER 2009-28) that states “The DE Underwriter who has responsibility for the quality of the appraisal report is allowed to request clarifications and discuss with the appraiser components of the appraisal that influence its quality.” It says nothing about changing the value or telling the appraiser to change the value of his/her report. That letter further states “Appraisers are reminded that the Uniform Standards of Professional Appraisal Practice (USPAP) apply to all appraisals performed for properties that are security for FHA insured financing including the Competency Rule. Per the Appraiser’s Certifications contained in the property specific Fannie Mae/Freddie Mac appraisal reporting forms adopted by FHA, appraisers must certify that:
“I have knowledge and experience in appraising this type of property in this market area” (Appraiser’s Certification # 11) and “I am aware of, and have access to, the necessary and appropriate public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located.” ( Appraiser’s Certification #12). A subsequent review (see attached) of the aforementioned appraisal by Financial Freedom supported the appraiser's original valuation and the loan was transferred, only to have the senior underwriter in FF override his own review and support his UW's value deduction. The borrower was in immediate jeopardy of losing their home due to repairs done based on an appraised value. This is a single case, but what about the many borrowers who have no advocate to assist them in this process. They can only blindly trust the system and many of them are being deprived of their correct entitlements because theyhave no choice but to trust a system which is letting them down.
The new process that puts the authority for requesting appraisals in the hands of the mortgagees when added to mortgagee UW intervention in the valuation process is a clear recipe for disaster. I have been able to speak with several very good appraisers and they have all said, “why should we want to do appraisals when someone can do a desk audit and pronounce a value change without ever seeing the property?” This will result in forcing many good appraisers away from the reverse process and only leave the culls. It also raises a whole different issue about state's rights where mortgagee underwriters are assigning values to real estate property in many cases from outside the state of venue. In spite of strong Mortgagee letters of regulation, FHA is planning to move appraisal initiation from the lender to the mortgagee and allowed the mortgagee to become his own policeman. Is that not what was being done with the bank brokers? Are mortgagees not bankers too? Clearly that is not a solution. I am aware of the fact that The House Financial Services Committee has just passed an amendment to the Consumer Financial Protection Agency Act to phase it out, and allow all loan originators, licensed or registered in accordance with the SAFE Mortgage Licensing Act, to order appraisals directly. H.R. 3126 is the number of this bill. It may help but it is a long way from reality and apparently does not address the arbitrary devaluing of FHA appraisals. Regulatory monitoring and compliance of valuations, broker and mortgagee functions must be removed from the industry players and directly enforced more strngently by FHA through license removal and either fines or criminal violations or both. Until that happens, the person for whom the program was created (a senior borrower) will continue to suffer by being deprived of a fair and accurate valuation and the correct entitlement for his/her property and they will not even know it. While clean loans will be impacted, it is the folks who have critical repair issues that affect their abilities to live a reasonable life who will suffer most and yet are they not really the ones who should benefit from this program?
Because the borrower is denied access to the valuation process, there is the fairly common situation where the borrower needs extensive repairs to meet FHA minimums. Even if the borrower pays for an FHA appraisal of their own up front to find out how much the home would be worth, they will have no inkling what they are entitled to for those repairs if the outcome of the value is left to underwriters. A broker would be hard pressed to provide an entitlement to the borrower knowing that the second appraisal to be ordered by the mortgagee may not even come even close to the one they have or that some UW will not devalue the property. How will the broker know, if the appraisal that matters is not done until the loan is turned over to the mortgagee?. There are variations on this theme, but for all practical purposes, it may well be too late in the process as repairs might be completed based on an initial appraisal and a bill is owed to the contractor who is entitled to recourse which in many cases will cost the borrower his/her home. The repair rider is not the answer as most significant repairs quickly exceed the allowable percentage under today's repair costs and some mortgagees are frwquiring all repairs to be done prior to closing. Of course if the two appraisals differ the borrower can always go to arbitration? Imagine the impact on FHA if that became the norm. An option might be for FHA to provide a list of certified appraisers to lenders and have them present it to the borrower to select an appraiser in their area. That might clear up a lot of issues.
The current alternative is that the broker simply turns down the borrower as too hard to do and that is commonplace in the market. The alternative will increase in use as brokers have less and less input on the valuation part of the process. A dialogue must exist between the broker (or someone on the front end of the process), borrower and the appraiser in order for this process to work effectively unless the mortgagee is willing to take on that responsibility and we know the answer to that. This most assuredly is not an endorsement of the broker's role in the valuation system but instead it is obvious that this is the perfect place for FHA to insert itself either via direct actions with appraisers or perfecting the enforcement of its regulations so that guilty appraisers, brokers and mortgagees will only get to ply their trade on 8x10 foot rooms with bars for walls or sell pencils on street corners.

Senior Citizens are the most maligned group in society today. They come from a generation where they bought cars, horses and even homes or businesses on a handshake based on someone's word or simple trust. Some Seniors seem to understand today's ethics or lack of it, but for the most part that group remains vulnerable to the scammers and 'slicks' of our world. All they seek is to have their homes fixed up, pay off a mortgage and maybe put a little jingle in their pockets at the end of this process called a Reverse Mortgage and because it is a government program they trust that to happen. Somehow we owe them better than they are getting and as their place in time is something we all arrive at, it would seem that fixing this program now might be the prudent and proper thing to do.