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Financial Services Law Insights and Observations

FHA’s second appraisal requirement for reverse mortgages now fully automated

Federal Issues FHA Reverse Mortgages Appraisal HECM

Federal Issues

On November 29, FHA announced that the protocols in place for the second appraisal requirement for certain reverse mortgage transactions are now fully automated. As previously covered by InfoBytes, in September, FHA announced that it would require a second appraisal for certain Home Equity Conversion Mortgage (HECM) transactions (also known as “reverse mortgages”) to mitigate the risk that valuation of the collateral poses to FHA borrowers and the Mutual Mortgage Insurance Fund, according to Mortgagee Letter 2018-06. FHA will perform a collateral risk assessment of the appraisal prepared for use in all reverse mortgage originations; whether a second appraisal is required will depend on the results of the assessment. Now, once an appraisal is logged into the system, a lender will immediately receive a message indicating whether a second appraisal is required or not required.

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