HECM Valuation Rule | Appraisal Management Companies Weigh In

The Federal Housing Administration enacted a mandate effective October 1 requiring a second appraisal on every HECM loan that their system flags as having an inflated property valuation.

Various appraisal management companies discussed what effects the new rule will have on HECM loan processes. Here’s what loan officers need to know.

Turn-times on HECM loans will slow by at least three days. The administration currently performs the bulk of their review process manually. Much as Fannie Mae introduced its collateral underwriter, the FHA intends to automate their process by December 1. Until then, they estimate each loan application will take three days to review.

The cost of HECM loans to borrowers will increase by $500–$750. Jim Smith, president of the appraisal management company Property Solutions, expressed concern about the cost.

“If you’re doing a HECM, you’re doing it for certain reasons, to access the equity in your property to live because you don’t have a lot of excess cash reserves on hand,” Smith said. “I’m concerned about the additional fees that might be passed on to one of those borrowers.”

He argues the FHA should consider alternative valuation products. A desktop valuation, for example, would take two days and cost only $125.

The number of HECM loans the system will flag is uncertain. Historically, the administration’s valuation model has indicated 37% of properties were incorrectly valued by at least 3%.

However, FHA Commissioner Brian Montgomery explained most of those applications date back to 2008–2010 when the appraisal landscape differed substantially. The FHA has been silent regarding the factors the administration uses to approve property valuations.

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