In March 2022, the presidential interagency Property Appraisal and Valuation Equity (PAVE) Task Force released its action plan. The report highlighted Freddie Mac’s research showing that 12.5 percent of appraisals for mortgage financing in majority-Black neighborhoods and 15.4 percent in majority-Latino neighborhoods result in values below the offered contract price. Those findings compare with 7.4 percent in predominantly White neighborhoods. “As stated in the PAVE report, over time, even a slight imbalance of undervaluation can have a material effect on the property values in the community and therefore on the accumulated wealth of homeowners, including intergenerational wealth, in that community,” Schiffman said during the NRMLA Western Regional Meeting in June. Regulators are deploying reconsideration of value (ROV) as a key tool in combating appraisal bias. As explained in FHA Info 2023-1, proposed new rules are meant to strengthen the processing and documentation of ROV requests while making it clear to consumers of their rights to seek ROVs. Those ROVs can be in order when initial valuations seem low, illegal bias is indicated, fair housing regulations have been violated or unlawful discrimination has been identified. According to an accompanying draft mortgagee letter, proposed handbook revisions would include: • Adding indications of unlawful bias in material deficiency examples; • Requiring underwriters to review appraisal quality for additional material deficiencies, including possible bias against protected classes; • Requiring revised appraisals to include the appraisers’ responses to the ROV requests; • Adding a new section, “Borrower Request for Review of Appraisal Results,” outlining the mortgagee’s record-keeping requirements; and • Providing appraisers’ responsibilities when ROVs are requested. Schiffman advises mortgagees to align their ROV policies with FHA’s upcoming new standards. Well-designed ROV policies should include clear, actionable disclosures to help prevent discriminatory appraisals and potentially avoid and defend against government investigations and consumer complaints. “Reverse mortgage lenders need to be putting the gears in motion to proactively deal with this,” he says. “Appraisal bias promises to create liability for mortgagees pursuant to FHA regulations.” As the appraisal bias policy was in development, NRMLA and the Weiner Brodsky Kider team commented on an incongruity: The proposed rules’ failure to address the second appraisals was sometimes triggered by HUD’s collateral risk-assessment requirements. Under new scenarios, that second appraisal could be followed by an ROV, potentially generating three appraisals. “We showed them the areas where improvements or additional clarity are needed because the HECM product is unique with a collateral risk assessment that isn’t imposed on the forward side,” Schiffman says. Operational Relief NRMLA’s collaborative relationship with FHA, HUD and other federal agencies fosters an atmosphere where policies can be adapted to address rapidly changing conditions. Often, the vehicle for staying agile is the mortgagee letter and the 2013 Reverse Mortgage Stabilization Act. The law allows FHA to adopt critical changes to the HECM program more swiftly by mortgagee letter instead of by rulemaking that can take years to finalize, thus assuring the safety and solvency of HECMs and their recipients. The current administration is quick to respond to needs in the reverse mortgage field, Brodsky says. “The government is being very thoughtful,” he says. “This leadership team at HUD is particularly thoughtful and creative and nimble.” The collaborative process is evident in two additional federal issues: the LIBOR transition and improving liquidity. LIBOR Out, SOFR In LIBOR ceased publication on June 30, and no longer provides a reference rate for benchmarking funding costs and investment returns on adjustable-rate HECMs and other financial contracts. For contracts that don’t provide for the use of a replacement benchmark, the default U.S. Dollar LIBOR replacement, designated by Congress, is a spread-adjusted term rate based on the Secured Being Vigilant continued from page 23 24 REVERSE MORTGAGE / SEPTEMBER–OCTOBER 2023
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