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New appraisal bias protections apply to reverse mortgage program: FHA

The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) this week announced a new policy enabling mortgage borrowers to “request a re-assessment of the appraised value of their property if they believe that the appraisal was inaccurate or biased.”

An announcement on Thursday from HUD and a new Mortgagee Letter (ML) published Wednesday by the FHA clarifies that the policy applies to all Title II single-family programs, including the Home Equity Conversion Mortgage (HECM) reverse lending program.

Appraisal bias issues are more commonly discussed on the forward lending side of the mortgage business, but entities including the federal government and independent advocacy groups — including the National Consumer Law Center (NCLC) — have warned that appraisal bias could also impact seniors seeking a reverse mortgage.

When reached by RMD, a HUD spokesperson said that appraisal bias has the potential to directly impact the amount of loan proceeds that senior borrowers can access, necessitating their inclusion in the new policy.

“Everyone deserves a fair and unbiased valuation of the home they own or are looking to purchase,” the spokesperson said. “This includes seniors considering a Home Equity Conversion Mortgage, for whom home valuation is a critical factor in determining the amount of loan proceeds available to them through the program.”

The spokesperson went on to say that the policy places senior borrowers seeking a HECM on a level playing field with any other mortgage borrower who seeks a reconsideration of value (ROV).

“The Federal Housing Administration’s new Reconsideration of Value policy will help to ensure that seniors considering a Home Equity Conversion Mortgage have the ability to question the appraised value of their homes if they believe it is inaccurate or biased,” the spokesperson said.

Making appraisals more equitable would help to boost reverse mortgage access among underserved communities, an issue that NCLC found to impact the HECM program in a 2023 report.

“For the origination of reverse mortgages, if we can do more to address bias in appraisals, in theory, the appraisals should be more equitable,” NCLC attorney Sarah Mancini said at the time the report was published. “And that should make reverse mortgages more accessible to people and communities of color, which I think would be a good thing because we still view reverse mortgages as a very important product for low-income homeowners.”

Later that same month, researchers at the Urban Institute published their own report which concluded that Black seniors are disproportionately denied HECM loans.

“Federal policy hopefully has a lot that it can do, but also in terms of the lender, [they can impact these issues by] really paying close attention to the properties to ensure that they are of appropriate value. That can be beneficial as well,” Michael Neal, a co-author of the Urban Institute report, said in a 2023 interview with RMD.

At last year’s National Reverse Mortgage Lenders Association (NRMLA) Southern Regional Meeting in Austin, reverse mortgage professionals reacted with audible surprise about appraisal bias details shared by a group of industry professionals.

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