“The
second
appraisal
provides
an
essential
check
against
overvaluation
risk,
which
is
particularly
important
in
HECM
lending
where
repayment
depends
on
collateral
value
many
years
after
origination,”
the

letter
stated.
“Removing
this
safeguard
would
increase
risk
to
the

Mutual
Mortgage
Insurance
Fund
and
diminish
protections
for
senior
homeowners.”

The
rule
has
been
in
place
since

October
2018,
when
the

Federal
Housing
Administration
(FHA)
began
requiring
lenders
to
conduct
a
collateral
risk
assessment
on
a
property
before
a
HECM
loan
can
be
closed.
In
cases
where
the
initial
appraisal
is
determined
to
have
been
overvalued,
a
second
appraisal
is
needed.

Lenders
are
required
to
use
the
lower
of
the
two
appraised
values,
and
the
costs
associated
with
the
second
appraisal
are
rolling
into
the
closing
costs
of
the
loan.

DiBiasio
and
Rodgers
also
believe
there
are
benefits
for
secondary
market
participants
in
the

HMBS
program.

“Investor
confidence
in
HMBS
relies
heavily
on
accurate
and
consistent
valuations,”
they
wrote.
“The
second
appraisal
requirement
strengthens
collateral
certainty
and
helps
maintain
liquidity
in
this
specialized
market.
Eliminating
it
could
introduce
volatility
and
weaken
issuer
participation.”

While
more
recent
data
on
the
share
of
HECM
loans
that
require
a
second
appraisal
isn’t
available,
former
FHA
Commissioner

Brian
Montgomery
told

HousingWire‘s
Reverse
Mortgage
Daily
in
2019
that
roughly
20%
did.
Montgomery
also
noted
at
the
time
that
inflated
home
values
were
“extremely
high”
in
the
wake
of
the
housing
crisis,
but
they
had
dropped
to
a
more
typical
range
of
4%
to
8%.

Based
on
the
roughly
28,000
HECMs
endorsed
in
fiscal
year
2025,
that
would
equate
to
about
5,600
loans
that
needed
a
second
appraisal.

In
forward
mortgage
transactions,
data
shows
that
overvaluations
are
common.
A
report
released
in
January
2025
by

Corporate
Settlement
Solutions
(CSS)
found
that
across
the
19
states
the
company
operates
in,
appraised
values
were
higher
than
sale
prices
on

57%
of
transactions
during
the
second
half
of
2024.

CSS
deemed
an
appraisal
overvalued
if
it
exceeded
the
sale
price
by
at
least
$2,500.

“Senior-owned
homes
frequently
exhibit

deferred
maintenance
and
condition
issues
that
can
create
wider
variance
in
valuation,”
the
Appraisal
Institute
wrote.
“A
second
appraisal
helps
identify
outliers
and
ensures
those
conditions
are
reflected
appropriately.

“Any
potential
additional
time
and
cost
associated
with
a
second
appraisal
are
relatively
small
compared
to
the
program
risks
it
mitigates.
Seniors
ultimately
benefit
from
valuations
that
are
accurate
and
defensible.”

The

Mortgage
Bankers
Association
(MBA)
took
a
different
stance
on
the
issue
when
it

released
a
response
this
week
to
HUD’s
RFI.

Pete
Mills,
the
MBA’s
senior
vice
president
of
residential
policy
and
strategic
industry
engagement,
said
in
a
letter
that
the
trade
group
supports
a
modernized
approach
to
collateral
risk
assessments.

It
wants
the
FHA
to
promote
the
use
of
automated
valuation
models
(AVMs)
and
a
“broad
range”
of
data
sources
to
“streamline
the
loan
processing
workflow
and
provide
more
accurate,
less
costly,
and
timely
property
valuations.”

Mills
went
on
to
say
that
this
approach
will
allow
reverse
mortgage
lenders
to
“identify
higher-risk
properties
earlier
in
the
process.”
The
MBA
also
urged
HUD
and
FHA
to
push
for
an

expansion
of
qualified
appraisers,
which
would
“make
the
process
more
convenient,
reduce
delays,
and
improve
borrower
satisfaction.

Minor
revisions
to
the
second
appraisal
requirement
were
issued
by
HUD
in
May
2024.
The
department
included
new
language
that
refers
to
“a
potential
violation
of
fair
housing
laws
or
professionals
standards
related
to
nondiscrimination”
as
reasons
for
initiating
a
second
appraisal.