Are Reverse Mortgage Appraisal Values Really Lower Than Other Appraisals?

13 Mar

Reverse Mortgage Daily noted this week that originators have experienced a decline in reverse mortgage appraisals aligning with today’s tough housing climate. How low Federal Housing Administration reverse mortgage appraisals have fallen with respect to home prices overall is another question with recent data that sheds some light on the issue.

According to data compiled by Ibis Software Corp., the three-month moving average for HECM appraisals in September 2009 was $292,177.

Today, that average remains down nearly 13%, measuring $254,452 in June 2011, up slightly from the previous month’s average, but still down 3% from June 2010.

The figures compare with higher HECM home appraisals directly after the loan limit increase mandated by HUD in 2009, when the average appraisal saw an uptick to as high as $350,747 and $336,805 in the months following.

But average home values in the United States, while still uncertain, have suffered less according to the Case-Shiller Home Price Index, a monthly measure of home values over time. Case-Shiller data, which measures home values in major metropolitan areas and for the U.S. as a whole, shows regionally, average home prices are down closer to 5% over the same time period.

“Supposedly the housing crash had happened by December 2009, yet HECM appraisals are down 12% since then,” says Jerry Wagner of Ibis. “Case-Schiller says home values are only down 5% over this same period. I suspect that FHA appraisals have gotten tougher. And I’ve also heard that feeling from lenders.”

FHA appraisals in general should be in line with other home valuations. However, there are a few factors that may cause reverse mortgage appraisals to come in lower than the national average home value.

The average age of HECM properties tends to be higher. Additionally, property conditions tend to be an issue, with many HECM properties having lower values due to need for repairs or being dated.

Traditional FHA products include new and newer properties that meet or exceed typical market standards in relation to quality and condition, according to Landmark. This may cause even the average FHA appraisal to come in slightly higher than the HECM average.

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