New Appraisal Rules: Coming to a Sale Near You

In the last several years, some significant changes in both the real estate and home loan sides of the housing industry have had an impact on real estate transactions. The issue I would like to bring to your attention today could go further and affect the way you do business.

The Home Valuation Code of Conduct (HVCC), which becomes effective May 1, 2009, governs the way in which appraisals must be ordered for all residential real estate transactions, where the loans are sold to Fannie Mae and Freddie Mac.

The purpose of this new regulation is to ensure that the value of the home – on which a mortgage is being issued – is arrived at both independently and objectively.

While loan originators have traditionally been able to order appraisals directly from local appraisers who they know to be familiar with the neighborhood or region, this legislation will prohibit this practice and will instead randomly assign an appraiser, who may or may not be someone in the immediate area. The new legislation also eliminates the loan originator’s ability to discuss the property with the appraiser.

In order to comply with HVCC, some lenders and brokers are choosing to use the services of Appraisal Management Companies (AMCs), which will select from a list of licensed and approved appraisers to complete individual appraisals. Other lenders may choose to establish in-house appraisal ordering departments that will operate independently of those involved in the loan origination.

While, ultimately, the value of a property is the value of the property, an appraiser can only successfully determine what the value is by having the right information about the home and the local market.

Whether you are involved in a purchase – or assisting a past relationship with a refi – here are a few tips to help you prepare for an appointment with the appraiser. First, prepare a list of all properties that you deem to be comparable to the subject property. Additionally, be prepared with any notes or other information that you believe would be beneficial in arriving at an accurate value. Once you have them collected, offer them to the appraiser when you meet them at the inspection.

While you may already be providing this service on behalf of your clients, I thought it would be appropriate to stress how important this extra step becomes in light of HVCC. Also, realize that this regulation may prompt previous relationships to contact you for comps to help with a refi.

Below I have included links to some additional information about HVCC and various industry perspectives on this important subject:

Appraisal Scoop.com
Realtor.org
Freddie Mac HVCC FAQ
Fannie Mae HVCC FAQ

As more information becomes available about HVCC and its impact on our business, expect that I will keep you informed.

Sincerely,

SHAWN HUSS

Vice President  / Mortgage Consultant

National City Mortgage, a division of National City Bank

Appraisals to Change 5/1/09

KennethHarney
04/20/2009

Home mortgage and appraisal groups in Washington are in countdown mode: On May 1 the national rules for real estate appraisals will change dramatically — at least for lenders who want to sell their loans to Fannie Mae and Freddie Mac.

Lenders will have to adopt what’s known as the “HVCC” – the home valuation code of conduct – and guarantee that every loan they sell to Fannie or Freddie complies with the code completely.

So what’s the big deal in that?

Well, among other changes, the new code will ban mortgage brokers from ordering appraisals, and will push much of the business to third-party appraisal management companies.

Those management firms, in turn, select appraisers from their own networks, leaving many of the appraisers who now do valuations for home purchases and refinancings out of the loop.

Management companies generally only deal with appraisers who’ll work for much lower fees than they’d normally charge. Instead of earning $325 or $350, an appraiser working for a management company might only get $175. The management company pockets the rest.

In some cases, the new code might even raise the cost of appraisals to the consumer — and change the timing of when consumers pay for them.

For example, Jeff Lipes, president of Family Choice Mortgage in Hartford, Connecticut, says one of his major wholesale lender clients has instructed him that because of the May 1 changeover, all “good faith estimates” provided to loan applicants must indicate a flat $455 fee for appraisals through its designated appraisal management company.

Also, borrowers will need to pay for them up front, before the work is performed, by credit card, debit card or electronic fund transfer. Lipes, a veteran mortgage broker, said up until now the standard fee was $325, and could be paid for by the consumer at closing.

Since Lipes will not be able to select from his long-established group of local appraisers as of May 1, if the management company’s appraiser is unfamiliar with local market conditions and comes in with a value too low to support the home purchase or refi program the consumer needs, a new appraisal will need to be ordered — and a second fee charged.

Mortgage groups are not enthusiastic about the May 1 changeover either, and the Appraisal Institute has been scathingly critical of the mandatory push to low-pay management companies.

But there’s still one way to avoid the hassles associated with the May 1 changes: Switch to FHA financing, rather than conventional. FHA has its own long-standing appraisal rules, and doesn’t plan to adopt Fannie’s or Freddie’s code.

Copyright © 2009 Realty Times. All Rights Reserved.

Are Banks Withholding Foreclosed Homes to Prop Sales?

 

By Leslie Berkman Print Article

RISMEDIA, April 20, 2009-(MCT)-Lenders for months have been holding back a high volume of homes in the foreclosure pipeline that could further depress home values if they are released at once into the market, industry experts say. The artificially created shortage of foreclosed homes for sale comes when there is a strong resurgence of home buying, with consumers finding, often to their surprise, that they must make multiple offers to compete for a diminished supply of bargain homes. Meanwhile, financial institutions have been encouraged by federal and state lawmakers to slow the foreclosure process to provide more time to work with borrowers on mortgage modifications in an effort to reduce foreclosures.

Scott Anderson, vice president and senior economist with Wells Fargo, said also by withholding a portion of foreclosed properties from the market, lenders may deliberately be preventing home prices from falling as fast as they otherwise would.

A tally by one company that closely monitors foreclosures showed only about a third of repossessed houses are being actively marketed. If this “phantom supply” of bank-owned houses is put up for sale at once, Anderson said, it would probably prompt another steep plunge in property values.

“The danger is this could be devastating for the banks’ balance sheets and for anyone else trying to sell a house or refinance their mortgage,” he said.

The banks “would be crazy to flood the market and cause prices to sink. Their own assets would be worth more if they brought the foreclosures in slowly,” said John Husing, a Redlands-based economist.

Husing has predicted Inland Southern California home prices will stop falling in the next couple of months because of shrinking inventory and growing buyer demand.

Sean O’Toole, founder and chief executive of ForeclosureRadar, a California information Web site, said mortgage servicers have told him “They want to be careful about putting out too many properties at one time because they believe supply and demand are affecting prices.”

The median price of an Inland house has dropped 43 percent in San Bernardino County and 39 percent in Riverside County in the past year, but the rate has slowed in recent months.

Statistics confirm that banks are keeping foreclosed houses off the market much longer than usual, said Rick Sharga, senior vice president of RealtyTrac, a company that monitors foreclosure trends nationally.

Sharga said RealtyTrac studied the 234,716 bank-owned California homes in its database as of the end of November and discovered that only 34 percent were advertised through the state’s dozens of multiple listing services, which is how bank-owned properties are normally marketed.

“We were frankly stunned by that,” Sharga said. Usually repossessed houses are processed, fixed up and listed for sale within 30 days, he said.

While the gradual release of foreclosed properties helps to prop up prices, it also could prolong the real estate recession, Anderson said.

Other objectives the banks may have, Sharga said, include deferring accounting losses they would have to show once foreclosed properties are sold at depressed prices. Or they may be waiting to see if the federal government will offer them more money for their defaulted mortgages than they could get by selling foreclosed houses on the open market.

Foreclosure Hiatus
Also, the foreclosure process has been interrupted repeatedly by federal and state moratoriums designed to encourage lenders to modify loans to help financially stressed homeowners keep their homes.

Two large government-controlled lenders, Fannie Mae and Freddie Mac, in November imposed holiday suspensions of foreclosure-related evictions that were repeatedly extended until March 31.

At the request of Congress, JP Morgan, Morgan Stanley, Wells Fargo, and Bank of America also agreed to suspend foreclosures of owner-occupied homes until the Obama Administration crafted a mortgage modification strategy. In California, legislation took effect in September that requires lenders to give borrowers 30 days notice before taking the first step toward foreclosure. And starting this summer, loan servicers in the state must delay for 90 days the foreclosure of owner-occupied homes or have a comprehensive loan modification program.

As the moratoriums expire, the number of foreclosures is expected to spike.

Meanwhile a surge of first-time home buyers and investors, attracted by low prices and mortgage rates and government tax incentives, are competing for a diminishing number of homes for sale.

Buyers are snapping up foreclosed houses, many of which receive multiple offers, faster than they can be replaced by new foreclosures.

“Sales are much higher than last year, but we are running out of houses to sell,” said Kim Kershaw, sales manager of the Corona office of Prudential California Realty and an agent who sells real-estate-owned (reo) property.

Buying Season
According to the Multi-Regional Multiple Listing Service on Tuesday, there were about 21,000 homes for sale in its territory, which includes the San Gabriel Valley, South Bay and Riverside and San Bernardino counties, with the exception of Victor Valley and the Coachella Valley.

The listing service said that is about half of the 40,000 active listings it had a year ago and the lowest number since March 2006, when the listing service did not include South Bay.

Of the 5,600 existing homes that sold in the multiple listing service’s region last month, about 3,000 were either bank-owned or sold for less than their mortgages, underscoring the key role of foreclosures in today’s housing market.

“At the rate they are dishing out these repos (repossessed houses) it will be years before they all sell,” said Kershaw, who claims that the banks are missing out on a great opportunity to clear out their foreclosures. “It is spring and we are in the big buying season. This is probably not the time to choke the market with no inventory. It is like not having iPods at Christmastime,” she said.

Copyright © 2009, The Press-Enterprise, Riverside, Calif.
Distributed by McClatchy-Tribune Information Services.

The Case for Buying a Home Right Now

 

By Brett Arends, The Wall Street Journal

Last update: 9:57 a.m. EDT April 8, 2009

Talk about capitulation! Judging from my mailbag following last week’s coverage of the Case-Shiller housing numbers, almost nobody has a good word to say about the real estate market any more.

I’m an instinctive contrarian. So I hope readers don’t take it the wrong way when I say that when so many of you agree with me, I start to get nervous.

And where is my hate mail? The brokers must be totally whipped. Even a year ago anyone questioning housing prices could reliably expect a torrent of furious replies from those in the business.

Today? Almost nothing. And the few left are mostly of the “U r an idiot (Sent from my iPhone)” variety. Pitiful.

Maybe the moment of maximum pessimism is at hand after all.

So let me play devil’s advocate and consider the positive case for buying a home right now.

The key factor: Interest rates.

If you can borrow at 4.5% or 5% over 30 years, many purchases start to look appealing. Especially if we get a hefty dose of inflation down the line.

If that happens, your monthly payments will be low and you’d get to repay the principal over time with devalued dollars. That’s a double win.

Inflation isn’t guaranteed: The bond markets are only predicting about 1.4% inflation over the next 10 years, and BCA Research recently reminded clients that deflation, or falling prices, remains a danger. Unemployment is still rising and recent wages actually fell.

Yet if you had to bet from here, you’d bet on inflation in due course. The government is running massive deficits and has the printing presses at full throttle. That’s the classic recipe.

And inflation is the debtors’ friend — which is why it is surely going to prove the politically expedient way out of this mess.

Anyone purchasing hard assets like real estate, with a 5% fixed rate loan, ought to make good money if that happens.

When it comes to the house prices, it’s true they may not have fallen as far as you might expect.

A recent analysis in the Financial Analysts Journal (“When Will Housing Recover?”) suggested prices nationwide still weren’t cheap by historical standards in relation to household incomes.

Homes were much cheaper, say, as recently as the 1970s.

Furthermore: the bigger the bubble, the bigger the bust. Considering how sharply home prices climbed from 2002 to 2006, one might expect real estate to end up really, really cheap before bottoming out. And you wouldn’t expect a quick rebound either. Japan still hasn’t recovered from 1989.

But if you are thinking of buying a home, here’s the more positive news: While overall market averages may not be as cheap as you might have expected, you can probably ignore them.

There are plenty of deals taking place far below the official average levels. The indices are masking a huge disparity in prices.

Even the National Association of Realtors concedes distressed sales – including foreclosures and short sales – are closing about 20% below “normal” market rates. (Never mind how to define “normal”).

Aggressive buyers are finding some simply terrific deals. And they’re paying with cheap debt, too.

Default rates are rising. Lots of sellers are forced. A buyer with options holds all the cards.

Once upon a time, the name of the real estate game was “let’s make a deal.” Today, it’s “take it or leave it.” If the seller won’t take your offer, his neighbor probably will.