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Appraiser News – BPO Death March? Mortgage Rates Jump

April 12th, 2010 by Bill Collins Leave a reply »

TUESDAY, APRIL 13TH, 2010

“I Saw the Crisis Coming, Why Didn’t the Fed?”

Michael Burry, one of the central figures in Michael Lewis’ blockbuster new book “The Big Short: Inside the Doomsday Machine” had some interesting comments in the New York Times about Alan Greenspan and others who have basically disclaimed responsibility for failing to see the real estate bubble and suggesting that nobody could have seen it coming.  A link to Mr. Burry’s differing opinion is found here:

I Saw the Crisis Coming. Why Didn’t the Fed?

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Mortgage Rates: Up, Up and Away?

The Mortgage Bankers Association (MBA) in its most recent Weekly Mortgage Applications Survey for the week ending April 2nd reported that the average rate for 30-year fixed-rate mortgages jumped to 5.31%, up from 5.04% for the week ending March 26th.  Freddie Mac also reported an increase in their most recent survey for the week ending April 8th with 30-year fixed-rate mortgage rates rising to 5.21% from the previous week rate of 5.08%.

Nelson Schwartz discussed this in the New York Times on April 10th and provided a frightening historical perspective:

“For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.”

Also in The New York Times the following day, in an article titled “Don’t Bet The Farm on the Housing Recovery”, Robert J. Shiller wrote:

“MUCH hope has been pinned on the recovery in home prices that began about a year ago. A long-lasting housing recovery might provide a balm to households, mortgage lenders and the entire United States economy. But will the recovery be sustained?…

…If only it were that simple.

Home price booms and busts do end, sometimes quite suddenly, as was the case for the boom of 1995 to 2006 and the bust of 2006 to 2009. Today, we need to worry about strong headwinds, as the government begins to withdraw its support of a still-troubled lending industry and as foreclosures are dumping millions of homes onto the market.

Consider some leading indicators. The National Association of Home Builders index of traffic of prospective home buyers measures the number of people who are just starting to think about buying. In the past, it has predicted market turning points: the index peaked in June 2005, 10 months before the 2006 peak in home prices, and bottomed in November 2008, six months before the 2009 bottom in prices.

The index’s current signals are negative. After peaking again in September 2009, it has been falling steadily, suggesting that home prices may have reached another downward turning point.

But why? Unfortunately, it is hard to pinpoint causes for a change in demand for housing. The factors clearly include government economic policy, like interest-rate changes and tax credits. But these moves don’t line up neatly with major turning points in the market.

Sociological processes may be driving these changes…

…On March 31, the Federal Reserve ended its program of buying more than $1 trillion of mortgage-backed securities, and the homebuyer tax credit expires on April 30.

Recent polls show that economic forecasters are largely bullish about the housing market for the next year or two. But one wonders about the basis for such a positive forecast.

Momentum may be on the forecasts’ side. But until there is evidence that the fundamental thinking about housing has shifted in an optimistic direction, we cannot trust that momentum to continue.”

The entire article by Mr. Schwartz can be viewed by clicking on the following link:

Interest Rates Have Nowhere to Go but Up

Mr. Shiller’s article can be read by clicking on this link: Don’t Bet the Farm on the Housing Recovery

Additional information from the Mortgage Bankers Association can be found by going to their site at: Mortgage Bankers Association Research and Forecasts

Additional information from Freddie Mac can be found by going to: Freddie Mac Primary Mortgage Market Survey PMMS

Additional information about the National Association of Home Builders can be found by going to: National Association of Home Builders

Interesting Testimony Before the Financial Crisis Inquiry Commission

Last week, we saw some interesting testimonies before the Financial Crisis Inquiry Commission, which included past and present leaders of CitiGroup and Fannie Mae.

Charles O. Prince III, Citigroup’s former chairman and chief executive, was apologetic:
“I’m sorry the financial crisis has had such a devastating impact for our country. I’m sorry about the millions of people, average Americans, who lost their homes. And I’m sorry that our management teams, starting with me, like so many others could not see the unprecedented market collapse that lay before us.” Others, including Robert Rubin, the former Treasury Secretary and chairman of the executive committee of Citigroup’s board, while saying that “We all bear responsibility for not recognizing this, and I deeply regret that” basically denied culpability for their roles in the crisis.

Click here for a link to an April 8th article about this in the New York Times: Panel Criticizes Oversight of Citi by 2 Executives

Your Reactions to BPOs, and the Conflict Between the NAR and Appraisal Organizations

We received a large response to the article in our last newsletter titled ‘Conflict’ Breaks Out Between Appraisal Institute, NAR and Others over BPOs.  Here are some of the e-mails that we received:

Bill,  I am a broker/owner of a Century 21 real estate office. I am also a PA certified real estate appraiser. In Pennsylvania it is illegal for a real estate agent, broker to perform a BPO under the PA real estate commission. The PA Real Estate Commission has a special link on its web site to explain this to licensees. It is the only link on the web site, because it is such a problem.
I am a member of NAR, BUT DO NOT AGREE with Vicki Cox Golder, NAR president. She is being influenced by real estate agents who have everything to gain and are not impartial. Ms. Older should know the truth about who she speaks for and not assume that just because she is president of NAR she DOES not represent ALL of us! –Joe Schoetz, Schoetz Associates, Inc Appraisal Services, Willow Grove, Pennsylvania

Bill: I was reviewing the information on a sale from the MLS information yesterday.  When looking at the broker’s description of the access to the property I totally lost it. The description read the property was accessed by a “Right Away”.  After gathering my composure my first thought was the NAR feels all brokers are qualified to render a value by a BPO for loans? –Terry G. “Chuck” Beasley, Certified General Appraiser, North Carolina / Virginia

Hi Bill, Just wanted to add a comment to the need for an appraisal and not a BPO or for that matter a 2075.
Not only does an appraisal establish an opinion of value but this value is based on the description of the property which includes (unless it’s a drive by) a sketch that verifies the square footage… I can imagine that some of these homes being considered for loan reductions may have some errors from old listings or bad county records. It seems to me if the American people are going to bail people out we should at least establish the best available facts for evaluating the situation. Thanks –Renee Williams, Associated Appraisers, Inc, Kennewick, Washington

Bill: I am a Broker and Appraiser (98% appraiser) who can’t stand what BPO’s are doing to the business and how it is adversely affecting the home owners and buyers/sellers. It should be stopped.  I have contacted local and state and national representatives. –Barry Noble, Certified residential Appraiser and independent Broker, Palm Springs, California

Bill: As a Broker and State Certified Appraiser, I would like to add that any Agent that does a BPO is doing it only for the intention of getting a possible listing. The BPO Agent would get about $25 and the other $25 goes to the office. For this amount, how much consideration and time do you think is put into it? Every Agent that I ever spoke to about this said it wasn’t worth the trouble and won’t do them unless they are guaranteed the listing. Of course it’s a conflict of interest. Why else would anyone in their right mind use their car, gas, camera and waste over a day for $25.00?  COMMON SENSE, PEOPLE. Doing BPOs for appraisal purposes is not even legal in Pennsylvania.  So what will the banks/management companies do about that?  Agents are not even supposed to do BPOs; only the Brokers are allowed to but that doesn’t happen. BPOs are and always have been for listing purposes. IF you list a house, you want to sell it- how do you sell a REPO?  Lower the price. –Joan Huhn, PA Licensed Real Estate Broker, PA State Certified Appraiser

Bill: You are absolutely correct! All appraisers I know in the state of Florida have to be members of NAR, their state, as well as their local Realtor organizations in order to have access to MLS! Appraisers are not adequately represented by these organizations, and this is why joining and becoming involved in local/state professional appraisal organizations is critical to the survival of our profession. –Kathy Ginkel, Certified Residential Appraiser, AFL Appraisals, Kissimmee, Florida

Bill: Andrew Cuomo has nothing to do with BPOs.  You need to write to the GSE’s, the Secretary of the Treasury and leaders in Congress…
…One issue I have about BPOs is many appraisers have a real estate license such as myself.  Yet, I am not allowed to compete with others on a level play field.  The reason being is I cannot take off my appraiser’s hat.  I must conform to USPAP.  Therefore, any agent who performs a BPO should also be required to adhere to USPAP requirement to make the BPO market fair among all REALTORS® –Mack Strickland, Strickland Appraisal Services, Inc & Strickland Realty Co, Chester, Virginia

Our Thoughts on BPOs and Related Controversies

We have been very clear about our position towards BPOs and support the Appraisal Institute and the other appraisal organizations who authored the March 8th letter.  Please visit our website www.EndBPOsNow.com for additional information and for contact information if you would like to join the effort to End BPOs Now!

Due to the importance of this issue, here is a link to the March 8th letter from the four appraisal organizations (the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers) to Treasury Secretary Timothy Geithner along with other public officials in financial leadership positions regarding their concern over the use of BPOs for “short sales”: Letter to Secretary Geithner

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Ask Angie

We want to congratulate the winner of the last contest, Cindy Butler, a Certified Residential Appraiser with Elite Real Estate Appraisals of Bel Air, Maryland. Cindy was the first person to provide the correct answer to Angie’s last contest: “No question is so difficult to answer as that to which the answer is obvious” (George Bernard Shaw).

Today’s questions:

Question 1: Who said: “What many critics of equity derivatives fail to realize is that the markets for these instruments have become so large not because of slick sales campaigns, but because they are providing economic value to their users.”

1. Michael Lewis

2. Leo Tolstoy

3. Alan Greenspan

4. Warren Buffett

5. Michael Burry

Question 2: Who said:
Derivatives are “Financial weapons of mass destruction”

1. Michael Lewis

2. Leo Tolstoy

3. Alan Greenspan

4. Warren Buffett

5. Michael Burry

Question 3: Who said:
“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.

1. Michael Lewis

2. Leo Tolstoy

3. Alan Greenspan

4. Warren Buffett

5. Michael Burry

The winner of this week’s contest chooses one of the following prizes:

The book “The Big Short” by Michael Lewis, or a free copy of the Directory of Appraisal Management Companies for FHA Appraisers

Angie’s Hall of Fame: Those who have been crowned winners more than once during the past two years and who have been retired from competition for the rest of 2010:

Suzanne Fahien

Pat Reass

Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: bill@appraiserhelp.com with your thoughts!

We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at www.appraisernews.com

Regards,

Bill Collins, Appraiser Help Inc.

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