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Extend and Pretend, Customary and Reasonable Fees

September 28th, 2010 by Bill Collins Leave a reply »

All Quiet on the Commercial Real Estate Front as Lenders ‘Extend and Pretend’

As we suggested in the last newsletter, the doctrine of “extend and pretend” appears to be the current game plan of many commercial lenders faced with borrowers unable or unwilling to meet current obligations. The Washington Post reported on September 18th that $1.4 trillion of commercial real estate loans will come due during the next four years.  It would appear as though “extend and pretend” will be sorely tested during this period during which either substantially improving economic conditions and/or governmental assistance will be needed to prevent large numbers of defaults and foreclosures.

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A Chicken in Every Pot and $1,500 for Every Real Estate Agent?

On September 23rd, Diana Olick, real estate reporter for CNBC, discussed the efforts being made by Fannie Mae to reduce its inventory of single family REOs, which had reached 129,310 at the end of the second quarter this year, more than double the level from the prior year.  She noted the renewal of an expired program which provided a credit of 3.5% of the sale price that can be used towards closing cost assistance along with a home warranty.  She also noted that real estate agents representing owner-occupants will receive a $1,500 bonus in a program running from September 23rd to the end of the year.  Ms. Olick concluded by saying that “I’m thinking Fannie is really worried about rising REO inventory”.

A link to this article and several other reports on the housing market is found here: Reality Check with Diane Olick

Additional information about Fannie Mae can be found by going to: www.FannieMae.com

Bloomberg.com reported on Friday that new home sales for August were at their second lowest level recorded since 1963, matching the previous month’s historically low number. Bloomberg noted Thursday’s report by the National Association of Realtors which indicated that sales of existing homes were on a pace which was the second-lowest on record going back a decade.  Another Bloomberg.com report on September 17th discussed the significant declines in both consumer confidence and household wealth in the U.S.  Links to both reports are found here: New U.S. Home Sales Hold at Second-Lowest Level Ever

Household Worth in U.S. Fell in Second Quarter

One additional report on Sunday in the Washington Post discussed the “new wave of distressed home sales…rippling, more quietly this time, through American cities and suburbs”.  An earlier Bloomberg.com report cited a number of studies which suggest that price declines may continue for several more years and links to both reports are found here:
Walking Away with Less

U.S. Home Prices Face 3-Year Drop as Inventory Surge Looms

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A Simple Solution to All of These Problems: Refinance Millions of Underwater Mortgages?

An op-ed piece in the New York Times on September 19th by Glen Hubbard (dean of Columbia Business School and Chairman of the Council of Economic Advisors under George W. Bush) and Chris Mayer (a senior vice dean of Columbia Business School) proposed a “simple” solution to improve the housing market and “invigorate” the economy. 

Their solution involves a program whereby Fannie Mae, Freddie Mac, the VA and the FHA simplify and quicken the process for homeowners to refinance. The authors write that:
“This program would be simple: the agencies would direct loan servicers — the middlemen who monitor and report loan payments — to send a short application to all eligible borrowers promising to allow them to refinance with minimal paperwork. Servicers would receive a fixed fee for each mortgage they refinanced, which would be rolled into the mortgage to eliminate costs to taxpayers.”

As an example, the authors cite a family that purchased a home in 2006 for $225,000 with a $200,000 loan at a 6% fixed rate.  The sharp decline in the real estate market now leaves them with a mortgage balance ($189,000) which is more than the current market value of the property and unable to refinance.  Under this new program that the authors propose a new mortgage would be offered at the current prevailing rate of 4.3%, providing the family with a 15% saving in their monthly mortgage payment amounting to more than $2,000 annually.  While helping the family through the current economic difficulties, it would also “… be the equivalent of a 26-year tax cut of more than 4 percent of income, assuming the family spends around 30 percent of income on housing.”

The authors note that the savings to these mostly middle class homeowners would be about $50 billion annually.  They go on to say that:
“While households tend to save an appreciable percentage of any temporary stimulus like a one-time tax rebate, this reduction in mortgage payments would be permanent, likely leading to a substantial increase in spending for households that have been hurt by the recession. Lower mortgage payments would also allow many struggling families to stay in their homes and stave off foreclosure. This program would have the substantial added benefit of reducing the endless stream of fire sales of previously foreclosed houses. Stabilizing house prices reduces the incentive for other underwater homeowners to walk away from their homes, and gives all homeowners increased confidence in the economic value of their house”.

A link to the New York Times article in its entirety is found here: How Underwater Mortgages Can Float the Economy

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Some Comments From Our Readers Regarding the Objections of Appraisal Management Companies to Paying "Customary and Reasonable Fees," as per The Dodd-Frank Act

In our last newsletter we discussed the letter written by TAVMA (Title/Appraisal Vendor Management Association, representing 58 AMCs) to Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, in which TAVMA requested a delay in implementation of this provision.  Here are comments from some of our readers regarding this matter:

“The TAVMA letter states that customary and reasonable fees should not be implemented because it does not help appraiser independence.  What you may not know is that although AMCs keep a list of people who have applied with them, if you don’t change your adjustments or take comparables out of a report at their request, they don’t order from you again.  When you call to ask why, they either say there’s no work or that there is nothing wrong with your profile, but you still don’t receive orders.  Also, they allow lenders to each have their own list with no minimum number of appraisers.  So they could have only two appraisers on their list and effectively still choose the appraiser. ..Saying there are no authoritative surveys is absurd”.  (Excerpt from a letter which she wrote to a representative of the Federal Reserve Board)
Margo Henson, IFA,
Market Appraisal, Inc.,
Seattle, Washington

"As a 38 year veteran of this business, far longer than AMC’s have been around, I cannot stomach the nonsense that is now forthcoming from them about "reasonable and customary" fees.
Now that the shoe is on the other foot, it starts to pinch…”
Gil Kuhn Appraisals,
Redwood Valley, California

“Some of the lenders that hire AMC’s will contact the appraiser direct or have the AMC contact the appraiser…they have so called better comps than the appraiser has in the report and suggest these be used…many times the appraiser can’t get enough information on any of these properties (prompting) an argument…as to what changes can be made in the report…AMC’s have a favorite saying ‘the client requires this’, usually it’s them not the client… 
There are endless reasons not to work for them, but I also know that many appraisers have to…or find something else to do…because of the economy,…many appraisers have little choice…I  could go on for hours; but must get to work…possibly this will make you aware of…business practices that I consider  not good.  I am sure there many appraisers that could write a book about AMC’s, but must work and don’t have time to tell others what they are really about”.
Bill Mieswinkel.
Ozark Appraisals,
Strafford, Missouri

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Rates and Dates

Freddie Mac reported that rates for 30-year fixed-rate mortgages were unchanged for the week ending September 23rd, remaining at the same rate of 4.37% as the week ending September 16.

The Mortgage Bankers Association (MBA) in its most recent Weekly Mortgage Applications Survey for the week ending September 17th reported a slight increase to 4.47% from the previous week’s average of 4.44%.

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

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

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Appraiser News is always a FREE publication. Please support our sponsors by clicking here.

Appraiser Help is happy to announce it has renewed its partnership with McKissock 100% Education to provide generous discounts on Continuing Education courses for Appraisers. Go to Discounted McKissock Continuing Education to start saving today and to learn more!

Ask Angie

We want to congratulate our most recent winner: Craig A. Leonard, a Certified Residential Appraiser from Davenport, Iowa. Craig was the first person who responded correctly that Bob Dylan was the author of he quote "You don’t need a weatherman to know which way the wind blows."

Today’s questions:
Who said:

“Let us learn to appreciate there are times when the trees will be bare, and look forward to the time when we may pick the fruit.”

a) Anton Chekhov
b) Mark Twain
c) John Del Monte
d) Jesus of Nazareth
e) None of the above

The first person to respond with the correct answer wins a choice of either:

One Free Trade Show Pass or $199 off a Full Conference Pass to Valuation 2010 or

One Free Regular Listing on AppraiserHelp.com

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

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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!

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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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