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The NAR Speaks; Appraiser Fools Day is April 1st?

March 15th, 2011 by Bill Collins Leave a reply »

  • National Association of Realtors President Testifies Before Senate On "State of the Housing Market"
  • Fuzzy Math Infecting Commercial Real Estate
  • Clear Capital Report Released March 10th Shows Mixed Results
  • Are State Attorneys General Near Deal With Banks on Foreclosure Mess? Are Banks Serious About Loan Mods?
  • April 1st: Appraiser Fools Day, or Will We See Customary and Reasonable Fees? One Reader’s Comments Summarize the Concerns of Many Appraisers Throughout the Country
  • Rates & Dates
  • Ask Angie
  • Tell us what you think!
  • Closing Remarks
  • National Association of Realtors President Testifies Before Senate On "State of the Housing Market"

    AppraiserNews.com has been highly critical of much of the research and many of the positions taken by the NAR during the past several years but the testimony by Mr. Phipps on March 9th before the U.S. Committee on Banking, Housing & Urban Affairs was a welcome change.  Mr. Phipps described the serious challenges facing the housing market, emphasized the importance of homeownership to our nation and criticized the ill conceived measures currently under consideration by regulatory agencies and in Congress.  Here are some of the comments made by Mr. Phipps:

    “Most Americans understand the value of home ownership. They measure their financial wellness in large part with homeownership and with the equity they have in that home. Home ownership provides them with shelter. Owning one’s home is the first commandment of self-reliance for most families…More Americans rely on this tangible asset for their confidence in their own financial situation, the overall financial well-being of the country, and the strength of these United States: ‘Life, Liberty, and the Pursuit of Happiness’ was Life, Liberty and Property in the first draft by Jefferson…

    The housing climate continues to be erratic. Mortgage rates have jumped from their exceptionally low levels of last year, and are likely to rise even further…NAR believes that the economy may not be able to rely heavily on those consumers with stable jobs to help with economic recovery.  A solid stock market recovery has lifted wealth for some, but many consumers historically have relied on the wealth tied to their housing equity for confidence. These consumers are now staring at a much lower household net worth in the aftermath of a painful housing market bust…Historically, the housing market has been a major power engine for economic growth, particularly coming out of a recession. This does not seem to be the case this time. Additional foreclosures and a shadow real estate owned (REO) inventory loom. As a result, housing starts may only reach 700,000 units in 2011 – half the normal historical annual production…The housing bust of recent years has unfortunately forced as many as 11 million homeowners in to underwater situations and the aggregate homeowner wealth has declined. The median net worth – the value of everything owned minus everything owed – for a homeowner is estimated to have fallen from $230,000 in 2007 to about $170,000 in 2010…

    The belief in homeownership as a pillar of American society is why REALTORS® are reaching out, with great concern, to the national association to better understand the intentions of the Administration, Congress, and numerous Regulatory bodies that are perceived as actively working to devalue, or place severe obstacles in the path of, home ownership. REALTORS® agree that reforms are required to prevent a recurrence of the housing market meltdown, but unnecessarily raising down payment will have ramifications for the overall economy, as well as housing. According to Exhibit 5-3 from NAR’s 2010 Home Buyer and Seller Profile (released November 2010), 41% of repeat buyers and 70% of first-time homebuyers had down payments of 10% or less of their home’s purchase price…

    REALTORS® believe that Federal regulators should honor Congressional intent by crafting a qualified residential mortgage (QRM) exemption that includes a wide variety of traditionally safe, well underwritten products such as 30, 15, and 10 year fixed rate loans, 7-1 and 5-1 ARMs, and loans with flexible down payments that require mortgage insurance…

    Furthermore, frequent increases in fees from both FHA and the GSEs and credit overlays from lenders will unnecessarily increase the costs to homebuyers and discourage these consumers, who can otherwise afford a mortgage, from participating in the housing market.  By some estimates, 10-15% of otherwise qualified buyers with a demonstrable ability to repay will be turned away due to the overly stringent requirements. This represents approximately 500,000 home sales that won’t happen, further dragging out the housing and economic recovery. (Every two additional closed real estate transactions can create one job, 500,000 sales can produce 250,000 additional jobs)…

    REALTORS® believe that the pendulum on mortgage credit has swung too far in the wrong direction and it is hurting consumers and the economy…let’s not lose sight of the immense intangible value of homeownership – sustainable homeownership – to our country…our members are well aware that the future we see rests on the industry’s and the economy’s ability to successfully navigate some significant obstacles. Congress and the housing industry must maintain a positive, aggressive, forward looking partnership if we are to ensure that housing and national economic recoveries are sustained.”

    A link to the entire testimony of Ron Phipps is found here: Testimony of Ronn Phipps Before the US Senate Committee on Banking, Housing and Urban Affairs

    While we thank Mr. Phipps for his summarization of current housing conditions, we are still awaiting word from Mr. Yun (NAR chief economist Lawrence Yun) regarding those math mistakes that were made and how much of a downward “correction” will be made of the NAR’s gross overstatement of home sales dating back to 2007.

    Also, do you think that Mr. Phipps will have an epiphany and support the immediate ending of BPOs (Broker Price Opinions)?  Maybe we shouldn’t hold our breath awaiting this…

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    Fuzzy Math Infecting Commercial Real Estate

    On March 9th, the Wall Street Journal reported the divergent reports coming from
    two closely watched indexes of commercial real estate.  The Journal reported that Green Street Advisors’ Commercial Property Index for February was indicating that values had risen nearly 35% since bottoming out in May 2009 and were now 15% to 20% below their 2007 peak.  The report stated that Moody’s/Real All Property Type Aggregate Index through December was showing that valuations had declined 42.1% from their October 2007 peak with a recovery of just 5.5% from a low point in August 2010.

    One reason cited by A.D. Pruitt, the author of the article, was that the two indexes follow different types of property with Green Street tracking REITS composed of mostly high-end and trophy buildings while Moody’s tracks all property sales of $2.5 million and above.  The methodology is also different with Moody’s index looking only at closed transactions and repeat sales while Green Street uses a more complex metric reflective of pending sales along with value estimates from brokers, economists and company executives.  On March 1st, Susanne Craig writing in the New York Times, discussed the recovery in the market for commercial mortgage-backed securities (CMBS) noting that financial firms sold almost as much of these securities in the first two months as in all of 2010.

    On March 2nd, the Wall Street Journal cited a study by the research firm Trepp LLC which indicated that the delinquency rates for CMBS reached record levels in February with 9.34% of all loans delinquent.  The Journal article by Eliot Brown noted that the bulk of these troubled loans were assembled and sold to investors during 2006 and 2007 with $22 billion of these loans due to mature during 2011 according to Fitch Ratings. 

    While many analysts have indicated that underwriting standards were now more superior than they were in 2006/2007, others have questioned whether this was true and criticized a continuing lack of transparency with many of these complex securities.

    In a Bloomberg article on March 10th, Margaret Collins reported on the increasing appetite that wealthy U.S. individuals had for commercial real estate and a link to this report is found here: Wealthy Individuals Invest in Commercial Property in Quest for Yield

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    Clear Capital Report Released March 10th Shows Mixed Results

    Clear Capital, the Truckee, California based AMC and real estate research firm reported that while quarter by quarter national home prices declined by 1.2%, there were some positive findings in their most recent study (through the end of February).  Dr. Alex Villacorta, director of research and analytics at the firm is quoted in their press release as saying that:

    “Despite distressed inventory pressure and traditional winter inactivity, current trends are continuing to show a softening of price declines.  The 3.9 percent quarterly decline we observed in December has given way to moderating declines with the national price index now down only 1.4 percent, suggesting a leveling of prices is on track for spring.” Dr. Villacorta did note, however, that:  “Yet, when comparing this growth to other economic indicators over the same time period, it is clear that the housing market still has a long way to go toward a sustained recovery.” The report blamed a large (-4.5%) decline in the western part of the U.S. for the overall negative national figure and expressed concern that this region was approaching a “double dip.”  A link to the entire Clear Capital report is found here: Newsroom at Clear Capital: Market Report

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    Are State Attorneys General Near Deal With Banks on Foreclosure Mess? Are Banks Serious About Loan Mods?

    Recent published reports from numerous sources indicate that not only is there no consensus amongst the state attorneys general but several large banks are resisting the concept of reducing mortgage principals.  On March 9th, Nelson Schwartz writing in the New York Times quoted Brian T. Moynihan, the CEO of Bank of America as saying that “There’s a core problem if you start to help certain people and don’t help other people…”.  Mr. Schwartz stated that “…industry experts estimate that nearly a trillion dollars worth of mortgage debt is underwater and went on to discuss the difficult choices that would need to be made.  On March 11th, in an article by Nick Timiraos and Dan Fitzpatrick, the Wall Street Journal quoted Wells Fargo CEO John Stumpf as saying that large reductions in loan principals would increase the U.S. deficit and hinder economic recovery. 

    On Sunday, Lynnley Browning writing for the New York Times discussed “Options for the ‘Underwater’, including the FHA Short Refi program.  Six months after the announcement of this program, however, the Republican led House of Representatives voted to end the program just as loans were beginning to make it through the “pipeline”. However this plays out, FHA Commissioner David Stevens will not be around as the agency announced last Thursday that Mr. Stevens would be leaving his post by the end of April.

    A link to a March 12th Bloomberg report discussing the lack of agreement between the state attorneys general is found here: "Dozen" States Don’t Back Foreclosure Proposal, Virginia’s Cuccinelli Says

    A link to a March 9th Bloomberg report which discusses the House vote that day to abolish two more foreclosure prevention programs (Home Affordable Modification Program or HAMP and the Neighborhood Stabilization Program) is found here: US House Panel Votes to Abolish Obama Foreclosure-Prevention Programs

    On March 7th, Diana Olick reported on a demonstration held outside the attorneys general meeting in Washington D.C. which called for a strong settlement including substantial principal write downs and heavy penalties for banks.  A link to this video and one other by CNBS’s Ms. Olick is found here:

    Mortgage Protestors in DC

    More Pain Before Gain?

    The following day, Diana Olick discussed the more than 11.1 million borrowers who were ‘underwater’ and why it mattered and a link to this report is found here: More Borrowers Underwater: Why We Should Care

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    April 1st: Appraiser Fools Day, or Will We See Customary and Reasonable Fees? One Reader’s Comments Summarize the Concerns of Many Appraisers Throughout the Country

    “… I do not believe ‘reasonable and customary fees’ is going anywhere.   The AMC’s are the messenger not the enemy.  They gained a foot hold when lenders decided they were getting poor reports and they wanted to control content and price.  Content and price are the clues.  Now lenders have decided that a computer model will tell them everything they need to know.   Just take a look at the new MLS, ACI’s new spread sheets and other AVM models.  Reams and reams of data.  Information overload is what I call it. 

     The days of an opinion of value viewed with your own eyes is coming to a close. Take a look at the average age of an appraiser.  We are old and getting older. 

    …Trouble with (certain AVM models and regression analysis) is that the answer is determined by the data input.  Currently there are usually too few sales to have a representative data base in a neighborhood, so it gets expanded to any competing neighborhood.  All well and good, but who decides what data is relevant. 

    …No computer has figured out how to account for buyer acceptance or rejection of property features.   Old I guess but it take years of experience to understand what motivates buyers and sellers

    …I am but a voice in the wilderness, but I sure wish someone would listen.  Somehow I am sure I am not alone out here."

    — Joe Johnson,
    Certified Residential Appraiser, Florida 

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    Rates & Dates

    After several weeks of declining mortgage interest rates, both Freddie Mac and the Mortgage Bankers Association (MBA) reported slightly higher rates in their most recent reports.

    Freddie Mac reported that rates for 30-year fixed-rate mortgages increased to 4.88% for the week ending March 10th from the 4.87% rate reported on March 3rd.  In their report from March 3rd, Freddie Mac noted the weakness in demand for housing citing Census Bureau data which indicated that new home sales in January approached record lows dating back to 1963.

    The MBA in its most recent Weekly Mortgage Applications Survey for the week ending March 4th also reported a rise in its average to 4.93% from the previous week’s rate of 4.84%. 

    In a press release dated March 9th, the MBA reported that mortgage applications jumped 15.5% for the week ending March 4th from the previous week, which they noted did not include an adjustment for that shorter holiday week.  Refinance applications constituted 65.5% of mortgage activity in this most recent weekly report.

    In a study released on March 3rd, the MBA also reported that commercial and multifamily mortgages experienced the lowest loss rates of any bank loans and a link to this study is found here:  MBA Research Datanotes

    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: Research and Forecasts – Mortgage Bankers Association

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    Ask Angie

    We want to congratulate our most recent winner: Charles L. Williamson, a Certified Residential Appraiser with Williamson Appraisals in Northern Alabama. Charles was the first to accurately guess that Alfred Nobel said "If I have a thousand ideas and only one turns out to be good, I am satisfied," James Dean said "Dream as if you’ll live forever, live as if you’ll die today" and that "Forget love, I’d rather fall in chocolate!" has been attributed to Sandra Dykes.

    Today’s questions:

    1. Who said: "Sometimes the first duty of intelligent men is the restatement of the obvious"

    a) Mark Twain
    b) Eleanor Roosevelt
    c) Maureen Dowd
    d) George Orwell
    e) None of the above

    2. Who said: "If I have lost confidence in myself, I have the universe against me."

    a) Barbara Johnson
    b) Jane Austen
    c) Ralph Waldo Emerson
    d) Mother Theresa
    e) None of the above

    3. Who said: "It’s not that I’m so smart, it’s just that I stay with problems longer."

    a) Steve Jobs
    b) Albert Einstein
    c) Elliot Spitzer
    d) George Bernard Shaw
    e) None of the above

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

    One Free Regular Listing on AppraiserHelp.com

    A Free Copy of the UPDATED Directory of Appraisal Management Companies (Available Now to Members of AppraiserHelp.com and FHAAppraisers.com FREE!)

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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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