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Could 2011 Be Worse than 2008?

April 11th, 2011 by Bill Collins Leave a reply »

Making Sense of Housing Numbers as Spring Begins

On April 7th, Clear Capital released their Home Data Index for March which reported a national quarter-over-quarter decline of 1.3% decline with the biggest declines continuing to be the West region at -4.3%.  Clear Capital’s report suggested some “relief” in other regions from the “rapid declines” seen at the end of 2010.  A link to the Clear Capital report is found here: Clear Capital Home Data Index Firstto Identify Home Price Double Dip in the West  

Also on April 7th, CoreLogic released their February Home Price Index which reported national year-over-year declines for the seventh consecutive month with the most recent data indicating a decline of 6.7% from February 2010 to February 2011.  Mark Fleming, chief economist for CoreLogic, did note however that “When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets…”.  A link to the CoreLogic report is found here: CoreLogic Home Price Index Shows Year-Over-Year Decline for Seventh Straight Month

On the same day, CNBC’s Diana Olick summarized several such reports by saying that “…if short sales continue to increase at this rate, even just this year, that’s going to push the home price numbers down even further. Sure, if you take out the short sales, the numbers will look better, but those big headline numbers generally include short sales, and that will further erode confidence. More short sales will also force organic sellers and home builders to try to compete with lower prices…” and “…will take their toll on the greater market”. One day earlier, Diana Olick reported on “New Evidence Mortgage Market is Choking Housing Recovery” and links to both reports are found here:
Short Sales Pressure Home Prices
New Evidence Mortgage Market Is Choking Housing Recovery

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Banks and Mortgage Companies in the News

On April 3rd, in a report titled “The Next Housing Shock” Scott Pelley of CBS “60 Minutes” reported on the “mortgage mess” and weak housing market to millions of viewers.  Links the report and video are found here:
Mortgage Paperwork Mess: Next Housing Shock?
The Next Housing Shock (Video)

On April 7th, Bloomberg reporter Dakin Campbell noted that Wells Fargo was eliminating 1,900 mortgage jobs due to the slowdown in home lending. Bloomberg reported that the bank’s fourth quarter earnings statement showed mortgage originations falling to $386 billion in 2010 from $420 billion in 2009.  Bloomberg noted that pending mortgage application declined to $73 billion during the fourth quarter of 2010 from $101 billion in the third quarter.

On April 8th, Bloomberg’s David McLaughlin reported on Bank of America’s efforts to have mortgage modification litigation dismissed, denying allegations that they ‘systematically failed’ to comply with the HAMP (Home Affordable Modification Program) effort to stem foreclosures by modifying loans.  Bank of America, the country’s largest lender by assets, argued that not all homeowners are eligible for inclusion in the HAMP program and that they aren’t required to permanently modify all eligible loans.  A link to the Bloomberg report is found here:
Bank of America Asks Court to Throw Out Mortgage Modification Litigation

AppraiserNews.com learned Friday that the Long Island based title company and AMC Title Serv was shut down due to various improprieties. 

Previously on April 4th, Tom Schoenberg of Bloomberg reported on the trial of Lee Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corp., a Florida based firm which had risen to be the nation’s 12th largest lender prior to its decline and eventual collapse in 2009.   Mr. Farkas is accused of being the mastermind of a $1.9 billion scheme involving faked mortgage assets and the duping of some of the country’s largest financial institutions, including the Bank of America.  The article discussed how Taylor Bean serviced more than ½ million mortgages including $51 billion of Freddie Mac loans and noted how Freddie Mac had stepped in to replace Fannie Mae after Fannie Mae grew to distrust the accuracy of data provided by Taylor Bean. A link to the entire Bloomberg report is found here:
Taylor Bean Ties to Freddie Mac Loom in Mortgage-Fraud Trial

Writing in the Huffington Post on March 31st, Richard Eskow discussed how little attention the mortgage crisis receives in Washington and how the enormity of the issue in actuality “…dwarfs most of the economic issues that have Washington in their grip”.  Mr.Eskow graphically depicts how this is dragging down the overall economy and a link to this report is found here:
Why the Mortgage Crisis Dwarfs Almost Everything

One last note: JP Morgan Chase reported last week that the 2010 compensation for its chief executive, Jamie Dimon, amounted to $20.8 million.  Mr. Dimon was quoted as saying “Yeah, that’s off the table” when asked about mortgage principal reduction as part of a settlement of the mortgage crisis. 

The more things change, the more they stay the…

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New Ideas, Anyone?

While Congress considers measures to withdraw support for the depressed housing   market which would make matters worse and the big banks protect their privileged status, a few new ideas are being suggested to restore buyer confidence and incentives which might help prevent further declines. On April 4th, Diana Olick discussed Equity Lock Financial’s new "Home Price Protection" noting that “It’s not insurance, but a warranty that you buy based on an index of home prices in your local area”.  The report states that the company describes the product as follows:

“You purchase an EquityLock Home Price ProtectionTM contract that refers to a local index of housing values. If the index has dropped by the time you sell the house, we pay you the percentage of the index drop multiplied by the value of your home at the time you bought the Home Price ProtectionTM contract. The transaction is structured as a contract, and not as an insurance policy; therefore the payment is made if the market index falls, regardless of whether you sell the home for more or less than you paid for it”.

A link to the entire report and how this “warranty” might work in restoring confidence in the housing market is found here: Will Home Price Warranty Restore Confidence?

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Vacancies in U.S. Malls Rise to Highest Level in at Least a Decade in the First Quarter

Writing for Bloomberg on April 7th, Hui-yong Yu cited a study by Reis Inc. that mall vacancies rose to 9.1%, the highest figure since the company began publishing this data in 2000.  Victor Calanog, chief economist at Reis, cited the closing of Borders as one factor along with lingering effects of the recession.  Mr. Calanog is quoted as saying that improvement in the retail sector was anticipated by the end of this year or the beginning of next year.  The article also quoted Chris Macke, senior real estate strategist at CoStar Group Inc. as saying that “The good news is the rate of decline has slowed significantly”.  A link to the Yu report is found here: Mall Vacancies Climb to Highest in Decade as U.S. Store Closings Persist

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As We Become a Nation of Renters, Apartment Vacancies Drop by Record Amount

On April 6th CNBC’s Diana Olick discussed the report released by Reis, Inc. that apartment vacancies dropped by a record 40 basis points to 6.2% during the first quarter and a link to this video is found here:
Rush to Rent

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How Does 2011 Compare With 2008?

There has been quite a bit of reporting recently about how the U.S. financial markets have “shrugged off” the mostly negative reports on the real estate market and some suggestions have been made that 2011 resembles 2008 in that regard.  As the “shock waves” of the sub-prime mortgage crisis were being felt during the spring of 2008, the Dow Jones Industrial Average generally moved upward and many economic and financial prognosticators were preaching the gospel of “containment” which essentially minimized the problem and concluded that the problem would not extend to the broader real estate market or economy as a whole.

Patrick Allen, writing for CNBC on April 6th, noted parallels in certain financial markets between the two years.  In his report, Mr. Allen discussed the concerns of Simon Derrick, the chief currency strategist at Bank of New York Mellon and said that “2011 is beginning to look very like 2008 before the collapse of Lehman Brothers—except the numbers involved are much bigger this time”.  The CNBC report quoted Mr. Derrick as saying that "This time around, the battle is being staged in the euro zone and is taking place at both an institutional and sovereign level…"

While there certainly are huge differences in financial and real estate markets during the past three years, there are also underlying pressures that pose huge threats to both markets worldwide.

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Reader’s Comments on Appraiser Fools Day, Customary & Reasonable Fees, AMCs and the Appraisal Profession

There is a lot of anger in the appraiser community as we move into mid April and  it is “business as usual” in many (most?) parts of the country with no noticeable improvement in mortgage appraisal fees or basic working conditions with the Federal Reserve’s Final Rule Amending Regulation Z: Section 226.42 now in effect.  Appraisers are angry at what appear to be blatant violations of the spirit, intent and letter of the Dodd-Frank Act and the manner in which AMCs can circumvent it as we discussed in the last newsletter.  In many cases, appraisers are flatly rejecting assignments that they feel do not provide “customary and reasonable” fees and indicating to the AMC that they might report the AMC; in doing so, many are concerned about possibly being “blacklisted” and denied future work.

We spoke with the Appraiser Subcommittee’s Claire Brooks yesterday about the matter and here are excerpts of what she had to say:

“The appropriate agency to receive your concern about a creditor’s compliance with the Truth in Lending Act (TILA), including the creditor or the creditor’s agent paying an appraiser a customary and responsible fee, is the agency that enforces TILA for the creditor.  If the agent or appraisal management company (AMC) is affiliated with a federally-regulated creditor, the appropriate agency to receive complaints against the AMC is the affiliated creditor’s federal regulator.  If the agent (or AMC) is not affiliated with a federally-regulated creditor, the appropriate agency to receive the complaint is the Federal Trade Commission.  There are two websites that you can use to find the federal regulator for a creditor.

Federal Reserve System – National Information Center website: National Information Center (NIC); and
FDIC website at the "Bank Find" webpage:  FDIC: Bank Find.

Questions regarding the appropriate interpretation of the Truth in Lending Act, including those on customary and reasonable fees, should be directed to the Federal Reserve Board at Federal Reserve Board: Contact Us.

The following provides general information on the Dodd-Frank Act provisions regarding appraisal management companies (AMCs) and the implementation process for those AMC provisions: 

First, the Federal financial institution regulators and the Bureau of Consumer Financial Protection will jointly promulgate rules setting forth the minimum requirements to be applied by the States in registering and supervising AMCs.  The minimal timeline set forth in the Dodd-Frank Act indicates that those rules may be promulgated within 18 months of July 21, 2011.

After the rules are in final form, States have 36 months to implement the minimum requirements established by the rules for registration and supervision of AMCs.  (The ASC may grant States up to a 12-month extension, subject to specific limited conditions set forth in the Dodd-Frank Act.)

Once the States have implemented the minimum requirements, AMC’s must be registered with the State agency in order to perform appraisal services for federally related transactions.  AMCs that are subsidiaries, owned and controlled by a financial institution regulated by a Federal financial institution regulatory agency, shall not be required to register with a State.  (Note:  the exemption from State registration for these AMCs does not apply to registration of AMCs on the Registry to be established by the ASC.)

ASC staff anticipates that the AMC Registry and annual AMC registry fees will be implemented along with the State’s establishment of AMC registration in accordance with federal law as set forth above.  As details and information become available, they will be posted on the ASC website at www.asc.gov

Yesterday, the U.S. Treasury Department released a statement on a joint set of principles for the Consumer Financial Protection Bureau (CFPB) and the Presidential Initiative Working Group of the National Association of Attorneys General (NAAG).  Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB is quoted in the statement as saying that: “I anticipate that our cooperation will have a profound effect on the consumer financial markets…Together…we can ensure that more institutions follow the rules”. While the CFPB does not appear as though it will be directly involved in matters such as C & R appraiser fees, it would not surprise us if Ms. Warren took an interest in these matters.

The following is a sampling of the many comments that we received from appraisers after our last newsletter.

"Last couple of days I have had a few cocktails in the evening after not drinking for 3 years. Here are my ramblings.  Can you point me in the right direction??  Who can I speak to about these issues.  Is anyone out there fighting for us???

 Aside from the obvious problems of ridiculous turn times and fees is a more important issue.  Appraiser independence is key to the profession and yet AMC’s have stringent rules…I understand AMCs are in the business of making money but at the expense of losing qualified appraisers??  Appraisers are pretty much the most important part of any real estate deal and yet we have always been paid the least and now we are barely above minimum wage.  As a college graduate with 13 years experience I am highly insulted.  Especially when some 16 year old is asking why I didn’t adjust for bedrooms on my grid… why are we being treated and paid like cashiers at a fast food chain??… It seems that more and more we are being pushed out of our jobs to make way for appraisers who can turn a report in 24 hours (12) if you don’t sleep eat or do anything else…I really love my job but I have to be able to support myself”.
Francesca Gaul, Certified Residential Appraiser,
Key West, Florida

“I’ve written too many articles about our profession but have never seen any appear in any of the publications. I believe that our profession is screwed!… Ironically, in addition to getting screwed with Fee’s, Appraisers have to learn more to do the same damn job for less money!…Appraiser’s still doesn’t have any organization with a "backbone" to stand up and fight on our behalf! …I’ve been in the business for 8 years, worked my butt off to become a Certified Residential and I’ve went from earning 100k to barely making ends meet. I’m sure many appraisers have the same story out there!"
–Kaleem J. Ra-Hashim, Certified Residential Appraiser,
Decatur, Georgia

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Spring Means…Tax Grievance and Appeal Time

It is time to grieve property assessments in many municipalities and declining property values along with re-assessments make this an opportune time for appraisers to branch off into appraising residential and commercial properties for tax grievance and appeal.
Don’t say that we didn’t remind you again…

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About Your Errors & Omission Insurance: Be Careful

We would like to thank the Herbert H. Landy Insurance Agency, a sponsor of this newsletter, for a reminder about the importance of maintaining adequate E&O insurance during this period of declining real estate values with increased scrutiny of appraisals along with increased litigation.

Here is a link to an article by Betsy A. Magnuson, President of Herbert H. Landy Insurance Agency, which discusses the need for prior acts coverage.

Who Needs Prior Acts Coverage?

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Rates & Dates

Both Freddie Mac and the Mortgage Bankers Association (MBA) reported rates essentially unchanged in their most recent reports.
Freddie Mac reported that rates for 30-year fixed-rate mortgages increased to 4.87% for the week ending April 7th from the 4.86% rate reported on March 31st. 

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending April 1st also reported a rise in its average to 4.93% from the previous week’s rate of 4.92%. 

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: Scott Hammond, a Certified Residential Appraiser with Hammond Appraisal Services in Grand Junction, Colorado. Scott covers the counties of Mesa, Montrose, Delta and Garfield in western Colorado.  Scott was the first to accurately answer that H.L. Mencken said “There is always an easy solution to every problem-neat, plausible and wrong”, Warren Buffett coined the phrase “In the business world, the rearview mirror is always clearer than the windshield” and that Mother Teresa was the author of the quote “Let no one ever come to you without leaving better and happier”. 

Today’s questions:

1. Who said: "Success usually comes to those who are too busy to be looking for it."

a) Mark Zuckerberg
b) Napoleon Hill
c) Henry David Thoreau
d) Dale Carnegie
e) None of the above

2. Who said: "Confidence is contagious. So is lack of confidence."

a) Jimmy Carter
b) Vince Lombardi
c) Truman Capote
d) Ralph Waldo Emerson
e) None of the above

3. Who said: "We either make ourselves miserable, or we make ourselves strong. The amount of work is the same."

a) Carlos Castaneda
b) Timothy Leary
c) Karl Jung
d) John Boehner
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 12/10 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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