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Loving the Mortgage Settlement? Or Not?

February 13th, 2012 by Bill Collins Leave a reply »

"The Deal Is Done, But Hold The Applause"

In an article with the above title in Sunday’s New York Times, Gretchen Morgenson raises many questions about last week’s settlement by the five big banks with state and federal authorities.  She notes how “the banks crowed that this settlement would help the economy and the reputation of the mortgage industry” but says that “skeptics abound”.

Ms. Morgenson cites Paul Diggle, property economist at Capital Economics, as saying that principal forgiveness in the amount of $17 billion “is a drop in the ocean given that close to 11 million borrowers are underwater on their loans to the tune of $700 billion in total”.  Ms. Morgenson notes that this would encompass just 2.4% of the total negative equity facing borrowers nationally.  The Times article also reports the comments of Yves Smith, founder of the Naked Capitalism web site that this in actuality a “stealth bailout” of the big banks.

Ms. Morgenson notes that Joseph A. Smith Jr., North Carolina’s banking commissioner, will oversee the settlement programs and enforce the mandated changes in loan-servicing practices.  She questioned “what size of army he would be deploying to ensure that the banks fulfilled their promises” and concluded by saying:

“Additional details will emerge. But this kind of minutiae will determine whether the settlement succeeds. So many borrower programs have failed since the foreclosure crisis began. Another nonstarter will only add to the mistrust that many people harbor toward those large institutions, both public and private, that contributed so mightily to this mess”.

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Response to the Mortgage Settlement From Others

On February 10th, Bloomberg’s Hugh Son and Dawn Kopecki discussed the fact that the big banks will still face years of litigation and potentially billions of dollars in liabilities in regard to loan securitization, fair-lending violations and criminal-enforcement actions according to U.S. Attorney General Eric Holder.  The article also quoted HUD Secretary Shaun Donovan as saying that “It wasn’t the servicing practices that created the bubble, nor caused its collapse. It was the origination and securitization of these horrendous products.”

Also on February 10th, CNN Money’s Tami Luhby discussed how “the nation is now one big step closer to a national mortgage servicing standard”.  Ms. Luhby cited  “experts” who felt that this agreement had “more teeth to it” than the action announced last April against the 14 mortgage servicers. 

Writing in TheHill.com on February 9th, Amie Parnes and Vicki Needham quoted various Obama Administration officials including the President saying that the agreement will help more Americans “get back on their feet” and urged additional Congressional actions to build on this settlement.  

CNBC’s Diana Olick on February 9th made the point that this was “all about lowering mortgage principal” and “restoring stability in the housing market”.

Also writing on February 9th, the New York Times’ Nelson D. Schwartz and Julie Creswell reviewed this settlement and its limitations. 

Links to all five of these reports are found here:
Banks Not Off Hook With $25B Mortgage Deal

Banks May Finally Improve Foreclosure Practices

Obama Says $26 Billion Deal With Banks Will Help Millions of Homeowners

Robo-Deal Is All About Lowering Mortgage Principal

Mortgage Plan Gives Billions to Homeowners, but With Exceptions

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Other Real Estate Market Reports

On February 9th, Zillow reported that home prices dropped 1.1% in the 4th Quarter and that 2011 finished with a decline of 4.7% nationally.  According to their calculations, this leads to an overall decline of 24.2% since the market peak in 2007.  Their analysts call 2012 a “transitional” year with predictions that home prices will drop less this year (-3.7%) with some markets hitting bottom and achieving stability.

On February 8th, CoreLogic reported that completed foreclosures declined 24% in 2011 and the number of loans in foreclosure inventory decreased 8.4% from December 2010 to December 2011.  Mark Fleming, chief economist for CoreLogic noted that:  “This is the first time in a year that REO sales have outpaced completed foreclosures, and part of the reason for the decrease in the foreclosure inventory.”

Links to these reports and to CoreLogic’s “Market Pulse” report the next day are found here:
Home Value Declines Pick Up in Fourth Quarter, New Zillow Home Value Forecast Shows Brighter Days to Come

CoreLogic Reports 830,000 Completed Foreclosures Nationally in 2011, a Decrease of 24 Percent from One Year Ago

Corelogic – The MarketPulse (Opens a .PDF File)

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Commercial Reports

On February 6th, HousingWire’s Kerri Panchuk cited the Mortgage Bankers Association (MBA) quarterly survey which showed significant increases in multifamily and commercial lending.  Loans for industrial properties increased by 43% year to year while multifamily lending jumped 31% during the last three months of 2011.  Loans for retail properties declined 8% but the overall sector grew by 13% in the 4th Quarter of 2011 in comparison with the 4th Quarter of 2010.  Mortgage Professional Magazine reported on the same day that the MBA survey indicated that Wells Fargo was the top commercial servicer in 2011 at $437.7 billion, followed by PNC/Midland at $355.1 billion. 

Yesterday, CBRE Group’s Robert McGrath announced the release of CBRE’s report “12 Trends for 2012”.  Amongst the findings are that “cap rate compression will end” and that there will be an increased demand for warehouse facilities.  A link to the press release is found here: CBRE Press Release – CBRE EA Report Identifies 12 Key Trends In Commercial Real Estate

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Stupid AMC Tricks

We would like to thank Debbie Urianek, a Certified Residential Appraiser with Orion Appraisals in East Islip, New York for providing us with what she calls her “Top Stupid Addendum Requests”.  Some of these are classics but still make us chuckle (unless we have to respond to them).  Debbie insists that these are just the most stupid requests that she received last week-and she has been an appraiser for more than two decades!  In no particular order, here they are:

“Please explain what N/A means”.

“Report indicates that cesspools are common for the area, that all sales have cesspools, that there is no affect on marketability and that public sewers are not available for connection in the market area- Please state whether the cesspools are located above ground or inground”.

“Report indicates that the oil tank is located inground and that tank location prohibits inspection.  Please state whether the oil tank has evidence of leakage”.

“Report indicates that the subject has an additional kitchen in the basement.  Report states that there is interior access between the basement and the first level.  Report provides a photograph of the stairs from the basement to the first level with an open door which indicates that there is open access.  Please indicate what the stairs are utilized for”.

“Report indicates that there is no fireplace.  Yet, the review of the photographs indicate that there is a chimney.  Please review your report and correct to read that a fireplace exists as there is a chimney”.

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What Does This All Mean For Appraisers?

It is likely that “stupid addendum requests” and other mind-numbing requests for additional data and support (i.e. form 1004MC) will be part of appraiser’s day-to-day existence for some time due to over-reaction by regulatory officials and a “CYA” (cover your a__) mentality.  Hopefully fees will rise commensurate with the additional work demanded over time. 

AppraiserNews.com is of the opinion that additional regulations of the big banks and AMCs are needed and that they are mostly in a position to deal with them.  Individual appraisers and small appraiser firms, however, are greatly burdened by these additional requests for information that mostly do not result in more accurate appraisals and better loan underwriting.

We hope that any regulators reading this will take this into consideration in the future.

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Rates & Dates

Mortgage interest rates remained at historically low levels in the most recent weekly report issued by Freddie Mac and rates dropped to historic lows in the the Mortgage Bankers Association (MBA) Weekly Application Survey.

On February 9th, Freddie Mac reported that 30-year fixed-rate mortgages stayed at 3.87%, the same rate as the prior week.  They also noted that last year at this time the rate was at 5.05%.

The MBA in its most recent Weekly Mortgage Applications Survey released February 8th for the week ending February 3rd, reported that 30 year rates with conforming loan balances ($417,500 or less) declined to 4.05% from 4.09% during the previous week.   The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.29% from 4.33%.  At the same time, the average rates for FHA backed mortgages dropped to 3.89% from 3.96%.  All three of these represent historic lows in the MBA survey. 

In their press release of February 8th, the MBA also reported an increase of 7.5% in mortgage applications during this most recent survey.  Refinance applications increased to 80.5% from the prior week’s 80.0%.  The MBA also reported that investors made up 6.4% of applications for home purchases.

The following day after the mortgage settlement announcement, the MBA released a statement in which their President and CEO David H. Stevens said: "A final agreement can play an important role stabilizing and providing certainty and confidence to the housing and mortgage markets…it is now imperative that policymakers, lenders, servicers and other stakeholders work together on policies and initiatives that will allow us to get the housing market on the road to recovery. "

"I would caution, though, that, while a positive step, this will not be a panacea for all that ails housing.  There are a number of other issues that we need to resolve…”   

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: Virginia Appraiser Tom Martin. Tom is an appraiser in Petersburg and was the first to answer correctly that Dr. Seuss wrote “Be who you are and say what you feel, because those who mind don’t matter, and those who matter don’t mind”; Mark Twain said that “Whenever you find yourself on the side of the majority, it is time to pause and reflect”; and that Mahatma Gandhi spoke the words “I will not let anyone walk through my mind with their dirty feet.”

Today’s questions:

1. Who Said: "The Eskimos had fifty-two names for snow because it was important to them: there ought to be as many for love."

a) Sarah Palin
b) Ralph Waldo Emerson
c) Margaret Atwood
d) Cyrano de Bergerac
e) None of the above

2. Who said: "There are two kinds of people I don’t trust: people who don’t drink and people who collect stickers."

a) Lily Tomlin
b) Sarah Silverman
c) Chelsea Handler
d) Tina Fey
e) None of the above

3. Who said: "If you die in an elevator, be sure to push the Up button."

a) Woody Allen
b) George Carlin
c) Sam Levenson
d) Henry Youngman
e) None of the above

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

One Free Regular Listing on AppraiserHelp.com

A Free Copy of the 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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