Appraisal Scoop

Appraising a New Era - 2010: An Appraisal Odyssey

Guest post by Carol Rockman, VP and Founder of http://www.nvs.coop/

2010 and a new decade is about to begin. Upon being asked to write the first Niche Appraiser column I was delighted to learn that this venue would become a regular part of the magazine’s monthly features.  Yet I felt challenged with presenting a singular topic of interest that has not been belabored, agonized over, hashed and rehashed ad infinitum.

One of the most notorious topics that dominate financial sector discussions has been the Home Valuation Code of Conduct (HVCC) which is now a living legacy rife with ramifications and not expected to be removed from the lending business model.

Lenders, investors and government agencies involved in this seismic shift are still trying to figure out the best alternatives to sort through the chaos. Even the US Congress is befuddled.  

 Many appraisers are stunned and disenchanted about the future of their businesses as the industry changes faster than we can assimilate relative future value of the new bumper crop regulations.

There is reason for appraisers and users of appraisals to be optimistic about appraisal issues during 2010.  In taking the longer view of the appraisal profession and looking back over the last 100 years, one fact becomes apparent.   When times are good, appraisers and users of appraisals tend to focus on the business of doing business.  They focus on productivity within their respective functions, be it appraising or the various businesses that commonly use appraisals such as mortgage lending, right of way work, litigation, etc.

It is when times are bad that the appraisal profession and the users of appraisals take the time to step back and re-examine the appraisal process and issues involving appraiser performance so as to improve the quality and utility of the appraisals being used in the marketplace.

It is during the aftermath of each of the economic busts that comprise the long term trends that the appraisal profession has identified and incorporated more stringent measures of professional conduct and practice along with more sophisticated appraisal methodology and applications.  Today's appraiser has many more tools and a wider degree of access to relevant data to analyze that data than ever before.  Generally speaking, each of those advances has occurred during an economic bust, not during a boom. Looking forward to 2010, we can expect more advances.  

The appraisal profession has long acknowledged the principle of change as being one of the fundamental influences in the real estate markets, which themselves are dynamic and ever changing.  Appraisers will recognize that a market for appraisal services that widens to include more types of "appraisals" for more types of uses, means that there will be more business opportunities for the average appraiser. When times are lean, an openness to the pooling of resources, economics of scope, expanded affiliations and new partnerships are the keynotes that not only engender innovation, they are crucial to survival.

Considering that this column will more often than not speak to the collective, I thought to seek some sage perspectives relative to past real estate cycles.  While it is true that we will be working under unprecedented economic conditions, struggling with what seems extraordinary to us now, such change will fast become the ordinary.

The consensus offered herein is from forward looking veterans I queried. Those who can most definitely see an unlimited future: 

“We are at a time of tremendous opportunity to participate in what the appraisal industry looks like moving forward.  With volatility in our industry CHANGE is the rule of the day and we can be that change or allow others to write the rules for us.  If you were your customer what would you want?  Are you meeting or exceeding their expectations? Giving them outstanding service?  We are a "service" business.  Providing outstanding service and well written, researched and communicated reports is imperative to remain relevant.  Networked communities of appraisers working toward a common goal can make a difference. Carpie Diem!  Let's seize this opportunity to be the change we want to see! Cynthia Sulamo,   Certified Residential Appraiser, CA

“FHA implemented a law that proscribed the use of licensed appraisers, allowing only certified appraisers to be on their roster of approved appraisers. The good news for the experienced appraisers remaining is that they will benefit from that tremendous shrinkage bringing supply back into balance with demand.” Randolph Kinney, Cert. Residential  Appraiser, CA

“I have a 2010 New Years Eve Resolution for the appraisal profession:

“Shake it off and step up”. I often feel like I have fallen down the same hole as Alice in Wonderland. I agree that things are more than a little skewed in the world of the appraiser. However, I continue to say that the little guy (or gal, just a figure of speech) should only worry about what they can change, and not worry about what they cannot change.”  David A. Braun, MAI, SRA, TN

Ending on a top note, I would like to thank Niche Report for providing Appraisers a medium to contribute their ideas and opinions within the framework of a broader based audience.

AUTHOR: Carol Rockman, VP and Founder of   www.nvs.coop   has been involved in the Real Estate industry since 1978 and Appraising since 1982.  National Valuation Service is a  company that provides appraisal  management services  in 50 states; an organizational  member of the NCBA in Washington, DC - utilizing the Cooperative business model principles; The Cooperative offers  reliable  valuation solutions to satisfy the Home Valuation Code of Conduct (HVCC) and FHA compliance to Mortgage  Professionals, Lenders, CPA’s, Attorneys, Credit Unions. Carol can be reached at 786-581-9171 or carol.rockman@nvs.coop

Article reprinted with permission of the author - Original Source: The Niche Report

Arizona Appraisers Launch Political Action Organization - The Coalition of Arizona Appraisers (CoAA)

Recently ICAP worked with appraisers from Ohio, mostly in an advisory role, to help them launch OCAP, a sister political action organization.  In January, members of ICAP met with Sue Miller, an appraiser from Arizona who with other Arizona appraisers has launched The Coalition of Arizona Appraisers – CoAA. 

The Coalition of Arizona Appraisers (CoAA) is a newly established non-profit organization of licensed and certified licensed Appraisers practicing in the state of Arizona.

CoAA’s primary focus is to lobby for legislative and regulatory changes to advance the appraisal profession in the State of Arizona, but CoAA will also work hard to increase the public and real estate industry’s awareness of the need for quality appraisals and services.

CoAA’s mission is to represent the appraisers in Arizona with a united voice through non-partisan communication with the other appraisal organizations, other business-related organizations, legislative bodies, and government agencies, while fostering the public trust.

You can visit CoAA’s website at the following link to learn more about them. 

http://www.azcoaa.us/

ICAP has formed a committee to reach out to appraisers in other states to help them create similar political action organizations.  The ultimate goal would be to form a national organization of State appraisal groups and have our voices heard in Washington as well as our individual state Capitals.  

EDITOR'S NOTE:  Please read Many Appraiser Tribes - Speaking with "One Voice" from the Appraiser's Water Cooler - It's a post that I wrote in 2008 but it's still valid today. ICAP's efforts are a perfect example of the "Tribe" concept. 

 

HUD and CPSC Issue Guidance on Identifying Problem Drywall in Homes

 Guidance will help property owners and contractors determine whether home has problem drywall

WASHINGTON – The U.S. Department of Housing and Urban Development and the U.S. Consumer Product Safety Commission (CPSC) today issued guidance on how to identify the presence of metal corrosion, as well as other indicators of problem drywall in homes. The guidance takes into account visual signs of metal corrosion, evidence of drywall installation in the relevant time period, and the identification of other corroborating evidence or characteristics.

HUD and CPSC’s two-step guidance requires a visual inspection that must show blackening of copper electrical wiring and/or air conditioning evaporator coils; and the installation of new drywall (for new construction or renovations) between 2001 and 2008.

To view the full text of this guidance, visit HUD’s website or CPSC’s website.

The guidance also describes obtaining additional corroborating evidence of problem drywall, since it is possible that corrosion of metal in homes can occur for other reasons. For example, homes with new drywall installed between 2005 and 2008 (and the significant increase in imported problem drywall due in part to Hurricanes Katrina and Rita) must meet at least two additional criteria related to: the chemical analysis of metal corrosion in the home; elemental markers in the drywall; markings on the drywall; or specific chemical emissions from the drywall. Homes with new drywall installed between 2001 and 2004 must meet a total of at least four of those criteria. Collecting evidence of these corroborating conditions may require professional assistance and analysis.

“Families have the right to know if their homes contain problem drywall so they can begin the process of doing needed repairs,” said Jon Gant, Director of HUD’s Office of Healthy Homes and Lead Hazard Control. “This guidance offers homeowners, contractors and state and local authorities a course of action for knowing if they’re dealing with problem drywall or not.”

“We are moving forward to help families who are suffering from problem drywall in their homes. We are committed to helping them, and we will continue to rely on solid science to identify the specific causes and remedies for problem drywall,” said CPSC Chairman Inez Tenenbaum.

This preliminary identification guidance developed by the Federal Interagency Task Force on Problem Drywall is based primarily on the presence of metal corrosion in homes as well as other indicators of problem drywall. Additional analysis will continue to validate these methods and the identification guidance may be modified as necessary.

Consumers largely report that their homes were built in 2006 to 2007, when an unprecedented increase in new construction occurred in part due to the hurricanes of 2004 and 2005.Common features of the reports submitted to the CPSC from homes believed to contain problem drywall have been:

• Consumers have reported a "rotten egg" smell within their homes.
• Consumers have reported health concerns such as irritated and itchy eyes and skin, difficulty in breathing, persistent cough, bloody noses, runny noses, recurrent headaches, sinus infection, and asthma attacks.
• Consumers have reported blackened and corroded metal components in their homes and the frequent replacement of components in air conditioning units.

FHA-insured families experiencing problems associated with problem drywall may be eligible for assistance to help them rehabilitate their properties. HUD’s Community Development Block Grant (CDBG) Program may also be a resource to help local communities combat the problem.

Homeowners who believe they may have problem drywall should immediately report to CPSC by calling 800-638-2772 or logging on to www.cpsc.gov/cgibin/drywall.aspx. Hearing- or speech-challenged individuals may access the phone number through TTY by calling the toll-free Federal Relay Service at 800-877-8339.

Freddie Mac Bulletin 2010-2: FHA-Approved Project Review for Condominums - Effective 2/1/2010

Today’s Single-Family Seller/Servicer Guide (Guide) Bulletin 2010-2 announces a change to our condominium project review requirements in response to recent changes FHA made to its condominium project eligibility requirements.

Effective for mortgages with application dates on or after February 1, 2010:

• You may only use FHA condominium project approval to determine the eligibility of FHA and certain other federally guaranteed or insured condominium unit mortgages for sale to Freddie Mac.

• Conventional conforming condominium unit mortgages in FHA-approved condominium projects may still be eligible for sale to Freddie Mac provided the condominium project meets our requirements.

As a reminder, borrowers with Freddie Mac-owned mortgages in all condominium projects are eligible for our Freddie Mac-owned Streamlined Refinance Mortgage and Freddie Mac Relief Refinance Mortgage^SM – Same Servicer. These offerings do not ask you to again satisfy condominium project eligibility requirements and provide qualified borrowers with refinancing opportunities that can help them achieve greater homeownership stability for the long term.

Please carefully review Guide Bulletin 2010-2 for more information on today’s change to our condominium project review requirements.

If you have questions about the information in today’s Guide Bulletin, please contact your Freddie Mac representative or call 800-FREDDIE.

Nationwide Mortgage Licensing System & Registry Launches a Consumer Access Database

From the Mortgage Fraud Blog - "The Nationwide Mortgage Licensing System & Registry (NMLS)- a mortgage licensing system operated by state financial regulators- launched NMLS Consumer Access. NMLS Consumer Access is a fully searchable website that allows the general public to view information concerning state-licensed mortgage companies, branches, and individuals currently licensed through NMLS."

NMLS Consumer Access^SM is a free service for consumers to confirm that the mortgage company or mortgage professional with whom they wish to conduct business is licensed in their state.

NMLS Consumer Access^SM

• Contains licensing/registration information on mortgage companies, branches and loan originator professionals licensed by state regulatory agencies participating in the Nationwide Mortgage Licensing System & Registry (NMLS).
• May not include all licensed/registered companies, branches or professionals. State agencies join NMLS in phases and not all agencies are fully participating on NMLS at this time. To see a list of currently participating states click here.
• Does not include information on applications not yet approved by a state.
• Does not include individuals working for federally insured depository institutions.
• Contains information that is self-reported to regulatory agencies by the licensed/registered company or professionals.
• Is updated nightly (business days only).

Geek's Corner - Pogoplug™ Office Gateway - Easy Syncing and Sharing of Files

Late last year Cloud Engines, Inc. unveiled its second generation of the award winning Pogoplug multimedia sharing device. The new Pogoplug hardware sports a new design boasting multiple USB ports supporting up to 4 external drives for expanded data capacity. The new Pogoplug also gives users improved sharing capabilities, an easy drag-and-drop interface to create engaging multi-media slide shows, seamless media playback, and enhanced sharing with friends on Facebook, Twitter and MySpace.

Pogoplug acts like a gateway from your home or office through the Internet. It allows you to access, share and even stream your personal digital media directly to anybody, anywhere in the world. Your content always remains physically in your home or office, making it secure, convenient and available on your terms. Pogoplug is perfect for those individuals with increasingly mobile lifestyles and small businesses in need of simple, inexpensive mobile data access solutions.

NEW HARDWARE The new Pogoplug design retains the simplicity and ease of use of the original while listening to consumer feedback and adding the ability to directly connect up to 4 external hard drives at once. The resulting product boasts an improved design with greatly improved functionality for users with multiple drives and an increasing need for easy synching and sharing of their digital libraries.

NEW FEATURES Automatically Synchronize Photos, Videos, Music and Other Selected Content.  Users can synchronize their Pogoplug with their PC or Mac to automatically import new content from popular applications such as iTunes, Windows Media Player, and iPhoto. This feature allows Pogoplug owners to “set it and forget it” and always have access to new photos, videos and music from anywhere on the Internet.

 Drag-and-Drop Music and Photo Slideshows Users can easily create and share fun and engaging slideshows using their stored photos, videos and music. Creating a slideshow with Pogoplug is as simple as drag and drop, and sharing these slideshows is just as easy as ever. Once a user’s link is shared and viewed, their slideshow will immediately begin with the photos, videos and music they selected, playing seamlessly in the viewer’s browser.

Easier Sharing with Pogoplug Address Book Pogoplug Address Book greatly improves the speed and ease of use of sharing with a user’s friends and family. Pogoplug automatically remembers all email addresses entered in a user’s previous shares - even if that share no longer exists – and makes them available in an easy to use address book to make sharing truly one click away.

Global Search Across Multiple Drives and Pogoplugs With support for multiple drives on a single Pogoplug (and multiple Pogoplugs on the same account) Pogoplug has added "global" search support across all of a user’s Pogoplugs and drives. Search filters are now a distinct feature, allowing users to view all of their photos, videos and music in a single organized view, or to search for a specific file across all Pogoplugs and drives.

Organize Your Music, Photos and Videos Pogoplug automatically displays music by Album, Artist and Genre, and shows cover art for quick access to a user’s favorite music. Photos are now displayed by photo timeline and videos are only a click away, including the ability to watch a preview in the thumbnail itself.

Play movies directly from my.pogoplug.com, or even to the iPhone Pogoplug now supports the playback of videos directly from a Pogoplug, with support for the most popular cameras, video cameras and mobile phones. Movies can be shared and viewed directly from the Pogoplug website – or even from an iPhone!

Pricing and Availability Orders for Pogoplug at http://www.pogoplug.com  -  The Pogoplug has a suggested retail price of $129, with no additional service fees. 

USEFUL LINKS

Pogoplug web site: www.pogoplug.com  ·

Product photos: www.flickr.com/photos/pogoplug  ·

Twitter feed: www.twitter.com/pogoplug  ·

Pogoplug online community: www.pogoplugged.com

ABOUT CLOUD ENGINES, INC. Founded in 2007 by experienced entrepreneurs from the digital media and security industries, Cloud Engines is located in San Francisco, California. The company was formed with a mission to change the way personal content is stored and distributed over the Internet. The Cloud Engines philosophy is that by making a product simple, open and affordable, the community will participate in making it better. For more information, please visit our Web site, www.cloudengines.com. 

Reducing the Risk of Borrower Claims Against Residential Appraisers

Reducing the Risk of Borrower Claims

By Peter Christensen of the Appraiser Law Blog

 

Borrowers are currently the most common source of claims against residential appraisers. Regardless of the fact that they are not the intended users identified in almost all reports, borrowers are filing a majority of the lawsuits and demand letters we see against residential appraisers. This article discusses common borrower claims and suggests new approaches that appraisers might consider on how to decrease the risk. (No party contemplating filing a lawsuit against an appraiser should view the discussion of claims here as an indication that pursuing a claim will be fruitful. Anyone considering suing an appraiser should read this first: "Should I Sue the Appraiser?")

 

• Alleged Overvaluation
• Alleged Undervaluation
• Square Footage
• Sewer versus Septic
• Problems with the condition of the structure
• Undisclosed damage;
• Erroneous flood zone determinations
• Property line/boundary issues and unidentified easements
• Nearby nuisances such as retention ponds or factories.

Alleged Overvaluation

The single most common claim asserted by borrowers is that the appraiser overstated the value of the subject property. These claims come mostly from borrowers who purchased or refinanced properties near the peak of the bubble and are now in financial distress. Quite simply, more mortgage defaults mean more claims by distressed borrowers hoping for a financial payoff.

Most overvaluation claims by borrowers fit a common pattern: borrowers typically allege that they borrowed or paid too much because the appraiser overstated the property’s value and often also accuse the appraiser of conspiring with the lender to make sure the loan would close. There is always more to the story with these claims, however. The appraiser’s defense counsel typically discovers that the lender overlooked its underwriting guidelines or the borrower’s inability to pay or that the borrower lied to get the loan. And, in many cases, the borrower never even looked at or considered the appraisal until his or her lawyer started coming up with parties to sue and therefore did not legally “rely” on the appraisal.

Alleged Undervaluation

On the flip side, a noticeable new trend in the last year has involved complaints by borrowers that appraisers have undervalued properties. This trend unfortunately means that appraisers are being attacked from all sides. Claims alleging undervaluation are usually made soon after the delivery of a report and are often intended by the borrower to intimidate appraisers to change valuations or to strike back at appraisers who have reported lower than desired values.

A typical scenario involves a homeowner seeking to refinance a loan on a property purchased at the peak of the real estate bubble. The appraiser will accurately report a current value that in many cases is 20% to 30% less than what the homeowner paid. When the loan officer informs the homeowner that the loan cannot be made and provides the appraisal to the homeowner as required by the HVCC, the homeowner or his or her attorney sends a demand letter to the appraiser threatening to sue the appraiser or report the appraiser to the state unless the appraiser raises the value or somehow “retracts” the report. Often, there is a threat that if the homeowner does not obtain the loan he wants, he will sue the appraiser for the interest that the homeowner theoretically would have saved if the homeowner had received his or her desired loan. In our opinion, most of these claims are frivolous, and we view them as an indicator that appraisers are doing their job and providing accurate information to their lender clients.

Square Footage

The third most common borrower claim we see involves square footage. These claims usually involve appraisals performed for purchase loans. The borrower typically alleges that the appraiser overstated the square footage of the subject property and thereby caused the borrower to pay too much for a home. The borrower will usually demand an amount for the “missing” square feet (e.g., $200 per square foot times 300 square feet). Alternatively, a borrower will claim that he or she would never have purchased the home at all if he or she had known it was 300 square feet smaller and then demand payment from the appraiser for the entire purchase cost. In square footage claims, the appraiser has sometimes not even made an error in the report – the homeowner may be relying on inaccurate information from another appraisal, the owner’s personal measurement or public records. Other times, the appraiser did err and the error results from measuring incorrectly, relying on plans or public records without identifying that reliance, or counting areas that should not be included in gross living area.

Sewer versus Septic

Year in and year out, claims about appraisers misidentifying whether a home is on a septic system or public sewer continue to roll in. A common scenario here occurs when several years after purchasing a home, a homeowner encounters a waste blockage and is informed that his or her septic system must be repaired or replaced. The homeowner is shocked by the cost and notices that the appraisal identified the home as being on a public sewer. Now, the homeowner makes a claim against the appraiser for the cost of the septic system repair or seeks the cost of connecting to a public sewer, if available. Of course, the homeowners who make these claims never appreciate the fact that they never had to pay monthly sewer fees.

Other Borrower Claims

The other claims that borrowers bring against residential appraisers taper off from here into a creative shopping list. The more frequent of the claims on this list include:

1. Problems with the condition of the structure like leaking roofs, electrical problems or undisclosed damage;
2. Erroneous flood zone determinations;
3. Property line/boundary issues and unidentified easements; and
4. Nearby nuisances such as retention ponds or factories.

A Suggested Claims Prevention Strategy

It should go without saying that the first rule in reducing the risk of claims from any source is to do good appraisal work and to disclose and analyze the effect of any specific conditions or anomalies affecting a property. The best disclosure and analysis uses real world language tailored to the specific issue with the property, not canned phrases from a macro key entry.

Leaving aside that general advice, the common thread woven into nearly all borrower claims is that the borrower is almost always not the appraiser's client or intended user. This fact can serve both as a tool for appraisers to decrease their risk of becoming the subject of a borrower claim and as a viable defense when such claims are pursued. The appraiser should not do or say anything either verbally or in the report suggesting that the appraiser expects the borrower to use or rely on the report or that the borrower may use or rely on it.

 

Click  below to continue reading . . .

 

Barney Frank, Chairman of the House Financial Services Committee Proposes Replacing Freddie and Fannie

WASHINGTON (AP) — Barney Frank, the chairman of the House Financial Services Committee, called Friday for a new system for providing money for home loans and the elimination of Fannie Mae and Freddie Mac.

Source: The New York Times - click here http://tinyurl.com/ybkgywg 

New HUD "Appraiser Independence" Requirements (ML 2009-28 & 2009-51) Become Effective Feb. 15th

 ML 2009-28: Enactment of ML 2009-28, Appraiser Independence, delayed until February 15, 2010.

ML 2009-28 has two parts:

a) prohibition of mortgage brokers and commission-based lender staff from the appraisal process, and

b) appraiser selection in FHA Connection. The effective date for both sections of this guidance will now take effect for all case numbers assigned on or after February 15, 2010. This extension will provide FHA and lenders additional time to adjust systems to accommodate the changes.

Detailed instructions on changes to FHA Connection will be issued in a new mortgagee letter. However, lenders should be aware that the requirement for inputting the appraiser ID and the appraisal assignment date in the FHA Connection case number assignment screen will be removed. Instead, lenders will be required to enter all appraisal data, including the appraiser ID, in the Appraisal Update Screen once the completed appraisal is received by the lender and prior to closing the loan.

ML 2009-51: Adoption of the Appraisal Update and/or Completion Report (form 1004D), states an effective date of January 1, 2010. The effective date is being extended and will now apply to all case numbers assigned on or after February 15, 2010. This extension will provide additional time needed by FHA and lenders to adjust their systems to accommodate use of the form.

Source: HUD

• FAQs ML 09-51 Adopt Form
• FAQs ML 09-29 
• FAQs ML 09-28 
• 09-51 Adopt Form
• Summary of FHA Mortgagee Letters

HUD/FHA Reduces Allowable Seller Concessions From 6% to 3%

FHA Announces Policy Changes to Address Risk and Strengthen Finances

New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing Market and Access for Underserved Communities

HUD No.10-016
Melanie Roussell
(202) 708-0980

WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.

The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

Announced FHA Policy Changes:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
   • The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
   • If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
   • This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
   • The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.
2. Update the combination of FICO scores and down payments for new borrowers.
   • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
   • This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
   • This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%
   • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
   • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
4. Increase enforcement on FHA lenders
   • Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.
     • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
   • Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
     • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
     • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
   • Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
     • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
   • HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
     • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
     • Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.