Appraisal Scoop

HR 3915 - Mortgage Reform Act - Receives bipartisan support: 291-127 Vote

Inman News reports: "The House of Representatives Thursday approved controversial legislation intended to combat predatory lending, amending some provisions to address criticism that the bill could worsen the credit crunch, but strengthening others."  Click here for the full article.

"HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, would create a national licensing system for mortgage loan originators and require lenders to determine that borrowers have a reasonable ability to repay a loan. The bill would also create limited liability for companies that bundle mortgages for sale to Wall Street investors."

Although the Bush administration opposes many of the bill's provisions (see Inman News story), HR 3915 received bipartisan support in the House, where it was approved in a 291-127 vote.

"The House bill's most contentious restrictions include a ban on incentive payments brokers and loan officers receive when they place borrowers in high-cost loans, and prohibitions on prepayment penalties used to discourage borrowers from refinancing their loans."  Click here for the full article.

According to the American Banker:

A last-minute effort by Democrats to toughen liability standards in a mortgage reform bill up for a vote in the House Thursday raised consternation in the lending industry but ultimately fell flat, along with other amendments designed to beef up consumer protections. Click here for the full article.

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Mean, Median, Mode … Misleading … Misdirection?

They say, "A picture is worth a thousand words" and since we live in a world that is visually oriented, we tend to assume that those that may be statistically challenged will easily grasp our concepts if we present the same data in graphs vs. the numbers and words alone.

Analysts use the terms mean, median and mode to define measures of central tendency and regression techniques (linear, polynomial, etc.) as methods to model and display the trends the data may indicate over time.   

While appraisers know what these terms define and how regression analysis can be used to display the trends and findings of data in a graphical format, I think we take for granted that others outside the profession (and those inside as well) have the same comprehension of statistical analysis tools that we do.

The real question is "do they"?

What I've discovered is that despite my best efforts to keep them simple and straight forward, many if not most, cannot quickly grasp the concepts or easily (without lengthy explanation) get on the same wavelength as the graph's creator.

Moreover, I found that those creating the graphs can easily (by choice or accident) "misdirect" or "alter" the representation of the data (and therefore the client's comprehension of the same information) by using different methods to present conclusions (in the form of linear vs. polynomial trend lines), inflation adjusted prices (Case-Shiller indexes) vs. nominal prices, etc.

This brings me to an interesting point. If we create the graphs to assist the client in understanding the trends, data, adjustments etc. and the client is confused (as a result of the presentation without sufficient explanation of the methodologies, etc.), in creating the graph have we assisted the client or have we further contributed to the problem of a confused and misinformed marketplace?

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11/15/07 - Freddie Mac Update Bulletin: Lending practices in "Declining Markets", Appraiser-Seller Responsibilities, Underwriting, and Maximum Financing Concessions

Freddie Mac has just released their November 15 Bulletin [PDF 209K] – New and Revised Post-settlement Delivery Fees and Other Changes to the Single-Family Seller/Servicer Guide (Guide) .  A tip of the blogging hat to Mark Mandros of M.F. Mandros & Associates for the tip!

The following are excerpts from this bulletin:

DECLINING MARKETS

Lending Practices in Declining Markets

Many areas of the country are experiencing significant and on-going property value depreciation. While the decline in average home prices is widespread, the amount of the decline varies and may be significantly worse than the national average in some areas. In light of these market conditions, we are reinforcing our appraisal standards and underwriting expectations related to maximum financing in declining markets.

Appraiser responsibilities when performing an appraisal. 

In reporting the property-value trends, appraisers certify that they have performed an objective and complete analysis of quantifiable data supporting their conclusion.

The purpose of an appraisal is to provide the Seller with an accurate and adequately supported opinion of value, based on our definition of market value. Appraisers must determine whether the property they are appraising is located in an increasing, stable or declining market.

• Appraisers must support their conclusions by providing relevant information relating to the property-value trends, demand/supply and marketing time.
• Appraisers must also provide a description of the prevalence and impact of financing assistance, e.g. concessions, gifts, or down payment assistance, paid on behalf of a Borrower as well as the assistance generally available in the market.
• They must also research and comment on the days-on-market, including expired listings of the subject and comparables, as well as list-to-sale price ratios, and the availability of financing. The opinions of value must reflect the value and marketability of the property without concessions.

Download Freddie Mac Bulletin 11-15-07.pdf (209.2K)

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Lending CEOs Find It Hard To Argue With NY AG on "Appraisal Pressure"

According to American Bankers's Pipeline newsletter: Mortgage production news and trends by Harry Terris and Kate Berry - Download AmericanBanker: Cuomo Krenlinology (10-16-07) article (58.6K) :

A former aide to Andrew Cuomo said that the New York attorney general is likely aiming for a broad deal with the mortgage industry on appraisal practices, and that if he stops short of proving systemic fraud in court, his investigation probably will not spark widespread forced loan buybacks.

Now that Mr. Cuomo has "revealed the problem in a very public way" and made "others aware of it who didn't see that it was there, parties who have an interest in ensuring that the appraisals were accurate … may be … prompted to take action," Mr. Glaser said. But, "they're difficult cases to bring."

Mr. Cuomo is suing eAppraiseIT LLC and its parent, First American Corp. of Santa Ana, Calif., for allegedly caving to pressure from Washington Mutual Inc. to inflate valuations.  According to the article:

Mr. Cuomo "has an insider's view of this that is very hard to challenge," Mr. Glaser said. "Even for those of us who are in the industry, even those who are" chief executives "of lending companies, find it very tough to argue with Cuomo on this issue."

Download AmericanBanker: Cuomo Krenlinology (10-16-07) article (58.6K)

Runt Rants - Notes From Valuation 2007 Convention

The personal computer and the Internet exists today, didn't exist 25 years ago.  I'm sitting in my hotel room overlooking the city of Las Vegas, composing this column on a machine which is in my lap, and a bell rings every few minutes announcing the arrival of another email message.

I'm connected to the Internet through a wireless hookup in the hotel. All day long each day I stay in touch with my office, with the folks around the country with whom I'm working....Florida, California, Chicago, Boston, Arizona, Washington, have all been the source and destinations of emails, not to mention the messages exchanged with the Global HQ of Acorn back in Houston. In short, it's as if I never left my Galactic HQ in Cypress, Texas...I've done everything from Vegas that I would have done from Cypress in my own office. Everything!

Everything except play golf....

Valuation 2007 was impressive. Quality speakers, timely topics. Fannie Mae, Freddie Mac, VA, FHA, all made presentations on the state of their business, the future directions. Appraisal Fraud was discussed by Fannie Mae, Rachel Dollar of the Mortgage Fraud Blog, the FBI, and Richard Barefoot of Morgan Stanley.

The Chief Appraiser Panel, represented by Bank United, Indy Mac, ING Direct, Wachovia, opened with Brad Ellis of Indy Mac. Brad Ellis' topic was Black Lists and Do Not Use Lists.

He has been working with a committee within the Mortgage Bankers Association (I hope I'm connecting this correctly; I don't have the exact committee and its relationship within the MBA in front of me.) The purpose of the committee was/is to study the exclusionary practices in the industry and recommend a common policy.

Remember the Black List Series that Appraisal Scoop began this summer? Your comments and the cases that you reported were read by members of that committee and influenced their thinking. Brad was even kind enough to open the presentation by noting to the Appraisal Scoop series. Thanks Brad.

Thanks readers! Your involvement here had an impact. Brad had sent me a copy of the Exclusionary List report and the committee's recommendations a few weeks ago. I've kept it confidential, not having been given permission to discuss it publicly.

After the presentation Brad released me from that self imposed restriction, and Appraisal Scoop will have more to say about that report later in a separate column. Much of what our Black List series suggested as remedies are contained in that report's recommendations.

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Video: My office has moved! And it all fits in one bag!

AUTHOR: Richard D Ferris - AmcAppraisalsinc.com -  Servicing all of Lake, Orange, Osceola, Polk, and Seminole Counties. Also servicing Deltona, Deland, and Orange City in Volusia County. - Phone 877-789-5249 or email me: richard@amcappraisalsinc.com

Today is a good day in my office!  It marks the 5th year of being totally paperless!  And that means, I can finally get rid of the LAST box of paper files taking up a significant corner of my garage!  You know the feeling! 

As appraisers, we garner a wall full of boxes, legal size file cabinets, creative storage solutions, etc, etc!  And we have to after all - since we have to maintain our files for at least 5 years.  And that means every time I moved in the last 12 years, I hauled boxes and boxes of paper files from one storage location to the next!  Yet as of today, I officially have 5 years of digital files stored on a hard drive and various back up services!

Let me show you what it took for me to make the switch:

If you have not yet taken the plunge into the paperless office, let me tell you first off - I feel your pain!  When I first decided - I waded into the water.  I still drew field sketches on a clipboard and scanned the notes into my computer.  I still printed a full copy of the final report and stuck it into a legal sized Manila folder.   Little by little, I took steps to eliminate paper...which really meant I had to eliminate my fear of being without a physical file.

One of the ways I accomplished this was with an online fax service - Efax.com   Efax has a print driver which allows one to print anything, from any source, to a digital file.  The one aspect I found that needed to change, however, was my habit of workflow.  I've produced two short videos demonstrating my Efax and Digital Workfile workflow.  These videos will also be available in the Paperless Office Video section of the Appraisal Scoop blog. 

• Video #1 - Working with eFax - receiving an order
• Video #2 - Working with eFax - collecting data in workfiles

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Lenders say billions more in write-downs, losses expected

HSBC Holdings PLC, Bear Stearns Cos., Bank of America Corp., E*Trade and mortgage repurchaser Fannie Mae are among the latest companies to reveal billions in lending-related losses.

HSBC said in a press release.

"Deterioration in U.S. housing markets is affecting consumer finance credit quality more broadly than hitherto and loan impairment charges are expected to remain high in these conditions," the company said. "There is the probability of further deterioration if the current housing market distress continues and further impacts the broader economy."

In an advisory to investors, HSBC warned there is evidence of "changed customer behavior" as foreclosures increase, repossessed properties remain unsold and rental alternatives become more attractive -- all factors contributing to increased loan delinquencies.

Source: Inman News - Click here.

CNBC's Cramer: New York AG Cuomo a 'Communist'

CNBC’s Jim Cramer blasted that strategy in his “Stop Trading” November 7 “Street Signs” segment. He labeled New York Attorney General Andrew Cuomo a “communist” who “wants to shut down the mortgage market.”

“Why doesn’t he just destroy any opportunity we have to move the $1.25 trillion in houses that are just sitting on the market right now?”

“Can I give you the real headline?” Cramer said. “Cuomo says let’s make it harder to get a mortgage, let’s make it harder to lend. Is that really the intent of this Democrat who wants to be president of the universe?”

Cramer referred to him as “General Cuomo,” and “Street Signs” host Erin Burnett said CNBC had offered him an invitation to appear on CNBC, but he has thus far declined.

“Oh, he’ll come on in a second. He’s worse than [Connecticut Attorney General Richard] Blumenthal,” Cramer said. “He’d walk a mile for a camera.”

Click here for ANOTHER video . . .

Who is Responsible for the Mortgage Mess?

AUTHOR: Beverly A. Bayer, SRA – Moreno Valley California real estate appraiser.  Author of Practical Residential Appraising - available as an e-book at: www.practicalresidentialappraising.com  Phone - 951 247-3674

Who is Responsible for the Mortgage Mess?

Is it the couple who bought their first home?

Found by their real estate agent?

Who suggested the loan broker?

Who placed them into a loan, made possible by an appraiser’s value?

Funded by a lender who accepted the appraised value and the borrower’s credit worthiness; and designed the loan product?

Or the secondary holder of that loan who packaged it into mortgage backed securities?

Or the retired teacher who invested her life savings into that mortgage backed security; at the suggestion of her stock broker, as a source of monthly income.

Or was it the rating entity that gave a good score to that mortgage backed security that the retired teacher bought into.

At the suggestion of her stock broker, whose brokerage house had a vested interest in that mortgage backed security?

That was comprised of loans made from the lender who funded the couple’s mortgage loan and designed the risky loan product that generated income to their bank.

That was brought to them from the commissioned, unlicensed loan broker, who uses appraisers who overvalue properties and encourages borrowers to lie about their stated income. 

Who was suggested by the couple’s real estate agent, who received a commission at the close of escrow of the couple’s dream home?

Or the couple who exaggerated their income to qualify for the loan needed to buy the house they couldn’t afford.  That is now in foreclosure.

To place the blame, you need to know who profited and who was hurt.  And was mortgage fraud, predatory lending, just poor timing or greed the reason why so many loans are failing, now.  Mortgage fraud is a deception on the lender that could be done by inflating the borrower’s income or market value of the collateral property. 

Predatory lending is when the borrower is taken advantage of – such as with putting them into an inappropriate loan or charging excessive fees.  Predatory lending might also encompass not exploring the buyer’s options or not explaining adequately the features and ramification of the chosen loan.

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Help Add Co-Sponsors to H.R. 3837, the Escrow, Appraisal and Mortgage Servicing Improvement Act of 2007

Call Your Representative Today!

H.R. 3837, The Escrow, Appraisal and Mortgage Servicing Improvement Act has been introduced in the House of Representatives by Representative Paul Kanjorski (D-PA).   Included in this bill are significant reforms to the real estate appraisal regulatory structure, which will provide greater openness and accountability of federal and state appraiser regulators, prohibit inappropriate pressure of appraisers and promote higher quality appraisals.

Take Action. The Appraisal Institute requests all appraisers call their Representative and ask that they co-sponsor H.R. 3837, the Escrow, Appraisal and Mortgage Servicing Improvements Act. This bill will need bi-partisan support to pass. Simply click here and then insert your zip code in the box and follow the instructions.

Click here for 8 Reason's To Support H.R. 3837