Appraisal Scoop

President Bush Signs the Housing and Economic Recovery Act of 2008 - Federal Housing Finance Agency (FHFA) Created

James B. Lockhart, Director of the OFHEO, said: "Today President Bush signed the ‘Housing and Economic Recovery Act of 2008.’  I thank President Bush and Secretary Paulson for their leadership in making government-sponsored enterprise (GSE) regulatory reform a reality."

The Act creates a world-class, empowered regulator, the Federal Housing Finance Agency (FHFA), with all the authorities necessary to oversee vital components of our country’s secondary mortgage markets -- Fannie Mae, Freddie Mac and the Federal Home Loan Banks -- at a very challenging time. 

"As Director of the new agency", Mr. Lockhart said, "I look forward to working with the combined Federal Housing Finance Board (FHFB), Office of Federal Housing Enterprise Oversight (OFHEO) and Housing and Urban Development (HUD) GSE Mission teams and with other regulators to ensure the safety and soundness of the 14 housing-related GSEs and the stability of the nation’s housing finance system."

For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors.  As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing, and operate safely and soundly.”

Related Articles:

• Real Estate Outlook: Housing Bill Approved (with video)
• President Bush Signs Landmark Housing Bill into Law
• Bush Signs Housing-Relief Bill Into Law

H.R. 3221 (Foreclosure Prevention Act of 2008 ) Passed By Senate - Awaits President's Signature

The GSE Regulatory Reform Bill (H.R. 3221: Forclosure Prevention Act of 2008) was previously passed by the House of Representatives on July 23, 2008 and sent to the Senate for their approval. (See prior Appraisal Scoop article).

Today, the Senate also voted to approve the bill:

U.S. Senate Roll Call Votes 110^th Congress - 2^nd Session as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate

Vote Summary (source)

Question: On the Motion (Motion to Concur in the House Amendment to Senate Amendment to the House Amendments to the Senate Amendment to HR 3221 )
Vote Number:	186	Vote Date:	July 26, 2008, 11:00 AM
Required For Majority:	1/2	Vote Result:	Motion Agreed to
Measure Number:	H.R. 3221 (Foreclosure Prevention Act of 2008 )
Measure Title:	A bill to provide needed housing reform and for other purposes.

Vote Counts:	YEAs	72
	NAYs	13
	Not Voting	15

Homeowner rescue awaits President Bush's signature (BusinessWeek)
Congress approved mortgage relief for 400,000 struggling homeowners Saturday as part of an election-year housing plan that also aims to calm jittery financial markets and bolster the sagging economy. President Bush said he would sign it promptly, despite reservations.

Housing rescue bill heads to Bush for signature (BusinessWeek)
Congress passed a housing rescue bill Saturday aimed at sparing 400,000 struggling homeowners from foreclosure. President Bush is expected to sign the measure quickly.

Countrywide . . .Not On Your Side: Mark Zachary Files 2nd Lawsuit [Video]

Zachary - who claims in this suit and one filed in January that he blew the whistle on questionable practices at Countrywide KB Home Loans - alleges he was fired for his failure to perform illegal acts.

Mark Zachary, a former employee of Countrywide KB Home Loans in Houston, sued the company again last month, this time under the whistle-blower retaliation provision of the federal Sarbanes-Oxley Act. (see prior suit).

If you recall, the former regional vice president said he objected to using questionable appraisers known to inflate the value of homes. He also objected to practices that made it easier for applicants to get "stated income" loans. Countrywide has denied wrong-doing in the past.

This one invokes the whistle-blower provision of Sarbanes-Oxley. In this updated suit, Zachary repeats his claims that he was fired for raising concern about some dubious financial practices at the company.  [Note: I've not been able to locate a link to the second filing]

According to the FierceSarbox blog: Mark Zachary has the potential to be a real thorn in the side of Countrywide at a tough time.    

According to the Houston Chronicle: "His attorneys, Philip Hilder and Ian Scharfman, said he filed the second suit after waiting the required time for the Labor Department to conduct an investigation."

A representative with the Countrywide Financial Corp.-KB Home joint venture did not have a comment regarding the most current filing. However, a spokeswoman with Countrywide Financial said at the time of Zachary's earlier suit that it was without merit.

Get Ready Appraisers - FHA Mailing 675,000 Letters to At-Risk-Homeowners

WASHINGTON -This week, HUD's Federal Housing Administration (FHA) is mailing hundreds of thousands of letters to homeowners at risk of losing their homes through foreclosure and urging them to consider a safer, more affordable alternative to the high-cost mortgages they are currently paying. The first round of 280,000 letters was mailed in February. FHA's public awareness campaign will continue through September, ultimately reaching 850,000 distressed homeowners.

Letters are being sent to homeowners who have already faced or are experiencing the first reset of their adjustable rate mortgages. Through the end of the year, FHA can insure home loans valued between $271,050 and $729,750. Normally these loan limits are set between $200,160 and $362,790 but were expanded through President Bush's Economic Stimulus Package. Bipartisan FHA Modernization legislation awaiting final action by the Senate and House of Representatives would permanently increase the loan limits to an acceptable level. 

View full article . .

Below is a copy of the letter being sent to homeowners. - Click Here

Part II - Declining Market Designations and Market Forecast Analysis

The following has been reprinted with permission from the Oregon Appraiser Certification and Licensure Board — Spring 2008 Edition - Declining Market Designations and Market Forecast Analysis by Larry Green.

Part 1 of this two-part series began with an explaination of the the current situation by looking at how Fannie Mae, Freddie Mac, and guarantor mortgage insurance companies gather their data and identify “declining markets.”

In Part II of  Declining Market Designations and Market Forecast Analysis  Larry Green will discuss several tools that are available to analyze market trends. These include:

• The methodology to calculate the absorption rate
• Days on Market (DOM),
• List to Sale Price ratio (%SP:LP),
• Sale-Resale of the same property,
• Real Estate Owned (REO) activity

The issue of a declining market designation is closely tied to employing supply and demand analysis. Identifying and measuring the market is undoubtedly one of the most important procedures for all appraisers to have a clear understanding. The appraiser must know the composition of the market.

Some elements of comparison could be: the taxing district, school system, government services, park district, library district, location – urban, suburban, and rural, fire and police districts, lot/parcel sizes, utilities available, quality of improvements, and all identifiable physical attributes, such as age, condition, vehicle parking, and accessory amenities.

Let’s look at the supply and demand tool to calculate the absorption rate.

Here is the methodology to calculate the absorption rate:

1. Identify and evaluate the subject’s attributes,
2. Define the typical prospective purchaser profile,
3. Assume the subject property is being presented to the market and design a sales search that will count the number of properties in competition with the subject.
4. Count the number of:

• Listings available that compete with the subject’s parameters.
• The number of comparable sales that have closed in the past twelve months and divide by twelve (12) for the average sales rate per month.
• Note if there is an unusually high or low number of pending sale transactions because it could be an indication of a market change.

Click here to continue reading . . .

Part 1: Declining Market Designations and Market Forecast Analysis

The following has been reprinted with permission from the Oregon Appraiser Certification and Licensure Board — Spring 2008 Edition - Declining Market Designations and Market Forecast Analysis by Larry Green

To the surprise of many appraisers in the Portland-Vancouver Beaverton-Oregon-Washington Metropolitan Statistical Area (MSA), Fannie Mae, Freddie Mac and several major lender guarantors identify this MSA, as a “declining market.”

This MSA consists of Multnomah, Washington, Clackamas, Columbia and Yamhill counties in Oregon, as well as Clark and Skamania counties in Washington. The declining market designation applies to several other regions in Oregon, such as Douglas, Jackson, and Deschutes counties.

Newspaper headlines such as “Declining Market Designation Stumps Experts” have been published in several areas around the nation. More and more appraisers are now being asked or required to report market condition as “Declining,” and they feel pressured by their lender/clients and/or appraisal management company (AMC) clients to comply.

Well, let me help to explain the current situation by looking at how Fannie Mae, Freddie Mac, and guarantor mortgage insurance companies gather their data and identify “declining markets.”

First, Fannie Mae and Freddie Mac (Government Sponsored Enterprises – GSEs) rely on data gathered by the Office of Federal Housing Enterprise Oversight (OFHEO), http://www.ofheo.gov. OFHEO publishes quarterly rankings by MSAs based on House Price Index (HPI).  The HPI is a broad measure of the movement of single-family house prices on the national, state, and MSA level.

The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales and refinancings on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by GSEs since January 1975.

With the release of the fourth quarter HPI, OFHEO made modifications to the way its national HPIs are computed. Most important to appraisers is the separation of the sale-resale purchase-only index from the all-transaction index, which included GSEs refinance transactions of the same property. For a greater understanding of OFHEOs methodology, you should spend some time at their website.

Now let’s get back to the “declining” designation. The GSEs identify a declining market when two quarterly statistics decline in the rate of appreciation, not just in a calendar quarter. This method has some good reliability because it provides higher confidence that the data extracted is sufficient to support a valid trend.

The point is, a market area may indicate appreciation, but the rate of appreciation is declining when measured by quarter over quarter trends. According to FreddieMac, market declines exceeding one-percent for the most recent two calendar quarters represent a declining market, or when year-over-year statistics indicate overall market declines in the MSA. The exception is when an increase is shown in the two most recent calendar quarters. FannieMae simply states, “a declining market is one in which home prices are currently declining.” 

Click here to continue reading . . .

OFHEO Releases 1st Qtr. 2008 Index Figures: Decline In House Prices Accelerates In 1st Quarter!

Washington, DC – U.S. home prices fell in the first quarter of 2008 according to OFHEO’s seasonally-adjusted purchase-only house price index. The index, which is based on data from home sales, was 1.7 percent lower on a seasonally-adjusted basis in the first quarter than in the fourth quarter of 2007.

This decline exceeded the 1.4 percent price decline between the third and fourth quarters of 2007 and is the largest quarterly price decline on record. Over the past year, prices fell 3.1 percent between the first quarter of 2007 and the first quarter of 2008.

This is the largest decline in the purchase only index’s 17-year history.

Purchase-only indexes are also available for every Census Division and state and are downloadable at http://www.ofheo.gov/hpi_download.aspx

OFHEO's all-transactions House Price Index (HPI), which includes data from home sales and appraisals for refinancings, showed less weakness than the purchase-only index. The all-transactions HPI fell 0.2 percent in the latest quarter and was flat over the four-quarter period.

The figures were released today by OFHEO Director James B. Lockhart, as part of the quarterly report analyzing housing price appreciation trends. “These substantial home price declines bring positive and negative news,” said Lockhart. “For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets. To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news, as are continued low mortgage rates.”

Both OFHEO’s purchase-only index and its all-transactions index show much more muted price declines than do other house price indexes.

“While house price declines are widespread, homes financed with prime, conforming mortgages continue to hold up better than those financed with other types of mortgages, a phenomenon we’ve been observing for the last several quarters,” Lockhart said.

The HPI report contains four tables:

1. A ranking of the 50 States and Washington, D.C. by House Price Appreciation;
2. Percentage Changes in House Price Appreciation by Census Division;
3. A ranking of 292 MSAs and Metropolitan Divisions by House Price Appreciation; and
4. A list of one-year and five-year House Price Appreciation rates for MSAs not ranked.

OFHEO’s full PDF of report is at: www.ofheo.gov/media/pdf/1q08hpi.pdf .  Also, be sure to visit http://www.ofheo.gov to use the OFHEO House Price calculator. Please e-mail ofheoinquiries@ofheo.gov for a printed copy of the report.

The next quarterly HPI report will be posted August 26, 2008 and the next monthly index will be released on June 24, 2008.

Press Release: Fannie Mae Announces Single National Down Payment Policy; Replaces Policy Regarding Markets Where Home Prices are Declining

WASHINGTON, DC -- May 16, 2008 -- Fannie Mae (FNM/NYSE) today announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee.

Update - NAR: Fannie Mae Scraps Declining Markets Policy

Update - Inman: Fannie Mae Ditching Declining-Market Policy

Starting June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter^® (DU^®) automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of DU, in all geographic locations in the United States.

The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining.

"As another part of our 'Keys to Recovery^TM' initiative, we are today announcing that we will be equalizing the down payment requirements for borrowers in all parts of the country, regardless of local market conditions," Marianne Sullivan, Senior Vice President, Single-Family Credit Policy and Risk Management, said. "This new down payment policy reinforces our goal to support successful home-owning, not just home-buying, as we seek to bring liquidity to all communities and help the housing market recover."

The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. The company will implement systems and operational changes over the summer to accommodate the new national policy.

Click here to continue reading . . .

The Fair Value and Independent Appraisal Act - Senators Casey, Martinez, Kanjorski, and Biggert

MARTINEZ: HOUSING APPRAISAL REFORM WILL PROTECT CONSUMERS AND LENDERS

April 15, 2008 - WASHINGTON - U.S. Senator Mel Martinez (R-FL) today joined with Senator Bob Casey (D-PA) in introducing legislation to reform the appraisal process for home purchases and deter appraisal fraud schemes. The Fair Value and Independent Appraisal Act is a move by Senator Martinez to continue his work towards reforming and strengthening oversight of the mortgage system.

“There are some truly bad actors out there posing as legitimate appraisers. The ripple effect has worsened the mortgage crisis,” said Senator Martinez, former Secretary of the U.S. Department of Housing and Urban Development. “There continue to be too many unchecked components in the appraisal process. This will protect both consumers and lenders by improving oversight and putting more checks in place.”

In cases of appraisal fraud, an appraiser and a mortgage broker work together to sell homes at higher prices than they are worth. An appraiser inflates the value of a property, which increase the size of the mortgage. While the unsuspecting homebuyer is stuck with an over-valued home and expensive mortgage, the scammers make out with more money from an inflated broker fee. These homeowners often end up in foreclosure and the lender is left with a worthless home.

“A disturbing byproduct of the increased rates of foreclosures is unscrupulous individuals trying to profit from other people’s losses,” said Senator Casey. “Stopping these flipping schemes will help give confidence to those buying homes that appraisals on their new homes are accurate and won’t come back to haunt them later.”

This legislation will:

• Require a physical property visit and a second independent appraisal for any high-interest, high-risk mortgage offered for a property sold at a higher price within 180 days of its last purchase;
• ensure appraiser independence by prohibiting interested parties from improperly influencing a property appraisal;
• ensure that appraisers are qualified and follow certain minimum standards;
• require a mortgage originator to make available to the credit applicant all appraisal valuation reports no later than three days prior to the transaction closing date;
• and set increased civil penalties for violating these provisions ($10,000 for 1st violation; $20,000 for 2nd).

Click here to continue reading . . .

Runt Rants - Back Talk Looks At the Sub Prime Crisis

AUTHOR: Ken Verrett is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

Runt Rants has written several times on the Sub Prime Crisis. Its an old story now, winding down through the system, taking its toll on the various parties, some deserving, some simply caught up in the market adjustment.

We've talked about the folks that were the worst players in my view; the Investment Banking Firms. (Wow! Such a moniker! No wonder they changed it from Snake Oil Salesmen. Much better ring to that new title. However, something about a tiger not being able to change it's stripes comes to mind.)

Investment Bankers either knew what they were selling was junk and didn't care, or they didn't know what they were selling was junk and didn't care.  Same result: disaster for the buyer, disaster for the market.

Now, one of my favorite blogs, Back Talk, has taken on the Sub Prime Story and decided to research it.

I couldn't wait to read his thoughts and conclusions! I mentioned last week that I have been reading Back Talk for a number of months, and I have been impressed with his research skills, his relatively balanced assessments, his ability to back his conclusions with facts, often presented in easy to decipher charts.

Back Talk doesn't trust the media. He preaches that we shouldn't either, that it is our responsibility to do our own research, look at all sides of an issue, and decide for ourselves. That's my view of the appraisal profession, and my goal in Runt Rants. Present some facts, perhaps alternate views, and let you conclude what you will, which will then allow you to make the best decisions for your business.

I wasn't disappointed in Back Talk's assessment. Its worth your time. Here are some excerpts.

"Economic growth in the United States is expected to slow to a crawl of just 0.5 percent this year, which would mark the worst pace in 17 years, the global finance body said. The United States won't fare much better next year; the IMF projected the U.S. economy will grow by a feeble 0.6 percent in 2009, when measured by an annual average."

Click here to continue reading . . .