The News

To start, and given the events of the past three years this is very good news, there is now some evidence that home prices are generally stabilizing — not everywhere, not at every moment, but in a general sense. As HUD explains:

After 30 straight months of decline and an expectation of continued nearly 14 percent decline, home prices leveled off in the past year and expectations have adjusted upward.

Mortgages are more affordable: due to historically low interest rates, more than 6 million homeowners have refinanced, saving an estimated $150 per month on average and more than $11 billion in total. And more than 2.5 million families have purchased a home using the First-Time Homebuyer Tax Credit.

Servicers report that the number of homeowners receiving restructured mortgages since April 2009 has increased to 2.8 million. Additionally, nearly half of homeowners unable to enter a HAMP permanent modification enter an alternative modification with their servicer, and fewer than 10 percent of cancelled trials move to foreclosure sale.

However, the foreclosure prevention initiatives are not intended to help all borrowers and the market will continue to adjust for some time. The supply of homes on and off market remains near all-time highs. It will take time to work though this large inventory.

All the above information is true, however there is a somewhat different context which should be noted. The benefits from the home seller and first-time buyer tax credit are done except for certain active-military personnel who have until April 30, 2011 to qualify for the benefit.

On the matter of cancelled loan modification trials, that’s a figure which will grow. It’s a rolling number over time and the current numbers now reflect the early stages of the program.

Stable Prices

The Scorecard shows that prices have begun to stabilize nationally, something which is both statistically true but not necessarily true in given communities or metro areas. Still, HUD has dawn numbers from the Standard & Poors Case/Shiller reports as well as the information provided by the Federal Housing Finance Agency (FHFA).

Credibility

The HUD scorecard is especially credible because it gathers information from various sources in one place. This saves a great deal of time for researchers and reporters, and it also includes information which in some cases is parallel and in others which is divergent and even conflicting. This happens because individual data sources have different information collection methods, timeframes and conclusions. The Scorecard presents an easy way to compare and contrast data.

So, hey, it’s good to see some stability in the real estate marketplace. And yes, HUD has come up with a useful measure of marketplace activity, something to be watched and tracked over time.

HUD Scorecard: Home Prices Stabilizing is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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In terms of prices, NAR says for all of 2009, the median price for a single-family existing home was $173,200, down 11.9 percent from 2008. This compares with a 2008 price drop of 9.3 percent.

Translation: Existing home values actually fell more in 2009 than in 2008, though prices did rise 1.4 percent in December 2009 when compared with a year earlier.

Inventory

“Total housing inventory at the end of December,” says NAR, “fell 6.6 percent to 3.29 million existing homes available for sale, which represents a 7.2-month supply at the current sales pace, up from a 6.5-month supply in November. Raw unsold inventory is 11.1 percent below a year ago, is at the lowest level since March 2006, and is 28.2 percent below the record of 4.58 million in July 2008.”

It Could Have Been Worse

The obvious saving grace of 2009 was the introduction of a real tax credit for first-time homebuyers. The “credit” introduced in 2008 under the Bush Administration was actually an interest-free loan that had to be repaid to Uncle Sam. The 2009 version under the Obama Administration was an outright tax credit of up to $8,000 for buyers and $6,500 for homesellers. It’s not a loan of any sort and there’s nothing to pay back for those who qualify. Look here for tax-credit specifics.

There’s no doubt that the tax credit for first-time homebuyers boosted sales. The worry is this: What happens when the credit ends, supposedly for contracts made before the end of April. Will the market.

NAR says “distressed homes, which accounted for 32 percent of sales last month, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area.”

If it’s true that distressed homes downwardly distort the market, then is it not also true that first-time homebuyer and existing home seller credits upwardly distort the marketplace? What about foreclosure moratoriums which kept homes off the foreclosure rolls? How about the government’s Make Home Affordable program which has delayed hundreds of thousands of foreclosures and saved a number of homes with new financing? And interest rates below 5%? Surely that’s an upward distortion….

Looking Toward 2010

What about 2010? Given the continuing steep rates of unemployment, massive numbers of option ARMs that will be re-cast this year and next, and huge numbers of unsold foreclosures — that shadow inventory which has been in the news — look for both tax credits to be extended and high rates of foreclosure to continue during the coming year.

As to prices, for what it’s worth, I expect to see more metro areas with rising prices in 2010, areas outside such major foreclosure centers as California, Florida, Arizona, Nevada, Michigan, Georgia, Ohio, Texas, and Illinois.

2009 Home Sales Up, But Values Down is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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I bring up this history for a simple reason: We need to re-start the American economy. One step among many would be to make every house, apartment building and office structure not just energy efficient, but energy producing.

The technology is out there today to do just that. Instead of massive projects, think smaller and in terms of millions of installations. We could employ a lot of people in every state and in every community. At the same time we could also increase the value of our housing stock, do a lot of good for the economy and also cut our dependence on foreign oil — a dependence which drains our bank accounts and demolishes our political independence.

Newer homes — and retro-fitted older ones — give some sense for what can be done. As one example, our 40-year-old furnace finally gave out. The new system will cut our heating and air conditioning bill by about a third. No less important, it’s better. We now have a programmable thermostat. The temperature moves up and down during the day as our needs change. When the temperature in the house needs to be adjusted the system doesn’t just go full blast, it instead selects the most energy-efficient approach to get the job done.

Add in better insulation, modern windows and doors, fuel-efficient appliances and more efficient toilets and you not only cut energy bills and water usage, you do something else: Get enough people to go green and you reduce the need to build new power plants.

Saving energy ought to be encouraged but it’s only half the equation. The other half is this: Every home, apartment building and office complex should be seen as a source of energy production.

We already have a number of homes where owners have installed various devices which allow them to lower electric usage and in some cases to feed energy back to the power grid. We need to go further and make these pioneering efforts commonplace.

A smart example of what can be done comes from Brookfield Homes. It has properties available right now, today, that benefit from solar, geothermal and wind energy. (See: http://www.brookfieldblue.com).

Heat from the sun can be used to heat water (a huge energy cost) and also converted into electricity. Geothermal power to heat and cool a property can be extracted from the ground. A simple and small turbine can produce electricity from wind.

No less important, the time has come to recognize that vast homes with more square footage than a polo field are out. Times change. No one is making cars with fins, TVs with tubes or telephones with dials. With better designs and more efficiency smaller homes, say 1,200 to 1,600 square feet, can make great sense, especially since they’re most likely to comply with Miller’s First Rule of Real Estate: Never buy a home you don’t want to clean.

It costs money to install or retro-fit energy generation systems, but it also costs money if you don’t. As our newly-elected President says, we need new ways of doing business, and that includes real estate.

Brokers ought to support the move not just to green homes, but to energy-generating homes. The reason? Better inventory to sell. A new reason to stoke demand. Homes which are objectively better for the country. Homes which will lower gas prices by reducing overall energy demand. Wouldn’t it be great to sell homes which were cool, sexy, in, green and politically correct?

Look toward the future and think about the new generation of cars being produced. Some experimental models are now getting 100 MPG. That’s done by combining gasoline engines with electric generators and batteries.

We’ll be using gasoline for decades because the distribution infrastructure is already in place. But so is the distribution infrastructure for electricity. A car that gets 100 miles per gallon is great, a car that gets 100 miles per gallon and uses free fuel from home is a technology that’s long overdue.

While few of us have the ability to dig an oil well in our backyard, it’s a fairly simple matter to hook up a small wind turbine or to add a few solar cells. Given the benefits, it’s money well spent.

Published originally in January 2009 by The Real Estate Professional and posted with permission.

Real Estate: How To Re-Power US Home Sales is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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In figures release yesterday, FHFA tells us that in the second quarter home values nationwide fell .07 percent when compared with the first quarter. This is good news in the sense that it could have been far worse given rising unemployment levels and increasing foreclosure rates.

In fact, the FHFA quarter-to-quarter numbers are fairly useless. The reason is that the first quarter is Winter, not exactly a robust selling season. The second quarter is the Spring and the start of summer, a period when demand heats up.

No less important, in the second quarter we have had the start of the government loan modification program, a program which has put more than 230,000 distressed borrowers into three-month loan workout trials. This means these owners are not facing foreclosure unless they fail the trial period — and, unfortunately, many will. In essence, these are delayed foreclosures.

Lastly, there are any number of state moratoriums preventing foreclosures in the short term and private-sector efforts to hold down foreclosure numbers that started in the first quarter and are keeping distressed homes off the market..

The real number from FHFA that counts is that home values in the second quarter fell 6.1 percent when compared with the second quarter of 2008. That’s again not a perfect comparison, but it’s much closer to reality than quarter-to-quarter numbers.

Real Estate: What Really Happened To Home Prices is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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To be polite, not a damn thing.

The Board’s 5 Tips for Dealing with a Home Equity Line Freeze or Reduction first tells us the following:

Late Notice

Your home equity line of credit (HELOC) lender must provide you a written notice if they have frozen or reduced your HELOC. Your lender must send the notice to you no later than 3 business days after the freeze or reduction. The notice also must include information about any other changes to your HELOC.

I’m not kidding. This is really what it says. Your lender must notify you three days AFTER it has lowered or frozen your line of credit. In other words, no advance notice is required. This means your line could be reduced on a Monday, you could pay a bill on a Tuesday and then find out on a Wednesday that you did not actually have the credit which would allow you to write a check.

Of course, if you do have a check that bounces then you will naturally have to pay a bunch of fees and your credit score could be impacted. As it happens, a lower credit score can be used by lenders to justify reducing your line of credit.

Reasons

The Fed tells us lenders can reduce or freeze lines of credit for two reasons: a decline in the value of your home or a change in your financial circumstances. This means if the value of your home drops a dollar the lender has reasonable grounds blast your line of credit. As to changes in financial circumstances, they change every day. Notice that the “change” does not have to be negative, it merely has to be different.

Getting Back Your Line of Credit

The Fed explains that “your lender must reinstate your credit privileges when the conditions permitting the freeze or reduction no longer exist.” And who makes this determination? The lender?

And about those credit privileges? Does the Fed mean the line of credit for which you already paid? That’s not a privilege, that’s a purchase.

The Fed helpfully tells us “your lender can impose fees for reinstating your HELOC. Your lender may charge you fees to cover the costs for an appraisal and credit report when they consider your request for reinstating your HELOC. Your lender cannot, however, charge you a fee to reinstate your credit line once the condition that caused them to freeze or reduce your HELOC no longer exists.”

The bottom line is that if your lender can “justify” a credit line reduction or freeze then you’re stuck. Thank goodness the Fed exists to protect the public….

Mortgages: Can You Stop Line of Credit Freezes? is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The Pending Home Sales Index,1 a forward-looking indicator based on contracts signed in June, rose 3.6 percent to 94.6 from an upwardly revised reading of 91.3 in May, and is 6.7 percent above June 2008 when it was 88.7. The last time there were five consecutive monthly gains was in July 2003.

Lawrence Yun, NAR chief economist, said a combination of positive market factors is fueling the gains. “Historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines. Activity has been consistently much stronger for lower priced homes,” he said. “Because it may take as long as two months to close on a home after signing a contract, first-time buyers must act fairly soon to take advantage of the $8,000 tax credit because they must close on the sale by November 30.”

Affordability

NAR’s Housing Affordability Index remains very favorable. The affordability index stood at 159.2 in July, down from record peaks in recent months but it remains 36.6 percentage points above a year ago. Under these conditions the typical family would devote 15.7 percent of gross income to mortgage principal and interest, well below the standard allowance of 25 percent.

The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.
“A monthly rise in home prices and somewhat higher mortgage interest rates led to a modest decline in affordability in June, but it was still the sixth highest index on record dating back to 1970,” Yun said. “Because housing is so affordable in today’s market, job security and the first-time buyer tax credit are bigger factors in influencing home sales.”

Family Income

A median-income family, earning $60,700, could afford a home costing $289,100 in June with a 20 percent downpayment, assuming 25 percent of gross income is devoted to mortgage principal and interest. Affordability conditions for first-time buyers with the same income and small downpayments are roughly 80 percent of what a median-income family can afford. The affordable price was much higher than the median existing single-family home price in June, which was $181,600.

Yun expects existing-home sales to gradually rise over the balance of the year, with conditions varying around the country. “It appears home sales are on a sounder footing and inventory is gradually being absorbed.”

The Pending Home Sales Index in the Northeast rose 0.4 percent to 81.2 in June and is 5.8 percent above a year ago. In the Midwest the index increased 0.8 percent to 89.9 and is 11.6 percent above June 2008. The index in the South jumped 7.1 percent to 100.7 in June and is 8.9 percent higher than a year ago. In the West the index rose 2.9 percent to 100.4 but is 0.2 percent below June 2008.

Real Estate: Pending Home Sales Up For Fifth Month is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Let’s not go crazy here, the index is 10.7 percent below its April 2007 peak. That said, in an  environment with lousy news followed by worse news, the latest HPI is decidely in the good-news column.

The FHFA data comes from the purchase prices of houses used to back mortgages which have been sold or guaranteed by Fannie Mae or Freddie Mac. Between them, the two companies hold more than 31 million loans.

The problem is that the higher April prices did not happen everywhere. There were significant differences in the nine regions tracked by the government — some of which are surprising. The regional results for April are below:

Pacific Census Division: Hawaii, Alaska, Washington, Oregon, California —  up +2.7 percent.

Mountain Census Division: Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico — -0.2 percent.

West North Central: North Dakota, South Dakota, Minnesota, Nebraska, Iowa, Kansas, Missouri — up +0.6 percent.

West South Central: Oklahoma, Arkansas, Texas, Louisiana — up +0.5 percent.

East North Central: Michigan, Wisconsin, Illinois, Indiana, Ohio — up +1.5 percent.

East South Central: Kentucky, Tennessee, Mississippi, Alabama — down -0.5 percent.

New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut — down -2.0 percent.

Middle Atlantic: New York, New Jersey, Pennsylvania — down -0.1 percent.

South Atlantic: Delaware, Maryland, District of Columbia, Virginia, West Virginia, North Carolina, South Carolina, Georgia, Florida — up +1.4 percent.

Home Prices Up — Can This Be Real? is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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>>>Instead of a majority of valuation assignments going to appraisal managment companies we now have virtually ALL assignments being controlled by these joint venture arrangments. Notice how the market is doing?

There is a certain irony here. The worry pre-NVCC used to be that lenders and loan officers would pressure appraisers to come up with the “right” valuation. Now the worry is the cost and speed of services. Here’s a concept, why not let the borrower — who is paying for the appraisal — select the appraiser from the names on a local roster approved by the lender? The list would have to have at least 50 names for properties within a major metro area. No management companies would be needed.

>>>These appraisal managment companies, usually someway affiliated with First American Title, will have data on almost every home in America through their data collection process. Taken right from the appraisal reports, floorplans, interior and exterior photos, upgrades all the data that can be misused, abused but most importantly; resold. Because thats what its all about.

This is not really an HVCC problem; rather this is an issue which now confronts many professions: How do we deal with technological change? Many in real estate plainly believe there will be lower appraisal fees and fewer revenue opportunities for appraisers in the future. Many also believe that reduced appraisal costs should be passed through to borrowers and not used to pump up profits elsewhere in the lending process. As always, it pays to follow the money.

Automated appraisals may well work when you have a thousand identical townhouses with three models and lots of recent sales. The problem is that if an appraisal is inaccurate the lender is safe because it’s risk is spread among thousands of loans. The borrower, however, typically has one house — for the borrower an errant appraisal can be a disaster.

I think, though, that borrowers are better served when appraisers physically see the inside of a property and borrowers are certainly better off with a full appraisal when a property is in anyway distinctive — think of a homes in an older neighborhood with no common model or a house which has been unusually well maintained (or not).

>>>Just another line of easy profit by our big banking system. We should never have bailed them out, they have not demonstrated any gratitude to the taxpayer. Rates are still to high, credit is way to tight and no loans are being modified. Refinancing is not even an option. Best way to purchase is cash if you want to close in less than two months.

I suspect the dawning conclusion among the public is that bank reform is urgently needed. Let’s start with a Consumer Financial Protection Agency that can subpoena records and documents and let’s allow state regulators to finally have a real voice in the banking system.

>>>So how is this HVCC deal working out ?

Not badly enough that the entire idea should be “suspended” for 18 months. Fixed and made better, sure.

We thank Tim for a great post.

Appraisal Worries Really About The Future is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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A report just out from First American Core Logic points to an interesting finding: “National housing prices fell 9.2 percent in May compared to a year ago representing the smallest year-over-year decline recorded in 2009 and the lowest since December 2007.”

While it would be far better to see rising prices, moderating declines are not a bad result given the hideous financial events of the past three years. It will be interesting to see if price reductions continue to get smaller, a necessary step before we can get to the promised land of price stability and maybe, dare one say it, generally rising home values.

Trends

The LoanPerformance Home Price Index from First American CoreLogic looks at data collected over more than 30 years. The trends are the result of a “repeat-sales index that tracks increases and decreases in sales prices for the same homes over time,” according to the company.

The index covers home price indices and median sales prices for 7,668 ZIP codes, 958 Core Based Statistical Areas (CBSAs) and 678 counties located in all 50 states and the District of Columbia.

First American says that:

___ Since U.S. home prices peaked in July 2006, national home prices have declined 20.1 percent on a cumulative basis.

___ Despite the improvement in the national trend, the geographic breadth of price declines has not improved. Forty-one states experienced price declines, and 16 states had double-digit declines in May, well above the number of states experiencing declines a year ago.

___ Nevada (-26.4 percent) remained the top-ranked state for annual price depreciation with Florida (-25.5 percent) close behind. California’s (-19.8 percent) price trends continued to improve in May and is currently more than 10 percentage points better than the peak decline of 30.3 percent set in August 2008. Arizona (-18.1 percent) and Illinois (-16.9 percent) round out the top five states for price declines. Florida and Illinois are the only two states that are not currently showing signs of moderation or improvement in the declines among states experiencing the largest price decreases.

___ Over the past few months there has been a divergence in single-family detached residential properties as compared to single-family attached residential properties, which include condos and townhomes. As of May, prices of attached properties declined 12.0 percent from a year ago, compared to a 9.2 percent decrease for detached properties. The gap reflects the very weak condo market, tighter underwriting guidelines for this type of property, and the faster run-up in prices for condos during the bubble market.

Charts

Below are two charts from the study which look first at home price trends in 50 states plus the District of Columbia and then at a large number of major metro areas.

State Home Price Trend Results

STATE 12 Month HPI Change %

National -9.24%
Nevada -26.36%
Florida -25.49%
California -19.80%
Arizona -18.06%
Illinois -16.92%
Rhode Island -14.52%
District of Columbia -13.57%
Minnesota -13.56%
Maryland -12.61%
Ohio -11.89%
Washington -11.64%
Oregon -11.53%
New Hampshire -11.36%
Georgia -11.26%
New Jersey -11.02%
Connecticut -10.84%
Hawaii -8.09%
Virginia -8.01%
Massachusetts -7.88%
Wisconsin -6.56%
Kentucky -6.34%
Wyoming -5.58%
Vermont -5.38%
South Carolina -5.29%
Alabama -4.51%
Oklahoma -4.51%
Michigan -4.33%
Tennessee -4.18%
Utah -3.99%
Colorado -3.34%
Pennsylvania -2.99%
Delaware -2.84%
North Carolina -2.70%
Maine -2.52%
Nebraska -2.37%
Iowa -2.33%
Idaho -2.17%
New Mexico -2.01%
Arkansas -1.41%
Montana -0.65%
Mississippi -0.31%
Indiana 0.08%
Missouri 0.08%
Louisiana 0.65%
North Dakota 0.66%
Alaska 0.71%
Kansas 0.88%
Texas 1.70%
South Dakota 1.81%
West Virginia 3.03%
New York 3.14%

*NY and WV state transaction counts are extremely low due to county level reporting lags.  Significant downward revisions to the reported NY HPI data are expected as new county public records data is released.  Source: First American CoreLogic, LoanPerformance HPI, Single-Family Detached as of May 2009.

Major Metro Home Price Trends

Core Based Statistical Areas: 12 Month HPI Change %

Riverside-San Bernardino-Ontario CA -29.72%
Miami-Miami Beach-Kendall FL -29.43%
Cape Coral-Fort Myers FL -28.65%
Las Vegas-Paradise NV -27.86%
Fort Lauderdale-Pompano Beach-Deerfield Beach FL -27.01%
Orlando-Kissimmee FL -24.79%
Oakland-Fremont-Hayward CA -22.95%
Tampa-St. Petersburg-Clearwater FL -21.17%
Phoenix-Mesa-Scottsdale AZ -20.02%
Chicago-Naperville-Joliet IL -19.92%
Los Angeles-Long Beach-Glendale CA -16.34%
Seattle-Bellevue-Everett WA -14.11%
San Francisco-San Mateo-Redwood City CA -13.42%
Washington-Arlington-Alexandria DC-VA-MD-WV -13.27%
Minneapolis-St. Paul-Bloomington MN-WI -13.21%
Cleveland-Elyria-Mentor OH -12.13%
San Diego-Carlsbad-San Marcos CA -11.86%
Honolulu HI -11.19%
Portland-Vancouver-Beaverton OR-WA -11.16%
Atlanta-Sandy Springs-Marietta GA -11.00%
Edison-New Brunswick NJ -10.60%
St. Louis MO-IL -9.91%
New York-White Plains-Wayne NY-NJ -9.30%
Boston-Quincy MA -8.12%
Raleigh-Cary NC -5.17%
Salt Lake City UT -4.56%
Charlotte-Gastonia-Concord NC-SC -4.51%
Philadelphia PA -4.00%
Detroit-Livonia-Dearborn MI -3.81%
Denver-Aurora-Broomfield CO -1.86%
San Antonio TX 0.98%
Austin-Round Rock TX 1.57%
Dallas-Plano-Irving TX 1.72%
Houston-Sugar Land-Baytown TX 3.54%

Source: First American CoreLogic, LoanPerformance HPI, Single-Family Detached as of May, 2009.

Home Price Declines Slow, Says Major New Report is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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A number of leading real estate and lending trade associations are seeking an 18-month HVCC suspension — which no doubt will be followed by another suspension and another suspension so that the consumer protections in HVCC are never implemented. Of course, if we get rid of HVCC entirely then rules that would ban lender conflicts of interest would also be thrown out.

Now, however, several appraisal groups have come out with a proposal which would keep HVCC while getting rid of the elements which are actually causing problems.

As you read the letter below you can see what the appraisers are getting at: In the same way that HMOs add to medical costs so do appraisal management companies (AMCs). Essentially the appraisers want to dump the AMCs, their hidden fees and their absurd rules.

The full letter is below:

July 1, 2009

The Honorable Shaun Donovan
Secretary
Department of Housing and Urban Development
451 7th Street, SW
Washington, DC 20410

Re: Mortgagee Letter 97-46

Dear Secretary Donovan:

On behalf of the more than 35,000 members of our respective professional appraisal organizations, please accept our congratulations on your appointment as Secretary of the Department of Housing and Urban Development. We are confident that your service will prove valuable as our nation works through the challenging times we face.

As you know, real estate appraisers play an important role in the mortgage finance system. Appraisers are independent third-party professionals who deliver unbiased opinions on the market value of real estate held as collateral for mortgage loans. Recent changes in appraisal requirements stemming from an agreement between Fannie Mae and Freddie Mac and the New York Attorney General (i.e., the Home Valuation Code of Conduct) have so greatly worsened a flaw in past guidance received from the Federal Housing Administration (FHA) [i.e., Mortgagee Letter 97-46] that we believe it requires your immediate attention.

Mortgagee Letter 97-46 revised the Department’s policy governing appraisal fees and the use of third-party entities providing appraisal services. In earlier guidance (Mortgagee Letter 97-22), FHA stated that it no longer would establish maximum dollar limits on appraisal fees, but would limit the fee that could be charged to a mortgagor to the amount actually paid to the appraiser when a third-party appraisal management firm was used.

Yet, later in Mortgagee Letter 97-46, HUD states:

“[T]he Department will allow the mortgagor to pay a fee for the appraisal which may encompass fees for services performed by an appraisal management firm as well as fees for the appraisal itself. However, the total of these fees is limited to the customary and reasonable fee for an appraisal in the market area where the appraisal is performed.”

Given the rapidly growing reliance by residential mortgage lenders on appraisal management companies (AMCs) to provide appraisal services, the restriction on total appraisal fees to “no more than” the customary fee for an appraisal has driven down the fees paid to large numbers of appraisers to well below what has been customary and reasonable in given market areas. This has become a problem of enormous proportions because the Home Valuation Code of Conduct (HVCC) has caused a significant transfer of appraisal orders from mortgage brokers to AMCs. Mortgagee Letter 97-46’s pricing restriction is causing many experienced and qualified appraisers decline FHA appraisal assignments ordered by AMCs because of their below market appraisal fees., adding unnecessary and substantial risk to the FHA program. While the HVCC does not directly impose rules upon FHA appraisal ordering practices, many lenders are now applying the same standard to their entire appraisal ordering practices.

Further, regarding HUD-1 reporting, the Mortgagee Letter makes no distinction, as we believe it should, between the fee paid to the individual who performs the appraisal (in compliance with the Uniform Standards of Professional Appraisal Practice) with fees charged for the administration of the appraisal process (the AMC charges). Traditionally, appraisal administration functions of lenders/banks were paid for through overhead costs (i.e., loan processing charges, interest rates, etc.) and reported on the appropriate line of the HUD-1. However, with lenders increasingly outsourcing these functions to AMCs, the costs are being passed through the Appraisal line of the HUD-1 statement. This leaves consumers with the mistaken impression that they are paying the customary fee for the highest level of service from an appraiser who has substantial experience in performing appraisals in their geographic area when, in fact, the consumer is receiving a much lower level of service – often from appraisers who do not know the local market – in many cases. This is not transparent and should be remedied as soon as possible.

The procedure is compounded by a common practice among AMCs to instruct the appraiser not to have any conversation with the homeowner about the actual fee paid to the appraiser.  HUD has a rule requiring that the lender pay the appraiser. Some AMCs managing FHA appraisals reportedly have instructed appraisers to collect a fee at the door (despite this being a violation of the HVCC and HUD regulations), keep a part of the fee, and send the remainder to the appraisal management company.  In at least one instance that we are aware of, an appraiser blatantly was instructed to commit fraud by submitting an invoice with the appraiser’s name, firm name, date and address, while leaving the amount of the fee blank, which the management company intended to fill in and submit to the lender.      

The consequences of this are dire for FHA, mortgagors, and terrible for the mortgage process. With Mortgagee Letter 97-46, many highly qualified and experienced appraisers are declining to perform assignments for AMCs. In many instances, those companies are being forced to use appraisers from distant locations with less experience and training, or more pointedly: those who will work for less. Using less experienced and less qualified appraisers to perform FHA assignments is not a good business practice and is not good public policy.

We know that it was not the intent of these directives to create these issues, and we respectfully would like to request that you review this policy and take immediate action to rescind Mortgagee Letter 97-46. Further, we would like to request that the HUD-1 be revised to include a separate line for all AMC related fees such that the appraisal fee might be separate from non-appraisal fees. Finally, we request that the Department follow through on a commitment to propose rules for public comment relating to AMCs that would ban inappropriate practices, such as hiring an appraiser primarily on price or turnaround time, without consideration of competency or qualifications. The positive impact of such rules on the lending community, consumers, and the appraisal community would be profound.

Thank you, in advance, for your consideration of this request. If you need additional information, please contact Bill Garber, Director of Government and External Relations, Appraisal Institute at 202.298.5586 or bgarber@appraisalinstitute.org, or Peter Barash, Government Relations Consultant, American Society of Appraisers, at (202) 466-2221 or peter@barashassociates.com.

Sincerely,

Appraisal Institute
American Society of Appraisers
American Society of Farm Managers and Rural Appraisers
National Association of Independent Fee Appraisers

Appraisers Seek Sensible Reform is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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