The Blog Site for SCP Appraisal Service

The number of new residential loan modifications fell in the third quarter to 470,321, down 17 percent from the previous quarter and 32 percent from a year ago, according to a Dec. 29 joint news release from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

“You’ll probably see some more stabilization now,” Bruce Krueger, lead mortgage expert for the Office of the Comptroller, said in a Dec. 29 conference call, Bloomberg reported. “I really can’t forecast whether there’s going to be a continuing decline, but I think we’re going to see more stability.”

Loan modifications fell in the third quarter as more delinquent homeowners lost their properties, Bloomberg reported. The number of foreclosures and short sales rose to 244,840 in the third quarter, up 63 percent from a year ago and 11 percent from the previous quarter.

“Completed foreclosures, which have risen for six consecutive quarters, are expected to continue rising as servicers and borrowers exhaust home retention options to assist borrowers with seriously delinquent mortgages,” the Treasury Department said in an accompanying report.

The number of homeowners who qualified for permanent loan modifications through the government’s main program, Home Affordable Modification Program, totaled 504,648 as of November, short of its 3 million target, the Treasury Department said, while an additional 1.9 million homeowners started loan modifications under private programs.

Meanwhile, data from Jacksonville, Fla.-based mortgage servicing and information company Lender Processing Services Inc. showed that 6.92 million properties were delinquent or in foreclosure as of Nov. 30, down from the 8.12 million peak in January 2010, Bloomberg reported. In November, the number of foreclosure filings plunged 14 percent from a year ago – reaching a two-year low – according to a Dec. 16 report from RealtyTrac Inc. cited by Bloomberg.

Bank of America will stop writing home mortgages through independent brokers and will focus its resources on direct lending and acquiring loans from other originators, according to an Oct. 6 story on consumeraffairs.com.

Other major lenders, including JPMorgan Chase & Co. and Citigroup, also have stopped marketing through brokers. Chase quit funding home loans through mortgage brokers in January 2009, and Citigroup began downsizing its wholesale operations in 2008, consumeraffairs.com reported.

Independent brokers have been blamed for many of the practices that created bad loans leading to the economic meltdown. Brokers accounted for about 10 percent of U.S. home lending during the first half of 2010, down from 31 percent in 2005, consumeraffairs.com reported.

Industry analysts are beginning to question whether servicers that delay foreclosure proceedings are essentially delaying an even bigger backfire when property values decline further, according to an Aug. 27 American Banker story.

At issue is the practice by many lenders over the last two quarters to take reserve releases based on more bullish assumptions about the value of distressed properties. While accounting rules mandate that banks set aside reserves covering the full amount of their anticipated losses on nonperforming loans, banks are reluctant to foreclose on properties or test valuations that may show they have wrongly gambled on a broad housing recovery that is not coming soon, American Banker reported.

The strategy of many banks has been to postpone the date at which they lock in losses, thereby delaying foreclosures and potentially benefitting from the recovery of the nation’s real estate market. But as housing prices continue to slip and sales slow – sales of homes in July slid to the lowest level on record – lenders are faced with the prospect that a rash of foreclosures and major losses could be on the horizon.

"The math doesn't bode well for what is ultimately going to occur in the real estate market," Herb Blecher, a vice president at LPS, told American Banker. "You start asking yourself the question when you look at these numbers whether we are fixing the problem or delaying the inevitable."

American Banker reported that some servicing executives acknowledged that as banks stall on foreclosure proceedings, delinquent borrowers may get a reprieve, but a bottleneck of foreclosures hitting the market is likely to pull down existing home prices and thwart the growth of new sales.

Appraiser News Online Headlines
Last Updated: August 25, 2010
Vol. 11, No. 15/16

Mortgage application refinance activity reached its highest level in 15 months the week ending Aug. 13, according to the Mortgage Bankers Association’s weekly Mortgage Application Survey. The MBA credited interest rates remaining near historic lows for the increased activity.

The Refinance Index rose 17.1 percent from the previous week. Refinancing made up 81.4 percent of applications, up from 78.1 percent the previous week, while adjustable-rate loan activity fell 0.2 percent to 5.7 percent. The four-week moving average for the Refinance Index increased 3.2 percent on a seasonally adjusted basis.

The survey, released Aug. 18, showed that the Market Composite Index, which measures mortgage loan application activity, increased 13 percent on a seasonally adjusted basis from the previous week and 12.4 percent on an unadjusted basis. The four-week moving average for the Market Index increased 2.6 percent on a seasonally adjusted basis.

The MBA’s Purchase Index dropped 3.4 percent from the previous week on a seasonally adjusted basis. On a non-adjusted basis, the index fell 4.6 percent from the previous week, down 38.6 percent from a year ago. The four-week moving average for the Purchase Index inched up 0.1 percent on a seasonally adjusted basis.

The average rate on a 30-year fixed loan increased to 4.6 percent from the prior week’s 4.57 percent, while points, including origination fees, increased from 0.89 to 0.92 for 80 percent loan-to-value ratio loans, the MBA reported. The average rate on a 15-year fixed loan rose from 3.95 percent to 3.99 percent, while points, including origination fees, fell from 1.08 to 1.05. The average rate on a one-year adjustable rate mortgage decreased from 7 percent to 6.9 percent, while points, including origination fees, inched down from 0.22 to 0.21.

by David Brauner,
Editor of Working RE magazine and Senior Broker at OREP

Given the fierce efforts to keep HVCC alive, it makes you wonder if AMC interests know something the rest of us don’t.

As federal legislation that would end the Home Valuation Code of Conduct (HVCC) moves closer to reality, appraisal management company (AMC) interests are blitzing the media with their message that overturning HVCC means a return to lender pressure/appraiser compliance and an environment that allowed the current real estate collapse.

Industry thought leaders have been saying for months that, no matter the fate of HVCC, the shotgun marriage between appraisers and AMCs is sealed: if appraisers want to do business, they will have to do business with AMCs on the terms dictated by these middle men, or so goes the conventional wisdom.

Representatives from the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac and others, tell appraisers that there will be no going back to business as it was prior to HVCC, no matter if the Code is allowed to sunset in November of this year or terminated before then (FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition). If this is the case, what is the AMC trade group TAVMA (Title/Appraisal Vendor Management Association) so worried about?

In recent weeks, TAVMA has published stories in the appraisal press and in other online real estate-related publications strongly defending HVCC’s role as a “firewall” protecting appraisal independence. TAVMA also recently published a widely circulated “AMC Standards of Good Practice in Appraisal Management,” in an apparent effort to head off the growing trend of AMC regulation by states (see WorkingRE.com, Sidebar for the AMC Standards of Good Practice in Appraisal Management). Such regulation, they argue, would create a confusing and expensive tangle of legislation that would drive smaller AMCs out of business and raise costs for consumers.

Safe Act

What may have rattled AMC cages is passage by the House late last year of the Financial and Mortgage Industry Reform Bill (find the bill at WorkingRE.com, Sidbar: HR 4173). If signed into law, the Bill would establish a Consumer Financial Protection Agency and require lenders to compensate appraisers their full fees, rather than splitting them with management companies. There are also rules to assure appraisal independence. The bill gives the director of the new agency 60 days from the date of enactment of this legislation to establish such appraisal rules and calls for the HVCC to sunset at the time the new rules go into effect. The bill was referred to the Senate Committee on Banking, Housing and Urban Affairs earlier this week.

The bill includes the following:
(1) shall not prohibit lenders, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation from accepting any appraisal report completed by an appraiser selected, retained, or compensated in any manner by a mortgage loan originator—(A) licensed or registered in accordance with section 1501 et seq. of the SAFE Mortgage Licensing Act of 2008; and

(B) subject to State or Federal laws that make it unlawful for a mortgage loan originator to make any payment, threat, or promise, directly or indirectly, to any appraiser of a property, for the purposes of influencing the independent judgment of the appraiser with respect to the value of the property, except that nothing in this section shall prohibit a person with an interest in a real estate transaction from asking an appraiser to—

(i) consider additional, appropriate property information;

(ii) provide further detail, substantiation, or explanation for the appraiser’s value conclusion; or

(iii) correct errors in the appraisal report; and

(2) shall include a requirement that lenders and their agents compensate appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.

(c) SUNSET.—Effective on the date the appraisal independence requirements are promulgated pursuant to subsection (a), the Home Valuation Code of Conduct announced by the Federal Housing Finance Agency on December 23, 2008, shall have no force or effect.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act,” see the Housing and Economic Recovery Act of 2008 at WorkingRE.com, Sidebar), requires state licensing of mortgage brokers, including coursework, testing and fingerprinting.

These developments and a flurry of state laws to regulate AMCs may be what has TAVMA fighting back. Quoted in HousingWire.com, TAVMA executive director Jeff Schurman said, “Turning back-the-clock, and letting parties who are compensated based on closed deals order and interact with appraisers will inevitably lead to pressure and inflated appraisals.” (Find the story at WorkingRE.com, Sidebar: TAVMA Opposes New Consumer Protection Bill)

Reason to Believe- Speaking Up

Some appraisers have given up believing that their autonomy as businesspeople will ever be restored, since HVCC has cut them off from their mortgage broker clients. Indeed many have called it quits in recent months reporting that they can not earn adequate fees working with AMCs or generate sufficient orders to stay in business.

Passage of this Bill may be the light at the end of the tunnel. TAVMA and others are pushing hard to see that that light is extinguished and that HVCC remains in place. If you are opposed to HVCC, this may be a good time to make your voice heard with your Senators.

Pressure Tested

According to the Working RE/OREP HVCC Appraiser Talkback Survey, with over 4,500 appraisers responding as of this writing, 92 percent of appraisers are not in favor of HVCC as written and 82 percent do not consider AMCs to be a legitimate business model. Fifty-three percent (53%) report that they experience pressure for value with the AMCs they work with at least some of the time (47 percent say they “never” experience this pressure). Over 55 percent say that, with the AMCs they work with, they are asked to re-examine reports with the intention of trying to “make the deal work” at least some of the time (44 percent say they are “never” asked). So despite TAVMA's PR to the contrary, appraisers say pressure still exists.

Quality Not Job One

Survey and Blog results also support anecdotal evidence from appraisers that appraisal quality has diminished since HVCC, not improved. The reason, they say, is that many AMCs look primarily for the lowest bidder when selecting appraisers, not the most qualified professional. According to the survey, 98 percent say that, in their experience working with AMCs, appraiser selection is based solely on obtaining the lowest fee at least some of the time (less than two percent answer that appraiser selection is “never” based solely on obtaining the lowest fee).

Survey results clearly indicate that pressure for low fees and quick turn around also is hurting quality. To the question: “Do ‘low fee’ appraisals result in a product that is less reliable for the end user compared to a report where adequate fees have been paid, 45 percent answer that this is “never” the case (55 percent say it happens at least some of the time). To the question: “Does the time pressure (from AMCs) result in a product that is less reliable for the end user, compared to a report where adequate time has been allowed, 31 percent say this never happens (69 percent say it happens at least some of the time).

Freddie Mac, on the other hand, reports that an internal review indicates that appraisal quality has improved since HVCC and that complaints are down. (See FHA, Fannie/Freddie Tell it Like it Is, WorkingRE.com, Current Edition.)

FHA Fees- Customary and Reasonable?

An appraiser poll hosted by AppraiserSupport.com finds that today the majority of fees for FHA appraisals are under $250 nationwide. At issue is FHA’s new policy, which takes effect this week and mandates that appraiser fees be customary and reasonable. According to AppraiserSupport.com, “In 1986, FHA mandated the appraisal fee of $225 be paid to all FHA appraisers. FHA realized that a fair wage was required to produce quality appraisal reports. If you adjust the 1986 mandatory appraisal fee for inflation, a current appraisal fee would be $436, which was approximately the amount appraisers were charging prior to the HVCC. HUD has addressed the issue of ‘reasonable and customary’ appraisals fees. Their definition is that ‘customary and reasonable’ are reflective of those fees established and negotiated by an FHA-approved, self employed independent fee appraiser.’ However, we have evidence that, on average, AMCs are only paying 60 percent of the reasonable and customary appraisal fee.”

New FHA changes also stipulate that the fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. (See Appraisers Talk, FHA Listens at WorkingRE.com, Current Edition.)

Side Notes: The Good, the Bad and Shangri-La (Montana)

Reaction to coverage of HVCC and AMCs in the current issue of Working RE magazine has been mixed, to say the least. Comments range from gushing praise to tirades that would make Senator John McCain blush. Here are two of many.

”I just read your latest article, it was very enlightening. I have been in the business for 23 years and sound very much like the appraiser at the end of your article. I worked very hard to build a reputation and good list of clients, just to have it all taken from me. I have to start all over again but this time it is not about my education or my designations. The only thing 95 percent of the AMCs ask for if my license, that in itself should indicate they are not interested in quality or education of any kind. The only requirement they have is the bare minimum and the lowest fee they can get. I have one exception, and that has been Landsafe. Landsafe is the only reason I am in business today, they have a staff that is knowledgeable and they actually look for quality work,” said Kevin Talbott, SRA.

And this from another appraiser: “So how much are AMCs paying you to help them? Give me an article that defends appraisers and criticizes our enemies.” (Name withheld.)

Also, several appraisers wrote us puzzled about what the acronym “HVCC” stands for- they had never heard of it! One of these appraisers, who lives in rural Montana, told us he has not been effected one way or the other by the Code.

Getting Out: Why I’m Leaving Residential Appraisal

A sometime contributor to WRE, appraiser Mike Read, sends us this letter:

I used to love appraising. Long before there was any appraiser regulation my clients came to me for valuation opinions because of my years of experience in real estate and their recognition of my accurate and reliable reports. Then came HVCC. Now my clients of 24 years are not allowed to contact me. They have to order appraisals through a third party appraisal management company (AMC) which takes up to 60 percent of my fee for their trouble.

I have signed up with about a half dozen AMCs. One went out of business owing me over $7,000. Three asked for all my exhibits and I’ve never heard from them again. One expected me to complete a URAR for $90. My most recent AMC has not sent me an assignment in months due to their lack of volume.

I recently testified before my state legislature in support of a bill to regulate AMCs. My first suggestion was to support the repeal HVCC at the federal level. Secondly to ensure that a certified appraiser is on staff at the AMC to do review work and third to require the AMC to have a surety bond of $500,000 to $1 million so payment to appraisers is assured if the AMC defaults. Others recommended that AMCs become regulated by the State Appraiser Licensing Board.

I have 24 years of appraising experience, am licensed in two states as a General Certified Real Estate Appraiser, have been HUD approved for the whole 24 years without any complaints and have completed hundreds of hours of special education. What good has that done for me?

What is driving this patchwork quilt of ineffective appraiser regulation? Have you heard of “The Golden Rule?” He who has the gold makes the rules! The greed of lenders is the source of the problem and always has been. They are the ones with the money to lend. They are the ones that establish the lending guidelines that have to be followed by everyone else in the lending chain. They are the ones with the “pipeline” to keep full and flowing. When they run out of borrowers with 20 percent down they reduce the requirements to encourage borrowers with 10 percent down. Keep that pipeline full. When they run out of borrowers with 10 percent down they reduce the requirements again to encourage borrowers with five percent down, then zero down, then “no doc loans.” Keep that pipeline full.

What about the increased risk? Well, they just pack the loans up and sell them off to someone else in a mortgage backed security that is so far removed from the valuation process no one can figure out the value any more…not even the sophisticated investors. (Nobody thought to ask the appraisers!)

Now it’s time for me to say goodbye to my clients and friends in the residential real estate and financial service fields. You’ve heard of the theory of “trickle down” economics? Well here is how my exit from the business will trickle down to you all.

Dear MLS provider, I will be canceling my subscription for data services at the end of my current period ($105/Q).

Dear title company, I will be canceling my subscription for data services at the end of my current period ($85/mo).

Dear software company, I will not be renewing my annual software maintenance agreement at the end of my current period ($399/yr).

Dear Board of Realtors, I will not be renewing my annual dues this year ($375/yr).

Dear Appraisal Institute, I will not be renewing my annual dues this year ($330/yr).

Dear E&O insurance company, I will not be renewing my policy at the renewal ($500/yr).

Dear state of Washington, I will not be renewing my appraiser license at the end of the biennium ($500).

Dear state of Oregon, I will not be renewing my appraiser license at the end of the biennium ($500).

Dear education provider, I will not be needing any more CE credits so will not need any more expensive classes ($500/yr).

Dear AMCs, goodbye.

Dear Consumer, you are the only one I feel sorry for. I will no longer be in a position to provide you with an independent valuation for your largest lifetime investment. Your lender does not want you to know who I am, how to contact me, how much I charge, what value opinion I reach, they just want you to pay for some conforming paperwork. If they receive any bad news they just shoot the messenger.

Foreclosure activity in the United States set a new record in the third quarter of 2009 with one in every 136 housing units receiving a foreclosure filing, increasing 5 percent from the previous quarter and 23 percent from the third quarter of 2008, according to RealtyTrac Inc.

Despite government and lender efforts to assist struggling homeowners, foreclosure filings – including default notices, scheduled auctions and bank repossessions – were reported on 937,840 properties in the third quarter. That marked the highest quarterly foreclosure rate since RealtyTrac began issuing its reports in 2005.

“REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties,” James Saccacio, chief executive officer of RealtyTrac, said in a news release.

Nevada once again topped the list as the state with the most foreclosures with one in 23 housing units receiving a filing – nearly six times the national average. Foreclosure filings in Nevada totaled 47,925 properties, representing a 10 percent increase from the previous quarter and a 59 percent increase from a year ago.

Arizona and California were tied for second place with one in every 53 housing units receiving a foreclosure filing. Arizona increased 5 percent from the previous quarter and 24.55 percent from a year ago while California decreased 1.5 percent from the previous quarter and 18.60 percent from a year ago.

California, Florida, Arizona, Nevada, Illinois and Michigan accounted for 62 percent of the nation’s total foreclosure activity in the third quarter, having a combined total of 579,541 properties receiving a filing, according to RealtyTrac’s report.

Vermont had the lowest foreclosure rate in the U.S. with one in 5,023 housing units receiving a notice in the third quarter despite its foreclosure rate surging 170 percent compared with the third quarter of 2008. North Dakota had the next lowest rate with only one in 2,724 units receiving a notice.

Home foreclosures are expected to climb through late 2010 as unemployment continues to increase. “The number of people who can’t pay their mortgages, we haven’t seen the peak of that,” David Lowman, head of JPMorgan Chase & Co.’s mortgage unit, told Bloomberg. “That’s going to weigh on us for some time to come.”

According to industry experts, the fastest growing area is in the 180 days-plus late category, the most seriously delinquent borrowers. “It’s going to be a lingering problem,” said RealtyTrac spokesperson Rick Sharga.

Appraiser News Online Headlines
Last Updated: October 21, 2009
Vol. 10, No. 19/20

Responding to recent testimony before the House Small Business Committee, the Appraisal Institute reminded the Committee’s leaders Oct. 14 that appraisers are not responsible for so-called low appraisals.

The Appraisal Institute joined the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers in a letter reacting to testimony earlier this month by National Association of Home Builders President Joe Robson. The four appraisal organizations, representing more than 35,000 members, urged Committee Chair Nydia Velazquez, D-N.Y., and Ranking Member Sam Graves, R-Mo., not to “shoot the messenger.”

“It is important for the Committee to understand that appraisers do not create value in the housing market; they report on what is occurring in the market,” the letter stated. “ The fact that some home sales have failed to close is largely the result of the housing market we are in today. … Accordingly, we urge caution in connection with those who would prefer to ‘shoot the messenger’ rather than face the realities of today’s distressed market.”

Robson’s testimony to the Committee alleged the improper use of foreclosed properties and properties from distressed sales as comparables in determining values of single family homes where no adjustment had been made to reflect the relative condition of the properties. His testimony also suggested that a high number of new home sales have fallen through because the appraisal reflects a value below the contract sales price for the property.

“Professional appraisers fully understand and agree that if foreclosure and/or distressed property sales are used as comparables, they must be treated carefully,” the letter stated. “Appropriate adjustments must be made by a qualified appraiser to reflect the physical condition of such properties as compared to the subject property. This is common practice. … It is the professional real estate appraiser’s responsibility to be aware of these conditions and analyze the market, considering all relevant data and applying proven techniques and methods.”

The letter also stated that “Given the complexity of this issue in today’s market, the competency and qualifications of the real estate appraiser is of critical importance in our system of real estate financing. … Lenders or their agents – including appraisal management companies – would be well served by retaining the services of highly qualified appraisers where such conditions exist.”

The appraisal organizations recommended four specific areas of guidance to mortgage lenders and financial institutions:

• Seek out the services of highly qualified appraisers for complex appraisal assignments.
• Recognize that sales concessions are as important as the condition of a property to the credibility and reliability of the appraisal.
• Provide sufficient time for the real estate appraiser to conduct the proper analysis of the subject property and comparables used.
• Promote communication between appraisers, builders and real estate agents.

By MICHAEL COIT
THE PRESS DEMOCRAT

Published: Tuesday, August 11, 2009 at 7:33 p.m.
Last Modified: Tuesday, August 11, 2009 at 7:33 p.m.

Sonoma County’s housing market inched closer to a bottom in July as sales of cheaper homes dipped, led by declines in purchases of bank-owned homes and other distressed properties that have dominated the market for the last year, according to a new study.

But sales of higher-priced homes ticked upward, a tentative sign the market is slowly returning to a more balanced spread of sales across price ranges.

Overall, buyers purchased 435 houses in Sonoma County in July, a 3.8 percent increase over a year ago, according to The Press Democrat real estate report provided by Coldwell Banker manager Rick Laws.

The majority of purchases remained under $400,000, which accounted for nearly 6 of 10 sales. But it was the lowest level in that price range this year, with sales of homes above the half-million-dollar mark rising to one-fourth of all purchases.

The change in the mix of sales eased the decline in the county’s median home price — the point where half of the homes sold for more and half for less. The July median of $364,000 was down 7.1 percent from a year ago, the smallest year-over-year drop since September 2007. The median price rose 9.5 percent from June, when the median stood at $332,500.

Sales of bank-owned properties and houses deeply discounted by homeowners avoiding foreclosure have dominated the market for the past year. But after peaking at three-fourths of all purchases in February, purchases of distressed homes dropped to 43 percent of all sales in July.

The supply of homes for sale also has fallen. There was just over three months inventory at the end of July, based on the pace of sales during the month. While that is considered a market roughly balanced between buyers and sellers, more people are chasing fewer homes at lower prices.

After seven months of house hunting, Debbie Godwin-Austen has come up short with six offers for homes, all priced under $300,000. She can make a large down payment, but continues to lose out to buyers with more cash, particularly investors.

“It’s very frustrating. You can’t compete with the people that are paying all cash,” the Santa Rosa resident said. “I’ve been in a house where two hours after it’s gone on the market it’s sold for more than the asking price and the buyer was paying cash.”

To improve her chances, Godwin-Austen might expand her search to homes above $300,000 or in neighborhoods with a greater choice of less expensive properties. She recognizes that homes haven’t been this affordable in Sonoma County in more than a decade.

“I’m still hopeful. I’m a strong buyer,” Godwin-Austen said.

Another factor in the tight supply is a significant number of homes tied up in short sales, where homeowners attempt to avoid foreclosure. Those purchases require that banks approve a sale for less than a borrower owes on their mortgage.

Short sales can be more complicated than a foreclosure sale and take far longer to complete. Sales can fall through if a bank declines an offer or a buyer finds another home while waiting.

But bargain shoppers could find more homes to choose from in the county in coming months.

A rising number of Sonoma County homeowners are falling behind on mortgages and could lose properties to banks. In the county, 5.5 percent of all mortgage loans were overdue three months or more in June, compared with 3.9 percent a year earlier, according to First American CoreLogic, a real estate research company.

Home prices overall are expected to continue falling through the end of this year, good news for buyers and bad news for homeowners struggling to hang onto properties, said Eduardo Martinez, a senior economist for Moody’s Economy.com who tracks Sonoma County and other California regions.

“Mortgage foreclosures are still rising, which will drive house prices down further. Thus, affordability has a chance to improve further, returning to its rate of the mid-1990s,” Martinez said.

Sonoma County’s housing market still should hit bottom sometime during the first three months of 2010, he said.

“The volume of defaults is not going to cause an avalanche of foreclosures,” Martinez said. “The housing market in Sonoma County will move closer to a bottom as 2009 progresses.”

By Sue McAllister
Mercury News

Posted: 05/18/2009 06:48:00 PM PDT

New rules designed to curb fraud in the appraisal process have had the unintended — and perverse — effect of making them more expensive, more time-consuming and, in some instances, less accurate, local mortgage brokers and appraisers say.

Many borrowers in Silicon Valley have to pay $100 to $200 more for appraisals, no small amount in a tight economy. The typical appraisal now runs $350 to $600, up from $250 to $400 as recently as last month.

Appraisals also take longer, brokers and appraisers say, and more are being done by less experienced or out-of-area workers, whose estimates may not reflect the pricing trends in particular neighborhoods.

The new rules stem from an effort to fix the inflated appraisals that were a key part of the loose lending climate that led to the housing bubble. As of May 1, the appraisal and mortgage-brokering businesses need to abide by the "Home Valuation Code of Conduct," which attempts to reduce the possibility that brokers and lenders will pressure appraisers to "hit" certain target values rather than deliver independent assessments of what properties are worth.

Under the new code, if a borrower is obtaining a loan that will be backed by Fannie Mae or Freddie Mac, the loan financing institutions that are the source of more than half the mortgages made in the Bay Area, mortgage brokers can no longer directly request an appraisal of the borrower's property. Instead, only the lenders can do that. And, for the most part, they must order appraisals through third parties known as appraisal management companies, who then farm out the work to contractors.

Borrowers used to pay appraisers for their services directly. Now they'll normally pay an appraisal management company, which pays the appraiser and adds fees of its own.

"It's consumer unfriendly. It creates another middleman for people to work through," said Cathy Warshawsky, president of the Silicon Valley chapter of the California Association of Mortgage Brokers.

But the rule should do what it was intended to, said Paul Chandler, CEO of Property Sciences, an appraisal management company based in Pleasant Hill. "It will reduce the opportunity for fraud and the opportunity for undue influence, because the commissioned loan person doesn't get to pick who the appraiser is."

Chandler also said the costs added by appraisal management companies will ultimately result in fewer loan defaults and lower mortgage rates.

But some appraisers say the rules sting consumers and appraisers alike.

Appraiser Tom Feasby, owner of Bankers Appraisal Group in San Jose, said he recently appraised a home in Almaden Valley for his normal fee of $350, but the borrower was charged $500. And appraisal management companies often pay appraisers only $200 or $250 for their work, he and others said — fees that inexperienced appraisers will work for, but most experienced ones will not.

And the management companies sometimes assign appraisals to people who are not familiar with the area where the property is, which can result in out-of-whack appraisals, said Modesto appraiser Rich Paddock.

Feasby, the San Jose appraiser, sees both strengths and weakness in the new rules. "It will probably eliminate some fraud in some instances," he said, "but there is always going to be a way for greedy people and fraudulent people to get around these things."

1. Don’t ignore your mortgage problem.

If you are unable to pay--or haven’t paid--your mortgage, contact your lender or the company that collects your mortgage payment as soon as possible. Mortgage lenders want to work with you to resolve the problem, and you may have more options if you contact them early. Call the phone number on your monthly mortgage statement or payment coupon book. Explain your financial situation and offer to work with your lender to find the right payment solution for you. If your lender won’t talk with you, contact a housing counseling agency. You can find a list of counseling resources at NeighborWorks and on the U.S. Department of Housing and Urban Development's (HUD) website or by calling (800) 569-4287.

2. Do your homework before you talk to your lender or housing counselor.

Find your original mortgage loan documents and review them. Review your income and budget. Gather information on your expenses, including food, utilities, car payment, insurance, cable, phone, and other bills. If you don’t feel comfortable talking to your lender, contact a housing or credit counseling agency. Counselors can help you examine your budget and determine the options available to you. They may also advise you about ways to work with your lender or offer to negotiate with your lender on your behalf.

3. Know your options.

Some options provide short-term solutions/help, while others provide long-term or permanent solutions. You may be able to work out a temporary plan for making up missed payments, or you may be able to modify the loan terms. Sometimes, the best option may be to sell the house. For information on different options, visit HUD’s website or Foreclosure Resources for Consumers for links to local resources.

4. Stick to your plan.

Protect your credit score by making timely payments. Prioritize bills and pay those that are most necessary, such as your new mortgage payment. Consider cutting optional expenses such as eating out and premium cable TV services. If your situation changes and you can no longer meet your new payment schedule, call your lender or housing counselor immediately.

5. Beware of foreclosure rescue scams.

Con artists take advantage of people who have fallen behind on their mortgage payments and who face foreclosure. These con artists may even call themselves “counselors.” Your mortgage lender or a legitimate housing counselor can best help you decide which option is best for you. For tips on spotting scam artists, visit the Federal Trade Commission's website, Foreclosure Rescue Scams. Report suspicious schemes to your state and local consumer protection agencies, which you can find on the Consumer Action Website.

Several options are available to you. Some options provide temporary solutions for short-term problems such as being one or two months behind in your mortgage due to illness. Other more permanent solutions address long-term financial difficulties, such as job lay-offs or long-term unemployment. If you have a FHA-approved loan, special loan modification programs may be available to you-ask your lender about them. Unfortunately, in some cases, keeping your home may not be possible-options for handling that situation are available as well.

Temporary solutions for short-term financial problems:

• Reinstatement: Lenders are often willing to “reinstate” your loan if you make up the back payments in a lump sum by a specific date. A forbearance plan may accompany this option.
• Forbearance: Your lender may be able to provide a temporary reduction or suspension of your mortgage payments for a short period, such as 3 or 4 months. After this time, your lender will work with you to create a repayment plan for the loan. You may qualify for forbearance if you have experienced a reduction in income (for example, if you have become unemployed) or an increase in living expenses (for example, higher medical bills). You must provide information to your lender to show that you will be able to stick with the new payment plan.
• Repayment plan: Your lender may agree to a plan that includes your regular monthly payments plus a portion of the past due payments each month until your payments are caught up.

Long-term solutions or adjustments to your loan:

• Loan modifications: Your lender may be willing to rewrite the terms of your original mortgage loan to address your financial situation. A loan modification is designed to make your monthly payments affordable. Changes to your loan may include extending the number of years to repay and changing the interest rate, including changing an adjustable rate to a fixed rate. You may have to pay a processing fee to obtain a loan modification.
• Partial claim: If your mortgage is insured by a private mortgage insurance firm, your lender might help you file a claim. Some insurers provide a one-time, interest-free loan to bring your account up to date. The interest-free loan is due when you refinance, pay off your mortgage, or when you sell the property.

If keeping your home is not an option, you may want to consider these alternatives:

• Sale: Your lender will usually give you a specific amount of time to find a buyer and pay off the amount you owe on your mortgage. Your lender may require you to use a real estate professional to help you sell the property.
• Pre-foreclosure sale or short sale: If you can’t sell the property for the full amount of the loan, your lender may accept the amount you get for the selling price, even if it is less than the amount you owe. You may owe income taxes on the difference between the amount you owe and the amount you are able to pay back. Check with the Internal Revenue Service for tax information.
• Assumption: A qualified buyer may be allowed to assume (take over) your mortgage. Ask your lender whether this option is available to you.
• Deed-in-lieu of foreclosure: You may be able to “give back” your property to the lender, who then forgives the balance of your loan. Again, there may be income tax consequences, so check with the IRS. This option will not save your home, but it is less damaging to your credit rating. Some lenders impose certain restrictions on taking back property. For example, they may require that you try to sell your home at a fair market value for at least 90 days.

By Kenneth R. Harney

When you apply for a mortgage to buy or refinance a house, should you be concerned that your appraiser is being paid much less than the $300 to $600 you're charged, perhaps half?

Should you know who pockets the rest, or that cut-rate fees are too low to attract the most experienced appraisers?

Should you care that the appraiser might be pushed to come up with a number so quickly -- almost overnight in some cases -- that he or she doesn't have the time to do a proper inspection and accurate evaluation of comparable properties, pending sales contracts and local market trends?

These questions are at the core of a swirling controversy created by the release of new appraisal standards by Fannie Mae and Freddie Mac, the giant mortgage investors. The "home valuation code of conduct," issued by the companies' federal regulator late in December, is under attack by the industry it purports to protect, professional real estate appraisers. It's almost certain to turn into a political issue in the new Congress and may be the subject of a federal lawsuit.

The code, scheduled to take effect May 1, is the product of a settlement involving New York Attorney General Andrew M. Cuomo, the Federal Housing Finance Agency and the two congressionally chartered mortgage companies the agency oversees.

The settlement came after Cuomo threatened Fannie Mae and Freddie Mac with an investigation aimed at ferreting out alleged appraisal overvaluations and evidence of illicit pressure on appraisers to "hit the numbers" needed to close loans. As part of the deal, the two companies and their federal regulator agreed to create a set of standards to ensure that appraisals are accurate and insulated from pressure -- whether from lenders, mortgage brokers, real estate agents or third-party appraisal management companies.

But trade groups representing appraisers are unhappy about key details. Four of the largest appraisal organizations, including the Appraisal Institute and the American Society of Appraisers, issued a joint statement alleging that the code will force lenders to shift their valuation assignments to third-party appraisal management companies, abandoning the traditional system of using local appraisers selected by mortgage loan officers. The code bans brokers, who originate a substantial share of new mortgages, from involvement in selecting appraisers.

Management companies, the groups complained, "place appraisal quality last while shifting the cost of appraisal . . . services to the consumer without any disclosure." Often, management companies require appraisers to perform valuations for $180 to $200 -- far below their regular fees of $300 to $600 -- and deliver their report within 24 to 48 hours of an assignment.

Borrowers are charged the full fee at settlement with no knowledge that a third-party management company is taking a large percentage of what appraisers normally are paid.

The Title Appraisal Vendor Management Association, which represents third-party managers, denies that lower fees result in less accurate home valuations. Jeff Schurman, the group's executive director, said "there's no evidence of that," and if there were, major banks and mortgage lenders would not hire them. Appraisal management firms offer lenders valuation services anywhere in the country they're needed, Schurman said, and they deliver them quickly. He added that the portion of the appraisal fee the management companies take is "reasonable" given the overhead savings they provide lenders.

But some prominent appraisers are scathing in their criticism of management firms. "Their quality is terrible -- all they want you to do is crank it out at the lowest cost," said Jonathan Miller, president and chief executive of Miller Samuel, one of the largest appraisal companies in the New York City area. Only "the least experienced people" are willing to do the work, he said, "and the product is unreliable."

George Dodd, an appraiser based in Virginia, said "the most experienced appraisers [will be] the hardest hit" by the new code "because of our unwillingness to sacrifice integrity and quality." Rather than work for peanuts, Dodd said, "I can flip burgers at McD's for more."

Where is all this headed? The National Association of Mortgage Brokers plans to appeal to Congress to reverse the code's ban on broker selection of appraisers, and it is considering a lawsuit challenging the code. Appraisers also are expected to seek changes, either from Fannie and Freddie's regulator, or from Congress.

Why should this matter to you? Miller says quick, slipshod appraisals can severely undervalue some properties -- forcing buyers to come up with bigger down payments -- and can scuttle refinancings. Or they can overvalue houses that should be selling for less.

Either way, it matters.

By Rod Herman

Amid all the hullaballoo surrounding the housing crisis and world economy these days, a major lending change went into effect Jan. 1 which, to date, has gotten rather little fanfare.

But for some Bay Area mortgage borrowers, the impact could be mean the difference between getting a loan or falling short of what’s needed to complete a purchase or refinance. I’m talking about the new conforming and FHA loan limits, which, throughout Solano County, Contra Costa County and the rest of the Bay Area, have all been adjusted downward from what they were in December.

And if you were planning to borrow an amount near the maximum of last year’s mortgage loan limits, you may be in a for a huge shock, since those loan ceilings no longer exist. They’ve been replaced by lower loan limits, which vary by county.

Every year, Fannie Mae, Freddie Mac and the Dept. of Housing and Urban Development (HUD) use a formula to determine whether the maximum loan amounts will increase or stay the same. During the rapidly appreciating real estate market of the first half of this decade, conforming loan limits were raised on an annual basis, while FHA limits lagged far behind.

The national loan limit in 2008 was $417,000. But early last year, in one of the government’s first efforts to stimulate the housing market, the same bill that provided Stimulus Payments to qualified tax payers also racheted those limits upward.

In the nation’s highest cost areas, which included Contra Costa and many other Bay Area counties, the ceiling was $729,750 for a Fannie-/Freddie-sponsored Conforming Jumbo’ loan. In Solano County, the limit was boosted to $557,500 — which, while not as high as Contra Costa, Santa Clara, or San Francisco counties, was still $140,000 above the national minimum.

Anything over those limits required private money, which as 2008 progressed become virtually impossible or prohibitively expensive to come by.

The same was true with FHA loans, which in early 2008 had a ceiling throughout the Bay Area of $362,790. When the Stimulus Bill became law, the FHA limits were also increased to match the new temporary conforming limits (though, borrowers with higher loan amounts did face add-on costs).

In any event, when the new loan limits for 2009 were announced late last year, there wasn’t much publicity about it. Everyone was so consumed with watching the stock market and trying to figure out which large bank or investment house would be the next one to throw in the towel that all the other normal real estate  announcements just got a ‘yeah, so what’ kind of response from most people.

Nevertheless, as of Jan. 1, you can no longer get a conforming (Fannie/Freddie) loan at $729,750 in Contra Costa or any of the Bay Area’s other highest-cost counties. The new limit is $625,500. That same loan ceiling is in effect in Alameda, Marin, San Francisco and Santa Clara counties. In Napa and Sonoma, they’re $592,250 and $520,950, respectively.

In Solano meanwhile, the loan limits are back to what they were at the beginning of 2008 — the national  maximum of $417,000.

FHA loans limits, meanwhile, were also notched back. In many areas, the limits are exactly the same as the Fannie/Freddie loan limits. That’s true in every Bay Area county except Solano. Here, the 2009 FHA loan limit is $400,200 — $16,800 less than the county’s conforming loan limit.

I downloaded the data from the Fannie Mae and HUD web sites and created a spreadsheet which shows the new loan limits for every county in the state (the nine Bay Area counties appear at the top and Solano and Contra Costa (our market area) are highlighted in red, to make it easier to read). To view that report, click here.

If you’re interested in seeing what the new loan limits are for counties outside of California, you can view and download the data for every county in the U.S. on the HUD and Fannie Mae websites.

By Elizabeth Jackman

A Glendale man, who allegedly scammed desperate homeowners by claiming he could help them prevent foreclosure, was arrested by Peoria police last week.

Arizona Attorney General (AG) Terry Goddard wants to warn homeowners facing foreclosure to be careful when approached by anyone offering to help with loan modifications.

After receiving complaints from dozens of homeowners, Bobby John Herrera, 33, was indicted Dec. 22 on one count of fraudulent schemes and artifices, one count of money laundering, one count of illegal control of an enterprise and five counts of theft, all felonies.

“The indictment is based on 10 victims, but dozens more have contacted our office,” AG press secretary Anne Hilby said. “This is just the tip of the iceberg.”

The arrest and indictment stemmed from complaints received by three agencies, Surprise police, Peoria police and the AG's office, who worked on the investigation together.

“We first heard several complaints around Dec. 3 and 4, which set off alarm bells and a criminal investigation,” Hilby said.

According to investigators, Herrera solicited struggling homeowners with fraudulent claims he could modify mortgage terms or provide other assistance to help them prevent foreclosure.

He allegedly claimed to have “connections” and expertise negotiating with mortgage lenders to reduce their monthly payments.

In exchange for the services, Herrera charged the homeowners upfront fees of $1,245.

“The sad part is if the individuals had access to the money to give Herrera, with a reputable mortgage lender, they may have been able to get help they needed to get back on their feet,” Hilby said. “He would meet with them in cars and parking lots.”

Goddard said if you are behind on your mortgage payments, it is imperative that you contact your mortgage lender immediately.

“Free counseling services are also available to help consumers work with their lender,” Goddard said. “I urge homeowners to avoid mortgage ‘rescue' businesses that simply take money from them.”

Federal, state and local governments offer numerous free resources for distressed homeowners.

The U.S. Dept. of Housing and Urban Development, 800-CALL-FHA (225-5342), www.hud.gov