Success! Change is on its way.

Rep. Barney Frank (D-MA) will be ushering most of the financial reform bills through the House this fall.

Step one in the process to amending HVCC has been passed and approved. The president of the National Association of Mortgage Broker’s, Jim Pair, announced today that the first step in amending the Home Valuation Code of Conduct was passed with the House Financial Services Committee. The amendment was attached to HR 3126, better known as Consumer Financial Protection Agency Act of 2009, and states that within or by the end of the 60-day period (after passage of the bill) that Mortgage Broker’s and Mortgage Originators can order the appraisal. This in essence could possibly put an end HVCC as we know it and to Appraisal Management Companies.

Within the next week or so, sources believe that the bill will be voted upon in the House and then sent onto the Senate. Passage does not mean that procedures and regulations will revert to the way they were prior to HVCC. Obviously, changes were needed to address the problems associated with the housing bubble and the current situation as we know it today.

Stay tuned . . . we here at The Chicago77 will keep you posted on the latest news.

We would like to thank Mutant-Thumb for sharing today?s photo via the Creative Commons License.

Many people out there are wondering if we are on our way to an economic recovery. That is a good question. Many factors are contributing to our sluggish recovery, including the recently enacted Home Valuation Code of Conduct or HVCC program. The HVCC program and its regulations are lengthening underwriting times, increasing costs to the buyer and seller, and lowering property values.

Can Short Sales & Foreclosures Be Used in an Appraisal?

New HVCC regulations will affect how appraisers measure your property values.

Another question being asked today is how short sales and foreclosures affect market value. Market value can be best defined as the amount for which a property can be exchanged for on a particular date between a willing buyer and a willing seller. Market value also assumes that both parties to the transaction acted knowledgeably, prudently, independently, and in the case of an arm?s length transaction, that they have no conflict of interest. In today’s market, market value is dropping because a large number of sales are foreclosures and short sales. Sellers and buyers alike may ask if these short sales and foreclosures can be used in an appraisal. Under the new HVCC rules, an appraiser is only allowed to go back three months to find comparable properties. This causes serious problems for the appraiser since recent sales are often short sales and foreclosures. Before HVCC went into effect, the appraiser could go back an entire year to look for comparable properties. These new rules put appraisers in a tough spot. Short sales and foreclosures are often not arm’s-length transactions, so they should not be used to determine the current value of a property.

More Inexperienced Appraisers Mean More Problems

As I’ve written before, HVCC has inserted a new player into the appraisal process: Appraisal Management Companies (AMC). AMCs act as brokers between appraisers, real estate agents, and mortgage brokers. Writers of the HVCC legislation believed that AMCs would prevent undue pressure being put upon appraisers to place a certain, and bias, price on a home. However, AMCs have had many unintended consequences, both to homeowners and appraisers. Appraisers are getting paid less because AMCs take a slice of the appraisal fee while leaving the individual appraiser responsible for completing the additional paperwork required by HVCC rules. As you may guess, more and more appraisers are leaving the field?they can’t make money. This means that more inexperienced appraisers are entering the field and getting paid less and less for what they do.
Inexperienced appraisers have a huge impact on the economy and upon your property value. Many rookie appraisers who work for AMCs often violate the Uniform Standards for Professional Appraisal Practice (USPAP) and Fannie Mae guidelines because they figure comparable sales of the past three months (including short sales and foreclosures) as well as sales that were not arm’s length transactions into their evaluations.

Do AMCs Sacrifice Quality for Speed and Money?

I have also heard rumors from other appraisers that AMCs are telling their appraisers to just meet the unreasonable turn times at the expense of quality. Why would they do this? Simply so everyone from AMCs to their rookie appraisers can make more money. Unfortunately, as of right now, AMCs are completely unregulated and their only concern seems to be the bottom line.
To the casual buyer or seller, it might appear that AMCs are out to protect the consumer in regard to how they figure appraisals under HVCC law, but to anyone experienced in appraising, they are undermining the process, wrecking home values, and slowing economic recovery. To a trained eye, lower values seem to be a product of using unqualified appraisers who often have little to no knowledge of the local market.

Automated Valuation Models Use On the Rise

Last, Fannie Mae, some major banks, and other real estate-driven businesses have begun to embrace and use Automated Valuation Models or AVMs. AVMs can produce tainted results depending on the knowledge of the person inputting the data and the market parameters. AVM administrators will often insist on using foreclosures and short sales to find the fair market value of properties. But many “declining area” markets have a mixture of falling values and stable or even increasing property values in their neighborhoods. That matters little to AMCs. Some appraisers feel that AMCs are deliberately lowering values so their shadow inventory of foreclosures can be written off with less financial loss to their companies. If that’s true, isn?t this market manipulation by the banks and the AMCs? And at what cost to you the buyer or you the seller?
We’d like to thank for sharing today’s photo via the Creative Common’s License.

1 October 2009 ? The ever evolving lending world is changing yet again. As of January 1st, 2010 the Federal Housing Administration will be shifting responsibility of FHA insured loans off of the mortgage broker and solely on to the lender funding the loan. This was/is designed to spur on home sales and we all know that home sales are critical to the economy.

Does this shift mean that the floodgates of loans will open and more homes will change hands in 2010? I am not so sure. We have to remember there are many obstacles to obtaining a loan these days. First and foremost, the funding sources will have new requirements that will need to be met in order for them to insure the loans. Not only that, many experienced appraiser’s are leaving the industry due to the changes brought on by HVCC but by the extra paperwork involved with being an FHA appraiser. FHA insured loans and lenders have hired an army of “reviewers” who’s job it is to nitpick every appraisal report for typos and computer errors. Enforcement can be arbitrary and variate with each reviewer. The penalty, of course, is not only dismissal from the roster, but the loss of the appraiser’s state license. The liability has become too high and Appraisal Management Companies are eating up any potential profit. Again, I truly believe we cannot have the experienced appraiser’s leaving the industry. The bottom line of the loan does rest on the appraiser’s opinion of value.

Chicago-area home sales are slightly up in July compared to July ’08, the first year-over-year increase in over 3 years, as reported by the Illinois Association of Realtors. The graph below more accurately shows the details.

[TABLE=10]

Price Disconnect Between Buyers & Sellers

Uniquely Chicago sunrise...hopefully a sunrise in the home market is also taking place.

The stats are indicative of how the market is responding. August has been an incredibly busy month for myself and my team. We have increased showings by 50% on most of our listings, ranging over all price points: from the low $200,000s up to the $1 million+ homes. It’s a great sign and we are more confident in the market now than we have been in several months. That said, there is still a disconnect on price between buyers and sellers. The market is still in a less favorable state for sellers, but with realistic and educated sellers, deals can be made and homes can be sold.

Below is a monthly year-over-year comparison of home sales (single-family and condo) in the nine-county Chicago area.  “It’s significant that we are seeing break-even or better sales levels compared to last year at this time on top of the month-to-month increases since January,? Pat Callan, president of the association and owner of Realty Executives Premiere in Wheaton, said in the release by Illinois Association of Realtors^®.

Chicago Not as Strong as Greater Chicagoland

Chicago-area sales also increased by 4% in June 2009 compared with June 2008, the sixth consecutive month that an increase has been reported. This said, sales volume still fell year-over-year in the city, with 1,975 sales in July, down 11.3% from July 2008. In Chicago proper, the median price was $245,000 in July 2009, down 18.3% from July 2008.

“Chicago continues to show a leveling of the marketplace as we see distressed properties being absorbed. With that said, we are a long way from seeing a stable real estate market in Chicago, and we face challenges surrounding lending that do not take into account real local market conditions,” said David Hanna, president of the Chicago Association of Realtors^® in the release. “Policy changes are still needed before Chicago can have a healthy real estate market, and a full economic recovery.” HVCC is one policy that most real estate agents would like to see changed. This government mandated reform is intended to protect buyers from changes in price by an 1/8 of a percent on their loan three days prior to closing. The lender must disclose the final figures three business days prior to closing to the buyer. If the final figures change by 1/8 point up or down at closing, then all parties must walk away from the closing table & wait three additional business days for the lender to recalculate the costs and disclose to the buyer before they can return to the closing table. This is a recipe for disaster, especially with the nature of closings and transitions for people who are moving from another home or a rental and are obligated to be out by a certain date. If the closing is pushed back on their purchase, presumably they will be homeless for a few days incurring additional temporary housing costs in the interim of closing.

The Realtors^® group’s sales figures include new and existing homes. The nine-county Chicago Primary Metropolitan Statistical Area consists of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry and Will.

The Market is Picking Up in Chicago

The market is picking up with increased showings, but it’s still a long row to hoe from contract to close; the financing piece is always the last piece of the puzzle and that’s proven to be the most unpredictable piece at present. Finding a good, knowledgeable lender and providing as much documentation up front to the lender with your application is key. It’s a must to know your true ability to obtain financing in this market.

We would like to thank John Picken for kindly sharing today’s photo via the Creative Commons License.

Unfortunately you can't fix broken items with good will and flowers...you have to work.

A new bill has recently been proposed entitled H. R. 3044 that will put an 18-month moratorium on Home Valuation Code of Conduct (HVCC). This new bill falls under HERA, or otherwise known as Housing Economic Recovery Act. Within HERA is the HVCC. The HVCC has been the center of discussion in the real estate market since its enactment on May 30, 2009.

Many real estate brokers and mortgage brokers have found issues with the HVCC program. Some of the problems include increased loan rates and loan fees all related to extending rate locks. These rate locks are being broken due to increased turn-around times in appraisals and underwriting. They are finding decreased quality of appraisals. Not to mention many quality appraisers have left the industry all together due to loss of income.

The new bill that has been proposed is calling for an 18-month moratorium on the HVCC program. The moratorium will give Housing and Urban Development (HUD) time to re-evaluate the program and make revisions to it. It will also allow the average consumer time to be able to take advantage of historically low interest rates. However, an 18-month moratorium will not keep appraisers from applying “declining markets adjustments” when they are obviously evident and provable through the Multiple Listing Service. The 18-month moratorium will not keep appraisers from applying the mandated “listing-to-sales-price-ratio” to the three current listings they are now required to use in their reports. Appraisers will still follow the Uniform Standards of Professional Appraisal Practice, also known as USPAP and its guidelines.

How You Can Help Fix HVCC

The moratorium will buy time but will it help fix the declining real estate market? What will happen after the 18-month moratorium? Here is a site that explains HVCC further and has a petition for H.R. 3044. You can also call and/or write your Representative and your Senators and voice your support of H.R. 3044 and your opposition to HVCC.

You can also help by passing this post or the petition along to everyone you know who has a stake in this debate: real estate professionals, buyers, sellers, potential buyers, potential sellers, mortgage professionals?anyone who owns a home basically should be interested in this.

We would like to thank Arne Hendriks for sharing today’s photo via the Creative Commons License.

Appraising a property should be starkly black and white...not emotional. Unfortunately that's not how it always goes.

The Federal Fair Housing Agency, Fannie Mae and Freddie Mac have issued a new guidance to all lenders clarifying two points. They are:

1. Lenders should use appraisers who have clear experience in the geographic area. The Uniform Standards of Professional Appraisal Practice (USPAP) requires that an appraiser be competent and knowledgeable of the local market to perform an appraisal. In addition, in reinforcing USPAP, the Enterprise appraisal guides require appraisers to have knowledge of the local market. The use of unqualified in-state or out-of-state appraisers, unfamiliar with local conditions, should be reported to state appraiser licensing agencies.
2. Clarifying that appraisers are NOT prohibited from talking to the real estate agent.

HVCC’s Goal Was to Improve Appraisals by Protecting the Appraiser

The HVVC’s main purpose all along has been to protect the appraiser and the quality of appraisal reports. The code was to keep the appraiser from being influenced in any way and to make sure there is no conflict of interest. The clarification will help with the appraisal process in the future and still protect the appraiser. With the rules in place, the appraiser could no longer be approached by a lender/mortgage broker and asked to bring in a certain value. In some cases appraisers were bribed with cash or threatened with job loss. If they did not bring in the number the lender/mortgage broker was looking for the appraiser would no longer be hired by that person.

Unintended Consequences of HVCC

There have been some unintended consequences that came about from the HVCC program. A very large consequence has been underwriting times have increased, thus pushing back closing dates. In some instances closings have been canceled all together due to interest rate locks being broken due to the extended underwriting times. Another problem brought on by HVCC is the rise in the number of inexperienced appraisers appraising in unknown markets. Still another problem is that costs to the consumer have risen due to multiple appraisals on one property. This can take place when an inexperience appraiser turns in an iffy report. Underwriters then order a review appraisal. If the review appraisal comes in and is off by 3-5% of the original appraisal (depending on the purchase price), a third appraisal is ordered. All of the cost of these appraisals is placed on the consumer.

Only time will tell if the clarifications will help or hinder the purchase process. HVCC was put into place on May 30th, 2009. The ripple effect of the program started to become known in mid-June to early July. From an appraiser’s perspective, these recent changes can only help shorten the process. I live in the city of Chicago and the city is my appraisal territory. I would be very uncomfortable appraising in a suburb of Chicago.

We would like to thank Uqbar for kindly sharing today’s photo via the Creative Common’s License.

24 July 2009 ? As a result of the efforts of Charles McMillan, the 2009 President of National Association of Realtors (NAR) and its members, Freddie Mac and Fannie Mae this week issued new guidance to all lenders on the Home Valuation Code of Conduct (HVCC). The letter issued on July 22, 2009 by the Federal Housing Finance Agency (FHFA) clarifies two very important points that we raised by the Realtors® in recent meetings with officials. First, it states that lenders should use appraisers who have clear experience in the geographic area. Second, it clarifies that appraisers are not prohibited from talking to real estate agents. In a statement released by Charles McMillian, he stated ?NAR has asked Congress and the FHFA to immediately implement an 18-month moratorium on the new HVCC rules to further address unintended consequences of this new rule. We will continue to push for this, but are pleased that this first step was taken today.?

A Foreign Landscape to Suburban Appraisers

After writing an article about the HVCC program and how it is affecting the home buying process I received an e-mail from an appraiser from California. She asked me to get the word out about the Uniform Standards of Professional Appraisal Practice (USPAP). There are certain guidelines an appraiser must follow while completing an appraisal report. The scope of work depends on the client and the clients needs.

The main concern with HVCC is that appraisal management companies (AMC) are now set in place to order appraisals. Mortgage brokers are no longer allowed contact with the appraiser. The AMCs have raised the prices of the appraisals, but the appraiser makes less on every appraisal. Management companies also do not know the specific areas that the appraiser works in and knows well. An appraiser that lives and works in the suburbs should not be appraising property in the city?it’s nearly impossible for them to understand and know the market well enough to do a solid appraisal. The differences between an urban market and a suburban market are enormous. For example, suburbs do not often have high rises nor do they have building organizations like c0-op. And, needless to say, every neighborhood has its different nuances and boundaries.

Many Non-Local Appraisers Are Not Disclosing

Below is the letter from Barb Torres, reprinted with her permission. Barb is an Accredited Senior Appraiser, a member of the  American Society of Appraisers and a California Certified General Real Estate Appraiser:

Per the Competency Rule of the USPAP, an out-of-area appraiser is required to disclose in the report their lack of geographic competency and what steps they took to familiarize themselves with the “nuances” of the local market. (such as working with a local appraiser, local agents, local MLS, etc.)

Out-of-area appraisers are NOT doing this. If they came from far away and it is not disclosed in the report, they are violating USPAP – and therefore violating the HVCC. The lender ends up with a non-complying appraisal, doesn’t know it, and they also violate HVCC.

The solution: As soon as an out-of-area appraiser shows up to do the inspection, the buyer, the seller, the listing agent, the selling agent, the loan broker – everyone! – should contact the lender immediately. Preferably in writing as well as via phone. They have a right (and perhaps an ethical obligation?) to DEMAND that a local appraiser be used – or else the appraisal violates the HVCC! Lenders need to be informed of this, and the parties to the transaction have a right to protect themselves.”

It’s Up To You To Vet the Appraiser

So, if you are a buyer, a seller, a real estate agent, or a mortgage broker, make sure you stand up for your rights on this issue. Make sure the appraiser is qualified to be doing the appraisal. Ask them where they usually work. Ask them about their knowledge of the local market. Ask them where their last ten appraisals were. If you don’t like the answers, just as Barb suggests above, contact the lender immediately in both writing and by phone and get a new appraiser.

9 July 2009 ? The National Association of Realtors is working to amend the new Home Valuation Code of Conduct (HVCC). A new bill, the HR. 3044, has been proposed by U.S. Reps. Travis Childers (D-Miss.) and Gary Miller (R-Calif.). They have teamed up to champion the bill that would put a moratorium on the new Home Mortgage Valuation Code of Conduct. The bipartisan legislation directs the Federal Housing Finance Agency, which is the conservator of the two secondary mortgage market companies, to suspend the code for 18 months. This will allow time to amend and fix the problems with the current legislation. In order to help please sign this petition: http://www.hvccpetition.com/.

Slowness Can End in Disaster

In March 2008, Fannie Mae entered into an agreement with The Federal Housing Finance Agency (FHFA). This agreement was set up to adopt certain policies relating to appraisals for mortgages. Starting May 1st, 2009 the Home Valuation Code of Conduct (HVCC) came into effect for Fannie Mae and Freddie Mac purchased loans.

HVCC Means Only Third Party Companies Can Order Appraisals

The code states that all appraisals must be performed by a Certified Appraiser. It also states that no employee, director, officer, or agent of the lender, or any other third party, on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, and or bribery. Therefore, independent third party companies will order the appraisal and have contact with the appraiser.

Where Did HVCC Come From?

Some of the reasons for the HVCC going into effect are due to appraiser’s being pressured into pushing the value on the property in order to make the deal go through. In the past appraiser’s have reported bribery, threats of job loss and so forth. This was one of the reasons the country is in the financial trouble it is in today. In some cases appraisal values were pushed higher in order to ensure that the appraiser continued to receive job orders from certain lenders.

There are two sides to every story. With the HVCC in effect, getting a mortgages has become a much more difficult process. It’s not unheard of to have three appraisals ordered for one property, and thereby increasing the cost of the loan. The length of the underwriting times has increased from 30-days to sometimes 60-days. These time lines are critical to some buyers’ due to being locked into a certain interest rate. Even a 45-day underwriting time can cause a deal to fall through. Real estate agents  and mortgage brokers are blaming the HVCC for holding back the economy.

Appraisers Use Only History…Can’t Predict the Future

There is also concern that the market is turning around and that appraiser’s are keeping the market from turning. Appraiser’s can only report on historical data. They cannot predict the future. With today’s new lending laws, appraiser’s are required to include three closed sales within the previous three months, as well as one pending sale and one active listing, all within the subject’s marketing area. In theory, this is tough for an appraiser when the market is at the bottom and on its way back up. When the market is on its way back up, the appraiser does not have the historical sales to support the values. The only way for those values to be supported is if the buyer paid cash for the property. This results in the HVCC becoming an albatross around the neck of the economy.