Several recent reports show home inventory has dropped, which would normally mean good news in that supply is finally starting to align with demand.  However, home inventory is down for the wrong reasons, which is not good news.

Following excerpt from http://www.deptofnumbers.com/asking-prices/us/:

As of June 13 2011 there were about 1,113,272 single family and condo homes listed for sale in the 54 metro areas we track.¹ The median asking price of these homes was estimated to be $231,357.² Since this time last year, the inventory of homes for sale has decreased by 8.5% and the median price has decreased by 4.5%.

Recent National Asking Price and Inventory History

National Asking Price History

The median asking price for homes in the US peaked in June 2006 at $319,459 and is now $88,323 (27.6%) lower. From a low of $211,844 in January 2011, the median asking price in the US has increased by $19,291 (9.1%).

25th, Median (50th) and 75th Percentile Asking Prices for US Homes

Commentary

Interesting news from “deptofnumbers”.  So what’s all this mean?

The inventory of homes for sale is dropping and so are prices.  Instead of supply & demand equalizing, what we’re actually seeing is:

1. More sellers deciding it’s not worth listing their homes.
2. REO inventories increasing.

Neither one of these is a positive sign for the housing market.

Sellers are realizing they can’t sell their upside down homes and are either stuck in them or will have to walk-away from their homes and mortgages.  Which do you think they’ll do?

Increasing REO inventories at banks, FNMA, FHLMC and HUD means supply is being kept artificially low, which skewes demand, making it appear higher than it would be otherwise. 

If all the homes in REO inventories were dumped on the market, supply would shoot up so much higher than demand that prices would end up in the dump.

So, watch the spin being put on these numbers and take a moment to think through what they really mean.

Total Fannie, Freddie, FHA REO inventory declined in Q1, Fannie and Freddie REO Sales at Record Levels

Special Note: Because of late reporting at the FHA, this graph only includes FHA REO through February. Also see: Lawler: Monthly Report to Commissioner Suggests Serious REO Inventory Problem at FHA

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA decreased to 287,184 at the end of Q1 (see FHA special note above) from a record 295,307 units at the end of Q4. The REO inventory increased 37% compared to Q1 2010 (year-over-year comparison).

Click on graph for larger image in new window.

This graph shows the REO inventory for Fannie, Freddie and FHA through Q1 2011 (FHA through Feb 2011).

The REO inventory for the “Fs” increased sharply in 2010, but may have peaked in Q4 2010. The pace of foreclosures is picking up, but so is the pace of REO sales. Freddie Mac noted REO sales were at record levels in Q1:

We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO.

REO disposition reached record levels in 1Q 2011 with over 30,000 homes sold, two-thirds of which were sold to owner occupants, or buyers who intend to live in the home.

Fannie Mae also sold a record 62,814 REO in Q1, up from 38,095 in Q1 2010 and 185,744 for all of 2010.

So Fannie and Freddie sold over 90,000 REO in Q1, and their combined inventory only declined by 16,185. The are foreclosing at record levels, but they are finally selling REOs faster than they acquire them.

This will go on for some time. From Fannie Mae:

[G]iven the large current and anticipated supply of single-family homes in the market, we anticipate that it will take years before our REO inventory is reduced to pre-2008 levels.

Also, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

As Freddie noted, the pace of foreclosures will pick up this year, and so will the pace of REO sales. This will keep pressure on house prices (see this graph from Clear Capital comparing house prices and REO saturation).

by CalculatedRisk on 5/06/2011 09:20:00 PM

Well, it was nice while it lasted – the record low interest rates that is.

Who would have ever thought back in the 1980′s, when rates were pushing 20%, that rates would be almost 4% for a 30 year fixed with no points? 

Hopefully, those not in the market for a home refinanced their existing one.  If you haven’t refinanced yet, you’d better get moving and get it done soon!

What have mortgage rates been doing?

Take a look at this Morgtage Backed Security chart:

Since October of 2010, rates have been heading higher (note: the chart is for bond price which is inverse of rates).

For those prone to panic, note that rates have stabilized and actually improved a bit lately.

So what does this mean for the real estate market?

Well, the most important factor for most homebuyers is their monthly payment.  Afterall, it’s what they’ve got to come up with each month.

For a monthly payment to remain the same for a 1% jump in interest rates, the mortgage amount would have to drop by about 10%.

It’s pretty safe to correlate mortgage amount with purchase price, so we can also say that a 1% interest rate increase would require a 10% lower purchase price to keep a homebuyer’s payment the same.

With housing prices more likely to fall than increase in 2011, higher interest rates shouldn’t have too much of an effect on housing sales.

Increases in employment, both more jobs and better paying ones, will spark a housing recovery.

After several years of depreciation every homeowner wants to know when their home, most American’s biggest piggy bank, will start increasing in value again.

Well that’s not going to happen until we see gains in employment and incomes.

It’s simple math – what you can afford to pay monthly for housing is directly related to how much you make.

So first you need a job, so you can afford something, and then you need to get periodic raises so you can afford more and more and more.

How many homeowners bother to look at unemployment and employment numbers?  Hmmm…

How many have been to the website of the Bureau of Labor Statistics (BLS)?

….?

Just as I suspected – not many.

Well, before we go visit the BLS, let’s examine how housing prices and unemployment are connected.

Comparing Housing Prices & Unemployment

Notice in the chart above that when unemployment (the blue line) goes down, housing prices usually go up.

Simply put, when people have more money to spend the economics of supply & demand show that they will use this money to drive prices up on the things that they want.

The opposite is also true as the next graph shows by comparing drops in housing values to job losses in the top 100 metro areas:

Given this important link between jobs and housing prices, we should probably take a look at where the nation’s job picture is.

So let’s go take a look at what we can at the Bureau of Labor Statistics the numbers they report.

Unemployment Numbers

As of August 2010, the official unemployment rate, according to the Bureau of Labor Statistics, is at about 9.6%.

Supposedly, it’s starting to level off as all the stimulus money plowed into the economy (and onto the federal debt) works its way through the system.

According to the government, without the stimulus, unemployment would have been a lot worse:

Here’s exactly what the BLS site says about unemployment in August:

Nonfarm payroll employment changes little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U. S. Bureau of Labor Statistics reported today.  Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work.  Priveate-sector payroll employment continued to trend up moestly (+67,000).

The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August.  From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.

Ah, but the BLS is part of our federal government and they’re not above a little slight-of-hand to make the numbers look better and improve their odds of getting re-elected.

Let’s dissect the August report a bit to see what we can see…

Well in the BLS quote above, they state the number of unemployed is 14.9 million people, which leads to an unemployment rate of 9.6%.

But wait there’s more!  Look at these tidbits:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 98.9 million.  These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

About 2.4 million persons were marginally attached to the labor force in August, little changed from a year earlier.  (The data are not seasonally adjusted.)  These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months.  They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

So, you’re stuck working a part time job because you can’t find a full time job, even though you may desperately need one, you’re not included in the unemployment numbers?  What happens if you’re trying to feed your family by working two or three part time jobs?  Talk about skewing the numbers!

If we add these people into the mix, we get much higher numbers on unemployment – 26.2 million Americans are out of work or underemployed.

That’s an unemployment rate of 16.4% not the reported 9.6%!

Surprising, this number is published by the BLS and is referred to as the U-6 number.

Why does the media publish the 9.6% number when the truer 16.4% number is so easy to find?

Your guess is as good as mine.

Summary

Well, where does all this leave us?

There’s been a lot of media mention of the term, “jobless recovery”.  The term refers to how companies seem to be improving their profits without hiring workers back.

My question is, if workers don’t go back to work where are people going to get the money to actually buy things like cars and houses?

How can that be called a recovery?

For homeowners out there wondering when they’ll see the values of their homes rebound, I hope you now realize how important the unemployment rate is to that happening.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

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With the world’s largest bond fund PIMCO stating there’s a 25% chance of deflation, the Federal Reserve announces new measures to spur the U.S. economy.

The Federal Reserve met yesterday and the markets held their collective breath to see what actions the Fed would take.

Citing continued concerns about the economy, the Fed left rates where they were as expected.

All the signs and statements point to the Fed being more & more concerned about deflation and the resulting contraction of the economy.  The Federal Reserve Press Release published after the meeting pointed out:

Bank lending has continued to contract.

and:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.¹ The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

That last part is very good news for the housing industry.

The Fed reinvesting into more bonds means they’ll still be effectively subsidizing interest rates.

Don’t celebrate too soon though.  The Fed also remarked:

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

These factors are all working against many potential buyers taking the plunge into home ownership along with the contracted lending policies of the banking system.

Deflation will also work against the housing market.  You’ve probably already witnessed a deflationary mindset and didn’t recognize it.  Many potential home buyers have waited to buy a home believing that prices will continue to fall.  Think about a significant portion of consumers taking that attitude with cars, electronics, etc.  The whole economy goes into a tailspin that’s not easy to get out of.

When can we expect to see a sustained recovery in the housing market?

Look to the employment numbers.

I don’t mean the unemployment numbers!  Those are now skewed by the numbers of people that have given up on looking for a job.

When people start going back to work and getting raises, they’ll start buying houses.

In the mean time, those that can afford to buy will realize the best deals.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

Both the House & Senate approved a bill to allow homebuyers with purchase contracts dated by April 30, 2010 to close on their transactions until September 30, 2010.  The bill is now on its way to President Obama to be signed into law.

Why the extra time?

According to the National Association of Realtors, approximately 180,000 homebuyers would lose out on the credit as they can’t close by the current June 30th deadline.

NAR blames backed up lenders, delays in Flood Insurance and the Rural Development programs and new construction issues as the primary reasons homebuyers can’t close.

Here’s NAR’s 180,000 list broken down by state:

Alabama, 2,590; Alaska, 830; Arizona, 5,440; Arkansas, 2,090; California, 17,700; Colorado, 3,390; Connecticut, 1,770; Delaware, 400; District of Columbia, 300; Florida, 14,830; Georgia, 6,270; Hawaii, 710; Idaho, 1,270; Illinois, 7,030; Indiana, 3,560; Iowa, 2, 030; Kansas, 1,840; Kentucky, 2,540; Louisiana,1,800; Maine, 840; Maryland, 2,630; Massachusetts, 3,930; Michigan, 6,470; Minnesota, 3,760; Mississippi, 1,530; Missouri, 3,600; Montana, 760; Nebraska, 1,110; Nevada, 3,800; New Hampshire, 690; New Jersey, 4,300; New Mexico, 1,160; New York, 9,190; North Carolina, 4,890; North Dakota, 460; Ohio, 8,510; Oklahoma, 2,760; Oregon, 2,090; Pennsylvania, 5,830; Rhode Island, 500; South Carolina, 2,460; South Dakota, 500; Tennessee, 3,910; Texas, 15,340; Utah, 1,130; Vermont, 400; Virginia, 3,890; Washington, 3,190; West Virginia, 940; Wisconsin, 2,690; and Wyoming, 390.

What about all the buyers that have contracts on short sales? 

Short sale can easily take 4 months or longer to close.  So, if a homebuyer entered into a purchase contract in April, there’s a very low chance they would be able to close by the current June 30th deadline. 

A good portion of short sales will be lucky to be able to close by the soon-to-be extended deadline of September 30th.

Now if only Congress could get its act together on the Flood Insurance issue…

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

Well 2009 is in the books as a very challenging year for most. 

Michigan Real Estate did not have a good year, unless you were selling foreclosures.  Some of the 2009 negatives:

• Record foreclosures
• Falling property values
• Almost 50% of mortgaged properties have more owed on them than they’re worth.
• Loan modifications not getting done despite a new Michigan law (as of July 6) that more or less requires lenders to offer face-to-face modification meetings.
• City assessors not dropping taxable values in synch with the real estate market.

Most of those negatives will continue to haunt Michigan Real Estate in the new decade.  There are some positive headwinds though:

• Mortgage rates are still low.
• The Homebuyer Tax Credit was extended and expanded to repeat buyers.  (it expires at the end of April though)
• Property sales are recovering due to the above rate & tax credit environment, also due to the affordability of real estate.
• Job losses are finally slowing.
• New guidelines from the state of Michigan should lead to fairer property assessments this year.
• Taxpayers are getting fed up enough to take action with all the Wall Street bailouts that don’t seem to make it to Main Street.

What’s in store for the mortgage market in 2010?

• A new Good Faith Estimate went into effect January 1.  Once everyone is used to it, it will actually make it easier for a borrower to understand.  It’ll also be tougher for corrupt/incompetent lenders to bait-and-switch borrowers.
• Expect more delays in closing a mortgage as new rules also require any changes in fees or rates to be re-disclosed to a borrower at least 3 days prior to closing.  Great news that are competition now has to do what we’ve always done!
• All mortgage originators have to be nationally registered by the end of July to weed out the undesirables.
• Expect appraisal issues to continue as FHA implements changes to put “firewall protection” between appraisers  and loan originators.
• FHA also wants to implement pricing/rate adjustments tied to credit scores.  This keeps getting pushed back, but it could happen this year.
• The Federal Reserve is scheduled to discontinue the purchase of Mortgage Backed Securities at the end of March.  This could be significant as rates were at 6% before they started buying.

Overall I personally think that 2010 will be a turning or tipping point for Michigan Real Estate and the economy in general.  The public is past the shock stage and has come to terms with our new realities.  That doesn’t mean we’re all happy with the developments, but we’re not surprised by them anymore. 

I hope that more taxpayers watch, understand and start to do something about the corruption and nepotism between Wall Street and Washington D.C..  The banking industry that pretty much caused this Great Recession we’re in through their greed, is buying votes in Congress to thwart any real policy changes to clip their wings.  Making it more likely that this will happen again – although probably worse.

We’ve also got several changes going on at The Lending Edge Team for 2010:

• We’re now part of First Michigan Bank, a small community bank in Troy with a very competent support staff.
• We’ve switched our blog from Blogger to WordPress for more versatility.
• We’ve got a new website (www.TheLendingEdge.com), please check that out.  It’s not totally done as we’ll be adding more & better content.
• We’ve also switched to a new, more robust database.  Please be patient with us though as we’re still learning to use it, removing duplicate records and re-categorizing our contacts.
• We’ll also be launching a new e-newsletter once we get the database situated. 
• Drew Sygit will be doing more webinars and speaking engagements in 2010.  He was also recently voted onto the Board of Directors of the Financial Planners Association of Michigan (the only mortgage lender on the Board).

Despite all the challenges of 2009, remember to be positive and always look to the future.  Positive energy attracts positive people & events!

What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of the property would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
Also, be sure not to try and buy a property in the name of a child as the IRS is also pursuing prosecution of an estimated 500 tax filers reported to have done this.

June 28, 2009 — DETROIT, MI – Recent housing reports brought apparently good news on housing as it was reported that Housing Starts in May jumped 17.2% and Building Permits jumped 4% in April. Also, the National Association of Realtors (NAR) reported that Existing Home Sales, the Pending Home Sales Index and New Home Sales were all up in recent months.

According to Lawrence Yun, chief economist for NAR, “We are at or near bottom in terms of sales.”

So, it’s a great time to put that home of yours on the market that you desperately want to sell?

Not even close.

One month of good news doesn’t mean the housing crisis is over. On top of that, it’s spring – a time when home sales invariably go up after winter. Look at the following graph, the same thing happens just about every year:

DETROIT, MI – Despite the efforts of the real estate and lending industries, the Home Valuation Code of Conduct went into effect May 1, 2009, bringing a dramatic change to the home financing process.

HVCC is the result of a 2007 lawsuit brought against an appraisal division of First American Corp. by the New York Attorney General, Andrew Cuomo, for allegedly inflating appraisal values on an estimated 260,000 WAMU mortgages.

So now, in typical government fashion, we go from one extreme to the other – unmonitored appraisal inflation replaced with bureaucratic appraisal deflation.

The intent of HVCC is to prevent loan originators from having undue influence over appraisers on the valuation of homes and prevent inflated appraisals.

Appraisals for mortgages on 1-4 family homes to be sold to FNMA or FHLMC, will no longer allowed to be directly ordered by loan originators. They must be ordered through Appraisal Management Companies (AMC) that act as middlemen between appraisers and loan originators. (Currently HUD’s FHA loans are not subject to HVCC. Loan originators can still order their own appraisals from trusted appraisers for FHA loans.)

Sounds great in theory, but the reality is far from perfect.

I had lunch with several of my mortgage competitors this past week. The main topic ended up being the HVCC and what it’ll mean to the process of financing a home. The consensus was that there are going to be a lot of unhappy people – homeowners, homebuyers, sellers, real estate agents, loan originators and more.

Was there a problem with inflated appraisals?

Yes, but HVCC in its current version, creates more problems than it solves. Underwriting departments at most lenders were already using advanced computer programs to address the problem of inflated appraisals. Appraisers found to be providing questionable values and work, were banned by that lender.

Why is the industry so up in arms over HVCC? Well, let’s look at how the system is supposed to work:

• Loan originator orders appraisal from AMC (usually via internet)
• Payment must be made when the order is placed to avoid appraisers being forced to bring in a specific value in order to get paid.
• AMC randomly assigns the appraisal order to one of the appraisers on its list of approved appraisers
• Appraiser is typically required to complete & deliver the appraisal within an acceptable amount of time.

Sound easy doesn’t it! So what’s the problem?

• There are no requirements concerning the proximity of an appraiser to a property or their knowledge of an area. On a recent transaction, an appraiser came from 145 miles away to appraise a home. Not surprisingly, the value came in significantly under what local real estate agents estimated it to be.
• The cost of appraisals has gone up. Our appraisers typically charged $300-$350, now the AMC’s charge $450 or more. Instead of an appraiser getting their full $300, AMC’s only pay them $175-$250 of the $450 charged. So, appraisers will have to do more appraisals to earn the same amount they have in the past. This will lead to shoddy work.
• The AMC doesn’t care if data for the appraisal is difficult to find and would normally take longer to provide an accurate value. They want them ALL back in 48 hours, failure to do so could exclude the appraiser from their list. Again, this will lead to shoddy work. Many high end homes sold in the past recorded the sales price as $1 in the MLS. Also, many builders sold houses outside the MLS. Normally, an appraiser would go to county records to research these sales and prices if needed. The 48 hour turn time requirement will now lead to appraisers just ignoring these sales, which could negatively impact appraisal accuracy and value.
• There is very little anyone can do to challenge a low valuation at this time. Oh sure, there are forms you can fill out to do so, but the real chances of an override occurring are slim. The only option then is changing lenders and paying for another appraisal, while still hoping for a better value. This will all have to be paid by borrowers and mean longer application timelines.
• Each lender has their own approved AMC. There is nothing in HVCC requiring lenders to honor each other’s appraisals, so switching lenders could mean paying for another appraisal.
• I haven’t seen anything in writing about how AMC’s will monitor and rate appraisers for the quality of their work. Will it be any surprise that appraisers will just use the first three comparables that pop up on their computer searches? What incentive do they have to put more time into making sure an appraisal reflects the best and most accurate value possible?
• HVCC has no ethics, screening or performance requirements for AMC’s or their owners. Several AMC’s have been started by retreads from the subprime debacle.
  These are not the type of challenges you want to hear when real estate values are dropping, especially for those trying to refinance.Should we blame the appraisers when their valuations start affecting transactions? I don’t think we should. None of the appraisers I know have anything good to say about HVCC. Many of them have spent years building their businesses by establishing relationships through providing great service. Now those relationships are all being taken away from them. They’re also not happy about the time constraints the AMC’s are placing on them. HVCC and the AMC’s treat appraisers like they’re a commodity and 100% the same. It’ll create a race to the bottom and reward appraisers who work the cheapest & fastest at the expense of accuracy & quality.

  I’m going on record here advising real estate agents to pull their own comparables and hand them to the appraiser when you meet them at a property. Maybe even go one step further and do a mini Broker Price Opinion! Otherwise you’re leaving the fate of your transaction in the hands of an appraiser who really may not care if your deal closes or not. Real estate agents, by the way, are the only industry professionals involved in the transaction that are allowed to speak with appraisers under HVCC.

  If you’re a homeowner looking to refinance, you may want to get back in contact with the real estate agent that sold you your home and have them do what I suggested for a purchase transaction in the paragraph above.

  By the way, anyone thinking that going to a bank or a certain lender will avoid the problem, is seriously mistaken. Everyone in the industry will be facing the same problems. Homeowners trying to refinance won’t be able to threaten to go to their banks to avoid the problem. Real estate agents won’t be able to blame loan originators if a sales price is not met. It’s a new reality we’ll all have to learn to deal with.

  A BETTER SOLUTION?
  Obviously, there was a problem with inflated appraisals. HVCC is a step in the right direction to address the problem, but several logical modifications can be made to improve it.

• Create a nationwide, central database where all appraisers have to register, so “bad eggs” can be identified by all. The federal government required it for loan originators due to fraud issues, so why not appraisers? The same mechanism can also be used.
• Require any and all owners of AMC’s to pass a background check. Currently, an appraiser, lender or real estate agent could have their license revoked, but still open an AMC.
• Create a national system to randomly review the work of appraisers and address complaints. HVCC as it is, leaves this to the AMC’s themselves. Self-regulation really worked in the banking industry, didn’t it?
• Require all lenders to use independent AMC’s. Banks are currently allowed to use their own appraisal staffs and own AMC’s, which makes absolutely no sense – unless you’re a politician getting bribed/lobbied by the banking industry. The original version of HVCC required 100% independency, but I think the fact that most of the top U.S. banks already owned an AMC might have had a little to do with this rule miraculously changing. Now, does anyone seriously believe that an invisible wall between a bank’s appraisers and all other employees will really be honored?
• Standardize the AMC’s appraiser approval process and require that they all accept each other’s appraisals.
• Create penalties for AMC’s that pressure appraisers to work on unrealistic deadlines to stay on their approved lists. The 48 hours that most AMC’s require is foolhardy. A week is more realistic. Pressuring appraisers to rush their work is really no different than pressuring them to inflate values.
• There should be geographic proximity requirements for assigning appraisals. Is it reasonable to expect an appraiser desperate for work to turn down an order in an area they don’t know?
• Create a standardized system of review, so shoddy appraisal reports can be properly addressed. Since any review system takes time, which could cause a transaction to fall apart, the review system should provide a borrower the option of ordering and paying for a 2nd appraisal, but then require a full refund of the 1st appraisal if it’s found to be suspect.

The improvements suggested above won’t create a perfect solution as that’s impossible in the real world. They could dramatically improve a seriously flawed HVCC though.

Please keep in mind that we’re all in this together, both borrowers and industry professionals. We have a government that’s giving out hundreds of billions in bailout relief to those at the top that caused the housing crisis – while seeming to make everything harder for the average person on the street. We all have to stick together to find our way through this new challenge.

If you’d like to protest against HVCC in its current form, please check out this electronic petition:

http://www.petitiononline.com/hvcc/petition.html.

For additional facts about HVCC watch this short video:

https://www.thinkbigworksmall.com/mypage/tbws/7789/661622