I Survived Real Estate 2011

(Full Bio)

On October 14, 2011, The Norris Group returned with its award-winning event I Survived Real Estate. An expert line-up of industry specialists joined Bruce Norris to discuss current industry regulation, head-scratching legislation, and the opportunities emerging for savvy real estate professionals. 100% of the proceeds support the Orange County Affiliate of Susan G. Komen for the Cure. This event would not have been possible without the generous help of the following platinum partners: ForeclosureRadar and Sean O’Toole, Housing Wire, the San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops with President Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobbie Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Real Wealth Networks, Frye Wyles, MVT Productions, and White House Catering. The event video can be found on isurvived2011.com.

Bruce continued his discussion with the panel on an interesting appraisal they had. Someone with no experience in a very unusual area where you received a lot of money for a certain located lot had a $1.3 million comp for the model-match house. They had the right location, but The Norris Group did not. They had a home for sale for about $700,000 for 90 days, which is not worth $1.3 million. When they went pending, the home was appraised for $1.3 million because it was a model-match house; someone had come in from out of the area who did not have a clue that it mattered there. This did, however, help lock in the sale.

Bruce wondered what the intent is on the mortgage side. He asked what the function of the appraisal management company was and if they are really supposed to just make sure that appraisal independence is accomplished. Sara confirmed saying this is the main function, and it was intended to be the main function to begin with. Unfortunately, it has become a clearing house for fees lower. The management company is going to make the money, and Sara said what her company finds is that when many consumers close a loan are confronted with an amount for an appraisal that includes not only the appraiser’s fee but also the management company fee. Sometimes the management company fee is more than what the appraiser is actually making on the particular sale. Sara related to Bruce on a personal instance where she had a friend who called and asked her if about $300 the usual in customary fee for a residential appraisal. Sara said this sounded a little high an asked her to call the appraiser. When she called the appraiser, she found out that a good part of the fee that she was going to be paying for the appraisal was actually going to the management company and not to the appraiser.

To earn their cut, the management company usually engages the appraiser and is responsible for the documentation securing the appraisal, getting the appraisal back to the file, and getting it to the lender. They act as the middle man. Bruce jokingly said they basically take an email and forward it. They do not necessarily have to have expertise as appraisers, however. In a lot of states like Arkansas and most likely in California, they have certain requirements for AMCs. The Appraisal Institute has been very active in trying to monitor the appraisal management companies and try to obtain some kind of regulation process, some bonding or some kind of law that supports the appraiser in the event that there is some kind of argument with regard to fee and process. In some states they are not regulated at all, and in other states they are closely regulated. This actually brings up a confusing situation. Bruce wondered if the Appraisal Institute has national and state regulations that overlap or contradict, which Sara confirmed.

Debra Still began talking about how her company works in 29 states and files 29 states worth of appraisal regulations, fees, forms, disclosures, and predatory lending. The variation is pretty stunning. The Dodd-Frank Act had tried to solve the reasonable customary fee, and Bruce wondered if this has changed in practice where the appraiser is now getting paid what they used to. However, Sara said this is not the case as there is still a big issue in this area. When Sara testified before the Congressional Subcommittee in July, this was one of the things that she continued to talk about with the subcommittee. The idea of reasonable and customary and the intent of Dodd-Frank was never to include the AMC fee into the reasonable and customary estimation. The Appraisal Institute has done a lot of research, a lot of study, and they have looked at VA schedules and others to try to help these AMCs and try to help the Congressional Subcommittee to take a look at what a reasonable and customary fee might be to an appraiser. They would like to see the HUD-1 form simply separate the fees. The appraisal fee needs to be on one line and one transparent number, and the appraisal management fee should be on another. An appraiser needs to be paid for the time, the education, the professionalism that they have and that they bring to the experience. The AMC should also be compensated for the work that it is doing. There are pretty severe fines for not paying reasonable fees. In the Legislation, it gets into the millions, and it is uncertain if any of these fines have been levied.

One thing that existed at one time and it is good that it does not anymore is undue pressure. However, Bruce gets the feeling it actually does exist but on the back end. He feels like there are buyers who are willing to say about a house that it is the one they want at the price they want it, but somewhere along the line there is pressure to get it at a lower price. He doesn’t know if it is the review appraisal process, an automated system, or it is an underwriter who says it should be lowered. He really doesn’t know, but he does know that as a seller he is confused sometimes why it comes back less. It’s not reasonable. People look out for their own best interests. For example, a seller checks out the market and goes pending, to Bruce this is a comp. If it disagrees with all the other comps severely, then this might be a problem. When The Norris Group fixes up houses, they might spend $30,000, but they do not automatically think about if they will receive $50,000 back for it. There are, however, times where a buyer looks at this and says they would not be able to do it for $30,000, and a $20 grand price difference at 4% interest is so minimal per month that the answer is they will take the $30,000 over the $50,000, especially when you have 70% comps against REOs and short sales. This is a problem. The real question is how they are viewed. One does not show up and say a property is a comp but it does not have a kitchen. You can’t get the truth with the push of a button.

Sara said all this points out the need for local market expertise, for people who are trained professionals, people who are trained to go to the market and interview the buyer and seller, to investigate the comparables, and make sure they are comparables. Secondly, Sara believes that a lot of appraisers, as they begin to turn in their appraisal reports, face a lot of undue pressure, for example, added comparables, extra questions, and more scrutiny placed on their valuation and their judgment. Bruce wondered if for some reason the pressure is there or a review appraiser disagrees that they could lose business because they came in at a higher number than the review appraiser. Sara said this is something that might happen on some instances, but it really falls to the appraiser to defend himself over and over again. If the information is there and the valuation has been done to the best of the appraiser’s ability, then you need to just get to the point in time where you have to say, “This is it; this is all I can do.” Sara said often times when this situation confronts the people at the company, they will say, “Could we pick you up? Could we drive those comps and take a look at them?” A lot of times you are talking to somebody who is sitting at a desk who never looks at the property and never goes to the particular comparable. He never inspects the interior and doesn’t have any information. It is a communication problem sometimes because as an appraiser and as a person who is writing the report, the communication skill needs to be there to convey extraordinary measures you may or may not have taken to include the sale and why. It is a difficult environment, and it is very difficult sometimes to meet the requirements that are piled on, that are additional, and seem perfect in terms of the final valuation result.

Debra Still said you do have underwriting guidelines and some investor overlays that are now causing some of this challenge where you might have an investor that requires that two comps be outside the community. Outside the community possibly means a foreclosure. This is one of the homebuilders’ top 4 issues. As we see some of these sub-markets beginning to heal and prices starting to stabilize, we have to think about how do we move forward and recognize that in a declining area we might have a very stable sub-market. How do we recognize that some investors want four comps or six comps or justify the time valuation? It becomes very complex when you combine both the appraiser’s work and the underwriter’s work on top of it.

Bruce gave an example of something that really changed their business model. They bought a property in Moreno Valley for $52,000, without a kitchen and other necessities, and they fixed it for around $25,000. They put it up for sale and went pending for $123,000, and they had seven offers within two days. This is a pretty good statement of market value. The appraisal came in at $100,000, and the review came in at $80,000. Consequently, they kept it as a rental at $1100, and they rented it in one day. The statement basically by the appraisal said that given $100,000 at 5%, the rental payment was worth twice as much as the value when you consider what it was worth in mortgage payment. What it prevented was them fixing the next 50 properties in Moreno Valley because what it told them was due to the changes that HVCC brought in, the appraiser was incapable of coming to that decision because no one would allow him to do it. This is a challenge for the industry right now, especially in the areas that have the overwhelming vacant REO as the comp. One of the reasons they concentrate in a specific area is because they provide their own evidence that a decision has been made before, which is what you are in a way stuck with as an appraiser. You have evidence that somebody made a decision.

Sara said one of the other things the aforementioned points out is a relationship with the purchaser and with the person who is going to be working with the mortgage as well as conversation and dialogue on the front end certainly might help to solve some of the problems. The Appraisal Institute is beginning to look at how they can develop some relationships in sub-markets that would allow them to try to take a look at what they have in the market in which they are working. The technique, theory, and ideas going forward are pretty new, and therefore they may have a lot of risk in them for a lot of lenders. It goes back to educating both the lender, the appraiser purchaser, and the investor in what is going on in the market and how they can handle some of the consequences of the downturn that we have seen.

Debra Still said this is one of the things that is difficult with HVCC. The spirit of the HVCC was right on target, not doing anything to exert undue influence on an appraiser. On the other hand, it is now law; and having those good, constructive conversations are very delicate. You have to be very careful and very thoughtful, and there is a protocol to have an appropriate dialogue with an appraiser as you are trying to get to the right place. It is using coercion when it really just needs to have better information.

In order for a company to not require an appraisal management company to act as the middle man and go directly to the independent appraiser, they would have to be a reasonably large lender. Debra Still’s company has a national subdivision processing department, so everything that has to do with properties is done by a department that is outside of the origination, the processing, the underwriting, and the closing. As long as you can set up an arms length environment, you don’t have to use an AMC. Most companies, however, would use that as their way to ensure arms length and to stay within the law. Sara said this is a big factor with a lot of lenders right now as they do not want to cross the line.

There is definitely a sense that there is some rotation system that is necessary where no matter what the experience level or knowledge of an area, it is just a specific person’s turn to obtain an appraisal. Debra Still’s company does a 1 in 5 rotation in each sub-market and probably has about 300 appraisers nationally that they use. It is very important not to use one person solely for a community. There needs to be team partners. All of the appraiser’s business would be dependent upon the company giving, so they have to do at least a 1 in 5 rotation. This is how they have set up their due diligence. They will review the appraisals, review for error, review any quality control audits, and they would make sure they have qualified individuals on their appraiser panel. Sara believes in this type of environment you would have more control over the quality of the appraiser. This is one of the things she does not find happening with a lot of the AMCs. They will gravitate toward cheap and quick and possibly overlook the qualifications that the appraiser has such as market expertise, which Sara says is extremely important. What really matters is the person who is willing to travel, to finish the appraisal, and turn it in completed. A quick turn-around time might be a day to a day and a half. There is no way that if you are not familiar with the market you can simply march in, collect the comparables, talk with the buyers and the sellers, get a sense of what is going on in the market, make the inspection, get a feel for what the property contributes, what are its overall attributes in relationship to the others that are on the market or the other sales that have occurred, go back to make the appraisal, and then write and convey it in a quick amount of time. It just cannot be done. Bruce said it is hard to want to do this if you are getting paid half of the appraisal fee. It may not even be feasible to spend as much time because you just cannot possibly do it. You might as well just go to Multi-list and get a couple of comps and move on.

When asked about broker-price opinions, Sara said one of the things about this is in some instances it might be a good vehicle, but for mortgage-lending purposes and for decisions a lender has to make; by in large the opinions are unregulated. An appraisal that is put forth and signed by a state-certified appraiser, which is what the Appraisal Institute does, has some education. They are unbiased and a third party out there taking a look at the property. They really don’t have anything more in the game than just to report and analyze the market. Sara believes sometimes in the terms of broker-price opinion you have a disinterested person. They are an advocate for the property owner and for another entity. They are certainly not regulated like the appraiser is in terms of adherence to certain educational requirements. There are so many things that are missing. The broker-price opinion might have its place in some part of the real estate picture, but certainly not in terms of making a decision to buy or sell. It’s a different approach; it’s a different mindset, and it should be for a different use.

Bruce speculated that when there is an REO created, there is a series of things that happen including a couple of BPOs and an appraisal. It’s uncertain which is weighed heavier, but there is evidence that everybody is getting a turn in saying what the value is.

Bruce asked the panel if they see anything in Dodd-Frank or the changes in qualified mortgages that threaten a 30-year mortgage for some of the stratuses of loans. Debra said she does not really see anything in the QM or the QRM that would specifically attack the 30-year mortgage. For the most part this has been a product that housing in America has depended on for many years.

To find out more, tune in next week for I Survived Real Estate 2011, part 6. The Norris Group would like to thank their gold sponsors for the event: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Conaway and Conaway, Delmae Properties, Elite Auctions, Inland Empire Investors Forum, Inland Valley Association of Realtors, Keller Williams of Corona, Keystone CPA, Kucan & Clark Partners, LLC, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Pacific Sunrise Mortgage, Personal Real Estate Magazine, Raven Paul and Company, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, and Westin South Coast Plaza. Visit isurvived2011.com for more

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

I Survived Real Estate 2010 (Full Bio)

September 17^th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The video also now available on The Norris Group website.

The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week The Norris Group Real Estate Radio Show is broadcasting I Survived Real Estate 2010.

We are in a bond bubble. This is what concerns Thornberg the most right now. We had a recent GDP revision. Savings rates are close to where they should be. Employment is flat, but incomes are growing. The panic over a double dip this summer was ridiculous. We are on a path to recovery, but we have created so much fear that we now have a bond bubble. We have ridiculously low rates. The spreads between returns on equities and returns on bonds have never been this wide. Either equities are severely underpriced or bonds are severely overpriced. Thornberg believes the bonds are overpriced, and eventually people will figure that out. If rates shoot up quickly, then we will have a big problem.

Real estate affordability is incredible right now. If interest rates went up to normal levels then affordability would go back to normal levels as well. Interest rates could spike from inflation, fears over the federal deficit, or if a sovereign debt crisis in Europe causes risk rates to increase. The problem is that we are relying too much on low interest rates right now.

Joseph Magdziarz spoke next. Despite the problems Joseph’s industry has had with appraisal companies, his industry has experienced growth. Appraisers had some success with getting legislation passed, such as bill 4173. When October 18^th passes, AMCs will have to pay appraisers reasonable fees. Traditionally, when the AMCs have been used, they took all the money from the appraisers. Not all AMCs are bad, but some of them took advantage of people. AMCs were a risk to consumers, because consumers weren’t receiving the best appraisers.

When Joseph is asked to appear before congress, they usually have specific issues they want addressed. These issues are usually related to consumers.

Sean O’Toole was asked to give his perspective on whether or not we’ve done a good job of solving the real estate problem. The Fed has kept a balance sheet on the U.S. and it’s households. We went from $4.5 trillion of mortgage debt in the year 2,000 to $10.5 trillion at the peak. If you look at the number of new homes added, and the increases in income, we should not have gone about $6.5 trillion. That means there is $4 trillion in excess mortgage debt. Sean believes that in the best case, we have only dealt with $0.5 trillion of that excess debt. We have a long way to go before real estate is healthy again.

Sean wrote an article called Foreclosure Roulette: A Game of Extend and Pretend. Sean does not believe that the current levels of REO inventory accurately reflect the delinquency levels. We had foreclosures moving equally with delinquencies until 2008. That was when Paulson said that we shouldn’t force banks to sell these assets in distressed markets.

Currently, our REO statistics do not mean a lot. We have been bouncing around in a range that has nothing to do with delinquencies. The FDIC has loosened up on forcing lenders to get bad assets off their books. Since we changed these rules, foreclosures have stalled.

The treasury has admitted that their strategy for dealing with foreclosures was to not allow them to come out at once. They wanted to slow the process down. A new program is coming out in Fall, which will incentivize banks to write down principals on mortgages. That may have some success. Thornberg believes there will be 3 to 4 million foreclosures coming out. Sean O’Toole believes there will be more than 4 million.

Sean believes these new programs are causing problems. These programs are meant to continue the “extend and pretend” strategy. The government is telling us “hold on, we have HAMP to solve the problem”. HAMP had design flaws from the beginning, and Sean does not believe it was intended to be successful. The government then came out and said, “Hold on, we have HAFA”. HAFA also had design flaws. It was not intended to be successful. Sean will not be fooled by HAMP’s new principal balance reduction. Fannie Mae claimed it would damage people that strategically default.

The average foreclosure in California is $150,000 dollars upside down on a $250,000 house by the time it reaches the courthouse steps. The banks and the government do not want people making the right decision for themselves by walking away. This is why Fannie Mae recently encouraged banks to push through foreclosures. The banks are not actually going to push through foreclosures, but they want people to think they will, so that they won’t strategically default.

Tommy Williams does not understand how we can give principal reductions to people who were irresponsible, but give nothing to the people who were responsible. This will not work in a capitalistic society. Tommy believes that Bruce’s idea was fantastic. Right now, the average American can afford a $150,000 home. However, people are trying to sell their home for over $300,000. All the mortgages in the United States that were selling for over $300,000 equate for 5% of the market. Right now, they are still selling homes for above affordable rates, and they are building homes that are still too big.

After 1992, we built 75% of what we needed for our population growth. The biggest problem is that we’ve been building big homes in the Inland Empire, but what we really need is lower rent apartments closer to urban areas. We are going to need more housing in 2011 and 2012, but not bigger homes. If builders still to smaller town houses, then they could make a living. However, if they do that, the builders will have to deal with zoning boards, local governments who are cashed strapped who want you to fix their streets, sewers, power lines and their pensions.

In 2008, there was very little capital available for commercial properties and there was little liquidity. In 2009, some of those capital sources started coming back. We have more capital available to us today, than we have had over the last 2 years. The problem is that many properties do not qualify for financing. Some properties have leasing issues, and no one will finance those. Most of those nonperforming properties are still in the hands of the owners. The banks will not foreclose on those properties, because they do not have the ability to write those properties down. We are starting to see the banks make progress now, because the Fed is giving the banks 0% interest rates on loans. The 0% interest allows the banks to make a small profit, which allows them to then foreclose on those properties. Dealing with this extended process is going to take even longer, because no one is putting a gun to the banks’ heads.

In the 90s, the rules were different. The FDIC forced lenders to give a notice of default if someone is 100 days delinquent.

In 2012, many commercial maturities will come due. A lot of that debt is from commercial mortgage backed securities. That debt is being held by bond holders. That debt will not be refinanced. A lot of non-refinancable loans are being pushed out for 2 years. CMBS is coming back, but values are not coming back. In 2006 -2007, we made 80% loans on an inflated value. Those properties may be 60 to 70% of what it was in 2007, but it still has a loan worth 110% to value. Just because we have money available to refinance doesn’t mean we can, because we don’t have the values we need.

Thornberg believes that if the people who own this debt just “close their eyes and hold their nose” until 2014, then they will be ok. Daniel says that is just the game that these debt holders are hoping on, but it may not work.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

The total number of failed banks so far in 2010 has now reached 37. Geithner suggests that government officials listen more to harmed families and businesses than to large financial institutions while considering a financial overhaul bill. Lennar is investing over $3 billion into distressed real estate assets. California will offer about $3.1 billion in taxable debt sales this week.

In The News:

Washinton Post – “Geithner says bank overhaul must protect consumers” (3-22-10)

“Treasury Secretary Timothy Geithner says the administration will not accept a financial overhaul bill that does not provide strong consumer protection and restraints on risk taking by large banks. Geithner urged lawmakers to listen to the families and businesses that were harmed by the financial crisis and not the financial institutions that brought on the crisis, the most severe to hit the country since the 1930s.”

Housing Wire - “In Housing, a Supply Problem of Epic Proportion” (3-22-10)

“Consider that 2.5 million loans, current at the start of 2009, had become 60+ days delinquent or in foreclosure by the end of January 2010, according to LPS. Compare that to the roughly 2 million loan modifications in process or processed in generally the same time frame—116,000 permanent HAMP mods + 830,000 trial HAMP mods + 1.0 million completed non-HAMP mods. It’s simple math: 2.5 million is greater than 2.0 million.”

Housing Wire – “TAVMA Questions Accuracy of Appraisal Fee Report” (3-22-10)

“Title/Appraisal Vendor Management Association (TAVMA) called the dataset misleading because it doesn’t include the fees AMCs pay to appraisers, excluding two-thirds of all the appraisals conducted in the United States.”

Housing Wire – “Monday Morning Cup of Coffee” (3-22-10)

“Regulators closed seven banks Friday, bringing the total number of failed banks to 37 so far in 2010. The weekly round of bank failures is estimated to cost the Federal Deposit Insurance Corp.’s (FDIC) Deposit Insurance Fund (DIF) $1.28bn.”

Bloomberg – “Lennar Looks to Distressed Debt as Slump Persists” (3-22-10)

“Lennar Corp., the third-largest U.S. homebuilder, is investing in failed bank loans and distressed real estate assets to boost revenue as demand for new houses shows few signs of revival. The Miami-based company’s purchase last month of a share of $3.05 billion of delinquent loans seized by the Federal Deposit Insurance Corp.”

Bloomberg – “U.S. Property Index Rises for Third Straight Month” (3-22-10)

“U.S. commercial property values rose for a third month in January as the economy grew, according to Moody’s Investors Service. The Moody’s/REAL Commercial Property Price Index climbed 1 percent from December, Moody’s said today in a report. Values are 40 percent lower than the peak in October 2007. The index fell 24 percent from a year earlier.”

Bloomberg – “California to Lead Year’s Biggest Week in Taxable Bond Sales” (3-22-10)

“California, the lowest-rated state, will lead about $3.1 billion in taxable debt sales in potentially the biggest week for such issues since December as investors gain confidence in Build America Bonds. The most-populous U.S. state will offer about $2 billion in taxable notes this week, including $1.3 billion in federally subsidized Build America securities, said Tom Dresslar, spokesman for California Treasurer Bill Lockyer. Oregon’s Transportation Department will sell $556.4 million of the debt and the Arizona Board of Regents will market $164.9 million on behalf of Arizona State University.”

According to the NAR, existing home sales decreased by 16.7 percent in December. The HVCC repeal bill, named HR 1728, has passed in the House of Representatvies and is waiting approval from Congress. The FDIC took over 5 more failed banks last week. FTN Financial reports that declining home values have had little effect on the nation’s economic recovery.

In The News:

NAR - “December Existing-Home Sales Down but Prices Rise; 2009 Sales Up” (1-25-10)

“Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.”

Washington Post – “Stakes are high as government plans exit from mortgage markets” (1-25-10)

“Over the past year, these programs have enabled prospective home buyers to get cheap loans, helping those buying and selling property as well as those eager to refinance existing mortgages. If the end of the initiative drives up interest rates, say from 5 percent to 5.5 percent, homeowners could be deterred from refinancing, industry officials say. A sharper increase in rates could make homes too expensive for many buyers, forcing them from the market and causing the recent pickup in home sales to stall.”

Inman - “Bailout’s impact on deficit debated” (1-25-10)

“The cost of subsidizing the operations of Fannie Mae and Freddie Mac should be accounted for in the federal budget as if they were federal agencies, the Congressional Budget Office argues in a new report — an accounting change that would add nearly $400 billion to the growing national deficit. The Obama administration has argued that only cash the Treasury Department pumps directly into Fannie and Freddie — about $95.6 billion since the mortgage guarantors were placed into conservatorship in September 2008 — should be included as budget expenditures.”

Housing Wire - “FHA Cracks Down on 4 Mortgage Lenders” (1-25-10)

“The lenders losing approval are: Strategic Mortgage Corporation, ProMortgage, Americare Investment Group, which does business as Premier Capital Lending and TopDot Mortgage. The MRB suspended FHA approval on Home Mortgage Inc. (HMI) for six months. In addition to losing its FHA approval, TopDot faces action from the Government National Mortgage Association, or Ginnie Mae.”

Housing Wire – “Home Valuation Code of Conduct is Better for Business, AMCs Say” (1-25-10)

“A trade group for the appraisal management company (AMC) industry warned that if proposed legislation repealing the Home Valuation Code of Conduct (HVCC) is passed, it may lead to the same damaging business practices that puts undue pressure put on property appraisers. The specific legislation that catches the ire of the Title/Appraisal Vendor Management Association (TAVMA) is HR 1728 which passed the House of Representatives and is awaiting Senate approval. The financial reform bill includes a provision to repeal the HVCC.”

Housing Wire – “FDIC May Securitize Assets of Failed Banks” (1-25-10)

“There is a large supply of failed bank assets on-hand, with the latest round of five failures on Friday leaving the FDIC with at least $20.1m in total assets for later disposition. The FDIC is said to be diversifying its options for offloading failed banks when no buyer can be found.”

Housing Wire – “Foreclosure and Price Decline is not Fatal to Recovery, Says FTN Financial” (1-25-10)

“Declines in house prices mixed with increases in foreclosures are not showing a hugely negative knock-on impact for the nation’s overall economic recovery, according to a weekly report by FTN Financial, a portfolio manager and analytics provider for the investment and banking industry.”

Bloomberg - “Fannie Mortgage-Bond Spreads Unchanged After Widening Four Days” (1-25-10)

“Yields on Fannie Mae and Freddie Mac mortgage securities were unchanged relative to government notes after widening for four days. The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10- year Treasuries remained at about 0.75 percentage point, after climbing as high as 0.77 percentage point, according to data compiled by Bloomberg. The spread has grown since reaching 0.66 percentage point on Jan. 6, the tightest in more than 17 years.”

Orange County Register – “South coast distressed homes slip, slide” (1-25-10)

“Two weeks ago, Dana Point’s percentage of short sales and foreclosures was 23.3%, which has risen to 24.7% this week, according to a biweekly report by Steven Thomas of Altera Real Estate. San Clemente also saw an increase in distressed properties. Two weeks ago, 30.8 percent of the city’s active home stock was distressed. Now, 32.8% of homes for sale are distressed.”

Orange County Register - “Smallest apartments get biggest rent cuts” (1-25-10)

“The biggest percentage cuts were made in rents for ‘junior one-bedroom’ units — essentially a small one-bedroom or a studio apartment with an alcove or space that can be used as a bedroom. The average rent for those units fell 11.4% to $1,172 a month. Studio apartments, one-bedroom and two-bedroom units had the next biggest percentage cuts, with reductions of just over 7%.”

Looking Back:

One year ago, California’s unemployment rate increased to 9.3 percent. Proposition 13 prevented California from raising property taxes for the budget crisis. Mortgage rates increased by 0.5 percent within a week and a half. The Federal Reserve was expected to keep its rates at a record low.

RealtyTrac’s Rick Sharga believes that approximately 450,000 to 500,000 repossessed properties have not yet been placed on the market. Default notices in California have decreased by 10.3 percent from the previous quarter and have increased by 18.5 percent from last year. The Commerce Department reports that housing and apartment construction increased by .5 percent from last month.

In The News:

RealtyTrac – “The Case of the Missing REO Inventory” (10-20-09)

“With foreclosure activity breaking records nearly every month, where are all the REOs? It’s a fair question. In normal market situations, a bank will repossess a home and usually process it through to a listing agent to put on the MLS within 30 days. In a relatively short period of time, virtually every marketable REO property finds itself listed for sale on the local MLS. Today, that’s simply not the case; it’s likely that between 450,000 and 500,000 properties repossessed over the past year are still not on the market. And with buyers hungry for housing bargains, and agents and brokers champing at the bit ready to sell the properties, it begs for a reasonable answer.”

Broker Universe – “FHA Changes May Make HVCC and AMCs Easier to Swallow” (10-20-09)

“However, Mr. Stern believes appraisal management companies are hiring appraisers based on price – appraisers who have little knowledge of local market conditions. ‘I don’t think it’s fair that AMCs are hiring the cheapest appraisers,’ he said. Lenders One, the National Association of Realtors and appraiser groups are hoping new appraisal policies recently adopted by the Federal Housing Administration will correct some of the problems associated with HVCC and AMCs.”

DQNews - “California Mortgage Defaults Trend Down Again” (10-20-09)

“A total of 111,689 default notices were sent out during the July-through-September period. That was down 10.3 percent from 124,562 for the prior quarter, and up 18.5 percent from 94,240 in third quarter 2008, according to San Diego-based MDA DataQuick”

Cleveland - “Feds to probe ‘walkaways’ by some mortgage lenders” (10-20-09)

” Federal investigators will scrutinize the practice of lenders or mortgage companies walking away from homes they have foreclosed on. The U.S. Government Accountability Office plans to delve into these so-called bank walkaways – something some consider an alarming trend in the foreclosure crisis”

Wall Street Journal – “Home-Buyer Credit Is Focus of Inquiry” (10-20-09)

“The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break, another sign of potential trouble for the soon-to-expire program. The measure, adopted in February as part of the economic-stimulus bill, gives first-time buyers an $8,000 tax credit in an effort to boost sales and stimulate the moribund housing market. The program is set to end Nov. 30, but housing-industry leaders are lobbying Congress to extend it.”

Washington Post – “Small firms, home buyers to get a boost” (10-20-09)

“Under the program, the Treasury, along with mortgage financiers Fannie Mae and Freddie Mac, will buy the bonds used by housing finance agencies to fund mortgages, which can carry an interest rate that is a percentage point lower than loans made by private lenders. Called HFAs, these agencies have been strapped during the financial crisis because investors have been unwilling to buy their debt. The federal government is now attempting to play the role of the investors.”

Los Angeles Times – “Fewer home-building permits signal weakness ahead” (10-20-09)

“At the same time, the Commerce Department said Tuesday that construction of new homes and apartments rose 0.5 percent last month to a seasonally adjusted annual rate of 590,000 units. That was a weaker showing than the 610,000 economists had expected.”

NAR - “Housing Tax Credit Working, So Keep Momentum Going, NAR Urges Congress” (10-20-09)

“‘The data on the present home buyer tax credit show that the credit has had its intended impact—sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably,’ Phipps said. He also pointed out that each home sale generates approximately $63,000 in additional economic activity, providing a tremendous economic boost to the national economy”

Mortgage Bankers Association – “MBA Testifies on State of Housing Market” (10-20-09)

“Whenever I am asked when the housing market will recover, I explain that the economy and the housing market are inextricably linked. The number of people receiving paychecks will drive the demand for houses and apartments and the recovery will begin when unemployment stops rising. Since September 2008, we have lost 5.8 million jobs in the US, more than five times the number the previous year.”

Housing Wire – “Fitch Projects More RMBS Re-Defaults as HAMP Disappoints” (10-20-09)

“Servicers of residential mortgage-backed securities (RMBS) continue to increase loss mitigation resolutions, including a significant push in the number of loan modifications, according to a report from Fitch Ratings. As of September 2009, roughly 10% of all RMBS loans and 25% of all subprime loans received at least one modification. A year ago, servicers modified only 3% of all loans, and 7% of subprime loans, according to the report.”

Housing Wire – “Servicers Prefer Foreclosure, Says NCLC” (10-20-09)

“Mortgage servicers have found it cheaper to foreclose on homeowners than offer loan modifications, according to a new report from the National Consumer Law Center. The report points out servicers in charge of modifying distressed loans are separate from the lenders, who have packaged the loans and sold them in pieces or pools to other banks and investors.”

Housing Wire – “HUD Notes Alleged FHA Violations at Lend America” (10-20-09)

“The 12 alleged violations the HUD board said Ideal Mortgage Bankers made against FHA range from submitting false certifications and failing to document the borrower’s income and creditworthiness, to approving loans that did not meet the FHA’s minimum credit requirements and closing a loan with an excessive mortgage broker fee paid to an approved FHA loan correspondent.”

Orange County Register – “Investors grab bigger share of auctioned foreclosures” (10-20-09)

“Investors bought 278, or 39%, of the 718 houses and condos sold at auctions, known as trustee’s sales, in Orange County last month, reports ForeclosureRadar.com.”