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The Federal Housing Administration’s Acting Commissioner, Carol J. Galante, announced Dec. 18 that she would implement substantial reforms to shore up the government mortgage program, which reported Nov. 14 that it was $16.3 billion in the red, Mortgage Daily reported.
The changes Galante will implement include limiting borrowers with credit scores less than 620 to a 43 percent total debt-to-income ratio. Borrowers with high debt-to-income ratios will be subject to manual underwriting and potentially to higher down payment requirements. The change is expected to cut claim rates by 20 percent.
The FHA also will eliminate its standard, fixed-rate home-equity conversion mortgages — a reverse mortgage program that allowed seniors to draw a large lump sum at closing, ranging from 62 to 77 percent of the property’s appraised value. Many seniors now are unable to keep up with payments and facing foreclosure.
Additional changes include reducing FHA market share by cutting loan-to-value ratios to 95 percent on loans greater than $625,000 and more closely scrutinizing borrowers with prior foreclosures.
“I've been working closely with (U.S. Department of Housing and Urban Development) Secretary (Shaun) Donovan and Acting Commissioner Galante over the past few weeks on ways we can put FHA on sound financial footing,” Sen. Bob Corker, R-Tenn., said in a news release, Mortgage Daily reported. Corker is member of the Senate Banking, Housing and Urban Affairs Committee. “While this is only a first step, I am encouraged that Acting Commissioner Galante has committed to structural reforms that we both believe put FHA in a much stronger position,” he said.
An independent audit of the U.S. Department of Housing and Urban Development’s Home Equity Conversion Mortgage initiative — its reverse mortgage program through the Federal Housing Administration — found that the economic value of reverse coverage is negative $2.9 billion, National Mortgage News reported Dec. 17.
Many seniors took out reverse home mortgages during the recession and now are unable to afford property taxes and homeowners insurance — technical defaults that can lead to foreclosure.
HUD reported that 57,500 seniors were in technical default, with 60 percent participating in repayment plans. In fiscal year 2012, HECM servicers conveyed at least 11,000 real-estate owned properties to the FHA, which is more than double the number conveyed in FY 2010.
The FHA announced Dec. 18 that it would eliminate its standard HECM program, which had allowed seniors to draw a large lump sum at closing, ranging from 62 to 77 percent of the property’s appraised value, National Mortgage News reported.
HUD instead will steer seniors toward its HECM Saver product — currently a much less popular product, but one that offers a reduced payout on the fixed-rate standard HECM. The HECM Saver allows seniors to draw 51 to 61 percent of the property’s appraised value. However, instead of offering a lump-sum payout, the Saver serves as a home equity line of credit.
In FY 2012, FHA lenders originated 48,000 standard fixed-rate HECMs and only 3,800 HECM Savers, National Mortgage News reported.
Wells Fargo has been accused of violating the terms of a multimillion-dollar legal settlement by allegedly denying loan modifications to eligible borrowers as stipulated in the settlement of a 2010 class action suit involving Pick-a-Payment mortgages, National Mortgage News reported Dec. 12.
Pick-a-Payment mortgages were offered by World Savings Bank from 2003-08; the bank was acquired by Wachovia in 2006, which itself was acquired by Wells Fargo in 2008.
The class action lawsuit that was settled in 2010 had alleged that homeowners who took out Pick-a-Payment mortgages were not properly informed that their total outstanding loan balance could increase if they chose a low monthly payment option. Additionally, the interest rates on those mortgages rose significantly after the initial “teaser” period.
Wells Fargo agreed to pay $50 million to the borrowers represented in the suit while also making a loan modification program available to those who still had Pick-a-Payment mortgages.
In the most recent action, plaintiffs accused Wells Fargo of breach of the 2010 settlement and alleged that the bank has been denying loan modification applications. The suit claimed that between April 2011 and September 2012, only three percent of class action members who applied for loan modifications received them. That amounted to only 1,746 borrowers, National Mortgage News reported.
Wells Fargo had claimed that it provided loan modifications to almost 110,000 borrowers with Pick-a-Payment mortgages.
Plaintiffs’ attorney Jeffrey K. Berns wrote in the filing, “Hundreds of thousands of homeowners were suffering the effects of undisclosed negative amortization for their Pick-a-Payment loans, while the declining U.S. housing market was sucking the remaining equity out of their homes.”
The Obama administration is intent on nominating a new director for the Federal Housing Finance Agency to replace Edward J. DeMarco, the agency’s acting director who has blocked principal reduction efforts for underwater borrowers, The Wall Street Journal reported Dec. 10.
The position has become politically significant since the FHFA controls housing policy as it relates to Fannie Mae and Freddie Mac, both of which own or guarantee more than 50 percent of all U.S. mortgages.
While DeMarco has occupied the position of interim director for the past three years, he has never been confirmed by the Senate, and sources close to the White House told the Journal that the President would not nominate DeMarco for directorship despite his interest in retaining the position.
The Journal reported that there’s been chatter about a recess appointment in order to bypass Senate confirmation, but it’s unlikely the White House would gamble on angering Republican lawmakers whose cooperation is needed for the confirmation of the Secretary of the Treasury, the Secretary of State and the Chairman of the U.S. Securities and Exchange Commission.
Leading candidates include Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School, and Michael Stegman, an advisor to Treasury Secretary Timothy Geithner, the Journal reported.
The White House and DeMarco have been at odds over the FHFA’s refusal to launch principal reduction programs at Fannie and Freddie; DeMarco has maintained it’s his obligation to protect the assets of the government-sponsored enterprises and therefore has eschewed policies with high upfront costs and no clear future benefits.
If the Obama administration succeeds in replacing DeMarco, refinancing programs for underwater borrowers could be greatly expanded over the next few years.
The U.S. Department of Housing and Urban Development released its 2013 loan limits for the Federal Housing Administration, Mortgage Daily reported Dec. 10.
The national floor limit is set at 65 percent of the national conforming limit, which the Federal Housing Finance Agency reported is $417,000. That leaves FHA's floor limit for 2013 at $271,050 for single-family properties and $347,000 for duplexes. The limit climbs to $419,425 for triplexes and $521,250 for four-unit homes.
For regions with high-cost designations, the single-family limit has been set at $729,750. For four-unit properties, that limit is $1,403,400.
Mortgage Daily reported that Alaska, Hawaii, Guam and the U.S. Virgin Islands enjoy special exceptions. The FHA loan limit for single-family properties in these locations is $1,094,625, and four-unit properties can be financed for amounts as high as $2,105,100.
Maximum claim amounts on home-equity conversion mortgages are $625,000.
The new limits were issued under H.R. 2112, the Consolidated and Further Continuing Appropriations Act of 2012, and will be effective from Jan. 1 through Dec. 31, 2013.
Review the loan limits.
The Federal Housing Finance Agency’s Office of the Inspector General released an audit report Dec. 10 critical of executive compensation at Fannie Mae and Freddie Mac, Bloomberg reported.
“The agency’s lack of independent assessment limits its capacity to ensure that the costs associated with senior professional compensation are warranted,” the OIG report stated, Bloomberg reported.
Fannie and Freddie paid 90 executives $92 million in 2011, while paying 2,000 senior professionals a total of $455 million. The auditor’s report indicated median compensation to vice presidents was $388,000, and median salaries for directors was $205,300.
This is not the first time executive compensation at the government-sponsored enterprises has been criticized, and much of the concern has focused on the nearly $190 billion in taxpayer aid paid to the GSEs since 2008. The GSEs have paid back $50 billion in dividends to the U.S. Department of the Treasury.
Fannie Mae Spokeswoman Kelli Parsons said that it’s important for the GSEs to pay competitive salaries. “Our people are the reason for Fannie Mae’s significant progress, which is benefiting taxpayers,” she told Bloomberg. “A change in our ability to pay competitive salaries could stall or reverse this progress.”
The FHFA already has frozen pay at the GSEs and also cut the annual salaries of their CEOs by nearly 90 percent, from $5 million to $600,000.
The U.S. Department of the Treasury will sell its stake in seven banks that have been part of the agency’s Troubled Asset Relief Program, American Banker reported Dec. 13. The banks will sell at an anticipated $2 million aggregate discount.
Treasury noted that it expected to gross around $23.8 million from the bank auctions — a 9 percent loss from the almost $26 million the agency originally invested in the troubled lenders.
Treasury previously has auctioned 84 TARP banks, which brought in $1.5 billion but represented a $221 million loss from the agency’s original investment. However, Treasury said it has netted a profit when all of its TARP divestiture programs are considered, recovering a total $268 billion from an initial investment of $254 billion, American Banker reported.
However, some sources told American Banker that they remained skeptical that the upcoming auction would net the level of bids Treasury expected. Additionally, potential investors, such as Basswood Capital Management, which was stiffed on a dividend payment by a TARP bank that it bid on at an October auction, told American Banker that they are worried that TARP banks could “try to game the system.”
Assistant Treasury Secretary Timothy G. Massad told American Banker that the TARP program had “helped stabilize the economy and turned a profit for taxpayers” and added that “these auctions are one part of our broader strategy to continue winding them down.”
The seven banks up for auction include Bank Financial Services in Eden Prairie, Minn.; Bank of Southern California in San Diego; Century Financial Services in Santa Fe, N.M.; Community Investors Bancorp in Bucyrus, Ohio; First Alliance Bancshares in Cordova, Tenn.; First Independence in Detroit; and Hyperion Bank in Philadelphia.
Fixed mortgage rates dropped incrementally this week and remained near record lows, which has kept homes’ affordability high, Freddie Mac reported Dec. 13 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate decreased 0.02 percentage points to 3.32 percent (down from 3.94 percent a year ago). The 15-year fixed-rate also fell by 0.01 percent to 2.66 percent (down from 3.30 percent a year ago).
The one-year adjustable-rate mortgage fell 0.02 percentage points to 2.53 percent (down from 2.81 percent a year ago). The five-year Treasury-indexed adjustable-rate increased 0.01 percentage points, however, to 2.70 percent (down from 2.86 percent a year ago).
“Mortgage rates held relatively steady following the November employment report,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “The unemployment rate fell from 7.9 to 7.7 percent. However, in its Dec. 12 monetary policy statement, the Federal Reserve noted that this rate remains elevated, and modified the statement to tie any increases to its target rate to the unemployment rate falling below 6.5 percent.”
View Freddie Mac’s weekly Primary Mortgage Market Survey.
During the third quarter, Wells Fargo purchased nearly $70 billion of closed home mortgages from correspondent originators, National Mortgage News reported Dec. 10.
The correspondent channel accounted for 49 percent of Wells Fargo’s residential production during the third quarter putting the bank in the top spot among correspondent buyers. The total purchases showed a slight increase over the second quarter when Wells Fargo’s correspondent channel accounted for 46 percent of production and purchases totaled $61 billion.
Other top purchasers during the third quarter included JP Morgan with $22 billion and U.S. Bank Home Mortgage with $14 billion.
The popularity of whole loans has steadily increased, but pricing for servicing-released mortgages has improved little, National Mortgage News reported.
“Actual pricing levels remain unchanged with the aggregators offering well below economic value and retention strategies expanding aggressively,” Tom Piercy, servicing advisor at Interactive Mortgage Advisors, told National Mortgage News. “We do have more bids in the market today which is good but yield targets remain high, hence values remain below what many perceive as actual economic value.”
The apartment and office sectors saw decreases in capitalization rates during the third quarter, but the rate of compression has leveled off throughout the year, according to data from Reis, a New York-based real estate analysis firm, MBA NewsLink reported Dec. 13.
The apartment average cap rate has continued to drop since the third quarter of 2009 and now remains at 6.3 percent, down 40 basis points since the second quarter, MBA NewsLink reported.
“With the apartment mean cap rate bouncing around a bit over the last year, the 12-month rolling cap rate has flattened and is virtually unchanged over the last year,” Ryan Severino, senior economist for Reis, told MBA NewsLink. “This indicates there has been some moderation in transaction pricing for apartment properties in recent quarters.”
“It's difficult to tell if declining apartment cap rates during the third quarter was idiosyncratic, or if it’s the start of another leg down in cap rates,” Severino told MBA NewsLink.
Severino predicted that in 2013 the 12-month rolling cap rate for apartments will remain the same, but he noted that quarter-to-quarter fluctuations are likely.
As for office properties, the average cap rate was down 20 basis points during the third quarter to 7.6 percent.
“This is a bit of a reversal after office cap rates have been climbing for the last few quarters, but the mean office cap rate still remains above where it was during the first quarter of this year,” Severino told MBA NewsLink.
The office segment also saw some restraint in cap rate compression throughout the year.
“For further evidence in support of this assertion we can examine the 12-month rolling cap rate,” Severino told MBA NewsLink. “The 12-month rolling cap rate continues its gradual upward trend that began in the third quarter of 2011.”
Severino noted that while cap rates have not compressed as much for commercial properties as they have for multifamily properties, he said that “they are down a respectable amount considering that office fundamentals have not performed anywhere near as well as apartment fundamentals over the last two and a half years,” MBA NewsLink reported.
There still is greater room for cap rate compression in the office sector than in the apartment sector, Severino noted. “However, we do expect the 12-month rolling cap rate for office to remain virtually unchanged over the next year,” Severino told MBA NewsLink.
Asian real estate investment trusts led their North American and European equivalents on environmental performance, according to a report from research and analytics firm MSCI ESG Research, Real Estate News reported Dec. 13.
The report measured 70 REITs and calculated portfolio-wide performance against certain sustainable criteria, including the degree of environmental certification.
Asia-Pacific REITs led with 24.2 percent compared to 17.5 percent for European REITs and 5.6 percent for North American REITs, Real Estate News reported.
Mario López-Alcalá, senior analyst at MSCI, attributed the performance variation to a combination of regulatory programs and electricity prices.
López-Alcalá acknowledged that Asia-Pacific’s regional performance had been driven to a certain extent by outperformance in Australia, which mandated that REITs disclose energy ratings for buildings above a minimum size.
“Government commitment is instrumental in making managers and tenants aware,” López-Alcalá told Real Estate News. “Regulatory and market incentives are both important. Regulation will propel the market, but then the market will take over and make new practices the new normal.”
Unlike the European Union and Australia, the U.S. has yet to institute federal regulation tied to climate change.
Also, the U.S. lacks the other major incentive to focus on environmental performance — a decade-long increase in energy prices, Real Estate News reported.
Small energy price increases in North American (42 percent compared to 134 percent in Europe and 199 percent in Asia-Pacific) led to “stagnant” energy and water-efficiency enhancements.
The office sector leads in REITs, while the retail and residential sectors lag behind. However, the report noted that retail is comparable to office REITs relative to its potential as a resource-intensive sub-sector to balance out energy-price volatility risks, Real Estate News reported.
Related opportunities can be found in diversified REITs, which typically encompass 31 percent office and 18 percent retail assets, and specialist North American REITs, which are largely underdeveloped.
Tamora K Papas, SRA, was confirmed Dec. 19 to the Washington, D.C., Real Estate Appraisal Board by the Council of the District of Columbia. She was nominated by Mayor Vincent Gray.
The Board is comprised of three appraisers, one licensed broker and one consumer. Board members serve three-year terms and are tasked with regulating the practice of real estate appraisal (including the functions of the state appraiser certifying and licensing agency) and enforcing the District of Columbia’s real estate licensing law. The Board also oversees applications for licensure and education and reviews appraisal complaints.
Papas is president of the Washington, D.C.-based real estate appraisal firm Pinnacle Performance, Inc., and has been a real estate appraiser for six years. She has held the SRA designation since 2008 and is a member of the Appraisal Institute’s Washington, D.C., Metropolitan Area Chapter.
A resident of Washington, D.C., Papas is active in her local community, having served as a volunteer for 16 years with the Vietnam Veterans Memorial Fund.
Appraisal Institute President Sara W. Stephens, MAI, was featured Dec. 14 in The Washington Post where she discussed how homebuyers and sellers should handle a situation when an appraisal comes in below a home’s contract price.
“Homebuyers should certainly ask to see the appraisal report, which is their right. Make sure all the data are correct, such as the total square footage and the number of bedrooms, bathrooms and garages,” Stephens said. “If all those things check out, I would get in a car and check on the comparable sales, and make sure they are in the same market and have the same characteristics as the home you’re trying to buy or sell.”
This story is among the recent media coverage included in the “AI in the News” feature on the members-only section of the Appraisal Institute website.
Appraisal Institute members appearing recently in local media coverage include Tim Hooper, MAI,The Capital (Annapolis, Md.); Gary Crabtree, SRA, The Bakersfield Californian; Michael Clapp, MAI, SRA, SRPA, Winston-Salem (N.C.) Journal; Greg Brown, MAI, SRA, SRPA, Gulf Breeze (Fla.) News; and Brandon Boudreau, Associate member, The Detroit News, WWJ-AM 950 (Detroit), WDIV-14 (NBC) Detroit and MLive.com (Detroit).
See the latest media coverage about the real estate valuation profession, the Appraisal Institute and its members. Media coverage at “AI in the News,” found on the member log-in page of the Appraisal Institute’s website, is updated daily and also includes the latest news releases from the Appraisal Institute.