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In a new video posted to AI’s YouTube channel May 22, Appraisal Institute President Richard L. Borges II, MAI, SRA, shared information about which home improvements are likely to yield the best return. The two-minute video is aimed at homeowners who are considering making renovations, and Borges talked about how appraisers can help in the decision making.
Watch Rick Borges’ YouTube video to learn more.
The Appraisal Institute typically posts short videos biweekly on its YouTube channel that cover topics of interest to both valuation professionals and consumers. Follow AI on its other social media channels: Facebook, Twitter, LinkedIn and the AI blog, Opinions of Value.
Technological development in the real estate valuation profession remains too focused on appraisal report forms and not attentive enough to market analysis, said appraisers, their residential clients, mortgage finance industry leaders, bank regulators and other participants May 24 at the Appraisal Institute Stakeholders Forum in Washington, D.C.
Hosted by the nation’s largest professional association of real estate appraisers, the event was themed “Residential Collateral Valuation: Synchronizing Client Needs and Service Delivery,” with the goal of understanding how appraisals are used by major stakeholders and how appraisal services can be supplemented, enhanced or changed to improve risk analysis.
“The Appraisal Institute was honored to host such an impressive and diverse group of participants to examine residential real estate valuation and to develop industry-driven solutions,” said Appraisal Institute President Richard L. Borges II, MAI, SRA. “The group provided valuable insight and high-level thinking on some of the most pressing issues facing real estate valuation today.”
Participants recommended that education providers continue efforts advanced by the Appraisal Institute to integrate statistical analysis and geo-spatial capabilities into appraisal and end-user education; to work with stakeholders to gain acceptance of technological needs; and to work with technology providers to bring cutting edge services to the real estate market.
The Appraisal Institute’s leadership in this area includes its related educational offerings, such as “Data Verification Methods,” “Practical Regression Using Microsoft Excel,” “Quantitative Analysis” and “Real Estate Finance, Statistics and Valuation Modeling.” The Appraisal Institute in 2009 published a book entitled “An Introduction to Statistics for Appraisers.” And a general session at the July 23-25 Appraisal Institute Annual Meeting in Indianapolis will include a panel discussion by data experts entitled “Real Estate Data: What Will the Future Behold?”
Other topics discussed by participants at the Appraisal Institute Stakeholders Forum included lender perspectives on residential mortgage origination; single-family agency issues; asset management and property disposition; and an update from the Mortgage Industry Standards Maintenance Organization, which maintains voluntary e-commerce standards for the mortgage industry.
“I really appreciate the participation of so many of the real estate industry’s top leaders,” Borges said. “Only the Appraisal Institute could bring together such an extraordinary group of professionals and lead such a thought-provoking discussion of crucial, timely issues.”
The Appraisal Institute hosts its Stakeholder Forum series in an effort to bring together divergent viewpoints on topics facing the real estate valuation profession and related professions in order to facilitate discussions leading to practical solutions that benefit real estate market participants.
More than 100 Appraisal Institute professionals went to Capitol Hill May 22 to urge Congress to act on two bills that could significantly impact the valuation profession.
Attendees of AI’s annual Leadership Development and Advisory Council Conference, held May 21-23 in Washington, D.C., lobbied lawmakers and their staffs on H.R. 1553/S. 727, the Financial Institutions Examination Fairness and Reform Act, and on S. 526, the Rural Heritage Conservation Extension Act.
H.R. 1553/S. 727, introduced by Rep. Shelley Capito, R-W.Va., and Sens. Jerry Moran, R-Kan., and Joe Manchin, D-W. Va., intends to promote consistency of bank examinations and due process and to enhance consistency in the interpretation and understanding of bank examination guidelines and regulations. The Appraisal Institute supports the bill’s overall goals, but noted concern with Sec. 1013(a)(3) of the legislation, which would prohibit any reappraisal of a performing loan even if bank examiners identified safety and soundness concerns.
Appraisal Institute professionals encouraged lawmakers to amend the legislation in order to make it consistent with federal regulations and to allow bank examiners to order new appraisals in the interest of loan safety and soundness. They also would like lawmakers to define “performing loan,” as it currently is undefined within regulation and guidance.
AI professionals also expressed their support of S. 526, legislation that would extend tax incentives relating to donations of real property, including donations relating to conservation. The U.S. tax code currently supports such donations — known as enhanced conservation easement tax incentives — through a tax deduction that relies on qualified appraisals. Without Congressional action, the tax incentive would expire at the end of 2013.
Introduced by Sens. Max Baucus, D-Mont., and Orrin Hatch, R-Utah, S. 526, the Rural Heritage Conservation Extension Act, would extend the tax incentives. Representatives Jim Gerlach, R-Pa., and Mike Thompson, D-Calif., have pledged to introduce similar legislation in the House of Representatives.
AI professionals asked their senators to co-sponsor the bill and encouraged their representatives to become an original co-sponsor of the planned House bill.
On May 28, the Appraisal Subcommittee of the Federal Financial Institutions Examination Council announced its adoption of revised policy statements, requirements and guidance to state appraiser regulatory programs for compliance with Title XI.
The policy statements provide states with information on maintaining their appraiser regulatory programs in compliance with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended (FIRREA Title XI).
Title XI was adopted to provide protection of federal financial and public policy interests by establishing certain requirements for appraisals performed for federally related transactions. The ASC, which was established to further these goals, sets standards and monitors requirements established by states for certification and licensing of individuals qualified to perform appraisals.
Of particular note, the policy statements pertaining to the national registry, application process, reciprocity, enforcement and interim sanctions were revised to clarify existing and new requirements resulting from the changes to FIRREA Title XI by the Dodd-Frank Act.
The ASC voted in open session at its May 21, 2013 ASC Meeting to adopt the revised policy statements, which take effect June 1, 2013.
A summary of and supplemental information on the revised policy statements are available here.
All market sectors show opportunity for growth, but the commercial and multifamily sectors show the most potential, according to Jamie Woodwell, vice president of commercial and multifamily research at the Mortgage Bankers Association, MBA NewsLink reported May 22.
Commercial and multifamily mortgage debt outstanding rose to $2.4 trillion last year, Woodwell told attendees at the MBA Commercial/Multifamily Servicing and Technology Conference May 19-22 in Phoenix. The majority of mortgage debt outstanding — $836 billion — is in bank portfolios, followed by commercial mortgage-backed securities with $561 billion, agencies and government-sponsored enterprises with $376 billion and life insurance companies with $326 billion.
“We're in an interesting shift from threat to opportunity,” Woodwell told the conference, MBA NewsLink reported. “Instead of talking about all the challenges we've been facing, we're now seeing opportunities coming out of these challenges.”
Mortgage banking firms closed $244 billion in commercial and multifamily mortgages in 2012, up from $184 billion in 2011 and well above 2009's low of $82 billion, MBA NewsLink reported.
“Starting in 2009, we saw some big pullbacks in how much debt there was to be serviced,” Woodwell said, MBA NewsLink reported. “In 2012 — for the first time since the downturn — we saw the overall balance increase. We're starting to see the balances come back and we're starting to see the opportunities.”
Woodwell told the conference that Fannie Mae, Freddie Mac and life insurance company loans all performed well through the downturn. However, he noted that as the economy bounces back, it does so in different ways and in different places.
“That has a huge impact on where malls, office buildings and industrial buildings are doing better or doing worse,” Woodwell said, MBA NewsLink reported. “In absolute terms, cap rates have been low. Cap rates today are pretty darn low. But on a relative basis, cap rates are pretty darn high. While the property values are high relative to income, compared to the return an investor could get on other investments, they are not too high. There is a fair amount of buffer, so as interest rates rise, that buffer can absorb some of that interest rate rise.”
Fixed mortgage rates increased for the third consecutive week, Freddie Mac reported May 23 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate climbed 0.08 percent since last week to 3.59 percent (down from 3.78 percent a year ago). The 15-year fixed-rate rose 0.08 percentage points to 2.77 percent (down from 3.04 percent a year ago).
The one-year adjustable-rate mortgage remained steady at 2.55 percent (down from 2.75 percent a year ago). The five-year Treasury-indexed gained 0.1 percent to 2.63 percent (down from 2.83 percent a year ago).
“Fixed-rates moved up for the third consecutive week, with the average 30-year fixed-rate mortgage about a quarter-percentage points higher than three weeks ago,” Frank Nothaft, vice president and chief economist at Freddie Mac, said in a news release. “While this may slow some of the refinance momentum, rates are nonetheless low and homebuyer affordability high, which should further aid home sales and construction in coming weeks. For instance, in April, single family housing permits rose to the strongest pace since May 2008 while existing home sales for the same month grew the most since November 2009. Moreover, the National Association of Realtors reported that the median number of days on the market for these sales fell from 62 to 46 days, the fewest since it began collecting the data in May 2011.”
View Freddie Mac’s weekly Primary Mortgage Market Survey.
The sale of existing homes increased in April, but sales still are not meeting underlying demand, the National Association of Realtors reported May 22. NAR said home sales could be higher if it weren’t for limited inventory and tight credit standards.
NAR reported that April sales of existing-homes (including single-family, townhomes, condominiums and co-ops) rose 0.6 percent to a seasonally adjusted rate of 4.97 million, which is up 9.7 percent from April 2012.
Lawrence Yun, chief economist for NAR, said that the housing market recovery is solid despite tight access to credit and limited inventory. He noted that if those barriers were removed, sales of existing home sales would easily go over 5 million units per month.
Yun said buyer traffic is 31 percent stronger than in April 2012, yet sales have increased only about 10 percent. “It’s become quite clear that the only way to tame price growth to a manageable, healthy pace is higher levels of new home construction,” Yun noted.
Existing-home sales are running at the highest pace since November 2009 when buyers were responding to the first-time homebuyer tax credit. April is the 22nd consecutive month of year-over-year sales gains and the 14th consecutive month of year-over-year price gains.
Inventory has moved up slowly to 2.16 million existing homes for sale, which represents a 5.2-month supply at the current sales pace. Median sales prices are up 11 percent year-over-year, averaging $192,800.
The median length of time that homes remained on the market in April was 46 days, NAR reported. That’s an improvement from March when homes averaged 62 days. In April 2012, homes remained on the market an average 83 days.
NAR data showed that first-time homebuyers made up 29 percent of purchases in April compared to 35 percent in April 2012.
During the financial crisis, bonds backed by single loans became increasingly scarce as investors gravitated toward securities backed by a group of unrelated loans, but single-borrower deals once again are gaining traction, The Wall Street Journal reported May 21.
In March, a single $310-million loan on a 40-story office tower at 120 Broadway in New York City was packaged into bonds and sold to investors. That deal allowed building owner Silverstein Properties to pay down its debt while also spurring further growth in the singe loan-backed bond market.
The Journal reported that single-borrower deals have reach $12.1 billion so far in 2013, compared to $10.1 billion for all of 2012.
Experts disagree on whether the growth in single-loan deals is a good thing. Edward Shugrue, chief executive of commercial mortgage-backed investor and servicing firm Talmage, LLC, called the trend “disturbing.” He told the Journal, “Investors would be better served if these loans were bundled into billion-dollar transactions with meaningful diversity.”
A spokesperson for ratings firm Standard & Poor’s told the Journal that the “recent increase in single-borrower commercial mortgage-backed securities reflects both investors’ appetite for securitized products with higher yielding assets and borrower demand for long-term finance in a historically low interest rate environment.” The spokesperson added that S&P has not rated several recent deals that have included lower-quality assets, aggressive underwriting and overly optimistic expectations of financial performance.
Recently, ratings firms have taken heat for giving allegedly unjustified high ratings in the past, particularly since they make their money when issuers and banks pay them to rate their debt, something that presents a potential conflict of interest.
The Journal reported that the U.S. Department of Justice and more than a dozen state attorneys general have sued S&P for loosening its rating standards to win business. However, S&P has developed new criteria for rating single loans. The rating must be able to withstand more difficult market conditions, including rising interest rates.
In the fourth quarter of 2012, S&P rated 93.6 percent of single-borrower bonds issued, though it rated none of the three deals issued in the first quarter of the year.
Fannie Mae intends to sell $2 billion in commercial mortgage-backed securities in an effort to reduce its holdings of illiquid assets, National Mortgage News reported May 22. The securities that Fannie plans to offer were issued in 2006 and 2007 and are linked to apartment complexes.
Demand for loan-backed bonds is on the rise, and the value on the debt has gone up by as much as 25 percent since December, National Mortgage News reported.
The Federal Housing Finance Agency directed both Fannie Mae and Freddie Mac to reduce illiquid holdings by at least 5 percent, as the government-sponsored enterprises’ conservator seeks to make them smaller.
Credit Suisse Group AG said that sales of newly issued CMBS are climbing and are expected to increase by more than 50 percent this year to a total of $70 billion. Bloomberg reported that Fannie’s offering coincides with another $1.2 billion CMBS transaction from Wells Fargo and Royal Bank of Scotland Group.
Fannie had a record quarterly profit for the first part of 2013, raking in $8.1 billion. The firm will send $59.4 billion to the U.S. Department of the Treasury, bringing total payments to $95 billion, National Mortgage News reported. Fannie has received $117 billion in taxpayer aid since the financial crisis.
Federal Reserve Chairman Ben Bernanke will continue to support the country’s economic recovery by maintaining the pace of the agency’s asset purchases, HousingWire reported May 22.
While the Federal Open Market Committee has indicated it is prepared to increase or reduce the pace of asset purchases as the outlook for the labor market changes or as inflation fluctuates, Bernanke said that any reduction in the pace of quantitative easing — the Fed’s monthly purchase of $85 billion in Treasury bonds and mortgage-backed securities — would be premature until the Fed sees strong signs of solid financial stability.
“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Bernanke said, HousingWire reported.
Thanks to lower interest rates, the housing market has seen some recovery over the last year, which has, in turn, fostered job creation in real estate and construction, and in the home furnishing sector. HousingWire reported that higher home prices also have propped up household finances and improved consumer consumption.
A federal judge has revived a lawsuit that alleged JPMorgan Chase misrepresented the quality of loans that backed securities sold to Belgian bank Dexia, National Mortgage News reported May 20.
Dexia accused JPMorgan Chase and two firms it bought during the mortgage meltdown — Bear Stearns and Washington Mutual — of taking shortcuts in the origination and securitization of mortgages that underpinned 51 securities offerings from 2005-07. Dexia alleges that it lost hundreds of millions of dollars on $1.6 billion in residential mortgage-backed securities.
JPMorgan Chase denied the allegations and had successfully petitioned the courts to move the case out of state court and into federal court. And in April, Judge Jed Rakoff narrowed the lawsuit considerably and basically gutted Dexia’s case, National Mortgage News reported.
However, a subsequent ruling by the U.S. Court of Appeals for the 2nd Circuit convinced Rakoff that he lacked jurisdiction over the case, National Mortgage News reported. Although 18 of the loans that underpinned the securities at issue were on properties in the Virgin Islands, two domestic subsidiaries of JPMorgan Chase handled the deals at issue — a circumstance that limited the court's jurisdiction under a U.S. law that governs offshore transactions, Rakoff ruled.
“Accordingly, because JPMorgan Chase Bank did not itself engage in the foreign banking transactions on the basis of which the defendants sought removal, the court cannot exercise jurisdiction over this issue under U.S. law,” Rakoff wrote in his opinion, which vacated his April ruling, National Mortgage News reported.
As a result, the lawsuit will return to a New York State trial court, where it initially was filed last year.
Bank of America and JPMorgan Chase report they have satisfied their obligations under last year’s national mortgage settlement with state and federal officials, while Wells Fargo indicated it has completed 90 percent of the terms, The Los Angeles Times reported May 22.
Citigroup has not yet reported its progress and the banks’ self-reporting officially will not be credited until the national monitor for the settlement, Joseph J. Smith Jr., reviews its data.
To date, Smith only has verified completion of settlement terms by Residential Capital, a subsidiary of Ally Financial.
The Times reported that as of the close of the first quarter, the banks had provided mortgage relief to 600,000 borrowers to the tune of $50.6 billion. The banks agreed to the settlement last year to put to rest allegations of illegal foreclosure practices following the collapse of the housing market.
California received more aid than any other state with 205,000 residents receiving around $24 billion in principal and interest-rate reductions, as well as in short sale relief as of the end of the first quarter.
The Times reported that short sales made up about two-thirds of the aid provided to California borrowers in the first months following the settlement. However, the latest data showed that more borrowers now are receiving principal and interest-rate reductions, thus allowing them to remain in their homes. Those benefits amounted to $29.2 billion for 387,420 borrowers since March 2012. Meanwhile, short sale assistance went to 175,000 borrowers with a total dollar cost of $20.1 billion.
Critics of the settlement have said it does not provide enough principal reduction relief, particularly in California, where short sales and the writing off of second liens made up the bulk of the aid.
Kevin Stein, associate director of the California Reinvestment Coalition, gave Bank of America high marks, noting how the bank offered substantial principal reduction assistance. He also noted that Wells Fargo made heavy use of short sales, that Chase had a good track record on second liens and noted that Citigroup provided significant aid through short sales and second-lien relief, the Times reported.
Under the terms of the national settlement, banks had to provide $25 billion in aid with $20 billion going directly to consumers and $5 billion going to the states, mainly in the form of foreclosure prevention programs.
Banks also have not reported their level of compliance with new mortgage standards designed to provide better service to customers in collecting bills, pursuing delinquencies and initiating a foreclosing. Counselors with the California Reinvestment Coalition told the Times they had received numerous complaints from borrowers. As a result, the New York attorney general has threatened to sue banks over consumer complaints.
Smith has said this obviously is an area where the banks still have work to do, the Times reported.
Federal legislators are pressuring the Consumer Financial Protection Bureau to modify a new mortgage rule so that community banks can continue to make loans, The Wall Street Journal reported May 21.
During a House hearing, CFPB officials received numerous complaints from both Democrats and Republicans, who claimed that the new rule, published in January 2013, will result in a reduction in lending — especially at small banks.
The regulator’s mortgage-lending standards were mandated by the Dodd-Frank Act of 2010 and were designed to ensure that lenders consider consumers’ ability to repay their mortgages.
When the ability-to-pay rule was announced, the initial response from banks and consumer advocates was positive, and they praised CFPB for creating a manageable rule. However, many small lenders have told their congressional representatives that the rule would curtail the availability of loans to certain borrowers, the Journal reported.
The lawmakers appear to be moved.
“We’re all unhappy,” said Rep. Gary Miller, R-Calif., the Journal reported. “It appears to me that the rule is much more restrictive than the legislation that enabled you to do what you’re doing.”
Several legislators expressed concern that the rule doesn’t offer small lenders enough flexibility to make loans with balloon payments — a product that requires a sizeable final payment of the principal balance.
Those loans connect to the CFPB’s ability-to-repay structure for loans that lenders keep on their books in some rural areas, and lawmakers want to see those areas expanded, the Journal reported. The Independent Community Bankers of America is lobbying to have the definition of “rural” adjusted to include areas with fewer than 50,000 residents.
According to the Journal, another contentious issue is a part of the rule that mandates a fee cap of 3 percent of the total amount. CFPB officials still are deciding which fees should be tied to the cap.
At the hearing, two CFPB officials in charge of the mortgage regulations said they are considering a number of adjustments. “We will continue to watch the health of mortgage markets once this rule takes effect to ensure it is working as we expect it will,” Peter Carroll, the regulator’s assistant director for mortgage markets, said, the Journal reported.