Austin Real Estate Blog

While many home loan companies banked on a rising housing bubble, the Federal Housing Administration (FHA) remained steady with regulations and guidelines. This has allowed them to continuously support middle and lower income families and their effort to move into a home. When the housing bubble broke, the FHA continued as it had during the housing bubble.

The rules and guidelines for obtaining FHA loans have allowed the organization to maintain solid footing through a fiscal and real estate crisis. This means that FHA loans have been secured and have avoided the pitfalls of many banks and mortgage institutions.

With this solid footing in mind and all of the recent federal spending, Commissioner Dave Stevens has announced some new, appropriate steps to protect the tax payers backing FHA loans. The modifications are shifting the responsibility for the mortgages from the taxpayers who have shouldered it thus far to the lenders using mortgage brokers for the FHA home loan process. This enables a shield of protection for the taxpayers. Additionally, the FHA has modified requirements for appraisers, calling attention to geographic competence and appraiser independence from mortgage brokers and loan companies. This protects the home buyer and seller with a more accurate appraisal. Lastly, the approval process has been revamped with spot approvals removed and some loosening of the commercial space limits on subject properties.

With these changes, the Federal Housing Administration stands alone in the mortgage industry, and on solid ground. They are moving steady through the dangerous waters of real estate and economic decline. As always, give us a call if you have questions when seeking a FHA home loan or need information about your real estate related question.

You can listent to a former CBS anchor and Austinite in the know… Neil Spelce. From the Neil Spelce Austin Letter….

Volume 31, Number 12

June 19, 2009

Dear Client:

One of the least-discussed aspects of getting a home loan is becoming an impediment to an efficient closing of a home sale in the Austin area between a willing seller and a willing buyer.

This scenario is being replicated daily in the Austin area: A home seller and a home buyer go through the normal negotiations and agree on a price. The home buyer is pre-approved for a loan to cover the purchase. The home is inspected and the seller and buyer once again agree to make the deal. The lender requires a 3^rd-party appraisal. All well and good, so far. But the appraisal process is turning out to be a big hitch in the closing process.

Appraisals in and of themselves are a good thing. But the process is causing real problems for Austin buyers and sellers. It ratcheted up to a new level 5/1/09, when a new national Home Valuation Code was adopted. The Code bars loan officers, mortgage brokers or real estate agents from any role in selecting appraisers for mortgages that will be owned or guaranteed by Fannie Mae and Freddie Mac

As a result, many lenders are outsourcing the selection to appraisal-management companies (that take a big slice of the appraisal fee). Some companies put appraisers under pressure to do it faster and do it cheaper. Experienced appraisers are turning down requests to pay them only 50% to 70% of their fees and may also include a requirement the appraisal be completed in as little as 48 hours.

This process has resulted in such anomalies as appraisers being hired from outside Travis County to conduct appraisals in neighborhoods they don’t know very well. The end result: less accuracy and certainty about a property’s true value.

And no one can discuss the appraisal with the appraiser under this new Code.

Anecdotally, you can find examples where some of these appraisals are challenged regularly. (No hard numbers are available) Home values differ from neighborhood to neighborhood, street-by-street. And in many cases no current comparable sales exist. This is where an appraiser who knows the area can more accurately appraise the home’s true value – more so than an appraiser from out-of-area who is charged with doing a “quick” turnaround.

This causes a number of problems, including the possibility a buyer must seek another appraisal. It is slowing sales and as the sales pace picks up, the problems may increase.

Ok. check my post previously where one of my clients got rogered… HVCC rant I hate to say it, but, “I told you so.”

joe

A real estate appraisal is the determination of the value of a property. This is based the best use of the real estate property, translating into the fair market value of the property. The person who executes this is a real estate appraiser. The value determined by this appraiser is considered the fair market value of the property. This affects not only the value of your home but also the value of every home in your neighborhood, thus having a proper evaluation done is crucial.

The real estate appraisal is done by using several different methods of comparison. Taking accurate measurements of the property to be assessed and comparing it to the other local prosperities with similar dimensions and amenities. A proper appraisal will also assign two values to the same property. The first is improved value, typically when someone maintains and improves upon the property and vacant value, when it is left vacant and available for use. This appraisal is most applicable for use with pricing a home or property for sale, however if an investor is evaluating the property it would be of little use to him.

The investor gauges the property based on developments and activities around the location. This allows the investor to note where the housing and commercial market is at present and enables them to forecast where it will be in 2 or 5 years when they are prepared to get a return on the investment.

The best method of determining what you will need will be to ascertain what kind of approach you have to the property. If you are buying it to live as your primary residence your appraiser’s results will be crucial to the buying and selling process. If you plan to use this property to rent or flip and sell, or just sell out right, you are an investor and should approach the research of the home appropriately. Your real estate agent can point you in the right direction for your needs.

The new home valuation code of conduct is a lazy tool of weak minds. If you can’t stand by your estimation of value in the face of scrutiny, then maybe you should be changing your values. And if you don’t like working for a bank that pressures you to inflate values or do other things that you don’t like, FIND OTHER CLIENTS! That’s what everyone else in the business world does.

I just had a transaction get pushed out a week, a family lose a weeks worth of on the market time for their existing home, and a family end up putting $5k extra down that they didn’t have to put down because of an appraiser who did a sloppy job. Of course, I pulled the data that showed an error in the comparable lot size the day we got the appraisal a week before the originally scheduled closing. I forwarded the evidence of the error to the lender, who forwarded it to the appraisal management company, who forwarded it to the appraiser, who did nothing about it. Why should he? He can’t be fired from the bank’s list of appraisers. We can’t talk to him or say hey man, are you retarded? Look at the lot? Turn your head 90 degrees and look at the lot next door, can’t you tell that it’s not twice the size of the lot you are appraising and that therefore your adjustment and the data on the appraisal should be fixed? I plan on filling a complaint with the Texas licensing board for this and every single apathetic appraiser that I run across now.

In what other free market do people get handed business with their license and then get removed from responsibility for the quality of work they do and professionalism with which they do it? Your license is your ticket to the game, not tenure and guarantee of business. Sorry, but real estate is a rough and tumble business. 95% of agents don’t make it 5 years. It should be the same way with appraisers as with all other new businesses. Find a way or find the door.

I’m open to hearing other viewpoints, but right now, this whole deal seems like a cop out.

One last thought. When other groups like NAR put aout a Code of Conduct or Code of Ethics as NAR calls it generally speaks to how the group’s members should act. When the appraisers lobby for and get passed a Home Value Code of Conduct it speaks to what everyone else must do. Strange huh?

A slightly miffed Austin Realtor.

Joe

The United States has been gripped in an economic downfall for years. The first and most dramatic show of the dwindling economy has been the national real estate market. Home foreclosures have risen so dramatically that the Federal government has had to bailout several financial institutions and in the process of creating a new plan to help save homes. The national job market has equally been affected by economic woes, making it even more difficult for many people to even consider buying a home. For all of the hardships that we are currently coping with, it appears that opportunity is knocking for foreign investors.

Homes in many of the nation’s hardest hit areas are being sold for taxes due. This has encouraged many foreign buyers, as far away as Australia, to purchase several homes in the U.S. as investment opportunities. Homes have been listed for as low as $1. Australian vacuum cleaner manufacturer Theo Szinger has already purchased several homes in the Detroit, Michigan area for less than $5,000. There are many houses available now for mere thousands of dollars that less than two years ago had been valued at more than $200,000. Many of these homes are in excellent condition; the current owners are just unable to keep up with payments.

As Americans continue to struggle to keep their homes, foreign parties are expected to continue to take advantage of the deals now offered throughout the nation. Homes are now available for less than the price of a used car. These homes have become a good source of income for buyers.

The real estate appraiser may have another criterion on his or her list to evaluate when assessing a property. The new criterion is something near and dear to Austin developers, construction firms, and city governments: the green building thing.

At the end of June, 2008, a number of real estate appraisers from all over the US convened in Austin to learn how environmentally conscious building materials can change the value of a property. The week long seminar was run by the Appraisal Institute out of Chicago. It focused on green building in the commercial property field and there are plans in the making to hold another that focuses on residential properties in the near future.

The seminar examined sustainable elements in building and where to set the bar for putting a value on green building elements with few guidelines to go by. As green building becomes more popular and even mandated in some regions, a new set of criteria and valuation has to be development. As Jim Amorin, president-elect of the Austin regional Appraisal Institute stated, “we have been actively developing coursework to help our members understand how green is going to impact the properties we are appraising.”

Appraisers will have to start looking at such features as highly efficient heating and air conditioning systems, alternate uses of energy, water savings, and energy saving lighting and fixtures as factors that will effect the value of a property. But there remain questions for future consideration – how will the investment in green building pay off in the long run, how to create a reliable way to value green buildings with so little data to go on, and what green building elements add the most value to a building? Questions that will need answers soon.

Most home buyers are well aware of the importance of hiring a qualified home inspector. But is it fair to hire an appraiser to inspect a home, then blame the appraiser when structural problems are missed? This case, brought to court in Washington state in the mid 1990s, has become a precedent by which similar cases are judged.

There is a difference between the duties of an appraiser and those of a home inspector. An appraiser considers the quality of the features and amenities of a house, compares it with other homes in the neighborhood, and produces an estimate of market value of the house.

A home inspector’s responsibilities go far beyond those of the appraiser. An accredited inspector should be knowledgeable in maintenance and repair and is more qualified to make judgments on the integrity of such structural elements as roofs, siding, and foundation, as well as the utility systems of the house – plumbing, electrical, and the like. It would therefore seem to be unreasonable to expect an appraiser to catch problems like a leaky roof.

The trial court apparently agreed, as it found the appraiser “owes no duty to a prospective purchaser”, especially when that purchaser was already fairly certain he would need to replace the 16 year old roof. An appeals court did find, however, that the appraiser has a “duty of care” responsibility toward the buyer but, in this particular case, didn’t hold the appraiser liable because, it turns out, the buyer didn’t rely on the appraisal to purchase the house.

The courts seem to be saying that an appraiser is not an inspector and should not be held liable for missing problems that an inspector would have discovered. It’s incumbent upon the buyer to hire the proper professional.

The real estate industry has long been susceptible to price inflation, fraud, and other unsavory practices. Making it illegal to coerce an appraiser would be a good thing, but I hope that most appraisers wouldn’t see that as a way out of talking and reviewing agent recommendations when there is an issue with an appraisal.

I’ve not had any problems with an appraiser doing that, but I’ve heard stories about appraisers not taking input. Lenders seem to be the culprit in most cases of coercion that I’ve heard of.

You can read the summary of the Federal Reserve Proposal below in the first quoted area.

Additionally, in the news recently, is an appraiser that is suing WaMu for breach of contract, unfair business practices, interference with her ability to earn a living, fraud, conspiracy and slander. The bank is accused of pulling business from an appraiser who refused to make the appraisals favorably to the bank. Man, o, man. That’s bad news for the bank. What do you think about inflated appraisal? Send us a comment and let us know.

Federal Reserve Proposal Addresses Appraisal Coercion
Excerpt from Appraisal Institute’s Appraiser News Online Vol. 9, No. 1, January 15, 2008

The Federal Reserve Board recently proposed prohibiting creditors and mortgage brokers from coercing real estate appraisers to misstate a home’s value on all mortgages. The announcement was part of the Fed’s December 18 proposed changes to Regulation Z (Truth in Lending), which would restrict certain practices and require certain mortgage disclosures to be provided earlier in the transaction.

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In addition to prohibiting creditors and mortgage brokers from coercing appraisers, the Board also proposes to prohibit creditors from extending credit when creditors know or have reason to know, at or before loan consummation, that an appraiser has misstated a dwelling’s value. The regulation would apply to all consumer credit transactions secured by a consumer’s principal dwelling.

In its discussion on the topic, the Board said, “Pressuring an appraiser to overstate, or understate, the value of a consumer’s dwelling distorts the lending process and harms consumers… Inflated appraisals of homes concentrated in a neighborhood may affect other appraisals, since appraisers factor the value of comparable properties into their property valuation. For the same reason, understated appraisals may affect appraisals of neighboring properties. Thus, inflated or understated appraisals can harm consumers other than those who are party to the transaction with the inflated appraisal. Moreover, these consumers are not in a position to know of the practice or avoid it.”

The proposed regulation defines the term “appraiser” as a person who engages in the business of providing – or offering to provide – assessments of the value of dwellings.

The commentary to the proposed regulation gives examples of acts that would violate the regulation: implying to an appraiser that retention of the appraiser depends on the amount at which the appraiser values a consumer’s principal dwelling; failing to compensate an appraiser or to retain the appraiser in the future because the appraiser does not value a consumer’s principal dwelling at or above a certain amount; and conditioning an appraiser’s compensation on loan consummation.

The commentary also lists examples of acts that would not violate the regulation: requesting that an appraiser consider additional information for, provide additional information about, or correct factual errors in a valuation; obtaining multiple appraisals of a dwelling (provided that the creditor or mortgage broker selects appraisals based on reliability rather than on the value stated); withholding compensation from an appraiser for breach of contract or substandard performance of services or terminating a relationship for violation of legal or ethical standards; and taking action permitted or required by applicable federal or state statute, regulation, or agency guidance.

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The Nation’s Housing

Appraiser’s Lawsuit Puts Lenders on Notice

By Kenneth R. Harney
Saturday, January 26, 2008; Page F01

Real estate appraisers have complained for years about demands from loan officers that they fudge and inflate numbers to allow mortgage deals to close.

Now a California appraiser has sued the country’s largest thrift institution, Washington Mutual Bank, charging that she was blacklisted for refusing to provide favorable appraised values despite declining market conditions.

The lawsuit, by Jennifer Wertz, comes just two months after the state of New York sued an appraisal management company, First American eAppraiseIT, for allegedly giving in to pressure from Washington Mutual to inflate property values for loan applications — contributing to mortgage-market losses. EAppraiseIT and LSI, a unit of Fidelity National Information Services, were also cited in Wertz’s suit as contractors to Washington Mutual.

Wertz said in her complaint that she began performing appraisals for Washington Mutual in 2001 and earned “in excess of $100,000 a year” from her work for the bank. But last May, according to the suit, a Washington Mutual manager upbraided her for describing local property values in an appraisal as “declining.” The manager “insisted that [Wertz] change her report to indicate ’stable’ conditions so that the loan could be approved.”

All the relevant data suggested otherwise, however, and Wertz refused. The manager then allegedly told Wertz that she would be banned from all further assignments from Washington Mutual if she did not cooperate. Wertz declined to do so — citing federal, state and professional rules requiring her to provide objective and accurate reports free of outside influence. According to the lawsuit, Wertz was then cut off from Washington Mutual business through the appraisal management companies.

Wertz’s lawsuit, filed in California Superior Court in Sacramento, charges breach of contract, unfair business practices, interference with her ability to earn a living, fraud, conspiracy and slander, among other alleged violations.

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