Wednesday, July 29, 2009

In the news....regarding appraising

Appraisal rules backfire in down market
By Jack_Guttentag
Created 2009-07-27 00:00
Enacting rules to curb abuses arising during a housing bubble, which don't take effect until the succeeding financial crisis, can easily do more harm than good. This is the case with new rules requiring that property appraisals be insulated from pressures exerted by any of the parties with a financial interest in an appraised value: primarily lenders, mortgage brokers and Realtors.
Appraisals are informed judgments regarding the value of specific properties. They are not perfect because appraisers must work with incomplete information. Further, appraisers are subject to bias, and more so if less complete information is available to them.
During periods of rising house prices, such as 2000-06, many appraisers erred on the upside because they were part of a community that expected further price increases. This tendency was sometimes reinforced by pressures exerted by lenders, Realtors and mortgage brokers. None of them wanted to see deals torpedoed by appraisals below the prices buyers had agreed to pay.
In late 2007, New York Attorney General Andrew Cuomo sued the appraisal subsidiary of title insurer First American for allegedly conspiring with WaMu, a major mortgage lender at the time, to inflate appraisals. Because WaMu sold a large portion of its mortgages to Fannie Mae and Freddie Mac, Cuomo embarrassed the agencies into issuing a Home Valuation Code of Conduct (HVCC). The code declared that the agencies would then purchase only those mortgages supported by an "independent" appraisal.
The objective of HVCC was to insulate the appraisal process from influence by any of the parties with an interest in the outcome. Mortgage brokers and Realtors could no longer have any contact with appraisers, and lenders had to obtain appraisals in some manner that prevented them from exercising any control.
The problem with this well-intentioned rule is that it was issued in December 2008 to become effective May 1 of this year, or squarely in the middle of the worst housing market since the 1930s.
With house prices declining, the upward bias in appraisals that had prevailed during the bubble had morphed into a downward bias. Many deals are not getting done because appraisals are coming in too low, and HVCC is seriously aggravating the problem.
To protect themselves from liability, most lenders are ordering appraisals from appraisal management companies (AMCs), which intermediate between the lender and the appraiser. The AMC selects and pays the appraiser, receives and evaluates the appraisal, and passes it to the lender, which has no direct contact with the appraiser.

Because AMCs operate nationally but do not have appraisers everywhere, more appraisals are being done by appraisers who are not familiar with the local market. Appraisers working for AMCs are also paid less per appraisal than independents, which may induce them to invest less time.
Less knowledge by appraisers means more scope for bias, and in a declining-price market, the prevailing bias is toward lower values.
Intermediation by AMCs also lengthens the period required to complete purchase transactions. People involved in the process tell me that it can add an extra week. In an increasing number of cases, the paperwork doesn't get done by the contracted due date or the expiration date of the buyer's mortgage lock, either of which can derail the transaction.
The objective of HVCC was to prevent pressures being imposed on appraisers to raise values. But HVCC also prevents the loan officers, mortgage brokers and Realtors who work with borrowers from pressuring appraisers to get a deal done in time to meet a deadline. Further, they can no longer keep their clients informed about the status of an appraisal because they are no longer in the loop.
In addition, the loan officers, brokers and Realtors who fashion deals for consumers used to have access to informal value opinions from the appraisers with whom they worked. Such opinions allowed them to abort house purchases and refinances that clearly would not fly because of inadequate property value. This source of information is now closed to them, with the result that deals that previously would have been screened out are now going through the system to be rejected, imposing needless costs on everyone involved.
HVCC has also pretty much eliminated the ability of a borrower to use the same appraisal with multiple loan providers. Before HVCC, mortgage brokers could use one appraisal with any of the wholesale lenders with which they dealt, and lenders sometimes accepted appraisals ordered by others. Today, brokers are out of it and lenders using AMCs will not accept appraisals ordered by other lenders because they cannot be sure that the other lenders are following the HVCC rules. The upshot is that borrowers often have to pay for more than one appraisal.
In sum, the HVCC "cure" for the appraisal problem of overvaluation has been implemented in a market where the problem has become undervaluation, and HVCC is making that problem much worse. It should be scrapped. When normal markets reemerge will be time enough to reconsider how appraisals can be made independent without disrupting business relationships that have served borrowers well.
NOTE: I am grateful to Kevin Iverson for his insightful comments.
The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at [2].

In the news....regarding real estate

Home sales show third month of gains
By Inman_News
Created 2009-07-23 09:10

Existing-home sales rose for a third month in a row in June, and prices may stabilize in many areas by the end of the year if inventories continue to decline, the National Association of Realtors said today [1].
Sales of resale homes, including single-family homes, townhomes, condominiums and co-ops, rose 3.6 percent from May to June, to a seasonally adjusted annual rate of 4.89 million units -- virtually the same as a year ago, NAR said.
At that rate of sales, the 3.82 million homes on the market represented a 9.4-month supply, down from 9.8 months in May.
A six-month supply of homes is generally considered a healthier balance of supply and demand, but the "raw inventory" total, or number of homes on the market, is down 14.9 percent from a year ago.
A Wall Street Journal analysis of housing fundamentals [2] in 28 major real estate markets during the second quarter showed considerable variation in inventory, ranging from a high of 18.1 months in Chicago to just 2.7 months in Sacramento, Calif.
"If we can keep the volume of sales above the level of new inventory, prices could stabilize in many areas around the end of the year,” said NAR Chief Economist Lawrence Yun in a press release.
Distressed properties accounted for 31 percent of sales in June, a factor in the 15.4 percent decline in median home price from a year ago, to $181,800, the group said.
Appraisal issues
Yun repeated past claims by NAR that new rules for appraisals on loans slated for purchase by Fannie Mae and Freddie Mac that took effect May 1 continue to dent sales.
In a survey of the group's members in June, 37 percent of Realtors claimed to have lost at least one sale because of the new rules, and 70 percent said consumers were paying higher fees, Yun said.
The Home Valuation Code of Conduct [3] was intended to protect appraisers from coercion by lenders to "hit the numbers" and produce appraisals that support a contractual sales price.
But critics say the new rules have shifted work to appraisal management companies, some of which are allegedly relying on inexperienced appraisers who are unfamiliar with the markets they are assigned to work in.
Some appraisers say market forces that continue to push home prices down in many markets are often to blame when appraisals don't support an agreed-upon sale price, and not the new rules (see story [4]).
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, issued an update [5] Wednesday defending implementation of the code, saying it has not led to lower appraisals or encouraged the use of appraisal management companies.
But NAR, which has called for an 18-month suspension of the code, continues to push for change, saying inexperienced appraisers too often use distressed properties as comparable sales when valuing nondistressed properties without making appropriate adjustments.
"Clearly the process needs to be revised, but the most logical approach is to use appraisers with local expertise, industry designations and access to local data, who make a physical examination of the property and use apples-to-apples comparisons with nearby home sales,” Yun said.
Freddie Mac issued a bulletin to lenders [6] July 10 stating that appraisers "must be familiar with the local market" where they are valuing properties, choose "appropriate comparable sales," and certify them as the homes "most similar" to the property being appraised.
But the bulletin said appraisers must consider using distressed properties -- including short sales, foreclosures or real estate-owned properties -- as comparable sales if they are "representative of the properties available to typical purchasers for the market in which the property is located" (see story [7]).
This week, Fannie Mae updated a 10-page "frequently asked questions" (FAQ) on the Home Valuation Code of Conduct [8], making similar points.
The code "does not speak to foreclosure data," Fannie Mae said in a new section of the FAQ. "It is up to the appraiser to determine if the data is applicable and appropriate or not."
When appraisers sign Fannie Mae's residential appraisal report form, the FAQ noted in another new section, they are certifying that they "have knowledge and experience in appraising this type of property in this market area."
Freddie Mac also updated its Home Valuation Code of Conduct FAQ [9] this week, noting among other things that the new rules address "the relationship between the lender and the appraiser, not appraisal standards."
Housing breakdown
NAR said single-family home sales rose 2.4 percent from may to June, to a seasonally adjusted annual rate of 4.32 million -- about the same pace as a year ago. Median price was down 15 percent from a year ago at $181,600.
Existing condominium and co-op sales grew 14 percent from May to June, to a seasonally adjusted annual rate of 570,000 units, down 3.1 percent from a year ago. The median existing condo price fell 18.9 percent from a year ago, to $183,300.
Regionally, existing-home sales in the Northeast rose 2.5 percent from May to June, to an annual pace of 820,000 in June, down 4.7 percent from a year ago. The median price in the Northeast was $249,400, down 5.9 percent from a year ago.
Existing-home sales in the Midwest increased 0.9 percent from May to June, to 1.1 million a year, down 1.8 percent from a year ago. The median price in the Midwest was down 9.1 percent from a year ago, to $157,000.
In the South, existing-home sales rose 4 percent from May to June, to an annual pace of 1.81 million, down 3.7 percent from a year ago. The median price in the South was $163,200, down 11.9 percent from June 2008.
Existing-home sales in the West were up 6.4 percent from May to June, to an annual rate of 1.16 million, an 11.5 percent increase from a year ago. The median price in the West was $214,800, down 24.9 percent from a year ago.

Saturday, July 18, 2009

Anti-pity party

I think that losing someone as a young child really puts things in perspective and sets the precedent for one’s ability to deal with issues. At least, it did for me.

I decided right then and there that nothing could hurt as much as having death capture someone you love. Everything else seems so insignificant in comparison. Consequently it has made me fearless. Knowing that I’ve been through the greatest thing that could ever hurt me, more than once, I know I can handle anything.

I used to think that grieving is the worst possible thing anyone can go through. Now that I’m older, I realize that everyone is different. Whatever anyone has been through, regardless of the tragedy, that is their most emotional experience. I’ve learned not to compare my definition of pain to someone else’s. We’re all on this journey together and have all experienced pain.

When I find myself feeling stressed, tired, lonely, angry, sad, confused, disappointed and broken….I remember that it could always be worse. I am healthy. I have loved ones who are healthy. I love everything about life. Even the bad stuff. I’m grateful to say that I have “inconveniences”. That means that I’m comfortable enough to recognize the aggravation.

I am appreciative that I have the opportunity to take what I don’t like and change it. As an American, there is no excuse not to succeed in what you set your mind to. All too often we feel sorry for ourselves for our shortcomings. Truth is, it’s probably your fault. Where you are in life now is a result of choices you’ve made. If you don’t like it, change it. We cannot control what happens to us but we can control how we react to it.

Whatever pains you bear, whatever you’re struggling with…know you have the power to overcome it. I don’t buy into excuses and I feel sorry for no one. No American at least. We have every opportunity at our fingertips and we take it for granted. People in this world don’t have what we have and we shouldn’t turn a blind eye to that fact. Even the poorest of the poor in America still have it better than third world countries. Most of my generation and the ones after have no idea what struggle is. Even in this recession, we are still blessed.

Happiness is not a result of the events surrounding your life. Happiness comes from within. Don’t wait to be happy. A common misconception is that one will be happy once they are financial secure. The sooner you deal with the fact that money will always be a constant worry in your life, the better. More money, bigger bills. If you cannot find joy in your current life, winning the lottery will not help you. You will be the same person with the same problems, only with more money.

I don’t really know where I’m going with this blog or what’s the purpose. But that’s what is in my heart at the moment.

Thursday, July 9, 2009

Mid Year Real Estate Market Report 2009

The following report consists of residential properties reported to the MLS by all real estate companies in the Acadiana area. These are excerpts from Van Eaton & Romero's report. To view the report in it's entirety, please email me at

Closed Sales January to June: 1476 18.60% decrease from 2008

Average Days of the Market: 105 17 day increase from 2008

Average Sales Price: $176,726 2.09% increase from 2008

List to Sold Price Ratio: 96.78% 2.35% increase from 2008

Pending Sales Jan. to June: 1872 7.35 decrease from 2008

New Listings Jan. to June: 2936 11.25% decrease from 2008

In comparison with the other 80 companies in Acadiana, Van Eaton & Romero sells 25.56% in number of total sides and 32.29% in total dollar volume, making them #1 in Acadiana.

Based on solds in all of Acadiana on either side, reported to MLS:

#1-Van Eaton & Romero 753 sides $168,201,944 volume
#2-Coldwell Banker Pelican 474 sides $ 81,731,519 volume
#3-Era Stirling Properties 199 sides $ 40,142,579 volume

Sunday, July 5, 2009

Not caring what people think

People often wonder how I came to be the type of person that doesn’t care what people think. Either that or they wonder why I feel the need to pretend like I don’t care what people think. For those who think the latter, I can assure you that it’s not an act but very much factual. For the rest, here’s my take on the topic.

Here are a few things I truly believe in my heart and live every day.

#1: I do not care what people think of me. The reason: They do not live my life. Just because someone has an opinion of you (good or bad), it does not make it a fact. Face facts. People are going to talk about you whether you like it or not. Your best friends and your family WILL talk about you behind your back. It’s how people relate to other people. Keep in mind that this is an opinion based on third party observation. You know in your heart if their words hold any merit.
#2: I do not get offended by criticism. The reason: I look at it this way: It’s possible that this person is trying to help. Especially if it’s someone close to you, they may be telling you something that you need to hear no matter how much it hurts. I absorb criticisms with an open mind and if I believe it’s something that I can use to improve myself, I work on it. Then there are people who are criticizing things about you that they do not like within themselves. Almost always when people speak badly about one another, it’s regarding something that they, themselves are insecure about.

#3 I’m not flattered by praises/awards. The reason: I do not measure my self-worth by my income, my successes or my failures. When someone praises me, I appreciate it. But I view it with the same mindset as noted in #1. That’s their opinion. I would never refuse an award because the people/organization put time/money into presenting it to me. But I don’t have a shrine to myself hanging in my home either. Awards do not make me the best. And lack of recognition doesn’t make me the worst .

#4 I have no interest in fashion. The reason: I dress how I feel like dressing. If I like it, I’m wearing it. End of story. If people like or don’t like it, that’s okay. It’s fine to have an opinion. But it won’t dictate how I dress.

#5 Don’t ask me if you don’t want to know. The reason: I don’t give false praises. When someone compliments you, I accept it by saying thank you. . I also don’t lie when I’m asked for my opinion. I will not feed into your need for approval.

#6 I stay open minded. The reason: I do not know where these people have been. I usually try to understand where they are coming from to understand their outlook or thought process. I realize that my thoughts and opinions are not the “be all, end all to the universe. I respect the beliefs of others while still holding true to my own.

#7 I don’t keep up with the Jones’. The reason: I am not materialistic. I am not jealous of things that other people have. Material items do not make you happy. Happiness comes from within. I will not buy something because everyone else has it. And I’m really not impressed with the price of one’s possessions.

# 8 I am not bitter towards others. The reason: This isn’t a competition. We are here on earth for our personal journey. You don’t know what it’s like to be someone else. While things may look perfect from your point of view, there is always more to the story. It doesn’t matter if someone has a nice house, good career, happy marriage, etc. Everyone has their cross to bear. I have enough time dealing with my own crosses to want to wish to be in someone else’s shoes and deal with theirs.

#9 I treat everyone the same. The reason: You never know who you are talking to. First impressions can be deceiving. Everyone deserves to be treated with friendliness and respect unless proven otherwise. We are all equals regardless of race, religion, social status, etc.

# 10 I live my life the way I want. The reason: I’m living my life while people are sitting around talking about it.