The Veterans Administration has announced new authority for review of liquidation appraisals. With the release of Circular 26-08-1 on February 5, the VA added a new section, "Servicer Appraisal Processing Program (SAPP)," to Title 38 of the Code of Federal Regulations, which establishes authority for VA to delegate to a servicer the review of a liquidation appraisal and the determination of reasonable value.
On February 1, the VA published extensive changes to CFR Part 36, which the circular clarifies. Other changes outlined in the circular, include new limits on allowable attorney fees and the establishment of a time limit on the submission of claims under loan guaranty.
Details for the processing will be provided in the near future as part of the VA Loan Guaranty Web site www.homeloans.va.gov. For a complete copy of the new regulations, visit www.homeloans.va.gov/valeri.htm. Questions about this circular may be directed to Carl Wasson at carl.wasson@va.gov.
The circular is rescinded April 1, 2010.
Friday, March 7, 2008
Saturday, March 1, 2008
Activists Bare Teeth Over Foreclosures
AP
Saturday March 1, 12:43 pm ET
By Adam Geller, AP National Writer
In Fight Against Foreclosures, Ornery Activists Tackle Countrywide, Nation's Biggest Lender
CLEVELAND (AP) -- Folks on Humphrey Hill Drive were still waking up on the icy Saturday morning the shark hunters came to town. They rounded the suburban traffic circle in a pair of rented school buses after a half-hour ride from far more modest neighborhoods, rumbling to a stop at the Garmone family's driveway. Forty-two caffeinated Clevelanders piled out, their leaders carrying bullhorns.
Their quarry, Mike Garmone -- a regional vice president at Countrywide Financial Corp., the nation's largest mortgage lender -- didn't answer his door. So they deployed, ringing bells at the big homes with three-car garages, handing out accusatory fliers and lambasting Garmone and his company's loans. Before departing, they left their calling card -- thousands of 2 1/2-inch plastic sharks -- flung across Garmone's frozen flower beds, up into the gutters, littering the doorstep.
The commotion was the work of an in-your-face activist group called the East Side Organizing Project, with a paid staff then of just two, mobilized to battle Cleveland's mortgage "loan sharks." Years before the rest of the country was rocked by the fallout from aggressive lending, their neighborhoods were already home to the nation's highest concentration of foreclosures -- and they were fed up.
ESOP's people are proudly loud and abrasive, and they've long reveled in needling people with pull. But could they get a distant behemoth like Countrywide to the table?
On that morning in February 2006, ESOP executive director Mark Seifert had his doubts. For starters, he wasn't sure his group's research on Garmone even had the family's correct address.
Until two evenings later, when Seifert checked his e-mail and found a message from a top public relations executive at Countrywide's California headquarters.
We need to talk, it said.
Seifert broke into a wide grin.
Now that David had Goliath's ear, he wasn't about to let go.
The foreclosure epidemic that has infected Cleveland's neighborhoods started earlier and has been even more punishing than the crisis much of the rest of the country is enduring. It's a symptom of the lax lending that became widely common, without the run-up in home prices that long camouflaged it.
"The problems that exist everywhere now ... showed themselves earlier here because there was no getting out of them," says Zach Schiller of Policy Matters Ohio, a Cleveland nonprofit focused on the state's economy.
The problem is well documented -- Cleveland and the surrounding county saw more than 15,000 foreclosures last year. But to grasp its impact, walk with Nita Gardner down the block of East 113th Street where she raised two boys.
When Gardner, a retired machinist, bought the gray wood-frame house 33 years ago, this part of the Mt. Pleasant neighborhood was filled with families. Their homes on small lots were modest, but maintained with pride.
Have a look at what's left.
The white house on the opposite corner -- its front porch ripped away by scavengers -- fell to foreclosure last year. The home behind it -- blue with plank-covered windows -- went soon after.
A few doors down from Gardner, three homes in a row are abandoned. Three of the four across from them are vacant, too. It's not like some manicured suburban neighborhood, where it's a guess if a house is empty. Here, shredded curtains flap from holes where windows used to be. The silver fringes of insulation hang from walls where aluminum siding has been stripped for resale.
In early 2006, Gardner's adult sons -- who had bought the house from her -- fell behind on their mortgage and the lender, Countrywide, began foreclosure.
Gardner stepped in to fight, although looking at the home's drab exterior and the surrounding neighborhood, it's not immediately clear why.
Until, that is, Gardner opens the front door and light spills over the floor to a mural of an Egyptian pharaoh she painted in gold and azure across the living room wall. Upstairs, a closet door still bears the markings in pen where her sons charted their heights, year after year.
"I just feel like I'm a whole person with this house," says Gardner, explaining her battle to save it. "Because this is not just a house. It's me."
When ESOP held its annual meeting in 1999, organizers were surprised to see empty chairs. They called the missing and found many phones had been disconnected. They knocked on doors and found empty homes.
It was the first sign, Seifert recalls, that people in some of Cleveland's poorest neighborhoods were losing their homes to foreclosure.
ESOP's organizers, until then working with parents on safety around public schools, knew nothing about mortgage lending. But they did know how to raise hell.
That was clear in the mid-1990s, when ESOP demanded that Cleveland officials give money seized in drug busts to struggling city schools.
When Mayor Michael White put them off, ESOP members picketed White's church and ask the pastor to excommunicate him. They set up outside the house of the mayor's father, demanding he talk with his son. To drive the message home, ESOP activists figured out the married mayor had a girlfriend and went to her door with a letter demanding the cash.
The tactics came back to bite them.
"We lost about 90 percent of our funding overnight," Seifert recalls.
The nonprofit staggered. If it was going to be confrontational, it needed to keep the foundations that fed its budget in the loop.
Fighting foreclosures became their new cause. But they brought along old tactics -- a brand of confrontation honed by Saul Alinsky, the legendarily radical Chicago organizer.
"Power is not only what you have," Alinsky schooled his followers, "but what the enemy thinks you have."
ESOP was banking on anger. Clevelanders were losing their homes, organizers concluded, because aggressive lenders had put people in mortgages they couldn't possibly afford.
In 2002, the group began going after lenders, servicers and mortgage brokers.
At one protest outside a branch of Charter One Financial Inc., a police officer confronted an ESOP volunteer in a shark suit.
"Are those your sharks?" the officer demanded, scooping plastic predators from the ground.
"No," protester Christine Regula replied. "I had my tubes tied."
They also pressed public officials to stall foreclosures proceedings. One, Steven Bucha, chief magistrate in charge of foreclosures in Cleveland's courts, recalls being invited by ESOP to a public forum. More than 200 people packed a church basement. Bucha was seated as far as possible from the door.
"A woman gave a fiery speech about how the system had done her wrong, how the system was in collusion with the court -- and here's the guy responsible! And she pointed at me. I really couldn't get a word out," Bucha says. "It was like nothing else I've ever experienced in my life."
Bucha and others say the "guerrilla warfare" approach was counterproductive.
"Nobody likes our tactics, which is precisely why we use them," Seifert says.
One after another, the group squeezed and cajoled eight companies and their subsidiaries into signing pacts giving it direct access to a single executive with the authority to restructure problem loans. The companies have agreed to cut interest rates and waive penalty fees and past-due balances.
Last year, ESOP -- one of four groups that counsel homeowners referred by Cuyahoga County's foreclosure rescue program -- says it got mortgages reworked for about 1,500 homeowners, most already in foreclosure.
"You know, there's a fine line," says Rocky Ortiz, the local director of the Catholic Campaign for Human Development, which provides part of ESOP's funding. "Mark and his people have learned to walk it."
Maybe, but in early going, some of ESOP's targets were local or relatively small. Even some of the biggest were vulnerable, or at least open to discussion.
Could ESOP take on the biggest lender in the country? It was time to find out.
It's called a "rank 'em and spank 'em."
Nominally, it's a meeting. But that sounds too polite, longtime ESOP volunteer Barbara Anderson says. It's a venting session, about as calm as a trading pit. At a rank 'em in January 2006, ESOP organizers declared Countrywide their villain of choice.
A month later, they "hit" Garmone's house in suburban Painesville.
"Please call Mike at home ... and tell him to do the right thing: produce his boss to a meeting with ESOP!" the group urged its followers.
ESOP didn't want just any boss. They demanded Angelo Mozilo, Countrywide's chairman and CEO.
They got a meeting with a pair of executives at the Cleveland office of the NAACP, in May 2006. After 20 minutes, ESOP negotiators walked out because Countrywide's representatives would not sign a pledge to negotiate.
Countrywide will not answer questions about its dealings with ESOP.
"We want that relationship (with ESOP) to continue to improve so together we can help more borrowers," Rick Simon, a company spokesman, said. "Going back to the past doesn't help those borrowers."
But letters Countrywide executives sent to ESOP make clear the company's sharp disagreement with the activists' criticism and its irritation with their tactics.
ESOP organizers and Countrywide executives met again in the fall of 2006. The activists also sat down with officials from the federal agencies that oversee housing, trade and banking to voice concerns about Countrywide.
But the group was having trouble convincing local officials that Countrywide was the villain they said it was, Seifert says. The campaign moved to the back burner as ESOP negotiated an agreement with another lending firm.
The standdown, though, was temporary.
ESOP organizers got Mozilo's personal phone number and instructed homeowners to call him in the middle of the night.
They flooded faxes at Countrywide offices with hundreds of copies of identical forms detailing Cleveland homeowners' problem loans.
They posted signs on the front of abandoned homes owned by the lender: "Countrywide's idea of the American Dream! Tell their executives what you think!"
In April 2007, ESOP ferried two dozen volunteers to a Countrywide office in suburban Woodmere. They walked into the tiny office, located on the town's main shopping strip, throwing plastic sharks, handing out mock foreclosure notices and demanding a meeting with Mozilo, then left when local police arrived.
"We strongly believe that confrontational tactics and deliberate misinformation are not the way to build productive relationships that help Cleveland's homeowners," a Countrywide executive wrote afterward.
In June, a pair of Countrywide executives came to ESOP's offices to meet with borrowers, promising to work with individual borrowers but again refusing to sign the memorandum.
Nine days later, ESOP showed up at a Countrywide office in the University Circle neighborhood, sharks in hand.
In late July, an ESOP regiment headed to Hudson, an outlying suburb, and tried to shove their way into the office of the lawyer representing Countrywide in its Cleveland foreclosures. The company that had been selling the group its plastic sharks heard about their tactics and cut off the supply.
Countrywide, too, was taking notice and it was not happy.
"During efforts to physically force your way into the office, one of the firm employees was actually bitten by an ESOP member," Countrywide's chief counsel, Sandor Samuels, wrote afterward. "We will not enter into relationships with organizations that desire to subject our employees, contractors and Chief Executive Officer to harassment."
Countrywide insisted it was cooperating, saying it had restructured dozens of loans ESOP had brought to its attention.
But the activists said that was not nearly enough, that it was seeking more than piecemeal solutions.
Then, in October, a letter on gold-embossed stationery arrived.
"I am hopeful, for the sake of these families, that ESOP and Countrywide will move forward and work together in a constructive manner to find workable solutions to our customers' issues," it said.
It offered a meeting with the lender's senior management. It was signed: "Sincerely, Angelo R. Mozilo."
On a Wednesday in December, Samuels led a Countrywide delegation to Cleveland. ESOP rented a trolley, seated the executives in the front row for a neighborhood tour and filled the rest with homeowners.
Two rows back sat Lisa Pass, who stood to tell the story of her father-in-law's loan and the home it had put in jeopardy. She was surprised to find the executives were much nicer than she'd imagined. And they were listening.
Nita Gardner was there, too, and she laid out the paper trail she'd assembled chronicling her efforts to hold on to the house. The papers, she says, showed she had repeatedly made the payments Countrywide demanded, but the company still rejected her offers to buy back the house.
Afterward, one of the executives asked her how far she was willing to go to keep the house.
"Do you know what obese is?" Gardner says she answered. "Well I'm the medical standard of obese ... and I'm willing to walk the double yellow line of the Shoreway buck naked to get that house back."
When the tour ended and lunch was served, ESOP President Inez Killingsworth turned to Countrywide's Samuels. Would he sign a promise to negotiate? It was the same memorandum the lender had rejected for nearly two years.
Samuels paused. Then he reached for a pen.
Rising from their seats, ESOP's army cheered.
A few days after New Year's, Nita Gardner's phone rang. If she had money, Countrywide was prepared to sell her her house back.
When real estate agent Jeff Swiecicki, dispatched by the lender, arrived soon after, Gardner was still skeptical. But she signed a contract and handed over a check.
"I signed the paper and I cried," she says. "I told him, you can't go back on this."
Countrywide's decision is one of 50 to 60 loan workouts it has agreed to with homeowners represented by ESOP since December, Seifert says.
In December, the activists expected to reach a comprehensive agreement with Countrywide within four months. A few weeks later, Countrywide agreed to a $4 billion deal that will see it bought and merged into Bank of America Corp. But it has continued to negotiate.
That has the activists looking ahead. The foreclosure problem isn't going away anytime soon. They're changing their name to Empowering & Strengthening Ohio's People, to reach beyond the Cleveland area.
And they're already talking about the next lender they want to go after. They've even got the home phone number for a certain CEO.
Now, Seifert says, all they need is a new supply of plastic sharks.
Saturday March 1, 12:43 pm ET
By Adam Geller, AP National Writer
In Fight Against Foreclosures, Ornery Activists Tackle Countrywide, Nation's Biggest Lender
CLEVELAND (AP) -- Folks on Humphrey Hill Drive were still waking up on the icy Saturday morning the shark hunters came to town. They rounded the suburban traffic circle in a pair of rented school buses after a half-hour ride from far more modest neighborhoods, rumbling to a stop at the Garmone family's driveway. Forty-two caffeinated Clevelanders piled out, their leaders carrying bullhorns.
Their quarry, Mike Garmone -- a regional vice president at Countrywide Financial Corp., the nation's largest mortgage lender -- didn't answer his door. So they deployed, ringing bells at the big homes with three-car garages, handing out accusatory fliers and lambasting Garmone and his company's loans. Before departing, they left their calling card -- thousands of 2 1/2-inch plastic sharks -- flung across Garmone's frozen flower beds, up into the gutters, littering the doorstep.
The commotion was the work of an in-your-face activist group called the East Side Organizing Project, with a paid staff then of just two, mobilized to battle Cleveland's mortgage "loan sharks." Years before the rest of the country was rocked by the fallout from aggressive lending, their neighborhoods were already home to the nation's highest concentration of foreclosures -- and they were fed up.
ESOP's people are proudly loud and abrasive, and they've long reveled in needling people with pull. But could they get a distant behemoth like Countrywide to the table?
On that morning in February 2006, ESOP executive director Mark Seifert had his doubts. For starters, he wasn't sure his group's research on Garmone even had the family's correct address.
Until two evenings later, when Seifert checked his e-mail and found a message from a top public relations executive at Countrywide's California headquarters.
We need to talk, it said.
Seifert broke into a wide grin.
Now that David had Goliath's ear, he wasn't about to let go.
The foreclosure epidemic that has infected Cleveland's neighborhoods started earlier and has been even more punishing than the crisis much of the rest of the country is enduring. It's a symptom of the lax lending that became widely common, without the run-up in home prices that long camouflaged it.
"The problems that exist everywhere now ... showed themselves earlier here because there was no getting out of them," says Zach Schiller of Policy Matters Ohio, a Cleveland nonprofit focused on the state's economy.
The problem is well documented -- Cleveland and the surrounding county saw more than 15,000 foreclosures last year. But to grasp its impact, walk with Nita Gardner down the block of East 113th Street where she raised two boys.
When Gardner, a retired machinist, bought the gray wood-frame house 33 years ago, this part of the Mt. Pleasant neighborhood was filled with families. Their homes on small lots were modest, but maintained with pride.
Have a look at what's left.
The white house on the opposite corner -- its front porch ripped away by scavengers -- fell to foreclosure last year. The home behind it -- blue with plank-covered windows -- went soon after.
A few doors down from Gardner, three homes in a row are abandoned. Three of the four across from them are vacant, too. It's not like some manicured suburban neighborhood, where it's a guess if a house is empty. Here, shredded curtains flap from holes where windows used to be. The silver fringes of insulation hang from walls where aluminum siding has been stripped for resale.
In early 2006, Gardner's adult sons -- who had bought the house from her -- fell behind on their mortgage and the lender, Countrywide, began foreclosure.
Gardner stepped in to fight, although looking at the home's drab exterior and the surrounding neighborhood, it's not immediately clear why.
Until, that is, Gardner opens the front door and light spills over the floor to a mural of an Egyptian pharaoh she painted in gold and azure across the living room wall. Upstairs, a closet door still bears the markings in pen where her sons charted their heights, year after year.
"I just feel like I'm a whole person with this house," says Gardner, explaining her battle to save it. "Because this is not just a house. It's me."
When ESOP held its annual meeting in 1999, organizers were surprised to see empty chairs. They called the missing and found many phones had been disconnected. They knocked on doors and found empty homes.
It was the first sign, Seifert recalls, that people in some of Cleveland's poorest neighborhoods were losing their homes to foreclosure.
ESOP's organizers, until then working with parents on safety around public schools, knew nothing about mortgage lending. But they did know how to raise hell.
That was clear in the mid-1990s, when ESOP demanded that Cleveland officials give money seized in drug busts to struggling city schools.
When Mayor Michael White put them off, ESOP members picketed White's church and ask the pastor to excommunicate him. They set up outside the house of the mayor's father, demanding he talk with his son. To drive the message home, ESOP activists figured out the married mayor had a girlfriend and went to her door with a letter demanding the cash.
The tactics came back to bite them.
"We lost about 90 percent of our funding overnight," Seifert recalls.
The nonprofit staggered. If it was going to be confrontational, it needed to keep the foundations that fed its budget in the loop.
Fighting foreclosures became their new cause. But they brought along old tactics -- a brand of confrontation honed by Saul Alinsky, the legendarily radical Chicago organizer.
"Power is not only what you have," Alinsky schooled his followers, "but what the enemy thinks you have."
ESOP was banking on anger. Clevelanders were losing their homes, organizers concluded, because aggressive lenders had put people in mortgages they couldn't possibly afford.
In 2002, the group began going after lenders, servicers and mortgage brokers.
At one protest outside a branch of Charter One Financial Inc., a police officer confronted an ESOP volunteer in a shark suit.
"Are those your sharks?" the officer demanded, scooping plastic predators from the ground.
"No," protester Christine Regula replied. "I had my tubes tied."
They also pressed public officials to stall foreclosures proceedings. One, Steven Bucha, chief magistrate in charge of foreclosures in Cleveland's courts, recalls being invited by ESOP to a public forum. More than 200 people packed a church basement. Bucha was seated as far as possible from the door.
"A woman gave a fiery speech about how the system had done her wrong, how the system was in collusion with the court -- and here's the guy responsible! And she pointed at me. I really couldn't get a word out," Bucha says. "It was like nothing else I've ever experienced in my life."
Bucha and others say the "guerrilla warfare" approach was counterproductive.
"Nobody likes our tactics, which is precisely why we use them," Seifert says.
One after another, the group squeezed and cajoled eight companies and their subsidiaries into signing pacts giving it direct access to a single executive with the authority to restructure problem loans. The companies have agreed to cut interest rates and waive penalty fees and past-due balances.
Last year, ESOP -- one of four groups that counsel homeowners referred by Cuyahoga County's foreclosure rescue program -- says it got mortgages reworked for about 1,500 homeowners, most already in foreclosure.
"You know, there's a fine line," says Rocky Ortiz, the local director of the Catholic Campaign for Human Development, which provides part of ESOP's funding. "Mark and his people have learned to walk it."
Maybe, but in early going, some of ESOP's targets were local or relatively small. Even some of the biggest were vulnerable, or at least open to discussion.
Could ESOP take on the biggest lender in the country? It was time to find out.
It's called a "rank 'em and spank 'em."
Nominally, it's a meeting. But that sounds too polite, longtime ESOP volunteer Barbara Anderson says. It's a venting session, about as calm as a trading pit. At a rank 'em in January 2006, ESOP organizers declared Countrywide their villain of choice.
A month later, they "hit" Garmone's house in suburban Painesville.
"Please call Mike at home ... and tell him to do the right thing: produce his boss to a meeting with ESOP!" the group urged its followers.
ESOP didn't want just any boss. They demanded Angelo Mozilo, Countrywide's chairman and CEO.
They got a meeting with a pair of executives at the Cleveland office of the NAACP, in May 2006. After 20 minutes, ESOP negotiators walked out because Countrywide's representatives would not sign a pledge to negotiate.
Countrywide will not answer questions about its dealings with ESOP.
"We want that relationship (with ESOP) to continue to improve so together we can help more borrowers," Rick Simon, a company spokesman, said. "Going back to the past doesn't help those borrowers."
But letters Countrywide executives sent to ESOP make clear the company's sharp disagreement with the activists' criticism and its irritation with their tactics.
ESOP organizers and Countrywide executives met again in the fall of 2006. The activists also sat down with officials from the federal agencies that oversee housing, trade and banking to voice concerns about Countrywide.
But the group was having trouble convincing local officials that Countrywide was the villain they said it was, Seifert says. The campaign moved to the back burner as ESOP negotiated an agreement with another lending firm.
The standdown, though, was temporary.
ESOP organizers got Mozilo's personal phone number and instructed homeowners to call him in the middle of the night.
They flooded faxes at Countrywide offices with hundreds of copies of identical forms detailing Cleveland homeowners' problem loans.
They posted signs on the front of abandoned homes owned by the lender: "Countrywide's idea of the American Dream! Tell their executives what you think!"
In April 2007, ESOP ferried two dozen volunteers to a Countrywide office in suburban Woodmere. They walked into the tiny office, located on the town's main shopping strip, throwing plastic sharks, handing out mock foreclosure notices and demanding a meeting with Mozilo, then left when local police arrived.
"We strongly believe that confrontational tactics and deliberate misinformation are not the way to build productive relationships that help Cleveland's homeowners," a Countrywide executive wrote afterward.
In June, a pair of Countrywide executives came to ESOP's offices to meet with borrowers, promising to work with individual borrowers but again refusing to sign the memorandum.
Nine days later, ESOP showed up at a Countrywide office in the University Circle neighborhood, sharks in hand.
In late July, an ESOP regiment headed to Hudson, an outlying suburb, and tried to shove their way into the office of the lawyer representing Countrywide in its Cleveland foreclosures. The company that had been selling the group its plastic sharks heard about their tactics and cut off the supply.
Countrywide, too, was taking notice and it was not happy.
"During efforts to physically force your way into the office, one of the firm employees was actually bitten by an ESOP member," Countrywide's chief counsel, Sandor Samuels, wrote afterward. "We will not enter into relationships with organizations that desire to subject our employees, contractors and Chief Executive Officer to harassment."
Countrywide insisted it was cooperating, saying it had restructured dozens of loans ESOP had brought to its attention.
But the activists said that was not nearly enough, that it was seeking more than piecemeal solutions.
Then, in October, a letter on gold-embossed stationery arrived.
"I am hopeful, for the sake of these families, that ESOP and Countrywide will move forward and work together in a constructive manner to find workable solutions to our customers' issues," it said.
It offered a meeting with the lender's senior management. It was signed: "Sincerely, Angelo R. Mozilo."
On a Wednesday in December, Samuels led a Countrywide delegation to Cleveland. ESOP rented a trolley, seated the executives in the front row for a neighborhood tour and filled the rest with homeowners.
Two rows back sat Lisa Pass, who stood to tell the story of her father-in-law's loan and the home it had put in jeopardy. She was surprised to find the executives were much nicer than she'd imagined. And they were listening.
Nita Gardner was there, too, and she laid out the paper trail she'd assembled chronicling her efforts to hold on to the house. The papers, she says, showed she had repeatedly made the payments Countrywide demanded, but the company still rejected her offers to buy back the house.
Afterward, one of the executives asked her how far she was willing to go to keep the house.
"Do you know what obese is?" Gardner says she answered. "Well I'm the medical standard of obese ... and I'm willing to walk the double yellow line of the Shoreway buck naked to get that house back."
When the tour ended and lunch was served, ESOP President Inez Killingsworth turned to Countrywide's Samuels. Would he sign a promise to negotiate? It was the same memorandum the lender had rejected for nearly two years.
Samuels paused. Then he reached for a pen.
Rising from their seats, ESOP's army cheered.
A few days after New Year's, Nita Gardner's phone rang. If she had money, Countrywide was prepared to sell her her house back.
When real estate agent Jeff Swiecicki, dispatched by the lender, arrived soon after, Gardner was still skeptical. But she signed a contract and handed over a check.
"I signed the paper and I cried," she says. "I told him, you can't go back on this."
Countrywide's decision is one of 50 to 60 loan workouts it has agreed to with homeowners represented by ESOP since December, Seifert says.
In December, the activists expected to reach a comprehensive agreement with Countrywide within four months. A few weeks later, Countrywide agreed to a $4 billion deal that will see it bought and merged into Bank of America Corp. But it has continued to negotiate.
That has the activists looking ahead. The foreclosure problem isn't going away anytime soon. They're changing their name to Empowering & Strengthening Ohio's People, to reach beyond the Cleveland area.
And they're already talking about the next lender they want to go after. They've even got the home phone number for a certain CEO.
Now, Seifert says, all they need is a new supply of plastic sharks.
Friday, February 29, 2008
US Housing Crash Continues
It's A Terrible Time To Buy
Why?
Prices still disconnected from fundamentals. House prices are still much too high, far beyond any historically known relationship to rents or salaries. Yearly rents are 3% of purchase price. Mortgage rates are 6.5%, so it costs more than twice as much to borrow money to buy a house than it does to rent the same thing. Worse, total owner costs including taxes, maintenance, and insurance are about 9%, which is three times the cost of renting. Salaries cannot cover mortgages. Anyone who buys now will suffer losses immediately, and for the next several years at least, as prices keep falling.
Buyers borrowed too much money and cannot pay the interest. Now there are mass foreclosures, and senators are talking about taking your money to pay for your neighbor's McMansion, even though no one in the US has been made homeless by foreclosure. In fact, forclosed owners end up far better off: they go reap large savings every month, since it costs less than half as much money in rent as they were paying to "own" the very same thing.
Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the default risk onto Fannie Mae (taxpayers) or onto buyers of mortgage-backed bonds. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage-backed bonds. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get.
A return to traditional lending standards means a return to traditional prices, which are far below current prices.
Interest rates increases. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428.
Recent lower Fed inter-bank lending rates do not directly affect adjustable mortgages rates. Most adjustable rates are linked to LIBOR, which is set in London. The 30-year fixed mortgage rate actually went UP after the Fed's rate cut, on expectations of higher inflation caused by the Fed.
Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.
It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that's $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
Shortage of first-time buyers. High house prices have been very unfair to new families, especially those with children. It is literally impossible for them to buy at current prices, yet government leaders never talk about how lower house prices are good for pretty much everyone, instead preferring to sacrifice American families to make sure bankers have plenty of debt to earn interest on. Every "affordability" program drives prices higher by creating more debt for buyers to use. To really help Americans, Fannie Mae and Freddie Mac should be completely eliminated.
The government keeps prices unaffordable through programs that increase buyer debt, and then pretends to be interested in affordable housing. No one in government except Ron Paul ever talks about the obvious solution: less debt and lower house prices. The real result of every "affordability" program is to keep you in debt for the rest of your life so that you have to keep working. Lower house prices would liberate millions of people from decades of labor each.
Surplus of speculators. Nationally, 25% of houses bought the last few years were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
Fraud. It has become common for speculators take out a loan for up to 50% more than the price of the house he intends to buy. The appraiser goes along with the inflated price, or he does not ever get called back to do another appraisal. The speculator then pays the seller his asking price (much less than the loan amount), and uses the extra money to make mortgage payments on the unreasonably large mortgage until he can find a buyer to take the house off his hands for more than he paid. Worked great during the boom. Now it doesn't work at all, unless the speculator simply skips town with the extra money.
Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 62. The only money they have is equity in a house, so they must sell.
Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. Builders have huge excess inventory that they cannot sell, and more houses are completed each day, making the housing slump worse.
The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
Why?
Prices still disconnected from fundamentals. House prices are still much too high, far beyond any historically known relationship to rents or salaries. Yearly rents are 3% of purchase price. Mortgage rates are 6.5%, so it costs more than twice as much to borrow money to buy a house than it does to rent the same thing. Worse, total owner costs including taxes, maintenance, and insurance are about 9%, which is three times the cost of renting. Salaries cannot cover mortgages. Anyone who buys now will suffer losses immediately, and for the next several years at least, as prices keep falling.
Buyers borrowed too much money and cannot pay the interest. Now there are mass foreclosures, and senators are talking about taking your money to pay for your neighbor's McMansion, even though no one in the US has been made homeless by foreclosure. In fact, forclosed owners end up far better off: they go reap large savings every month, since it costs less than half as much money in rent as they were paying to "own" the very same thing.
Banks happily loaned whatever amount borrowers wanted as long as the banks could then sell the loan, pushing the default risk onto Fannie Mae (taxpayers) or onto buyers of mortgage-backed bonds. Now that it has become clear that a trillion dollars in mortgage loans will not be repaid, Fannie Mae is under pressure not to buy risky loans and investors do not want mortgage-backed bonds. This means that the money available for mortgages is falling, and house prices will keep falling, probably for 5 years or more. This is not just a subprime problem. All mortgages will be harder to get.
A return to traditional lending standards means a return to traditional prices, which are far below current prices.
Interest rates increases. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate. The housing bust still has a very long way to go.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays for an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for an interest-only loan of only $171,428.
Recent lower Fed inter-bank lending rates do not directly affect adjustable mortgages rates. Most adjustable rates are linked to LIBOR, which is set in London. The 30-year fixed mortgage rate actually went UP after the Fed's rate cut, on expectations of higher inflation caused by the Fed.
Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.
It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $300,000 house, that's $18,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
Shortage of first-time buyers. High house prices have been very unfair to new families, especially those with children. It is literally impossible for them to buy at current prices, yet government leaders never talk about how lower house prices are good for pretty much everyone, instead preferring to sacrifice American families to make sure bankers have plenty of debt to earn interest on. Every "affordability" program drives prices higher by creating more debt for buyers to use. To really help Americans, Fannie Mae and Freddie Mac should be completely eliminated.
The government keeps prices unaffordable through programs that increase buyer debt, and then pretends to be interested in affordable housing. No one in government except Ron Paul ever talks about the obvious solution: less debt and lower house prices. The real result of every "affordability" program is to keep you in debt for the rest of your life so that you have to keep working. Lower house prices would liberate millions of people from decades of labor each.
Surplus of speculators. Nationally, 25% of houses bought the last few years were pure speculation, not houses to live in, and the speculators are going into foreclosure in large numbers now. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
Fraud. It has become common for speculators take out a loan for up to 50% more than the price of the house he intends to buy. The appraiser goes along with the inflated price, or he does not ever get called back to do another appraisal. The speculator then pays the seller his asking price (much less than the loan amount), and uses the extra money to make mortgage payments on the unreasonably large mortgage until he can find a buyer to take the house off his hands for more than he paid. Worked great during the boom. Now it doesn't work at all, unless the speculator simply skips town with the extra money.
Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 62. The only money they have is equity in a house, so they must sell.
Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. Builders have huge excess inventory that they cannot sell, and more houses are completed each day, making the housing slump worse.
The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
Wednesday, February 27, 2008
Income Approach to Appraisal
The Income Approach is one of three major groups of methodologies, called valuation approaches, used by appraisers. It is particularly common in commercial real estate appraisal and in business appraisal. The fundamental math is similar to the methods used for financial valuation, securities analysis, or bond pricing. However, there are some significant and important modifications when used in real estate or business valuation.
While there are quite a few acceptable methods under the rubric of the income approach, most of these methods fall into three categories: direct capitalization, discounted cash flow, and gross income multiplier.
While there are quite a few acceptable methods under the rubric of the income approach, most of these methods fall into three categories: direct capitalization, discounted cash flow, and gross income multiplier.
The Cost Approach Appraisal Method
Verifying market and income based valuations:
Most appraisers know that using the Cost Approach is an essential method for appraising one-of-a-kind and special-use properties. But what may come as a surprise is the wide range of opportunities where the cost approach can help validate your market and income-based valuations.
What is the cost approach?
The cost approach method, quite simply, is an estimate of the replacement value of a property that’s determined by the cost of its components – land and improvements. Based on the principle of substitution, the cost approach method in essence says, you shouldn’t pay more for a property than the cost of a comparable site and building. Rather than valuing property as a whole, the cost approach adds up the separate values of the land and improvements. Here’s how it works:
Estimate the value of the land as if vacant.
Estimate the replacement cost of the building.
Estimate the building’s loss in value from depreciation.
Subtract the building’s depreciation from the estimated replacement cost.
Calculate the value of the property by adding the estimated land value to the depreciated value of the building.
When to Use the Cost Approach:
You’ll find that the cost approach method is particularly useful in situations when market data is scarce, the property value significantly exceeds its replacement cost, prices surge due to housing shortages and increased demand, and of course those properties that have unique or one-of-a-kind features.
And in markets where demand for new housing outstrips the available supply, appraisers are faced with the challenge of accurately estimating properties that run the risk of significantly losing value after supply catches up. Estimating property valuations in type of environment using a market-based approach alone may mislead clients into believing that the market is sustainable.
The cost approach gives appraisers a pure cost-based perspective on the market and their clients a more complete picture of the property valuation.
The cost approach can be used in a number of appraisal applications – and not just because it’s required. You can use this method to add validation to your appraisal.
Here are some applications:
Use an independent valuation method - Appraise manufactured homes.
Value unique property features - Monitor local real estate markets.
FHA appraisals
Fannie Mae’s cost approach requirement for manufactured housing:
Manufactured housing represents one of the fastest-growing housing markets in the US . Fannie Mae’s investment in manufactured housing is part of its larger mission to expand affordable housing to Americans of modest means. However, in recent years, there are fewer financing options available today for manufactured homes. Industry analysts estimate that the number of repossessed and foreclosed manufactured homes is at record high levels.
Manufactured homes are built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation.
In an effort to help ensure that consumers purchasing a manufactured home do not pay more for the house than it is worth, Fannie Mae in June 2003 announced that all market-based property valuations must be supplemented with Cost Approach appraisals.
Appraisers must now qualify their opinions on the quality and condition of the manufactured home when filling out the Manufactured Home Appraisal Report Addendum (Form 1004C).
These new appraisal requirements are part of Fannie Mae’s ongoing effort to improve lending practices in the manufactured housing market, and ensure that people have opportunities for successful, long-term homeownership under financing terms that are appropriate for this housing type.
Getting the whole story:
In an increasingly complex and dynamic real estate market, appraisers are challenged to provide estimates that are accurate, reliable and complete to their clients. Appraisers are finding that using the market-based approach alone is no longer enough. As a result, appraisers are relying more on the Cost Approach method to verify the validity of a property’s market value and for the confidence their clients are getting the whole story.
Most appraisers know that using the Cost Approach is an essential method for appraising one-of-a-kind and special-use properties. But what may come as a surprise is the wide range of opportunities where the cost approach can help validate your market and income-based valuations.
What is the cost approach?
The cost approach method, quite simply, is an estimate of the replacement value of a property that’s determined by the cost of its components – land and improvements. Based on the principle of substitution, the cost approach method in essence says, you shouldn’t pay more for a property than the cost of a comparable site and building. Rather than valuing property as a whole, the cost approach adds up the separate values of the land and improvements. Here’s how it works:
Estimate the value of the land as if vacant.
Estimate the replacement cost of the building.
Estimate the building’s loss in value from depreciation.
Subtract the building’s depreciation from the estimated replacement cost.
Calculate the value of the property by adding the estimated land value to the depreciated value of the building.
When to Use the Cost Approach:
You’ll find that the cost approach method is particularly useful in situations when market data is scarce, the property value significantly exceeds its replacement cost, prices surge due to housing shortages and increased demand, and of course those properties that have unique or one-of-a-kind features.
And in markets where demand for new housing outstrips the available supply, appraisers are faced with the challenge of accurately estimating properties that run the risk of significantly losing value after supply catches up. Estimating property valuations in type of environment using a market-based approach alone may mislead clients into believing that the market is sustainable.
The cost approach gives appraisers a pure cost-based perspective on the market and their clients a more complete picture of the property valuation.
The cost approach can be used in a number of appraisal applications – and not just because it’s required. You can use this method to add validation to your appraisal.
Here are some applications:
Use an independent valuation method - Appraise manufactured homes.
Value unique property features - Monitor local real estate markets.
FHA appraisals
Fannie Mae’s cost approach requirement for manufactured housing:
Manufactured housing represents one of the fastest-growing housing markets in the US . Fannie Mae’s investment in manufactured housing is part of its larger mission to expand affordable housing to Americans of modest means. However, in recent years, there are fewer financing options available today for manufactured homes. Industry analysts estimate that the number of repossessed and foreclosed manufactured homes is at record high levels.
Manufactured homes are built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation.
In an effort to help ensure that consumers purchasing a manufactured home do not pay more for the house than it is worth, Fannie Mae in June 2003 announced that all market-based property valuations must be supplemented with Cost Approach appraisals.
Appraisers must now qualify their opinions on the quality and condition of the manufactured home when filling out the Manufactured Home Appraisal Report Addendum (Form 1004C).
These new appraisal requirements are part of Fannie Mae’s ongoing effort to improve lending practices in the manufactured housing market, and ensure that people have opportunities for successful, long-term homeownership under financing terms that are appropriate for this housing type.
Getting the whole story:
In an increasingly complex and dynamic real estate market, appraisers are challenged to provide estimates that are accurate, reliable and complete to their clients. Appraisers are finding that using the market-based approach alone is no longer enough. As a result, appraisers are relying more on the Cost Approach method to verify the validity of a property’s market value and for the confidence their clients are getting the whole story.
"Sales Comparison Approach in Real Estate Appraisal"
From James Kimmons,
Your Guide to Real Estate Business.
Definition:
The Sales Comparison Approach compares recently-sold local similar properties to the subject property. Price adjustments are made for differences in the comparable and subject property.
Examples:
A simple example would be a home (Home A) with 3 bedrooms,2 baths and no garage. If we want to estimate it's value to a comparable home just sold:
1. Comparable Home B sold recently for $150,000. It also had 3 bedrooms and 2 baths. but has a 2 car garage. The garage is valued at $4000.
2. We subtract the $4000 from the value to arrive at a comparable value of $146,000 for our subject Home B.
Your Guide to Real Estate Business.
Definition:
The Sales Comparison Approach compares recently-sold local similar properties to the subject property. Price adjustments are made for differences in the comparable and subject property.
Examples:
A simple example would be a home (Home A) with 3 bedrooms,2 baths and no garage. If we want to estimate it's value to a comparable home just sold:
1. Comparable Home B sold recently for $150,000. It also had 3 bedrooms and 2 baths. but has a 2 car garage. The garage is valued at $4000.
2. We subtract the $4000 from the value to arrive at a comparable value of $146,000 for our subject Home B.
Monday, February 25, 2008
Characteristics of Special Property Interests Spotlighted in Latest Appraisal Journal
The Winter 2008 issue of The Appraisal Journal examines the distinctive characteristics of special property interests – a key step in developing a valuation estimate. Featured articles specifically focus on the unique aspects of aircraft hangars, water rights, limited use service hotels, industrial incubator warehouses and apartments, and how these special properties are valued.
The spotlighted article, “An Introduction to the Valuation of Aircraft Hangars,” by Timothy J. Lindsey, provides an overview of the general features that appraisers take into consideration in the valuation and analysis of aircraft hangars. The article examines characteristics that affect value such as: location, structural systems, hangar features, property rights and leases tied to fuel consumption. In a subsequent article which will appear in the Spring 2008 issue of The Appraisal Journal, Lindsey will illustrate specific appraisal techniques for valuing aircraft hangars using the characteristics described in the current article.
“The Appraisal of Water Rights: Their Nature and Transferability,” by Steven J. Herzog, MAI, identifies the types of water rights and ownership interests that may be the subject of an appraisal. The author stresses the importance of the need for appraisers to familiarize themselves with the rules of each state in which water rights exist, as there is variability among these states. This article is part one of a two-part article; an article in the next issue of The Appraisal Journal will address the appropriate appraisal methodology to use in valuing water rights.
In “Valuing Limited-Service Hotels: A Pragmatic Framework from a Broker’s Perspective,” Byron B. Hinton, MAI, bridges the gap between the theoretical framework typically used for valuing hotels and the real world motivations and behaviors of buyers and sellers in transactions involving limited-service hotels. Hinton discusses both objective and subjective factors that ultimately influence a purchaser’s willingness to acquire a property and concludes that by considering these factors a hotel appraiser can approximate the thinking of active buyers and sellers in the limited-service hotel marketplace.
In “Industrial Incubators; Key Characteristics That Impact Value,” the authors Donald Sonneman and David J. Yerke, MAI, describe the various characteristics that distinguish multi-tenant industrial incubator properties from other types of warehouse properties. The authors note that small industrial warehouse users have different needs and priorities that influence design and appraisal analysis. They conclude that an awareness of the key characteristics that differentiate the industrial incubator category from other industrial property types will assist appraisers in selecting proper comparable properties and making appropriate adjustments.
Rounding out the articles on special property types is “Apartment Market Analysis,” by Richard L. Parli. MAI, who presents a six-step process that lays out a road map to guide the market analysis. The purpose of the market analysis is to investigate the marketability and feasibility of a property’s potential uses, which ultimately leads to a conclusion of the property’s highest and best use. The article includes a case study illustrating how a market analysis is conducted for existing apartment properties.
The Appraisal Journal, published quarterly by the Appraisal Institute, serves as a forum for advancing appraisal theories and practices. Containing articles, columns and letters written by experienced appraisers and educators, The Appraisal Journal presents ideas, concepts and analytical techniques to be considered. Each issue offers alternative valuation methods for serious thinkers seeking creative solutions to appraisal problems, appealing to appraisers, educators and other real estate professionals.
The spotlighted article, “An Introduction to the Valuation of Aircraft Hangars,” by Timothy J. Lindsey, provides an overview of the general features that appraisers take into consideration in the valuation and analysis of aircraft hangars. The article examines characteristics that affect value such as: location, structural systems, hangar features, property rights and leases tied to fuel consumption. In a subsequent article which will appear in the Spring 2008 issue of The Appraisal Journal, Lindsey will illustrate specific appraisal techniques for valuing aircraft hangars using the characteristics described in the current article.
“The Appraisal of Water Rights: Their Nature and Transferability,” by Steven J. Herzog, MAI, identifies the types of water rights and ownership interests that may be the subject of an appraisal. The author stresses the importance of the need for appraisers to familiarize themselves with the rules of each state in which water rights exist, as there is variability among these states. This article is part one of a two-part article; an article in the next issue of The Appraisal Journal will address the appropriate appraisal methodology to use in valuing water rights.
In “Valuing Limited-Service Hotels: A Pragmatic Framework from a Broker’s Perspective,” Byron B. Hinton, MAI, bridges the gap between the theoretical framework typically used for valuing hotels and the real world motivations and behaviors of buyers and sellers in transactions involving limited-service hotels. Hinton discusses both objective and subjective factors that ultimately influence a purchaser’s willingness to acquire a property and concludes that by considering these factors a hotel appraiser can approximate the thinking of active buyers and sellers in the limited-service hotel marketplace.
In “Industrial Incubators; Key Characteristics That Impact Value,” the authors Donald Sonneman and David J. Yerke, MAI, describe the various characteristics that distinguish multi-tenant industrial incubator properties from other types of warehouse properties. The authors note that small industrial warehouse users have different needs and priorities that influence design and appraisal analysis. They conclude that an awareness of the key characteristics that differentiate the industrial incubator category from other industrial property types will assist appraisers in selecting proper comparable properties and making appropriate adjustments.
Rounding out the articles on special property types is “Apartment Market Analysis,” by Richard L. Parli. MAI, who presents a six-step process that lays out a road map to guide the market analysis. The purpose of the market analysis is to investigate the marketability and feasibility of a property’s potential uses, which ultimately leads to a conclusion of the property’s highest and best use. The article includes a case study illustrating how a market analysis is conducted for existing apartment properties.
The Appraisal Journal, published quarterly by the Appraisal Institute, serves as a forum for advancing appraisal theories and practices. Containing articles, columns and letters written by experienced appraisers and educators, The Appraisal Journal presents ideas, concepts and analytical techniques to be considered. Each issue offers alternative valuation methods for serious thinkers seeking creative solutions to appraisal problems, appealing to appraisers, educators and other real estate professionals.
Teleconference Addresses Independence, Blacklisting, Anonymous Complaints
Appraisal independence was among the hot topics during a February 13 conference call by the Appraisal Institute’s Washington, D.C., office. Over 30 State Government Relations representatives from around the country took part in the call, which addressed current federal legislation, blacklisting and anonymous board complaints.
The call included an overview of last November’s passage by the House of legislation promoting appraisal independence, promoting appraisal designations and increasing enforcement. The bill was originally introduced as H.R. 3837 but was later rolled into H.R. 3915, and then passed through the House. On the Senate side, Sen. Chris Dodd, D-Conn., introduced legislation (S.B. 2452) that prohibits appraisal pressure as well.
“Unfortunately,” according to Justin Morton, Appraisal Institute State Government Relations representative, “Dodd’s bill includes provisions that would require appraisers to become bonded, plus the bill also includes other detrimental provisions.” Morton said the D.C. office is working closely with Dodd's staff to remove these provisions of the bill, and is confident they will be eliminated. The next step is a hearing for Dodd's legislation, which currently has not been scheduled. Morton says it is hoped this will occur by mid-March.
Related to appraiser pressure, Morton also discussed the blacklisting of appraisers, asking call participants whether there is a legislative solution. One response was to write a letter to the president of the company doing the blacklisting and carbon-copying the local office of the Office of Thrift Supervision. Other participants thought that including blacklisting in appraiser-coercion language would be a strong deterrent. South Carolina and Minnesota have such language, and Hawaii is attempting to include such language in its bill.
“It will be interesting to see whether such language can pass through the legislative process and become enacted into law,” Morton said.
Listeners also considered the effectiveness of allowing individuals to file complaints anonymously with their state appraisal boards. Oklahoma is considering such a bill this year. “The ultimate concern is the potential for abuse,” Morton said. “Anonymous complainants can use the process to tie up an appraiser, or they can use it as a means of impeaching an appraiser during a court hearing. On the other hand, anonymous complaints do allow appraisers in smaller communities to lodge complaints without fear of retribution,” he explained.
“This is an issue that is likely best resolved, state by state,” Morton said.
The call included an overview of last November’s passage by the House of legislation promoting appraisal independence, promoting appraisal designations and increasing enforcement. The bill was originally introduced as H.R. 3837 but was later rolled into H.R. 3915, and then passed through the House. On the Senate side, Sen. Chris Dodd, D-Conn., introduced legislation (S.B. 2452) that prohibits appraisal pressure as well.
“Unfortunately,” according to Justin Morton, Appraisal Institute State Government Relations representative, “Dodd’s bill includes provisions that would require appraisers to become bonded, plus the bill also includes other detrimental provisions.” Morton said the D.C. office is working closely with Dodd's staff to remove these provisions of the bill, and is confident they will be eliminated. The next step is a hearing for Dodd's legislation, which currently has not been scheduled. Morton says it is hoped this will occur by mid-March.
Related to appraiser pressure, Morton also discussed the blacklisting of appraisers, asking call participants whether there is a legislative solution. One response was to write a letter to the president of the company doing the blacklisting and carbon-copying the local office of the Office of Thrift Supervision. Other participants thought that including blacklisting in appraiser-coercion language would be a strong deterrent. South Carolina and Minnesota have such language, and Hawaii is attempting to include such language in its bill.
“It will be interesting to see whether such language can pass through the legislative process and become enacted into law,” Morton said.
Listeners also considered the effectiveness of allowing individuals to file complaints anonymously with their state appraisal boards. Oklahoma is considering such a bill this year. “The ultimate concern is the potential for abuse,” Morton said. “Anonymous complainants can use the process to tie up an appraiser, or they can use it as a means of impeaching an appraiser during a court hearing. On the other hand, anonymous complaints do allow appraisers in smaller communities to lodge complaints without fear of retribution,” he explained.
“This is an issue that is likely best resolved, state by state,” Morton said.
Sunday, February 24, 2008
Congress to Examine Housing Proposals
AP
Sunday February 24, 1:56 pm ET
By Marcy Gordon, AP Business Writer
Congress to Consider Bankruptcy Relief, Foreclosure Assistance Proposals to Help Homeowners
WASHINGTON (AP) -- Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market.
Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure.
Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.
The housing proposals percolating on Capitol Hill, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.
Some of these proposals have been kicked around in one form or another for months. Others are considered attempts to address perceived shortcomings in the Bush administration plan to freeze interest rates on a small percentage of loans made to high-risk borrowers.
A bill likely to be debated on the Senate floor Tuesday includes a proposed revision to the U.S. bankruptcy code that would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.
"This week we have an opportunity to pass a housing bill that will help the economy recover, help American families stay in their homes and change the law so this never happens again," said Sen. Richard Durbin of Illinois, the Senate's second-ranking Democrat and author of the proposal to ease bankruptcy rules.
The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.
The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.
Consumer advocates, meanwhile, are pushing senators to approve the change.
Also included in the Senate legislation is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.
In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers. The plan was first put forward by Rep. Mike Castle, R-Del., but appears to have attracted support from key House Democrats.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, has proposed the creation of a federal corporation, funded with as much as $20 billion, to buy distressed mortgages and help struggling homeowners refinance into affordable loans.
The focus on new housing proposals isn't limited to the legislative branch.
The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth.
The plan would allow an estimated 8 million homeowners with "upside-down" mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
On Thursday, the House Committee on Oversight and Government Reform will scrutinize the compensation and retirement packages of one chief executive and two recently deposed CEOs of companies ensnared in the mortgage crisis. The witness list includes: Angelo Mozilo of Countrywide Financial Corp., the nation's largest mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc.
Sunday February 24, 1:56 pm ET
By Marcy Gordon, AP Business Writer
Congress to Consider Bankruptcy Relief, Foreclosure Assistance Proposals to Help Homeowners
WASHINGTON (AP) -- Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market.
Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure.
Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.
The housing proposals percolating on Capitol Hill, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.
Some of these proposals have been kicked around in one form or another for months. Others are considered attempts to address perceived shortcomings in the Bush administration plan to freeze interest rates on a small percentage of loans made to high-risk borrowers.
A bill likely to be debated on the Senate floor Tuesday includes a proposed revision to the U.S. bankruptcy code that would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.
"This week we have an opportunity to pass a housing bill that will help the economy recover, help American families stay in their homes and change the law so this never happens again," said Sen. Richard Durbin of Illinois, the Senate's second-ranking Democrat and author of the proposal to ease bankruptcy rules.
The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.
The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.
Consumer advocates, meanwhile, are pushing senators to approve the change.
Also included in the Senate legislation is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.
In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers. The plan was first put forward by Rep. Mike Castle, R-Del., but appears to have attracted support from key House Democrats.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, has proposed the creation of a federal corporation, funded with as much as $20 billion, to buy distressed mortgages and help struggling homeowners refinance into affordable loans.
The focus on new housing proposals isn't limited to the legislative branch.
The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth.
The plan would allow an estimated 8 million homeowners with "upside-down" mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.
On Thursday, the House Committee on Oversight and Government Reform will scrutinize the compensation and retirement packages of one chief executive and two recently deposed CEOs of companies ensnared in the mortgage crisis. The witness list includes: Angelo Mozilo of Countrywide Financial Corp., the nation's largest mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc.
Saturday, February 23, 2008
Upcoming Congressional Scrutiny May Target Mortgage Brokers
In recent statements, Senate Banking Chairman Christopher Dodd, D-Conn., and Sen. Charles Schumer, D-N.Y., have pointed the finger at mortgage brokers as a primary culprit of the mortgage crisis. Both have noted that while the industry was responsible for originating as much as 70 percent of subprime loans in recent years, it had little oversight from state regulators, thus contributing to a marketplace that allowed as many as 2 million borrowers to be placed into loans they could not afford to repay.
As such, mortgage brokers face their biggest challenge in coming months as the Senate begins work on legislation to curb predatory lending.
Meanwhile, House Financial Services Chairman Barney Frank, D-Mass., included a measure by Rep. Spencer Bachus, R-Ala., creating a uniform licensing system for brokers that would place them into a national registry to weed out bad actors. But the language would include licensing and registration for bank employees who originate mortgages – a provision opposed by the banks, which argue that they are already supervised sufficiently at state and federal levels.
The House bill attempted to ban the use of yield spread premiums in which mortgage brokers receive fees from lenders for issuing a loan with a higher interest rate than the minimum rate the borrower could have received. Critics call the practice a kickback that hurts consumers; brokers say it provides borrowers flexibility to pay closing costs that they might not be able to afford. In the end, the House amendment allows brokers to offer YSPs for zero point and no-cost loans, but they could not receive extra compensation for steering consumers into higher-rate loans.
Consumer groups warned that it could open a large loophole for the brokers, but Frank said he would try to clarify the issue in a later conference with the Senate. The overall bill passed by a strong 291-127 vote, due in part to the provision.
But the mortgage brokers now face their toughest test in the Senate. In two separate hearings in the past year, both Dodd and Schumer have lambasted National Association of Mortgage Brokers officials for their policy views. The senators have also sponsored anti-predatory lending legislation that would place some major constraints on the brokers, such as requiring them to have fiduciary responsibility for their customers and banning YSPs on all loans with limited exceptions.
As such, mortgage brokers face their biggest challenge in coming months as the Senate begins work on legislation to curb predatory lending.
Meanwhile, House Financial Services Chairman Barney Frank, D-Mass., included a measure by Rep. Spencer Bachus, R-Ala., creating a uniform licensing system for brokers that would place them into a national registry to weed out bad actors. But the language would include licensing and registration for bank employees who originate mortgages – a provision opposed by the banks, which argue that they are already supervised sufficiently at state and federal levels.
The House bill attempted to ban the use of yield spread premiums in which mortgage brokers receive fees from lenders for issuing a loan with a higher interest rate than the minimum rate the borrower could have received. Critics call the practice a kickback that hurts consumers; brokers say it provides borrowers flexibility to pay closing costs that they might not be able to afford. In the end, the House amendment allows brokers to offer YSPs for zero point and no-cost loans, but they could not receive extra compensation for steering consumers into higher-rate loans.
Consumer groups warned that it could open a large loophole for the brokers, but Frank said he would try to clarify the issue in a later conference with the Senate. The overall bill passed by a strong 291-127 vote, due in part to the provision.
But the mortgage brokers now face their toughest test in the Senate. In two separate hearings in the past year, both Dodd and Schumer have lambasted National Association of Mortgage Brokers officials for their policy views. The senators have also sponsored anti-predatory lending legislation that would place some major constraints on the brokers, such as requiring them to have fiduciary responsibility for their customers and banning YSPs on all loans with limited exceptions.
Appraisal Institute Board Proposes Action on Trainee Membership Change
In a recent 45-Day Notice, the Appraisal Institute Board of Directors announced a proposal to move members who are licensed appraiser trainees from affiliate membership to associate membership. In addition “aspiring appraisers” would also be able to apply for associate membership. The Board will meet March 26 to amend the Bylaws accordingly with the goal of implementing the change in the first quarter of 2008. The move comes as part of an aggressive membership recruitment program being initiated this year in which the Appraisal Institute aims to add 5,100 new members.
According to the proposal, dues for trainees and aspiring appraisers would be $95 for 2008. Aspiring appraisers are described as individuals seeking a trainee license or equivalent from their state but who have not completed the education required for such license. Such individuals may qualify for this status for a maximum of two years. Licensed appraiser trainees are those appraisers who hold a trainee or equivalent license.
In November 2007 the Board adopted changes to the Bylaws allowing trainees to become Affiliate members; however, because the Affiliate category is designed for members who do not perform USPAP-related work, it is more appropriate to have trainees positioned under the Associate category, according to the proposal’s rationale.
According to the proposal, dues for trainees and aspiring appraisers would be $95 for 2008. Aspiring appraisers are described as individuals seeking a trainee license or equivalent from their state but who have not completed the education required for such license. Such individuals may qualify for this status for a maximum of two years. Licensed appraiser trainees are those appraisers who hold a trainee or equivalent license.
In November 2007 the Board adopted changes to the Bylaws allowing trainees to become Affiliate members; however, because the Affiliate category is designed for members who do not perform USPAP-related work, it is more appropriate to have trainees positioned under the Associate category, according to the proposal’s rationale.
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