Appraisal Fraud in Clackamas, Oregon? , by Brett Reichel, Brettreichel.com


Wowza…..pretty bold headline, isn’t it?

How can that claim be made or the question raised?

First – a quick note on technicalities on appraisals – Comparable Sales are compared to the Subject property to try to lead the appraiser to a supportable “opinion of value”.   Differences in properties are accounted for by “adjustments” to the comparable sale, which then leads to an “adjusted value” of the comparable.  The adjustments are supposed to equalize differences in properties.  Adjustments are supposed to be supported through market analysis, specifically “matched pair analysis“.

A simplified example of a “matched pair analysis” would be two houses that are identical in every way, with the exception of one of them having a fireplace.  House A, without the fireplace sells for $100,000, and House B, with the fireplace sells for $101,000.  What’s the value of the fireplace?  Since the houses are identical in every way, the value of the fireplace is clearly $1,000.  In that market area, in that price range, fireplaces are worth $1,000 and until proven differently, the appraiser is justified in adjusting comparable sales $1,000 for fireplaces (having them or not having them).

One of the things we’ve seen adjustments for lately, is the adjustment in “time”.  This adjustment is made for changes in the market between when a comparable sale is sold and when your subject sold.  If the market is dropping, then the adjustment to the comparable would be downward, and in a rising market, upward.

As you might suspect, appraisers have been making this adjustment…..a lot….lately.  The problem is, they have been skipping the “matched pair analysis” process and just using median prices to justify the adjustment.  This is NOT acceptable appraisal practice.  But, if it’s become the norm, if it’s become acceptable, it should apply when median prices escalate.

Thus the headline.  A recent market report indicates that median prices have been on a 90 day upswing in Clackamas, Oregon.  Have the appraisers reversed their course and adjusted upward for time?  No they haven’t.  Why?

Lender pressure is why.  The whole point of industry reform (HVCC and/or Dodd-Frank) was to eliminate lender pressure, but now the lenders have even greater methods of applying pressure with the new rules.  Really, the problem starts in two places, regulation and the GSE‘s.   The GSE’s are Fannie Mae & Freddie Mac.  Their forms require the use of Median Prices.  Fannie/Freddie, Barney and Chris (a criminal “friend of Angelo”) are behind this lender fraud.  The rest of the market is captive and held to their criminal standards, including the poor appraiser.

Frankly, this only helps the banks, and it doesn’t do anything for the borrower, the seller.  It doesn’t help stabilize our markets or improve our economy.

What to do?  Well, don’t shoot the appraiser – he/she can’t do anything about what the lenders force them to do.  Complain to the lender, complain to your legislators, complain to regulators, call Elizabeth Warren, complain long, hard and loud….maybe if enough voices are heard we can get out from under the tyranny of the banks and Fannie Mae and Freddie Mac.

The Obama Foreclosure Relief Package What it Contains and How to Determine If You Qualify, Expertforeclosurehelper.com


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On Wednesday, February 18, President Obama unveiled his administration’s latest attempt to stabilize prices in the housing market and help stop the rising tide of foreclosures. Will this plan be any better than the half-dozen that the Bush administration passed? With a $275 billion price tag, we should expect the foreclosure problem to be resolved, but this latest bailout act seems to be just another way to avoid helping homeowners.
As with the FHA Hope for Homeowners Act, Obama’s newest plan is simply out of the financial reach of many homeowners. The requirements are quite strict, which should have been no surprise when the president announced a longer list of people who would not be helped by the plan than who would receive assistance. But taking hundreds of billions of dollars away from homeowners, employers, and everyone else to avoid helping people will not promote economic recovery.
As the government spreads pain and misery around the economy, redistributing poverty from the banks to the rest of us, homeowners may not want to put too much hope in this latest plan. But for those interested in having another government-sponsored program to stop foreclosure, the following is a list some of the requirements to qualify for the plan.
To qualify for a foreclosure refinance loan from the government at a fixed rate of around 4-5% for 15-30 years fixed, all of the following requirements must be met:
  • The loan must be a conforming loan under Fannie Mae and Freddie mac guidelines.
  • The mortgage must be owned by either of the Government Sponsored Enterprises, Fannie Mae or Freddie Mac.
  • Alternatively, the loan may have been sold by Fannie Mae or Freddie Mac in a mortgage security.
  • The homeowners are not currently behind on payments or have a history of on-time payments.
  • The homeowners must continue to pay any second mortgage on the property even after the refinance.
  • The first mortgage on the house must not be more than 5% of the fair market value of the property, or it must be written down to that amount. For example, if the house is worth $100,000, the first mortgage may not be more than $105,000.
Looking at this list of requirements, it will become apparent that many, many homeowners will not qualify for this program with current housing market declines. Borrowers with 80/20 loans whose home values have fallen under the amount due on the first mortgage will have to keep paying on the second mortgage, as well as either pay down the first or have the bank agree to reduce the balance due.
And this program is voluntary for banks who have not received federal bailout money from the Troubled Assets Relief Program (TARP). While most of the big banks have received funds, many smaller regional banks have not — and these banks may not be willing to write down the value of their loans by 10-20%. Writing down the value of bad mortgage securities is what has caused so many paper losses on bank balance sheets already; it is inconceivable that many struggling banks will want to admit to even more.
There is also a second part of the bailout plan that may allow homeowners to qualify for a government-guaranteed mortgage modification program. This involves the bank modifying the loan to be within 38% of the borrowers’ gross income and the government stepping in with money to help reduce the payment to 31%. The requirements for this part of the plan are the following:
  • The mortgage must be conforming under Fannie and Freddie guidelines — jumbo loans are not permitted.
  • This program must be done on a principal residence — investment homes, second homes, or vacation properties do not qualify.
  • The homeowners must be in danger of default on the loan or have already defaulted. In danger of default can be a mortgage where the payment is more than 31% of the borrowers’ gross (before tax) income.
  • The lender must be willing to modify the mortgage to reduce the homeowners’ monthly payment to 38% of their gross income or less.
While the new bailout program gives banks more incentives to negotiate with borrowers, it may not give enough to convince banks to change their normal business practices and dedicate more resources to helping homeowners. As mentioned above, participation is voluntary, except for banks that have received TARP money and Fannie Mae and Freddie Mac, which are under government conservatorship.
Does the plan go too far? Some critics point out that using taxpayer money to bail out failing banks or failing individual borrowers will only create more moral hazard in the future. Once debts are paid back or discharged and banks loosen up lending, there will be a strong incentive to reinflate a housing bubble, especially in the presence of low interest rate targets set by the government. A new bubble and collapse will send all of the same players back for more government bailouts.
Or does the plan not go far enough? Other critics point out that this is not nearly enough money that the government is taking away from taxpayers to bail out the housing market. Property values fall for everyone in areas hard hit by foreclosure, so it is in everyone’s best interest to do whatever it takes to prevent more foreclosures, or so the argument goes.
In either case, the full details of the plan will be released on March 4th, which gives all of us a week to contemplate how the government’s latest bailout plan will save the housing market. Unfortunately, previous plans have failed to assist many borrowers, and this plan seems to offer little in the way of really novel proposals. For most homeowners facing foreclosure, it will probably be best to keep looking at other options, in addition to considering receiving mortgage assistance from the federal government.
The ForeclosureFish website has been created to provide homeowners in danger of losing their properties with relevant and importantforeclosure help and advice. The site describes various methods that may be used to save a home, such as foreclosure loans, mortgage modification, filing bankruptcy (Chapter 7 or 13), and more. Visit the site to read more about how to save a home, what options may be applicable in your situation, and how to recover afterwards:http://www.foreclosurefish.com/

Nightmare on Every Street, by Alex J. Pollock, Reason Magazine


 

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Fannie Mae and Freddie Mac are broke. The two government-sponsored enterprises (GSEs) that togetherfinance more than $5 trillion in mortgages are insolvent, if you don’t count the $150 billion already injected into them by the federal government. The common shares of these state-corporate hybrids have lost more than 99 percent of their value, both have been delisted from the New York Stock Exchange, and since September 2008 they have been official wards of the state. The largest owner of their obligations is now the United States Federal Reserve.

Housing finance inflation was at the center of the financial crisis, and the GSEs were at the center of housing finance inflation. Any meaningful reform of the mortgage system, and therefore the financial problems underlying the recession, must deal directly with Fannie and Freddie. But last summer our elected representatives instead passed a 2,300-page financial “reform” act that purposefully avoided addressing this central issue.

Discussions of how to reform Fannie and Freddie have now belatedly begun on Capitol Hill and in the Obama administration. The process will be complicated and controversial. But if we are to avoid future distortions and government-inflated bubbles in the housing market, Fannie and Freddie can and should be dismantled.

Divided and Conquered

The core problem with GSEs isn’t hard to understand. You can be a private company disciplined by the market, or you can be a government entity disciplined by the government. If you try to be both, you can avoid both disciplines.

To fix that, the first step is to put the GSEs into receivership (as opposed to the current conservatorship), so that the small remaining value of the common shares and all their governance rights are wiped out. Then the restructuring can proceed, Julius Caesar style: divide them into three parts.

The first of those parts, unfortunately, must be a “bad bank,” a liquidating trust that will bear Fannie and Freddie’s deadweight losses–the $150 billion spent by the Treasury so far, plus the additional losses that are embedded in the GSEs’ portfolios and will be realized over time. According to various estimates by the CBO and private analysts, it will cost in the range of $200 billion to $400 billion to make whole the foreign and domestic creditors of Fannie and Freddie. That cost will unjustly, but at this point unavoidably, be borne by taxpayers.

All the current debt and mortgage-based securities obligations that bear the Treasury’s implicit but very real guarantee should be placed in these trusts to run off over time, with all the current mortgage assets of the GSEs dedicated to servicing them. These trusts will be responsible for liquidating the old GSEs. They can be modeled on the structure used in the 1996 act that privatized another GSE: Sallie Mae, the federal student loan company.

The second of the three parts should be formed by privatizing Fannie and Freddie’s prime mortgage loan securitization and investing businesses. All their intellectual property, systems, human capital, and business relationships should be put into truly private companies, sold to private investors, and sent out into the world to compete, flourish, or fail like anybody else. As fully private enterprises, they will be free to do anything they think will create a successful business–except trade on the taxpayers’ credit card.

When there is a robust private secondary market for the largest segment of Fannie and Freddie’s business–high-quality prime mortgage loans to the middle and upper middle classes–private investors can then put private capital at risk, taking their own losses and reaping their own gains. In this mortgage sector, the risks are manageable, and no taxpayer subsidies or taxpayer risk exposures are necessary.

Decades ago, there may have been an argument for GSEs to guarantee the credit risk of prime mortgage loans in order to overcome the geographic barriers to mortgage funding, barriers that were themselves largely created by government regulation. More recently, there may have been a case for using GSEs to get through the financial crisis that they themselves had done so much to exacerbate. But as we move into the future mortgage finance system, the prime mortgage market can and should stand on its own, just like the corporate bond market.

A private secondary market for prime mortgages should have developed naturally a long time ago. It didn’t because no private entity could compete with the GSEs’ government-granted advantages. Bond salesmen, pushing trillions of dollars of GSE debt and mortgage-backed securities to investors all over the world, basically told them this: “You can’t go wrong buying this bond, because it is really a U.S. government credit, but it pays you a higher yield. So you get more profit with no credit risk.” Although there was, and still is, no formal government guarantee of Fannie and Freddie’s obligations, what the bond salesmen told the investors was nonetheless true, as events have fully confirmed. The Treasury has made it clear that its financial support of Fannie and Freddie is unlimited.

There can be no private prime middle class mortgage loan market as long as Fannie and Freddie use their government advantages both to make private competition impossible and to extract duopoly profits from private parties. The duopoly element of the old housing finance system should not be allowed to survive.

The third part to be carved from Fannie and Freddie should consist of intrinsically governmental activities, such as housing subsidies and nonmarket financing of risky loans. These should move explicitly to the government, where they will be fully subject to the discipline of congressional approval and appropriation of funds. This would be in sharp contrast to past practice, in which the GSEs received huge subsidies and used some of the money to win political favor, all concealed off budget. Instead, the funding for these activities would have to be appropriated by Congress in a transparent way, subject to the disciplines of democracy. These functions of Fannie and Freddie should be merged into the structure of the Department of Housing and Urban Development, along with the government mortgage programs of the Federal Housing Administration and Ginnie Mae.

Ending Freddie and Fannie, SlowlybIt is unrealistic to expect to achieve all this at once, but by clarifying where we should arrive, we can start the journey. That process has become somewhat easier because Fannie and Freddie are basically government housing banks

now, overwhelmingly owned and entirely controlled by the government.

Fair and transparent accounting demands that the GSEs not receive the political benefits of off-balance-sheet accounting. The Accurate Accounting of Fannie Mae and Freddie Mac Act (H.R. 4653), proposed by Rep. Scott Garrett (R-N.J.), would require Fannie and Freddie to be part of the federal budget, a change recommended by the Congressional Budget Office. Honest, on-budget accounting would give Congress a strong incentive to junk the GSE model and restructure Fannie and Freddie on the principle of “one or the other, but not both.”

Congress should also take up a proposal from Rep. Jeb Hensarling (R-Texas), the GSE Bailout Elimination and Taxpayer Protection Act (H.R. 4889), which lays out a transition to a world with no GSEs. Hensarling’s bill would increase Fannie and Freddie’s capital requirements, reduce their role in the mortgage market, and establish a sunset on the GSE charters.

The ongoing, unlimited bailout of the GSEs will hit the taxpayers for much more than the $150 billion cost of the notorious savings and loan collapse of the 1980s. It is obviously difficult for Fannie and Freddie’s longtime political supporters to admit that the GSEs were a massive blunder. But that is now undeniable. The failure of Fannie and Freddie creates a perfect opportunity to restructure these hybrids, leaving no government-sponsored enterprise behind.

Alex J. Pollock is a resident fellow at AEI.

http://www.aei.org/article/102663

Housing Finance Needs U.S. Backstop, Executives Tell Lawmakers, by Lorraine Woellert, Bloomberg.com


Congress must preserve some form of U.S. guarantee on mortgages to attract private capital to the housing-finance system and stabilize a market recovering from the credit crisis, industry executives told lawmakers.

Private capital must play a bigger role in housing finance as policy makers replace the current system, which is dependent on guarantees from government-backed Fannie Mae andFreddie Mac, the executives said today in testimony prepared for a House Financial Services Committee hearing. U.S. support will still be needed to keep loans flowing to borrowers and preserve products such as 30-year, fixed-rate mortgages, they said.

Without a government backstop, there wouldn’t be enough private capital to support the $8 trillion in home loans that are funded by investors, said Michael Farrell, chief executive officer ofAnnaly Capital Management Inc., a New York real estate investment trust that owns or manages $90 billion of mortgage-backed securities.

The House panel called Farrell and other housing-industry executives to testify as they seek ways to overhaul a finance system that collapsed in 2008 amid losses on securities linked to subprime mortgages. Some economists and lawmakers have urged that any new system rely solely on private capital and be priced to reflect the risks.

“Recommendations to completely privatize miss the necessity of a government backstop to ensure consistent functioning of mortgage-backed securities markets under all economic conditions,” said Michael Heid, co-president of home mortgages for Wells Fargo & Co.

Fannie, Freddie

Fannie Mae and Freddie Mac, which own or guarantee more than half of the $11 trillion U.S. mortgage market, relied on an implied government guarantee to pool and sell mortgage-backed securities, which generated cash that could be channeled back into additional loans. The federal government seized the two companies amid soaring losses in September 2008 and promised to stand by the debt.

Since then, Washington-based Fannie Mae and Freddie Mac, based in McLean, Virginia, have survived on a promise of unlimited aid from the U.S. Treasury Department. The companies lost $166 billion on their guarantees of single-family mortgages from the end of 2007 and the second quarter of this year and have drawn almost $150 billion so far. Treasury Secretary Timothy F. Geithner has promised to deliver a plan for overhauling the housing-finance system in January.

One challenge for policy makers is how to keep money flowing into the system without the kind of open-ended commitment that left taxpayers responsible for catastrophic losses at the government-sponsored enterprises.

“The GSEs clearly did not operate with enough capital to buffer the risks they assumed,” Christopher Papagianis, managing director of non-profit research group Economics21, told lawmakers. “Policy makers should recognize that bailouts in the housing sector are inevitable if the key institutions in the space do not hold sufficient capital,” said Papagianis, an adviser to former President George W. Bush.

To contact the reporter on this story: Lorraine Woellert in Washington atlwoellert@bloomberg.net;

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.