Blue Oak Blog

American Housing Rescue and Foreclosure Prevention Act (H.R. 3221)

This bill was passed by the Senate and yesterday, it was passed by the house. President Bush said he will reluctantly sign it. The bill does a few things that will impact our industry rather quickly.

An amendment was added to the bill in the house that prohibits Nehemiah type purchase assistance. This was a process where the seller would gift money to a third party that would then gift the money, less a handling fee, to the buyer for down payment assistance.

Some, but not all, of the other things this bill does is:

• Establishes the Federal Housing Finance Agency to oversee Fannie Mae and Freddie Mac.
• Gets rid of the Federal Housing Finance Board and puts those responsibilities on the hands of the new Federal Housing Finance Agency.
• Gets rid of the Office of Federal Housing Enterprise Oversight (OFHEO) and puts those responsibilities ion the hands of the new Federal Housing Finance Agency.
• Increases the FHA loan limits to 155% of the area’s median home price up to $625,000 a/o 12/31/2008.
• Sets up housing trust funds for low income families with monies from Fannie Mae and Freddie Mac.
• Sets up grants for community development or housing non-profits.
• Sets up grants for homebuyer education.
• Raises the minimum asset level for Community Financial Institution Members from $500 Million to $1 billion.
• Establishes Hope for Homeowners Program (HOPE) which sets $300 billion aside for homeowners to re-finance to fixed rate loans. The homeowner must be the primary resident, must have greater than 31% debt to income, and the lender must lower the principle owned.
• Establishes mandatory licensing requirements for mortgage loan originators.
• Adds manufactured homes for low and moderate income families to Fannie Mae and Freddie Mac.
• Sets up foreclosure counseling and extends the time period to 9 months for foreclosure processing when a returning veteran is involved.
• Sets aside $4 billion for communities to purchase foreclosures to avoid blight.
• Expands the disclosure requirements for mortgages.
• Gives up to $7500 to first time home buyers. Lots of restrictions and must be repaid over 15 years.
• Give a property tax deduction to non- itemizers of up to $500 ($1,000 for married couples)
• Provides $11 billion in tax exempt bonds for new loans and refinances.

Declining Markets

There is some confusion as to how declining markets are determined in an appraisal report. The first step is to determine the subject’s neighborhood. This is the area that has some commonality with the subject and is affected by similar market forces. Often a zip code can be used. Sometimes a school district may define the boundaries and some homes are defined by the development. Lake of the Pines or Sun City cannot be considered similar to the areas around them.

Once the neighborhood is determined, the market trends can be researched. Web sites like trulia.com, cyberhomes.com, and dqnews.com can give the trend data for a zip code or city. When using these sites would be inappropriate, the MLS needs to be used.

An example would be Sun City, Lincoln. The zip code for this area shows a declining market, which provides accurate data for the Twelve Bridges area and Lincoln Crossing, but not for Sun City. Statistics can be taken from the MLS by drawing the search borders around only Sun City. Then checking the statistics, by month or quarter, you will find the low, median, average, and high prices for each time period. These can then be graphed to show the trend and the raw numbers can be used to show the change in value by month, quarter or year. The appraiser needs to explain this in the report so that a reviewer unfamiliar with the area will understand why you have different conclusions than the web site data they are using.

Do not assume that all areas are declining. There are some neighborhoods that are stable, and there are actually some neighborhoods that show some increase in value. The appraiser needs to make sure that the subject home and it’s neighborhood are the focus and that they support that in the report.

I have attached a recent article regarding Fannie Mae and declining markets.

Fannie Mae Scraps “Declining Markets” Policy

As of June 1, Fannie Mae has adopted a new, single down payment policy in all communities across the nation for conventional, conforming mortgages the company will purchase or guarantee. This new national down payment policy, announced May 16, will supersede the “Maximum Financing in Declining Markets Policy” Fannie Mae adopted in December 2007, which required higher down payments in markets where home prices are declining. That policy typically added 5 percent to the down payment needed in 8,000 to 12,000 ZIP codes where home values were dropping. Many of Fannie's critics saw it as a long-overdue dose of fiscal castor oil necessitated by too many shaky loans to borrowers who had little of their own funds on the line.

Starting with loan applications taken on June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter® automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of Desktop Underwriter, in all geographic locations in the United States.

The new policy now equalizes down payment requirements across the country, regardless of local market conditions. Fannie said the change was possible—and sound—because its automated underwriting programs were upgraded to assess loans more precisely.

Welcome to our site.

We will use this blog to keep you updated on changes to our local markets and changes in the industry. This blog will be updated weekly.

I would like to use today’s posting to talk about the HVCC. This stands for Home Valuation Code of Conduct.

Background: Andrew Como, NY State Attorney General, filed suit against Fannie Mae and Freddie Mac over the bundling and reselling of mortgages without ensuring the value of the collateral. They have settled by agreeing to establish the Home Valuation Code of Conduct (HVCC), also referred to as the “Code”.

The code does a number of things, including:

· Forbids any form of valuation pressure, including providing an estimated value.

· Forbids lenders from accepting an appraisal ordered by a mortgage broker or a realtor.

· Forbids lenders from using appraisals prepared by employees of the lender, except for reviews,

· Establishes quality control requirements, and

· Establishes an Independent Valuation Protection Institute (the Institute) to handle complaints.

The process called for input from industry and the public until the end of last April.

There was quite a bit of comment. Concerns about the relationship between brokers and appraisers, the apparent encouragement of Appraisal Management Companies (AMCs), the ability to skirt the requirements by using AVMs or BPOs, and the direction it seems to push the industry toward an emphasis on turn time and cost as opposed to accuracy and quality.

There will be some adjustments made based on the input, a new version of the HVCC, and another comment period. The HVCC takes affect 01/01/2009.

None of this is cast in stone yet, but there are guys with chisels waiting. For more information, the appraisal institute has copies of the agreements, the HVCC, and many of the organizations letters of comment on their web site. I have included the web address.

Appraisal Institute, New & Advocacy