Round 2 Appraisal vs BPO's

On January, 16, 2009, we brought to you the valuation fight that is appraisals vs. broker price opinions (BPO).  Today we bring you Round 2 – and this time it’s personal.  Well, it’s not really personal but there is a clear difference of opinion.
Last week, the Appraisal Institute (AI) sent a letter to Treasury Secretary Geithner expressing concerns about the use of BPOs in the HAFA loan modification program.  In the letter to Treasury, AI states that BPOs are likely to exacerbate mortgage fraud.  Further, real estate agents who perform BPOs are not independent, not properly trained, have a bias towards quick results  for a fee, and have little or no regard for the other parties of a short sale transaction (lenders, servicers, investors, property owners, etc).
Within days, the National Association of REALTORS (NAR) responded to AI comments in letters to Secretary Geithner and Housing and Urban Development (HUD) Secretary Donovan.  In the letter, NAR recognizes the need for flexibility in any mortgage modification program and notes the importance of the appraisal for purchase money mortgage transactions. However, NAR believes an appraisal may not be the best tool for all real estate transactions.  BPOs are widely accepted in the real estate industry and there is no evidence that their use results in mortgage fraud.  NAR also argues that there is no evidence to support the idea that appraisers are more or less likely to engage in mortgage fraud than real estate agents

Greenspan Denies Causing the Housing Bubble

Former Federal Reserve Chair Alan Greenspan, whose policies have been blamed for the economic meltdown of 2008, will present a paper at the Brookings Institution today saying that the low interest rates during his tenure didn’t cause the housing bubble.

"To my knowledge, that lowering of the federal funds rate nearly a decade ago was not considered a key factor in the housing bubble," he wrote in a preliminary copy of the presentation.

"The global house price bubble was a consequence of lower interest rates, but it was long term interest rates that galvanized home asset prices, not the overnight rates of central banks," Greenspan continued.

What did cause the bubble, Greenspan argued, is the explosive growth of developing economies in Asia and other parts of the world.

Federal agents crack Upstate Mortgage fraud scheme

Columbia, South Carolina ---- Acting United States Attorney Kevin F. McDonald stated that five people and an upstate corporate builder of residential homes entered guilty pleas in federal court for their respective roles in a mortgage fraud scheme that involved false loan applications, kickbacks, and duping investors, many of whom were members of a Greenville church. Twin brothers Anthony B. Grant and Antonio B. Grant, age 43, both of Simpsonville, and their business partner Michael D. Holmes, age 37, of Lawrenceville, Georgia, pled guilty to conspiracy to commit bank fraud.  Also pleading guilty were Tower Homes, Inc., a South Carolina corporation, and its President Nathan Seppala, age 50, and Vice President Sandra Kinnunnen, age 59, both of Greer, South Carolina.  United States District Judge Henry F. Floyd accepted the pleas and will impose sentence after he has reviewed pre-sentence reports from the U.S. Probation Office. Beginning in 2007, Anthony and Antonio Grant, along with Holmes, operated South East Real Estate Solutions (SERES), which sought people interested in real estate investment and would locate property in upstate South Carolina for these investors to purchase. Many of these novice investors were recruited from the congregation of Redemption World Outreach Church of Greenville, South Carolina, after the Grant brothers and Holmes made presentations to members of the congregation on investment opportunities.  The men promised each investor that once an investment property was purchased, SERES would make all mortgage payments, would find individuals to rent the property, would manage the property, and that SERES would try to “flip” the property to earn a profit for themselves and the investor. Investors were asked to provide personal financial information to SERES so that financing could be sought by the Grant brothers and Holmes on their behalf for the real estate purchases.  However, the Grant brothers and Holmes falsified the investors’ financial information, preparing loan applications stating that the investors had substantial assets and income to qualify for higher mortgage loans, when in fact many did not.  The men also provided investors with money required by lenders to be paid at closing by the investors.  To deceive the lenders on the source of these funds, the men typically gave each investor a check prior to closing, instructing the investor to present it at closing as if it were from the investor’s personal account. Based on the false applications and the deceptive closing funds, mortgage lenders approved 33 loans in amounts far in excess of what would have been loaned had accurate information been presented.  Many of these loans are now delinquent and many of the homes are in foreclosure. Many of the properties that SERES arranged for its investors to purchase were small site-built homes constructed and sold by Tower Homes in the upstate.  The Grant brothers and Holmes entered into side contracts with Tower Homes to locate buyers, then arranged for a recruited investor to purchase one of the Tower Homes’ properties at a price far in excess of that typically charged by Tower Homes.  For arranging for the investor to purchase the Tower Homes property, Seppala and Kinnunnen authorized kickback payments to the Grant brothers and Holmes which were not disclosed to the lenders.  Representatives of Tower Homes provided sworn affidavits to the lenders that there were no oral or written contracts relating to or affecting the property purchased by the investor, when in fact, the representatives knew about the side contracts and the kickbacks authorized by Seppala and Kinnunnen. Secret Service agents began investigating the case after numerous victim investors contacted the U.S. Attorney’s Office to report the fraud in February 2009. Mr. McDonald stated the maximum penalty the individual defendants can receive is a fine of $1,000,000 and imprisonment for 30 years.  The corporate defendant Tower Homes faces a maximum possible fine of $1,000,000.

NAR Supports Use of BPOs in HAFA Program

The allowance of broker price opinions (BPOs) in the administration’s Home Affordable Foreclosure Alternatives (HAFA) program has created a major controversy.

As DSNews.com previously reported, four appraisal organizations recently wrote a letter to Treasury Secretary Timothy Geithner, voicing concerns over the use of BPOs for short sales under HAFA. In response to this opposition, Vicki Cox Golder, president of the National Association of Realtors (NAR), wrote her own letter, supporting HAFA and its allowance of BPOs.
The letter, which was addressed to both Treasury Secretary Geithner and HUD Secretary Shaun Donovan, was written on behalf of the 1.2 million members of NAR.
Golder said NAR recognizes the need for flexibility in any mortgage modification or short sale program to ensure all parties are treated fairly and appropriately. While an appraisal is a very important part of a purchase money mortgage transaction, it may not be the best tool for other real estate transactions, she said. NAR believes that in many cases, a more appropriate and cost-efficient measure is the BPO.
“BPOs are completed by licensed real estate agents with a detailed knowledge and understanding of real estate pricing and local market trends developed through active participation in the listing, negotiation, and sale of properties,” Golder wrote. “This perspective offers a unique viewpoint that supports sound real estate decisions with accurate estimates of the value of real estate.”
According to NAR, BPOs are widely accepted in the real estate industry, due to their established reliability and accuracy. Fannie Mae and Freddie Mac permit BPOs in certain circumstances, the FDIC and the Federal Reserve Board permit the use of BPOs in various programs, and BPOs are also accepted by banks, lenders, and all major loan servicers for a number of purposes.
Golder said the use of BPOs to analyze mortgage loan portfolios for risk management, due diligence, and fraud detection purposes is an important part of the mortgage

lending industry. BPOs are viewed as a valuable tool to assist lenders, loan servicers, and investors in making decisions related to refinances, home equity loans, and secondary market transactions related to loan portfolios, and the use of BPOs in these situations benefits borrowers through increased efficiencies and reduced servicing costs, she explained.
The appraisal organization’s letter noted that law enforcement officials have highlighted loan modification fraud-including fraud involving short sales-as a new form of mortgage fraud. To mitigate such conflicts, the coalition of appraisal organizations urged the department to reestablish independence in the valuation process.
“Generally speaking, real estate agents and brokers are not independent or properly trained valuation specialists,” the letter said. “They have an inherent bias towards quick results and actions which produce a fee for themselves, irrespective of whether the lender, servicer, investor, property owner, and/or borrower gets a fair return on the short sale.”
In her letter, Golder said there is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents. She said many of NAR’s members conduct BPOs, and to do so, they must adhere to a rigorous code of ethics.
This code requires a Realtor to complete a BPO within a specified framework. In addition, Realtors have a fiduciary responsibility to their clients and are required to perform their duties consistent with “the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage.”
Additionally, Golder said there is no evidence that a BPO exacerbates mortgage fraud or abuse. The appraisal organizations cited a recent study from Interthinx, which specifically mentioned property valuation fraud. According to the study, bank-owned fraud attributed directly to schemes involving shorts sales and REO inventories increased by nearly 50 percent over the past year and 100 percent over the past two years. However, Golder said the study did not consider the method of valuation used for transactions that may be fraudulent.
The coalition of appraisal organizations also claimed that in at least 23 states, the ability of a real estate agent or broker to perform a BPO is specifically limited to assisting a buyer or seller, or a potential buyer or seller, in establishing a listing or offering price for a property. Golder said this assertion is simply incorrect.
“We urge you to examine the relevant state statutes and not accept this argument at face value, as we believe the use of BPOs for short sales and other purposes is clearly permissiable in most, if not all, states,” Golder wrote.

Appraisal Institute Opposes Obama’s Promotion of BPOs for ‘Short Sales

Appraiser News Online Headlines
Last Updated: March 10, 2010
Vol. 11, No. 5/6
Stay up-to-date on current market trends! Click here to view the latest
Economic Indicators. Back to stories
Appraisal Institute Opposes Obama’s Promotion of BPOs for ‘Short
Sales’
Citing concerns about increased mortgage fraud, the Appraisal Institute this week spearheaded opposition
to changes to an Obama administration program that allows broker price opinions in determining the
minimum offer in “short sales” of homes.
The Appraisal Institute was joined by the American Society of Appraisers, the American Society of Farm
Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers in sending a
March 8 letter to Treasury Secretary Timothy Geithner.
“We strongly believe continuing to allow ‘broker price opinions’ (BPOs) in the property valuation component
will not adequately protect the public interest (consumer, borrowers, etc.) or the interests of the various
parties to the loan (lenders, loan servicers, etc.) and is likely to exacerbate mortgage fraud,” the appraiser
organizations wrote.
“We urge the Department to reestablish independence in the valuation process to protect the safety and
soundness of financial institutions, improve transparency, and safeguard the public trust,” the appraiser
organizations’ letter said, later adding. “We urge the Administration to revise the (Home Affordable
Foreclosure Alternatives) HAFA guidelines to prohibit the use of BPOs for property valuation requirements
involving foreclosure alternatives, including short sales.”
The appraiser organizations’ letter notes that law enforcement officials have highlighted loan modification
fraud – including fraud involving short sales – as a new form of mortgage fraud. “We believe that such
conflicts can and should be mitigated by implementing basic requirements reestablishing independence
and competency in the valuation process,” the letter said.
Changes to expand the Home Affordable Foreclosure Alternatives program, set to take effect April 5, would
allow defaulting owners to sell their homes for less than they owe and would provide them $1,500 in
relocation assistance, according to The New York Times.
The Times referred to the plan as “one of the administration’s most aggressive attempts to grapple with a
problem that has defied solutions,” noting that 5 million households are behind on their mortgages and risk
foreclosure. The government’s $75 billion mortgage modification plan reportedly has helped few of them.
To read the appraiser coalition’s letter to Treasury Secretary Timothy Geithner, visit
www.appraisalinstitute.org/newsadvocacy/downloads/ltrs_tstmny/2010/AI-ASA-ASFMRANAIFA_
ShortSales.pdf .
To read The New York Times’ March 8 story on the Obama administration’s program, visit
www.nytimes.com/2010/03/08/business/08short.html.

Foreclosures slow in ཅ | Culpeper Star-Exponent

Foreclosures slow in ཅ | Culpeper Star-Exponent

Report reveals a mixed bag for job growth in area | Charlottesville Daily Progress

Report reveals a mixed bag for job growth in area | Charlottesville Daily Progress

Virginia Business - News: Virginia home sales increased in 2009’s fourth quarter

Virginia Business - News: Virginia home sales increased in 2009’s fourth quarter

Roanoke ranked 131st on housing affordability list

Virginia metro areas, Richmond ranked 106th on the affordability list, with 79 percent of homes qualifying as affordable to residents there. Roanoke ranked 131st, with 75.4 percent. Hampton Roads ranked 145th, at 72.9 percent.

GUIDANCE CONCERNING DESKTOP APPRAISAL ORDERS

A new desktop appraisal product was released in February 2010. The Appraisal Board has received numerous telephone calls and emails about this product and others that are similar. Although the Board does not approve or prohibit specific forms or software used to deliver appraisal results, the Board does have several concerns about this type of assignment.

An assignment is an agreement between an appraiser and a client for a valuation service. Once an appraiser accepts an assignment, USPAP applies to the appraiser’s actions. Even if an appraiser ends up not completing the assignment or does not get paid, the appraiser must still comply with USPAP. If an appraisal report is created and sent to the client, a workfile must be produced and maintained. USPAP requires that the work file must contain enough information to produce a summary appraisal report from the workfile contents. 

This is a valuation service regarding the subject property that would have to be disclosed under the 2010 change to the Conduct Section of the Ethics Rule of USPAP, even if no report was transmitted and/or no payment was received.  According to the instructions for this product, if an appraiser accepts an assignment to do this type of appraisal but subsequently discovers that the subject property does not meet minimum requirements, the appraiser will not get paid. This is referred to as a “no-hit”. Since an assignment that results in a  “no-hit” may not be tracked in invoicing software, the assignment would have to be entered into some other type of tracking software to make sure one complied with the new disclosure requirement in USPAP.
 

The Scope of Work Rule of USPAP states that the appraiser, not the client, must determine the scope of work necessary to develop credible assignment results. In addition, the Scope of Work rule states that “An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use.”  There are several assignment conditions in this product that are referred to as “appraisal report minimum requirements”. Some may be unacceptable.

This product requires appraisers to use MLS as the primary data source. In many areas of our state, MLS is not available or is unreliable. A better source of data might be the county tax office or a private data collection system.  The product also requires that appraisers must use a minimum of three closed comparable sales and a comparable listing and/or pending sale.  At least two of the comparable sales must be less than 120 days old, and at least two must be located within one mile of the subject. The GLA of the comparable sales must be within 20% of the GLA of the subject. Appraisals of condominiums with more than 15 units must include at least two comparable sales from the development within the last 12 months and at least one comparable listing and/or pending sale from the development. Condominiums with 15 units or less must include at least one comparable sale from the development within the past 12 months and, when available, a comparable listing or pending sale from the development. This product does not allow the appraiser to use the best data available and may well limit the amount of work performed to such an extent as to violate the Scope of Work Rule.

Of major concern is the assignment condition that the appraiser will not receive a fee if the appraiser cannot meet all the product requirements. As noted above, this is referred to as a “no hit”.  “No-hits” are produced when the appraiser cannot produce a credible value due to insufficient subject data, the subject is an ineligible property type, the appraiser cannot meet all of the minimum report requirements, the subject is zoned commercial/industrial, or the subject is not at its highest and best use.    

It appears that the assignment conditions may violate the Management Section of the Ethics Rule. For example, if the appraiser searches for comps but discovers there have been none within the last 120 days, the appraiser will not get paid. If the subject is located in a transitional area and the highest and best use would be as an interim or commercial use, it is a “no-hit” and there is no fee. The fee for the assignment is contingent on a predetermined result - the reporting of comps that meet certain criteria, or a finding that the subject meets the product requirements.  This type of assignment may result in the loss of objectivity. An appraiser may be tempted to use sales that he or she would not otherwise use, or to simply concur that the current use is the highest and best use, in order to receive a fee. The fact that an appraisal may not be completed (a “no-hit”) is irrelevant. The Ethics Rule prohibits accepting such an assignment.

There are appraisal products on the market now that allow or even require the appraiser to choose comparable sales from a database maintained by the software vender or client. Most of the comps in those systems are datamined from other appraisal reports. These services are not connected directly to a local MLS system. Sometimes an employee of the software company may contact local real estate brokers to obtain comparable sales. If an appraiser uses this database for sales, the database must be listed as the source for comparable sales, with MLS or another source used for verification of those sales. In addition, if the appraiser is given comparable sales by the client or vendor, the appraiser must disclose that he or she received significant assistance in choosing comparable sales.

Some of these products give an appraiser a discount if the appraiser voluntarily “contributes” appraisal reports to the software database so that subject and comparable information can be mined. Keep in mind that doing so is a violation of the Confidentiality Section of the Ethics Rule of USPAP, as assignment results are also communicated to the database.

A final note – the low fee paid for this assignment does not in any way lessen the appraiser’s legal requirement to comply with USPAP.

 

Mindy Sealy North Carolina Appraisal Board

How Lenders Work Within New FHA Appraisal Rules

The Federal Housing Administration (FHA) implemented new appraisal rules yesterday.  Mortgagee Letter 2009-28 focuses on appraiser independence and Mortgagee Letter 2009-51 focuses on the Appraisal Update and/or Completion Report.  As AppraisalInsight reported, the rules were originally to be implemented on January 1, 2010.
Lenders will  secure a case number assignment in FHA
Connection via the Case Number Assignment Screen but will not input the
appraiser information. The Case Number Assignment Screen will no longer
capture the assignment choice, license ID and assignment date. Instead,
lenders will be required to enter all appraisal data, including the
appraiser ID, in the Appraisal Logging Screen once the completed appraisal
is received by the lender and prior to closing the loan.

FDIC Considers Principal Reduction Program

The Federal Deposit Insurance Corp. is experimenting with a plan to help underwater home owners by reducing principal as long as they continue to pay their mortgages for an as-yet-undetermined period of time.

"We're thinking about it in terms of earned principal forgiveness. If you stay current on your mortgage, you would earn a principal reduction. It would only be for loans significantly underwater," says FDIC Chair Sheila C. Bair.

The initiative would be very limited in scope and would be launched later this year.

Lender Wells Fargo also has been carefully experimenting with principal reductions on a limited basis. "I do not believe that you can do a programmatic-wide or country-wide principal forgiveness [program]. You end up with many problems if you try to do this across the board," says Mike Heid, co-president of Wells Fargo Home Mortgage.

Easley bank reports $18M loss

GSA Daily Staff Report Published March 1, 2010
CommunitySouth Financial Corp. on Friday reported a year-end loss for 2009 of $18.3 million, or $3.89 per share, compared to a $3.35 million loss in 2008, or 71 cents a share.
The 2009 figures include a fourth quarter loss of $15.32 million, or $3.26 per diluted share. CommunitySouth Financial Corp. is the parent company of CommunitySouth Bank & Trust, which has branches in Greenville, Spartanburg, Anderson, Greer, Mauldin and Easley.
"In this economy much of our industry, including our Bank, continues to be affected negatively by unemployment and the struggling real estate markets," said CEO Allan Ducker III. "Despite our efforts to reduce our concentration of commercial real estate loans, management and the board deemed it prudent to continue making significant provisions for loan losses. As such, we allocated $10.7 million in the fourth quarter to account for problem loans.”
CommunitySouth hired an independent firm to analyze its credit risk and to evaluate the bank’s exposure.
“Based upon their independent review, we are confident that we know our portfolio better than ever and we are recognizing potential problems expediently and in the bank's best interest,” Ducker said.
Among other results, the bank’s deposits grew nearly 27% last year to $376.6 million, and total assets were up 8.7% to $421.5 million. Total loans decreased 14.3% for the year to $275.1 million, and net interest income increased 4.9%.
"We have a proactive business plan and are measuring progress on a weekly basis," Ducker said. "Our core deposits have increased, we've enhanced our credit policies and procedures, decreased concentrations in our loan portfolio, and focused aggressively on managing and reducing problem assets. Additionally, we are working to steadily reduce our reliance on brokered deposits and other non-core sources of funding."
"We intend to emerge from this economy a viable institution well-positioned in the markets we serve,” he added.

REALTOR® Magazine-Daily News-Mortgage Windfall Misses Many

REALTOR® Magazine-Daily News-Mortgage Windfall Misses Many

REALTOR® Magazine-Daily News-It's Getting Easier to Get a Jumbo Loan

REALTOR® Magazine-Daily News-It's Getting Easier to Get a Jumbo Loan

Carolina First Name Interim president

Carolina First names interim president

Christopher S. Gompper has been promoted to interim president of bank operations for Carolina First bank in North Carolina and South Carolina, parent company The South Financial Group Inc. said today. He will take over responsibilities formerly held by Scott Frierson, who left the bank last September.