In a June 23 release, the National Association of Realtors’ chief economist Lawrence Yun blamed “poor appraisals [for] stalling transactions.” He attributed May’s less-than-expected sales increase (see related story below) on the fact that "some contracts are falling through from faulty valuations that keep buyers from getting a loan." In a same-day statement, Bill Garber, Appraisal Institute Director of Government and External Relations, said: "We take offense with the notion that the appraisal is only good if it happens to come in at the sales price. That mentality helped cause the mortgage meltdown to begin with. The fact that the appraisal does not match the sales price is not the fault of the appraisal but a fault of the market today.”

NAR’s remarks came in a June 23 CNN/Money story, which outlined the struggles for home sellers – such as competing against a growing number of bargain-priced foreclosures, buyers paying higher mortgage rates, and the new Home Valuation Code of Conduct rules for property appraisers – all of which are delaying or scuttling many deals.

Since the rules took effect May 1, real estate agents and mortgage brokers say a number of appraisals are coming in surprisingly low. NAR is pressing regulators to put an 18-month hold on the code, arguing in a June 22 letter to regulators that it is "hampering the housing market's recovery."

Chris Heller, agent-owner of Keller Williams Realty in northern San Diego, told CNN that in recent weeks problems with the appraisal process have caused about a third of his transactions to fall apart. Yun adds that they “have just been flooded with e-mails, telephone calls on the appraisal problems."

Garber agreed that the new rules are not ideal, but that appraisers are not to blame for a market where prices are falling rapidly since "appraisers only report what's going on in the market."

To that end, Garber added, "In a typical real estate transaction [such as a buyer seeking a loan], our clients are the lenders. Appraisers provide lenders with information that protects them from making questionable loans and investments and helps them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don’t act like we want them to or hope they will. Nonetheless, competent and professional appraisers understand this and develop credible estimates of value that ultimately ensure that lenders loan the proper amount, buyers don’t pay too much and sellers get a fair price.”

Tightness in the mortgage-finance sector has propelled the Federal Housing Administration's share of the home-loan market to 63 percent so far in 2009 – a record high – compared to 24 percent in the fiscal year ended September 30. Department of Housing and Urban Development Inspector General Kenneth Donohue said the spike in volume is overwhelming the agency, and could erode the integrity of Ginnie Mae mortgage bonds. Donohue’s statements came in a June 18 hearing in front of the Committee on House Financial Services Subcommittee on Oversight and Investigations,

The volume of single-family mortgage loans insured by FHA, which is overseen by HUD, more than tripled to $180 billion in 2008, Donohue said. FHA has historically been most vulnerable to fraud and exploitation when loan volume is high, he added.

Donohue said the rise of mortgage fraud among FHA lenders has depleted FHA’s mortgage insurance fund, which has fallen to $12.9 billion, or two percent of all insured assets as of September 30, from $21 billion, or 6.4 percent of assets a year earlier. Under some economic projections, that ratio could fall below the statutory requirement of two percent, requiring taxpayer assistance or an increase in premiums, he said.

For the full testimony, visit www.fhasecure.gov/offices/cir/test090618.cfm.

About 200,000 mortgage modifications have been worked out under the government's Home Affordable Modification Program, including 40,000 modification offers completed in a single week earlier this month, according to Shaun Donovan, secretary of the Department of Housing and Urban Development. However, industry watchgroups remain concerned about the million-plus foreclosure proceedings still ongoing.

Donovan said the foreclosure-prevention program has already gotten more results than previous government efforts to address the foreclosure problem and that the pace of modifications is rising. A key element of the new plan is to make mortgages "truly affordable" with the modification, he said. The HAMP Web site says a borrower's modified mortgage payment should be no more than 31 percent of his or her monthly gross income.

The plan also has a refinance program designed for homeowners who are on time with their payments but are unable to take advantage of low mortgage rates because they owe more than their home's current market value. To be eligible for this program, the borrower's loan-to-value ratio can be no higher than 105 percent, but raising the limit is being discussed. James Lockhart, the director of the Federal Housing Finance Agency, declined to say what a new loan-to-value limit might be but said that loans with a 125 percent loan-to-value ratio could be sold into special pools known as Real Estate Mortgage Investment Conduits.

According to a recent NeighborWorks America report, homeowners who apply for mortgage modifications are finding that banks typically are taking 45 to 60 days to respond to inquiries. Some industry officials say such delays are hampering efforts to revive the housing market. NeighborWorks America is a provider of foreclosure-prevention counseling.

Bank of America reports that it modified about 232,000 mortgages last year. During the first four months of this year, it has completed about 157,000 modifications — all before the Obama housing rescue plan went into effect. Lenders say they need to take time to review each application so that the modifications are meaningful. Some economists warn that rushing approvals could result in modifications that only delay foreclosures rather than prevent them.

During the time the MHAP has been in effect, lenders either have started or advanced foreclosure proceedings against more than one million homes, according to RealtyTrac. About 20 percent of those were foreclosed upon and repossessed. The Center for Responsible Lending says 2.4 million Americans are at risk of foreclosure in 2009, and 8.1 million could be over the next four years.

In his statements, Donovan reiterated the administration's position that not every foreclosure can be prevented. Part of the foreclosure-prevention plan has been to encourage alternatives for families destined to lose their homes, such as short sales.

The Department of Housing and Urban Development has asked Congress for a $798 million taxpayer subsidy to cover potential losses on its reverse mortgages portfolio. Without such a subsidy, Secretary Shaun Donovan told Congress that it might be necessary to increase insurance premiums for reverse mortgages that are backed by the government.

Donovan argued against raising the premiums, stating that reverse mortgages help seniors remain in their homes and avoid foreclosure, and may lower program participation. Donovan also indicated that there are other options available to avoid the increase in premiums. According to David Cesario, Executive Vice President of 1^st Reverse Financial Services LLC, “If HUD chooses to raise insurance premiums in light of limited product availability and increasing rates, those two factors will cause a lot more people not to qualify.”

This marks the first time in its 20-year history that the Federal Housing Administration requested taxpayer money for the program. The budget request was prompted by a recent warning from Comptroller of the Currency John Dugan indicating that the program faces a growing risk in the wake of the housing market collapse. “While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages, and that should set off alarm bells,” said Dugan.

The Obama Administration’s proposal for the broadest reorganization of financial-market supervision since the Great Depression has done just what everyone thought it would: create controversy.

The Administration's proposal, which is available in an 85-page white paper at www.appraisalinstitute.org/newsadvocacy/downloads/key_documents/obamaregreform.pdf, would, among other things, give the Federal Reserve Board the power to oversee all systemically important companies as well as create a new consumer protection agency and an oversight council.

A day after releasing its plan last Wednesday, Treasury Secretary Timothy Geithner was defending the proposal before the Senate Banking Committee. Of primary concern to lawmakers is the White House’s push to expand the authority of the Federal Reserve, regulate Fannie Mae and Freddie Mac, and establish a new “council of regulators.”

Most of the Committee’s questions asked of Geithner were aimed at addressing the justification of the new role the Fed would play, particularly in regard to overseeing risk factors across the financial system.

Geithner was quick to defend the Administration’s proposal and the Fed, telling lawmakers that none of the “additional accountability and clarity of responsibility we're proposing to give the Fed, building on their existing responsibilities today, has any significant risk of undermining their capacity to keep growth stable and sustainable over time and keep inflation low and stable in the future."

In addition, it was noted that the new “council of regulators,” which has been proposed under the Administration’s plan to monitor systemic risk, would advise the Fed on its role regulating systemically important institutions. Headed by Geithner, the new council would be composed of the eight heads of the top regulators, including the new Consumer Financial Protection Agency. Though the council would not have the power to enforce recommendations or veto the Fed’s decisions, it would have its own staff and send an annual report to Congress.

Not all Banking Committee members have been sold on the Administration’s idea. Ranking Member Sen. Richard Shelby, R-Ala., said that the Administration’s willingness to give increased authoritative powers to the Fed “represents a grossly inflated view of the Fed's expertise."

While lawmakers, regulators and industry players will doubtless be weighing in on this issue in the coming weeks, Geithner sounded what may have been a warning shot at critics when he reminded the panel of Senators, "Our economy has been brought too close to the brink for us to let this moment pass."

“An independent appraisal serves as a safeguard for the protection of current and future parties to the loan transaction, including the borrower, the originating lender, the secondary market participant and as we are now seeing - the taxpayer. Any effort to circumvent the independence of the appraised value heightens mortgage risk,” So testified Kevin Nunnink, MAI, SRA, in comments before the Oversight and Investigations Subcommittee of the House Financial Services Committee for the purpose of “strengthening oversight and preventing fraud" in Federal Housing Administration and other Housing and Urban Development programs.  

Nunnink, the Chairman of IRR-Residential, based in Kansas City, Mo., explained that of all the professionals involved with the mortgage origination process, the appraiser is frequently the only professional that visits the property, doing so implicitly for the purpose of providing due diligence for their lender client to ensure that the property has sufficient value to support the intended loan.

He told the committee that appraiser separation is particularly important in today’s mortgage industry where virtually all mortgage originators sell their mortgage paper into the secondary market and thereby hold minimal long-term loan risk. 

For a video of the hearing and related documents, visit www.house.gov/apps/list/hearing/financialsvcs_dem/oihr_061109.shtml.

The application deadline for the Appraisal Institute Education Trust's Minority and Women Regional Scholarship is July 1. Minority and women Associate members in the advanced stages of an Appraisal Institute designation are encouraged to apply.

For each of the past eight years, the Appraisal Institute Education Trust, in partnership with the Appraisal Institute’s Diversity Committee, has awarded minority and women Appraisal Institute Associate members scholarships up to $1,000 to be used for an Appraisal Institute course leading to the MAI or SRA designation. 

To review eligibility and requirements and to apply, visit www.appraisalinstitute.org/mwscholarship.

In its first week of operation, the Federal Reserve’s Term Asset-Backed Securities Loan Facilities program received no requests from lenders looking to invest in loans backed by commercial mortgage-backed securities. However, industry analysts say that is to be expected since lenders have had little time to originate, package and market such loans.

Despite the June 16 availability, many regulators are predicting that TALF for CMBS may not see its first new issue until July or August, with New York Federal Reserve President William Dudley going to great lengths to keep public expectations low for the time being by telling recent audiences that the securitization process “takes quite a while to ramp up.”

For most lenders, it is a matter of time. To put together the large, complex deals lenders need to diligently analyze and package their loans. The Fed’s June 16 TALF request deadline applied only to securities issued this year. In late July, the Fed will start accepting investor requests for loans to purchase older CMBS and lenders will have had more time to prepare their paperwork.

TALF funds were originally slated to draw investors back to securities backed by consumer debt, such as credit card loans and car loans. With worsening conditions in the banking and commercial markets, however, the Fed opted to extend TALF to use part of the emergency program’s $1 trillion in loans to help revive the $760 billion market for CMBS.

At The Real Estate Roundtable's recent annual meeting, real estate, financial and trade association leaders discussed the potential implications for commercial real estate markets resulting from new accounting standards issued by the Financial Accounting Standards Board.

The new standards, FAS 166 and FAS 167, will modify how financial institutions will be allowed to report securitizations and special-purposes entities, including commercial mortgage-backed securities. The changes, which take effect in 2010, come at a time when policymakers and industry leaders are struggling to ease commercial real estate liquidity and bolster the CMBS market.

Both standards will require a number of new disclosures. For example, FAS 167 will require a company to provide additional disclosures concerning its involvement with variable interest entities, including changes in risk exposure, and how it affects financial statements. FAS 166 will increase the information included in financial statements by requiring greater transparency concerning transferred assets as well as a company’s involvement in the asset.  

In a letter to Treasury Secretary Timothy Geithner, The Roundtable and other concerned industry groups urged policymakers to consider policy changes aimed at promoting confidence in the markets. “Any such changes should avoid having a chilling effect on frozen credit markets and minimize harm to consumers and the overall economy during this challenging time,” the letter stated. Additionally, the letter urged policymakers to coordinate reform measures with the International Accounting Standards Board to ensure that changes are consistent with international efforts currently underway.