Among the actions taken at its Aug. 22-23, 2009, meeting, the Appraisal Institute Board of Directors postponed consideration of appraisal review designations until further research is conducted. The Board also elected members to various posts.

At its May 2009 meeting, the Board directed that the 45-Day Notice for the August meeting contain proposed changes to the Bylaws and Regulations to create review designations and requirements for such designations. Member feedback on the 45-Day Notice indicated that additional research should be conducted before any Board decision on creating such designations. Specific research suggested included finding the market need for such designations and the potential impact on the existing MAI and SRA designations. The Board agreed to meet after it had time to conduct such research. At that meeting, the Board may choose to either adopt the proposal as already set forth in the 45-Day Notice, defeat the proposal, direct further research or revise the proposal and submit a new one via 45-Day Notice to the membership, if appropriate, before a final Board vote.

In election news, Sara Stephens, MAI, was elected 2010 Vice President (see story below). Eric K. Schwartz, MAI, SRA, of Chevy Chase, Md., was elected chair of Strategic Planning Committee, and Russell K. Sterling, MAI, of Somerville, N.J, was elected as a 2010 Board member to SPC. Scott Robinson, MAI, of Salisbury, N.C., and Edward W. Adams, SRA, of Ranchos de Taos, N.M., were elected to two-year terms on SPC, while John A. Hillas, SRA, of Modesto, Calif., was elected to a one-year term. Eileen H. Lynn, MAI, from Philadelphia, and Michael J. Maglocci, MAI, of Chicago, were elected to the Audit Committee. (Note: This posting clarifies earlier election news.)

Look for more details on the Board’s actions in the September 2 issue of Appraiser News Online.

Sara W. Stephens, MAI, a more than 20-year member from Little Rock, Ark., was elected Appraisal Institute vice president Saturday by the Board of Directors. Her term begins Jan. 1, 2010.

“Being selected the 2010 vice president of the Appraisal Institute by the Board of Directors is a very humbling experience. I challenged them to work with me as a team, I am eager to do just that,” Stephens said.

Stephens has been active at the chapter, regional and national levels. She served two terms as president of the Arkansas Chapter, is the chapter’s current Education Committee chair and has served as both chair and member of the Nominating Committee. She is also a member of the Board of Directors of the Arkansas Chapter of the Appraisal Institute. She attended the Leadership Development Advisory Council three years and was chosen to return a fourth year as a discussion leader. Her topic focused on the designation requirements of the Appraisal Institute.

Stephens is a member of the Board of Directors of the Appraisal Institute, currently serving as chair of Region IX and chair of the National Audit Committee. She is also a member of the Admissions Designation Qualifications Committee, where she served as chair of the 2008 project team that formulated and implemented an alternative demonstration appraisal report format (E-Demo). As a member of ADQC, she serves as a member of a committee working on a review appraiser designation. Her committee service at the national level began as an Associate Member, where she was a representative to the Associate Guidance Committee.

“Our members are our greatest asset,” Stephens said, adding that she will make that a prominent theme during her four years serving on Executive. “I would like to continue our efforts to work with our Associate Members and to help them achieve the designations of the Appraisal Institute,” she said.

Stephens graduated magna cum laude from the University of Arkansas at Little Rock with a degree in mathematics and English. She has a master’s degree from the University of Arkansas at Fayetteville, where she also completed some post-graduate work. She taught calculus, advanced trigonometry and algebra in the Little Rock Public School District and at the University of Arkansas at Little Rock.

She is the owner and principal of Richard A. Stephens and Associates, the oldest appraisal firm in Little Rock. Along with her business partner and husband, Richard A. Stephens, MAI, SRA, she maintains a practice offering a broad scope of services, specializing in eminent domain, litigation support and real estate tax appeal.

Stephens is one of eight members of the American Society of Real Estate Counselors in Arkansas, and the only woman invited to membership in Arkansas.

According to the National Association of Mortgage Brokers, the Department of Housing and Urban Development is looking at alternatives to the Home Valuation Code of Conduct that will insulate appraisers from inappropriate pressure and not harm the consumers. In a private meeting with NAMB, newly appointed Federal Housing Administration Commissioner David Stevens told the organization that the FHA is not considering adopting the HVCC appraisal system now in place at Fannie Mae and Freddie Mac, according to a NAMB press release.

Other topics that Stephens addressed during the meeting were FHA’s policy position on a number of issues, including implementation of recent changes to the Real Estate Settlement Procedures Act, the new Good Faith Estimate document, a potential nationwide FHA loan limit, risk-based premiums, reverse mortgages (HECM) and condominium concerns.

As of press time, Appraiser News Online was unable to contact Stevens or get official word from HUD as to their plans regarding HVCC.

In the wake of reports that some real estate appraisers are performing appraisals despite lacking sufficient knowledge of the local market, the Appraisal Institute sent out an Aug. 18 news release chiding those who violate the profession’s ethical or professional standards.

“The Appraisal Institute is very proud of the well-deserved reputation for excellence its members have achieved,” said Appraisal Institute President Jim Amorin, MAI, SRA. “We won’t allow that reputation to be tarnished by appraisers – whether they’re our members or not – who breach ethical or professional standards.”

The statement came in response to reports that, since the May 1 implementation of the Home Valuation Code of Conduct, some appraisal management companies have hired appraisers for assignments outside of their geographic regions. In some instances, appraisers lack (and fail to obtain) the knowledge required to perform an accurate appraisal. Some of the resulting appraisal reports have led to complaints by Realtors, builders, lenders, brokers, home sellers and buyers.

The Appraisal Institute pointed out that the Competency Rule of the Uniform Standards of Professional Appraisal Practice states: “Prior to accepting an assignment or entering into an agreement to perform any assignment, an appraiser must properly identify the problem to be addressed and have the knowledge and experience to complete the assignment competently …”

USPAP further states: “In an assignment where geographic competency is necessary, an appraiser preparing an appraisal in an unfamiliar location must spend sufficient time to understand the nuances of the local market and the supply and demand factors relating to the specific property type and the location involved. Such understanding will not be imparted solely from a consideration of specific data such as demographics, costs, sales, and rentals. The necessary understanding of local market conditions provides the bridge between a sale and a comparable sale or a rental and a comparable rental. If an appraiser is not in a position to spend the necessary amount of time in a market area to obtain this understanding, affiliation with a qualified local appraiser may be the appropriate response to ensure development of credible assignment results.”

“As the nation’s largest and premier real estate appraiser association, the Appraisal Institute takes seriously any instances, no matter how rare, of appraisers violating ethical or professional standards,” Amorin said. “We have reminded our members that violations will not be tolerated. I encourage non-members to join us in speaking out against any appraiser who violates the standards of our profession.”

In addition to USPAP, Appraisal Institute members are required to abide by the organization’s Code of Professional Ethics, which states: “It is unethical to fail to properly identify the issue to be addressed and [to fail to] have the knowledge and experience to complete the service competently prior to agreeing to perform any service …”

“The Appraisal Institute expects and demands its members to strictly adhere to its Code of Professional Ethics,” Amorin said. “We will take disciplinary action against any member who violates our organization’s geographic competency ethics requirement. Non-member appraisers should strive to achieve the same level of ethical behavior.”

Information on the Appraisal Institute Code of Professional Ethics, including complaint processes, enforcement procedures, and enforcement statistics is available at www.appraisalinstitute.org/about/ethics.aspx .

Signs that the economy is emerging from its current recession have been good news for the Obama administration and, in particular, its Federal Reserve Chairman. President Obama on Tuesday announced the nomination of Fed Chairman Ben Bernanke for a second term. 

Bernanke, who began his first four-year term in 2006 during the Bush administration, has been both praised and criticized for his handling of the nation’s economic crisis. While he has been praised for aggressively confronting the greatest financial crisis since the Great Depression, critics have been upset over the amounts of taxpayer money he has spent in the process.

The president’s decision to keep the Fed Chairman in place has brought a level of certainty to financial markets, especially as economists and investors look to see if America would hold course with its current economic policies or bring in someone new to offer a different perspective.

Though Obama chose to nominate Bernanke for a second term, other economists being considered for the position included Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Alan Blinder, former Fed vice chairman. Both Yellen and Blinder had been advisors to President Clinton. Also being considered was former Treasury Department Secretary Lawrence Summers, who currently serves as the president’s top economic advisor.

Should he be reappointed by Congress, Bernanke will have a slew of tasks to deal with in his second term, including the raising of interest rates and stemming of inflation; the Obama administration’s plan to speed up the overhaul of financial market regulation; and efforts to help struggling homeowners and borrowers facing foreclosure.

The government’s program to stabilize the financial system and the economy was given a further boost last week as the Federal Reserve received requests from investors for $2.3 billion worth of loans linked to legacy commercial mortgage-backed securities issues. Under the Treasury’s Term Asset-Backed Securities Loan Facility, or TALF, investors have requested nearly $3 billion of TALF loans in July and August to help finance purchases of pre-2009 (legacy) CMBS.

Conversely, there still has been no movement from investors over the past three months to apply for TALF loans against newly issued CMBS, although industry analysts continue to stress that this is mostly due to the lead time necessary to package new commercial mortgages into securities. Currently, banks and insurers own more than $2 trillion worth of U.S. commercial real-estate debt not packaged into bonds.

The TALF program, which has the potential to generate up to $1 trillion in lending for businesses and households, was given a breath of life last week when Fed Chairman Ben Bernanke extended into next year the portion of the program for commercial mortgage bonds. Under the joint Fed- and Treasury-approved extension, TALF loans for newly issued asset-backed securities and legacy CMBS have been authorized to run through March 31, 2010. In addition, TALF loans for newly issued CMBS, which can take a significant amount of time to arrange, have been extended to run through June 30, 2010.

Central bankers from many of the world’s wealthiest nations are warning that as global economic recovery continues, nations should not delay reforming financial-market regulations.  With leaders from the Group of 20 scheduled to meet next month in Pittsburgh to discuss methods to avert future financial crises, monetary policy makers, such as Federal Reserve Chairman Ben Bernanke, are trying to maintain political support for raising financial regulation standards — even as credit markets begin to rebound.

And Bernanke is not alone. Australian Treasurer Wayne Swan has said that the G20 should pursue regulatory reforms to the global financial system, while Bank of Israel Governor Stanley Fischer has noted that the global banking system could benefit from a major restructuring.  Meanwhile, European Central Bank President Jean-Claude Trichet has stressed that global leaders need to make changes to the regulation of global finance. So as to solidify their unity, several G20 finance ministers plan to meet in London Sept. 4-5 to discuss moving forward collectively.

As the world’s financial leaders ready to meet, here at home the government is facing political resistance to elements of the Obama administration’s proposed regulatory overhaul.  In addition to opposition from the banking industry, conservative lawmakers and regulators, the administration is facing resistance from prominent Democrats, such as Sen. Christopher Dodd, D-Conn.  Dodd, who chairs the Senate Banking Committee, is concerned that the government’s plan to make the Federal Reserve the supervisor over the nation’s largest financial institutions would grant the Fed too much regulatory authority.

Of concern to Bernanke and his international counterparts is that the U.S. may get bogged down in political and regulatory agency struggles, both of which could derail any meaningful regulatory reforms here in the states.

In a speech last week at the Kansas City Federal Reserve’s annual symposium in Jackson Hole, Wyo., Federal Reserve Chairman Ben Bernanke told attendees that the global economy is starting to emerge from its recession. Noting the recent actions taken by central banks and governments, Bernanke expressed his belief that economic activity in both the U.S. and abroad appears to be leveling out and preparing for near term growth.

Economic support for Bernanke’s optimism has been abundant in recent weeks. The National Association of Realtors announced a 7.2 percent increase in U.S. home sales last month as U.S. stock prices have been consistently gaining. In addition, last month the International Monetary Fund predicted that the world economy will grow 2.5 percent in 2010 after contracting 1.4 percent in 2009.

Though optimistic, Bernanke underscored his comments to the Kansas City Fed with a warning that global challenges still lay ahead, specifically in freeing up access to credit and curbing rising unemployment rates. 

“Strains persist in many financial markets across the globe, financial institutions face additional significant losses and many businesses and households continue to experience considerable difficulty gaining access to credit,” Bernanke told his audience of bankers and academics.  ”We must work together to build on the gains already made to secure a sustained economic recovery, as well as to build a new financial regulatory framework that will reflect the lessons of this crisis and prevent a recurrence of the events of the past two years.”

For the full text of Bernanke’s speech, visit http://blogs.wsj.com/economics/2009/08/21/bernanke-economy-on-cusp-of-recovery/ .

On July 22, the Supreme Court of Ohio affirmed a decision of the Ohio Board of Tax Appeal, which rejected the appraisal submitted by the owner of a “big box” retail store in challenging the valuation of its property before the county Board of Revision. Instead, the Court affirmed the use of an appraisal submitted on behalf of the local taxing authority – a board of education. The Court’s decision subjects Meijer Stores to taxation on over $3.75 million in additional value.

In the case of Meijer Stores Limited Partnership v. Franklin County, Ohio, Board of Revision, Meijer had argued that the value of its property should not be determined by comparing it to properties that are subject to long-term leases that are favorable to the owner because such a comparison involves a valuation of a speculative “leased fee” interest rather than of the fee simple interest. Meijer pointed to the use of inappropriate “build-to-suit” properties by the appraiser performing the appraisal on behalf of the board of education.

In performing the appraisals, both parties’ appraisers utilized all three approaches to value, but placed a heavier emphasis on the income-capitalization and sales-comparison approaches. However, according to the Board of Tax Appeal, the store’s appraiser utilized inappropriate comparables, including similar “big box” stores that had been abandoned as part of bankruptcy proceedings. In contrast, the taxing authority’s appraisal included sales by developers who built big box retail facilities on a build-to-suit basis and then sold them to third parties . The authority’s appraiser opined that the value of the Meijer store is “at a point which lies somewhere between selling prices of properties which are leased to first generation users and prices of properties which are vacant and available for occupancy.”

The Board of Tax Appeal had found discrepancies in the income-capitalization approach used by the store’s appraiser. According to the decision of the Court, the store’s appraiser “used a ‘market rent’ approach that deliberately excluded data derived from build-to-suit leases and newly developed discount stores…” On the other hand, the authority’s appraiser “viewed Meijer itself as the potential lessee of the property” and appropriately used “seven first-generation properties and five second-generation properties as rent comparables.”

In its decision, the Court opined that the taxing authority’s appraiser used comparable-sale and comparable-rent properties, as well as valuation methodologies, that were more appropriate than those utilized by Meijer’s. The Court stated that “the school board's appraiser utilized a range of properties that included ‘build-to-suit’ properties that, unlike the property at issue, were not owned by the business that operated on the premises.”

To read the entire decision of the Court in the case of Meijer Stores Limited Partnership v. Franklin County, Ohio, Board of Revision, visit www.sconet.state.oh.us/rod/docs/pdf/0/2009/2009-Ohio-3479.pdf .

As home prices continue to fall and unemployment rises, the rate of prime loans entering into foreclosure has been escalating while the subprime loan rate has eased. Prime loans currently account for one in three foreclosure starts, up from one in five in 2008, according to the Mortgage Bankers Association. Unlike the first wave of foreclosures that began in 2007, consisting mainly of subprime loans, foreclosures are increasingly being driven by traditional economic problems, including falling home prices, falling incomes and rising unemployment.

At the end of the second quarter of 2009, 9 percent of homeowners with prime loans were either past due on a payment or in foreclosure, up from 5.35 percent the same period a year ago, while subprime loans came in at 39.5 percent, up from 30 percent. However, prime loans accounted for 58 percent of foreclosure starts in June, up from 44 percent the same period a year ago, while subprime loans accounted for 33 percent of starts, down from 49 percent.

Jay Brinkmann, chief economist at the MBA, noted that foreclosures are not expected to peak until 2010, when the economy is in better shape. “Just because we see prices level off doesn’t necessarily mean we’ll see a big reduction in foreclosures,” Brinkmann told The Wall Street Journal, in part because many homeowners owe more than their homes are worth.

  “Negative equity continues to be the dominant driver of the mortgage market because it leads to foreclosures in the event a borrower experiences some kind of economic shock such as a job loss, illness or other adverse situation,” Mark Fleming, chief economist at First American CoreLogic, said in a statement. “Given that negative equity did not increase this quarter and [the decline in] home prices … are moderating or flattening, we may be at the peak of the negative equity cycle. However, until negative equity recedes and unemployment declines, mortgage risk will continue to be very elevated.”

In its August report, “The Continued Risk of Troubled Assets,” the Congressional Oversight Panel states that residential and commercial real estate defaults and future unemployment figures create solvency concerns for large and small banks. According to an MBA NewsLink analysis, the report said uncertain loan values beg the question of bank solvency, but that question's importance declines if the economy improves and unemployment drops.

The Congressional Oversight Panel said higher unemployment or a commercial real estate market collapse will lead to rising defaults, greater deterioration in asset values and further bank losses. In its worst scenario model of whole loan losses, the panel estimated potential core commercial real estate and construction loan losses through 2010 at $81.1 billion in 701 banks with assets between $600 million and $80 billion.

Fitch Ratings, New York, said CRE loans, excluding more problematic construction and development portfolios, represent more than 125 percent of total equity for the 20 largest banks rated by Fitch. The risk is higher for banks with less than $20 billion in assets, as average CRE exposure represents more than 200 percent of total equity for these institutions, Fitch said.

While the Congressional Oversight Panel credited the Troubled Assets Relief Program with helping stabilize large banks, injecting capital to increase a “capital buffer” against risk, the panel's report said troubled assets caused especially difficult problems for small banks because smaller institutions generally hold troubled whole loan assets.

To solve the growing problem of troubled whole loans in small banks, the panel said the Treasury may want to consider adapting the Public-Private Investment Program to make small banks more robust or they may want to shift to a different strategy to remove troubled assets from the banks' books.

The second-quarter 2009 foreclosure rate remained relatively stable from the previous quarter’s record high, according to the Mortgage Bankers Association’s National Delinquency Survey.  The combined total of loans that were in either foreclosure or past due on at least one payment hit its highest level on record at the end of the second quarter, logging in at 13.16 percent on a non-seasonally adjusted basis ... despite a marked increase in the second quarter residential real estate delinquency rates.

The delinquency rate for mortgages tied to one- to four-unit residential properties in the second quarter of 2009 increased to 9.24 percent, up 12 basis points from the previous quarter and 283 points from the same period last year. At the end of the second quarter, the percentage of loans in foreclosure totaled 4.3 percent, up 45 basis points from the previous quarter and 155 points from the same period last year.

During the second quarter, the percentage of loans that went into foreclosure totaled 1.36 percent, down one basis point from the previous quarter and up 28 points from the same period last year. Having a combined total of 44 percent of all new foreclosures during the second quarter, California, Florida, Arizona and Nevada continue to have the highest percentage of foreclosure starts.

“As for the outlook, it is unlikely we will see meaningful reductions in the foreclosure and delinquency rates until the employment situation improves,” Jay Brinkmann, MBA’s chief economist, said in a statement. “In addition, in some areas where a number of borrowers have mortgages that are larger than the current value of their homes, any life events such as divorce or loss of a job are likely to translate into foreclosures until prices in those areas recover, not just flatten.”

When examining seasonally adjusted data, the second quarter delinquency rate for prime loans increased from 6.06 percent the previous quarter to 6.41 percent, subprime loans inched up from 24.95 percent to 25.35 percent, and FHA loans rose from 13.84 percent to 14.42 percent. However, VA loans dropped from 8.21 percent to 8.06 percent. The percentage of prime loans in foreclosure increased from 2.49 percent to 3.00, subprime loans rose from 14.34 percent to 15.05 percent, FHA loans inched up from 2.76 percent to 2.98 percent and VA loans increased from 1.93 percent to 2.07 percent.

When examining non-seasonally adjusted data, the second quarter foreclosure start rate for prime loans increased from 0.94 percent the previous quarter to 1.01 percent and FHA loans rose from 1.10 percent to 1.15 percent. However, subprime loans dropped from 4.65 percent to 4.13 percent and VA loans decreased from 0.72 percent to 0.68 percent. Compared to the previous quarter, the rate of prime loans considered seriously delinquent increased from 4.70 percent to 5.44 percent, subprime loans jumped from 24.88 percent to 26.52 percent, FHA loans inched up from 7.37 percent to 7.78 percent and VA loans rose from 4.42 percent to 4.69 percent.