The Department of Housing and Urban Development has kicked 102 lenders out of the Federal Housing Administration’s single-family mortgage insurance program for various violations, and the department's secretary is promising to get tough on lenders that do not meet the highest standards of conduct. The announcement comes in the wake of a HUD Inspector General’s report that concluded that the board in charge of sanctioning mortgage lenders who violate FHA policies is ineffective and slow at a time when the volume of loans backed by the agency is exploding. The report responds to concerns raised by Sen. Charles E. Grassley, R-Iowa, who questioned the FHA's ability to weed out fraudulent lenders approved to do business with the agency.

These lenders are chasing the borrowers who are flocking back to the agency for low-down-payment mortgages now that the subprime industry has vanished. The concern is that some lenders may be using the same abusive tactics that contributed to the collapse of the subprime market and that the FHA may not have the resources or policies to stop them and protect itself against losses. The agency insures lenders against defaults.

The Inspector General’s report focused on the Mortgagee Review Board, created in 1989 to sanction problem lenders. It found that the board has ruled on only 94 cases since the beginning of October even though 12,641 lenders do business with the agency, raising questions about whether the system is set up to catch abuses. The board rules only on cases referred to it by HUD offices.

The board "will remain marginal as an effective sanctioning body unless its enforcement actions include a much larger caseload," the report said.

Grassley’s critique was much harsher: "Tax dollars are at risk because this board is a toothless tiger," Grassley said in a statement. "It's not visible and moves slowly."

In response, HUD spokesman Neill Coleman said that FHA is increasing its staff and modernizing its systems to meet the growing loan volume. Newly enacted laws will also give the agency more enforcement power, he said.

President Obama recently signed two bills that he hopes will help fix the struggling housing market. One bill, the Helping Families Save Their Homes Act, expands on an existing $300 billion program that encourages lenders to help struggling homeowners avoid foreclosure by providing new opportunities to modify or refinance mortgages. The bill removes hurdles that many homeowners encountered with the HOPE for Homeowners Act that was enacted last summer. However, after months of debate, a key provision that would have allowed bankruptcy judges to modify mortgage terms was eliminated from the final version of the Helping Families Save Their Homes Act. That leaves the decision to refinance a mortgage up to lenders and investors holding securities backed by those loans.

In addition, because many responsible renters are being unfairly evicted from rental properties that go through foreclosure, the legislation requires banks to honor existing leases, or provide at least 90 days notice for renters on month-to-month leases.

The other bill, the Fraud Enforcement and Recovery Act, nearly doubles the FBI’s mortgage and financial fraud program, giving prosecutors and regulators new tools to crack down on mortgage fraud and predatory lending. The bill also calls for the creation of an independent commission responsible for investigating the cause of the worldwide financial meltdown.

The Fraud Enforcement and Recovery Act also expands the Department of Justice’s authority to prosecute fraud that takes place in private institutions not covered under current statutes as well as prosecute anyone who fraudulently obtains TARP funds.

“These landmark pieces of legislation will protect hardworking Americans, crack down on those who seek to take advantage of them and ensure that the problems that led us into this crisis never happen again,” Obama said.

However, some argue that the latest government effort may not be strong enough to reverse the downward spiral that has gripped the housing market and the economy. More than two years after the housing market crashed, the increasing number of distressed home sales is taking a toll on house prices and hampering the country’s economic recovery. Foreclosures are up 32 percent in April from the same period a year ago, according to RealtyTrac, and the Center on Responsible Lending reports that roughly 2.4 million new home foreclosures are expected in 2009.

“You mix all of that together, and the foreclosure problem is getting worse, not better,” said Mark Zandi, chief economist at Moody’s Economy.com. “We’re counting on the president’s loan modification plan to really kick in here. But it hasn’t yet, and we need to see it.”

The Federal Reserve has announced that, starting in July, certain high-quality commercial mortgage-backed securities issued before January 1, 2009, will become eligible collateral under the Term Asset-Backed Securities Loan Facility. The move, which was announced in a May 20 press release, is the Fed's first attempt to use its unlimited lending capacity to try to support markets for "legacy securities," or those that were created months or years ago. Previously, the Fed program supported only new commercial real estate lending.

On March 23, the Federal Reserve had announced that it would evaluate extending the list of eligible collateral for TALF loans to include certain legacy securities. According to the Fed’s press release, “The objective of the expansion is to restart the market for legacy securities and, by doing so, stimulate the extension of new credit by helping to ease balance sheet pressures on banks and other financial institutions.”

If the Fed's efforts to start up commercial real estate lending works, it could begin to help an industry that many analysts believe is on the verge of massive losses. With banks reluctant to lend, the market for CMBS is stagnant. And with the market at a standstill, many analysts fear that there could be a wave of foreclosures on office, retail and other commercial properties absent new sources of lending. For their part, Fed officials contend that by helping restart the market for existing CMBS, lending will be more widely available for new commercial real estate loans, allowing owners to refinance as their loans come due.

While the real estate industry and many analysts are applauding the Fed’s TALF expansion, there remain question marks over whether it will work. For example, the Fed’s March announcement that it would expand TALF to include CMBS on office towers, strip malls and other commercial property caused the market to rally. However, market enthusiasm for the CMBS portion of the TALF plan soured May 26 after Standard & Poor's warned that billions of dollars of top-rated bonds backed by commercial mortgages could face downgrades. The Standard & Poor's action has raised doubts about how effective the Fed program will be. Investors responded May 26 by selling off CMBS, with yields on triple-A securities widening to 10.7 percent from 9.4 percent one week ago, according to data tracker Trepp.

And even if it is ultimately deemed “successful,” not many industry insiders believe the public will see CMBS return to the same strong form of 2007. The general consensus is that the Fed’s actions are a good starting point, but alone are not enough to solve the problems facing CMBS.

In an attempt to bolster the battered apartment sector, housing-finance giant Freddie Mac will sell nearly $1 billion of commercial-mortgage bonds backed by multifamily loans in mid-June. It marks the first large commercial-mortgage bond deal in nearly a year and the first time a commercial-mortgage bond is sold with the backing of a government-sponsored enterprise. This transaction is expected to open up a new way for Freddie to support lending in the multifamily market.

GSEs Freddie Mac and Fannie Mae, which were taken over by the government last September, have held multifamily loans on their books without securitizing them. By packaging them into tradable bonds, Freddie will free up capital so that it can invest in more multifamily loans. This comes at a time when Fannie has started securitizing home loans it holds in its portfolio. Fannie, however, hasn't sold them to investors yet. Freddie has sold these multifamily loans that were held in its investment portfolio to a Deutsche Bank Trust, which will package and sell the bonds. Market participants say this is a positive sign for the market and raises the prospect of more such deals from the GSEs.

Apartment and condominium complexes have been the most troubled in the real-estate sector. Speculative developers built condominium towers and apartments at the peak of the housing bubble, especially in states like Florida, Arizona, Nevada and California. They are the worst-performing type of property among commercial mortgages.

Delinquency rates on loans secured by apartments and condos have risen, hitting 5.12 percent in April, said RBS research. The loss severity on this property type is more than 25 percent, as more than 754 loans have been liquidated. Data released in the past week showed that new home construction in the U.S. fell to a fresh low in April, as a result of a drop in groundbreakings for high-rise towers and multifamily dwellings.

On May 21, the Federal Housing Administration released Mortgagee Letter 2009-16 regarding manufactured housing eligibility requirements for FHA mortgage insurance under Title II of the National Housing Act. Changes to manufactured housing requirements for new and existing construction were made by the Housing and Economic Recovery Act of 2008. This mortgagee letter addresses those changes that can be implemented immediately.

The notice outlines that to be eligible for FHA mortgage insurance, all manufactured homes must have a floor area of not less than 400 square feet; be constructed after June 15, 1976, in conformance with the Federal Manufactured Home Construction and Safety Standards, as evidenced by an affixed certification label; be classified as real estate; the mortgage must cover both the manufactured unit and its site and shall have a term of not more than 30 years from the date amortization begins; built and remains on a permanent chassis; designed to be used as a dwelling with a permanent foundation built to FHA criteria; and the finished grade elevation beneath the manufactured home or, if a basement is used, the grade beneath the basement floor shall be at or above the 100-year return frequency flood elevation.

The guidance then outlines the different ways at arriving at a given maximum insurable amount, including mortgage amount based on the lesser of total cost or itemized value or appraised value multiplied by applicable maximum loan-to-value percentage, which is 96.5 percent for purchase transactions.

Acting on his pledge to overhaul the regulation of financial markets, President Obama and administration officials are considering plans that could strip the Securities and Exchange Commission as well as the Federal Reserve of some of their powers while giving control to an as-of-yet un-established federal agency. Though discussions are said to be at an advanced stage, it remains unclear whether the Obama Administration favors the creation of a new oversight entity or simply consolidating powers to cover blind spots in the current regulatory structure.

If a new federal agency is established, it would likely be a body that absorbs the patchwork of regulation that currently exists to oversee financial products. Presently, oversight of financial products is split between myriad state and federal agencies, including the Fed, the SEC, the Federal Trade Commission, and others.

Perhaps working in favor of the creation of a new federal agency has been Treasury Secretary Timothy Geithner’s support for the establishment of a financial product regulator, which he believes could be used not just to look at specific companies, but to look at the industry from a horizontal perspective to evaluate products and practices.

The other option the Obama Administration is said to be considering would involve shifting powers from one agency to another—so that regulatory functions of the SEC could be given to the Fed or vice versa. Under this plan, agencies such as the Office of Thrift Supervision could be consolidated while other agencies, such as the Federal Deposit Insurance Corp., could be granted more regulatory authority.

The Obama Administration is expected to officially roll out their proposal early next month for Congress to debate.

The Illinois legislature has completed action on a bill (H.B. 1015) that will, if it is signed into law by Gov. Pat Quinn, make licensing or certification of real estate appraisers in the state mandatory for all purposes.  Prior to the enactment of this bill, licensing or certification was only required if the transaction for which the appraisal is being conducted is a “federally related transaction”, as that term is defined in Title XI of FIRREA.  The bill was strongly supported by the Illinois Coalition of Appraisal Professionals, of which the Appraisal Institute’s Illinois chapters are strong members. 

In addition to the mandatory licensing/certification, the bill also enacts changes that will bring the state into compliance with the latest licensing/certification criteria established by the Appraiser Qualifications Board of the Appraisal Foundation.  The bill also contains a provision that will make it illegal to improperly influence, or attempt to influence, the independent judgment of an appraiser through coercion, extortion, or bribery.  A person who is found guilty of a violation of the act’s appraiser independence provisions has committed a Class A misdemeanor for the first offense and a class 4 felony for any subsequent offense.  Lastly, the bill establishes the position of Coordinator of Real Estate Appraisal within the Department of Financial and Professional Regulation and requires that the position be filled by a certified general or certified residential appraiser.

On May 13, Oklahoma became the latest state to enact a law that will help to ensure that appraisers remain an independent, third-party voice in the real estate valuation process.  The signing of S.B. 1062 by Gov. Brad Henry will bring Oklahoma into compliance with the federal Secure and Fair Enforcement for Mortgage Lending Act of 2008.  The primary goal of S.B. 1062 is to enact a licensing program for mortgage brokers and mortgage loan originators that include education, examination and financial requirements. 

Also included in S.B. 1062 is a provision that makes it illegal for mortgage brokers and mortgage loan originators to take any action (such as making a payment, threat, or promise) that is intended to influence the independent judgment of an appraiser with respect to the value of property. 

A mortgage broker or loan originator that is found to have violated the new law is subject to: 1) having their license suspended, revoked, or non-renewed; 2) being censured, 3) being placed on probation; 4) being ordered to pay restitution; and 5) being required to pay a civil fine of between $100 and $2,500.

To view a copy of the new law, visit http://webserver1.lsb.state.ok.us/2009-10bills/SB/SB1062_ENR.RTF.  The new law is effective on July 1, 2009.

The Hawaii legislature has completed action on a resolution (Senate Concurrent Resolution 53) that will require the state Auditor to perform a study of the need to regulate appraisal management companies operating in Hawaii, and to report back to the legislature prior to the 2010 session of the legislature. The legislation does not need to be signed by Hawaii Gov. Linda Lingle to take effect.

During the 2009 session of the legislature, two bills (Senate Bill 1606 and House Bill 1577) were introduced which would have required AMCs operating in Hawaii to register with, and become regulated by, the Real Estate Commission and the Department of Commerce and Consumer Affairs.

The “sunrise review” ordered in SCR 53 is required under Hawaii law for “any new regulatory measures being considered for enactment that, if enacted, would subject unregulated professions and vocations to licensing or other regulatory controls”.  The introduction of SB 1606 and HB 1577 triggered the introduction and consideration of SCR 53.

During hearings on SCR 53, both the Hawaii Chapter of the Appraisal Institute and the Hawaii Association of Realtors testified in strong support of SCR 53 and in support of the underlying AMC registration bills. 

However, the Hawaii Financial Services Association testified that they are “unaware of any factual finding or proof by a Hawaii govemmental agency that demonstrates a need for State regulation of AMCs.”  The HFSA further stated that “Appraisers claim that AMCs are unregulated, but that is a very narrow and inaccurate view of AMC operations and the obligations of AMCs to their lender clients. We understand that federal regulations require AMCs to adhere to the same standards and regulations that are required of their lender clients.”  The Appraisal Institute disputes the claim that AMCs are already regulated at the federal level, and has been pushing hard for state based AMC regulatory requirements.

To view copies of SCR 53, SB 1606, or HB 1577 visit the Hawaii legislature’s website at www.capitol.hawaii.gov/site1/docs/docs.asp.

The Open Standards Consortium for Real Estate, a standards development organization for the real estate industry, is accepting comments through May 29 from organizations and individuals who have Green Lease templates or who are involved with Green Lease guidance or training.

In 2008, OSCRE published a standard designed to support the exchange of condensed summaries of lease documents among owners, brokers, portfolio managers and other stakeholders. OSCRE is now interested in extending the applicability of the standard to Green Leasing, which involves the integration of sustainability objectives for commercial buildings—such as energy and water efficiency—throughout the entire leasing process.

Parties interested in providing comments, additional requirements or guidance on green leasing best practices for OSCRE’s current Lease Abstract Standard, visit http://web.pisces.co.uk/Public%20Library/Press%20articles/GreenLeaseComments/GreenLease-Request%20For%20Comment.zip.

The National Home Price Index continues to set record declines, according to March 2009 data recently released by Standard & Poor’s in its S&P/Case-Shiller National Home Price Index. The index, which covers all nine U.S. census divisions, recorded a 19.1 percent decline in the first quarter of 2009 since the same period a year ago, the sharpest decline in the index’s 21-year history. The 20-city composite fell by 18.7 percent in March from the same period a year ago while the 10-city fell 18.6 percent. As of March 2009, home prices across the country are similar to fourth quarter 2002 figures. Overall, home prices are down 32.2 percent from the housing market peak in 2006.

“Declines in residential real estate continued at a steady pace into March,” said David Blitzer, chairman of Standard & Poor’s Index Committee. “All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the metro areas having record annual declines. Seventeen metro areas recorded a monthly decline in March, with Minneapolis, Detroit and New York posting record monthly declines. On a positive note, nine MSAs are reporting a relative improvement in year-over-year returns and nine of the 20 metro areas saw an improvement in their monthly returns compared to February… Based on the March data, however, we see no evidence that that a recovery in home prices has begun.”

Minneapolis, Detroit and New York reported the largest monthly declines in March, falling 6.1 percent, 4.9 percent and 2.5 percent, respectively. Phoenix, Las Vegas and San Francisco reported the steepest annual drop, declining 36.0 percent, 31.2 percent and 30.1 percent, respectively. Boston, Dallas and Denver continue to be the top performing markets with annual declines of 8.0 percent, 5.6 percent and 5.5 percent, respectively. In terms of peak-through-March 2009 data, Dallas has fared the best with only an 11.1 percent decline from its June 2007 peak while Phoenix has been hit the hardest with a decline of 53.0 percent from its peak in June 2006.

Despite home construction activities falling to a new all-time low in April, homebuilder confidence increased for the second straight month in May—reaching its highest level since September 2008—according to the National Association of Home Builders Housing Market Index. As reported by the Commerce Department, both total housing starts and building permits continue to fall. However, with government tax credits set to expire by December 2009, builders are bracing for an increase in housing construction.

Because of a sharp decline in multi-family construction, total housing starts in April fell 12.8 percent from March to a seasonally adjusted annual pace of 458,000 units. Multi-family starts in April fell 46.1 percent from March while single-family starts increased 2.8 percent. Total building permits issued in April dropped 3.3 percent from March with single-family permits increasing 3.6 percent and multi-family permits falling 19.9 percent.

Mortgage rates declined to 4.82 percent according to Freddie Mac’s Primary Mortgage Market Survey released on May 21. For the tenth consecutive week, average fixed-rate mortgages have remained under 5.0 percent. The Mortgage Bankers Association’s seasonally adjusted Purchase Index for the week ending May 15 fell 4.40 percent to 254.0 from the previous week’s figure of 265.7, representing a 27.94 percent decline from the same period last year.

Meanwhile, Hanley Wood Market Intelligence, in partnership with DataSphere, recently launched a new listings Web site with over one million listings in approximately 11,000 communities across the country, the Web site covers national, regional and local markets. To learn more about Hanley Wood and DataSphere’s new venture, visit www.NewHomeListings.com.

According to the American Institute of Architects, April’s Architecture Billings Index rating was 42.8, down from its March rating of 43.7. Although April’s index dropped by less than one point, for the first time since August and September of 2008, the index was above 40 for two consecutive months. April’s new projects inquiry score logged in at 56.8.The index, which is an economic indicator of construction activity, shows a nine- to 12-month lag time between architecture billings and construction spending. Scores lower than 50 represent declining conditions, while those greater than 50 indicate an industry-wide increase in billings.

“The most encouraging part of this news is that this is the second month with very strong inquiries for new projects. A growing number of architecture firms report potential projects arising from federal stimulus funds,” AIA chief economist Kermit Baker said. ”Still, too many architects are continuing to report difficult conditions to feel confident that the economic landscape for the construction industry will improve very quickly. What these figures mean is that we could be seeing things turn around over a period of several months.”

The Architecture Billings Index is derived from a monthly “Work-on-the-Boards” survey and produced by the AIA Economics & Market Research Group. Based on a comparison of data compiled since the survey’s inception in 1995 with figures from the Department of Commerce on Construction Put in Place, the findings provide an approximately nine- to 12-month glimpse into the future of nonresidential construction activity. For more information, visit www.aia.org.

Brokerage activity in the commercial real estate sector dropped 4.8 percent between the end of the fourth quarter and the end of the first quarter, according to data compiled by the National Association of Realtors. Compared with the first quarter of 2008, brokerage activity is down 12.9 percent. NAR is predicting down time for a while yet, since real estate is a lagging indicator behind a broader economy that's still lagging itself.

NAR further predicted that U.S. office vacancies will average 16.1 percent by the end of this year, up from 13.4 percent last year, and that retail vacancies will hit 15.8 percent by year's end, up from 9.7 percent at the end of 2008.

The federal seizure of struggling Florida thrift BankUnited FSB is expected to cost the Federal Deposit Insurance Corp. $4.9 billion, representing the second-largest hit to the FDIC's insurance fund since the financial crisis began last year.The Office of Thrift Supervision, a Treasury Department agency, said that BankUnited FSB reported $1.2 billion in losses last year as defaults on loans piled up.

Coral Gables, Fla.-based BankUnited FSB is the 34th federally insured institution to be closed this year, and the biggest. Florida's largest banking institution with about $13 billion in assets as of May 2 was sold for $900 million to an investor group led by former North Fork Bancorp Chairman and CEO John Kanas. It will reopen as a newly chartered savings bank called BankUnited. The new bank will assume $12.7 billion in assets and $8.3 billion of its total $8.6 billion in deposits. In addition, the FDIC and the new bank agreed to share losses on about $10.7 billion in assets.

The 34 bank failures this year in the U.S. compare with 25 in 2008 and just three in 2007. As the economy nationwide has soured – amid rising unemployment, tumbling home prices and soaring loan defaults – bank failures have cascaded and sapped billions out of the deposit insurance fund. According to the most recent data available, the FDIC fund now stands at its lowest level in nearly a quarter-century – $18.9 billion as of December 31, compared with $52.4 billion at the end of 2007.

The FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013 and plans to impose a new emergency fee on U.S. banks to replenish the fund. Legislation passed by Congress boosts the FDIC's authority to borrow from the Treasury Department if needed from $30 billion to $100 billion, allowing the agency to reduce the amount of the insurance fees.