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Appraiser News Online
Current issue: June 12, 2013
 
GSEs Standardize Data for Appraisals and Mortgages
Fannie Mae and Freddie Mac announced July 23 that they have fully adopted the Uniform Loan Delivery Dataset. ULDD falls under the larger Uniform Mortgage Data Program, a joint project the government-sponsored enterprises undertook to standardize data on appraisals and mortgages.
 
Sam Oliver, Freddie’s vice president of single-family customer and technology data offerings, called the adoption a “critical milestone.” The ULDD operates under the auspices of the Federal Housing Finance Agency, as do all joint GSE efforts.
 
“Lenders nationwide are using a ‘common language’ for the loans and appraisals they deliver to Freddie Mac and Fannie Mae,” Oliver said.
 
“This is the culmination of several years of hard work, investment and planning across the industry that we could not have accomplished without the collaboration and partnership of our customers, vendors and appraisers,” he said.
 
Oliver noted that the next phase of ULDD already is underway and will support expanded loan-level disclosure for their mortgage-backed securities.
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Appraisers Not Subject to Tax Preparer Tests, Education Requirements
Real estate appraisers who do not prepare Internal Revenue Service Form 1040 series forms for compensation are not subject to tax preparer testing or education requirements, according to IRS officials participating in a July 18 Appraisal Institute webinar on IRS Appraisals.
 
The IRS recently had tried to require preparers of individual tax returns to register with the government and pass a test to prove their competence. However, it remained unclear as to whether real estate appraisers who sign Form 8283 when completing appraisals of non-cash charitable contributions would be subject to the new tax return preparer requirements. IRS officials confirmed that appraisers are not subject to the testing and education requirements.
 
However, appraisers must update and/or obtain a Personal Taxpayer Identification Number to complete Form 8283. When obtaining a PTIN number from the IRS website, appraisers need to look for a question that reads, “Do you prepare 1040 series for compensation?”  By answering “no,” an appraiser will not become a registered tax return preparer and therefore not subject to testing and education requirements.
 
Visit the IRS website for more information on obtaining or updating PTIN numbers.
 
View the webinar on IRS Appraisals.
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Los Angeles Sues Deutsche Bank over Foreclosed Property Maintenance
The City of Los Angeles filed a lawsuit July 18 against Deutsche Bank, alleging that the Germany-based entity has failed to maintain foreclosed properties in the city and also has illegally evicted hundreds of renters, American Banker reported.
 
The 106-page complaint filed in Los Angeles Superior Court seeks hundreds of millions in restitution to be paid both to current and former tenants, as well as to the city for its repairs, inspections and penalties. Most of the properties in question are located in south L.A. or the northeast San Fernando Valley.
 
The Los Angeles Office of the City Attorney has called Deutsche Bank one of the city’s largest slumlords, American Banker reported.
 
Deutsche Bank contends that the city has sued the wrong entity since it only serves as trustee for the securitizations holding the mortgages in question. Therefore, the bank argued, it has no authority to foreclose on properties or evict renters.
 
“Loan servicers and not Deutsche Bank as trustee, are contractually responsible for both the maintenance of foreclosed properties and any actions taken with respect to tenants of foreclosed properties,” the bank noted in response to the filing, American Banker reported.
 
At issue are the more than 2,000 properties that the city claimed Deutsche Bank subsidiaries have obtained through foreclosure and have consistently failed to maintain or to address nuisance violations. The city further alleged in its suit that it has notified the bank of substandard property conditions, yet the bank has either not responded to the notices or failed to comply with city regulations, American Banker reported.
 
Deutsche Bank claimed it has tried to work with the city for more than a year to identify the addresses of subject properties in order to notify servicers of conditions in violation of city statutes, but that the city has failed to provide the addresses.
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Fed Districts Report Modest-to-Moderate Economic Progress
Reports on residential housing markets remained largely positive across the country as the economy continued to expand at a modest-to-moderate pace in June and early July, the Federal Reserve reported in its latest Beige Book released July 18.
 
Economic activity in Cleveland, New York and Philadelphia continued to expand, but at a slower pace compared to the previous report, while Richmond cited mixed activity. Boston, Chicago, Dallas, Kansas City and Minneapolis described activity as advancing at a moderate pace, with Atlanta, San Francisco and St. Louis reporting modest growth.

The reported noted that home prices are stabilizing in some markets and price increases were noted in select markets. However, both Atlanta and Boston noted that appraisals were coming in below market prices.
 
Home sales increased in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco and St. Louis. However, reports on sales were mixed in New York; gains in Boston eased from earlier in the year; and Philadelphia described new home sales as disappointing.
 
Most districts reported that rental markets were continuing to strengthen. Atlanta, Boston, Chicago, Dallas and New York cited increases in apartment rents. Multifamily construction was described as “strong” in Atlanta, Chicago and San Francisco; Dallas indicated that apartment construction likely will increase over the next several months.
 
Reports on commercial real estate markets were mixed among the districts. Atlanta, Boston and St. Louis indicated modest improvements in commercial real estate, while San Francisco reported strengthened demand. Dallas and Philadelphia reported that demand was relatively steady from the previous report; New York and Richmond indicated that conditions softened.
 
Both Kansas City and Minneapolis reported that nonresidential construction increased modestly, while Chicago reported an increase in demand. Boston indicated that commercial construction continued to gain momentum, with Cleveland reporting that activity was much improved from a year earlier. However, activity in Atlanta was flat year-over-year, while Richmond indicated that activity had softened over the past few months. 
 
Most districts reported that demand for loans — particularly real estate loans — grew at a modest pace. Although Dallas indicated that demand for mortgage lending was especially strong, Cleveland and Richmond reported that activity was weaker. Chicago, Cleveland, New York and Richmond noted that mortgage loan refinancing was either steady or on the upswing, while Philadelphia indicated a slowdown. Both Dallas and Kansas City reported increases in agriculture and commercial real estate lending.
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FSOC: Threats to U.S. Market Stability Continue
In its annual report to Congress July 18, the Financial Stability Oversight Council identified several key ongoing threats to U.S. financial stability, including continued economic instability in Europe and the ending of numerous tax cuts and unemployment benefits at the close of 2012, The New York Times reported.
 
The council, which was created by the Dodd-Frank Act and consists of representatives from the Federal Reserve, the U.S. Department of the Treasury and the U.S. Securities and Exchange Commission, noted in its report that large financial institutions in the U.S. may still have concentrated exposures or complex trading systems that could result in large losses given a change in short-term interest rates.
 
The council also identified eight financial market utilities as “systemically important” and it wants to subject them to stricter oversight. Those include financial entities overseen by the SEC: the Depository Trust Company, the Fixed Income Clearing Corporation, the National Securities Clearing Corporation and the Options Clearing Corporation, the Times reported.
 
Others are overseen by the Commodity Futures Trading Commission and include the Chicago Mercantile Exchange, ICE Clear Credit, Clearing House Payments Company and CLS Bank International.
 
The council also would like to see greater tightening of mortgage servicing standards.
 
According to the Times, the council still sees the biggest threat as activities in the euro zone. “A systemic crisis in Europe, in which contagion and spillover effects spread widely among euro area countries and markets, represents significant risk for U.S. institutions,” the council noted in its report.
 
The FSOC also is concerned about how the expiration of individual tax cuts and extended unemployment benefits at the close of 2012 will impact financial stability if Congress fails to address them.
 
Read the FSOC’s 2012 annual report.
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FHA Expands Asset Stabilization Program in Four Cities
The Federal Housing Administration announced its formal expansion of its Distressed Asset Stabilization Program designed to help as many as 9,000 FHA borrowers avoid foreclosure, MBA NewsLink reported July 19.
 
FHA will be expanding the program in four major metropolitan areas hit hard by the foreclosure crisis — Chicago, Newark, N.J., Phoenix and Tampa, Fla. Acting FHA Commissioner Carol Galante said 3,500 loans would be sold in those cities; Chicago alone will account for 1,500.
 
The program, which has operated on a pilot basis since 2010, sells pools of defaulted mortgages to investors at market-determined prices that generally are lower than the mortgage’s outstanding principal balances. FHA then processes the insurance claims and transfers the loans to the investors, who are required to delay foreclosure at least six months while coming up with alternative solutions for the delinquent borrowers, MBA NewsLink reported.
 
Since the pilot began, 2,100 single-family homes have gone through the program.
 
Galante said the program works because investors, who buy the properties at less than the outstanding principal balance, can still make a return on investment while modifying the loans or by helping the borrower sell the home through a short sale.
 
“Providing the opportunity for the borrowers to potentially stay in their home under a new sustainable mortgage or other meaningful help not only benefits the homeowner but reduces the costs to FHA and ultimately benefits the entire community,” U.S. Housing and Urban Development Secretary Shaun Donovan told MBA NewsLink.
 
Bidding on the properties will continue through September. Investors must be qualified by HUD and have experience in asset management and a track record of successfully helping seriously delinquent borrowers stay in their homes.
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Tennessee County Sues Fannie, Freddie
Mayor William Baird of Campbell County, Tenn., has filed a lawsuit in U.S. District Court against Fannie Mae, Freddie Mac and their conservator the Federal Housing Finance Agency alleging that the government-sponsored enterprises are robbing county coffers of required transfer fees, Mortgage Daily reported July 20.
 
Baird hopes the suit, which he filed July 17, will gain class action status with Campbell County as the lead plaintiff of 95 Tennessee counties. Baird noted that the GSEs now control substantial numbers of foreclosed properties in his county, but they are not paying locally required transfer fees when selling the foreclosed properties and recording the new deed.
 
The fee in Tennessee is 37 cents per $100 of property value or purchase price, much-needed money that helps fill up county coffers. However, under state law, government entities are exempt from paying the fees, and Fannie and Freddie came under government conservatorship in 2008. Baird’s lawsuit is arguing that the GSEs do not qualify for the government entity exemption, Mortgage Daily reported.
 
The lawsuit did not state how much money is at issue.
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Bank of America, Fannie Still Battling over Loan Repurchase Requests
Bank of America told investors July 18 that its ongoing dispute with Fannie Mae over almost $8 billion in mortgage repurchase requests would be resolved, but Fannie would have to choose the method — either settlement or litigation, HousingWire reported.
 
The two entities have disagreed for months over how to handle $7.9 billion in mortgages that Fannie insists the bank should buy back due to alleged faulty loan origination practices. The claims involve mortgages originated in 2006 and 2007. Much of the bank’s troubled mortgage inventory comes from its purchase of Countrywide Financial in 2008.
 
The bank has argued that it should not have to buy back the loans since borrowers made at least 25 payments on them, HousingWire reported.
 
Bank of America’s reserves for repurchases increased to $15.9 billion this year, while overall outstanding claims have risen to $22.7 billion. Repurchase claims from both Fannie and Freddie Mac have reached almost $11 billion.
 
Bruce Thompson, Bank of American’s chief financial officer, told investors that “We expect these claims to grow as the process for ultimate resolution continues to evolve and remains unclear,” HousingWire reported.
 
The bank expects to reduce its inventory of delinquent mortgages by 300,000 in the next 12 months. It already has reduced delinquent inventory by 214,000 mortgages over 2011 figures.
 
At present, Bank of America has more than a million home loans in its portfolio that are at least 60 days delinquent, with plans to transfer servicing for another 15,000 delinquent loans this month.
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Wells Fargo Will Buy Loans from Correspondents
Having closed its wholesale lending channel, Wells Fargo said that it will cease funding loans originated by mortgage brokers but that it will continue its relationship with brokers, National Mortgage News reported July 19.
 
According to National Mortgage News, the nation’s biggest mortgage lender will keep purchasing loans brokered through its correspondent channel.
 
Wells Fargo announced July 12 its decision to depart wholesale lending in connection with a $175 million settlement with the U.S. Department of Justice. The bank was accused of letting its wholesale lending unit steer minority borrowers into high-cost subprime loans.
 
The bank denied the allegations, but voluntarily consented to exit the wholesale business to demonstrate that it is “fully committed to fair and responsible lending,” National Mortgage News reported.
 
However, Wells will continue buying loans from its approved correspondent lenders that fund and close brokered loans in their own names.
 
“Wells Fargo Correspondent continues to provide liquidity in the secondary residential mortgage market and continues to purchase mortgages sourced from third parties in the primary residential mortgage market from eligible, approved mortgage banks, savings banks, community banks and credit unions who are fully accountable for their respective mortgage origination processes,” a Wells Fargo Home Mortgage spokeswoman told National Mortgage News.
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Office Sector Shows Slow but Steady Progress
The office sector in the U.S. continues to experience gradual leasing improvements, with vacancies falling for the seventh consecutive quarter, according to the Second Quarter 2012 U.S. Office Trends Report released July 13 by commercial real estate services provider Cassidy Turley.
 
The report noted that net absorption of U.S. office space in the second quarter increased to 11.1 million square feet, up from 7.8 million square feet the previous quarter, while the office vacancy rate improved 10 basis points to 15.8 percent. However, the construction of new office buildings totaled only 39 million square feet at the end of June, which is two-thirds below the typical rate.
 
“The office sector is simply mirroring the slow trajectory of the economic recovery,” Cassidy Turley’s Chief Economist Kevin Thorpe said in a news release. “It’s far from robust, but given the pullback from the construction industry, even minimal demand is enough to drive vacancy down.”
 
By region, net absorption in the South increased to 7.6 million square feet in the second quarter, up from 2 million square feet the previous quarter; the Northeast rose to 993,000 square feet, up from 768,000 square feet; and the Midwest increased to 779,000 square feet, up from 659,000 square feet. However, net absorption in the West fell to 3.7 million square feet in the second quarter, down from 4.5 million square feet the previous quarter.
 
The vacancy rate in the South fell by 30 basis points to 14.7 percent in the second quarter compared to the previous quarter; the West dropped 20 basis points to 15.4 percent; and the Midwest inched down 10 basis points to 19 percent. However, the vacancy rate in the Northeast rose by 10 basis points to 15.6 percent.
 
The report noted that average asking rents in the U.S. logged in at $21.70 per square foot in the second quarter, up five cents from the previous quarter and up 1.5 percent year-over-year.
 
“The rent growth is still largely concentrated in the Class-A segment of the market,” Thorpe added. “This is quite typical of a recovery cycle. Tenant demand shifts decidedly to high-quality buildings, and then eventually demand spreads to lower-grade properties.”
 
Download Cassidy Turley’s Second Quarter 2012 U.S. Office Trends Report.
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Blackstone Invests in Housing Market, Buys 2,000 Foreclosures
Gambling on a recovery of the U.S. housing market, private-equity firm Blackstone Group LP spent more than $300 million purchasing around 2,000 foreclosed homes that will be turned into rental properties, Reuters reported July 18.
 
“Our bet is over time, vacant homes will fill up and markets will begin to recover,” said Jonathan Gray, senior managing director and global head of real estate. “Our exit will be to sell the individual homes to renters themselves, or there could be a very large market for public housing units.”
 
According to Reuters, Blackstone is one of several hedge funds and private-equity firms that have raised money or intend to raise money for the purchase of foreclosed homes in order to rent them out prior to selling them as the housing market recovers.
 
“There have been a lot of unannounced strategies. There have been few people who have actually raised the capital and are executing today,” Gray stated while addressing the CNBC Institutional Investor Delivering Alpha Conference in Manhattan, Reuters reported.
 
“I think they’ll be a relatively small number of us who can get the scale and have the kind of organization that can work nationally in the major markets,” Gray said, according to Reuters.
 
Other new players in the rental market include asset management company TCW, which specializes in fixed-income securities and manages $128 billion in assets. The firm recently started the TCW Home Place Partners fund as a way for wealthy investors to buy into the “housing turnaround” by investing in foreclosed properties held by banks and government agencies, Reuters reported.
 
Beazer Homes USA, Inc. announced in May the founding of Beazer Pre-Owned Rental Home, Inc., which includes an investor group led and organized by affiliates of the private-equity firm Kohlberg Kravis Roberts & Co.
 
The Beazer fund seeks to acquire, refurbish and lease recently-constructed, previously owned single-family homes on a massive scale in certain markets in the United States.
 
A major obstacle facing those who desire to buy thousands of foreclosed homes is how to manage and maintain them once they take possession.
 
“You have to spend some money to fix it up,” Gray said, Reuters reported. “You have to lease it. The real challenge is the execution and having the team.”
 
Blackstone is interested in collaborating with sizeable apartment operators in the locations it buys homes.
 
“It will end up being very positive for the U.S. economy,” Gray said, Reuters reported. “These homes will get repositioned. People will get affordable housing. I see this as an opportunity to move a fair amount of money. But it won’t be around forever.”
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Record Mortgages Rates Continue, Freddie Hikes Origination Forecast
Once again, both the 30- and 15-year fixed-rate mortgages, as well as the five-year Treasury-indexed adjustable-rate mortgage, hit all-time record lows, Freddie Mac reported in its weekly Primary Mortgage Market Survey released July 19. The report credits the record low rates with fueling housing demand.

The 30-year fixed-rate fell 0.03 percentage points from the previous week to 3.53 percent (down from 4.52 percent a year ago). The 15-year fixed-rate also slipped 0.03 percentage points to 2.83 percent (down from 3.66 percent a year ago). The average 30-year fixed-rate has been below 4 percent in all but one week in 2012, while the average 15-year fixed-rate has been below 3 percent for the past eight consecutive weeks.

The five-year Treasury-indexed adjustable-rate mortgage fell 0.05 percentage points from the previous week to 2.69 percent (down from 3.27 percent a year ago). However, the one-year adjustable-rate remained steady at 2.69 percent (down from 2.97 percent a year ago).
 
These record-low interest rates encouraged Freddie to hike its loan production forecast by $200 billion to $1.65 trillion for 2012.  
 
Freddie’s forecast outshines both Fannie Mae (which forecast $1.34 trillion in loan originations for the year) and the Mortgage Bankers Association (which forecast $1.29 trillion).
 
If Freddie’s expectations prove accurate, 2012 will be a better year for loan origination than 2011 when funding topped $1.45 trillion.

“With little signs of inflation and the Federal Reserve's ‘Operation Twist’ keeping U.S. Treasury bond yields in check, fixed mortgage rates are remaining low and helping to stir the housing market,” Freddie Mac Chief Economist Frank Nothaft said in a news release. “For instance, the 12-month growth rate in the core Consumer Price Index has been in a narrow 2.1 to 2.3 percent band over the past nine months ending in June.”

View Freddie Mac’s weekly Primary Mortgage Market Survey.
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AI Members Named to Tennessee Real Estate Appraisers Commission
Norman E. Hall, MAI, SRA, SRPA, was elected by the Tennessee Real Estate Appraisers Commission as chairman, and Michael Green, MAI, was elected as vice-chairman, the organization announced July 16.
 
Hall and Green were appointed to the board for three-year terms by Governor Bill Haslam in August 2011.
 
Hall is president of Norman Hall & Associates, a real estate appraisal and consulting firm in Brentwood, Tenn. He has held the SRA designation since 1967, the SRPA designation since 1973 and the MAI designation since 1975. He has been active in the Appraisal Institute as chair of the Government Relations Committee of the Greater Tennessee Chapter.
 
Green is president of Green Commercial Realty, a regional commercial brokerage and appraisal firm in Johnson City, Tenn. He has held the MAI designation since 1992, and has been active in the Appraisal Institute as a participant in the Leadership Development and Advisory Council, a national experience reviewer and as admissions chair and board member of the Greater Tennessee Chapter.
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AI Media Coverage Potentially Seen by 1.3 Billion
Media coverage of the Appraisal Institute and its members was potentially seen, read or heard by an audience of more than 1.3 billion in the first half of 2012, resulting in a publicity value of nearly $1 million during the first half of 2012. The latter figure exceeds the value for all of 2011.
 
During the first half of 2012, the Appraisal Institute and its members appeared in 2,115 stories that ran in 899 newspapers, magazines, television and radio stations and online media outlets. This coverage generated 1,359,632,419 impressions (defined as the number of times a story may have been seen, read or heard). The coverage resulted in a publicity value of $984,646 (based on a vendor’s proprietary formula that approximates how much the coverage is worth).
 
The Appraisal Institute and its members regularly appeared in national coverage in the first half of 2012: daily newspapers such as The New York Times, The Wall Street Journal and The Washington Post; national television and radio shows such as NBC’s “Today Show” and C-SPAN2; magazines such as Money and SmartMoney; and online sites including Bloomberg and Fox Business.
 
Appraisal Institute officers, other members and staff addressed topics such as: which home improvements are worth the investment, using distressed sales as comps and working with Designated members of the Appraisal Institute.
 
To view a five-minute highlights video of the Appraisal Institute’s media coverage from the first half of 2012, click here. To download the video, click here. The video can be shown at chapter meetings.
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AI in the News: Members Give First-Time-Buyer Advice on MSN Money
Appraisal Institute members Daniel Fries, SRA, Matt George, SRA, and Alvin “Chip” Wagner, SRA, were prominently featured on MSN Money July 16 in an article highlighting major problems first-time homebuyers should avoid.
 
The story reached a potential audience of nearly 10 million unique monthly online visitors.
 
In the article, Fries said that first-time homebuyers should be particularly cautious of “bargain” homes, explaining that they may come with problems that are expensive to repair or impossible to fix.
 
“Avoid the killer deal, as the chances are good there is some issue that made the other owner walk,” Fries said in the article. “Buying a dog of a house will always be less desirable than the cream puff with a good location.”
 
Also featured in national media coverage this past week were John Bredemeyer, SRA, MSN Real Estate, and William Waltenbaugh, SRA, Reverse Review.

These stories are among recent media coverage included in the “AI in the News” feature on the members-only section of the Appraisal Institute website.

Appraisal Institute members appearing recently in local media coverage include Warren Weathers, SRA, Tampa (Fla.) News and Tampa Bay (Fla.) Business Journal; Katherine Powell Banz, MAI, Portland (Ore.) Business Journal; Ken Flowers, Associate member, Florence (S.C.) Morning News; Thomas Dehn, SRA, Stuart (Fla.) News; and Robert Green, MAI, SRA, and KC Conway, MAI, Daily Journal of Commerce (Portland, Ore.).

See the latest media coverage about the real estate valuation profession, the Appraisal Institute and its members. Media coverage at “AI in the News,” found on the member log-in page of the Appraisal Institute’s website, is updated daily and also includes the latest news releases from the Appraisal Institute.
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