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Borrowers who have received loan modifications on home mortgages are redefaulting at an alarming rate, according to the special inspector general for the Troubled Asset Relief Program, which released its quarterly report to Congress July 24.
Christy Romero, special inspector general for TARP, noted in the report that its programs have cost taxpayers billions of dollars and that the U.S. Department of the Treasury has failed to properly analyze its own data to determine which borrowers were most at risk of foreclosure after receiving a loan modification.
The report noted that 46 percent of homeowners who received assistance through the Home Affordable Modification Program in 2009 have redefaulted, and 38 percent who received loan modifications in 2010 have redefaulted.
Under HAMP, homeowners in default who have loans held by banks or investors can apply for a reduction in monthly payments. In exchange for granting loan modifications, servicers can receive incentives to make borrowing more affordable for distressed homeowners.
In 2009, when the Obama administration unveiled HAMP, the Treasury claimed it would help up to four million borrowers stay out of foreclosure. However, by April 2013 only 865,100 homeowners were active in the program, and 10 percent of them have missed one or two payments. The overall default rate stands at 26 percent.
Romero noted in the report that the Treasury — which extended HAMP through 2015 — must do a better job of monitoring the program. “No servicer has ever paid a penalty for HAMP despite all the misconduct out there. It cannot just be about the carrot — the incentive payments — but must also be about penalties and it's been an ongoing problem that Treasury is really not coming down on servicers for misconduct.” She noted that the Treasury needs to take a “hardline approach,” although it does not have the authority to impose penalties in the same way as a regulatory or law enforcement agency.
The report noted that only 22 percent of TARP funds actually have gone to programs for helping distressed borrowers, and that taxpayers have lost $815 million in incentive payments made through April 30 on more than 163,000 HAMP modifications that eventually redefaulted.
The report also revealed that 91 percent of the TARP funds that were administered through HAMP modifications and that redefaulted were paid to the nation’s top 10 servicers, including Ocwen Loan Servicing, JPMorgan Chase and Bank of America.
“Homeowners who receive a HAMP permanent modification but end up losing their homes to foreclosure or fall out of the TARP program are not being helped to keep their homes as TARP intended, and taxpayers lose the positive impact these funds were to provide for the individual family and community at large,” Romero noted in the report.
Romero said that homeowners who are most vulnerable to redefault are those who received less than a 5 percent reduction in housing expenses, who still are underwater on mortgages or who have subprime credit scores or high debt loads.
Romero recommended that the Treasury conduct an in-depth analysis of the causes of redefaults and said that Treasury must modify HAMP and other TARP housing programs to reduce redefault rates. She also recommended that servicers develop an “early warning system” that allows them to be proactive in reaching out to at-risk borrowers. She said the Treasury should permanently withhold incentives from services who fail to provide borrowers with alternatives to foreclosure, too.
Read the quarterly report to Congress.
The Federal Housing Administration may have lost as much as $1 billion in 2011 because of under-performing programs for real estate-owned properties, according to a report released July 23 by the Government Accountability Office, National Mortgage News reported.
The GAO found that the FHA could have increased its profits by as much as $400 million and decreased its holding costs by $600 million in 2011 alone if it had adopted an REO program similar to that used by Fannie Mae and Freddie Mac.
In producing its report, the GAO analyzed sales of more than 400,000 repossessed homes that the FHA sold between January 2007 and June 2012. During this period, its returns were 4 to 6 percentage points lower than those of government-sponsored enterprises Fannie and Freddie, National Mortgage News reported.
The GSEs averaged 200 days to dispose of REO properties while the FHA took 340 days — 60 percent longer. The GAO reported that the U.S. Department of Veterans Affairs also performed better than the FHA in dealing with REO inventory, National Mortgage News reported.
The report revealed that the FHA and the GSEs use similar strategies to dispose of REO properties, but differ when it comes to tactics that have the potential to improve sales performance. For example, the FHA does not repair its properties to boost their marketability or use multiple sources to set asking prices. Additionally, it does not consistently take into account market conditions when reducing prices.
The GAO also noted that the FHA has not updated its REO manual in two decades. The agency only inspects 2 to 6 percent of its properties annually, whereas Fannie and Freddie inspect 25 to 35 properties a month, National Mortgage News reported.
The report noted that, “Without implementing more effective activities to evaluate contractor performance and ensure compliance with program requirements, FHA's REO properties may continue to remain on the market longer and sell for lower prices than properties held by the enterprises,” National Mortgage News reported.
Federal legislation introduced last year that would prevent local governments from seizing underwater mortgages packaged into private-label residential mortgage-backed securities was reintroduced, Mortgage Daily reported July 22.
Rep. John Campbell, R-Calif., originally introduced the Defending American Taxpayers from Abusive Government Takings Act in September 2012.
The proposed law would amend the charters of Fannie Mae and Freddie Mac to prevent them from guaranteeing or buying loans secured by residential properties in areas where eminent domain has been used to seize mortgages during the last 10 years. It also would amend the National Housing Act to prevent the Federal Housing Administration from insuring such loans and prevent the U.S. Department of Agriculture from making loans in those areas, Mortgage Daily reported.
Campbell noted that local governments have once again started to entertain the idea of using federal taxpayer dollars to seize distressed home loans, although profits would be accrued by private entities.
He said that reintroducing the bill is an attempt to “stop reckless city and county governments from enacting profiteering schemes that seek to cash in on the plight of underwater homeowners through the arbitrary seizure of private home loans,” Mortgage Daily reported.
Campbell added that “These schemes pose a critical threat to recovery of the housing sector, as lenders and investors, which a sustainable housing finance system relies on, would not have any faith in the durability of contracts. Moreover, the savers and retirees who own these mortgages, many of them through their pension funds and 401(k) accounts, would be exposed to serious losses,” Mortgage Daily reported.
The congressman also worried that eminent domain programs could result in cities valuing properties as low as possible in order to increase their own profits while wiping out private lending.
The bill currently is awaiting consideration by the House Committee on Financial Services.
UBS Americas will pay $885 million to settle allegations levied by the Federal Housing Finance Agency that the bank misrepresented mortgage-backed securities it sold at the height of the housing bubble, The Wall Street Journal reported July 22.
Under the terms of the settlement, UBS will pay approximately $415 million to Fannie Mae and $470 million to Freddie Mac to resolve certain claims related to securities sold to the entities between 2004 and 2007.
“The satisfactory resolution of this matter provides greater clarity and certainty in the marketplace and is in line with our responsibility for preserving and conserving Fannie Mae’s and Freddie Mac’s assets on behalf of taxpayers,” Edward DeMarco, FHFA acting director, told the Journal.
UBS is one of several banks that the FHFA has targeted for allegedly selling faulty mortgage-backed securities. This latest settlement follows one the agency reached with Citigroup in May.
Of the 18 suits that the FHFA filed in 2011, three have been settled.
The hotel sector has returned to pre-recession levels, and analysts now share a positive outlook for the lodging industry, MBA NewsLink reported July 24.
The sector’s improvement is the result of operating fundamentals reaching new heights, historically low interest rates and a sustainable economic recovery. The second half of 2013 is expected to be “fruitful” for both sellers and prospective buyers.
“Given the increase in operating profits, hotel investors have a notably more positive outlook than they did one year ago,” Arthur Adler, managing director and CEO Americas of Jones Lang LaSalle’s Hotels & Hospitality Group, told MBA NewsLink. “Hotly contested markets like Los Angeles, New York, Miami, Chicago and Philadelphia exhibit the highest ratio of buyers to sellers, and can expect transactions to heat up in the months ahead.”
About 55 percent of the hotel investors surveyed by Jones Lang LaSalle said they planned to pursue acquisitions over the next six months; 28 percent said they would focus on assets. The frequency of “buy” activity has increased 5 percent compared to six months ago, which suggests a continuous upward trend.
Target cap rates remained steady at an average of 7.6 percent, Adler said. However, Jones Lang LaSalle reported that cap rates are expected to decline slightly during the second half of the year, signifying an uptick in asset values, MBA NewsLink reported.
Leveraged internal rate-of-return requirements decreased, falling 40 basis points below the most recent three-year average. However, recent interest-rate movement is expected to influence investors’ expectations for future returns.
Among surveyed cities, Boston and San Francisco rank as top investment target markets with the strongest expectations for hotel performance. Closely behind were major gateway markets, including Hawaii, Los Angeles, Miami, New York and Seattle.
Adler said that rising corporate and group demand, along with an increase in international visitors — particularly those from China and Brazil — have driven this performance.
“Limited new supply additions across the country will underpin performance expectations in the near-term; however, New York is the exception,” Adler told MBA NewsLink. He said that Manhattan represents the highest new construction pipeline of any major U.S. market, with nearly 3,000 rooms becoming available in 2013. “Despite an increase in new supply, investors still ranked New York among the top in terms of outlook expectations, and expect rapid absorption and continued strong top-line performance.”
Almost 50 percent of appraisers reported that their confidence in the housing market was mildly or moderately strong during the second quarter, according to survey results released July 23 by Overland Park, Kan.-based appraisal management company United States Appraisals.
The level of confidence is slightly lower than what was reported for the first quarter when 54.5 percent of appraisers expressed a mildly or moderately strong outlook. Neutral replies rose to 29.7 percent from 24.8 percent.
“Appraisers tend to focus on the local markets in which they work and are not typically concerned with national numbers or reporting,” Aaron Fowler, president of United States Appraisals said in a news release accompanying the survey. “By polling our nationwide panel of local appraisers, we believe that in the aggregate we receive a solid interpretation of the national marketplace. Overall, it is good to see continued optimism in our appraiser community.”
Appraisers felt more positive toward home values, with 70.7 percent of respondents reporting higher local property values, compared to 65.4 percent reporting higher values during the first quarter. Only 6.6 percent of respondents reported lower local values for the second quarter.
One-third of survey respondents reported a decline in order volume during the second quarter.
An Appraisal Institute report released July 17 noted that appraisers were very optimistic, with 95 percent of residential appraisers confident in the market.
Likewise, the National Association of Home Builders’ most recent survey shows its members’ confidence is the highest since 2006.
See more results from the United States Appraisals’ survey.
Fixed mortgage rates continued to ease this week, Freddie Mac reported July 25 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate declined 0.06 percent since last week to 4.31 percent (up from 3.49 percent a year ago). The 15-year fixed-rate fell 0.02 percent to 3.39 percent (up from 2.80 percent a year ago).
The one-year adjustable-rate mortgage decreased 0.01 percent to 2.65 percent (down from 2.71 percent a year ago). The five-year Treasury-indexed also dropped 0.01 percent to 3.16 percent (up from 2.74 percent a year ago).
“Mortgage rates eased for the second consecutive week which should help to alleviate market concerns of a slowdown in the housing market,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “Thus far, existing home sales for June were the second highest since November 2009 and new home sales were the strongest since May 2008. In addition, the low inventories of homes for purchase are putting upward pressure on house prices.”
View Freddie Mac’s weekly Primary Mortgage Market Survey.
The Appraisal Institute Board of Directors elected J. Scott Robinson, MAI, SRA, of Salisbury, N.C., as 2014 AI vice president at its July 26-27 meeting in Indianapolis.
In other actions, the Board:• Sent to 45-Day Notice proposed amendments to Regulation No. 10, Continuing Education, recommended by the Admissions and Designation Qualifications Committee.• Approved proposed revisions to Guide Note 6, “Consideration of Hazardous Substances in the Appraisal Process,” which had been shared with AI professionals May 28.• Elected members to AI national committees for 2014:o Jim Amorin, MAI, SRA, as chair of the Strategic Planning Committee; James L. Murrett, MAI, SRA, as a member of the Strategic Planning Committee; and Charles T. (Tom) Cowart, MAI, and Charles Mills Jr., MAI, SRA, as members of the Audit Committee.
Robinson has been active in real property appraisal and consulting since 1987, when he joined Robinson Associates, a Salisbury, N.C., firm his father started in the mid 1960s. The firm is a general and residential practice encompassing all types of real property solutions for various clients.
Robinson has been actively involved with the Appraisal Institute since joining as a candidate for SRA in 1987. He has served in all offices for the North Carolina Chapter and has been active at the regional and national levels since 1991. In 2007, he completed a four-year term on the national Board of Directors and was chair of Region V. Robinson has been chair of Residential Experience, chair of Residential Admissions and chair of the Admissions and Designations Qualifications Committee.
He is a senior national screener for residential and general experience domestically and abroad, and is an approved facilitator for the Capstone program. He received the AI President’s Award in 2008 and was named an AI Volunteer of Distinction in 2010.
Robinson received a Bachelor of Arts from Wake Forest University in 1981. He received the SRA designation in 1991 and the MAI designation in 1997. He became a licensed real estate broker in North Carolina in 1989 and has been qualified as an expert witness in numerous courts and jurisdictions.
CNBC and MSNBC contributor Ron Insana, keynote speaker at the 2013 Appraisal Institute Annual Meeting in Indianapolis, told attendees July 23 that he remains bullish on the U.S. economy.
Speaking for 30 minutes without notes before taking questions from the audience, Insana praised Federal Reserve Chairman Ben Bernanke and actions taken by the Fed while criticizing federal government actions such as passage of the Dodd-Frank Act, which he said impeded economic recovery.
Insana spoke on “Politics, Policy and the Economy: What Issues on Capitol Hill Mean for Main Street and Wall Street.” He expressed optimism about the real estate industry and said that he expected mortgage rates to drop again, noting they had already started to do so. He cited the unemployment rate as a key factor.
During AI Connect’s July 25 general session, Mark Linné, MAI, SRA, chief executive officer of ValueScape Analytics; Rene Circ, director of research, industrial, for Property and Portfolio Research (a division of CoStar Group); and Jack Huntress, managing director, residential, at Environmental Data Resources, addressed the future of appraisal data and the crucial role technology plays in running a successful appraisal business.
The panelists outlined trends and advances in technology impacting the data that is important to real estate valuation.
“I think the future is about two things: it’s about data and technology,” Linné told attendees. “It removes road blocks if we (as appraisal professionals) can connect and share with one another.”
The panelists also discussed what the landscape will look like for data companies in the future, what new technological developments may affect real estate, and how valuation professionals should prepare to integrate new technologies and solutions into their practices and services.
Saying he was "thoroughly and unrepentantly optimistic," Appraisal Institute President Richard L. Borges II, MAI, SRA, told AI Annual Meeting attendees in Indianapolis July 23 that “the Appraisal Institute’s greatest days are ahead of us – not behind us.”
Speaking at the 2013 AI Connect’s opening general session, Borges said that the AI Board of Directors has asked the Strategic Planning Committee to investigate a number of ideas that will help the Appraisal Institute not only face competitive challenges today but will enable the organization to become stronger for the future, better serving AI professionals and the public. He noted that SPC is investigating a number of issues that will help determine what AI and the profession will look like in the future.
“When the Board rolls out these new and exciting ideas, they will be part of a complete, strategic package that has the potential to be unique, visionary, far-reaching and game-changing … all while certainly being rooted in the basic values and goals of this organization,” Borges said.
During the event’s July 25 general session, The Appraisal Foundation Board of Trustees Chair Steven G. Elliott, SRA, MRA, told attendees that even as the real estate market continues its slow recovery, the valuation profession still faces numerous challenges, such as market conditions, government intervention, client expectations and many others.
Elliott also took a look into the future to postulate how appraisers will respond to these challenges, and went on to discuss potential opportunities that may exist for appraisers. “One in every three babies born today will live to be 100 (years old). Think of all the construction,” Elliott told attendees.
Elliott also discussed his views on issues such as professional standards, qualifications, designations, education, ethics and methodology practices.
Harry B. Holzhauer, MAI, SRA, SRPA, formerly of Lake Oswego, Ore., posthumously received the Lifetime Achievement Award, Robin C. Amorin, MAI, of Austin, Texas, received the Outstanding Service Award and three individuals received the President’s Award during the Appraisal Institute Annual Meeting on July 25 in Indianapolis.
President’s Award recipients were Roscoe W. “Rocky” Shiplett, MAI, of Charlotte, N.C.; William D. “Otto” Spence, MAI, of Louisville, Ky.; and Sandra K. Adomatis, SRA, of Punta Gorda, Fla.
“It was an honor to recognize these accomplished professionals, who have played key roles in the success and advancement of the Appraisal Institute,” said Appraisal Institute President Richard L. Borges II, MAI, SRA.
The Lifetime Achievement Award is presented to an Appraisal Institute professional who demonstrates high ethical standards; has volunteered several years of service and has contributed to the Appraisal Institute on the international, national, regional and/or chapter level; has served his or her community; and has contributed to the appraisal profession for at least 20 years.
Holzhauer served the valuation profession for 35 years. He was qualified as an expert witness in several California federal and superior courts, and the Los Angeles and Orange County Assessment Appeals Boards. In addition he served as an arbitrator on numerous occasions. For 25 years, his independent appraisal business served the real estate and banking industries, mortgage bankers, city governments, state agencies, school districts, attorneys and developers. He taught beginning and advanced courses for professional organizations and universities and colleges since 1983. He also had been active in legislative matters, especially licensing and appraisal standards issues on behalf of the Appraisal Institute and its predecessor organizations since 1985.
The Outstanding Service Award is presented to an Appraisal Institute professional who contributed ideas, service hours and dedication to ensure a program or effort is implemented at either the chapter, region, national or international level; is instrumental in the success of the program or effort, which must be far enough along to measure and provide proof of success; and the program or effort must be beneficial to chapters, regions, or national or international professionals.
Known for her efforts in helping develop the next generation of valuation professionals, Amorin has supported the Appraisal Institute’s Leadership Development and Advisory Council through three years of participation, one year as a discussion leader, one year as vice chair and one year as chair. She has supported the organization through her work with LDAC, as well as service on many committees and workgroups. She has been tireless in her efforts for LDAC from fundraising to speaking out to encourage attendance, leading by example and supporting the teaching of leadership skills to AI professionals.
The President’s Award is presented to an Appraisal Institute professional who is committed to the organization; currently engaged in its activities; an effective spokesperson; a representative at all times; and in touch with both the needs of other professionals and the changes that the organization must help its individuals to meet.
Shiplett is serving on the Appraisal Institute’s Board of Directors for the second time, is a course developer and instructor and has served AI’s North Carolina Chapter for more than 30 years. Spence is serving on AI’s Finance Committee, has served the organization’s Bluegrass Chapter in numerous capacities including two terms as president, was inducted into the Chicago Chapter’s Instructor Hall of Fame and has assisted many individuals seeking AI designations. Adomatis has played a key role in establishing AI as a leader in green valuation, making a significant contribution to the development of the Residential Green and Energy Efficient Addendum and the Valuation of Sustainable Buildings Professional Development Program.
The Appraisal Institute was ahead of budget in the first half of 2013, reported AI Vice President M. Lance Coyle, MAI, SRA, who serves as the organization’s Finance Committee chair. The announcement came as the Appraisal Institute conducted its annual membership meeting July 26 in Indianapolis.
Members heard that the Appraisal Institute showed a net surplus of $790,000 as of June 30. That amount is $861,000 ahead of budget.
The Appraisal Institute’s annual membership meeting was held in accordance with the Illinois General Not For Profit Corporation Act of 1986. Based in Chicago, AI is registered as a nonprofit organization in Illinois.