Treasury Secretary Henry Paulson, Jr., and Federal Board Chair Ben Bernanke urged Congress to pass a $700 billion bailout Tuesday, warning that without it there would be dire consequences for the nation’s economy. A main component of the plan is labeled the Troubled Asset Relief Program, in which the government will relieve lenders of illiquid mortgage securities. The pair pitched TARP before the Senate Banking Committee on Tuesday and met with the House Financial Services Committee Wednesday, the results of which were not known at press time. The Appraisal Institute spearheaded an industry response Wednesday, in a letter to the pair, as well as other key members of Congress and federal agency officials.

"If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," Bernanke said. Paulson stated that the proposal is the “single most effective thing we can do to help homeowners, the American people and stimulate our economy.” The proposal would give the government broad power to buy up virtually any kind of illiquid asset, including credit card debt or car loans, and financial institutions to stabilize the economy. By removing those debts off their books, financial institutions would be more inclined to lend, they reasoned. The proposal also calls for layers of oversight, including an emergency board consisting of two congressional appointees and an inspector general appointed by the president.

Congress is expected to vote in the next several days on the proposal. In the meantime, both the House and the Senate are in the process of working through changes to the proposal. One of the major sticking points as of Wednesday, was a bipartisan disagreement over whether to empower bankruptcy judges to readjust mortgage rates. House Republican and Democratic leadership sources say the bankruptcy court proposal has emerged as the most difficult difference to resolve in negotiations with the administration, with Republicans derisively calling it a cram-down provision.

For the work-in-progress from the House, visit www.house.gov/apps/list/press/financialsvcs_dem/press092308.shtml, and for a summary of changes from the Senate, by Sen. Christopher Dodd, D-Conn., visit http://banking.senate.gov/public/_files/SummaryDoddproposal92208.pdf

As the House and the Senate work through proposed changes to the newly proposed Troubled Asset Relief Program, in which the government will relieve lenders of illiquid mortgage securities, potentially to the tune of $700 billion, the Appraisal Institute has encouraged policymakers to include valuation-related language in the massive bill, as well as bring to the fore the many valuation-related issues involved. The current drafts of the TARP program do not adequately address such critical issues of valuation, according to a September 24 letter the organization wrote to Treasury Secretary Henry Paulson, Jr., and Federal Board Chair Ben Bernanke.

“Virtually every level, including the purchase and management of assets, requires specialized real estate appraisal expertise to promote the protection of taxpayers and the public interest,” said Bill Garber, director of government relations at the Appraisal Institute. “However, the current proposal pending before Congress does not sufficiently address valuation concerns, an issue in which the consumers and businesses in this country need restored confidence.” 

The Appraisal Institute was joined by the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers in its September 24 letter.

The appraisal groups provided several suggestions to protect taxpayers, including:

• Establishing an executive-level chief appraiser to create appraiser qualification criteria at the Federal Deposit Insurance Corporation.

• Conducting verifiable portfolio analysis by qualified, local appraisers to increase confidence levels in the current market. .
• Protect neighborhood property values by requiring the use of professional, qualified real estate appraisers that adhere to generally accepted appraisal standards, to conduct the valuation of such property.

“The network of appraisal organizations stand ready to assist the Treasury, FDIC, Congress and others involved in crafting this critical program to provide accurate valuations of properties used at all levels,” added Garber. “The solution to the current crisis requires massive mortgage renegotiations, and we strongly believe that expert advice at the street level can restore stability in the mortgage market and build a foundation to turn the tide for other financials.”

For the full comment letter, visit www.appraisalinstitute.org/newsadvocacy/downloads/ltrs_tstmny/2008/AI-ASA-ASFMRA-NAIFAonTARP-Final.pdf

Sen. Christopher Bond, R-Mo., has proposed a “mortgage origination commission” that would promote financial consumer literacy, provide homeowner counseling and promote transparency in the loan process by reforming the Real Estate Settlement Procedures Act. Bond signaled his intentions in a recent letter to Treasury Secretary Henry Paulson, Jr., Federal Board Chair Ben Bernanke and Securities and Exchange Commission Chair Christopher Cox asking for their support.

In his letter, Bond stressed that while the media focuses on the struggles of Wall Street, his concern is for American families that are anxious about their savings, retirement, assets and pensions. According to Bond, the commission would be responsible for re-examining housing policy so that the benefits of homeownership are in alignment with its risks and costs. Bond will introduce legislation in the near future to establish the commission.

An appraisal of Lehman Brothers Holdings Inc.’s real estate assets has resulted in a settlement of over $40 million less than expected. On September 20, a U.S. bankruptcy judge approved a revised version of British bank Barclays Plc's deal to purchase the core U.S. business of Lehman Brothers Holdings Inc. Included in the revised purchase agreement was real estate totaling $1.29 billion, according to Lehman's lawyer Harvey Miller. The real estate components of the deal include $960 million for Lehman's New York headquarters and $330 million for two New Jersey data centers. Miller said Lehman's original estimate valued its headquarters at $1.02 billion but an appraisal last week from CB Richard Ellis valued it at $900 million.

In a seven-hour Manhattan court hearing that started on September 19 and lasted past midnight, U.S. Bankruptcy Judge James Peck approved the sale, saying he had found no better alternative for the assets Lehman sought to sell. "I have to approve this transaction because it is the only available transaction," he said.

On September 16, Barclays agreed to buy Lehman's North American investment banking and capital markets businesses for about $1.75 billion after Lehman filed the largest U.S. bankruptcy case in history. In the revised deal, Barclays would absorb about $47.4 billion in securities and assume $45.5 billion in trading liabilities, attorneys said. The original deal called for $72 billion in securities and $68 billion in trading liabilities.

In response to the recent hurricanes in Texas, Louisiana and Mississippi that have impacted many Appraisal Institute members and other appraisers, the Appraisal Institute Relief Foundation has issued a call for applications for assistance. Through its Relief Foundation, the Appraisal Institute offers financial assistance to victims of such disasters to aid in their recovery.

Members and employees of the Appraisal Institute and those who have made meaningful contributions to the appraisal industry are eligible to receive assistance. To apply, fill out an application available at www.appraisalinstitute.org/about/AIRF/.

The letter also solicited tax-deductible contributions to the Foundation. Donations and completed applications for financial assistance can be sent to: Appraisal Institute Relief Foundation; c/o Charlie Lee; Appraisal Institute; 550 W. Van Buren Street, Suite 1000; Chicago, IL  60607. Applications can also be e-mailed to relieffoundation@appraisalinstitute.org.

The AIRF was formed in 2005 in the wake of Hurricane Katrina.  To date, the AIRF has received approximately $273,000 in chapter, individual member and Appraisal Institute employee contributions, and has disbursed approximately $73,000 to 44 individuals. Funds received by the AIRF are allocated directly to victims requiring assistance, with the exception of marginal administrative costs, which have been limited to required financial accounting services and tax obligations.

For more information about AIRF, visit www.appraisalinstitute.org/about/AIRF/.

Other proposals relate to a requirement to attend at least 200 class hours for SRA membership; an equivalency for College Degree Requirement for SRA Membership; and continuing education requirements for associate members.

Members can download a summary of the proposed amendments, as well as the full text of such amendments, via the “My Appraisal Institute” page of the Appraisal Institute’s Web site at www.appraisalinstitute.org. To access, members should enter their username and password on the home page and then click on the link underneath “News and Reminders.” The summary and full text is also available upon request to the National Office, at 312-335-4408.

Members who have any comments on the proposed changes, should contact their elected Directors and/or e-mail comments to 45daynotice@appraisalinstitute.org. Comments sent to this e-mail address will be compiled for distribution to the Board of Directors prior to the Board meeting.

The Appraisal Institute’s latest podcast, “Appraising in Difficult Market Conditions,” features a discussion about appraising in today’s difficult market conditions and the many challenges they pose to appraisers.  Appraisal Institute instructors Mark R. Rattermann, MAI, SRA, and Mark V. Smeltzer, SRA, share their insight and offer guidance on this topic. Discussions encompass completing appraisal work in markets where property values are declining and appraising properties that are in, or entering, foreclosure.

“Appraising in Difficult Market Conditions” is the latest in the Appraisal Institute’s AppraiserCAST series of podcasts that tap the expertise of Appraisal Institute members, who share their knowledge of and passion for the profession. The podcasts are online audio programs that can be downloaded to personal computers or portable devices such as the Apple iPod and other MP3 players and can then be accessed and listened to at one’s leisure.

Past episodes featured updates on the Home Valuation Code of Conduct; Valuation for Financial Reporting; and green building; as well as tips on contracting government work and expanding your career horizons.

To download any of the AppraiserCASTs, visit www.appraisalinstitute.org/profession/podcast.aspx.  

On October 6, Appraisal Institute members searching the Lum Library’s online catalog will be greeted with a new interface and functionality. The two systems that make up the current catalog have been merged into one user-friendly, easy to navigate, and intuitive catalog, according to Library Director Eric Goodman. New features include icons to identify the type of material: book, article, paper, power point presentation, multimedia and InfoExchange Ads. Appraiser News Online searchability is being added in the coming weeks.

External resources are easily found on the catalog’s home page which includes forms to request property data information. An Internet Resources section has been created and is constantly updated. The new online catalog has been made possible by the Appraisal Institute Education Trust.

To access the catalog, visit www.appraisalinstitute.org/profession/lumlibry.aspx.

The negative impacts of the coming United States recession on the coastal real estate markets in Mexico will depend on the characteristics of the specific market, according to Bruce D. Greenberg, MAI, SRA.  The geographic and financial demographics of the buyers, and the price points and amenities offered by the developers play a large role in the success of the market, he said, adding that, “Developers that adapt to the current market dynamics and accept the nature of the downturn will be able to succeed with projects throughout the duration of the U.S. downturn.”

His remarks came in a September 7 speech at the American International Real Estate Expo & Conference (AIREEC). The presentation spoke to the stability of Mexican markets, especially tourism, the internalization of the Mexican financial sector, and second-home buyers’ ability to purchase real estate in Mexico during the current downturn of the U.S. economy. 

Greenburg, founder and President of Valuaciones Montaña Verde SA de CV, will speak at numerous upcoming events: the Congreso Nacional AMPI in Cancun, Mexico; Resort Development in Carlsbad, Calif.; and two Urban Land Institute events: their annual conference in Mexico City and their Latin American Conference and Fall Meeting in Miami.

The Appraisal Institute has also delivered some international presentations in recent weeks, including the keynote speech for the 24^th Pan Pacific Congress by President R. Wayne Pugh, MAI. In the September 23 speech, Pugh addressed preparing for the future of the profession through cooperation with international organizations and upholding ethics on a global scale.  In July 2008, AI representatives attended the FECISVAL conference in Mexico, with whom the Appraisal Institute is planning a joint conference in 2009.

For the first time since the 1990-1991 recession, occupied retail space in major U.S. markets is expected to decline this year, falling by 1.2 million square feet, projects Property & Portfolio Research. Overbuilding, along with the darkening economy and slowing consumer spending, has seen some big retailers curtailing expansion and closing stores, leading experts to say that the current high occupancy rates at malls and strip centers may not return for years.

According to Property & Portfolio Research Inc. of Boston, developers have built one billion square feet of retail space in the 54 largest U.S. markets since the start of 2000, 25 percent more than what they built during the same period of the 1990s. In 2007, occupied space grew nearly 61 million square feet, the firm says. Retailers like Wal-Mart Stores Inc., Home Depot Inc. and Starbucks Corp. helped drive the building boom.  A sign of the times, Home Depot announced it would close 15 unprofitable stores and cancel 50 proposed ones earlier this year.

Green Street Advisors, a real-estate research firm, says 13 strip shopping centers under development have been canceled this year and 90 others have been delayed by the seven shopping-center developers it monitors.  

Shopping-center owners with a hefty focus on development are compensating for the construction slowdown by trying to raise rents, sell older centers and shift development abroad.  David Simon, chairman and chief executive of Simon Property Group Inc., the largest U.S. mall owner with 323 malls, sees "a decade of little new development" and a shakeout. "There were a lot of projects that shouldn't have been built" in recent years, he said.

Retailers, however, are benefiting from the building boom.  As a result, they are experiencing cheaper rents, shorter lease terms and larger allowances from landlords for outfitting stores. This year, the rents in new lease signings are 10.4 percent lower on average than the asking price, says market researcher Reis Inc. of New York.

A standard designed to support the exchange of condensed summaries of lease documents between landlords, tenants, brokers, leasors, portfolio managers and other stakeholders was published September 16. The Open Standards Consortium for Real Estate, the leading standards development organization for the real estate industry, published the Lease Abstract Exchange Standard Version 1.0 to enhance accuracy and speed of data exchange, provide a universal data format for exporting and importing data to and from different software systems, and reduce software capital expenses & integration requirements, according to a release. OSCRE also aimed to support single original entry and reuse of accurate data and increased productivity for accounting, property and facilities management and work orders, a spokesperson said.

OSCRE Standards are initiated and developed by member organizations looking to improve the high value and high cost business processes. The Appraisal Institute is a member organization.

The first phase of the standard is intended for use in United States commercial settings with incremental updates planned in phases to adapt the standard for use in other countries and regions. Due to strong interest by the business community, software vendors have begun implementing the Lease Abstract Standard into their products to meet the demand to do more with less, faster and with increased quality.

For more information on OSCRE, or to download any of their standards, visit www.oscre.org.

Sales history for new construction, appraiser coercion, and confidentiality and review appraisers were the main topics addressed by the Appraisal Standards Board in its September USPAP Q&A.

The ASB said that in the case of a site with newly constructed improvements, all prior sales history of the site should be analyzed, per Standards Rule 1-5(b). To be consistent with the purpose of USPAP and intent of SR 1-5, an appraiser is required to analyze all prior sales that include the subject property, the ASB said.

The ASB further ruled that while USPAP does not require an appraiser to certify in his or her appraisal report that he or she has not been coerced to provide predetermined results, such a statement would be consistent with the requirements of USPAP Standards Rule 2-3, which requires the appraiser to certify that his or her “engagement in this assignment was not contingent upon developing or reporting predetermined results.”

In terms of the Confidentiality section of the Ethics Rule, the ASB said that appraisers are allowed to discuss an appraisal with a review appraiser as long as authorization from the client is received. The Confidentiality section of the Ethics Rule states that “an appraiser must protect the confidential nature of the appraiser-client relationship.” Appraisers may disclose confidential information or assignment results relating to an assignment to the client and persons specifically authorized by the client.

Also addressed in the September Q&A was inclusion of state appraisal licenses in appraisal reports.  USPAP does not directly address the issues of appraiser licensing, however, some licensing jurisdictions have laws that govern the circumstances under which a licensee may provide a copy of his or her license.

For the full Q&A, visit www.appraisalfoundation.org/s_appraisal/bin.asp?CID=12&DID=1246&DOC=FILE.PDF.

New York City officials may have manipulated the new New York Yankee’s stadium’s assessed value by 10 times its market value to obtain an IRS tax exemption, according to a charge by New York State Assemblyman Richard Brodsky. At a September 18 hearing, the Domestic Policy Subcommittee looked at the financing of the new $1.3 billion Yankee Stadium in New York City. According to Brodsky, an outspoken critic of the stadium’s financing, the city used comparable land values in Manhattan rather than the South Bronx to determine the assessed value of the property. Rep. Dennis Kucinich, D-Ohio, who heads the House Oversight and Government Reform Subcommittee, echoed Brodsky’s views stating that he found "waste and abuse of public dollars" in the financing of the stadium. Brodsky testified to the congressional panel that between $550 million to $850 million of taxpayer money has been earmarked for this project.

New York's mayor Michael Bloomberg, who did not attend the hearing, stated earlier that the stadium is "a great project."

"We want these kinds of facilities here. Having new stadiums is as important as other things in terms of, not just the spirit for the people who live here, but our economy," Bloomberg said. Kucinich disagrees, "In the case of the new Yankee Stadium, not only have we found waste and abuse of public dollars subsidizing a project that is for the exclusive benefit of a private entity, the Yankees, but also we have discovered serious questions about the accuracy of certain representations made by the City of New York to the federal government."

According to Kucinich, the congressional panel found "substantial evidence of improprieties and possible fraud by the financial architects of the new Yankee Stadium." No one from the either the city or the Yankees spoke at the hearing. Yankees representatives have agreed to testify at a later hearing to be held October 7. Discussions with New York City officials regarding their appearance before the subcommittee are ongoing.

Realizing the importance of keeping its members up-to-date on new valuation techniques to measure value in the current economic environment, the Metro New Jersey Chapter of the Appraisal Institute recently conducted the popular seminar, Analyzing Distressed Real Estate. The seminar, which took place on September 12 at Rutgers University Inn, was led by James MacCrate, MAI, SRA, and was attend by real estate brokers, property owners and property appraisers. The four-hour seminar is designed to benefit real estate professionals, appraisers and brokers in their review and analysis of distressed real estate. The seminar also examines the relationship between entrepreneurial incentive, debt, investment risk and value in today's real estate market.

“Major downturns have occurred in the last 40 years when capital is difficult and/or costly to obtain and/or when over-building has occurred. As businesses go through recessions, contractions, and revivals – which lead into the next expansion cycle – real estate follows a similar sequence of changes. The durations of the real estate cycles vary," MacCrate stated. "As a result of this decline in real estate values, it is less likely that baby boomers, who drove the real estate market for the last 35 years and are now reaching retirement age, will continue to invest in real estate."

MacCrate will also be presenting this seminar for the Connecticut Chapter of the Appraisal Institute on October 13.  MacCrate, along with Ted Anglyn, MAI, Brent Tozzer, MAI, and Jeffrey Miller, MAI, CCIM, are currently updating the seminar and extending it to seven hours. The revised program will provide critical insight on how capital markets affect distressed real estate and will address why market analysis is imperative to effectively analyzing these type properties. Key additions will include how to value a failed subdivision and how a land-residual technique can aid appraisers and analysts in forecasting value on vacant land. The release date for this update is still to be determined.

A surge in the overnight London Interbank Offered Rate (LIBOR), to 6.44 percent September 16, may create a further downward spiral in the already struggling U.S. housing market. In addition, shorter-term gains in LIBOR rates may indicate future increases as risk continues to grow and lenders demand higher compensation. According to the British Bankers’ Association, the rate surged 3.33 percentage points, its biggest jump in at least seven years.

Daily LIBOR rates are used to calculate monthly adjusting mortgage resets, including some option ARMs. Approximately six million U.S. mortgages consisting mostly of subprime and prime adjustable rate mortgages are linked to LIBOR. Because many U.S. mortgages linked to LIBOR do not limit the size of a loan’s first reset, a monthly mortgage payment could double or even triple.

Home prices in the U.S. will most likely continue to decrease through 2010, according to a statement by Freddie Mac on September 15. “If the LIBOR market seizes up and stays that way, it’s going to complicate everything,” said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. “What you are seeing is the unwinding of the financial system as we know it.”

In a September 12 statement, the newly formed Federal Housing Finance Agency stated that business, for both single-family and multifamily, will continue as usual at the government-sponsored enterprises Fannie Mae and Freddie Mac during their conservatorship, which began September 7. The FHFA recognized the importance of the LIHTC (low-income housing tax credit) and liquidity facilities for remarketed mortgage revenue bonds for a healthy secondary market and housing affordability. As conservator, FHFA said it expects each Enterprise to continue underwriting and financing sound multifamily business. “We also do not expect either company to liquidate its portfolio of LIHTC or mortgage-revenue bonds,” the newly formed agency said.

Just a little over a week after its creation as an independent regulator, the FHFA finds itself in direct control of mortgage finance giants Fannie Mae and Freddie Mac and the $5.4 trillion in home loans they own or guarantee. The new agency and its approximately 400 employees already had a substantial transition agenda that included combining the tasks of its predecessor, the Office of Housing Enterprise Oversight, with other oversight duties that had been the responsibility of Department of Housing and Urban Development and the Federal Housing Finance Board.

FHFA’s September 7 Statement Regarding Contracts of Enterprises in Conservatorship (available at www.ofheo.gov) applies equally to the single-family and multifamily businesses. It states that the conservatorship does not affect existing contracts, nor the authority of the Enterprises to enter into new contracts, nor their enforceability. The FHFA said it will only intervene when there is a question of unsafe and unsound business practice that would have a negative impact on an Enterprise's financial position and is outside of the normal course of business. “Under these unusual circumstances, both Enterprises would first seek advice and guidance from FHFA before proceeding further” the agency said.

Added to the new mission were several tasks mandated by new housing laws such as writing new portfolio standards and risked-based capital standards for the government-sponsored enterprises. Also on the FHFA agenda are new capital requirements for the 12 Federal Home Loan Banks, previously overseen by the finance board.

"I think they will simply have to prioritize during the coming year. Obviously, the agency's first task is to make sure the crisis at Fannie Mae and Freddie Mac is stabilized, then to ensure that all the proper changes take place at the two companies," said former OFHEO Director Armando Falcon.

The conservatorship announced September 7 gives the FHFA control over financial operations of the two GSEs, which have approximately 10,000 employees. The agency has assumed the power of the board, senior management and shareholders of the GSEs and halted dividend payments and all of the firms' lobbying activities.  FHFA spokesman Stephanie Mullen said at least 60 examiners are in place at Fannie and Freddie and that the agency is receiving additional oversight assistance from the Treasury Department. FHFA Director James Lockhart and Treasury Secretary Henry Paulson have visited Fannie's headquarters in Washington and Freddie's headquarters in McLean, Va., to speak with employees.

The recent government seizure of Fannie Mae and Freddie Mac has many national and industry leaders talking about the potential repercussions of the Washington takeover. Among those most concerned about the federal oversight of the government-sponsored enterprises are Democratic Senators and community bankers.

In a September 11 letter, a group of Democratic Senators led by Sen. Charles Schumer, D-N.Y, called on Federal Housing Finance Agency Director James Lockhart to declare an immediate and temporary foreclosure freeze on all loans owned by Fannie and Freddie.

The letter, which was signed by Schumer, Robert Menendez, D-N.J., Bob Casey, D-Pa., and Sherrod Brown, D-Ohio, requested “a temporary moratorium of at least 90 days on all impending foreclosure proceedings on whole mortgages held within each firm's portfolio, and to conduct an immediate and thorough review of those mortgages.”  According to their letter, the senators believe a temporary foreclosure moratorium would alleviate some of the financial pressures felt by homeowners with falling property values.

The letter notes there has been a precedent for the new housing agency to undertake an aggressive loan workout program. Under supervision of the Federal Deposit Insurance Corporation, an effort is underway to modify mortgage loans that were owned or serviced by failed lender IndyMac.

During the 2008 sessions of state legislatures, a number of new laws were enacted that impact the appraisal industry. There were numerous proposals to modify state licensing and certification criteria to bring them in line with the Financial Institutions Reform, Recovery, and Enforcement Act and the standards of the Appraiser Qualifications Board of the Appraisal Foundation. In addition, four states – Connecticut, Kentucky, Missouri, and New York – enacted new appraiser independence laws.

“The new independence laws are consistent with Appraisal Institute policy that calls for all parties involved in appraisal ordering and management to be subject to independence requirements,” said Appraisal Institute Director of Government and External Relations Bill Garber. “We have sought greater oversight and enforcement in this regard at both the federal and state levels.”

The issue of broker price opinions was also considered in several states, with two states – Kansas and Washington – enacting new laws that permit real estate professionals to perform BPO services. Other laws of significance to the appraisal industry were enacted in Alabama and Colorado.

When the state legislatures reconvene in early 2009, it is probable that these issues will be considered in other states, and action will be required on the part of the appraisal industry, according to Scott DiBiasio, Manager of State and Industry Affairs for the Appraisal Institute.

“The AI stands ready to assist chapters when legislation dealing with these, and any other subjects of importance to the appraisal profession, are considered,” DiBiaso said.

For more information on each of the major pieces of legislation that were enacted in 2008 go to www.appraisalinstitute.org/newsadvocacy/downloads/2008StateLegislativeWrapup.pdf.

After substantial negotiations between federal officials and Wall Street executives, in an effort to stave off a downward spiral in the markets, Bank of America has agreed to buy Merrill Lynch; the federal government has extended a loan to AIG to prevent the insurer from filing for bankruptcy; and Barclays purchased Lehman Brothers after it filed for bankruptcy on September 15. It remains unclear how the markets will react by these events and whether other financial institutions will falter.

Bank of America has offered to purchase Merrill Lynch for $50 billion. The stock-based purchase will create a global financial giant involved in everything from fixed-income trading to stock underwriting to credit card lending. “Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,” Bank of America Chairman and Chief Executive Officer Ken Lewis said. “Together, our companies are more valuable because of the synergies in our businesses.” As part of the deal, Merrill’s 15,000 brokers will merge with Bank of America’s smaller group of financial advisors. The new entity would rival Citigroup, the largest U.S. bank in terms of assets.

To prevent AIG from filing for bankruptcy, the Federal Reserve intervened on September 16 by providing the privately held company with a two-year $85 billion emergency loan after losing billions of dollars resulting from the deterioration in the mortgage and credit markets. In exchange, the government will get an 80 percent stake in the world’s largest insurer and have the right to remove senior management. Under the deal, AIG will repay the money in full with proceeds from the sale of some of its assets. “Policy holders will be protected, jobs will be saved,” commented New York Gov. David Paterson. The government opted for the highly unusual corporate rescue to prevent further instability from occurring through the nation’s already-stressed financial system.

A major concern during the meetings was to avert a rapid liquidation of Lehman Brothers, which has been hit hard by the credit crisis and falling real estate values. After filing for bankruptcy protection on September 15, Barclays, Britain’s third-largest bank, purchased the 158-year-old financial institution’s North American investment banking and trading operations for the cut-rate price of $250 million.

In light of the current credit crisis, the Federal Reserve has announced new initiatives to expand emergency loan programs. According to Fed Chairman Ben Bernanke, the central bank is broadening the types of collateral that financial institutions can use to obtain emergency loans. They’ve agreed to set up a $70 billion loan pool that banks, brokerages and other financial companies can access if necessary.

As the credit market continues to tighten, potential home buyers are struggling to obtain financing. As a result, many buyers are turning to cash. “Cash is king right now,” said Jack McCabe, a Florida real estate analyst. “To get a loan these days you have to have really excellent credit, a minimum 700 FICO score; some even want 720 or 740.” Over the past year, Florida real estate companies have been experiencing an increase in cash transactions. “Cash buyers are definitely playing a bigger part in what is a shrunken marketplace,” McCabe said.

According to Budge Huskey, southeast region executive vice president at NRT LLC, one of the largest residential real estate brokerages in the nation, the credit crunch has been particularly hard in Florida. NRT’s cash transactions increased from only 25 percent in August 2007 to nearly 40 percent, he said. “Is that because everyone suddenly has more cash? No, I don’t think so,” Huskey said. “It’s because individuals who would have been buyers were unable to obtain a mortgage. They were effectively removed from the market.”

Michael Saunders & Co. spokesperson Tom Heatherman echoes Huskey’s views. From January to August 2007, 38.5 percent of Saunders’ sales involved buyers paying cash. However, between the same period this year, 54.5 percent of transactions involved cash.” The tightening of the credit market is certainly a factor,” Heatherman said. “We’re talking about being up almost 20 percentage points this year versus last year, so the market is obviously at work here.”

The upper end of the real estate market has historically involved more cash purchases. According to Steve Bailey, vice president of Premier Properties of Southwest Florida, the high-end market is different when it comes to cash. The majority of his firm’s luxury transactions do not involve a mortgage. “At those higher price points, we have 70 or 75 percent of our buyers using cash,” Bailey said. However, although transactions may be done with cash, it does not mean the buyer is not borrowing from another source. “They can be tapping into a margin account, or a personal trust, or any number of other options people on that level frequently have available to them,” Bailey noted. Because of this, it can be difficult to put a figure on how many deals are truly conducted without any borrowing.

In light of the recent mandate by Congress that Federal Housing Administration appraisers demonstrate verifiable education on FHA appraisal requirements, the demand for FHA education is increasing, and FHA appraisers across the country are reporting that their percentage of FHA business is rising. Because it is generally recognized that FHA business will continue to grow exponentially, the Appraisal Institute is encouraging its designated members who have FHA experience and education, make themselves more marketable by including this information in their Member Profile. 

The Appraisal Institute’s Find an Appraiser function pulls the information from those profiles, so when users search for FHA appraisers, designated members who have filled out their profile accordingly will be separated from those without FHA experience. The new search function will display names randomly, as opposed to alphabetically, which is how the former version displayed results. All search results are “re-randomized” every 20 minutes to give all members equal opportunity to appear at the beginning of the listing. 

Designated members can complete or update their profile by following these steps:

1.     Log in with your username and password and go to the “My Appraisal Institute” section

2.     Click on the “My Member Profile” link that appears in the top left-hand corner of the “My Appraisal Institute” menu

3.     Click on the “Property Types and Subcategories” link; click on “Residential”; and then select “FHA” to indicate your FHA-related expertise.

For those with limited or no FHA appraising experience, the Appraisal Institute can help. The seminar Introduction to FHA Appraising is available in online and classroom format. For more information, visit http://www.appraisalinstitute.org/education/seminar_descrb/Default.aspx?sem_nbr=806&key_type=SO.

The Appraisal Institute will offer its one-day seminar, An Introduction to Valuing Green Buildings, in conjunction with Greenbuild, the U.S. Green Building Council Conference, November 18. Geared toward those who want to learn long-term cost-benefit analysis and the implication for the building valuation process, the seminar has been approved by the U.S. Green Building Council Education Provider Program.

The seminar explores the history of the “green” building movement in the U.S. such as design principles, cost-benefit analysis and the implications for the valuation process, including how buildings are analyzed and valued for investment purposes. At the end of the seminar, participants will be able to:

·         Identify the relevant components of a sustainable property.

·         Discover green buildings resources.

·         Evaluate construction costs in the context of long-term benefit, capital and operating costs, and relative to net income from operations and reversion.

·         Analyze the relevance of green features in the marketplace.

·         Assess market and investment risks relative to potential rewards.

·         Identify who pays the costs and who receives the benefits for the sustainable elements incorporated in green construction.

·         Provide a competent and reliable estimate of market value in the context of available data.

 Each year, Greenbuild offers a wide selection of USGBC LEED (Leadership in Energy & Envi­ronmental Design) workshops taught by highly qualified LEED Faculty™ and industry experts before and after the conference education ses­sions. For workshop descriptions, visit www.greenbuildexpo.org/Program/leed_workshops.html.

Greenbuild itself will take place November 19-21 at the Boston Convention and Exhibition Center at 415 Summer Street in South Boston. The Appraisal Institute course will be offered November 18 from 8:30 a.m. to 5 p.m. at a cost of $495. While workshop attendees are not required to sign up for the conference, to register for the workshops, attendees must go through the normal conference registration. To do so, visit www.greenbuildexpo.org/Register.

For more information on Greenbuild, visit www.greenbuildexpo.org/Program/.

Appraisers registering for any of the three newly packaged online education offerings, will save 15 percent off the individual course prices. The price discount is applicable for the Appraisal Institute’s 75-Hour Appraiser Trainee Licensing Package; 75-Hour Licensed Residential Appraiser Package Upgrade; and 150-Hour Licensed Residential Appraiser Package. These online packages are geared toward students looking to begin or continue their appraisal careers.

The 75-Hour Appraiser Trainee Licensing Package caters to anyone thinking of starting a career as a real property appraiser. It includes the courses 30-Hour Basic Appraisal Principles, 30-Hour Basic Appraisal Procedures and 15-Hour National USPAP Online Equivalent.

For appraiser trainees looking to become a licensed residential appraiser, the 75-Hour Licensed Residential Appraiser Package Upgrade offers the next level of education to achieve that goal. The coursework includes 15-Hour Residential Market Analysis and Highest & Best Use; 15-Hour Residential Report Writing and Case Studies; 30-Hour Residential Sales Comparison and Income Approach; and 15-Hour Residential Site Valuation and Cost Approach.

The 150-Hour Licensed Residential Appraiser Package is for beginning appraisers who are committed to a real property appraiser career and are looking to earn their Residential Appraiser License. It encompasses both of the above packages.

For more information about online education, visit www.appraisalinstitute.org/online, e-mail tbe@appraisalinstitute.org, or call 312-335-4207.

In addition to the annual print version, the Appraisal Institute's 2008 Fall Resources Catalog is available online in an easy-to-use, interactive version. Resources contains all of the Appraisal Institute’s publications, classroom education, and online education programs offered this fall.

Yoon Hernandez, Appraisal Institute Online Marketing Manager, said the interactive version offers ultimate convenience to readers everywhere since they can virtually “flip through” the catalog wherever they have Internet access and can conduct quick keyword searches to find exact Appraisal Institute offerings they’re looking for. “Since the digital catalog is fully interactive, you can also buy an AI book or register for an AI course as you’re browsing,” Hernandez said.

Resources is issued semi-annually and sent via mail to all AI members. The online version is available to members and non-members, at www.appraisalinstitute-digital.com/resourcescatalog/2008fall/. The next Resources will be released in spring of 2009.

The Ohio Attorney General’s Office and the Ohio Department of Commerce filed a complaint against two Ohio-based financial companies – Magellan Mortgage Corp. and Highland Banc, Inc. – a loan officer and an appraiser alleging unfair, deceptive and unconscionable acts and practices. The suit against the two financial companies site several violations of the Ohio Homebuyers Protection Act, the Ohio Mortgage Brokers Act and the Real Estate Settlement Procedures Act. A second suit alleges that Magellen violated the Truth in Lending Act.

The suits allege that a mortgage broker arranged loans with undisclosed fees as well as loans to homeowners who lacked reasonable ability to repay them. According to Consumer Protection Chief Nadine Ballard, “Our investigation of these two businesses reveal rampant disregard for the Homebuyers Protection Act, which was passed in Ohio to eliminate these types of predatory loan practices.”

The Attorney General is asking the court to prohibit the defendants from practicing until the dispute is resolved and penalties have been paid. The lawsuits also stipulate that the defendants reimburse consumers and pay penalties of $25,000 for each violation. In addition, the Department of Commerce is seeking an injunction to prohibit the brokers form violating the Mortgage Broker Act and to have all business records accessible for review.

Mortgage-related litigation and legal actions filed in the second quarter by shareholders against mortgage firms jumped by more than 50 percent from the prior quarter. Those were the findings announced in the Second Quarter Mortgage Litigation Report, based on 45 lawsuits and other legal actions covered by MortgageDaily.com during second-quarter 2008.

During the second quarter, 14 investor lawsuits filed against mortgage companies were tracked by MortgageDaily.com. According to the report, four investor class actions were filed against IndyMac Bancorp Inc., three investor lawsuits were filed against Downey Financial Corp. and Franklin Bank Corp. faced at least two shareholder lawsuits.

Other case types covered in the report include compliance, foreclosure and mortgage fraud. New actions on active mortgage-related cases tied to bankruptcy, employment, secondary marketing and servicing all eased from the first quarter. Cases tied to individual bankruptcies and foreclosures are generally excluded from the report, which was prepared with the assistance of Washington, D.C.-based Weiner Brodsky Sidman Kider PC.

What does this week's takeover of Fannie and Freddie mean to the Home Valuation Code of Conduct? It’s too early to tell, according to Bill Garber, Director of Government and External Relations of the Appraisal Institute. “The takeover does not necessarily mean the HVCC is dead,” said Garber, “But the dynamics have changed.”

Garber explains that Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (formerly the Office of Federal Housing Enterprise Oversight) have been seeking concurrence with the federal bank regulatory agencies for several weeks, and that these discussions may intensify. While FHFA officials are extremely busy with the takeover, the HVCC is still likely being discussed. In the end, the ball appears to be in FHFA’s court as far as proceeding or backing away and taking a different course of action.

One of the biggest questions looming over the HVCC is whether federal bank regulatory agencies will accept it in final form. The Office of the Comptroller of the Currency strongly protects the right to set policy for national banks, and typically does not shy away from exempting national banks from certain policies. Will they buy into a code of conduct that arguably establishes policy over national banks, or will they move to exempt regulated institutions if a code of conduct is released that the agency disagrees with?

Ultimately, Congress may get involved before it is all said and done with. “Congress is already looking at reengineering Fannie Mae and Freddie Mac, perhaps consolidating their structure, or even privatizing them. These discussions will certainly carry over to the 111^th Congress,” said Garber. “In addition, the Treasury Department has released several recommendations on reforming mortgage professional regulation, including that of real estate appraisers, among other industries.  Legislation to make reforms to Title XI of FIRREA is currently pending in the Senate after passing the House last year. It is possible that all of these issues may coalesce and feed into a larger debate in the near future.”

Ultimately, it’s likely too early to tell exactly how the issue will play out. Stay tuned to ANO for all of the latest information. Thoughts? E-mail insidethebeltway@appraisalinstitute.org.

To the ire of several Congressional representatives, the U.S. Department of Housing and Urban Development is opting to proceed with its proposed rule changes to the Real Estate Settlement and Procedures Act, which opponents argue will hinder rather than help the recovery of the nation’s housing market.

In an August letter to HUD, 244 House members requested that the proposed RESPA reform be withdrawn, as the signatories contended that HUD’s proposal failed to achieve the goal of simplifying, clarifying or reducing the cost of the mortgage and real estate settlement processes.

Yet, despite the stated concerns of both Democratic and Republican members of the House, HUD on August 18 sent its RESPA proposal to the Office of Management and the Budget, the body now responsible for accepting or rejecting HUD’s RESPA reforms. OMB has up to 90 days to render its judgment, making it likely that the revised rule will be pushed through OMB, barring further pressure from a bipartisan majority of the House.

Much like Congress, the Appraisal Institute has also had its concerns regarding the proposed RESPA reforms, which the organization fears will hide appraisal fees from consumers while failing to address the long-standing problems with existing RESPA enforcement issues relating to appraisal fees.

“Oftentimes, consumers aren’t informed of all of the costs and services associated with the appraisal, including what portion of the actual appraisal fee was paid to the individual or company performing the appraisal versus the appraisal management company,” said Bill Garber, director of government and external relations for the Appraisal Institute. “If the goal of the RESPA reforms is greater disclosure to consumers, HUD’s proposal does little to actually inform consumers of settlement service charges.”

If OMB accepts HUD’s RESPA reforms, Congress can still overturn the regulation by a majority vote. 218 votes would be required to constitute a majority.

“We’re playing the waiting game at the moment,” noted Garber. “Hopefully Congress holds its ground and continues to demand that the proposed RESPA reforms be further revised to benefit consumers.”

Federal Deposit Insurance Corporation Chairman Sheila Bair said more banks will fail this year, and stressed that "it is absolutely critical that [banks] get [their] balance sheets in order." Her comments came during a September 4 Florida Bankers Association dinner in Sarasota.

Stating that the credit downturn is far from over, Bair said asset quality problems are putting more pressure on the funding side of the balance sheet, with liquidity problems having contributed in varying degrees to all 10 bank failures that have already occurred this year. "Given the trajectory [and a weak economy], strong liquidity management is more important than ever," Bair stressed, and added that having enough cash, securities, and other marketable assets on-hand is absolutely vital. "The same can be said for the ability to maintain stable funding from core deposits and other funding sources," she said.

She warned that liquidity problems can hit an institution fast and hard, "which is why it is so important to have ample liquidity on hand and readily available." Early warning signs of liquidity pitfalls down the road include:

·         rapid asset growth funded by potentially volatile liabilities;

·         reliance on large depositors or concentrated funding sources;

·         offering rates significantly above the local deposit market and through Internet sites;

·         negative publicity;

·         a decline in asset quality or earnings performance;

·         counterparties who increase collateral requirements; and

·         shrinking, or outright loss, of credit lines.

The FDIC is revisiting its off-site monitoring to better detect those problems, Bair said, and added that the goal was to help on-the-ground examiners identify and resolve them promptly. The week of August 25, the regulator sent a letter to top executives at all banks FDIC supervises to highlight the agency's concerns, Bair said. "Bankers must understand the stability and volatility of the funding sources they use," she stressed. "If a bank relies on volatile, and credit sensitive, liquidity strategies and other complex strategies ... like securitization and secondary market sales ... management should step up liquidity risk measuring and monitoring."

Bair put this in perspective by highlighting the banks that have failed so far this year and noting that in the year leading up to their demise, growth in brokered deposits was more than 100 (going from 9 percent of assets to more than 20 percent). At the same time, their asset growth was nominal at about 4 percent.

In spite of the recent draw down to cover losses, the deposit insurance fund "is in a strong financial position to weather a significant increase in bank failures," Bair said. The fund currently stands at $45 billion, and a steady stream of premiums is coming in.  In addition, the FDIC also has a $30 billion line of credit at Treasury that it could draw on if needed to cover additional losses. However, Bair said, "We don't expect to have to use this line."

The case between California appraiser Jennifer Wertz and Washington Mutual Bank, First American Corp., eAppraiseIT, Lenders Services, FNIS, Inc., and Susan Richter, has been settled out of court. Wertz, who filed a 12-count lawsuit against the defendants in January 2008, stated, “The case has been settled to the mutual satisfaction of the parties.”  The amount of the settlement and terms of the agreement are sealed by the court.

The case stemmed from a request by Richter, a Sales Manager employed by WaMu, who in May 2007, allegedly insisted that Wertz change her appraisal report to indicate “stable” market conditions instead of “declining” so that a loan could be approved. Wertz contested that her appraiser independence from outside influence was violated.

The other two parties were involved in that in July 2006, WaMu began outsourcing its appraisal work through LSI and eAppraiseIT. Wertz said she accepted offers to provide appraisal work for these entities. However, in June 2007, shortly after Richter requested that Wertz change the reports and she refused to do so, Wertz alleged that WaMu demanded that LSI and eAppraiseIT not use her services to complete any more appraisals.

To view the complete case, visit http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/files/WertzPrimarySuit.pdf.

The Appraisal Institute recently released Real Estate Damages: Applied Economics and Detrimental Conditions, second edition, which provides a framework for applying fundamental economic principles and innovative valuation techniques to address the unique problems that arise in complex valuation situations. 

This updated text, authored by Randall Bell, MAI, with contributing authors Orell C. Anderson, MAI, and Michael V. Sanders, MAI, SRA, contains basic tools for detrimental condition analysis, a review of 10 classifications of detrimental conditions and updated and expanded listing of reference works and relevant agencies, associations and online resources.  It presents straightforward procedures for solving complex, sometimes even catastrophic, valuation problems with added discussion of the September 11 terrorist attacks, the 2004 tsunami and Hurricane Katrina. New, real-life case studies on landslides, infestation, mold and construction defects are also included.

Real Estate Damages is being offered to members for $45 and non-members for $55, plus shipping & handling. To access the table of contents or order online, visit www.appraisalinstitute.org/realestatedamages or call 800-504-7440 (between 8a.m.–5 p.m. ET). Use promotion code RED08E when ordering.

Forecasting Revenue is now available in an online format. Developed by William “Ted” Anglyn, MAI, this online seminar’s seven modules provide insights on rent levels, vacancy and suggestions for additional revenue sources from all income-producing types.  The foundation of the program is comprised of analyzing rent rolls, calculating and forecasting base rent, and forecasting rent on vacant space.

Forecasting Revenue is geared toward owners, brokers or appraisers of income-producing real estate. It is approved for seven hours of Appraisal Institute continuing education credit. Registration fee is $114 for members; $137 for non-members For more information or to register for an online session, visit www.appraisalinstitute.org/education/seminar_descrb/Default.aspx?sem_nbr=OL-787&key_type=SO.

Illinois Governor Rod Blagojevich welcomed four Appraisal Institute members – James Blaydes, SRA; Gary Harvey, SRA; T.J. McCarthy, SRA; Lee Lansford, Associate member- residential – to the Illinois Real Estate Appraisal Board.  Secretary of the Illinois Department of Financial and Professional Regulation Dean Martinez announced their appointments on August 25.

Jim Blaydes, SRA, said he believes the appointment will allow him to contribute his time to the agency to help improve the industry in its current housing turmoil.  Blaydes added, “As past president of the Chicago Chapter of the Appraisal Institute and an officer of Illinois Coalition of Appraiser Professionals, I have seen a need to become very proactive to help improve our profession.”

Gary Harvey, SRA, feels honored and privileged to serve on the Board. “The Department of Professional Regulations, along with the current Appraisal Board, is extremely committed to upholding the appraisal laws of Illinois and protecting the public trust,” Harvey said.

T.J. McCarthy, SRA, a reappointed Board Member, is excited to serve another term. “We have a new Appraisal Director in Illinois, Brian Weaver, and he is doing great things with the appraisal licensing bureau,” McCarthy commented.

Associate member Lee Lansford, another reappointed Board Member, is both honored and excited to serve another term. Lansford said, “The Board serves the interests of the people of Illinois, and I will work to faithfully fulfill my obligations to those whom I serve.”

As members of the Board, the appointees will be responsible for reviewing all licensed education and applications for licenses, handling all disciplinary complaints filed against appraisers and assisting the State in drafting new Laws and Rules.  The Board meets 12 times each year.

They will join appraiser Board Members Robert Gorman, MAI, David DuBois, MAI, and Joseph Alford for a total of seven appraisers on the Board.  Their terms expire on June 30, 2010.

Mark L. Plourde, MAI, managing partner of Maine Valuation Company, has been appointed by Gov. John E. Baldacci to serve on the Maine Board of Real Estate Appraisers. The primary responsibilities of the Board are to identify qualified applicants for licensure, to issue licenses and renewals to applicants who have met licensure requirements and to promulgate rules as necessary to ensure protection of the public to enforce the Uniform Standards of Professional Appraisal Practice. The Board was established to protect the public through examination and licensure of persons who wish to conduct real estate appraisals for a fee in the state of Maine as mandated by the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989.

Plourde, of Standish, Me., is a Cum Laude graduate of the University of Southern Maine with a B.S. Degree in Business Management. Maine Valuation Company is a full service commercial real estate appraisal firm. Plourde also served as Investigator to the Maine Board of Real Estate Appraisers from 1998 to 2004, as well as a term on the State Claims Commission from 1998 to 2002.

There was nearly a full percent appreciation in house prices on a national level in July, according to a September 9 release by Integrated Asset Services, LLC. The July 2008 IAS360 House Price Index showed a 0.9 percent increase, which reflects a -11.4% decline from July 2007 to July 2008.

The monthly IAS360 House Price Index is a comprehensive housing index tracking monthly change in the median sales price of detached single-family residences across the U.S. The index, based on all arms-length transactions, tracks data at a “neighborhood” level, reports on the changes in 360 counties, nine census divisions, four regions, and the nation overall.

At the broader census region level, results for July show three out of four U.S. census regions experiencing gains in house prices, with only the West region continuing to show a decline. On a year-over-year basis, however, all four census regions are still posting losses, the most notable being the West, the only region with a double-digit decline, according to the report.

Results for the month of July at the Census Division level showed six out of nine U.S. census divisions posting gains during July, but only two—East North Central, which posted the largest jump in July, and West South Central, which posted the largest decline—have appreciated year over year.

Due to the timeliness of the data, the IAS360 House Price Index is subject to revisions on a monthly basis. IAS also provides “neighborhood” level house price trends through its iMVI product. More information on iMVI can be found on the IAS website, www.iasreo.com/cs.html. IAS, founded by REO industry experts, specializes in default mortgage services including valuation, reconciliation and full cycle REO disposition. For more information, visit www.iasreo.com.

On Thursday, August 21, the Houston Chapter of the Appraisal Institute, cosponsored a forum focused on issues affecting Houston’s real estate market. The forum, Real Issues for Houston Real Estate: A Legislative Forum, moderated by Patricia Osenbaugh, MAI, attracted over 200 attendees. Panelists included state Congressmen Kevin Brady, John Culberson and Gene Green.

Joining the Appraisal Institute were the Building O