May 2009

WHY MORE REGULATION IS NOT THE ANSWER
By Charlie Elliott, MAI, SRA

Today in the mortgage industry, there does not appear to be any shortage of new regulation, both proposed and enacted. We are seeing it at the state and federal levels in our legislatures, as well as through our government sponsored enterprises (GSEs).

  • Recently, we have seen Fannie Mae and Freddie Mac impose a whole slew of new regulations that must be followed by those selling them loans. This is called the Home Valuation Code of Conduct (HVCC). Among the many rules created by it is one prohibiting mortgage brokers from ordering appraisals.

  • At the time of this writing, three states this year have enacted appraisal management company (AMC) regulatory legislation, and we are told that as many as 13 states are considering some form of AMC regulation.

  • There is proposed new federal legislation in the form of the Mortgage Reform and Anti-Predatory Lending Act. This law, proposed by U.S. Reps. Brad Miller, Mel Watt and Barney Frank, purports to protect consumers and will substantially affect lenders, appraisers and AMCs.

This is in addition to all of the existing state and federal legislation, which is designed to protect borrowers, taxpayers and the integrity of the mortgage banking system. These include, but certainly not limited to, the Real Estate Settlement Procedures Act

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FANNIE AND FREDDIE IMPLEMENT NEW APPRAISAL RULES WITH HVCC

The Home Valuation Code of Conduct (HVCC) was implemented earlier this month. It contains strict rules on the ordering of real estate appraisals on any home loans that are to be sold to Fannie Mae or Freddie Mac.

ELLIOTT® & Company Appraisers now offers an appraiser firewall service for financial institutions that wish to ensure they are in compliance with the HVCC. This appraisal management service, “Compliance Plus,” is tailor-made for financial institutions that wish to distance themselves from the issue of appraiser-pressure and the associated regulatory and market demands.

Clients who take advantage of Compliance Plus are relieved of the concern of any need to develop an in-house system or worry about difficult-to-implement policies on this complex situation.

ELLIOTT® welcomes any lender with HVCC-compliance concerns to call Carlyle Holt at (800) 854-5889 or e-mail him at carlyle@elliottco.com.


UNCLE SAM READY TO STIMULATE
COMMERCIAL REAL ESTATE MARKET

The U.S. Treasury Department had good news for Realtors attending their Midyear Legislative Meeting in Washington. Seth Wheeler, the Treasury’s deputy assistant secretary for federal finance, said his department has plans to inject stimulus funds into the commercial real estate lending market.

“What we’re trying to do is provide a pull channel for financing,” Wheeler told the Realtors. “It will take some time, but we hope to see a return of liquidity.”

The Treasury has already indicated its plans to include commercial mortgage-backed securities in its Term Asset-Backed Securities Loan Facility (TALF) program, which, as previously announced, could amount to $1 trillion. Some of the Realtors let Wheeler know that previously distributed stimulus funds have not done much to help small businesses or consumers, which are very important to the success of commercial real estate.

“We understand how important the issue is,” Wheeler said. “We want to move as quickly as possible to form a policy response.”


FIRST QUARTER BRINGS STEEP RENT DECLINE

According to Reis Inc., office rents in the United States dropped in the first quarter of 2009 at the highest rate in seven years. The research firm estimates that there will be 47.7 million square feet of surplus office space in this country by the end of the year, and some economists say that there will be more than that.

J.P. Morgan reports that commercial property values have declined 22% since 2007, when they were at their peak and that the commercial real estate vacancy rate increased 15.2% during the first quarter.

Reis also reported a drop in average apartment-rent prices in 64 of the 79 markets it tracks. Victor Calanog, director of research for Reis, noted that half of the apartment buildings in tracks dropped rent prices in the first quarter from what they were the fourth quarter of 2008. The markets with the largest drop in effective rent percentages are San Francisco (2.8%), New York (2.3%), San Jose (2.5%), Long Island (2.3%), Charlotte (1.3%) and Chicago (1.2%).

These figures are very disturbing to Calanog, who said, “It’s really sobering to see that even though we’re technically at the beginning of this downturn, the magnitudes of declines [and] the fact that they’re registering historical levels is really sobering.”


ASK MARTITIA


QUESTION:
  Is a mortgage broker allowed to choose which appraisal management company (AMC) to use on a loan to be sold to Fannie Mae or Freddie Mac?

MARTITIA: No. Under the Home Valuation Code of Conduct, a bank funding a loan must directly purchase and pay for appraisals when loans are to be sold to Fannie Mae and Freddie Mac. If the bank elects to use an AMC, it selects a service provider and the AMC chooses the appraiser.

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.


QUOTES

“In order to make dreams come into reality it takes an awful lot of determination, dedication, self-discipline and effort.” -- Jesse Owens

“A diplomat is a man who always remembers a woman’s birthday, but never remembers her age.”
                                                                                                                                      -- Robert Frost

“I pity the man who cannot feel the whip upon the other man’s back.” -- Abraham Lincoln

“Indifference is harder to fight than hostility.” -- Crystal Eastman

“Laws are like sausages; it is better not to see them being made.” -- Otto von Bismarck
 



 

 
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