Regulatory Items
The biggest regulatory reform on the horizon is the bill sponsored by Sen. Dodd. This would place significant oversight within the Federal Reserve and also create a Consumer Protection element. In prior newsletters we referenced the Consumer Financial Protection Act of 2009. It would establish a new consumer protection agency, and this legislation contains an amendment related to the HVCC. Among the provisions would be a sunset of the existing HVCC agreement in lieu of a new comprehensive appraiser independence measure with the intent of a consistent appraisal regulation for all valuation services scenarios. The current HVCC agreement only impacts loans sold to Fannie and Freddie. New "HVCC Like" language enacted by FHA is a somewhat different flavor. It would require the CFPA to lead a negotiated rulemaking committee on appraisal independence. This CFPA language is not in the Dodd bill - and in fact no significant appraisal language is. The differences would likely be addressed in a reconciliation process.
What is the future of Fannie and Freddie? Apparently no one knows, including Treasury Secretary Timothy Geithner. There does seem to be consensus that these two entities cannot return to their former "in between" status. They will likely become either fully privatized or true government agencies... or combined into a single agency. But most suspect the GSE (Government Sponsored Entity) status will be a thing of the past.
One of the regulatory items gaining steam is oversight for Appraisal Management Companies or AMCs. Legislation is being enacted at the State level. Others have suggested that the new RESPA and FHA requirements call for separation of the appraisal fee from the management fee. I expect much more industry chatter over this issue and I will continue to provide perspectives in future newsletters.
The other regulatory "hot button" right now is over the use of a BPO in lieu of an appraisal. Each State has its own laws and regulations on when and where a BPO is acceptable. Many states do not allow the use of a BPO for any use beyond pricing a home for a listing. NAR and the Appraisal Institute have been butting heads on this issue and I see continued volleys ahead.
Markets
The latest Fannie Mae projections for the residential market call for slow growth in 2010... but at least growth and not contraction. As we reported in the last newsletter, short sales and foreclosures continue to be the biggest impediment to stabilization. The foreclosure pain is not uniform. Some areas are relatively unscathed while other neighborhoods have the majority of transactions as short sale or foreclosure. This map shows state by state statistics for foreclosure rates. However, foreclosures are not slowing and if anything continue to ramp up. The pace of defaults overwhelms lenders. HUD also published some excellent map based tools for showing housing statistics.
A new term that entered the real estate realm is "strategic mortgage default". This has to have lenders very concerned! As if foreclosure due to economic hardship is not enough to deal with, a growing number of property owners are opting for foreclosure as a simple business decision. As the social stigma for mortgage default diminishes, it appears more borrowers are choosing this option. Not surprisingly, this decision is most closely correlated with how "underwater" the borrower is.
On the Commercial Real Estate (CRE) front, significant weakness continues. We see softness in rents, increased vacancies, and value correction... all of which of course varies by market and property type. Many lenders are aggressively writing down loans, forgiving debt, and not renewing lines of credit. I won't even elaborate on subdivisions! Real estate lending on the commercial side is not popular among banks at the present.
On the Lighter Side
Finding a good book is always a treat. While non-fiction is often dry, I highly recommend "Too Big To Fail" by Andrew Ross Sorkin. This book offers a highly readable account of the financial meltdown and the major players involved. On my list of books to read is "The Big Short" by Michael Lewis. I have read other Lewis books and find him to be an excellent writer.
I have heard my fair share of appraiser "war stories" over the past few decades... but being attacked by a "Spice Girl" really does take the top prize! Although the funniest appraiser "appearance" on TV still has to be from The Sopranos... "I'm only the appraiser!"
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