| 01.10.09|
Weekly Housing Market Update
Question of the week: What is the difference between a “short-pay”, a “foreclosure”, a “bank owned property” and an “REO”?
Answer: Let's shorten the question by saying that the last three (foreclosure, bank owned and REO) are the same thing-REO stands for Real Estate Owned; for brevity I will use the term REO. We get this question often because in today's real estate market a significant number of properties for sale are either marketed as “short-sale” or REO properties. REO's are properties that are legally owned by a bank, lender or other entity that has obtained title from the individual(s) who previously owned the property and lost it through the foreclosure process. A short-sale is a property where the individual(s) still own the property, however they owe more on their mortgage(s) than the property is worth. The distinction is important because it determines who is making the decision to accept an offer to purchase the property and at what price. For REOs the bank has hired a local real estate agent to represent them in the marketing and sale of the property and some one at the bank has the authority to make the decisions as to what price to list the property for sale and then to accept the offer. In a short-sale the current owner must agree to the sales price being offered, then must negotiate with his/her lender(s) to accept a partial pay-off of the mortgage(s). This can get tricky depending on if the seller has one mortgage or two, what the balances remaining are, if there are back taxes, homeowners' association dues or other liens against the property that must also be taken into consideration. If there are two mortgages then both the first and second mortgage holders must agree to the amount of proceeds they will, or will not, receive. When purchasing any property where short-sale procedures are required it is crucial for the buyers, the agents, the new mortgage broker, the escrow officer and the seller are in continuous communication and providing current information to the lender(s) to ensure they will approve the final sale of the property.
If you have a question you would like me to answer send it to me!
Home Valuation Code of Conduct (HVCC). The HVCC has been on its way for many months and recently Fannie Mae and Freddie Mac announced that it will become effective May 1, 2009. What is HVCC? It is new process for ordering appraisals whereby brokers can no longer order appraisals directly but must use national appraisal services, or order through lenders clearinghouse units. This removes control of the process from the local broker and puts the valuation process in the hands of someone with no relationship to anyone in the transaction. At face value this may seem like a good idea, in practice in our market it is not.
The majority of my business is in the Greater Long Beach area. Clients and agents in the area know that for many, many years I have ordered appraisals for my clients' transactions from Tom Mores. Tom lives in Long Beach, his children go to school in Long Beach, and he knows Long Beach very well. As such Tom does an outstanding job appraising properties in the area. Because Tom is a professional he is licensed by the State of California and every time he provides an appraisal to a lender he is staking his license and career on that appraisal being a professional opinion of value supported by comparable sales and listings in the immediate market; if a lender discovers that Tom has “cooked” the value in order to ensure a transaction will close he can, and should, lose his license, and be subject to fines and penalties for loan fraud. As a result of Tom's experience, professional abilities and ethics, he and I have an excellent relationship that has benefited our clients with solid evaluations of the value of the properties on which they are placing mortgages.
With the new HVCC guidelines being imposed by Fannie and Freddie I will no longer be able to order appraisals from Tom and must use a national appraisal service located out of the area and they will then contact an appraiser to provide our appraisal. This causes tremendous difficulty, especially in many cities like Long Beach where there are many diverse neighborhood juxtaposed within zip codes and census tracts. We recently had a transaction in the 90808 zip code near Clark and Conant in Long Beach where we were required to have a second appraisal performed by a national appraisal service. The appraiser they sent was from some where deep in North Orange County and it was evident he knew nothing about our market and sub-markets. As a result his value came in significantly lower than our sales price, appraised value and subsequent appraisal done by another lender's appraisal. As our company, and many other brokers and lenders locally, has seen this is not uncommon-everyone is having tremendous problems with poor appraisals ordered using the new Fannie Mae and Freddie Mac guidelines.
We need to have the new HVCC policy scrapped or loosened. This is a significant problem for local real estate markets as it artificially deflates values even further, creating more foreclosures and short-sale transactions, which push the values down even farther. At a time when the entry level to the market is solidifying and generating positive results in the real estate markets we do not need to have the momentum killed by new rules that mandate the use of non-local appraisers.
Call, write, email your Congressional Representatives and Senators and ask that they push for this regulation to be rescinded. It is an example of government trying to “protect” the consumer but instead hurting them. Most of them have no idea how this process works and the harm it can and will do to their constituents and districts.
Once again, an up and down week in rates that ended up fairly flat Friday to Friday. Early in the week we saw some positive momentum with the Feds purchasing Fannie and Freddie mortgage backed securities. This led to a big spread between conventional and FHA mortgage rates as no one was buying the FHA securities. Late in the week, the trend reverse and we saw the gap thin to only about 0.125%.
FIXED RATE MORTGAGES AT COST OF 1 POINT*
30 year conventional at 1 point 4.875% no change
30 year conforming-jumbo at 1 point 5.00% no change
30 year FHA at 1 point 5.00% down 0.125%
Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected. Numbers provided are for comparative purposes only.
Here is some interesting news. In some areas of Long Beach prices from November 2007 to November 2008 are up over 2% for condominium sales! It has to start somewhere and it is starting!
Have a great weekend.
