AMC Regulation A Done Deal In California

Senate Bill 237  got inked into law this week by the Governator and set to go live January 1, 2010. 

 

From the The Appraisal Institute’s website: Appraisal Institute Applauds California’s New Law Regulating Appraisal Management Companies  

 

CHICAGO (Oct. 14, 2009) – The Appraisal Institute, the nation’s largest organization of real estate appraisers, today applauded a new California law that will provide regulation and oversight of appraisal management companies.

“This new law will help to protect both consumers and appraisal professionals in California, and we eagerly anticipate the positive effects it will provide to the state’s real estate market and its residents,” said Appraisal Institute President Jim Amorin, MAI, SRA. “We are grateful to Gov. Schwarzenegger and the California Legislature for enacting this important legislation.”

Senate Bill 237, which takes effect Jan. 1, will require appraisal management companies operating in the state to register with the Office of Real Estate Appraisers. The law also sets forth standards with which an appraisal management company must comply and provides enforcement authority to OREA.

Significantly, the new law requires appraisal management companies operating in the state to identify, and provide contact information for, all officers and directors who own 10 percent or more of the company, as well as for all individuals who perform management functions. These individuals must submit to criminal background checks and may not have had their licenses or certifications as appraisers or a real estate agents or brokers refused, denied, canceled or revoked in any state.  [About time!]

Appraisal management companies, sometimes referred to as AMCs, are business entities that administer extensive networks of independent appraisers to fulfill real estate appraisal assignments on behalf of lenders and other clients.

California’s new law is based heavily upon model legislation the Appraisal Institute developed in conjunction with the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers.

Many provisions of SB 237 are similar to legislation enacted in Arkansas, Louisiana, Nevada, New Mexico and Utah earlier this year. California became the sixth state to enact such a law Sunday when Gov. Arnold Schwarzenegger signed Senate Bill 237 into law.

As many as 15 to 20 additional states are expected to consider similar legislation to regulate appraisal management companies when most states’ legislatures reconvene in January.

 

And in case you’re wondering who opposed this legislation…

 

SUPPORT:   (Verified  4/28/09)

California Government Relations Subcommittee of the Appraisal Institute (source)

OPPOSITION:    (Verified  4/28/09)

Fidelity National Financial (oppose unless amended)

Lender Processing Services

Title Appraisal Vendor Management Association (oppose unless amended)

[...]

 

And their arguments [with my comments]…

 

ARGUMENTS IN OPPOSITION:    The Title Appraisal Vendor Management Association (TAVMA) is opposed to this bill unless it is amended to provide some type of registration-only process for AMCs with operations in California.  TAVMA believes that AMCs should not be micromanaged by a state administrative agency.  [Comment: Spare us the fluff, no one cares what you believe.]  As explained by TAVMA, AMC’s administer networks of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions.  Appraisal management involves recruiting, qualifying, and verifying licensure of appraisers and negotiating fee and service level expectations with lenders and appraisers.  [Comment: A function that banks should never be allowed to outsource again given how poorly managed the process became/still is.]  AMCs perform additional administrative duties like order entry and assignment, order tracking and statusing, pre-delivery quality control and preliminary and hard copy appraisal report delivery.  [Comment: There exists more management technology today than ever before. In fact, most appraisal management technology automates the entire process...including quality control.]  In addition, appraisal management involves ongoing quality control, payment accounting, market value dispute resolution, warranty administration, and record retention.  [Comment: Again... Don't let the smoke-and-mirrors laundry list of "involves" fool you.]  As argued by TAVMA, contrary to the views of some who support this bill, AMCs are subject to significant regulation at the federal and state level and must comply with a variety of laws that apply to their clients and with federal and state laws that specifically regulate appraisals.  [Comment: Fact is, it is the appraiser that is subject to state/fed laws, not the AMC. All AMCs do is simply shift the liability burden onto appraisers -- until now.]  An example given is the Home Valuation Code of Conduct and other state and federal lending laws, and recent laws that specifically prohibit improper influence of appraisers.  TAVMA asserts that AMCs protect appraisers and absorb some of their overhead.  [Comment: O the sophistry. These folks do not absorb appraiser 'overhead', they absorb appraisers' whole livelihoods with their very existence.]  Lenders us AMCs as a “buffer” between loan production staff and appraisers to avoid improper pressure.  [Comment: Ask anyone versed on the HVCC -- or has ran and AMC themselves --  an AMC does not shift liability away from the lender, it inreases it.]  Further, an independent appraiser survey in 2007, [dated and totally irrelevant now] confirmed that AMCs were the least likely industry participants to pressure appraisers.  TAVMA also notes that AMCs do not control appraiser fees and facilitates lower costs to homeownership.  [OMG!  Did they just say that?!  I could bury this post in anecdotes to the contrary.  AMCs raise borrowering cost and have absolute control of the fees they charge borrowers and payout to appraisers.  Just read this post on TAVMA's blog titled, "The Economics of an Optimal Number of Vendors".  They are absolutely of the mindset that appraisers are mere commodities to be milked because there's always another shmoe willing to take less. For TAVMA to assert "AMCs do not control appraiser fees and facilitate lower costs of homeownership" lays bare the kind of vile misrep one would expect from lobbiest whores. I would be totally ashamed to carry membership with this group. Click link for list of companies.]

 

Filed under: Uncategorized , AMC REGULATION, CALIFORNIA SB 237

I’ll Settle For Heinz

The lobbying extraordinaires over at the Mortgage Bankers Association have long stood firmly against homeowners getting a fair shake at renegotiating underwater mortgages through bankruptcy.  Through their successful and tireless work on behalf of the “To Big To Fail” rent seekers, both the MBA and their little bitch wannabes, the NAMB, have repeatedly stymied attempts to enact judicial cramdowns.  For many years now we’ve watched David Kittle, former MBA Chairman, testify (propagandize) before Congress in opposition, offering nebulous rhetoric citing unprovable impacts on future rates as the MBA’s sole pathetic premise to suppress debt-ridden households from ever reorganizing into sustainable outcomes via the court system.  This, despite the underwater mortgage pandemic being repeatedly cited now on equal footing with rising unemployment / under-employment as the central cause of foreclosures. 

So you can imagine my shock to read this evening via HousingWire that the MBA’s COO, John Courson, speaking at a luncheon at the MBA’s conference today, called for extended payment forbearance of up to twelve months to mitigate foreclosures. 

Really. 

From HousingWire: MBA Urges Forbearance Over Short Sales 

The Mortgage Bankers Association is pushing for more uniformity among its members in order to up the pace of mortgage modifications. According to MBA Chief Operating Officer John Courson, at a luncheon held at the institution’s conference this week in San Diego, the use of short sales as a way to help struggling borrowers avoid foreclosure is not an entirely positive step for the industry. 

“The [former owners] will still need a place to live,” Courson said, adding that under government programs, such as the Home Affordable Modification Program, agencies such as Fannie Mae and Freddie Mac should forebear mortgage payments for up to 12 months in the case of borrower unemployment. 

One might think Courson was either hitting the bong-loads hard and heavy at the Hard Rock this morning; or that he curled up to The Boy That Harnessed The Wind before taking the podium, unleashing his inner meow.  Either or.  To hear the “better angels” of what I equate to a Satanic cult verbalize sympathies for the soon-to-be-homeless-thanks-to-their-repeated-opposition-to-cramdowns is an irony so jarringly cacophonous even the sea gulls over the bay flew into walls. 

In all seriousness though, there are many that believe forbearance is a complete waste of time and only delays the inevitable. I personally believe this is generally true, but I also feel that this mantra is growing increasingly tone deaf to the dire problem of vast unemployment / under-employment which is fueling the next crisis for real estate: shadow inventory. 

Take, for instance, what Fitch—via HousingWire—said just today about prices and distress levels: 

The rating agency expects US unemployment to peak at 10.3% in the middle of next year, further pressuring current borrowers. House prices will ultimately decline another 10% over the next year.

“Home price figures in recent months were temporarily helped by the reduced share of distressed property liquidations due to foreclosure moratoriums and servicers’ increased efforts to qualify borrowers for modifications,” Fitch said. “However, the number of distressed borrowers has continued to grow.”

The rating agency noted the number of non-agency borrowers 90 plus days delinquent reached 1.66m in September — the highest level on record.

“While increased modification efforts and an extension of the first time home buyer tax credit may help home prices, the ultimate increase in liquidations from the growing distressed inventory will likely cause a further price decline,” Bailey said.

Getting back to the original point of this post.  I agree with Courson that accelerating reconveyance through streamline short-sale and/or deed-in lieu means potentially accelerating homelessness, and is bad policy.  I also think that at this juncture, giving families experiencing job loss or living on reduced income through no fault of their own an opportunity to re-tool/re-skill is probably a win-win scenario if you consider (a) there is already a glut of shadow inventory waiting to pummel the market, and (b) new full-time work is virtually non-existent today, but could be later. 

Given this little concession from the MBA, I’ll end simply with: it’s not cramdowns they’re offering, but I’ll settle for Heinz yellow when “the Grey” isn’t an option.

Filed under: Uncategorized , CRAMDOWNS, FORBEARANCE, MBA

HPM to Congress: Step Away From The Housing Market (And Industry Lobbyists)

The story below brings to mind one of a dozen reasons why the Congress should not be playing too active a role in the US housing market.  At a time when buyer demand is clearly at irrational highs (in Southern California, at least), and the Fed continues beating mortgage rates to bubblicious lows, Congress lines up before them yesterday some of the most egregious of lobbying heads begging for even MORE simulative (damaging) assistance — a request we all know Congress will likely oblige.

[Note: Comments added in brackets are mine.]

From HousingWire: Industry to Congress: Extend Homebuyer Tax Credit 

American Land Title Association (ALTA) president Mike Pryor called for not only the extension of the deadline to the credit, but also an effort to remove the income restrictions and the requirement that buyers be a first-time home purchaser.

“Incentives like low interest rates and a limited, first-time homebuyer tax credit ensure that revenue and employment losses are not as bad as they could be. Congress should take simple, common sense steps to remove barriers to growth in the title industry and prevent additional barriers from being created,” Pryor told the House Small Business Committee.

Representatives from the National Association of Realtors (NAR) also testified at the hearing. NAR regional vice president and NY broker Joseph Canfora testified that according to association data, 355,000 to 400,000 purchases were attributed directly to the credit.

“The more robust the credit and the greater its duration, the greater the chance that the housing market can perform its traditional role of helping the economy move out of a recession,” Canfora said. [Comment: This is how you start bubbles which lead to bailouts – these guys are so shameless.]

Canfora also said that the tax credit helped reduce housing inventory. [Comment: This is a total lie. Banks deferring REO liquidation and delaying the foreclosure process to avoid taking losses are what reduced supply, not the tax credit.]  Noting that a balanced market typically has a six- to seven-month supply of homes. [Actually, 5-6, but that’s just my opinion]. In February, when the credit was enacted, the US market had a 9.1-month inventory, Canfora said. In August, the inventory was at an 8.2-month supply. [Comment: This is complete bullshit. Fact is, on-market supply in most any Southern California market is well below 3 months. And while I understand he’s talking nationwide, you cannot gauge real estate on a national level and expect sound policy to come of it – hence the title of this post.  And, if he truly wanted to make a more compelling argument, he would have referred to Amherst’s recently released report showing that "shadow inventory" is actually greater than a full year’s supply of housing.]

National Association of Home Builders (NAHB) chairman Joe Robson [look out!], a builder in Tulsa, Okla., told the committee extending the tax credit would help alleviate the over supply of homes and create more demand for builders, providing a boost to the sector. [Comment:  This is yet another blatant perpetuation of the fraud the builders would love every man, women and child to believe. What builders must do is let prices fall for more natural (organic?) demand to foster sustainable, affordable loans (and payments) to would-be owners. Giving new buyers any incentive to buy a home beyond the virtue of the very commodity itself, is a recipe for disaster when the new car smell wears off – and the higher tax bill comes rolling in. I've said elsewhere before, today's tax credit recipient is tomorrow's RealtyTrac statistic.]

“We estimate that this would increase home purchases by 383,000 in the next year and help mitigate the foreclosure crisis by whittling down inventory at all levels of the housing market, setting the stage for a full recovery,” said Robson. [Comment:  Again, propaganda at it's worst. The only thing whittling down inventory today are banks refusing the day of reckoning, not the frickin’ tax credits!]  This stimulus alone would create nearly 350,000 jobs over the coming year, which is exactly what the economy needs right now.” [Comment: Oh please, Joe, save your job creation story for another panel. Creating jobs in residential construction or real estate sales or lending is like dumping money into ice machines to give to Eskimos in the middle of winter -- a gross misallocation of resources that would be better off elsewhere, or nowhere at all.]

Filed under: Uncategorized , AND MORE LOBBYING, LOBBYING

You Don’t Say … FHA May Need A Bailout? Well, DUH!

Firstly, let’s all thank every short-sighted, narrow-minded, I-can’t-see-past-my-own-societally-useless-self-interest imbecile that paraded behind negligently raising FHA and GSE loan limits, without for even a moment accounting for the concentration of credit risk per capita that each new loan would represent. Yes, let’s thank them for the arguably criminal propagation of inflated property prices, which by now have translated nicely to a tailored credit noose for each new borrower to wrap around their unwitting necks under the fallacy that, “we’ve hit bottom!”

That’s right. Thank you, propaganda machine, for cleverly obviating the discussion early on of how higher loan amounts today (yesterday’s crisis) would affect the supply of future guarantees (tomorrow’s crisis, absent a bailout). And how much each unnecessarily inflated new loan not only damaged the future finances of the ignorant, but how dearly it would extract from the system in future for the non-speculative, real homebuyer.

So here’s to you, you short-sighted, narrow-minded, I-can’t-see-past-my-own-societally-useless-self-interest mortgage and real estate lobby, who we unanimously hope and pray will exit the universe in flames along with the good majority of your greedy constituency, who serve mainly to extract value from the system – not add.

Via Calculated Risk:

From Bloomberg: FHA Shortfall Seen at $54 Billion May Lead to Bailout

The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because of $54 billion more in losses than it can withstand, a former Fannie Mae executive said. “It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae …

Pinto makes several points, including:

• “FHA is making much larger loans than in the past. Its top dollar limit is $729,500 versus its old top of $362,000 in 2008.” This exposes the FHA more to high risk states like California.

• “FHA allows up to a 6% seller concessions before requiring an appraisal adjustment.” Pinto notes that Fannie Mae found that allowing concessions above 2% before adjustments led to much higher defaults.

• High LTV lending is a higher percentage of loans today (23%) than in 2006 (17%). This is due to the large increase in FHA loans.

• The first-time homebuyer tax credit is being used as a downpayment, and Pinto draws a comparison to the horrible default performance of the DAPs (downpayment assistance program) loans.

• “FHA’s early warning database indicates loan performance is deteriorating.” See pages 6 and 7 of testimony for details. Note: I posted some data before, see FHA Lenders with High Default Rates

Filed under: Uncategorized , BAILOUT, FHA, LOBBYING

FHA to AMCs: Keep Appraisal Fee and Management Fee Separate And Apart, You Untrustworthy Crooks!

From Today’s FHA MORTGAGEE LETTER 2009-28 

[…] 

Appraisal and Appraisal Management Company (AMC)/Third Party Organization Fees  

            FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but recognizes that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence.   To address several questions that have already been raised regarding compensation, this mortgagee letter corrects and expands existing fee requirements set forth in Mortgagee Letter 1997-46. 

FHA-approved lenders must ensure that: 

• FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
• FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. 
• The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal. 
• Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
• AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised. 

 

Filed under: Uncategorized