This week, the House Financial Services Committee passed H.R. 3126, the "Consumer Financial Protection Agency Act of 2009" including an amendment to repeal HVCC, the Home Valuation Code of Conduct, or as we call it, the "Havoc Rule". The bill still has to clear both houses and be ratified into law. Any chance of that before Christmas to save the sale market running up to the new year?

This bill also contains the First Time Buyer Tax Credit extension and provisions to assist repeat home buyers and small businesses with tax breaks. All great ideas. But as measures, resolutions and bills go, it will be very crucial what of any substance survives. We have a Congress and an Administration that seems intent on self regulation by the biggest offenders while penalizing the solo entrepreneurs.  

Thanks to all the realtors, mortgage brokers, appraisers, investors and home buyers for supporting this legislation. Read the recent NAMB release on how this affects our national housing industry.  

Will FHA fall prey to HVCC? We are particularly concerned that FHA is supposed to adopt HVCC in January 2010. Currently, FHA certified appraisers may be hired directly. Since the adoption of the HVCC, we have witnessed delays while extra paperwork and reviews fly back and forth via a third party mechanism; the loss of fees to middlemen of Appraisal Management Companies, and appraisers from outside our area delivering low-ball valuations. Many senior appraisers are retiring rather than contend with the impacts to their businesses. Who is being served? AMC's and the banks that own them! 

I know this sounds like sour grapes. But the effects speak for themselves:

"In a recent Internet poll, real estate industry professionals were asked to indicate the value that was generated by their last HVCC appraisal relative to the sales contract price that the seller and buyer had agreed upon. With 57.7% of the sales values being lowered by more than 3% the results below highlight how dramatically HVCC is artificially deflating the value and equity of every home in America."   www.ThinkBigWorkSmall.com  

This rule has forced brokers and mortgage banks like ourselves to hire AMC's in order to define an appraiser group. So now, appraisers must sign up with multiple AMC's to cover a multitude of lender preferences (i.e., their own particular criteria)-- which means higher costs to them and fee cuts, while raising the cost to consumers. Brutal!  

Mortgage professionals, appraisers and realtors and our local politicians support a vibrant real estate recovery and rely on fair and professional valuations to help achieve this. Please call, email or write your Congress Persons and ask them to support this legislation.  

And hey--be careful out there!

Military boot size that is. Congress is dithering whether to extend the FTHB Tax Credit at all...and so they are suggesting the extension will only go to Veterans who have served overseas during the last year.  Those  service members who have served overseas for 90 days in 2009 will have an additional for six months to take advantage of your First Time Tax Credit. Major political ploy to win hearts with military families. Hint hint...your average Joe the plumber is unlikely to qualify for this extension.

Have you written, called, emailed and bothered your Representatives and Senators about this yet?

Loan bottleneck: Meanwhile, first time buyers are piling on at underwriting like locusts and we have seen quite a few lenders start to put the brakes on by hiking rates this week...just in time eh? Those who need(and deserve) assistance are more confused than ever by Realtors and sellers suggesting the credit will be extended and the buyers will receive the funds to close (!). No kidding, I hear this every day. Do yourself a favor and refer folks to the IRA or their CPA and back off.

Short Sales and their particularly annoying dance between lenders and asset managers have created quite a backlog in our area with the very people who need these homes. The time it takes to negotiate a sale on these often lower priced properties has been a real deterrent. Obama has proposed Universal Short Sale Guidelines to manage short sales and move them along, according to the Think Big Work Small dynamic duo, Brian and Frank: http://www.thinkbigworksmall.com/mypage/archive/1/23076

House Bill HR2483  supported by National Association of Realtors, calls to extend the FHA higher Loan limits as permanent--support this! In addition, this bill supports removing the non-owner occupied ratio limits on condomimiums to help more condo buyers qualify for FHA loans...which translates into putting more OWNERS into condos. More user friendly aspects to this bill would allow owners to buy condos and help ease the market supply of condos again. What a great idea! Woo woo NAR!

Home Affordable Modification Program (HAMP) Update

Freddie Mac has been reduced to going door to door to attempt stopping foreclosures. Well...wonder how they are being received by their beleaguered mortgagees? Anybody seen Freddie on your street yet?

$4.7 Billion headed to the usual suspects: To date, our modification partner's experience with the primary originating banks of so many distressed homeowners has been pretty hard going. Oddly, the HAMP program has not been all that popular with some of the biggest banks with the highest foreclosure rate. Namely Countrywide, GMAC, Citi, National City Bank. So to encourage these big banks to actually USE the government foreclosure assistance or modification/refi programs our Federal Govement is giving them an additional $4.7 Billion to get them on board. Which means if you have had a lame response to your request for loan modification at first request, then try try again.

One point: Many servicers of FHA and VA loans are also servicers of Fannie and Freddie Loans. They approach their responsibility of modification according to how much the servicer, i.e., investor is willing to work with a given borrower. USDA and VA have higher percentage of guarantees than FHA which is insured against default-- but when the lender, i.e., the servicer is left holding the bag once the government funds run out they are not in a very helpful mood.

Originally, HAMP, part of the U.S. Treasury's Home Affordability & Stability Plan is also working in tandem with the Neighborhood Stabilization Act. These programs are designed to help at-risk homeowners by providing fair and consistent modifications. Neighborhoods with a high level of foreclosures are being given extra consideration to help prevent the loss of values such a rash of high foreclosures sets in motion. The fact is: many wily investors are swooping in and BUYING distressed homes at short sale prices and moving folks on quicker than these programs are arriving to help. There goes the 'hood?

Here are a few relevant information links:

Delegation for GSE and non-GSE-insured loans

Read the Waterfall criteria set by the U.S. Treasury for Fannie Mae, Freddie Mac and non-GSE servicers.

For more information on the U.S. Treasury's program or GSEs' requirements, please visit:

U.S. Treasury's HAMP

Fannie Mae's HAMP

Freddie Mac's HAMP

Help me out here. I have a 20 year veteran Real Estate Developer telling me the HVCC is a good thing! Really!! That onerous Home Valuation Code of Conduct that has sent many brokers and borrowers running to FHA in order to get a decent valuation. I'd really like to hear your experience. Any pointers welcome!

His arguing points are:

1. Mortgage Brokers (and Realtors) are jealous we no longer 'control values'.

2. We are just eager to create higher % loans for the most money and screw the borrower.

3. Appraisers won't travel outside their areas due to travel costs.

4. Appraisal Reviewers work the same region as the appraiser and know the turf.

OK: These 4 points are pretty off base. How can you sputter an answer to someone with these kind of blinders on to what is really going on? Most of us in the residential lending side are so in knots over having no contact with our appraisers, especially to SAVE the borrower if their deal is not doable. What if something needs to be corrected, however minor? 

Mortgate Brokers never controlled value. Anyone who tried is out of business (including Countrywide and Washington Mutual). Point 2 is always a greed factor that most borrowers get wind of. If you try to talk get borrowers into loans they can't afford you are out of business by now.

The appraisers willing to travel distances in my area are quite prevalent! I had one guy tell me he covers Oregon to the BC border and feels informed about anything on the west of the state. Guess he likes to drive?

Unfortunately, owners and buyers feel their values are being unfairly downgraded by this system. We can't comment now. If the value is not there, we now face multiple appraisals and reviews, which takes time and money out of everyone's pocket. Often the borrower's credit is dinged beyond repair in the process to review and resubmit to a new lender when their AMC trashed their value. We have had underwriters three time zones away knock our values and pull their own comparables.  Asking for a review costs on avearage $400 and the risk is it will be reviewed by yet another faceless person at a computer in another state who is looking at sales data with no idea what the neighborhood factors are. So much for local reviewers?

Did this person's banker friends just put him up to annoying me? Oh yea, probably! HUH! I fell for it. That's right. This person's banker pals aren't lending him any money right now for HIS developements so he's really annoyed a loan officer can scurry over to FHA and get money for home buyers. Ya THINK?

If you'd like to urge congress revisit the Home Valuation Code of Conduct, please consider adding your name to the petition: http://www.hvccpetition.com 

This news is not going away fast. In the wake of FHA and VA lenders closing the window for funding Manufactured Home Loans (August 09) I am canvassing our network for solutions, conventional, portfolio, you name it. Here's the skinny:

The FEW lenders still funding Manufactured home purchases require:

1. Higher credit standards for both borrowers

2. Higher down payments than stick built homes

3. Higher interest rates and closing points

4. Newer age limitations on the home (which creeps up every year, 1994 is typical)  

My August post on this: http://activerain.com/blogsview/1202931/manufactured-homes-take-a-hit-

What's the Big Deal?  Manufactured homes represent significant risk to the investor because defaults in this housing sector are extremely high. My portfolio lenders won't fund anything older than 1994 . The list of no gos gets longer by the day. 

What's a Seller to Do? While this is not my area or expertise, it appears the loss of good lending terms will seriously affect resale value of all manufactured housing. Higher insurance fees (and fewer insurers) are an ongoing factor.

MFD Specialist Lenders: A Manufactured Home Lender I spoke with today offers 12% interest rates on higher LTV's. They cherry pick the properties and rates depend on age of home, credit factors, etc. They are extremely busy picking up the pieces even at those interest rates (!) Since August, the government mortgage lenders who were selling their FHA Manufactured Home Loans to Taylor Bean now have no place to sell them...so the question lingers: who will buy and service them in these loans in this market? Portfolio specialists charging high enough interest rates to cover their behinds, that's who.

Foreclosures high in Manufactured Home category. I was told today that banks are so overloaded with defaults in this category they are reselling them for pennies on the dollar. Just look at any FHA or VA repossession site. 99% are Manufactured Homes.

MFD Industry Implications I understand Warren Buffet owns a Manufactured Home Company. Wonder if he's taking his lumps on that? A community dependent on a Manufactured Home plant, the suppliers to that plant, the distribution chain, and everyone who cuts hair or feeds the workers of that plant will be in for an unpleasant surprise unless they can quick retool and up-skill to the next level.

Enter Modular:The Modular Housing Industry (factory built in sections on timber sub-floors) will likely benefit from this news. Modular homes are classified 'stick built' construction and are more affordable than most conventional homes due to economies and efficiencies of scale and under-cover building. This category is worth watching!

Here's my blog on that: http://buildnet.blogspot.com/2007/12/gliding-toward-green.html

RECAP: Because Fannie and Freddie will only fund 80% loan to value on newer homes with perfect credit, this defeats the purpose of entry level housing since very few borrowers have 20% to put down. VA lenders are scarce as hen's teeth.

I know Realtors are reluctant to give this news to their clients for whom they may be listing or negotiating a Manufactured Home transaction. I've heard Realtors trying to steer borrowers to 'their lender' who 'just funded' a manufactured home a few weeks ago. Sure, that lender funded a home they had locked a loan 30-45 days ago. They can no longer originate that same loan unless they are willing to hold it. Most smaller banks are so distressed by local conditions that underwriters are being told to flatly deny a manufactured home purchase or refinance.

REQUEST: I am seeking a VA lender for a Manufactured Home Purchase for a well qualified borrower. I have 14 "no's" in my inbox today. My poor borrower even called the Veteran's Adminstration and was told it's not the VA. This confuses everyone. Lenders are simply not happy about funding manufactured homes. Their investors, you and me, their depositors are not happy about it. We need better answers for our buyers! (yes would be nice?)

IF YOU KNOW ANYONE FUNDING VA MFD HOME 100% PURCHASES TODAY PLEASE TELL THEM TO CALL ME NOW!!! ....and --hey hey hey...be careful out there!

When our own banking system is at work amazing us with their fancy footwork? Did you hear the move to FHA to avoid the HVCC appraisal code debacle has over taxed the FHA system? Have you heard FHA loans are taking 60 days to close and many files are being denied?

For the first time in years, the FHA funding reserve has fallen to 3%. In 2007 that reserve was 6.4%. Legally, the FHA funding reserve cannot fall below 2% or they have to stop funding. Interestingly, the Fed has determined they won't be propping up FHA further, at least for now. The reason may be due to higher FHA foreclosures with such banks as Wells Fargo, Bank of America and their recent acquisitions who specialized in FHA and Sub Prime. Those same major banks, if you recall, just pulled a number of their riskier products off the rank (manufactured home loans, construction loans, condo loans) and raised their credit standards. Underwriters are now cherry picking files and denying borrowers who clearly fit FHA profiles, just not THAT investor's view.

FHA has proven to be a tough task master; wanting proof for everything imaginable and prosecuting banks like Taylor Bean Whitaker who fell afoul of their systems by closing them down with little warning. VA is also tied to Government loan guarantees, similar to FHA. USDA is guaranteed by the Department of Agriculture, and right now they have a long underwriting time frame causing lost locks and sales contracts falling over. Is there any question why the major banks have announced plans to start their own government backed loan program? Guessing those lenders just want more money faster, huh.

The whipping boy in government backed loan scenarios is the US Tax Payer. WE are the ones propping up loans to banks so THEY don't lose when borrowers default. As a a trader friend of mine put it: the US Taxpayer net = a marked deck!

Racing around for a loan product is starting to look rather undignified these days!

You gotta love the new California Realtors motto: Cope and Complain!  Well my way of coping is to keep smiling, keep working and complain to my Congressional Representatives and other bloggers AFTER hours.

Here's how to find your Congressioanal Representative. Tell'em we all said HI!

Planning and Patience WIN: Check out this encouraging local news story about a couple who laid in wait for 18 months and pounced on a great home with 95% financing for the right price. They saved their cash for renovations and bought a fabulous location, a solid older home with good bones and amazing water view. The only real challenge was getting an underwriter in the Midwest to appreciate the value given low sales (pre-spring lull) in a very stable neighborhood (most residents stay put so another reason for low sales). The author just happens to be editor of the Scotsman Guide, our industry publication (contact cultivated via that publication). He was happy to give me a quote or two and interview a Realtor friend who specializes in short sales. Smiles all round! You just can't underestimate the good vibes for good stories.

http://www.bellinghamherald.com/homebuyersguide/

Working the press and creating a presence is about being out there and over time...people keep seeing one plugging along, chin up. Helps to have a buyer who 'doesnt' mind publicity' as in this case. I had another young first time buyer featured on the front page during the early freak out of mid 2008 that emphasized buying within your means as the key to success.

Future Harvest: Which reminds me, I am going to plant a tree for buyers at their new homes, starting tomorrow-- for many years of enjoyment to come. 

"He who plants trees loves others"

In the wake of Taylor Bean Whitaker being disowned by HUD and shut down on August 4th, (they were the 3rd largest FHA lender in the nation prior to their closing) we are getting the inevitable announcements from other Government lenders about new restrictions.

Today several major FHA/VA lenders announced they have ceased funding Manufactured Housing. Considering these loans were largely funded by FHA and VA due to the guarantees that limited the lender's concerns about defaults it is hugely unlikely many investors will step up with decent financing options for manufactured housing, at least for the foreseeable future. Sure there are specialists and local banks who can fill the gap but the reason these properties are so risky is two fold: cheaper housing attracts a borrower who by definition are at higher risk to default. Banks are particularly wary of having foreclosed manufactured homes on their books because they can't sell them as easily and now...well, without financing who will buy?

News Update: 09/10/09: I was told today by a specialist manufactured lender they offer 12% interest rate to manufactured home loans. They are extremely busy picking up the pieces even at those interest rates (!) Since August, the government mortgage lenders were selling their FHA Manufactured Home Loans to Taylor Bean now have no place to sell them...so the question lingers: who will buy and service them in this market?

Expect a rash of foreclosures to accellerate among manufactured home owners. Now the owners of manufactured homes will have no easy refinance method such as the FHA streamline. With no loans, no sales. Prices will plummet! The only manufactured home at the present time that will benefit from USDA lending is a new manufactured home (that has never been lived in). So what will that home buyer do if they decide to move in a few years and the lenders have evaporated so their home can't be funded by a new buyer? Give them away?

Manufactured homes could actually be considered a liability to a property!

The manufactured housing industry could really be taking a hit The sheer domino effect of this drastic reluctance to fund manufactured housing could have some very big downsides to rural economies in particular where the majority of manufactured homes provide the predominant housing. What if you have a manufactured home plant in your area? Did anyone consider this when they pulled the plug on their own bank eliminating manufactured loans? Are we trying to control the quality of housing by eliminating this entire sector? One wonders what the entry level rural buyers in regions like ours will do. While I have always tried to steer folks toward higher quality housing there is no doubt the manufactured home has provided an important boon to home ownership. What next government lenders?

Home Ec Class was for sissies: learning to balance a home budget and bake from scratch was beneath me. After all, I was going to college for goodness sakes! Many of these 'vocational' courses including shop class (which I was not allowed to take as a girl) were chopped in favor of academics.  

So now we wonder why adults don't know how to balance their own checking accounts? We have become accustomed to believing the readout from our ATM machines as an indication of our monthly net worth!

While I know many people have planned thoughtfully and could not forsee their retirement accounts, home values and jobs cut by 40 and 50%, the truth is -- so many folks are in trouble. The rules have changed drastically. As a country and an industry, we do need to take some credit for suggesting ever increasing home values and economic growth, coupled with the refrain: 'you can always refinance later'.

Is no wonder many don't understand their mortgage commitments! After all, you sign a stack of papers with words like "Promissory Note" at the top. Not one borrower has asked me what that meant. I counseled a Realtor recently who helped his elderly mother into a 90% Pay Option ARM using his income to qualify. Incredible. The banks involved are facing lawsuits for just these tactics. One must wonder if this person actually knew what that 'sweet low payment' was all about.

The Plain TRUTH is that most people have gotten into financial distress over a period of years by living in denial. We are not a nation of worst case scenario planners. Even those who did plan for the downside (I can think of one very thoughtful builder who did) are caught way below their worst expectations. Damage control plan E and F are being enacted. Coupled with less than fully lucid financial planning, the average non planner is in deep. Way deep.

Telling Question: At what age would you like to have your home paid for? It just doesn't occur to folks that paying off their home is not only a sound idea but will free up their capital for other life issues. Like, uh, retirement for example? And that quaint idea of saving. Perhaps this is returning now.

So--what can you afford today AND tomorrow?  I now ask people to complete a household budget as part of their first consultation. I get a blank look. I hand them the standard budget form. This most basic tool is part of every Buyer's Ed class. You can take it online. or through your local counseling. The course is full of great information on the realities of home ownership.

Everyone is different! You see, on the standard loan application, your living expenses are not taken into consideration at all. Or how many mouths you have to feed, or how far you have to drive to work, or how many kids are in college or such things as disabilities or other ongoing issues that might cost you more to than the next person. Only your monthly credit and housing costs are considered. After that, you're on your own to work it out.

Which is a wonder that even FHA allows 50% debt to income ratios -- using your gross income to qualify you for a loan. 31% is the new 'affordable' target debt to income ratio according to the Making Home Affordable program....an example of perfect hindsight.

Here's a link to a good budget tool. Spread the knowledge!

It had to happen: My first HVCC appraisal debacle was via one of my best A paper banks. 

FIRST: The borrower gets to pay a higher cost (over $500) with with a credit card online to the bank. Since can't actually lock confidentially without an appraisal (unknown timing) we place the order, pay the fee and then we get to sit tight. Great feeling. HMMMM.

This happened to be a refinance. Not knowing your value up front, you can't determine the loan amount or correctly price the loan. So waiting has an unfamiliar edgy feeling.

NEXT: an appraiser in another city, 100 miles away, nabbed the request online and he called the borrower on a Sunday evening to set the appointment. (I ordered it on the previous Thursday). So far so good.

ENTER SENSE OF IMPENDING DOOM: The borrower called ME to ask why an appraiser from 'that city'  was calling to review her property. GULP. I suggested she ask two questions before setting the appointment to get a feel for that person's suitability:

1. How well do you know the area? and

2. How many appraisals have you performed in our area in the last six months?

His answers suggested he had been in our turf in the last two seeks and he swears he knows it. So she sets the appointment. (more impending doom) I suggested she give him an earful about recent changes in the area. There have been a few...of course it's a unique home on acreage. Comps will be fun.

So this guy I've never met or heard of drove 100 miles to meet my borrower at her home: He was there early and told the borrower he had already walked the property (nearly an acre). She was amazed how fast he walked through. We surmise he flew past a few comps (or just used listing photos, we'll never know). He promises to be fast. Leaves.

Five days later I get the online notice from my processor. UH OH, it's 20% lower than expected! This borrower has lived in her home 22 years, and is a former Realtor. I calmly alert her by phone of the result and email her the report. She flips and asks ME to challenge it...which I CANNOT LEGALLY DO DIRECTLY TO THE APPRAISER. Reeling-- I get an earful, we commiserate, we look at loan options given the lower value. She is really not happy and suggests canceling her credit card charge for the report, which frankly I know is her right, but I also know it will now be charged to me if we walk away. Didn't think of that little twist now, did we? Two more days pass. I suggest she compose a letter to present to the lender voicing her concerns. Maybe writing will help us both get a grip. I now find myself in the position of reviewing an appraisal item by item...something I am not trained to do. I call couple of friends in the business for support. More time invested. Great stuff.

NEXT: we put the system to the test: As a former Realtor my borrower knows a thing or two and is mad as a mother bear about it. She has done her homework. I go online, register a case, submit my borrower's letter of explanation, request a review, add my own comment to the Underwriter as to why we think the appraisal is faulty. YADA YADA YADA. Again we wait. A fire would be nice about right now. A couple of days pass quietly.

VOILA! Review Request Nets a Review Approval: The Underwriter responds and agrees our case qualifies for a BANK REVIEW which costs $300, Here's the fun part: I HAVE TO PAY FOR THIS MYSELF IN ADVANCE on a wish and a prayer. Then, IF the value comes back 10% higher they ORDER A SECOND APPRAISAL which the lender will pay for themselves. Or I've just tossed $300 into a hole. Do you know how long all that takes?  Pretty hard to mend the damage, lose your lock, endanger your relationship with your borrower. (Besides looking cheap about my reluctance to spend $300 on the review.)

RETHINK: Rather than go through the official "having another guy who knows nothing about this area review a flawed appraisal gig" we decide on a much sneakier strategy: The borrower will raise a stink with the appraiser directly. After all she was smart enough to get his card with his phone number and email address. By this time, she has added to her arsenal: she had pulled up tax records and driven by each of his comps for a good hard look(!). She even noted the issuance of renovation permits on the county website. She lands her comments on the appraiser with a thump. Over the weekend, he promises to look at her notes. Two more days pass. To our UTTER SURPRISE, perhaps to save face and his relationship with the bank, (who by the now had seen these same copious notes) he upgraded her value by 10%. I WOULD LIKE TO THINK his agreement to reconsider is a genuine professional correction. He 'found' another comp too. Did he appreciate the extra work to correct his report? Who cares. I'll never meet this person. It's all so impersonal and non professional now.

Fortunately our strategy worked---just. But we lost at least 10 days--all fun stuff. Our lock (we had pounced once the appraisal was in) was shot along with our LTV. We still had to review the loan and reprice. By now the file was in the system so changes mean underwriters and processors dancing to and fro online. What looked like an easy refinance with a perfect borrower on a low loan to value became a nightmare. I had spent hours on the phone, checking the file results, rejigging the file with my processor, discussing what-if's with the client. All with the clock ticking and anxiety mounting. Fortunately, my borrower was willing to stand up for herself. Not all clients would be so bold or so appreciative.

Enter the New Monkey: So, while Janet Guilbault, fellow Active Rainer celebrates that she doesn't have the "monkey on her back anymore". I think what we have here is a new breed of monkey. Realtors will definitely have to pick up the slack for their listings and meet appraisers to protect their sale. That may be a very good thing. But asking borrowers to fend for themselves puts quite a new twist on our role as advisers. Few borrowers would bother...we will just get yelled at and lose clients. No wonder FHA and USDA are booming!

Will this bring values down? Is this being engineered by the Banks and MI companies? Industry insiders suggest that potentially $1.7 Trillion in equity has been lost due to HVCC as of July 10, 2009...after barely 6 weeks in existence!

Sidebar: HVCC is actually being supported by the--you guessed it--AMC's! Here's a Video about it: http://www.thinkbigworksmall.com/mypage/player/tbws/11423/1018553  (fast forward to 1:40seconds)

Please consider emailing or calling your Representative to support HVCC REFORM by voting YES to H.R. Bill 3044, calling for a Moratorium to revisit the HVCC Monkey, or as it is better known, the HAVOC Rule.

Meanwhile, I'd like to hear you ideas on end runs around HVCC and your success to date. Thanks!