My New Blog

QUOTE OF THE YEAR:

IF IT’S NOT AN REO, DON’T BOTHER

WHATS OUT:

TYPICAL OWNER OCCUPIED SELLERS

Appraisers File Law Suit against Wells Fargo Alleging Appraisal Pressure
 

FROM THE APPRAISAL INSTITUTE

Two real estate appraisers filed a lawsuit against Wells Fargo and its appraisal subsidiary, Rels Valuation, claiming the two organizations pressured them to submit inflated home values in an effort to increase profits. Filed under the Racketeering Influenced and Corrupt Practices Act, the lawsuit alleges that plaintiffs Don Pearsall and Timothy Savage were pressured by Wells Fargo to inflate appraisal values. After refusing, the suit claims that Rels blacklisted both from its approved list of appraisers.

“We plan to show Rels effectively tells the appraisers what they want to see in the valuation, and if they don’t deliver, they are locked out of future work,” said Steve Berman of Hagens Berman Sobol Shapiro, the attorney representing the plaintiffs. The firm is involved in other lawsuits against Wells Fargo and Rels.

According to Berman, Rels Valuation provides appraisers with predetermined figures called Borrower Estimated Values and expects appraisal reports to contain values exceeding the supplied figure. In addition, the complaint alleges that the two companies have compromised appraiser independence by providing valuers with predetermined comparable properties when performing appraisals.

“We’ve heard from appraisers across the country sharing similar stories—bullied into inflating prices and blacklisted when refusing,” Berman added. “Apparently the treatment that both Tim and Don experienced is the same for hundreds, if not thousands of appraisers.” The lawsuit seeks to represent all state-licensed and state-approved appraisers nationwide who have been removed from Wells Fargo or Rels Valuation’s approved appraiser list.

BANKRUPTCY AND THE AFFECTS ON

THE REAL ESTATE MARKET

I have received quite a few emails regarding my prior post on our market conditions. One issue I addressed was how I believed that the proposed “Cram Down” bankruptcy changes would help our market immediately. This proposal allows for judges to reduce and modify a homeowners primary residences’ first mortgage. Currently only the unsecured second and additional unsecured mortgages can be modified.

I want to explain a little more to you on this topic. The primary reason for this being a good thing is because of BAD BPO’s. I have witnessed first hand along with other appraisers and realtors the following. A home is an REO and managed by an REO company or an REO department or the home is a short sale. What occurs is that the companies seeks a BPO from a realtor. They DO NOT always get an appraisal. I have seen first hand where the management company or REO department does not like the BPO and pressures the Realtor for a lower number or they go with the lower BPO in their negotiations and list price. We “appraisers” come in on the buy side and a majority of the time cannot find data to substantiate such low prices until the new one sells at a give away price. You can observe this yourself if you start looking at DOM. You will see a lot of DOM under 7 days. The low DOM is a very strong indication of materially low prices ( lets not address the supply side yet ). A low DOM in a Buyers market should not exist! What occurs next is the bank realizes an asset loss based on the sale price which was based on an inaccurate BPO. Now in regards to the “Cram Down” bankruptcy proposal, in the courts an “appraisal” will be utilized by the judges in determining the market value of the property. And what results will be a material difference in the losses booked by the banks, the homeowner keeps the house, and the house doesn’t go on the market putting downwards pressure on price. For example ( I am using actual numbers observed ), a BPO came in at $60,000, appraised value was $115,000 homeowner owed $205,000. The REO management company puts the house on the market for $60,000 and took $55,000 and was under contract within “1” business day. Whereas, had the homeowner been able to declare bankruptcy and had the mortgage been modified to $115,000, the losses would have not exceeded a predictable amount. Had the bankruptcy been available, the home would have not been on the market competing with other neighbors who are not in distress, and the losses would have been less severe. Onto the supply side, had the “Cram Down” Bankruptcy been available, there would be less homes on the market within an extreme short amount of time. This cram down bankruptcy has been in place before and nothing bad happened in the 90’s nor with the commercial side either, so I am a strong supporter of it and it’s ability to immediately quell this real estate mess. As always please send me your thoughts and opinions.

HOMEOWNER INSURANCE COVERAGE NUMBERS

BEING MANIPULATED?

I recently received my homeowners renewal policy from State Farm Insurance. My coverage amount had increased to an amount that had my dwelling replacement cost at $130 per foot. This does not include the contents of the dwelling of personal property and remember this does not include the land. This is the cost to remove and re-build the dwelling. Now, I was quite shocked since this was a significant increase from the prior years coverage amounts. Since I am in the business of Real Estate Valuations, which includes my experience in the “ detailed “ cost addendum using quantity survey methods, I knew this was a grossly exaggerated number. I also new that the coverage or replacement number means a higher premium will be paid to the insurance company.

            I have been closely monitoring what local builders and contractors are doing in our market area. The amounts that I am witnessing builder’s build a similar type dwelling is from the low end of $65 per foot to a high end of $100 per foot. My dwelling is not near the upper end and is more towards the mid-lower end. The coverage amount is there to provide a cost of what the amounts are to remove and rebuild the dwelling. This meant that State Farm had overstated my insurance coverage on the low end of $63,000 to a high of $136,500. You don’t have to be rocket scientist to know that there is a very low demand for building supplies which means lower prices to build all around. Our prices have not gone up since the Real Estate market has been spiraling downwards.

            Armed with my information, I called my State Farm representative and questioned them about this significantly incorrect coverage amount. The initial response to me was, “that was what the computer told them”. It was a software program of State Farm in which data is inputted and the computer spits out a number. This meant that some insurance number wizard must had seen that premiums can be increased if the coverage amount can be increased while still leaving the rates alone. This seems like a good scam to me. I was not questioning the fee to insure that cost, I was questioning the beginning trigger number of the coverage amount. Anyway, I pressed the representative and found out that there are overall classifications that affect the coverage amounts. Well, no one ever volunteered that information to me when I originally purchased the coverage. They just took the initial appraisal that was performed for the mortgage and used the cost section, which is not an intended use of that appraisal. And there were no questions to me about the overall classification of the property. It appears as though this was a very convenient way to hide another way of increasing premiums in the following years of a purchase.

            The end result was that I was able to get my coverage amount within $50,000 of a reasonable number. However, I am very disappointed that with all the methods and databases that exist to create accuracy in cost valuations, they could not get closer to a reasonable coverage amount.  I want to urge you to take notice of your coverage amount. Contact your insurance company and find out how you can argue your coverage amounts with them. Some will take another appraisal for insurance purposes while others require a contractors estimate in following years, and in the case of mine, it was just clarifying the overall classification. After witnessing this significant and material misstatement of coverage I can only imagine what the overall general misstatements of Florida residents homeowners insurance really is. I hope someone in a higher position takes notice of this. 

From the Appraisl Institute:

Wells Fargo/Rels Valuation Hit with “Skimming” Lawsuit

It seems as though 2009 has started out with great uncertainty. There are many issues at hand that will be and are affecting the local Real Estate market. I have observed many disturbing trends and I see quite a few new trends and regulations that will further pressure the real estate market. But first, 2008 ended in a manner that I thought it would. If you look at my projections page that I developed back in May of 2008, you will see that the projections were dead on. What I thought would occur and stated in previous posts regarding foreclosure is occurring. The main problem I did not foresee,  is the material part BANKS are playing in this problem.

I have been witnessing a transition that has made its way into the political arena. This transition is the placing of the “appraiser hat” and “its liabilities” from the Certified Appraiser to the Realtor. This is being done on short sale and REO negotiation transactions. The banks believe this is about saving a buck. However, I ask you the Realtor, after speaking with some lawyers ,  who bears the liability for the accuracy of the BPO’s and who bears the liability for the financial affect of these BPO’s? I do not believe that the Realtors have realized that this additional hat that has been placed on them can present additional liabilities in the future. I wont go too much into the specifics of this, it would take way too long. But I do expect that over the next few years we will be hearing about issues involving inaccurate BPO’s that were relied upon and that created a financial hardship to individuals.

In regards to the recent report from local media outlets that December 2008 “exceeded” December 2007 sales numbers by 6%, I say “so what”. Please refer to my projections page and look at the December trend over the past 9 years. There is not anything here to get excited about unless you want to put on your rose colored glasses. A majority of the sales in December were REO and Short Sales. This is drowning out the typical sellers of the past. These typical sellers of the past are what we need to focus in on in order to identify a sign of a healthy market again. And this brings me to the major problem that is being made worse by the BANKS. Until a significant step is made to stem the foreclosures by whatever means, “all of us”, will be affected by others. If you need to compete in the real estate market as a seller you must consider the REO and short sale as a competitive alternative. Why would a buyer pay more for the same item? And back to my previous point, if the decision makers are relying on inaccurate BPO’s in their negotiations, then there is a financial hardship being placed not only on the prior owners of these transactions, but on every single typical homeowner in the market area, just so the BANKS can save a buck.

There is some good news that might help out. The current administration is considering pushing through a bankruptcy law change that would allow judges to modify and alter the original mortgage and loan. If passed, I guarantee that it will stem this tide of foreclosures on the market and expedite the return of our Real Estate market to health. Now, I even began to believe the empty rhetoric by the banks last year, that they will work with individuals to modify their loans. And I know many believe, that it is the borrowers fault. However on the first statement: when I am in the field I continually hear horror stories about how banks are treating those affected by foreclosures. Not all banks area working with borrowers and some do not return calls nor attempt to make contact. This is important, as until there is a return to typical listing and transactions every homeowner will be affected. The REO and Short Sale must be contended with by a typical seller. I cannot emphasis enough, the importance of getting these type of dwellings off the market and preventing more.  On the second point, I have met person after person that tells me the story of how they were steered into bad loan terms. I could sit here all day and recount story after story of how borrowers did trust loan officers to do what was in there best interest. When an individual is a trained professionally in a field that another is not, please tell me who will win out in any type of negotiation. (IE. a seasoned realtor vs. an 80-year-old client, or a 15-year mortgage vet vs. a first time homebuyer). I am not saying that everyone is bad. I am saying that the argument of “its’ the borrowers fault” is not a strong point at all. There was plenty of rope given out by the banks, in an irresponsible manner, for everyone to hang themselves and bring their neighbors with them. Hopefully, there will be more meaningful changes to our bankruptcy laws that will stop more homes from coming on the market as REO’s. Another alternative would be for the banks to transition the homeowners in default to immediate tenants. Please tell me why this could not occur.  I hope something meaningful is done soon since there is 1,000ib gorilla sitting out there and his name is “foreclosures not on the market” along with his 2,000ib brother named “2009 lis pendens” ( see my prior posts ). 

There are new regulations that will be put into place this year that will have unintended negatives consequences to our real estate market. The major one is the HVCC ( Home Valuation Code of Conduct ). This is being met with opposition from every major and minor professional group, from Bankers to Appraisers to Mortgage Bankers to the FDIC and more. However, due to the lawsuit of Cuomo V. FNMA, it will be in place this year. It will disallow anyone from picking, paying or communicating with any appraiser in a Federal related mortgage transaction. And the fees are being dictated to appraisers by appraiser management companies (AMC). These companies (  there are four big ones ) , have contracted with banks as approved appraisal management companies. The fee that will be charged to the borrower will be quite more than what the appraisers are paid. And there is no outlet for appraisers to compete openly for business in price. The ability for an appraiser to operate, market and compete for business will cease to exist. There are no AMC guidelines for qualifications. There are several appraisers on these lists that are in the wrong business. And you as the Realtor will be stuck with whomever you get regardless of their abilities. The goal of the HVCC is admirable, however, it has become quite clear to those familiar with it, that it is a detriment to the Real Estate Industry. More and more control is going to the big banks in the real estate market. Earlier this month Chase ended all relations with typical mortgage brokers. This means that a good mortgage broker whom actually brokers the best price, and terms for the customer is out of business with Chase. This trend is across the board and is expected to continue. I believe we should be weary of the control being placed into the hands of those we are bailing out. Their past decisions in regards to loans that should not have been made , bring into question the overall integrity of their position in the market.

Another new regulation that has been pushed back is the RESPA change in regards to builder concessions to buyers for utilizing affiliated services. This one is very good for our market as it takes the control out of the builders’ hands and creates more competition. However, the regulatory geniuses out there postponed it. I know many bad situations that have occurred due to builder-affiliated services for closing costs. It seems as though when a regulation is good it is not realized and when it is bad it goes through.

Another external threat to the market this year will be the continued unemployment levels. The basic core to our local market is as a service industry. We in West Central Florida provide more services than goods. If unemployment levels continue to increase, the amount of actual individuals that come here goes down and the services offered follows directly.

On the upside, as our values decrease so should our property taxes for this year, as the new tax bills will be reflective of the 2008 values. However, it is expected that local governments will face extreme financial difficulties when property taxes are their major revenue source. I would expect to see an increase in the mileage rate. Yes, you can quote me on that. In regards to homeowners insurance, if you haven’t had your property appraised recently, then YOU ARE PAYING TOO MUCH FOR INSURANCE. You are probably over-insured. The possible offset will be if State Farm drops their coverage on over 1 million homeowners, and gets out all together, then the competition will be less and less competition means less motivation to compete on price. I heard a report the other day that it is expected to decrease the rates. Well let me tell you this, I have State Farm and they were and have been far lower than almost every other company I shopped over the past 5 years. So please tell me how this move will drive down the price. Of course if you hold the supply-demand curve upside down, it might indicate that scenario.

All in all, I believe that 2009 will present our Real Estate market with more challenges and difficulties. Those that do not acknowledge them and those who are not quick to react to them will be met with defeat. Those that possess the creative abilities to think outside of the methods of the past will succeed. What worked in 2008 for most, I expect will not have worked the same once we end 2009. I am currently working on a new trend analysis for 2009. I hope the trend analysis for 2008 was useful. It should allow you to know when to market, what to budget and how to adjust your strategy in the market on a month-to-month basis. I look forward to more of your comments and if there is any specific research you should desire, as always I will be more than happy to assist you. I will publish your specific research and there is no fee for it.

Current Sale Projections vs. Actuals and Market info.

 I have been reviewing the latest stats between Hillsborough and Pinellas on my Projections Webpage and the actual trend is getting pretty close to what I expect to occur. We are at sales rates of 2001, prior to any rate decreases by the Federal Reserve at that time. The buyers in the market that can actual be approved are set. What I am observing is that unless banks ease lending restrictions the excess inventory is going to affect our local market through 2010 and no price swings until 2011-2012. I know quite a few people with above average credit history who have had a difficult time obtaining financing.  The 700 Billion bailout should help the foreclosure and short sale side and allow some of these people get the loans to buy up this excess inventory. This is very crucial, as I have routinely observed homes in foreclosure or short sales that are in good condition being sold below what a builder’s costs would be. The banks are currently perpetuating the problem by dumping properties below cost. I spoke with a Realtor on 10/07, he told me that on a listing of his, the bank took a significantly lower cash offer and had a higher FHA and another higher VA offer in at the same time. I understand the concept of cash, but the difference was near 20%. Now, the average Joe homeowner will be competing with deals like these and the holding cost of the bank was not $20,000 for a month. Countrywide took a great step along with BofA, it’s parent company on 10/7, by announcing they will start resetting certain borrowers payments to 34% of their actual and current gross income. This is a plan that has teethe behind its’ bark. I still do not understand why some of theses possible foreclosures are not turned into rentals, with the current owners converted to the tenants. Although the owners in foreclosure cannot afford their mtg. payment, they can afford to rent, they can afford something. And that will increase the banks balance sheets and give the banks cash. Instead of the banks booking a $150,000 loss, take in some rental cash. The owners’ get to keep a roof over their head, the banks get some cash, don’t book a loss and add a long term asset, and the market doesn’t feel such a great effect from this low priced competition. I am about done with my opinion of what the banks can do although I could talk about it another couple of hours. This goes back to my accounting degree and former controller job back in the 90’s. I think that banks should follow what Countrywide announced on 10/07. At least there seems to be some small shimmer of light out there and that is our local market is sustaining a reasonable sales rate and all eyes are on the Real Estate market.

Property Taxes

I was on the Fox 13 Kathy Fountain show last Wednesday for a discussion about Valuation in regards to Property Tax with Rob Turner. It was a very good experience as I researched quite a bit of additional information prior to the show. I began to interview individuals in the Real Estate Industry and property owners. What I found was that quite a few people had questions regarding the whole property tax issue/process and had questions about why their property’s’ valuation by the county was not lower.

But first, in the research I did, I pulled up the tax filings for Hillsborough County that was reported to the FDOR as of 06/27/2008. What it showed was a 13% increase in net taxable values for Hillsborough County, after the new homestead exemption was applied. “?”. Yes 13% you can click here to view it yourself.  I hope someone could correct me on this or tell me which part I am not reading right. But if that is the case I would be a little confused. For those of you who missed the show last week, our 2008 property tax bill is based on 2007 data valued as of 01/01/08. So with the new homestead exemption, along with portability, and the beginning of market decreases, along with the “Recapture Rule” I would have thought there would not have been this kind of increase. There is a process for you to appeal your property tax and you can go to my property tax 2008 button on the left hand side of my site to find out how. I know that some people are aware of how to challenge the property tax valuation, but I still find quite a few people, almost, everyone I talk to , who don’t know the process or are intimidated by it. If you have ever been to traffic court, the process is less intimidating than that, well, especially because you didn’t do anything wrong. With the help of an appraiser you can really know where you stand and how to approach the appeals process. You need to realize though you only have until September 16, 2008, to file the appeal paper work. Call me and I will be glad to help you.

How to Lower Your Homeowners Insurance.

Here is a good one. If you had a homeowner’s Insurance policy from, I would say, 2003-2007, you are probably over-insured. WHY? Because the cost to replace has been coming down as compared to those years. My policy on the home I just purchased basically said my land value was about $8,000, and the cost to replace was near $120/foot, ( not even close ). I called my insurance company, and disputed it. What I realized was, an appraisal form that most are not familiar with ( the unit-in-place cost method or the complete quantity survey cost method) can substitute in the same detail a contractors estimate. The cost method on appraisal report most of you are familiar with is not applicable to insurance policies and is even noted in most reports that it is not intended for insurance purposes nor should it be used for such. Yet, I hear time and time again of insurance companies wanting a copy of the appraisal report and to review the cost section. The only importance is that the mortgage company wants a policy equal to the appraised market value. The quantity survey method appraisal form is important because insurance underwriters will take into consideration all data given to them. If they will consider a contractors’ estimate to dispute the cost to replace then the mentioned cost forms in detail will do the same thing. I have completed a lot of these forms on more complex appraisal assignments and they are very accurate. Remember, I am not talking about that small little cost section on the appraisal report.  The cost savings to you is significant. This is not chump change. I believe that if you can lower your property tax and lower your insurance cost than the savings per month is large. Just make sure you notify your mortgage company of the changes so they can change your next months’ payment so you don’t have to wait 4-6 months for an escrow analysis. I did it for my tax in February of this year for the 2008 taxes when I estimated them to be lower. Call me on this and I can show you how I can save you money.

Sales Analysis and Projections.

On to another topic, on my previous post about sale stats and projections, I pulled the July sales today and between Hillsborough and Pinellas, there were now 1,946 recorded. 68 off my projections. I really wish there was a closing of the books process so that at a certain point in time, these numbers would not change. They change in all areas, and when you need good current up to date market data these changes ,due to process, don’t really help us.  August is turning out be right in line with the projections I have. We are still near 34,000 active/pending sales between Hillsborough and Pinellas County, and credit is still tight due to sometimes ridiculous and overzealous underwriting procedures. However, make sure you are up to date with FHA. There is a lot of opportunities for buyers and sellers through FHA. I am seeing a lot of FHA appraisal requests as compared to year’s prior, so don’t miss the bus on it. If you need an appraisal for FHA purposes, call me and I can assist you since I am FHA approved.