Davids’ Big Island Mauna Lani Real Estate

January 24, 2009

Home Valuation Code of Conduct: Buyers Take Notice

Filed under: General,Real Estate Information — David C. Swanson @ 7:02 pm

The Federal Government is attempting to regulate appraisers and mortgage lenders in 2009. How will new regulations affect Big Island buyers? Clearly, there are big changes ahead for the appraisal and mortgage industries. Federal Housing Finance Agency (FHFA) Director James B. Lockhart has recently announced that Fannie Mae and Freddie Mac will implement a revised Home Valuation Code of Conduct (HVCC) effective May 1, 2009.

The code is primarily directed at regulating banks and other mortgage lenders and promoting appraisal independence. Mortgage brokers and realtors will no longer be allowed to choose appraisers. Instead, the appraisers will be chosen by the lenders. In the case of lenders’ in-house appraisals, the loan-origination departments will not be allowed to influence the valuation process in any way.

According to Christopher Palmeri of Business Week, “The appraisal industry has justifiably come under fire for its role in the great housing bust. Property appraisals, required by lenders before a loan is made, are supposed to provide an independent assessment of the home’s value. But during the boom, appraisers routinely signed off on a doubling or tripling of home values, sometimes racked up in just a matter of months. Investment properties were appraised at prices that made no investment sense.”http://www.businessweek.com/bwdaily/dnflash/content/jan2009/db20090118_003174.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

Palmeri continues, “The new rules only apply to loans bought by or guaranteed by Fannie and Freddie. Lenders who operate independently of those channels do not have to follow them. But since Fannie and Freddie buy or guarantee a huge share of all U.S. mortgages, the changes should have wide application.”

Most professional appraisers strongly disapprove of the HVCC. They fear that the independent appraisers who have always depended on referrals from mortgage brokers will be forced out of business. They believe the HVCC will compel mortgage brokers and banks to hire a new appraisal workforce for independent appraisals, or to use the services of large appraisal management companies (AMCs).

AMCs are a dirty word in today’s appraisal industry. George Dodd, an appraiser based in Virginia, says “the most experienced appraisers (will be) the hardest hit” by the new code “because of our unwillingness to sacrifice integrity and quality by doing business” with management firms [AMCs]. Rather than work for peanuts, Dodd said, “I can flip burgers at McDs for more.” http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010901920.html

AMCs are notorious for demanding that appraisers perform their work for half the usual fee, while at the same time charging lenders and borrowers more for the appraisal. This has a negative impact on the quality of the appraisal as individual appraisers might try to compensate for their lost income by performing a higher volume of appraisals.

Proponents of the HVCC believe that it will hold the appraisal industry to a higher standard and protect the appraisal process against inappropriate influence and coercion. They argue that the impact on appraisers will be minimal and positive. AMCs are mentioned several times throughout the HVCC, in that AMCs are prohibited from pressuring appraisers to reach pre-determined values.

The National Association of Mortgage Brokers and appraisers’ trade organizations have plans to appeal to Congress and Fannie and Freddie regulators to reverse certain aspects of the code, for instance, the code’s ban on broker selection of appraisers. Four of the five federal bank regulators have called for the withdrawal of the HVCC, stating that it could contribute to a greater incidence of inaccurate real estate appraisals and consumer credit problems.

How does all this affect mortgage borrowers? One commonly voiced concern against the HVCC is that the use of less experienced or non-local appraisers could arbitrarily deflate property values further, forcing buyers to come up with larger down payments, creating difficulties with refinancing, and ultimately leading to a higher risk for foreclosures or short-sale contracts. An overvalued appraisal can have severe consequences for a homeowner later on if they have to sell or decide to refinance, and then learn that they owe more for their property than it’s worth.

With the upcoming May legislation and regulations, what is the future? The US government will hold lenders, banks and appraisers in a tighter grip. Will the real estate buyer be more protected or less so? It will be interesting to see how this all unfolds. How do you see it?

January 13, 2009

David Swanson 2009 Predictions: “Escrow or Bust!”

Filed under: Real Estate Information — David C. Swanson @ 9:53 am

Although everyone had high hopes that the 2008 U.S. housing market would have a soft landing, increased foreclosures and a meltdown of the residential mortgage market caused the housing sector to crash-land. Even worse, the residential mortgage crisis spread to all ownership categories, including our blessed Aloha State. The year 2008 proved to be a real roller-coaster ride for the Hawai’i real estate industry.

While the credit crunch and economic uncertainty have caused investor anxiety and tighter lending standards, the end result was nearly 30% fewer Hawaii real estate transactions than the previous year. Many potential buyers saw their investments evaporate in the global financial crisis, and buying decisions came to an abrupt halt. Many were scared to move forward. “Let’s wait and see what happens,” seemed to be the typical slogan of our prospects. Almost every active Hawai’i licensed real estate agent or broker has some story to share about deals gone bust. 

Some pundits theorize that we are in a buyer’s market under the current market conditions. Is it really a good time for buyers? The answer may be that only time will tell…but, if one of your clients is a consumer who is financially and emotionally ready, certain current conditions are favorable.

Many of our prospects are looking for the best deal. Some are still waiting for the bottom of the market to hit. Resale prices have been moderately moving downward, and buyers have more leverage and more options. After what can only be described as the toughest year for the American housing market in decades, the big question remains, “When does this all begin to turn around in our Hawaiian Islands?”

Hawai’i entered a recession in recent months that will stretch well into 2009, with only a weak recovery expected in 2010, according to the latest in a series of forecasts on the state’s economic outlook. The report released by University of Hawai’i Economic Research Organization is the most recent and gloomiest of economic prognoses published this week:

Carl Bonham, UHERO executive director, had this to say, “From the analysis we’ve done, Hawai’i's already in recession. We’re predicting that things are going to remain bad through the third quarter of next year.”

Moreover, individual forecasters vary in their opinions about how deep the downturn may be. For example, Bank of Hawaii’s forecast calls for visitor arrivals to decline by 0.2 percent next year. Their forecast suggests that a significant recovery won’t begin until 2010. The outlook includes:

· Visitor arrivals will fall by 10.8 percent this year. Hawai’i had 7.27 million visitors last year; each percentage point decline this year represents roughly 73,700 arrivals.

· The biggest decline in vacationers will occur among mainland tourists. UHERO said their visits will be off by 14.2 percent this year. Japan vacationers will be off by 9.8 percent.

Does this information lead to any conclusions or predictions about whether our current active licensed real estate agents and brokers on the Big Island can make a go of it? First, it might be helpful to assess how many active licensed agents are competing for the market share. I have heard many casual rumors that there are 20% fewer active licensed agents and brokers. The truth is perhaps slightly different:

Data from DCCA, REC 2008 Final Report, www.dcca.com/rec shows that the number of new licenses issued in FY 2008 decreased 9% over the prior fiscal year. During FY 2008, 1910 new licenses were issued. Individual broker licenses decreased by 21.1%; new salesperson licenses decreased by 6.9%; and new entity licenses decreased by 9.8%.The overall number of current real estate licenses increased 9.7% by the end of FY 2008. In FY 2008, active licenses increased 2% over last year, while inactive licenses increased 31.1%. There was an 8.9% increase of active licenses of Molokai and a 3.4% increase of active licenses on Oahu. On the islands of Hawaii and Kauai, there were minimal decreases in the number of active licenses.  

Do questions keep coming up at your brokerage office weekly sales meetings as to how you plan to survive and make a living selling real estate? The MLS Sales Statistics Report for the January start shows the entire island in all categories down 82.88% in number of sales, down 93.18% sales volume, and down 74.44% median sales prices.

Are we and our buyers waiting for January 20th for President-Elect Obama’s inauguration to spring-load the economy and drive the housing market out of the downturn?  Don’t take this the wrong way. I promote and envision a new optimism for all of us with the new Presidential administration. For now, I still wake up at night wondering what it will take to change the consumer’s thinking from, “Maybe I could be a buyer someday,”  to “Now really is the right time for me to own a piece of paradise.”

I believe in the power of positive thinking, a mental attitude that expects and thus helps to create good outcomes in all endeavors. The idea is that whatever the mind expects, it finds. My wife and I were discussing a way to creatively visualize buyers opening escrows. The acronym ESCROW came to me: Excellent Service Can Restore Our Wealth.” This mantra reminds me to stay focused on personal and professional self-improvement strategies that will allow me to give the best possible service to my clients.

Will 2009 be a year of “escrow or bust” for you? Please share your comments and thoughts about how to achieve success in a recession economy.

Attitude is a little thing that makes a big difference

~Winston Churchill