Revised FHA Appraisal Guidelines in Effect
for Appraisals Done after April 1, 2009

Last Updated March 26, 2009

I wanted to reach out to you to keep you informed of some revised federal guidelines that outline 10 things that appraisers must do or provide for all FHA appraisals done after April 1, 2009:

1. The Market Conditions Addendum (Fannie Form 1004MC/Freddie Form 71).

2. At least 2 comparable sales within 90 days of appraisal date.

3. A minimum of 2 active listings or pending sales in addition to the 3 closed comparables.

4. Bracketed listings using both dwelling size and sales price when possible.

5. Adjust active listings to reflect the List To Sales Price Ratio.

6. Adjust pending sales to reflect contract sales price when possible.

7. Include original list price and any revised list prices.

8. Reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales.

9. Absorption Rate Analysis.

10. Known or reported sales concessions on active and pending sales.

FHA also is restating its warning that…”Direct Endorsement Lenders are reminded that if the appraiser they selected provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held responsible equally with the appraiser for the integrity, accuracy and thoroughness of an appraisal submitted to FHA.”

If the above appraisal guidelines look foreign to you, that’s okay, because this update is intended for Appraisers and Underwriters. I sent this to you so you can take the following actions below to make yourself an FHA resource in your market.

Different Ways to Buy Foreclosures - you can buy foreclosures a number of different ways. Below are the 3 most common with some perspective on my experience with 30+ years in the real estate business.

Buying directly from the homeowner - You can purchase foreclosures directly from the homeowner prior to it going to sale and back to the bank to be sold as a “Bank Owned” property. I am not a fan of this option for one simple reason. Homeowners are being taken advantage of and deeding their homes over to crooks who promise to bring their mortgage payments current and never do anything. This is the option that all of the late night infomercials are always talking about. It’s unfortunate that when someone is in a difficult situation that these crooks come out of the woods to steal equity away and convince homeowners to deed the property to them. If they really did what they say they will do then great, but it’s too often I hear horror stories about homeowners that were taken advantage of. What typically happens is a number of different things, including renting out the home to collect rent payments for 6-12 months while never make any single mortgage payment. The end result in many of these scams is that homeowners are sold on the idea that they will avoid a foreclosure showing up on their credit. If you have equity in your home then you should try to sell it with a local real estate agent. Your lender will give you some time to sell the property if you show them you are making an effort to sell it.

Buying at a real estate auction - not a big fan! These homes that are being sold at auction are homes that didn’t sell via OPTION 3 of this article. They were listed with local real estate agents as “Bank Owned” homes and as a result of them not selling in a timely manner the bank turns them over to an auction company for sale. Would you go purchase a foreclosure amongst hundreds, if not thousands of other buyers when you could have purchased it a month earlier with no other competition? Auctions are not my favorite, you are in a room with people that do not take the time to research the property and they are sold on this slogan. “Buy this previous valued home of $450,000 with a starting bid of $275,000!!!” I have news for you, take the time and go to one of these auctions and you will see that by the time it actually sells you really aren’t getting a good deal compared to the foreclosures available for sale in the local MLS.

Buying from a local Realtor - my favorite option because it makes the most sense. You find a local real estate agent who specializes in selling bank owned real estate. I would recommend that you do a Google search for “bank owned real estate for sale CITY NAME” and you should come up with some options. Buying from a local real estate company will allow you time to do your inspections on the home you are buying; you will get a clear title with title insurance. If you purchase your home listed with a real estate company that is “Bank Owned” you do not have to worry about the title history because you will be provided with a title insurance policy when you close escrow. You will have typically a 30 day escrow which will allow you to purchase with financing.

Other things to understand about buying foreclosures - One big misconception is that you deal directly with the bank. Let me tell you that it doesn’t happen. Banks don’t sell real estate. They find local real estate agents who know the local market and pay them a commission to get the property sold. Don’t waste your time trying to work out a great deal directly with the bank or insist that your low offer at 50% of the listing price should be considered. Banks want to sell these foreclosures but they are not stupid.

Things to do after you purchase a foreclosure property - Get the locks changed as quickly as possible, many banks use the same key cut for all of their listings because they have so many vendors to deal with they have the locksmith re-key all of their foreclosures with the same cut key. You should really invest $100 to have your new home re-keyed.

If you would like any San Diego Foreclosure Information please feel free to contact us.

une 9 (Bloomberg) — The number of Americans signing contracts to buy existing homes unexpectedly rose in April as the first nationwide decline in prices since the 1930s lured buyers back into the market, a private report showed.

The index of pending home resales rose 6.3 percent to 88.2, the highest level in six months, following a 1 percent drop in March, the National Association of Realtors said today in Washington.

The drop in property values may be starting to lure some buyers who are able to qualify for loans, signaling purchases will improve in 2009. Still, stricter lending rules, the recent increase in mortgage rates and continued pressure on prices from mounting foreclosures will probably keep some buyers away for much of the year.

“There are some signs that sales are close to a bottom, although the level of inventories is so high that there is going to be continued pressure on prices and housing starts,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who had the highest forecast in the Bloomberg News survey. “We’ll need to see more than this report to suggest housing is really rebounding.”

Economists projected the index would fall 0.4 percent, according to the median forecast in a Bloomberg News survey of 32 economists. Estimates ranged from a drop of 1.5 percent to a 1 percent gain.

Stocks Rise

Stocks extended gains following the report and Treasury securities dropped. The Standard & Poor’s 500 index rose 0.6 percent to 1,368.4 at 10:27 a.m. in New York. The yield on the benchmark 10-year note rose to 4.02 percent from 3.91 percent at the end of the day on June 6.

Pending resales were still down 13 percent from April 2007, today’s report showed.

The measure increased 13 percent in the Midwest and 8.3 percent in the West. They rose 4.6 percent in the South and decreased 1.9 percent in the Northeast.

“Bargain hunters entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner occupants,” Lawrence Yun, the real-estate agents group’s chief economist, said in a statement.

Yun also said the drop in consumer confidence and stricter lending rules make the immediate outlook “unclear.”

The pending resales measure is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.

Record Low

The Realtors group will release its May existing home sales report on June 26. Purchases in April dropped to a 4.89 million annual pace, matching the weakest rate since records began. It would take an all-time high of 11.2 months to sell all the houses on the market at the current sales pace.

The lack of demand is rippling through the economy. Sherwin-Williams Co., the largest U.S. paint retailer, slashed its 2008 profit forecast last week because of the decline in the domestic housing market and rising costs for petroleum-derived raw materials.

“The market is deteriorating dramatically,” its Chief Financial Officer Sean Hennessy said on a June 3 call with analysts and investors. Chief Executive Officer Christopher M. Connor during the call also said demand probably won’t improve for the rest of the year.

Other measures have showed sales may continue to decline. The Mortgage Bankers Association’s index of applications for loans to purchase homes has fallen 13 percent since the beginning of May, ending the month at the lowest level in five years.

Price Declines

Values were down 3.1 percent in the first quarter compared with the same period last year, the second quarterly decline after 13 years of increases, the Office of Federal Housing Enterprise Oversight said May 22.

“What people are most scared of is looking like a schmuck,” Toll Brothers Holdings Inc. Chief Executive Officer Robert Toll said at a conference in New York last week. “What do I want to buy a home for and next year be looking at 10 percent less asset?”

Toll predicted the housing slump may last another two to three years. On June 3, the company reported its third straight quarterly loss.

More Foreclosures

The number of Americans in danger of losing their homes to foreclosure rose to the highest in almost 30 years in the first quarter, the Mortgage Bankers Association said June 5. The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, or loans with one or more payments overdue, grew to 6.35 percent. These were the highest since 1979.

Still, the decline in prices is making homes more affordable. The Realtors group’s affordability index stood at 129.8 in April. A reading of 100 indicates a family with the median income could afford a median-priced house at current interest rates.

The collapse of the subprime mortgage market has led the world’s biggest banks and brokerages to report more than $386 billion in losses and writedowns.

Banks will probably report “weak earnings” and write down more assets while operating with insufficient reserves to cover bad loans, Federal Reserve Vice Chairman Donald Kohn said to the Senate Banking Committee June 5.

The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn. He also said losses for homebuilders and developers are “bound to increase further.”

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

OK now I am really confused… my stock account is way up and rates are still holding gains.

I included a chart below to show this unprecedented inverse relationship between a rising stock market and a dropping bond yield. The shear volume of loans closing has a lot to do with what is going on but even that used to hurt us in the past… but the big closing months always came as yields had already started to climb so whatever direction rates are going when all these mortgages start to close and pay off must just exacerbate the current market movements (Last November the Fed had cut rates and fearing inflation, bond traders panicked and yields climbed above 4.25… on top of this we had all those loans closing from September locks so the rates actually climbed went even higher.)

To safeguard against the risk of falling interest rates, mortgage portfolio managers buy U.S. Treasuries to guarantee they will not get stuck with too few securities and too much cash, which they must then reinvest at lower and lower interest rates… and rates are still holding and gaining ground… what gives?

There is a term called “Convexity” that comes into play with bonds that has something to do with the fear of repayment and the actual need to free up cash to fund all these refinances causes hedge funds to load up on mortgage backed securities which is further dropping yields as Habib stated in his article… “When bond yields fall, mortgage portfolio managers are huge buyers of U.S. Treasuries because they need to offset the risk of falling interest rates. This buying conducted by mortgage portfolio managers is often termed “convexity” buying. Another way to understand “convexity” buying is that it is “forced” buying of U.S. Treasuries. This buying conducted by mortgage portfolio managers is often termed “convexity” buying.

Another way to understand “convexity” buying is that it is “forced” buying of U.S. Treasuries.” The other big rumor is that to fight off deflation the Federal Reserve will start buying up 5 and 10 year Treasuries which will also drive down yields and that they may still drop short term rates on the 5/25 meeting but they are really looking to drop longer term securities to keep the housing market strong and bolster consumer spending…. I think it is more that the larger investment houses (smart money) haven’t bought into this latest rally and that this is mostly short covering of hedges that takes place when the market starts to improve especially past key points like 9000 , electronic trades kick in but that we will see a huge correction in July when most traders head off to the Hamptons (like last years 900 point drop mid July and July of ‘01 sell off.) But we need to be careful because if this rally carries through the summer… rates could climb a full point by the end of August… just when all these new refinances start to close and that in turn will cause rates to climb higher (kind of a reverse of the convexity buying we are now seeing).

That is what happened in 1993 and 1998 when rates dropped but the market rallied throughout the summer causing record low rates to disappear… until the inevitable crash that finally occurred in October of those years and rates came back down… for about a two week span but the bull market returned for real after both of those crashes and rates climbed for about 3 years after each of those record low refi booms. So for now, lock um in if you can save .50%, never pay closing costs, and enjoy this longer then usual ride.

This is from my 21st Century Alert email, “I’ve always known that at some point in the bear market, the “smart money” was going to get roughed up too. And there is some bizarre stuff going on right now, regardless of whether you are bullish or bearish. Number one on the “wacky list” is the bond market vs. the stock market. Traders in these markets are reaching emphatically different conclusions.

The yield on the 10-year note is down to 3.29%. Wow. Bonds are zooming up (they move opposite to yield), as traders in this particular market are looking forward to disinflation at the very least, and deflation at the very worst.”

This week’s economic calendar holds mostly mid-level reports, but the Retail Sales report on Wednesday will definitely draw some attention, as we get a chance to see how consumers have been spending money out there. Additionally, Thursday’s Initial Jobless Claims and Balance of Trade reports and Friday’s Industrial Production report will also be of interest.

Bond prices had been hanging from a ceiling of resistance, shown in blue on the chart below…almost reminiscent of a Salami hanging in a butcher shop or meat store - and last week saw prices fall off that ceiling, straight down through a floor of support at the 25-day Moving Average. And now - what was a floor becomes a ceiling, and Bonds have not yet been able to recover and climb back above this level.

The economic news and headlines in the coming week will determine if Bonds are able to drive back higher, through the 25-day Moving Average and help home loan rates improve. Weak, negative economic news would be bad news for Stocks, but help money flow over into Bonds and find improvement for home loan rates. Positive, strong economic news will have just the opposite effect though, and cause Bonds and home loan rates to worsen.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Feb 08, 2008)

“LOOSE LIPS SINK SHIPS.” Slogan from World War II Not just clever words of good advice, this phrase was actually part of the US Office of War Information’s attempt to limit the possibility of people inadvertently giving useful information to enemy spies. Now fast forward to present time, as Dallas Fed President Richard “Loose Lips” Fisher’s careless comments last week worked to sink the Bond market, and caused home loan rates to rise about .125%.

Fisher lived up to his nickname last week, almost uncontrollably blurting out off-topic comments and rhetoric during his speech in Mexico City, and roiling the financial markets every step of the way. Long recognized as an “inflation hawk”, he was the lone dissenter against the .50% cut to the Fed Funds Rate on January 30th.

Fisher stated, “Monetary policy acts with a lag. I liken it to a good single malt whiskey or perhaps truly great tequila: It takes time before you feel its full effect. The Fed has to be very careful now to add just the right amount of stimulus to the punchbowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in. …My dissenting vote last week was simply a difference of opinion about how far and how fast we might re-spike the monetary punchbowl. Given that I had yet to see mitigation in inflation and inflationary expectations from their current high levels…I simply did not feel it was the proper time to support additional monetary accommodation.”

The negative outburst by Lose Lips Fisher, which was again a departure from his prepared speech topic, didn’t sit well with the Bond market. Bonds hate inflation, as higher inflation erodes the fixed payment return they offer over time. This sparked a sharp sell-off, causing home loan rates to rise.

AND THE ECONOMIC STIMULUS PLAN IS ALSO ON THE RISE, WITH SOME GREAT BENEFITS IN STORE FOR HOMEOWNERS AND HOMEBUYERS…BUT DO YOU KNOW HOW A BILL LIKE THIS ACTUALLY BECOMES LAW? DON’T MISS THIS WEEK’S INFORMATIVE MORTGAGE MARKET VIEW!