The following comes to us via an appraiser who attended the Appraisal Institute’s 16th Annual Summer Conference:
The Appraisal Institute’s Southern California Chapter-the largest of its chapters in the country-hosted its 16th Annual Summer conference on Thursday, July 29, 2010. The chapter presented an excellent program of continuing education that was well attended by both residential and commercial appraisers.
Of particular interest to residential appraisers was a panel presentation- The Changing Role and Responsibilities of AMCs in the Current Marketplace. Panelists included Wes McDaniel, Corelogic; Jeff Dickstein, chief appraiser, Pro Teck Valuation Services; Gregg Whittlesey, SCCAI Government Relations; Bob Clark, director, California OREA; and FNC Chief Legal Officer Neil Olson.
The panelists discussed the new federal and state regulations directed at AMCs and various aspects of the relationship between appraisers and AMCs.
All the panelists agreed that the recent passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act has placed the legislative arena in the spotlight. California was one of the earliest states (the 6th) to pass an AMC regulation bill, so it is already in force and many appraisal management companies (AMCs) have already registered. Now the Dodd-Frank bill requires all states to pass AMC regulations, but they do have ample time to get it completed.
It was stated that the Home Valuation Code of Conduct (HVCC) and some of the AMC regulations were/are directed toward assuring that appraisers can exercise independent judgment in developing their appraisals. The Dodd-Frank bill “sunsets” the HVCC, but many of the HVCC policies have been adopted by the government-sponsored enterprises (GSEs) and will likely stay in place. As this process is sorted out over the next few months, or possibly years, the appraiser’s main obligation will be to focus on competence. All these regulations can’t change a slow market for appraisers, so it will be a challenge for many appraisers to remain geographically competent as they travel greater distances in search of work.
The panel presentation Alternatives to AMC’s was also of interest to residential appraisers. Panelists Bruce Norris, The Norris Group; Briar Scharfe, Skyline Financial Group; and Fred Kreger, American Family Funding, offered appraisers alternatives for finding sources of work other than the traditional lenders and AMCs. Norris, a real estate investor and hard-money lender, uses appraisers for many aspects of his business, including lending and home acquisition/selling.
Scharfe maintains a list of 43 approved appraisers covering four states. Her company’s business model awards the full appraisal fee to the appraiser and offers payment on a weekly schedule. Kreger discussed opportunities for appraisers who want to do work for small- and medium-size credit unions, which normally don’t have their own appraisal departments, or contract the work out to AMCs, and usually pay the appraiser the full fee.
During the session, Norris-who is considered to be a top authority on the Southern California real estate market-shared some intriguing insights. He believes the region is in an artificial market and is concerned about the shadow inventory that could flood the market, forcing prices even lower. However, this isn’t the shadow inventory of bank-owned homes you may have heard about; he refers to all the houses that may yet go into foreclosure. The problem will vary by region, but referring to Riverside County in Southern California, Norris presented some pretty alarming statistics:
• 23% of prime borrowers are not making payments
• 47% of non-prime borrowers are not making payments
• 90% of properties are upside down on value-to-loan (60% owe more than
150% of value)
Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default.
These numbers are frightening when considering the inventory that may come into the market in the next few years. Norris added that lenders and the federal government have slowed the foreclosure process to prevent a further deterioration of housing prices. But this artificial slowing of foreclosures belies the fact that there are still major waves of residential mortgage defaults on the horizon. It will be interesting to see if this policy plays out for the best or backfires and causes another flood of foreclosure properties into the market . . .
Our reader, an active market participant who introduced TBP to the appraiser, adds the following:
Southern California: 23% of prime borrowers / 47% of non-prime borrowers not making mortgage payments is alarming…to me anyway.
I think that the banks are technically insolvent. If they did their accounting according to the rules, they would have to write down the value of non-performing loans. Given that this many loans are in the non-performing category, if the banks followed the rules, they would not have enough capital to remain in business and the FDIC would have to close them as they have closed 108 banks so far this year. The higher level problem is that the FDIC might have to close many / most banks, which would really upset the economy.
So, the banks are extending (Letting people stay in houses without making payments) and pretending (bending / breaking the accounting rules to hide the extent of their (and our) problems): Strategic Non-Foreclosure Becomes Official Policy.