Modifications to the Home Affordable Refinance Program

Earlier this month, the Federal Housing Finance Agency announced an amendment to its Home Affordable Refinance Program, expanding refinance eligibility to help those homeowners who are at risk of being “underwater.”

The Obama Administration’s Home Affordable Refinance Program loan-to-value requirement has been raised to 125%. Previously, the program, announced in February, only applied to borrowers whose first mortgage did not exceed 105% of the current market value of the property.

The rationale behind the change to the program is that with the drastic decrease in property values in many areas, an additional 5% over the value of a mortgage wasn’t enough to help many borrowers. However, the program applies only to those borrowers who haven’t missed loan payments in the past year, and borrowers must hold a loan that was purchased by Freddie Mac or Fannie Mae. For those who are unable to make their payments at all, there are different programs that apply, which we will cover in a later blog post.

As discussed in Present Value’s previous blog post, “Decrease in Home Values Correlates to Increase of Homeowners Who Are ‘Underwater,’” a report released by Zillow.com in May, estimated that 22% of homeowners had mortgage balances that were greater than the value of their homes and that an additional 2.2 million borrowers were at risk of falling into this position if housing values declined an additional 5%.

The additions to the program will be beneficial for homeowners whose only other options would be to hope for the best in terms of home valuations or would be at risk for foreclosure. For more information on finding out the most accurate value of your home, click here.

By: Present Value

Tags: Fannie Mae, Federal Housing Finance Agency, Freddie Mac, Home Affordable Refinance Program, present value, Underwater
Posted in Fannie Mae, Freddie Mac, Real Estate | 10 Comments »

New HVCC Appraisal Rules Blamed for “Destroying the Housing Market”

A recent AP article contends that there is strong backlash against the new Home Valuation Code of Conduct (HVCC) rules that were enacted on May 1, 2009.

“The new guidelines bar mortgage brokers from ordering appraisals themselves, forcing them to do so through a mortgage lender. Lenders may order appraisals through in-house staff or appraisers hired by outside firms known as appraisal-management companies. But neither may talk to the appraisers about the value of the property they’re evaluating.”

Players in the real estate market, including realtors, homebuilders, mortgage brokers, and some appraisers, argue that the rules have created a number of problems, including the undervaluation of properties and delays in sales closings.

The changes state that rather than going to an appraiser directly, lenders must order a real estate appraisal through a third party, such as an appraisal management company. The new HVCC appraisal rules were put in place to prevent conflict of interests that led appraisers to inflate the value of a property, which have been partially seen as responsible for the current crisis in the real estate market. As part of a settlement between New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac, the policy was intended to eliminate the pressure appraisers might be under by lenders and brokers to overinflate property valuations to increase profits.

Organizations like The National Association of Mortgage Brokers and The Appraisal Institute have come out against all or portions of the new regulations.

You can find Present Value’s other blog posts on HVCC here.

By: Present Value

Tags: HVCC, Real Estate Appraisal
Posted in Fannie Mae, HVCC, Real Estate Appraisal | 1 Comment »

Decrease in Home Values Correlates to Increase of Homeowners Who Are “Underwater”

Zillow.com, a real estate information service, reported that there was an increase in the number of homeowners who are considered to be “underwater” – meaning that they owe more on their mortgages than the value of their homes – as housing values continued to decrease in the first quarter of 2009. This means that approximately 22% of homeowners have mortgage balances that are greater than the value of their homes. It is estimated that an additional 2.2 million borrowers are at risk of falling into this position if housing values decline an additional 5%. At the end of last year, 17.6% of homeowners owed more than their original mortgage, an increase of more than 3%, from 14.3%, three months earlier.

According to the Standard & Poor’s/Case-Shiller Home Price Indices, in March, the prices of U.S. single-family homes decreased almost 20% from a year ago. And, the index of 20 metropolitan areas from February to March fell 2.2% according to S&P.

The increase in the number of homeowners who owe more than the value of their homes could throw a wrench into the Obama administration’s current plans to stabilize the housing market. Under the current plan, guaranteed loans can only be refinanced if the mortgage loan is a maximum of 105% of a home’s value. So, now more than ever, it is important that homeowners know the most accurate value of their homes.

Experts say the estimate of the number of homeowners who are “underwater” could be skewed on the high side for various reasons, such as differences in home-price estimates, and homeowners who are already in the foreclosure process could be counted as owing more than the value of their homes if the title to their property hasn’t changed hands.

Despite this news, there also are some recent indications that the housing market could be beginning to stabilize; the National Association of Realtors pending home-sales index increased 3.2% in March.

By: Present Value

Tags: Housing Values, Real Estate Appraisal
Posted in Fannie Mae, Real Estate Appraisal | 1 Comment »

New Fannie Mae Rules to Prevent Inflated Appraisals

 In February, Fannie Mae, the largest source of financing for U.S. home loans, announced that it will work to ban their use of in-house appraisals. An “in-house appraisal” means that the appraisal is conducted by brokers’ employees or by appraisers who are arranged by brokers. Appraisals will now need to be conducted by appraisers who are independent and do not have a conflict of interest. This development has the potential to decrease fraudulent appraisal activity.

Apparently, approximately three-quarters of residential mortgage appraisals are arranged through brokers who only get paid if a loan closes, which creates a financial incentive for mortgage brokers to push appraisers toward higher valuations. Higher appraisals can also contribute to economic instability because homeowners can qualify to refinance their homes and borrow cash against them.

The announcement came in response to a yearlong mortgage investigation by New York Attorney General Andrew Cuomo. Fannie Mae has agreed with the Attorney General of the State of New York and the Office of Federal Housing Enterprise Oversight to assist the regulators in their efforts to enhance home appraisal practices on behalf of consumers. The New York Attorney General’s office also announced it has terminated its inquiry of Fannie Mae, which began in November 2007.

Fannie Mae also will take two steps to assist the regulators in their efforts to enhance the quality and independence of the appraisal process. First, to help ensure appraisal independence and valuation protection, Fannie Mae will adopt a Home Valuation Protection Code, which will establish requirements governing appraisal selection, solicitation, compensation, conflicts of interest, and corporate independence, among other requirements. Additionally, Fannie Mae will provide $12 million over five years to help establish an Independent Valuation Protection Institute, which will monitor and study the area of home valuations.

By: Present Value

Tags: Fannie Mae, In-house Appraisal, Real Estate, Real Estate Appraisal
Posted in Fannie Mae, Real Estate, Real Estate Appraisal | No Comments »