U.S. Home Prices Show Three-Month Gain

U.S. home prices rose by 1.6% from June to July, according to The Standard & Poor’s Case-Shiller Home Price Index, which tracks the value of residential real estate in 20 metropolitan regions across the United States. Prices increased in 18 out of 20 of the cities tracked by the Index, one more than in June. This is the third straight monthly increase, indicating a sign of stabilization in the real estate market.

Many believe that the $8,000 first-time home-buyer tax credit that was part of February’s stimulus package has contributed to these gains. Currently, the tax credit is scheduled to expire on November 30, 2009. If it is not renewed, market prices will likely decrease.

Experts, however, urge caution when praising the three-month gain. Some analysts are concerned that there could be more foreclosures on the horizon and fewer home purchases, given the uncertainty of the reauthorization of the first-time home-buyer tax credit and the reported decrease in the Conference Board’s consumer confidence index, which decreased to 53.1 in September from the 54.5 reading in August. And, home prices are still 13.3% lower than this time last year.

As we discussed earlier this year, real estate appraisal fraud is more of a threat in times of economic uncertainty so it is important for potential home buyers, owners, CPAs, and attorneys, faced with the challenge of accurately appraising real estate assets, to find appraisers who have experience in their specific regions.

By: Present Value

Tags: Conference Board, Real Estate, Standard & Poor’s Case-Shiller Home Price Index, U.S. home prices
Posted in Real Estate, Real Estate Appraisal, Valuation Fraud | 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 »

Public-Private Investment Program

As part of President Obama’s economic recovery plan, the President and the Secretary of the Treasury, Timothy F. Geithner, announced the details of a public-private plan to buy up banks’ “toxic assets” and auction them off.

Administration officials outlined a three-part Public-Private Investment Program that offers private investors vast amounts of cheap, taxpayer-supported financing for every dollar they put up of their own money. The further expansion of the program would finance the purchase of existing troubled mortgage-backed securities, including those backed by commercial real estate loans.

The Treasury could infuse almost $1 trillion more into the toxic-asset effort through a program called the Term Asset-Backed Securities Loan Facility (TALF), a joint venture with the Federal Reserve. The Treasury would help finance a series of public-private investment funds to buy up unwanted mortgage-backed securities, or groups of mortgages that have been packaged into bonds with a credit rating.

According to the Treasury Secretary, the goal is to “use taxpayers’ money effectively and wisely to, again, help get credit flowing.” The idea is that banks will be relieved of the burden of carrying assets for which there is no market, freeing up cash and increasing the flow of credit for car, home, business, and other loans.

The Public-Private Investment Program will have banks bundle loans and offer them at auction. The Federal Deposit Insurance Corp. and Federal Reserve Bank would then lend money to large private investors that would bid on the loan packages. The Fed also would expand a program of loans – also up to $1 trillion – to entice private investors to buy mortgage-related securities. Five investment managers would be hired by the Treasury to raise pools of money, matched by the government dollar-for-dollar, that they would use to buy the troubled securities. The Treasury will also offer government loans to augment the money pools and increase the buying power of the managers.

The plan is to target legacy mortgage loans made during the housing boom, as well as securities – devalued assets, sitting on banks’ books – that haven’t traded since last year, when the mortgage-backed investment markets collapsed.

In response to the announcement, the Dow went up nearly 500 points, and the Standard & Poor’s 500-stock index rose more than 7%. There also are some positive signs for the housing market. The National Association of Realtors said existing-home sales rose 5.1% in February as buyers scooped up foreclosed homes. However, analysts warn that the recent gains could collapse just as quickly if the administration’s asset purchase program hits a snag or the housing market deteriorates further.

By: Present Value

Tags: Public-Private Investment Program, Real Estate
Posted in Public-Private Investment Program, Real Estate | 1 Comment »