Freddie Mac and OFHEO HPI

[Pamela Crowley (Florida)]

More about this soon.

Freddie Mac is providing specific guidance regarding the use of the Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index to improve the identification of declining markets in order to assist lenders in determining whether a reduction in maximum financing is required. Please see page 6 for the formula to apply to the OHFEO HPI in order to identify declining markets at the MSA level.

Please note that we are also announcing that we will assess a delivery fee of 30 basis points for all Mortgages with loan-to-value/total LTV ratios greater than or equal to 80% and credit scores less than 740, including Mortgages sold with recourse and indemnification.

 

[Pamela Crowley (Florida)]

Link to this bulletin:

http://www.freddiemac.com/sell/guide/bulletins/pdf/bll022108.pdf

 

[Randolph Kinney]

Thanks Pam. Wow! That reads more like Freddie is concentrating on the OFHEO index for determination of declining markets.

So do you believe UWs are going to be stipping appraisers is their analysis disagrees with OFHEO HPI?

 

[Michael Tipton]

The next release date of the HPI index is Tuesday, 02/26/08.

 

[Doug Smith SRA]

First Page Irrelevancies/Comp Drought

Thanks Pam. Wow! That reads more like Freddie is concentrating on the OFHEO index for determination of declining markets.

So do you believe UWs are going to be stipping appraisers is their analysis disagrees with OFHEO HPI?

The market analysis and the check marks for stable/declining markets are being made irrelevant.The so called granularity of the market won't matter, just the overall indexes. Lender instructions will more center on asking the appraiser to discuss negative adjustments. By the end of this year, if negative adjustments are not part of reports, UW's will be asking for detailed explanations. Look for "Declining Markets" Part II from the folks at Fannie Mae and Freddie Mac.

I am surprised that negative adjustments are not more discussed in this forum. I am guessing the reason is that lenders reason that if comps are within the last three months and listings are part of the report, there is no need to use older comparables. This idea is soon to hit the wall because appraisers are already experiencing "Comp Drought." There aren't many recent comps and listings don't make much sense in most markets. Sellers and real estate agents do not have a clue about how to list properties in a decling market

Dust off those old appraisal books. We are in the negative adjustment business.

 

[Randolph Kinney]

The market analysis and the check marks for stable/declining markets are being made irrelevant.The so called granularity of the market won't matter, just the overall indexes. Lender instructions will more center on asking the appraiser to discuss negative adjustments. By the end of this year, if negative adjustments are not part of reports, UW's will be asking for detailed explanations. Look for "Declining Markets" Part II from the folks at Fannie Mae and Freddie Mac.

I am surprised that negative adjustments are not more discussed in this forum. I am guessing the reason is that lenders reason that if comps are within the last three months and listings are part of the report, there is no need to use older comparables. This idea is soon to hit the wall because appraisers are already experiencing "Comp Drought." There aren't many recent comps and listings don't make much sense in most markets. Sellers and real estate agents do not have a clue about how to list properties in a declining market

Dust off those old appraisal books. We are in the negative adjustment business.

I have been including my own analysis of the neighborhood, compared to the zip code and the MSA. Here is San Diego county, it is very much a negative time adjustment. The only question is how much.

What I gleaned from the PDF was how Freddie Mac defines declining market:

[SIZE=+1]Using the OFHEO Index, subject to the Seller completing the analysis described below, Sellers should consider that home prices are declining in the Metropolitan Statistical Area (MSA) in which a property is located if either of the following is true:[/SIZE]

[SIZE=+1]1) The overall decline in the OFHEO Index for the MSA for the most recent two quarters is greater than 1%; or[/SIZE]
[SIZE=+1]2) There is an overall decline in the OFHEO Index for the MSA year-over-year, unless there is overall growth in the OFHEO Index for the MSA in the most recent two quarters.[/SIZE]

What is laughable, markets don't decline linearly, for example 1% per month. It requires a detailed analysis month by month. If the comp is 2 months old, declining 2% last month, 1 % two months ago, it is a 3% adjustment, not 1.5%.

I wonder if UWs understand the new definition of declining? :icon_mrgreen:

 

[Brad Ellis]

Randolph!

I wonder if UWs understand the new definition of declining?

Better question might be to ask if the GSEs know?

Seriously, the real reason here may well be that the GSEs do know all the limitations of the various indices but assume we appraisers cannot figure it out- or worse, that we know and will lie anyway.

Now I'm just trying to figure out how to represent a borrower who gets denied a loan because he lives in a stable market portion of a declining MSA. Do I get to sue Bob Shiller and Chip Case over that?

Hmmmmm.....

Brad

 

[Randolph Kinney]

Randolph!



Better question might be to ask if the GSEs know?

Seriously, the real reason here may well be that the GSEs do know all the limitations of the various indices but assume we appraisers cannot figure it out- or worse, that we know and will lie anyway.

Now I'm just trying to figure out how to represent a borrower who gets denied a loan because he lives in a stable market portion of a declining MSA. Do I get to sue Bob Shiller and Chip Case over that?

Hmmmmm.....

Brad

Does this represent a real problem Brad, for lenders? With GSEs, don't they have automated underwriting that gives you the answer?

Appraisers that are going against the OFHEO index that shows a declining market for their locale are taking on additional risk if the loan should go into default.

OFHEO data represents $417,000 loan limits until the new limits get into the data base. I wonder if that is going to make any difference in trends?

 

[moh malekpour]

What good is the statistic from OFHEO index when they are at least 2 quarters late. In currnet condition, market is changing rapidly and data from 6 months ago doesn't do any good no matter who and how they use it.

 

[Brad Ellis]

Randolph,

Does this represent a real problem Brad, for lenders? With GSEs, don't they have automated underwriting that gives you the answer?

Appraisers that are going against the OFHEO index that shows a declining market for their locale are taking on additional risk if the loan should go into default

1. No- not a real problem but at least a minor one. The GSEs will buy the loans if the appraiser demonstrates that the submarket is still stable or increasing. Automated underwriting does not tell you- yet.

2. I am not sure the appraisers' liability increases but it does clearly require that the appraiser demonstrate what is going on in that submarket along with the appraiser clearly identifying what that submarket is. That will be the interesting part.

Brad