Freddie Mac and OFHEO HPI

[Randolph Kinney]

Randolph,



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

It seems to me with so many zip codes now declining that it would be easier for the appraiser to take the easy way out and just use the zip code, not the submarket. Actually, sales are drying up. In order to get a decent sample size and statistical meaning, a wider area is necessary. It just means the lender is going to be fighting the appraiser who ends up checking the declining box as they are doing now.

 

[Brad Ellis]

Randolph,

It just means the lender is going to be fighting the appraiser who ends up checking the declining box as they are doing now.

I cannont say that will not happen- it has before. About all one can do is to do the job correctly, report what the facts show and get on with life.

Brad

 

[Randolph Kinney]

Randolph,



I cannont say that will not happen- it has before. About all one can do is to do the job correctly, report what the facts show and get on with life.

Brad

Brad,

Here is something to take note of:

The February 21, 2008 Freddie Mac Bulletin precisely defines a declining market. And of note they are reporting that they expect 205 MSA’s, for the fourth quarter 2007, to be experiencing a decline as compared with 108 MSAs at the end of the third quarter 2007. They anticipate home price depreciation to continue to decline at a rapid rate.

One of the most disturbing trends is that the new and improved form of “appraiser pressure” is to not check the declining box on the appraisal form. The law of unintended consequences is that the GSEs policy of a 5% haircut in declining markets has indeed created a new class of fraud.

My guess is that any appraisal that is not marked declining in a MSA that is declining is going to be examined very closely to see if the data the appraiser supplied is relevant and trustworthy. GSEs know that by the time OFHEO publishes its data, they are already 90 days behind the market, at least.

Get ready for that unintended consequence and fraud.

 

[Brad Ellis]

Randolph,

My guess is that any appraisal that is not marked declining in a MSA that is declining is going to be examined very closely to see if the data the appraiser supplied is relevant and trustworthy. GSEs know that by the time OFHEO publishes its data, they are already 90 days behind the market, at least.

Get ready for that unintended consequence and fraud.

You mean that many appraisers have not already been participating in such fraud?

Brad

 

[Randolph Kinney]

Randolph,



You mean that many appraisers have not already been participating in such fraud?

Brad

I have no idea how many appraisers have indicated a stable market when in fact the market values were in decline. You are in a better position than I to say; you see the appraisals submitted to Indymac.

You have been a proponent of sub markets within a zip code with in a MSA that are not declining. I believe that Fannie Mae concerns were issued in their July 2007 announcement and now Freddie Mac has issued its concerns and as well as defined what constitutes a declining market.

Today's news speaks to yet another turn of the crank for appraiser independence.

BOSTON (MarketWatch) -- New York Attorney General Andrew Cuomo is working on a deal with mortgage giants Fannie Mae and Freddie Mac that would call for their lending partners to have independent home appraisals, according to published reports Tuesday.

In one change being discussed, according to people familiar with the matter, Fannie and Freddie would prohibit lenders they work with from hand-picking or using in-house appraisers, to curb potential conflicts of interest. The two also would agree not to buy loans from lenders who used appraisals by wholly owned subsidiaries, according to a person familiar with the matter. The deal may also include a provision that Fannie and Freddie, which guarantee or acquire mortgages from lenders and package many of them into securities for sale, require lenders to refuse to rely on appraisals arranged by individual mortgage brokers, that person said.

The agreement may create an independent "clearinghouse" for appraiser information. Lenders would be required to provide copies of appraisal documents to the clearinghouse, which would provide reports to the public and staff a hotline for consumer complaints, a person familiar with the matter said.