Notes from Appraisal Institute’s 16th Annual Summer Conference
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.
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August 16th, 2010 at 7:09 am
Great stuff . . . thank a lot for posting
August 16th, 2010 at 7:39 am
The only way it doesn’t backfire is through a future mistaken policy plan to re-inflate housing. Too many people bought homes that they could not afford. Until Median Household Income catches up to Median Home Sale Prices, housing will head lower.
August 16th, 2010 at 8:33 am
>> 23% of prime borrowers are not making payments
Wait… what is the sample universe: *all* homes? So, if I randomly knock on doors in Riverside County, one in four homeowers will tell me they stopped making payments?
August 16th, 2010 at 8:35 am
And if the person answering the door says “I have a subprime loan”, then 1 in 2 of those will tell me the same thing?
August 16th, 2010 at 8:41 am
With 2M people in Riverside County in Southern California, we’re talking about at least 1/2 million properties under water.
August 16th, 2010 at 8:42 am
The banks have been insolvent since the very moment Greenspan’s misguided Fed policy and deregulation allowed them to be.
There has been no unwinding. Pseudo-governmental fraud has been papered over with governmental fraud.
The banks will remain insolvent until the money supply catches up with with money demand (to service debt and maintain economic expansion), and that newly issued supply is distributed into the system at a point where it will both increase the velocity of money, generally, as well as settle existing debt (even if this means freshly-minted cash is distributed directly to the middle and lower classes).
The only other option is default (massive personal bankruptcies, followed by the banks, followed by the USG).
We are currently in self-created state of economic delusion. We are all too willing to play along with the fraud, as the reality is just too harsh to face. Ignorance is only blissful for a while. Reality will eventually assert itself.
August 16th, 2010 at 8:50 am
great post- and this observation
Many borrowers haven’t made a payment in more than two years and have yet to receive a Notice of Default.
is what we already knew but couldn’t prove- and the reason why is correct- the banks are insolvent and can’t take the write downs without going out of business-
and to think that our man Kass says banks are good buy right now
August 16th, 2010 at 8:54 am
How can banks be a bad buy? There’s no risk involved.
August 16th, 2010 at 9:05 am
Who needs slasher movies when we’ve got The Big Picture to tell us the truth???
If there’s so many folks granting their own personal stimulus by NOT making payments on their debt, and the banks are assisting them by allowing them to live for free, and the CA economy is in such dire straits (as evidenced by the state govt’s budgetary problems), imagine what happens should the natural work-through (necessary to bottom & begin the healing) be accelerated in the least???
August 16th, 2010 at 9:57 am
Those numbers just seem too high. I understand, to an extent, that Cali was the ultimate bubble in the whole US for real estate. But, come on, 23% not making their payment? Nearly half of sub-prime, which is a much bigger pool than we think it is?
I would say that one-quarter to at the most one-half of what is being quoted here is probably closer to the truth. Perhaps one in 10 homeowners in that part of the world is having some difficulty making the note, and perhaps 25% of sub-prime.
OBTW, just because someone has a sub-prime note doesn’t mean that they are poor, destitute, or not financially savvy. It might just be the terms they agreed on, or the risk they were willing to take.
August 16th, 2010 at 10:01 am
I too, find those numbers somewhat incredulous. IF they are true, they are rather stunning. Following out that line of logic, one might be inclined to reason that the FDIC is privy ot the same data we are, and would know that most of the banks they are speaking to are lying to their face. And that the FDIC, in turn is merely blinking at these financials and saying “OK, looks good to me.”
Makes me wonder if whether or not the FDIC is parsing their seizures out over time based on bank size, versus the reserve funds they have available for a given quarter. Does Sheila Bair send out a memo that says, “OK, we got $100MM to play with this month. Which 4 banks on the list of 1000 are next in line. Remember guys, no high cap players allowed, we can’t afford it.”
I don’t understand a lot of the machinations on this so I’m just speculating from the sidelines, but obviously “Don’t ask Don’t tell” isn’t just a military policy anymore.
August 16th, 2010 at 10:27 am
Riverside County unemployment is around 15%.
August 16th, 2010 at 10:49 am
Mortgage Advisor makes a vitally important point:
“Until Median Household Income catches up to Median Home Sale Prices, housing will head lower.”
Another measure of dysequilibrium was the rise in home ownership from, say, 64% of households to 69% – without a concomitant rise in personal wealth, er, median household income.
It may be that APPRSAISAL/COLLATERAL VALUES were used as substitutes for sound loan underwriting and financial analysis.
Unfortunately, collateral values decline in periods when they are most needed to protect against loan losses. Oversupply and excessive unemployment rates cause higher than expected home loan delinquencies, CRE vacancy rates, lower rental revenues, longer absorption periods, and lower comparable sales prices.
Joke in the “industry”: MAI = made as instructed.
August 16th, 2010 at 11:00 am
Hey guys,
That’s Riverside.
Kinda like saying that the South Bronx is NYC.
Gotta tell you that here in West LA, things are
pretty good. Not perfect. Not what they used
to be.
But as Larry David says repeatedly on “Curb,”
things are pretty, pretty good.
August 16th, 2010 at 12:01 pm
Real Estate is local. Here in San Diego, all of the high priced zip codes are seeing dramatic price drops. Its short sale mania out in areas like La Jolla, Coronado, Del Mar etc.
However on the lower end, it appears that price drops have kind of leveled off.
There are still some areas that have ridiculous asking prices in relation to their locale. In SD County its a mess, but as someone that is in contract for a home that can actually afford its a totally different story.
Kool Aid days are over in the near term. This market is so tricky, its tough to make a call on 50/50 properties and zip codes.
August 16th, 2010 at 12:31 pm
@vine2wine – you have any data showing short sale mania and price drops in high priced zips, ’cause I aint seein’ it, at least not yet. Zillow data confirms what I have seen in the last year scouring foreclosures and short sales in Encinitas, Del Mar, and La Jolla looking for a home:
http://www.zillow.com/local-info/CA-San-Diego-Metro-home-value/r_395056/
I’d love for prices to collapse due to “short sale mania”, but it just ain’t happenin’ as far as I can tell. I’m getting the feeling that the rich are getting richer (coastal Cali) and the “not rich” are getting screwed (Riverside).
August 16th, 2010 at 1:16 pm
Sure. You will have to spend a few minutes navigating the stats, but they are sure there.
The listing prices in high priced zips starting with the lowest have all short sale descriptions in the listing itself.
Below are links for the MLS listings starting with the lowest priced homes in said zip code. Go ahead and start clicking on the MLS listings. I would guesstimate that at least 50% of this list is short sale based.
On the left side of the webpage you can see statistics for recent closes in relation to asking price.
http://www.sdlookup.com/Real_Estate-Coronado-Homes_For_Sale-92118
http://www.sdlookup.com/Real_Estate-La_Jolla-Houses_For_Sale-92037
I cant reiterate how tricky it is here. If you dont know the markets here and understand the behind the scenes problems not only in the state, but locally, you can wind up paying some outrageous fees down the line whether its in the form of a new tax or new proposal in relation to property taxes (aka school tax parcels).
August 16th, 2010 at 1:21 pm
In addition. If you were to follow the trend of the high tiered markets, the fallout is starting.
Rich Toscano is a well known blogger locally here in San Diego. He has chock full o stats on his page and has been recording and following the housing market here for several years now.
http://www.voiceofsandiego.org/toscano/
Go ahead and thumb through his stuff. He really is on top of it with neat charts and graphs if you are inclined to that sort of visual tool.
August 16th, 2010 at 4:11 pm
I can’t even imagine venturing to buy a home in Southern Cali right now. I couldn’t afford what is wanted in the coastal areas, and wouldn’t want to live in what is in the Inland Empire. Not after all the trouble with tract housing ‘hoods and their vacancies. There may be some newly developed neighborhoods out there that become slums for the masses eventually, or just fade back into the ground.
What an absolute mess. California is a place, to a boy from Alabama, only for celebrities and monied people. Everyone else is not welcome.
August 16th, 2010 at 4:56 pm
super_trooper Says:
August 16th, 2010 at 8:54 am
How can banks be a bad buy? There’s no risk involved.
———————————————————-
LOLOL
Line of the day.
I’m out here in flyover….so I have no comprehension what the coasts are like.
The residential high end stuff out here is sitting for a long time….mid/lower markets steady….farmland is holding up very well. CRE is pretty lifeless….some amazing deals if you’re willing….I’m looking hard at a very nice 18k sf 3 story bldg with freight elevator/20ft ceilings/half block off Main St. about a 1000ft from casino….for well under 200K. Appraised for just over 300K in 2000.
“I don’ t know karate….but I know karazy….”
Godfather of Soul
August 16th, 2010 at 6:05 pm
Here in West Los Angeles, the high-end areas have started to crack. We have begun seeing prices not seen, since 2004 and below. Banks are finally starting to release short sales as they know the market is not coming back.
We are talking some big neighborhoods here.
Bel Air
Beverly Hills
Brentwood
Malibu
Pacific Palisades
Venice
Westwood
Santa Monica
and
Cheviot Hills
Not just one or two properties, but many in some prime zip codes. You can see them at:
http://www.westsideremeltdown.blogspot.com
http://www.santamonicameltdownthe90402.blogspot.com
It’s finally hitting the high-end.
August 16th, 2010 at 6:30 pm
Chief Tomahawk asks an implicit question when says,
“If there’s so many folks granting their own personal stimulus by NOT making payments on their debt, and the banks are assisting them by allowing them to live for free”
Why doesn’t all this “cash” create a stimulus?
Why indeed? Is cash the same as secure income…by that I mean, a reasonable expectation of being able to make a decent living?
Decent, secure jobs are worth far more than the “savings” to be found by cheaper products that are made by cheap labor and transported by cheap oil. When our empire is gone, people who remain through the tragedy will exclaim…”who could have seen it coming”….those that come after will say, ‘who couldn’t have seen it coming”.
August 16th, 2010 at 8:42 pm
LATESUMMER HAS HIS/HER OWN OPINION AND DOES NOT EXCEPT COMMENTS
TO HIS SUPER-OPINIONATED BLOGS WHICH I HAVE FOUND TO BE TOTALLY
INCORRECT AND BLOATED BULLSHIT.
EACH AND EVERY TIME I DISAGREE WITH HIM AND OFFER AN OPINION, HE
DOES NOT EVEN PRINT MY COMMENTS. NOT ONLY THAT BUT HE IS NOT A BUYER
OR SELLER OF WESTSIDE REAL ESTATE NOR IS HE IN THE BUSINESS.
AND IF THAT IS NOT ENOUGH, HE DOES NOT PUBLISH HIS NAME.
ONE-SIDED, UNDEFENDED NONSENSE.
August 16th, 2010 at 10:05 pm
Robert d, I can see you are awfully opinionated here. I welcome all comments on my blog. It’s a shame you have to bring your attitude in all caps here. If you have been deleted, it was obviously for your unprofessional behavior. I would suspect your a desperate realtor or homedebtor with an ax to grind. Hopefully, our host here will delete your comments, as you are nothing but abusive.
August 16th, 2010 at 10:53 pm
Opinions make the blog.
No one would write a blog nor comment on a piece without an
opinion.
There you go again surmising that I am a realtor or desperately poor
and unsuccessful.
I have been retired since 2000. In my career I was one of the very top
Merrill Lynch producers in the entire country.
Yes, i have bought a home here in Brentwood last year after putting down
2/3 in cash…why not all cash? Because the mortgage rates were so low that
it was smarter to keep some of investments which were yielding substantially
more than that.
You should be so well off. i just think you should tell your readers who you are, as Barry
does, and get your facts correct. by the way, many many homes in Brentwood and Santa Monica
were sold well over their asking prices.
(I did not mean to use all capitals but if that infuriated you, live with it. It does
not mean a thing except that you are insecure and touchy.)
August 17th, 2010 at 1:07 am
@vine2wine – thanks for the links. I can’t quite see the conclusions you come to from the MLS listings, but maybe I’m just not looking hard enough. Sure is lots of stuff for sale in La Jolla, no doubt about it. Maybe what your saying is that this graph of home prices in La Jolla from Zillow:
http://www.zillow.com/local-info/CA-San-Diego-home-value/r_54296/
is about to roll over when July/August data is included. We’ll see. I did pick up a useful statement from Tuscanos site, tho:
“The number of months’ worth of inventory has not yet surpassed six months, a level which has historically marked the line between rising and falling prices. If current trends hold up, however, we could be above that demarcation quite soon.”
BTW – One of my favorite SD RE experts is Robert Campbell (http://www.realestatetiming.com/) and he is calling for a second leg down as well.
Thanks,
Sparks