FHA Launches Refinance Opportunity for Underwater Homeowners

Homeowners underwater on their mortgages could be getting relief through a government program designed to encourage principal write-downs for responsible borrowers, according to a Department of Housing and Urban Development news release issued Aug. 6.

In an effort to help responsible but struggling homeowners, HUD has detailed adjustments to its refinance program, which the agency hopes will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth.

Starting Sept. 7, the Federal Housing Administration will offer certain underwater non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage, according to the HUD news release.

"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," FHA Commissioner David H. Stevens said in the HUD news release. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."

The FHA Short Refinance option is one of several Obama administration initiatives introduced as part of an administration plan to help stabilize residential markets by helping 3 to 4 million struggling homeowners through the end of 2012.

To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, qualify for the new loan under standard FHA underwriting requirements, have a credit score equal to or greater than 500, and the property must be their primary residence. Also, the borrower's existing first lien holder must agree to write off at least 10 percent of the borrower’s unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115 percent.

Existing FHA-insured loans cannot be refinanced, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.

To facilitate the refinancing of new FHA-insured loans under this program, the Treasury Department will provide incentives to existing second lien holders who agree to provide principal write-downs. To be eligible for the program, servicers are required to execute a Servicer Participation Agreement with Fannie Mae on or before Oct. 3.

For more information on the FHA Short Refinance option, read the FHA's recent mortgagee letter.

New Regulations for AMCs!

Page 2223 of the congressional bill contains the following language regarding Appraisal Management Companies:

‘‘SEC. 1124. APPRAISAL MANAGEMENT COMPANY MINIMUM

REQUIREMENTS.

(a) IN GENERAL.—The Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection shall jointly, by rule, establish minimum requirements to be applied by a State in the registration of appraisal management companies. Such requirements shall include a requirement that such companies—

(1) register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates;

(2) verify that only licensed or certified appraisers are used for federally related transactions;

(3) require that appraisals coordinated by an appraisal management company comply with the Uniform Standards of Professional Appraisal Practice; and

(4) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to the appraisal independence

standards established under section 129E of theTruth in Lending Act.”

 

AMC's - One word of caution!

If you have an appraisal company “that oversees a network or panel of more than 15 certified or licensed appraisers in a State or 25 or more nationally with in a given year…” you will be classified as an AMC.

 

 

Obama Signs Financial Regulatory Reform Bill

President Obama signed the historic financial regulatory reform bill into law July 21, ushering in a dramatic rewrite of the rules governing financial service providers and products and ending a nearly year-long struggle to enact meaningful reforms.

"These reforms represent the strongest consumer financial protections in history," Obama said in his prepared remarks, released by the White House before the signing ceremony. "These protections will be enforced by a new consumer watchdog with just one job: looking out for people – not big banks, not lenders, not investment houses – in the financial system. Now, that's not just good for consumers; that's good for the economy."

Federal regulators will now implement the 2,300-page bill, which passed the House on June 30 and the Senate on July 15. The new rules will regulate complex derivatives, set up controls to identify and shut down troubled financial companies, and establish an independent consumer bureau within the Federal Reserve to protect borrowers against abuses in mortgage, credit card and other types of lending.

While the Dodd-Frank Wall Street Reform and Consumer Protection Act is notable for its reforms to Wall Street and government regulatory oversight, the Appraisal Institute applauded the legislation’s inclusion of the first modernization of real estate appraisal regulations in more than 20 years.

“This bill will mean good news for consumers because they should see more reliable home appraisals,” said Appraisal Institute President Leslie Sellers, MAI, SRA. “It will encourage the use of highly trained and competent real estate appraisers and will provide much-needed resources for oversight and enforcement.”

Sellers noted that in addition to authorizing grant funding for state oversight and enforcement, H.R. 4173 will require that “reasonable and customary” fees be paid to appraisers to reflect what an appraiser would typically earn for an assignment absent the involvement of an appraisal management company. AMCs that violate “customary and reasonable” requirements will be subject to severe penalties under the Truth in Lending Act.

H.R. 4173 also provides provisions to sunset the controversial Home Valuation Code of Conduct by directing for the establishment of a federal appraisal independence standard. The HVCC, which took effect in May 2009, has been largely criticized by many real estate professionals.

Among its other key appraisal provisions, H.R. 4173 also will do the following:

• Require AMCs to register with state agencies.
• Enhance appraiser competency provisions, including clarification regarding consideration of professional appraisal designations.
• Provide financial resources for oversight and enforcement of appraisal rules.
• Separate AMC and appraisal fees on the HUD-1 Statement.

The Washington Post reported July 15 that federal agencies have been hard at work for weeks in anticipation of the reform bill’s passage. The Treasury Department has already assigned dozens of employees to carry out various provisions, such as the creation of the consumer protection bureau, while agencies such as the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and the Federal Reserve, have been holding daily meetings to plan how they will carry out their new responsibilities.

Due to the legislation’s size, H.R. 4173 will be rolled out in stages. As noted by the Post, the first step will be to set up a new Federal Insurance Office to allow the government the authority to seize large-scale failing financial firms. Within three months of that, the new Financial Services Oversight Council must hold its first meeting and within three months of that, new rules providing shareholders with more of a say on executive pay must have taken effect.

Within the first year of its enactment, the Post has reported that the legislation calls for the Fed to have the consumer protection bureau up and running while the Office of Thrift Supervision -- one of several bank regulators that failed to preempt the financial meltdown -- must be abolished.

The Post has also detailed that 18 months after taking effect, the reform bill requires that new rules be issued to restrict the proprietary trading that financial companies can do with their own accounts while within two years, regulators must have simpler mortgage disclosure forms proposed as an alternative to the current versions.

 

---------------------------------------------------------------- Nevada Sanctions Two Brokers for Unlicensed Appraisal Activity In a move that may be indicative of increased vigilance by state appraiser regulatory officials, the Nevada Appraisal Commission recently charged two licensed real estate professionals with performing appraisal services without the required license or certification. Each of those cases has now been settled, with each respondent stipulating to the facts of the case against them and being ordered to pay hefty civil fines. In the first case, the Division of Real Estate said that a Nevada licensed real estate broker performed a Residential Property Evaluation Report for a lender. The Division alleged that the report included an opinion of the market value of the subject property and that the broker was paid $40 for completion of the report. The Commission charged that “by providing a report for lending purposes that included an opinion of market value for which he received compensation, Respondent has engaged in unlicensed activity” in violation of the state’s appraiser licensing and certification statutes. While the real estate broker did not explicitly admit to violating the appraiser licensing statutes, he stipulated to the facts of the case and agreed to pay a $5,000 civil fine, the maximum allowed by statute, to settle the case without further action by the Division or Commission. In the second case, the Division alleged that a licensed real estate broker-salesman was paid $2,700 to complete a written opinion of value for a 20-acre vacant land parcel for tax assessment purposes. The Division alleged that the broker-salesman’s written opinion of value was presented at a meeting of the Nevada State Board of Equalization. The Division alleged that this activity constituted a violation of the state’s mandatory appraiser licensing and certification laws. While he did not admit guilt, the broker-salesman stipulated to the facts of the case and agreed to pay a $3,000 civil fine to resolve the matter without further action by the Division or Commission. More cases like the ones outlined above may be forthcoming in Nevada and in other states, according to Scott DiBiasio, manager of State and Industry Affairs for the Appraisal Institute. “These cases mark the intent of the Commission to appropriately charge anyone who develops an opinion of market value without an appraiser’s license or certification regardless of how the report is titled or used,” DiBiasio said. “Further, it is possible that the state’s new broker price opinion law, which limits when BPOs can be performed, will trigger additional investigations by the Division and Commission for unlicensed appraisal activity due to the possibility that BPOs for non-permitted purposes could be considered value determinations.” To view a copy of the state’s new BPO law, visit www.leg.state.nv.us/75th2009/Bills/SB/SB184_EN.pdf . ------------------------------------------------------------ FHA Issues Appraisal Standards Reminder The Department of Housing and Urban Development recently issued Mortgagee Letter 2009-41 reminding appraisers what can happen when they do not comply with Federal Housing Administration appraisal reporting requirements or with the Uniform Standards of Professional Appraisal Practice. According to FHA, it may impose the following actions and/or sanctions on an appraiser whose report is found to be deficient upon review: 0.Take administrative appraiser roster actions, which include sending a Notice of Deficiency if the failure of the appraiser is regarded as lacking professionalism, but not severe enough to require education or sanction, or the FHA can require the appraiser to take remedial education on appraisal-related topics. 1.Take administrative appraiser roster sanctions, which include requiring remedial education and removing the appraiser from the FHA Appraiser Roster for up to 12 months; enacting a Limited Denial of Participation that prohibits the appraiser from performing appraisals used as collateral for FHA insured mortgages for generally no longer than 12 months; and – if violations are severe enough – disbarring the appraiser from the FHA Appraiser Roster for an indefinite period. 2.Pursue civil sanctions, which are applicable on the basis that the appraiser is deemed liable for civil penalties related to his/her improper actions. 3.Pursue criminal sanctions, which is applicable if an appraiser’s non-compliant action is so egregious as to violate criminal law. All FHA sanctions may be appealed by the appraiser, though appraiser roster actions are not officially sanctions and, therefore, cannot be appealed. Also in Mortgagee Letter 2009-41, HUD stated that if an appraiser has an expired state-issued appraisal credential, he or she is automatically removed from the FHA Appraiser Roster in that state until such time as the appraisal credentials are renewed by the issuing state. No appeal is made available. Furthermore, if an appraiser loses standing in any state due to disciplinary actions, he or she will be automatically removed from the FHA Appraiser Roster and will be prohibited from conducting FHA related appraisals in all states. In this instance, there is no right of appeal and the appraiser may not be reinstated on the Roster until such time as the state imposed sanction is lifted. To access a copy of Mortgagee Letter 2009-41, visit www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-41ml.doc . ------------------------------------------------------------- IRS Addresses Easements, Circular 230 in Public Report The Internal Revenue Service may be changing the way it audits charitable contributions of historic preservation easements, if the agency follows the recommendations of its Advisory Council. In addition, the IRS also may be revising the language of Circular 230 to more clearly include appraisers. In its 2009 Public Report, issued Nov. 18, the Internal Revenue Service Advisory Council (IRSAC) explored the IRS’s wide-ranging initiative to audit charitable deductions claimed by taxpayers who made donations of historic preservation easements on real property they own. In looking at the easement donation program, the IRSAC found that the current IRS audit effort is straining the agency's resources and may “fail to distinguish between a legitimate deduction authorized by statute and an abusive tax shelter.” Its recommendations, therefore, include the following: •Permit a taxpayer to revise the taxpayer's appraisal if an IRS audit determines there is a technical deficiency in the “qualified appraisal” requirements of IRS regulations. •Publish an announcement reaffirming IRS's recognition that historic preservation easements may have a non-zero market value in areas which have local preservation laws, with such value to be determined by a “qualified appraisal” per IRS regulation. •Adopt a safe-harbor audit policy that “qualified appraisals” (original or revised) will be accepted (absent clear and convincing evidence to the contrary) when the appraised value of the donated easement is equal to or less than 10 percent of the value of the underlying property. •Contract with outside appraisers (rather than using appraisers who are IRS employees) as the general rule, rather than the exception, in preservation easement audits where IRS believes an easement valuation is incorrect and therefore conducts its own appraisal. •Initiate an appropriate process for creating an expert easement advisory board to review appraisals and make non-binding findings where the taxpayer and revenue agent do not agree on the value of a donated easement. The IRSAC also looked at the applicability of IRS’s Circular 230 to appraisers. Primarily, the IRSAC reviewed the issue of whether appraisers are considered “practitioners” under the current language of the Circular. IRSAC found that while appraisers are often mentioned in “Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers before the Internal Revenue Service” (the official title of Circular 230), there exist gaps that need to be filled. “Despite the mention of appraisers in the title to Circular 230 (and numerous references to appraisals and appraisers throughout Circular 230), providing appraisals is not specifically included within the Circular 230 definition of practice before the IRS and appraisers are not specifically included in the list of practitioners who may practice before the IRS,” IRSAC concluded in its report. To remedy this discrepancy, IRSAC said the U.S. Treasury Department should revise Circular 230 to: · Include appraisals within the definition of practice before the Internal Revenue Service. · Add appraisers to the list of practitioners who may practice before the IRS. · Indicate that the sanctions applicable to appraisers are the same as those applicable to other practitioners. · Change all references to “practitioners and appraisers” to simply refer to “practitioners” to reflect the inclusion of appraisers in the definition of practitioners. To read IRSAC’s 2009 Public Report in its entirety, visit www.irs.gov/pub/irs-utl/irsac_2009_full_report.pdf . ----------------------------------------------------------------- FHFA Extends Loan Limits through 2010 Current loan limits for mortgages insured by the Federal Housing Administration have been extended through the end of 2010, according to a recent announcement from Fannie Mae. The limits, which are determined by the Federal Housing Finance Agency, vary by region with single-family general loans capped at $417,000 and single-family high-cost area loans capped at $729,750. A lobbyist for the National Association of Realtors said at the group’s recent convention in San Diego the FHFA has been “very vigilant” in not updating median home prices to current levels, National Mortgage News reported. Megan Booth, a senior policy representative with the trade group, told conference attendees that the federal agency has not changed loan limits since 2006, noting that falling values over the last three years typically would result in lower loan limits. Booth indicated the government may fear that a decline in the limits would create instability in the housing market. According to Fannie Mae’s announcement, the Department of Housing and Urban Development, the agency that determines high-cost area loan limits, has a 30-day appeals period. If a region’s loan limit is reset as a result of an appeal, the FHFA will issue a subsequent announcement. Meanwhile, NAR president Vicki Cox Golder told National Mortgage News the trade group is lobbying to make the 2010 loan limits permanent. “Number one on our agenda is liquidity,” Golder said. “Without funding, we can’t get people into homes.” EMAIL TO A FRIEND PRINTER-FRIENDLY ANO TABLE OF CONTENTS BACK TO HOME PAGE HUD to Ease into New RESPA Enforcement The Department of Housing and Urban Development has instructed its staff to “exercise restraint” for the first four months of 2010 in enforcing new regulations under the Real Estate Settlement Procedures Act. The new rules are scheduled to take effect Jan. 1, 2010, but leniency will be made with Federal Housing Administration-approved lenders who demonstrate that they are making efforts to comply with the new rules. HUD also asked other federal and state enforcement agencies to take similar steps. "We will work with those who are making an honest effort to work with us as we implement these important new consumer protections," HUD Secretary Shaun Donovan said in a news release. "While we will not delay implementation of RESPA's new requirements, we are sensitive to the concerns of the industry as it integrates these new rules into their day-to-day business practices." Under the new rules, lenders and mortgage brokers will be required to provide consumers with a standard estimate containing closing costs and key loan terms, the release noted. The rules also will require closing agents to provide borrowers with an updated HUD-1 Settlement Statement outlining both final and estimated costs. EMAIL TO A FRIEND PRINTER-FRIENDLY ANO TABLE OF CONTENTS BACK TO HOME PAGE Appraisal Organizations Urge Senate to Maintain SBA’s Appraisal Threshold The Appraisal Institute and its sister appraiser organizations sent a letter to the Senate Committee on Small Business and Entrepreneurship on Nov. 23, urging them to remove a provision found in H.R. 3854, the Small Business Financing and Investment Act, that would raise the threshold for appraisals for commercial real estate backed by the Small Business Administration loans from $250,000 to $400,000. The Appraisal Institute has learned that the proposal to raise the threshold was included for the purpose of providing “regulatory relief” for SBA lenders. In their letter, the groups said this is an inappropriate form of relief given that the lack of due diligence was a leading cause of the current financial crisis. “To the contrary, we strongly believe the current banking crisis exists not because it has been too burdensome to underwrite a loan (but because) of easy money/credit, loose underwriting requirements and lack of oversight and enforcement,” the groups wrote. They cited a recent report issued by the Congressional Research Services that identifies those factors as major causes of the current crisis. “We find it surprising that in today’s financial climate, where some of the biggest SBA lenders in the country (are facing bankruptcy), Congress would even consider loosening basic risk management and underwriting requirements,” the groups wrote. “This is tantamount to giving someone who’s drowning a glass of water, given the current state of commercial real estate. Waiving these requirements is the wrong message to be sending to the market and a dangerous proposition for taxpayers.” SBA loan delinquencies have increased dramatically in recent years. In the last two years, the number of SBA loans that are more than 60 days past due, delinquent, or in liquidation has nearly doubled from 10 percent to 18 percent. More than 12 percent of SBA loans today stand in liquidation, up from 6 percent in 2007. The groups also called for the committee to correct a long-standing loophole in SBA appraisal policy that allows real estate appraisers with only a state license to perform appraisals of commercial real estate. The groups contend such allowances are against federal appraisal regulations and minimum appraiser qualifications criteria, which require all commercial real estate appraisals with a transaction value greater than $250,000 to be appraised, at a minimum, by a state “certified” real property appraiser. For more information on H.R. 3854, visit www.govtrack.us/congress/bill.xpd?bill=h111-3854 . ----------------------------------------------------------------