forward on reverse
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growth in the single-family housing market, be it of new construction, sales of existing homes or cash-out refinancing. One prospect for a bright FHA reverse mortgage market is that, as the market moves forward and property values stabilize, it stands to reason that the FHA reverse mortgages secured by today’s property values will yield a more secure and insured mortgage product.
By Charlie W. Elliott Jr., MAI, SRA
FEBRUARY 2010
LOUISIANA MORTGAGE PROFESSIONAL MAGAZINE
www.NationalMortgageProfessional.com
Foreclosures as Comps?
28
We have all heard complaints concerning the foreclosed property can be the eleappraised values being lower than selling phant in the living room. prices in today’s recessionary environConsider the following hypothetical ment. The buyer wants to buy a property example. Properties comparable to and the lender wants to make a loan, but the subject in the same subdivision the appraisal stands in the way. There are sold before the recession for around a lot of possible reasons for this, and not $400,000. Since the economy tanked, all situations are the same. one quarter of the neighboring propMy experience has taught me that, in erties are for sale and none are movmany such situations, the sales contract ing. The least expensive of those for is higher than the value of the property; sale is listed for $300,000, and it is however, this is not always the case. The getting only a few lookers. There have appraiser can be wrong been only two sales withand, in this challenging in the past year, and they market, it is not always were both foreclosures an easy task to separate that sold at the courtout the meaningful data house steps … one for from the not so meaning$200,000 and the other ful. This is especially true for $250,000. Finally, a for the appraiser who is buyer takes the bold step relatively new to the busiof moving back into the ness and does not yet conventional market by have a recession under signing a purchase conhis or her belt. It is furtract for a home at a ther complicated by the price of $300,000. The fact that some appraisers appraiser appraises the “When considering have become more cau- foreclosures as compa- home for $225,000, tious, given the many arguing that the market rables within a market, criticisms they, as a only supports this value. the appraiser must group, have faced as a Is it appropriate to use consider how the result of the many bank only the foreclosed propproperties were sold.” erties as the basis for the failures, due in part to underwater loans. evaluation? In considering the legitimate chalIf this example sounds farfetched; it lenges of appraising property in the is not. There are many communities in current market, there are a number of the United States currently experiencing issues that should be addressed and similar circumstances. Sellers, buyers, understood by the appraiser, as well as brokers, lenders and appraisers are all the lender and the property owner. challenged by this difficult and complex First, we have markets with little or market. Of all those with an involveno sales. Does this mean that properties ment in this transaction, the appraiser do not have value? Does it mean that is likely the most challenged. He or she values are simply less? If so, how much is confronted with the responsibility of less? What data can, and should, be rendering a fair and unbiased opinion used, and how should it be used to of value, and there is very little relevant determine value under these circum- data from which to base a professional stances? It is hardly a project that should opinion. be undertaken at home by armchair critFor those who say that foreclosures ics and property owners. Under the best should not be considered, this is simply of circumstances, the appraiser will find not true. This data is oftentimes among themselves making value judgments the only indicators available to the with far less than perfect data. Of the appraiser. many variables complicating the landcontinued on page 31 scape and muddying the waters, that of
What is your favorite reverse mortgage story? As I said before, no other product on the market today fits a senior homeowner borrower’s needs like the reverse mortgage. I recall one borrower’s concern was the payment of his wife’s ongoing medications, as well as making the needed updates and repairs to his house. Deep down, he knew his wife’s medical condition was not improving and he had to figure out a way to continue paying for her meds. In-home healthcare was routine, but it did not cover her expenses entirely, not to mention his occasional copays. He took great pride in his home and wanted to make some updates to his wife’s bedroom and modify her bath area. The proceeds from the reverse mortgage loan did not cover all of the items on his list, but it did provide for a steady stream of income covering monthly med-
fha insider
ications and paid for the modifications to her bath area. The last thing he wanted was for his wife to suffer a move from their home of 35 years for financial reasons or to accept willing financial assistance from his children. Without the reverse mortgage, my borrower would not have been able to provide for his wife’s needs and maintain their lifestyle in their own home. Author and columnist, Atare E. Agbamu, CRMS is director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC. A member of the BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse! and more than 130 articles on reverse mortgages. Through his advisory firm, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, the AARP cited Agbamu’s work. He can be reached by phone at (612) 436-3711 or (612) 2039434, and e-mail at aagbamu@advisornet.com or atare@thinkreverse.com. Visit author Atare E. Agbamu’s blog at thinkreverse.com for his thoughts and insights on the reverse mortgage marketplace.
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bility to people with short sales in certain scenarios that “make sense.” If the bank is going to write down the loan anyway, what difference does it make if it’s a refinance or a purchase? Meaning, if the borrowers don’t sell it short, then they’ll refinance it short. And in both cases, you are left with an occupied home and not another boarded up house. On Dec. 22, 2009, the FHA, rather than issuing a Mortgagee Letter, deployed an email which announced the delay of the new appraisal rules set forth in ML 09-28 and ML 09-51. To refresh your memories, here is a brief summary of these changes: ML 09-28 prohibits mortgage brokers and commission-based lender staff from involvement in the appraisal process. ML 09-51 adopts the use of the Appraisal Update and/or Completion Form. This Form is used when appraisers are updating existing appraisals and/or certifying the completion of repairs on existing and new construction dwellings. Although FHA was holding out to see how the whole Home Valuation Code of Conduct (HVCC) story would unfold, it was only a matter of time before they would have to conform to satisfy the lending community and its investors. As I listen to the problems created by the HVCC and how customers are losing out, all I can say is that as an industry, we brought this upon
ourselves. It’s my perspective that for now this is what has to happen in order for us to heal and to strengthen the secondary market … without which we would be out of business. Speak with any appraiser who has been in business for the last 10 years and ask them if pressure from brokers has influenced the values they bring in. Most (if not all) will answer with a very resounding, “YES!” We just need to own the fact that AMCs are here, focus on sales and marketing, and on getting so much volume that the few we loans may lose to bad AMC appraisals won’t matter. Although FHA is delaying these changes, Lenders may still require them prior to Feb. 15, 2010. So be sure to double check with your DE Underwriter, or refer to your Lenders Guideline Requirements. Wishing you success in 2010! Go FHA! Jeff Mifsud founded Southfield, Mich.based Mortgage Seminars LLC in 2004, has been an FHA originator for 12 years, is a contributor to LoanToolbox.com and is a former FHA underwriter. Jeff may be reached at (877) 342-9100 or e-mail jeff@mseminars.com. Visit author Jeff Mifsud’s Web site at http://mseminars.com for tips and information on FHA loans and details from some of the nation’s top FHA specialists.