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From the Arizona Board of Appraisal - this press release just clarifies several items including the requirement to be certified in order to be a FHA roster appraiser.  Appraisers with Exceptional Appraisals have been on the roster for year and have long since been certified.  Press release below from the Arizona Board of Appraisal:

APPRAISERS. On July 30, 2008, President George Bush signed the Federal Housing Finance

Title IV of H.R. 3221—Hope for Homeowners Program

meets the competency requirements of the Uniform Standards of Professional

Appraisal Practice (USPAP).

FHA Appraisal Reforms

to perform FHA appraisals shall be certified by the state in which the property to

be appraised is located or by a nationally recognized professional appraisal

organization* and demonstrate verifiable education in FHA appraisal

Appraiser Independence

3351) (d) Prohibition against discrimination which states that “Criteria established . . . for

appraiser qualifications in addition to State certification or licensing shall not exclude a

This excerpt is from the Mortgage Market Guide from Dean Wegner about the recent legislation that I thought would be of interest.  Quite a buzz about it.

The Housing and Economic Recovery Act

This week, President Bush signed the "Housing and Economic Recovery Act of 2008" into law. This $300 Billion rescue plan is aimed at helping struggling homeowners avoid foreclosure, as well as boost confidence in the housing market. Although the bill is several hundred pages long and contains a number of far-reaching provisions, here are a few of the major provisions in the legislation that impact homeowners and homebuyers:

1. Tax credits. First-time homebuyers who purchase their primary residence on or after April 9, 2008 and before July 1, 2009 are eligible for up to $7,500 in tax credit, provided they haven't owned a home in the last three years and fit certain income parameters. The credit is generous, but it is actually an interest free loan, paid back over 15 years at $500 per year when taxes are filed.

Special note: Some types of seller-paid down payment assistance programs are being eliminated as of October 1st as well - so purchasing a home before then may gain you a double benefit of tax credits AND seller-paid down payment assistance while it is still available.

2. Larger loans at lower rates. There have recently been provisions in place that have allowed loans larger than $417,000 to qualify for better financing rates than normally would be available for "jumbo" loan amounts of that size, thanks to Fannie Mae and Freddie Mac. Although these provisions were set to expire, they are being extended...however, the top end of the loan size that will be allowed under these programs will be dropping down from $729,750 to $625,500 as of January 1, 2009.

3. FHA Hope for Homeowners. This provision is designed to help homeowners who are "upside down" on their mortgages--that is, they owe more on their house than they can sell it for in today's market. Essentially, this plan allows homeowners who meet the requirements and are upside down to refinance their mortgage to a new 30-year Fixed FHA mortgage. There are a number of qualifying details that must be met and requirements to be agreed to -- including agreeing to split the equity in your home with the government in the future. Still, if you're upside down on your mortgage and struggling in today's economy, this is an option worth exploring in more detail.

These are just a few of the provisions that may benefit you, and there are a number of other items that impact the housing and mortgage industry as whole. But the bottom line is, home prices are extremely reasonable right now, home loan rates are low, and new incentives are in place that may help make the decision to buy even more appealing than before.

Please note that the above is not tax advice - please contact your CPA, attorney or lending professional for your specific situation and whether you may qualify for any of these programs.

In many markets, transactions are starting to be brisk.  Why?  Low price and FHA.  As predicted, FHA with a low 3% down payment is a huge boost to the market.  As lenders increased down payment requirements to 10% in 2007 while simultaneously increasing interest rates and switching emphasis to other products, in came FHA.  Many market already have increased number sales which decreases the months of supply.  If no new listings were added and the current rate continues, the supply issue could be cleaned up within the year. 

FHA is the financing.  FHA has been the choice for 4 out of 5 buyers (around 79%) in the market of the 14,000+ transactions thus far as of May 1.  FHA has been more flexible removing VC conditions while maintaining standards and providing a means by which buyers can achieve their home ownership dreams.  FHA is now up to $346,250 in the area which now includes very nice properties including large, new homes or more desirable communities.  Most sales appear to be well below this number and FANNIE MAE is decreasing it's 10% down payment in a declining market likely to the 5% range.

Some changes are being made where the FHA insurance is likely being change from a standard 1.5% for the FHA loan insurance to a more customized 1.25% up to 2.25% or so for the insurance based on the risk of the borrower.  Also, down payment assistance or closing costs have been included in the market making first time home buyers happy as a clam.  They can now purchase a home up to 50% off 2005 prices with the market continuing to drop like a rock in 2008.

What is driving all this decline?  There is never a simple answer; however, a few indicators are as follows:

-Banks are liquidating. Anywhere from 5-50% of the supply in markets analyzed are bank listings.

-Wall street wants all the 'skeletons' out of the closet.  They enjoyed the increased yields on investments during the good times, but don't like taking the losses which are immense and broad sweeping.  The last of it has not hit yet and massive losses are abounding.

-Employer Sanction Laws - Effective in 2008 an active, recently passed law went into effect where business that hire undocumented workers will be punished.  Rather than this affecting 5% of the population in some parts of the country, some news sources are citing as high as 13% of the population may be affected by this locally in Arizona, specifically in the Phoenix area.

-Sub-prime, sub-prime, sub-prime - This has larger implications that anyone can realize.  Real estate is relative or comparative for both appraisal and for brokers in the market pricing real estate.  Prices being set by unqualified buyers who can't afford a particular property influences what a qualified buyer subsequently pays, even all cash buyers.  The additional demand meant additional increase during the upside.  These borrowers were recently removed from the market in 2007 as more traditional, risk aversive underwriting has been instituted.

-News media - This is likely the largest impact more recently as national and local media constantly hit the airwaves from CNN to local news media to do a surface sound bit of how bad the market it and cite which cities have the largest declines.  Even decent markets have gone down in some of the most desirable, upscale portions of the Valley.

-Refusing to lend - Many banks, especially in the luxury or jumbo market are no longer lending.  As money is harder to come by and liquidity has been increased with the auctioning of federal funds and low interest rates, many banks are relending money on credit cards or other products.

-Low yields on CD's - in a matter of 3-4 months, short term CD's went from 5.5% to around 3% as banks pay less. 

-Rates rising again - Rates just went up.  They went down to 5.5% for a 30 year note for the bank's prime or best customer and there are already at 6% or higher again.  This is still a great price and at or near historical 30-40 year lows.

-Unemployment - This is the prime concern lately, the highest uptick in lost jobs since 1986 was just noted in recent government reports.  Local reports are not out yet, but the general Phoenix area typically outperforms the national numbers.  Financial services and construction have been the hardest hit with many local and national builders either in bankruptcy or taking massive losses.

-Real Estate Brokerages - many of these are in bankruptcy including one large national chain that has several locations.  Additionally, another large national chain of brokerage just went out of business that had at least 14 locations.  Putting a desperate seller such as a corporate entity and a desperate real estate company has yielded some of the poorest plummeting list prices ever.  Even when properties sell quickly for cash or

-Short sales - In order for a short sale to occur, the borrower has to prove that they have no money to make payments (financial hardship), no way to pay the difference and the property may need to be in foreclosure.  It is odd that so many of these are approved - they just took the loan out in the past 12-36 months and there hasn't been any change of employment.

-Legislation - The local State of Arizona has legislation to license loan officers. The horses are already out of the barn, but Arizona was moving off the radar for mortgage fraud to making it's way back to the top 10 - again!  It is reported that the head of some sort of committee is blocking legislation and not cooperating in order to get the legislation passed.  California and Colorado already passed some sort of 'clean up' laws from the current mess.  As it stands, no licensing, education, fiduciary or any other requirements currently are required by Arizona despite such action being recommended by the governor at State of the State address.

-New CEO's - Have you seen a national mortgage company that doesn't have a new CEO?  Unlikely.  Many threw caution and risk management to the wind.  More risk averse, prudent managers have been called in to run companies which may rock the boat a little.  Citigroup, the nations largest with over 2.2 trillion in assets, is planning to get rid of 500 billion associated with residential lending, etc.  This company was reported/predicted to take on 18 billion in write downs and losses when the year of 2008 started.  They are already up to 35 billion or so and may have another 15 billion in exposure according to recent article.  They have a new CEO taking care of the shop.  Remember when they would have 100% financing with negative amortization and the market was invincible - anyone who could bought as many properties as possible?  The market was perceived as invincible since there really was no liquidity risk at all.  Similarly, banks gave loans to people soley based on the fact that the market is going up on refinances despite the fact that they have no way to repay the loan.  Remember that? This market is the unraveling of that.  They all wanted more, more and to increase market share when in reality they were triggering an enormous, widespread financial disaster and real estate depression. If Citigroup sells of a portion of their business (500 billion), either JPMorgan or Bank of American will be the largest bank at that point.

-Fuel prices over $4/gallon going to $5- This does some have impact on the market.  Paying twice the price for a necessity such as fuel does impact the extent and amount that a buyer has to put towards housing.

Whew...these are just a few aspects of the market.  One more aspect is condition.  Having managed at a bank, looking at a 460 to 500 credit bureau score isn't pretty - typically riddled with judgements, BK, defaults and other concerns.  Similarly, as an appraiser, when entering these properties they aren't pretty either.  Individuals who have a history of not maintaining things appear, for the most part, not to maintain and even destroy properties.  Oddly enough, they may not have had much of their own money into a property and now the bank has to absorb damage, costs of sale and the loss in value due to the decline in property prices since everyone did the same thing - lent money on the risky side.  Many do damage to the properties on their way out despite the prescribed consequence for non-payment.  Ironically, banks want buyers to purchase "as is" with a property in now fair condition (which is a catch 22).  The next bank won't lend on it.

There is a solution in the market with a high level of limitation.  Try the FHA 203K program...480-706-6222 BBaca Engineering starts it all off.  The report and costs are then handed to the appraiser.  The bank or lending professional coordinates all of this.  This is just one solution of a property that has been heavily discounted for damage in an area where the repaired property has sufficient market value denoting feasibility.

Just a quick note. Commercial real estate markets are still reasonably strong, but they are affected; Increases in vacancies for office and retail were noted more recently.  Additionally, there are some larger down payment requirements for multifamily projects based on market participant information.

If you have questions or would like to see a blog item, please call 480-831-0002 or post your comments.

New FHA increased limits to $346,250 - properties under this price range just got a whole new market of buyers. 

FHA typically has a lower down payment of just 3%.  Although banks are typically requiring at least 10% down, ideally it is 20% or more depending on the use of the property.  FHA is a more expensive loan, but there is an option of rolling that into the loan along with monthly mortgage insurance. 

For the cash-light buyer, this is a very large deal - especially as banks are liquidating in the market and tax is about to conclude.  This is very positive for the market.

This blog does not constitute an appraisal nor does it substitute for competent legal or other representation nor is it advice to act on for your specific situation.  Consult an expert such as a competent attorney, a competent real estate agent, a licensed home inspection, licensed engineer, mold/pest or environmental hazards expert. 

Since some basic FHA standards are checked, clear information is provided that lets you know that an FHA appraisal is not a home inspection with a typical warning in "For Your Protection: Get a Home Inspection" summarized:

• A Home Inspection (who is not an appraiser) evaluates the physical condition: structure, construction and mechanical systems
• The home inspector identify items that need to be replaced or repaired
• Estimate the remaining useful life of the major systems, equipment, structure and finishes

An appraisal by an appraiser:

• Provides an unbiased opinion of the market value of the house as of the date the appraiser is at the house
• Checks for FHA minimum property standards and requirements
• Is overall concerned with the marketability of the property in the market

FHA does not guarantee the value or condition of a home.  In short, find out potential defects in your inspection period of your contract (or before you even sign) and either have the items repaired from the seller, walk from the deal if they won't and get your earnest money back or forever hold your peace if you choose to accept the items.  The point is to make yourself into an informed buyer with a go/no-go option or something in between with the seller fixing the items prior to close of escrow.  This is part of your due diligence in purchasing real estate.

Neither the appraiser nor HUD warrant the house so it is important that you not only get a home inspection, but that it be a good one with utilities on and all mechanical systems thoroughly and accurately checked.   It is also important that you find a licensed home inspector that has good communication skills, good report format and other aspects of communication so that you can understand what it is they are telling you.  At times you may have to get additional bids from contractors to correct items before you can make an informed decision as to what you are accepting in the property or negotiating.  You can find a home inspector at http://www.btr.state.az.us/regulations/home_inspectors.asp

You may wish to hire other licensed experts (who have expertise that appraisers do not) such as:

• Licensed Engineer, licensed contractors, licensed home inspector as mentioned, licensed pest inspector, mold/indoor air quality inspector,
• Any environmental expert for air, subsurface soil, etc.
• Surveyor and ALTA survey 

This blog does not constitute an appraisal nor does it substitute for competent legal or other representation nor is it advice to act on for your specific situation.  Consult an expert such as a competent attorney, a competent real estate agent, a licensed home inspection, licensed engineer, mold/pest or environmental hazards expert. 

With the real estate community somewhat unfamiliar with FHA, we are getting inundated with calls, questions and what do we do?  How is it different?  I heard some things changed.  The VC sheets or Valuation Conditions contained in the robust FHA appraisal are gone along with the home buyer summary, but the standards and processes are the same.

Well, First off, FHA is the Fair Housing Administration or HUD.  You can learn more at (http://www.hud.gov/).  If you hadn't heard of them in a while it may have been because they were constantly raising the insurable limits to keep up with the market.  They did raise to the mid $250,000 range before the market starting going south.  FHA government insured loans are typically what most want to know about since they relate to financing real estate which has been in a hot topic of late.  They typically have a lower down payment, an upfront MIP or Mortgage Insurance Premium of a 1.5% of the loan plus monthly mortgage insurance.  Pending discussions of legislation denote that FHA limits could raise to over $400,000 locally.

This is an important impact on the market since the values have eroded away in the market decline with increased underwriting standards by banks.  Not only for purchases for buyers, homeowners may also attempt to obtain financing with an FHA loan.  The FHA has historically had a low down payment requirement.  With dropping prices increasing lower interest rates may be just what the doctor ordered for this real estate market.   Payments for mortgages are down significantly.  Proposed economic stimulus packages of rebates by the federal government, rate decreases by the Federal Reserve and the timing of when tax refunds come in the spring may yield some improvement.  Buyers in the market who were priced out are now back in.

Just to recap, it is more than the 'sub-prime mortgage industry' meltdown that is the current financial situation.  There are other parts to it.  It is noteworthy that as the market increased, so did the number of agents.  The amount of real estate agents has nearly doubled to 96,000 per recent AZ Real Estate Commissioner's appearance on KFYI 550am radio show.  That explains a lot! 

Many agents got into the real estate market as the market was good.  They may have only had one client, a group of Californians or other speculators that purchased 40 new homes, etc. on the massive price appreciation that went from Fall of 2004 through the fall of 2005.  The problem is that the agents may have only gone out and purchased new construction and then turned around and sold them at peak prices, completely vacant, and have little transaction management experience necessary to advise and resolve the BINSR, Buyer Inspection and Seller response period that typically is associated with Realtor contracts.  These are critical skills in the current market, especially if you are dealing with FHA.  Some of the lazy methods I've seen, if any employed, of issuing a financial dollar credit from the seller won't cut it and don't actually correct deficiencies if they exist.

First off, the current manner of purchasing has an inherit catch 22.  A potential buyer is purchasing from, a bank, for example and all utilities are turned off.  The buyer signs lengthy "As Is" addendum yet they are getting a loan where the property is checked for FHA minimums that may require corrections and expenses, including contractors, before any money will be lent.  Who is paying for those -do you have a budget and do you know what those defects and their costs are before you proceed in the transaction?  Despite "As Is" addendum, I have heard from at least one agent that a lender was willing to correct items and deficiencies - DON'T COUNT ON IT.  Two things that could help make an informed decision:  Turn the utilities on and leave them on!  A home inspection is vitally important and more so that it mean something and it is far less potent with all all utilities off.  This can provide an opportunity to reject the property and get earnest money back or attempt to negotiate a repair.  With respect to the utilities, don't do a quick, temporary turn on.  The utilities should be on for the home inspection done by a licensed home inspector during the inspection period.   The bank then sends out the FHA appraiser who checks items.  If any items need correction, a final compliance check is done just before the close of escrow.  The utilities should be on the escrow period if you just caught all of that!  Turning on the utilities 3 times during a transaction at the bank's or seller's expense wastes unnecessary start/stop fees.  A second thing you may wish to consider is some type of language in your contract such as (not legal advice) 'seller to correct any deficiencies required by FHA or lender in order to close escrow'.  If utilities are off or working improperly, a lot of red flags come up.  Did the prior occupants steal the copper wiring throughout and there is a $10,000 to $20,000 rewiring necessary before someone can live in the property or is it just something an electrician can crank out in an afternoon for a few hundred dollars.  This is what a home inspection is for.  More details to come.

Current FHA Limits in Arizona, Maricopa County, Try one of these:

https://entp.hud.gov/idapp/html/hicostlook.cfm

https://entp.hud.gov/idapp/html/hicost1.cfm

....Upcoming blogs:

-"Appraisals Are Not Home Inspections" and "For Your Protection, Get a Home Inspection". 

-Can anyone do an FHA appraisal?

-Is this a condominium or townhouse I am buying - what are some clues I can look at?  Is this FHA approved?

This blog does not constitute an appraisal nor does it substitute for competent legal or other representation nor is it advice to act on for your specific situation.  Consult an expert such as a competent attorney, a competent real estate agent, a licensed home inspection, licensed engineer, mold/pest or environmental hazards expert.