The Consumer Financial Protection Bureau (CFPB) is an independent
agency of the United States government responsible for consumer
protection in the
financial sector. Its jurisdiction includes banks, credit
unions, securities firms, payday lenders, mortgage-servicing
operations, foreclosure relief services, debt
collectors, other financial companies operating in the United States. http://www.consumerfinance.gov/
ICBA Summary of the TILA-RESPA Integrated Disclosure (TRID) Rule:
TRID stands for:
What is the new TRID rule? ? The TRID rule consolidates four existing disclosures required under TILA and RESPA for closed-end credit transactions secured by real property, the appraisal notice required by the Equal Credit Opportunity Act, and the servicing
notice required by RESPA into two forms: a Loan Estimate (LE) that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application, and a Closing Disclosure (CD) that must be provided to the consumer
at least three business days prior to loan consummation. ? TRID also establishes a new definition of “application” for consumers to obtain an LE ? While this rule includes major changes to mortgage loan disclosures and delivery requirements, due to ICBA advocacy,
no proposed changes requiring creditors to disclose an all-inclusive annual percentage rate (APR) were finalized.
Loans Covered By the Rule ? The TRID rule applies to most closed-end consumer credit transactions secured by real property, but does NOT apply to: o Home Equity Lines of Credit (HELOCs); o Reverse mortgages; or
o Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling not attached to real property. ? The TRID rule applies to all lenders making mortgage loans, including community banks, unless the lender extended credit to a consumer 25 or fewer
times including mortgage loans, or made five or fewer mortgage loans in the previous calendar year or current calendar year. ? NOTE: Certain types of loans that are currently subject to TILA but not RESPA are subject to the TRID rule’s integrated disclosure
requirements, including: o Construction-only loans; and o Loans secured by vacant land or by 25 or more acres.
Reference Materials I have reviewed:
https://www.youtube.com/watch?v=-mfQmU8x3zc - very good start to finish projection of what a typical sale calendar might look like.
https://www.youtube.com/watch?v=Z2Rs-zAhLb8 - 15 minutes in the video gets more in-depth of what to expect from the industry on the consumer end.
https://www.youtube.com/watch?v=BJJ0YNHRiTw - Very good for Realtors.
New TRID FAQs from Fannie Mae 10/21/2015
Lenders and other industry participants have made significant systems and operational changes to prepare for the TILA-RESPA Integrated Disclosure (TRID) rule disclosure requirements, and many questions remain about certain
aspects of that implementation. New
FAQs address lender questions as they relate to our Selling Guide.
My take aways:
Highest and Best Use
Most appraisers have a good understanding of highest and best use. USPAP Standards Rule 1-3(b) states; “when
necessary for credible assignment results in developing a market value opinion, an appraiser must develop an opinion of the highest and best use of the real estate.”
The subject site as improved on the effective date of the appraisal must reflect the highest and best use
for Fannie Mae to purchase or securitize the mortgage. The development of the highest and best use entails four important concepts:
productive use (most profitable).
Legally permitted entails that the subject’s use is a legal, conforming use. This would exclude uses that
are not currently allowed or are unlikely to become allowed, including, but not limited to, uses that are not allowed per zoning or are restricted by the deed or a land covenant.
Issues, such as the size and shape of the site, could inhibit a possible use, thus the improvement must be
The concept of financial feasibility entails that the cost to change the improvements cannot be greater than
what the real estate would be worth after the change. For example, in some markets, a dwelling that was originally a two-family dwelling will be converted into a single- family. The appraiser researches market data and finds that the subject would be worth
$400,000 as a single-family home. If it was converted back into a two-family dwelling, it would be worth $430,000. The appraiser then estimates the cost of the conversion to be $50,000. This would not pass the financial feasibility test as the cost of the
conversion is greater than the increase in value to the subject. It would not be financially feasible to put $50,000 into the subject for the conversion, only to see the subject increase in value by $30,000.
The concept of maximally productive and most profitable use involves the analysis of what use is the most
profitable use for the subject.
Appraisers sometimes struggle with the highest and best use of a site as improved when a neighborhood is changing.
Examples include areas where properties are purchased and torn down to build newer and bigger improvements. Fannie Mae gives us guidance on this by stating, “If the use of comparable sales demonstrates that the improvements are reasonably typical and compatible
with market demand for the neighborhood, and the present improvements contribute to the value of the subject property so that its value is greater than the estimated vacant site value, the appraiser should consider the existing use as reasonable and report
it as the highest and best use”.
The highest and best use could still be its current interim use until such time that the market changes, making
it more financially feasible to convert to another use or until such time that there becomes more demand for the alternative use.
One of the top USPAP compliancy issues with appraisal reports is in regards to the highest and best use analysis.
Standards Rule 2-2 (a)(x) states “an Appraisal Report must summarize the support and rationale for the highest
and best use opinion which such an opinion was developed by the appraiser.”
The key word here is “summarize”. Most appraiser think he or she has met this USPAP requirement because YES
has been checked in the site section, stating that the highest and best use of subject property as improved (or as proposed per plans and specifications) is its present use. A restricted appraisal report allows the appraiser to only state the highest and
best use, but per USPAP, an appraisal report must summarize the rationale for the highest and best use opinion in the report.
HOME VALUE FORECAST: INDUSTRIAL DIVERSITY
HELPS KEEP HOME PRICES STABLE
March 18, 2015
Many people have been writing about the impact of lower oil prices on real estate. Brad Doremus and Victor Calanog wrote an informative piece in National
Real Estate Investor on February 25, 2015 that does a fine job
painting the picture. You can read it here.
In the story, they outline the impact of falling oil prices on major oil-producing and research hubs, including areas in Texas and Colorado. This is of interest to Home
Value Forecast because four of our top ten metros this month are from oil producing/exploration areas in the two states.
They conclude by saying about Houston: “…the consequences of lower energy prices will mostly be felt by office and industrial properties. Any effect on the multifamily and
retail sectors will be felt indirectly, but we believe neither will feel any significant downward pressure on fundamentals.”
What’s the reason for this stability? Industrial-based diversity. Below is a look at Houston home prices versus crude oil over the last forty years:
The 1980s’ decline in crude prices had a direct and significant impact on home prices in Houston. At that time, Houston’s economy was overly dependent on the energy sector.
Diversification in the industrial-base has left Houston better equipped to meet the challenges of a prolonged downturn in oil prices.
In a June
2014 Home Value Forecast update we touched on many
Houston real estate market trends, including a Collateral Analytics Home Price Forecast. Even with the changes we’ve seen over the last year, the forecast is staying fairly consistent:
Based on previous patterns, it will be important to monitor how Houston prices perform over the coming year in light of the recent significant decline in oil prices.
The College Station and San Antonio CBSAs were also in our top ten, and have seen impressive appreciation over the last ten years, with neither seeing any significant impact
from the 2008-2011 real estate downturn. We will keep an eye on these markets in future months to see how they weather future oil price fluctuations.
Collateral Analytics Home Price Forecast for College Station and San Antonio CBSAs:
CBSA Winners and Losers
Each month, Home Value Forecast uses a number of leading real estate market-based indicators to rank the single-family home markets in the top 200 CBSAs to highlight the
strongest and weakest metros.
The ranking system is purely objective and is based on directional trends. Each indicator is given a score based on whether the trend is positive, negative or neutral for
that series. For example, a declining trend in active listings would be positive, as will be an increasing trend in average price. A composite score for each CBSA is calculated by summing the directional scores of each of its indicators. From the universe
of the top 200 CBSAs, we highlight each month the CBSAs which have the highest and lowest composite scores.
The tables below show the individual market indicators that are being used to rank the CBSAs, along with the most recent values and the percent changes. We have color coded
each of the indicators to help visualize whether it is moving in a positive (green) or negative (red) direction.
In addition to the Texas and Colorado markets, California and Washington state metros are again in the HVF top ten this month. The California and Washington markets all
have higher sold prices over active home prices, with San Francisco leading the pack with average sold price of $989,000 over $878,000 active sales price.
All have had significant drops in active listings and Months of Remaining Inventory (MRI) and look like they will be “sellers markets” going into the spring.
The bottom ten are still plagued by the downward pressure of foreclosure sales, including Akron, OH with 44.88 percent foreclosure as a percentage of market sales. Months
of Remaining Inventory fluctuate between 6 and 13 months for the bottom ten, much less than during the height of the housing crisis but far greater than the 2 – 3 that is the majority in the top ten.
Whether you are looking to buy or sell, your credit score can play a major role in your finance approval. By definition, your credit score is a number that reflects your credit worthiness at any given point in time. When a landlord, lender or credit card company
is asked to loan money, they run a credit report to determine the amount of risk involved in investing in you, the applicant. Loan approval and the amount of money you are eligible to receive is one of the most critical elements of your real estate transaction
- which makes it important to understand how credit scores work.
Your credit score is calculated based on a number of different factors. These factors are broken down below by percentage of consideration:
Virginia Gov. Terry McAuliffe on March 23 signed into law S.B. 1445, which requires appraisal management companies operating in the state to compensate appraisers at a reasonable and customary rate. The legislation gives the Virginia Real Estate Appraiser Board
authority to take administrative action against AMCs not paying appraisers customary and reasonable fees in accordance with federal law.
Prior to enactment of the legislation, Virginia law already required an appraiser engaged by an AMC to disclose as part of the appraisal report the actual fee they were paid. In 2014, the Virginia Center for Housing Research and the Virginia Tech Program in
Real Estate completed a survey of Virginia residential real estate appraisers to analyze the patterns of fees earned by appraisers the previous year. Prior to release of the report, no data existed that defined customary and reasonable residential real estate
appraisal fees in Virginia.
Several other states have provisions in their AMC laws similar to those passed by Virginia, and a few others currently are considering similar legislation. Some states simply require AMCs to provide a certification to the state appraiser licensing and certification
agency stating that they are complying with federal law regarding payments of reasonable and customary fees. Other states specifically require the payment of reasonable and customary fees and grant authority to the state licensing agency to investigate complaints
against AMCs related to appraisal fees and to take administrative action against those found to be in violation of state law.
View a copy of Virginia’s
new AMC law.
Collateral Underwriter- Too Much Too Soon
by David Braun, MAI, SRA
I would like to communicate some concerns and suggestions regarding the roll-out of the Collateral Underwriter (CU) scheduled forJanuary
26, 2015. This is not an attack on Fannie Mae or the CU. In fact, these suggestions support the potential of the CU in improving the loan process and the end result of having quality
Let me introduce myself so you can understand my perspective. I have been a working appraiser for 39 years. I have been studying statistics for over eight years, specializing in regression analysis. I have no degrees or formal education in statistics. I call
myself and people like me "valuation analysts," as I have one foot squarely placed in traditional valuation methods and the other in the statistical world. I have no axe to grind with Fannie Mae; I like many of the things it has done and dislike others. As
an appraiser, I am highly attuned to its influence on how appraisers perform their work. I performed residential appraisals for the first 20 years of my career, and commercial appraisals the remainder of the time. In addition, I develop seminars and regression
software for appraisers.
I have been using regression analysis in conjunction with appraisals and have run literally millions of scenarios of regression analysis in a laboratory setting to understand what it can and can't do for appraisers. When the 1004MC form was introduced, Fannie
submitted an email to appraisers dictating how to count the listings for the month's housing supply (MHS) calculation. I published an article on the web indicating that the calculation method would often over-state the MHS by as much as 50 percent. I am not
sure the folks at Fannie ever saw my article, but they did later retract the stipulated method, replacing it with a better one. The point being that as the old saying goes, two heads are better than one.
There are many potential upsides to the CU. Perhaps the most applauded by appraisers is that the CU is actively trying to identify the handful of unethical appraisers. Ethical appraisers would like to see the CU swat them like flies. I have personally seen
appraisals where the comparable's data were fiction. Unfortunately, many of the appraisers who tend to inflate values are sometimes encouraged by a few underwriters. The CU is going to make this unethical group of underwriters uncomfortable, as there is now
a check and balance system in place. You can see I support the use of the CU for a lot of reasons. Let's move on to some of the negative aspects, and what might be done to prevent them.
I have worked closely with underwriters over the years, and they do not pretend to be appraisers. They work with a simple checklist for review. I have personally been contacted from call centers in India who were the ones filling out the checklists. When the
appraiser legitimately varies from secondary market guidelines there is a real problem explaining this to the holder of the checklist because they just don't understand the guidelines well enough. Now imagine these same underwriters and reviewers looking at
the CU program on their monitor. I don't see how the CU is going to enable them to address the legitimate exceptions to the statistical analyses provided to them by the CU. The result will be an unacceptable addition of time and effort on the appraiser's part
to explain the issues. Some appraisers may simply throw up their hands, and modify their appraisals to meet the suggestions of the CU. This path of least resistance is the last thing that should happen, not to mention it will tend to erode the appraiser's
There is a myth among appraisers and underwriters that when the CU uses holistic regression analysis methods, the outputs will be infallible. Fannie's training material
clearly states that the CU analysis will produce some "false positives and false negatives." This means that the outputted indications of the CU will sometimes simply be wrong. Right or wrong, the appraiser can expect to get a call from the underwriter/reviewer
asking them to explain why the CU is suggesting something different than he/she reported. In terms of line-item adjustments rates (coefficients), regression analysis is just a tool that provides evidence, not proof. This can be demonstrated by scrubbing the
same data with a different method, omitting a couple of sales, or by omitting or adding variables. When these things are done the coefficient in question may change significantly. Also, it is not unusual for a 90 percent confidence interval for a coefficient
for the gross living area to range from as much as $40 to $70. This wide range is further evidence that the coefficient is only statistical evidence, not statistical proof.
When there is a 90 percent chance that a coefficient will be within a specific range, this means that there is a 10 percent chance that the output is incorrect. From an appraiser's perspective receiving additional evidence for a line-item adjustment rate
after the appraisal and report are completed is counterproductive. Consider a house painter who is told to paint a room a certain shade of brown. However, the mother-in-law would be visiting soon and if she didn't like the color he would be required to repaint
the room a new color for free. The painter would say, if your mother-in-law wants to provide input about the color it must be done prior to my work, or I will have to charge for my additional work. If a client has any information for the appraiser, such as
additional evidence of a line-item adjustment rate, they should provide it prior to the appraisal being performed, not afterward. If the appraiser performs adequate due diligence then he/she will have to charge extra to consider the additional information.
I understand that Fannie Mae may have no intention for the underwriters/reviewers to require the appraisers to comment or provide additional support, however, if the CU provides it, the appraiser will almost certainly be asked to comment on it.
Jury of Your Peers
Many of the outputs of regression analysis are more reliable than the line-item adjustment rates. For example: identifying variables which have a relationship with value, identifying the random variance associated with a market, and final value estimates.
These sorts of conclusions may be useful to underwriters.
The check that the CU will perform by comparing what the appraiser did to his peer group is problematic. This will penalize the very good appraisers who will be asked to explain why their conclusions are different from less experienced, inferiorly trained,
or unethical appraisers. Considering a bell curve perspective, it is likely that you could divide appraisers into three groups, below average, average, and above average. This means that the majority of appraisers would be average or below. The implication
is that the good appraisers should conform to the actions of the less credible appraisers. A reasonable answer from the good appraiser to the underwriter might be, "Yes, because I am a better appraiser than the overall pool of appraisers, I would expect my
conclusions to often be inconsistent with the other appraisers." Again, I am not saying it is Fannie's intent that the underwriters will require an explanation from the appraiser, I am saying it will, none the less, be the reality appraisers are forced to
Here are a few suggestions:
• Do not report the comparison of one appraiser's line-item adjustment rate to that of their peers to the underwriters. This information may be useful to Fannie, but is of no practical value to the underwriters or appraisers.
• Postpone the underwriter's access to any of the CU analytical outputs concerning line-item adjustment rates until both underwriters and appraisers have time to educate themselves on what the implications of those outputs are, and how they should be handled.
Quite frankly, the appraiser could not comment on the CU analytical outputs without knowing the scope of work and due diligence that the CU used. This does not involve facts such as transaction and property data.
• Fannie Mae should work with appraisal and mortgage organizations to encourage more related training. It is a simple truth that no system can be successful without the users being properly trained. Consider promoting standard certificates of "Valuation Analyst"
and "Underwriting Analyst" that establish competency levels necessary to successfully take advantage of the CU system.
• Data that includes quantifiable rating systems for condition and quality of the improvements tremendously adds to the effectiveness of statistical analysis. This superior data, which was gathered and assembled by appraisers, must be accessible to appraisers.
Appraisers have access to regression software, but not the superior data Fannie has collected from their appraisals. If one of the goals is to improve the quality of appraisals then it is not logical to withhold high quality data from the appraiser.
• Fannie and appraisers must accept that compliance with the Uniform Standards of Professional Appraisal Practice (USPAP) is the best avenue to a credible appraisal and report. Fannie Mae would best be served by working with the State Appraisal Commissions
and Boards to include additional USPAP compliance checks in the CU such as:
o Was the analysis of the highest and best use performed and reported?
o If applicable, was the land value analysis performed and reported?
o Was an applicable explanation reported for the omission of any of the major approaches to value?