I am retired and take educated guesses on all things financial.

July 19, 2010

July 19, 2010: Fannie ,Freddie, Dodd and Frank: Real Estate Practices Adjusted

It is a largely unanimous opinion that the ongoing real estate collapse in almost all areas of the country was in large part caused by lenders lowering, or ignoring, standards relating to home mortgage qualifications. Lending institutions were bailed out, closed and re-packaged under another brand, and forced to tighten lending requirements. The medicine was bitter, but necessary.

Apparently, the medicine was unacceptable to the wrong patients.

Kenneth Harney, a respected columnist for the Washington Post, published a most interesting article today that states, effective September 1, 2010,that Fannie Mae will prohibit mortgage lenders who sell it loans from adjusting appraisal numbers. Lenders were often refusing to accept appraisals that appeared high to avoid the wrath of the Feds who accused mortgage lenders regularly after the 2008 debacle of inflating property values for unsavory reasons.

The National Association of Realtor's seems to have lobbied hard to influence Fannie and Freddie to step in and prevent bank's lowering of appraisals on or about closing to avoid stopping questionable appraisals voiding realty transactions (this practice hurts the commissions of involved parties that benefit from a successful transaction). The NAR accused lenders of "sabotage....arbitrarily reducing the value estimate" of the appraiser.

As of September 1st, Fannie Mae will prohibit lenders from changing appraisal numbers. According to Harney, "lenders must contact appraisers to resolve and disagreement about property valuation. If that is not possible, they should order a second appraisal - not just chop the value surrounding the real estate contract." Needless to say, appraisers applaud the new rule. Realtors applaud the new rule. Title Agencies and lawyers likely applaud the new rule. Taxpayers?

The dirty little secret is that many appraisers, especially local appraisers, are beholden to others involved in the transaction who stand to gain commission as property values are not appropriately challenged for mortgage loans. Quite likely, here we go again. Is it no surprise that Fannie Mae and Freddie Mac are immune from the recently passed financial reform bill?

The NAR reports that the Dodd-Frank Wall Street Reform and Consumer Protection Act included a number of provisions impacting real estate. The NAR secured an exemption for Realtors performing traditional activities from the long arm of CFPB, although the Real Estate Settlement Procedures Act (RESPA) is now under the eye of the CFPB. Other aspects of the bill impacting real estate and the mortgage lending industry include new rules on seller financing (predatory landing protection),establishment of a "Qualified Mortgage" safe harbor from risk retention rules, sunset of the Home Valuation Code of the Conduct (HVCC), risk retention rules for commercial mortgage backed securities, re-defining the "accredited investor", and a 3% cap on fees and points for transaction entities as a part of the qualified mortgage safe harbor.

This complex legislation surely will produce unintended as well as intended consequences yet to be discovered. A lobbyist's field day, perhaps?

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