The FHA was established in the 1930’s to insure residential real estate loans. It was designed to assist people (mostly first time home buyers) to get financing they otherwise might not afford. Only 3% down payment was required to qualify and gifts and grants can be used for down payments and closing costs. In their 70 years of business they have made over 34 million loans.

The FHA had a pretty stable percentage of the market for decades. Then, in the early and middle 2000’s the new ‘”creative” loan types came available that required nothing down. During that time frame the FHA insured few loans.

Now the FHA is on the rise. It is one of the most attractive loan programs available today. Also, the FHA lending criteria have been made more progressive to appeal to a larger segment of the market. The maximum loan value has been increased to $418,750. This, compared to the average home price of around $349,000 (RMLS stats.) is above average. The FHA, in decades past, had a loan ceiling that was below the average home sale price. So, they are reaching out to a larger segment of the market.

Ralph Olsen, IFA appraiser

Pacific West Appraisal Services, Inc.

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I often receive calls from people who want to have their house appraised to get a mortgage loan.

It is often the case that when you get a mortgage loan you will need an appraisal to assist the lender in establishing the market value of the property.  This way they can manage the loan to value ratio.  However, a federally regulated lender would have to order the appraisal or the lender can not use the appraisal.  The idea is to keep property owners from colluding with the appraiser and producing appraisal reports with inflated values.  Such activity would make it difficult for the lender to establish an appropriate loan to value ratio.

A problem today often occurs when a borrower applies for an FHA loan.  Often the seller offers to pay some of the buyers loan costs.  They then ask the appraiser to inflate the appraised value conclusion to include those loan costs.  The market value of residential real estate is based on net sales price to the seller.  So, if the house sells for $260,000 and the seller is paying $10,000 of the buyers loan costs, the net to the seller would be $250,000.  It is the appraisers responsibility to find any hidden pay backs from the seller and get to the net sale price.

Ralph Olsen, IFA appraiser

Pacific West Appraisal Services, Inc.

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   Recently I have been asked questions about the current FHA inspection and repair requirements.  The following statements were copied from the FHA website.

• Required Repairs: Required repairs are limited to those repairs necessary to preserve the continued marketability of the property and to protect the health and safety of the occupants, A.K.A. the three S’s:
  • Safety: protect the health and safety of the occupants
  • Security: protect the security of the property (security for the FHA insured mortgage.)
  • Soundness: correct physical deficiencies or conditions affecting structural integrity

• Properties in Poor Condition: If the subject property is in such poor condition that it may be cost prohibitive or impractical to bring it up to FHA’s minimum property requirements, the appraiser should recommend rejecting the property and contact the Lender before continuing with the assignment. If continuing:
  • Complete the appraisal on an “AS IS” basis, clearly marking the report as recommended for rejection for Section 203(b) and provide reasons for the rejection;
  • Provide a list of all major deficiencies and state that the list should not be considered all-inclusive. Additional items may be required before acceptable for FHA Insurance; and
  • Provide photographs of deficiencies to support recommended action.

[ If the property has some general maintenance problems, like torn up or missing carpet exposing the floor underlayment, or a large hole in the garage door (these things would likely affect marketability) then the appraiser inventories these problems and presents a list of repairs to put the house in generally acceptable condition.(These are my notes.)] 

Clearing Conditions on Existing Homes

• All repair items required by the appraiser or underwriter must be inspected and the clearance documented.

  A professionally licensed, bonded, registered engineer, licensed home inspector or appropriately registered/licensed trades person, as applicable, must provide documentation that all deficiencies have been acceptably corrected upon completion of repairs. “As applicable” has been determined to mean any individual who the lender deems to be qualified, which might be the appraiser.

  Professionals as defined above may use their company’s forms and letterhead to make the certifications. Appraisers and Compliance Inspectors are to use the Compliance Inspection Report, form HUD-92051. The individual signing Section II must be the person who actually performed the inspection. Section III or IV, as appropriate, is to be signed by the Direct Endorsement Underwriter.

 If you are familiar with how the FHA managed the appraisals of the properties it insured prior to the mid 1990’s you can see that the requirements are much more general now and much less specific.

There will be more in this blog about FHA in the near future.  The FHA is rapidly growing in its support of the current residential real estate market.

Ralph Olsen, IFA   appraiser

Pacific West Appraisal Services Inc.

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Another quarter has passed and it is time to look at the notice of trustee sale (NTS) activity.

We have been seeing the number of monthly NTS activity rise for the last two years.  Looking at the graph presented here, you can see that the NTS activity has leveled off.  It is still at about four times the rate it was two and a half years ago.  But, the good news is that it does appear to have leveled off.

The current monthly rate of foreclosures is about 250.  If this rate is sustained it will result in about 3,000 foreclosures in Clark County this year.  By comparison, the rate had been somewhere around 700 per year before the NTS activity rose to its current level.

With this high rate of activity there will certainly be a continued affect on property values.  The “short sale” and “bank owned” (REO) sales continue to be high.  And, seller (and Realtor) concessions are common.   All these influences will continue to maintain a downward pressure on residential property values in Clark County.

Ralph Olsen, IFA     appraiser

Pacific West Appraisal Services, Inc

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I looked at a house in a Sifton area sub division.  The subdivision came on line in the beginning of 2005.  There are about 150 houses in it.  I wanted to see what amount of “bank owned,”  “foreclosure” activity and “short sale” activity was there.  I keep getting requests from lenders to tell more about this part of the market.

In the subdivision I reviewed there were ten MLS listed sales in the last six months.  Two of the sales were normal, one being and FHA and one conventional financing.  One of the sales was a relocation sale.  Seven of the sales were either bank owned,  foreclosure or a short sale.

I was in to the RMLS office today.  I wanted to find out how to handle the research I do so that I get the real numbers, rather than something that was altered inadvertently or otherwise.  The comment in the RMLS office was that “you are dealing with personalities.  All the data in the listings is put in by Realtors.”

When I went through the MLS data and compared it to the county records I found that of the seven listings that were bank owned, foreclosures of short sales, five of them were not listed that way by the Realtor.  It took some digging to find out what really happened.  This kind of research can be done on each appraisal project, but not for the common appraisal fee.

What I would like is always be able to analyze the difference between the conventional/cash sales and the distressed type sales.  But, that is very difficult given that (by this analysis) five out of seven Realtors don’t report the “what’s so” about the what’s so in the listing.  The RMLS office said that some Realtors feel that reporting what is happening when a property goes into foreclosure is a bad idea.

Anybody have an idea of how to easily develop clean data on this topic??

It would be great if the County tracked the notices of trustee sales by address, but they don’t.  All you can do, if you’d like to track them geographically,  is get all the notices and look up the addresses on each one.

Ralph Olsen, IFA appraiser

Pacific West Appraisal Services, Inc.

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