1.  Different valuation methods used.  There are several different valuation methods:

–CMA.  The Comparative Market Analysis is done by an Agent usually in preparation for a listing. It compares several like properties in the area and may use currently listed properties or recently sold properties. If the comparisons are with homes that have been on the market for months, the CMA may not be a realistic selling price. The CMA may also not be taking into account the condition of the property or others it is being compared to.

–BPO. The Brokers Price Opinion is based on at least an external look at the property, and generally Lenders will require an internal inspection as well by a licensed Broker or Agent.  It is used to estimate the probable selling price of a property based on the property’s condition and recent sales within the area, and are generally the basis for a Short Sale or REO sale price.

–Appraisal.  An appraisal is done by a licensed Appraiser.  Appraisals require a more detailed inspection of a property and use specific standards and rules for finding and comparing other properties to the subject property. Generally, an appraisal will be required in order to obtain a mortgage, to refinance a property or to get insurance. Appraisals can also range plus or minus 10% from a mid-point.

–AMV. Automated Market Valuation uses averaged values from MLS IDX files from around the country and other tools to pinpoint a value range for a property.  Tools like Cyberhomes and Zillow use this method to arrive at value ranges for properties in particular areas of a particular size and are not based at all on inspection of a give property.

2.  Different levels of familiarity with the neighborhood.  The BPO agent or Appraiser who is called out to look at a specific property may not know the area and its value history.  This is why it is so important for the Investor or their Agent to meet the BPO Agent at the house in order to point out all the details that may well influence the final BPO number.

3.  After Repair Value (ARV) or current value.  Two homes may be the identical model on the same street, but one may have been completely trashed while the other has been maintained in pristine condition.  The trashed home may well have an owner who is months behind on the mortgage and has long-since abandoned the property, while the well maintained home shows no such distressed Homeowner.  There may be as much as 40 or 50% difference in the value of these two otherwise identical homes simply because one property is distressed and the other is not.

Some communities have used the funds to buy up and renovate foreclosed homes to resell to low income families.  Some municipalities have used the funds to tear down abandoned eye-sores.  Others are purchasing and renovating apartment buildings for low income housing.

In some communities officials complain that they have been unable to compete with private investors to get a hold of foreclosed properties.  Communities in Florida have particularly been stymied and have spent only 25% of the $91 million awarded within the state through mid-March.

The latest wave of funding released in January went to only 56 communities where there is a track record for supporting large-scale community foreclosure abatement programs.

The servicers participating in the streamlined loan program are American Home Mortgage Servicing, Inc., Chase, Bayview Loan Servicing, Ocwen, GMAC, Saxon Mortgage Services, SunTrust, and PNC Mortgage.

The program is designed to make submission of paperwork more efficient in order to eliminate the concern that modifications are frequently delayed because of lost files.

Bank of America and other servicers have more than doubled the number of Short Sales they are handling in recent months. There is real recognition now that transacting a Short Sale saves time and money for the Lender.

Under the HAFA program lenders get higher incentives than under the current Home Affordable program.  Servicers will get $1500 for handling the Short Sale.  Investors holding the note will get $2000 for sharing some of the sale with a second lien-holder.  Second mortgage-holders can get up to $6000 for releasing their liens.  Homeowners get $3000 to assist in moving expenses.

Lenders under HAFA must expedite BPOs in order to tell homeowners what they are willing to accept for sale of the home.  Once the owner has found a buyer the Lender must respond with whether the offer is accepted within 10 days.  Under HAFA a Homeowner does not have to have a Buyer lined up before the paperwork is started and the Lender has ordered a BPO.  To this point many lenders have required the Buyer to be in place before starting the Short Sale case file.

The Homeowner may be required to continue to pay some portion of the mortgage in order to qualify for the Short Sale program.  If the home is not sold within 120 days the Lender may choose to initiate a deed in lieu of foreclosure, or they may choose to extend the deadline for a sale for up to one year.   In exchange for putting this level of control in the hands of the Lender, the primary Lender must agree not to pursue a deficiency judgment.

Until the impact of HAFA becomes clearer we recommend that Homeowners request non-HAFA Short Sales.  Many Homeowners are unable to continue to pay mortgages while Lenders decide upon a Short Sale.  There is the possibility that the Homeowner will pay just to find out that the Short Sale is going to be denied.  At that point there may be few options to ask for a new BPO or find a new Buyer.

By the 4th quarter of 2009 First American CoreLogic estimated that over 11.3 million residences with mortgages had negative equity.  That’s 24% of all U.S. mortgages.

By using a subset of mortgage holders, CoreLogic was able to project the length of time it will take for the average homeowner to again reach positive equity.  The typical borrower will see the problem disappear toward the end of 2015 or early 2016, while those in severely depressed markets such as Detroit may not see positive equity again until 2020.

Because negative equity is highly associated with mortgage default, this is a strong indication that those of us investing in Short Sales will see a booming business for at least the next five or six years.

To qualify, the home may not be purchased from a relative and the home buyer cannot be a dependent of someone else for tax purposes. The credit will be available first come, first served.

Last year the credit was so popular the program ran out of money within four months and helped 10,659 people buy homes.

Milwaukee had the highest percent of listed homes with price reductions at 33%, while Fresno and San Jose, CA had the lowest number of price-reduced listings at 12%. The biggest month-to-month drop in price reductions was experienced in Charlotte, NC, where in January 29% of homes had price drops and in February 21% experienced reductions.

Home price reductions are expected to surge again with the approach of the final home tax credit.

There were much larger discounts experienced in the luxury home market where the average reduction is 14%, and can be as high as 35% in some markets.  Many of the previously wealthy who have become unemployed have been surviving on savings, but are now becoming more anxious to move on with their lives as the economy continues to falter or they are finding new jobs at much reduced salaries or in other parts of the country. More of these formerly high income homeowners are becoming highly motivated sellers.

With 7.5 million loans still in some stage of delinquency, we are far from economic recovery, even though the pace of new defaults seems to be slowing.

Further, the pipeline appears to be clogged as Lenders try to work out alternatives to foreclosure and deal with a growing number of delinquencies.  Of loans delinquent for 6 months 31% are not yet in foreclosure, and 22.8% of loans delinquent for 12 months have not yet reached the NOD stage.

Older mortgages make up a higher percentage of new delinquencies, perhaps because of repeated failures or failures among homeowners who have lost jobs and are now suffering financial distress.

LPS says 13.5% of outstanding mortgages are not current.  This adds the current mortgage delinquency rate of 10.2% with the foreclosed home inventory rate of 3.3%.

The usual suspects lead the delinquency list with a couple of surprises in the mix: Florida, Nevada, Mississippi, Arizona, Georgia, California, Indiana, Illinois, Michigan, and Ohio. States with the lowest percentage of non-current loans are North and South Dakota, Alaska, Wyoming, Montana, Nebraska, Vermont, Colorado, Oregon and Washington.

The total HAMP permanent loans processed during the month of January
Were 170,000 according to the Treasury Department.  There are nearly another 92,000 awaiting the homeowner’s signature to move from trial to permanent loan.

Lenders have sent offers to 1.3 million homeowners to start the program, which is less than the government’s goal of reaching out to 3 to 4 million homeowners in potential trouble.  The government has until 2012 to reach this goal.

There is still a lot of finger-pointing going on between loan processors and homeowners.  Processors claim the problem is in incomplete paperwork.  The federal government is patching this loophole starting June 1 by requiring all necessary paperwork to be submitted before a trial loan modification can be started.

Still, by government calculations $2.7 billion has already been saved by approximately 1 million borrowers who have received trial or permanent loan modifications, an average of $500 per borrower.

The five lenders that have completed the largest number of loan modifications—Wells Fargo, Bank of America, JP Morgan Chase, Citi Mortgage and GMAC.  Wells Fargo is leading the pack.

Appraisers from several national organizations have argued that only an appraisal will do if the Lender is to assure that a thorough property inspection has been done and that the methods used to prepare the valuation are within standards set for appraisal practice.

Last week the NAR countered with a letter to Timothy Geithner, Treasury Secretary, with the argument that BPOs should continue to be an acceptable form of valuation for HAMP and HAFA valuations.  The Agents and Brokers who are making these evaluations know their markets and are uniquely qualified to understand the market forces at play in the area.  They are also a more economical measure of value, so, while for purposes of getting a mortgage, an appraisal should continue to be the standard, for purposes of listing property, the BPO should be the standard as it is traditionally.  Each has its appropriate uses, maintains the NAR.