Appraisal and AD&C Problems Hampering Housing Recovery

[Eieio]

Appraisal and AD&C Problems Hampering Housing Recovery, Builders Tell Congress
NAHB petitions Congress about builders' AD&C plight

WASHINGTON, July 23 -- The National Association of Home Builders (NAHB) told Congress today that inappropriate appraisal practices and the acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders threaten to prolong the current housing and economic downturn.

Testifying before the House Small Business Subcommittee on Finance and Tax, NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., said these two issues "are placing enormous pressure on home builders' bottom lines and, for many, endangering their ability to survive the economic downturn. Additional credit resources could be extremely helpful to them and other small businesses to bridge the divide and survive to the eventual economic recovery."

While there are several signs that the housing market may now be at or near bottom - new and existing home sales have stabilized, the inventory of unsold homes continues to fall and single-family housing starts have posted four consecutive monthly gains - Robson said the appraisal and credit crunch problems are headwinds that continue to buffet any significant housing recovery.

"The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices and forestalling an economic recovery," he said, citing a recent NAHB survey that found 26 percent of builders are losing sales because appraisals on their homes are coming in below the contract sales price.

These appraisal practices are a major contributing factor to the current AD&C credit crisis. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans.

NAHB is calling on housing and federal financial regulators to adopt clear, concise regulatory guidelines that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

To maximize the ability of the Small Business Administration (SBA) to help home builders and other small businesses to gain access to credit, NAHB recommends increasing funding and the loan size for the America's Recovery Capital loan program. This program offers small businesses guaranteed deferred-payment, interest-free loans of up to $35,000 that can be used to pay principal and interest on existing loans; qualify small business debt, including mortgages; and for other purposes. The $255 million program continues through Sept. 30, 2010 or until the funding is exhausted.

NAHB also supports proposed improvements to the SBA 7(a) program, which provides capital for a range of purposes, including construction and supplies, to increase the participation of non-traditional lenders in SBA programs.

Finally, Robson commended the committee's proposal to establish a supplemental loan assistance program to complement the lending initiatives currently administered by the SBA. A primary objective of this program would be to target businesses with capital needs in excess of $10 million.

"Like all small businesses, home builders vary in size and many would find much greater benefit from a program that would expand and increase loans for businesses with higher capital needs," said Robson.

Link
http://www.housingzone.com/article/CA6672759.html

[Eieio]

Realtors: Blame the Appraisers

Existing home sales for May, announced this morning, were weaker than optimists had expected. Lawrence Yun, the chief economist of the National Association of Realtors, promptly identified the culprit:

“Poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.” (emphasis added)

And how does Mr. Yun know the appraisals are faulty?

“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” he said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

It sounds like the banks — the ones who loudly demanded that they be allowed to ignore “distress sales” when valuing mortgage-backed securities — are considering such sales of houses when they make mortgage loans.

Given that a significant part of the housing problem was caused by appraisers who signed off on exaggerated home values, it takes a lot of nerve for the realtors to demand that appraisers now ignore market prices in order to let them sell houses. “Distressed and discounted” sales are real, even if they are inconvenient.

Turning to the data, the most interesting things continue to happen in the West — which presumably includes a lot of sales in California. That is the only area where sales clearly have hit bottom and bounced back, and it is the area where prices have plunged the farthest. That fall in prices presumably reflects those distress sales that the realtors wish the appraisers would ignore.

In the three other regions — the Northeast, Midwest and South — the median sales price of existing single family homes is 18 percent to 20 percent below the peak. In the West, the figure is 44 percent. For condos, the median price in the West is off 49 percent from the peak. But the national range is greater, ranging from just 13 percent in the Northeast to 34 percent in the South.

Link
http://norris.blogs.nytimes.com/2009/06/23/realtors-blame-the-appraisers/?apage=2

[Ed The Roofer]

Gee.....

It almost sounds as if those two article writers just got done reading my recent post in the other thread about Appraisals, which was made before I read this content.

Those are exactly the self-fulfilling prophesied points I had just made, which are a culmination of the previous excessive loan amounts available as in the form of the 125% LTV's and then the impending foreclosures being used as comps, for an otherwise, yet unaffected percentage of home owners.

Ed



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[Eieio]

To maximize the ability of the Small Business Administration (SBA) to help home builders and other small businesses to gain access to credit, NAHB recommends increasing funding and the loan size for the America's Recovery Capital loan program. This program offers small businesses guaranteed deferred-payment, interest-free loans of up to $35,000 that can be used to pay principal and interest on existing loans; qualify small business debt, including mortgages; and for other purposes. The $255 million program continues through Sept. 30, 2010 or until the funding is exhausted.

Did you see this part?

[Ed The Roofer]

Yes I did and also from an earlier post 1 1/2 to 2 weeks ago through a link from Google Girl,so I already have a list of the Illinois Banks that are dealing with the ARC $35,000 loans for businesses.

My plan is to make an appointment with a SCORE representative for assistance in getting the procedural paperwork completed as the program dictates ans see if I qualify.

Everyone should try to take advantage of a 5 year Zero Percent loan.

Ed



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