home values Archives - Page 7 of 7 - Real Estate News and Commentary

May 26, 2009October 5, 2019

Don’t Blame Broker Price Opinions

by Dan Krell (c) 2009.
www.DanKrell.com

The Standard and Poor’s/Case-Shiller Home Price Index for February 2009 (published April 28th) indicated a composite home price decrease of 18.6% as compared to the previous year (standardandpoors.com). The good news is that the current index did not continue the record setting pace like the previous sixteen months’ indices. While local home prices did not fare as well as the Dallas metro area (prices decreased only 4.5% from the previous year), the Washington DC metropolitan area home price decrease of 19.2% was much better than the Phoenix, Las Vegas and San Francisco metro areas (where home prices decreased more than 30% from the previous year).

Certainly, home price indices are just an indicator of the real estate market; and although the factors contributing to market conditions are complex, it does not stop us from trying to understand the causes of the steady decline.

Since the large increase of recent foreclosures and short sales have captured our attention, the loss mitigation process and the use of Broker Price Opinions (BPO) have received some blame for eroding home values. So much so, that one national columnist recently posed the question by portraying the use of BPOs as an easy way for real estate agents to make money in a tight market. Unfortunately, the article appeared to represent the sentiments of real estate appraiser groups and did not accurately portray BPOs.

A BPO is not a substitute for an appraisal. A BPO (like a market analysis) is data provided to assist a buyer or seller in deciding a home’s list, offering, or sales price. Mortgage lenders and servicers have used BPOs for many years. BPOs are used for many reasons that range from quality control to making decisions on mortgage portfolios and loss mitigation.

BPOs have also been used as a due diligence tool to control appraisal quality and investigate property valuation fraud. Additionally, BPOs have been used by the lending industry to evaluate the performance of their mortgage portfolios (mortgages bundled together typically used as financial instruments) for internal and secondary market purposes.

The use of BPOs in loss mitigation is not a recent phenomenon, lenders have used BPOs as one tool in their loss mitigation process for several decades. In order for lenders to obtain the best data for their decisions, they typically do not rely on one BPO; multiple BPOs are usually ordered at any given time as well as over a period of time to provide a snapshot of market trends and control for data variance.

Additionally, it is common for lenders and servicers to compile BPO data throughout the loss mitigation process. BPOs are usually ordered when the home owner initially becomes delinquent on their mortgage payment and continues until the delinquency is resolved (either brought current, short sale or foreclosure). Prior to delivery to the lender, the BPO company conducts a quality assurance review for all BPOs to ensure that the data provided is valid and consistent.

Market forces are complex; to blame eroding home values solely on the use of BPOs in the loss mitigation process is just as silly as blaming a bubble real estate market on artificially inflated appraisals. Although a BPO is not an appraisal and should not be confused as such; BPOs have an established role in the industry.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 4, 2009. Copyright (c) 2009 Dan Krell.

June 3, 2008November 23, 2021

Signs of Recovery or Anomalous Blips of Activity?

by Dan Krell
Google+

As President Bush officially proclaimed the month of June as National Home Ownership Month this year, many wondered about the future of the housing market. As the national media continues to portray the housing market as a financial black hole by telling stories of dread and dismay, it is a wonder if any of the industry initiatives have actually helped to stimulate the market. Generally the bad news is that the market continues to be slow; however the good news is there are signs of recovery.

National real estate sales numbers continue to slide, as reported by the National Association of Realtors (Realtor.org). The recent report indicated that home sales were down again for the month of April 2008 (as compared to sales from the same time the previous year). Additionally, the NAR reports that the national median home price for all types of housing fell to $202,300 (from $219,900 the same time a year ago).

However, the NAR reported positive news about localized markets, such as Greenville, SC and Springfield, MO, where strong home value increases are attributed to healthy local economies. Additionally, markets in areas such as San Diego, CA and Fort Meyers, FL have experienced increased home sales after significant price reductions, which is an indication that these localized markets have found their equilibrium.

Locally, there are micro markets rebounding as well. Sales statistics compiled and reported by the local MLS (Metropolitan Regional Information Systems, Inc.; MRIS.com) indicate that there are localized market increases even though Montgomery County, as a whole, continues to post decreased sales numbers. And even though the county average sales price has lowered to $575,513 (as reported by the Greater Capital Area Association of Realtors; GCAAR.com), sales statistics within specific zip codes (such as 20814, 20815, 20816, 20854, 20852, 20833, 20878, 20882) indicate increases in sales prices as compared to the same time last year. Some of these areas had slight sales price increases, while others had moderate gains; the average sale price for the zip code 20854 (Potomac, MD) increased over 30% in April 2008 as compared to the same time last year!

Along with these signs of recovery, a March 2008 announcement by the Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac indicated that there will be an increase of $200B to increase the liquidity of the mortgage industry. Analysts explain that the liquidity will reduce restrictions on high loan-to-vale mortgage programs. Restrictions on these loans were imposed to minimize further losses to Fannie and Freddie after foreclosure related losses increased as the housing market declined.

As much of the secondary mortgage market has all but shriveled and died, the importance of Fannie Mae and Freddie Mac is now underscored. With an additional $200B, Fannie and Freddie have committed to increase the availability of low down payment mortgage programs that have been the center of home ownership programs for years.

While many housing and economic indicators are down, there are many signals that the economy as well as the housing market is seeking its equilibrium. While some economists feel these signs are anomalous, others remain optimistic that stronger economic growth in the second half of 2008 will assist in stabilizing the housing market.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of June 2, 2008. Copyright © 2008 Dan Krell.