Facetime with your banker

The times have certainly changed! Just a few short years ago no one would even have thought of applying online for a mortgage. A recent study by the American Bankers Association showed that 60% of real estate borrowers today prefer to apply in person for their mortgage instead of applying online.  I’m not surprised that it’s 60%, I’m surprised that 40% of today’s borrowers would choose NOT to be face to face with their banker. That same survey revealed that 66% of today’s borrowers are not confident with their knowledge of the mortgage process. Could be a fairly strong correlation and the reason the borrower would want a ‘real’ person helping them.

What’s in your wallet (or home equity)?

CoreLogic recently showed that the value of home equity has doubled in the past five years. Most of that is not from borrowers paying down on the principle but in the added value of real estate. The value has gone from $6 trillion five years ago to $13 trillion this year. Not only that, but CoreLogic is predicting another $1 trillion additional being added to the equity side in this year alone! Now there is a wide variation depending on what part of the country you are in, but everyone has gained equity.

Property taxes to high?

Are your property taxes too high? If you think so, you’re standing with some pretty high rollers. Walt Disney Parks (Magic Kingdom, Epcot and Hollywood Studios), along with SeaWorld, Universal Orlando, and other commercial property owners have filed over 100 lawsuits against the Orange County Appraiser Rick Singh. But believing that their properties assessments are exceeding fair market value and proving it in the Orange Circuit Court will be two different things!

The county assessor (Singh) valued Epcot at $446 million, Magic Kingdom at $437 million and Hollywood Studios at $339 million. There are other lawsuits for quite a few hotels that are not just owned by Disney, but by other corporations.

Household debt

The New York district Federal Reserve came out with a very interesting report, household debt has hit a level that is above the peak level of 2008! Does this mean we’re in trouble? I don’t think so. Household debt level includes credit cards, consumer loans (such as autos), student loans and also real estate (or home loans).

Real Estate loans have dropped from a 2008 high of 73% to 68%, and with the tougher lending requirements since 2008, those real estate loans are in good position credit wise. The real difference in credit from 2008 is student loans and auto loans. Those categories are significantly higher.

Total delinquency for all loans was flat for the last quarter at 4.8%. This is the lowest since the recession. Student loans represent the highest delinquency rate at 11%. The growing household debt shows that most of those people who struggled through the ‘Great Recession’ have reestablished their credit and are borrowing again. That’s good! 

Feds close Wisconsin Bank

The week after Comptroller of the Currency closed First NBC Bank of New Orleans another billion dollar plus bank was closed, Guaranty Bank of Milwaukee, Wisconsin.

Bad loans seemed to be the primary cause but Guaranty Bank also had an insane number of branches located in grocery stores. Out of 119 branches, 107 were located in grocery or similar retail outlets.

I have often discussed Efficiency Ratios (non-interest expense/net income) and how important it is for a bank’s profitability. A strong cost foundation is the most significant influence on sustained profitability. The best performing banks run around 52% efficiency ratios, while medium performing banks run around 75%. That’s a large difference and I bet Guaranty Bank with all of their overhead was running significantly higher.

One benefit of a community bank working with SAMCO is lowering a bank’s non-interest expense, thus improving their efficiency ratio. The lower the ratio the more profit a bank will generate. Call us if you would like to know more. 

Wow! What a hit!

In April one of the largest bank failures in years occurred. State regulators shut down First NBC Bank, New Orleans. The FDIC was appointed the receiver and they promptly sold a small part of the assets (about 1 billion) to Whitney Bank. The December total assets of NBC were 4.74 billion. Of course, no customers lost money, but the FDIC really took a hit to its Deposit Insurance Fund.

A combination of aggressive lending and bad timing led to their downfall. That’s where sound appraisals help protect the community bank.

This is the largest failure in years, and you have to go back to 2008-2009 to find a closure of this size. It can still happen though. But the banking industry has come out of the woods and grows healthier every year.

Ohio House Bill # 463 Plywood vs. Polycarbonate Sheeting

Ohio recently enacted a ban on the use of plywood when boarding up vacant properties. Ohio is also the first state to enact a ban of this type. Property preservation has been a significant issue for many states that have areas of abandoned properties. To see a neighborhood of boarded-up houses creates a neighborhood blight issue that is hard to overcome.

Polycarbonate clear boarding is the board up the material of choice. While it resembles glass, It is also extremely hard to break and secures property without standing out, which creates less of an abandoned look. The cost is a key factor of polycarbonate vs. plywood. The cost of a typical 4 x 8 sheet of plywood is usually $ 20.00 to $30.00, while a polycarbonate sheet is closer to $115.00 - $150.00 a sheet.

Fannie Mae was an early adopter of this home preservation method. In the last several years they have retrofitted over 4,000 houses and over 11,000 properties with this type of home preservation. The official start date for Fannie Mae’s use of alternatives to plywood was November 9, 2016.

There is some opinion that the cost of polycarbonate alternative is prohibitive to lenders with REO / Banked owned properties. The other side of the argument is that this solution presents a more amenable, aesthetically pleasing option to controlling neighborhood blight. As an appraiser, a lender, or just a neighbor, what are your thoughts? Should other states be looking at this option? Is this a viable way to offset the issue of neighborhood blight that every state seems to be battling?

 

Video: Product Demonstration-City of Warren Oh

Source: DSNews.com – "Ohio Governor Signs Plywood Ban Into Law."

Source: Dayton Daily News – " Ohio’s new plywood ban on vacant houses could change Dayton’s blight."

March 2017 Origination Insight Report - EllieMae

Ellie Mae recently provided information on the loans flowing through their platform. They are a software provider that was founded in 1997 that many community banks utilize. Right now, they are handling almost a quarter of the loans made in the United States. That’s a decent % and the data they provide is a good reflection of the actual mortgage market.

The March data looks like this: 63% of their mortgages were purchase, and 37% were refi, a significant change from the past nine months. Refi’s had been running in the mid to high 40’s. The time to close (all days) was an across the board 43 days.

What I found really interesting was the FICO scores. The average score on all closed loans increased slightly in March to 721. Below are graphs of the average FICO score distribution for All Purchase, Conventional, Refinance, and FHA.

So compare this info to what your bank is doing. In my experience community banks tend to lead on performance for closing days. Service, like SAMCO, is what they provide and sell!

 

See full reports from EllieMae: Origination Insight Reports

Home Valuation Code of Conduct – Wiki’s Opinion

What are your thoughts on Wikipedia, is it a valid reference or is it people’s perceptions? Now most of us know that Wikipedia is not considered a valid source for a research citation. But I always check there when writing on a topic just to see what the perception is ….valid or not. It is someone’s opinion. If you check the Home Valuation Code of Conduct (HVCC) under Wikipedia it explains briefly about the code and how it became effective in 2009. The funny part is the last part (which has been disputed – and not by me), it goes on to say that this had not been well accepted by most appraisers because it eliminated the constructive working relationship the appraiser’s had with a lender. The kicker is the opinion presented stated that appraisers when working for Appraisal Management Companies are generally only paid 50% of the fee.

If this is true….you NEED to quit working for that AMC!! The only shopping of an order that we consider acceptable is for a due date or a complex fee assignment. We have had lender’s request that we reassign based on extended due dates or a complex assignment which usually covers both due date and fee quotes.

Our policy is to have a standard fee for the appraiser unless we are researching a new area. Offer that fee, the appraiser then accepts or accepts with conditions (if they need a higher complex fee or an extended turn time). Our fees and the appraiser’s fees are also split out on the invoice provided to the lender. They never have to guess what the appraiser is being paid for their assignments. Some states require full disclosure of fees from AMC’s on invoices and some do not.

My thoughts and advice to lenders are to ask for a detailed invoice. My thoughts and advice to the appraisers, do not work for below normal fees! I have heard of fees being offered for a standard 1004 URAR for $ 225.00- $ 250.00 range ….that is unacceptable. Find a company that appreciates working with you, AND THAT PAYS FAIRLY. SAMCO appraisers are paid typically within a 2-week timeframe.

Several of our clients have come to us from an appraiser recommendation (how awesome is that!!!) or a lender recommendation (even better). I gotta say that I still like Wikipedia for a source of opinion. If nothing else it gives me something to think about.

 

Source: Home Valuation Code of Conduct https://en.wikipedia.org/wiki/Home_valuation_code_of_conduct

Where Did All of the Appraisers Go?

I’ve been in the industry for 37 years and, until recently, have not ever had an issue with finding appraisers for assignments. But, boy has that changed, especially in rural areas!

There are several reasons, and they are intertwined. Did you know that the average appraiser’s age in 63? If that’s the average, the past years have seen more and more appraisers retiring. Their shoes haven’t been filled and for a good reason. The number of appraisers nationally has shrunk over 20% since 2007, and it will continue to drop. Some estimates are that there will be an additional 25 to 30 percent drop in the next 10 years. If we think it’s hard to find an appraiser now, it will only be worse in the future!

In the past 10 years, the requirements to become an appraiser have greatly intensified. Required to become a Certified Residential Appraiser is a bachelor’s degree, a minimum of 200 specialized education hours, and 2,500 hours of training under the supervision of a Certified Appraiser.

Part of the challenge is economic. For almost 10 years, the Supervisory Appraiser has had to complete a physical inspection of the subject property, in addition to the Trainee. There just isn’t enough fee for both to be paid adequately. In addition, there has been increased concern over the liability to the Supervisory Appraiser. In the end, there isn’t enough incentive for an experienced appraiser to take on a Trainee.

There are rumblings of change happening. The Appraisal Qualifications Board, they set the national training standards for appraisers, has started reviewing options for change. That’s good. The GSE’s (Fannie and Freddie) are moving to allow trainee’s to inspect without the Supervisor if they have enough experience. All this change takes time, but in the end, the shortage of appraisers will balance out.

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About Us

In everything we do, we believe in open and honest relationships. In knowing our client, the community banker, the way they know their customers and community. 

The way we achieve that client relationship is by always being available, improving our client's service to their customer, providing regulatory compliance, and saving our client actual dollars. This is accomplished through working together as a team, being completely open and frank to our SAMCO teammates/clients, and by taking personal responsibility. 

 

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