I joined our local board of Realtors in January of this year as a Director and as a member of the MLS & Technology committee. It’s been a great learning experience to serve on these committees for a couple reasons: it’s been interesting working with my colleagues in a committee setting where we take votes and discuss issues on a group level. It has made me focus on articulating my points as well as figuring out when to dig my heels in and when to shut up and compromise (Compromises aren’t always my first choice…) It’s also been interesting to see how local policies are made. My position as director has put me in front of the association budget and all decisions that each committee makes must be finalized by the board. Pretty cool; it’s been a much more fun endeavor than I anticipated it would be. They asked me to come on board last fall to offer some of my technical experience and I think (more than anything) pump some more young blood into the organization. We all know the desert needs as much of that as possible! 🙂
Anyway, as part of serving on the board of directors, I just traveled up to Sacramento to take part in CAR’s (California Association of Realtors) Legislation Day. Realtors’ associations are organized at 3 levels: local, state and national levels. This was a state level meeting and focused on educating our legislators on current issues that are effecting consumers in buying, selling and/or maintaining their homes. There were 3 key issues we discussed:
1. Appraisals:
Appraisals are a nightmare right now. Here is a bit of background on the issue:
The Home Valuation Code of Conduct (HVCC) is the result of a settlement between the New York Attorney General and the GSEs (Government Sponsored Enterprises – Fannie and Freddie) that he had threatened with liability for allowing inadequately underwritten loans to be made and resold. The HVCC has no force of law and was not enacted by Congress, but because the GSEs are so dominant in the marketplace, their internal rule has effectively pre-empted practice across the country. A New York lawsuit has thus changed the way that California lenders (and the appraisers they hire) do business.
The stated purpose of the HVCC is to create a separation between a loan officer, loan broker and the appraiser retained to provide the appraisal. Teh need for separation has fueled an explosive growth in Appraisal Management Companies (AMCs) whchi act as the intermediary that receives the assignment from the lender and then hires the appraiser to complete it. With limited exceptions, the HVCC calls for no contact between the lender and the appraiser. Compliance with the HVCC became mandatory June 2009. This is a problem for the following reasons:
- Appraisals cost the comumer on average of $75.00 more (typically $200 more in the La Quinta area).
- Time to complete an appraisal doubled.
- 61% of all appraisals are completed by out-of-the-area appraisers (sometimes even out of state.)
- 63% of all appraisals came in below the purchase price
The last 2 bullet points are really crucial. When reading the last point, you might think “Well, we’re in a declining market, so I can appreciate appraisals coming in lower.” That’s not the true picture though. Because there are so many out of the area appraisers (who have to cover a bigger geographical area to make the same living they used to because the AMC’s now take a cut from the appraisers pocket too), they don’t know our area and often do not provide accurate appraisals because of this. If an appraisal comes in lower than the offer price and the buyer is getting a loan, the bank won’t provide the loan and the house won’t sell which further drags down prices. The point isn’t that the prices are low or getting lower (or higher or whatever), the point is that they are often incorrect and do not provide fair comparables for the rest of the marketplace. This creates tons more problems for everybody that’s involved — including for the buyer that WANTS the property at his offer price, but now can’t buy it because he can’t get a sufficient loan. These problems happen all the time.
2. Anti-Deficiency Protections:
Current law says that if a homeowner defaults on a mortgage used to purchase his or her home, the homeowner’s liability on the mortgage is limited to the property itself. This law has been around forever (originally created in the 1930s.) However, if you refinance the original debt (the same debt used to purchase the home and nothing more), the borrower becomes personally liable for this amount. There is a bill on the table called SB 1178 that C.A.R is sponsoring to change this policy. This bill removes the liability for the original debt that has been refinanced to take advantage of a lower interest rate or something of this nature. It does not deal with liability on any money-out refinances or home equity loans.
3. Proposals to Address State Budget Gap
The state is trying to bridge the budget gap by trying to force “overwithholding on independent contractors”, “Tax on Services” and change the “Mortgage Interest Deduction” for primary and second homes. These are all bad things for independent contractors, home owners and consumers. By withholding money from independent contractors, the Government would not be solving a problem — they’d just be holding onto contractors money until they filed their taxes at year end. Provided contractors didn’t owe any additional money, the Gov’t would give it back. Also any tax on services would raise expenses for everyone involved in that service– most importantly the consumers paying for those services. Lastly the Mortgage Interest Deduction is a HUGE tax relief benefit to all home owners. By removing this, it would significantly increase the cost for primary and secondary home owners to own their homes.
These are the contemporary issues that are affecting all of us in today’s real estate marketplace. It was productive to meet with the law makers in Sacramento and discuss these issues. They understood where we were coming from and will hopefully move forward in a direction that will benefit the majority of the people. If you’ve made it this far; I can’t believe it. Thanks for reading!
