Welcome - Fall 2013

Dear Readers,

Welcome to the
Real Estate Valuation Magazine Online Fall 2013 Issue.

We did not run a Summer 2013 issue of the magazine because this summer has been a difficult time for me. In May, I was diagnosed with Shingles which penetrated my sciatic nerve, causing severe pain down my right leg and into my foot. For June, July and most of August I was wheelchair-bound because the disease affected my balance and walking was very painful.

I have taken the summer off to get well, and while I still have pain in my big toe, but I am relieved to report that I am feeling better and stronger every day. The road to recovery is long, but my condition has improved enough that I feel confident returning to work at this time.

There have been many interesting developments in the appraisal field during the summer. After five years, we are still feeling the lasting effects of the foreclosure crisis. We are getting reports that the flow of appraisal work is slowing down after a bit of an up swing this past spring and summer.

There has been a lot of discussion recently about Life After Fannie Mae and Freddie Mac, so the editorial of this issue takes a closer look at the Rise and Fall of these two agencies. While some people are calling for the FHA to take over Freddie and Fannie, I am more concerned that FHA may also needing a financial bailout.

Speaking of the FHA, any appraiser who is doing FHA appraisals needs a laundry list of publications (nearly 350 pages in total). While these documents are available across the FHA website. I personally find the FHA website to be abysmal to navigate. Given how cumbersome it is to download these documents individually, I have compiled all of these resources into a packaged set available for purchase today!

With that introduction, we hope you will enjoy the Fall 2013 Issue of the magazine. Our son, H Alex continues to be actively be involved with producing the magazine as our editor. As always, if you have appraisal questions, please feel free to email me at askhenryharrison@revmag.com. For technical issues or other general questions regarding REV, or our website, please email our editor, H Alex Harrison at webmaster@revmag.com.


P.S. For information about free listings and advertising in our publications email:
Photo credit: Fresh Home.


The Rise and Fall of Fannie Mae and Freddie Mac
by Henry S. Harrison

Last June, I answered an “Ask Henry” question from a reader: “When will the residential real estate recession end?” My answer was that I thought that it would end in the term of whoever was elected President in November 2016. Between June and when Barack Obama was reelected President, the news media was full of press releases and commentator predictions that the country was well on its way to a real estate recovery.

Real Estate Appraisers — whose livelihood is closely tied to the fate of Fannie Mae and Freddie Mac — as a group seem to be ignoring how the future of these two organizations will affect their businesses. The latest figures show that these two giants are now guaranteeing about 90% of all the single family home mortgages in the US.

On December 29, 2000, the price of Fannie Mae stock hit an all-time high of $86.75 per share. Eleven years later, it hit rock bottom at a low of $0.20 per share. As of September 18, 2013, it closed at $1.17 per share. So the question remains, why is it trading at all, given the government takeover?

The answer is there are a number of people and hedge funds who believe that Fannie Mae and Freddie Mac will survive the present governmental conservatorship and will once again become publicly traded companies. What makes this unlikely, in my opinion, is that the government created a new government senior preferred shares which placed the common stock last in line to receive any assets of the company that remain if and when the conservatorship is terminated. If you are looking for a very long shot investment, Fannie Mae stock should be considered. Your stock broker should be able to tell you how to do this. However, this is not a recommendation.

Most appraisers know that Fannie Mae and Freddie Mac are in trouble. But who they are and what they have done politically to prompt the federal government to announce it is standing by with a possible multibillion-dollar bailout remains unknown to most.

Here is their history.


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Ask Henry


Carbon Monoxide Detectors


In California, there is a state law that says all homes must have Carbon Monoxide Detectors. My questions is: As part of USPAP, do we need to certify that there is a working detector in each home? If so, do we make the appraisal “subject to” their installation if not present when inspected?

Thank you,
Mike Bucchianeri

Dear Mike,

I am not familiar with this California law. Normally appraisers are not required to test each alarm. However, to be safe many appraisers do test them just to be safe. Other take the position this is something that should be left up the home inspectors. At a minimum I think what I would do is make sure each required room has a detector and if non are installed, not report that in your appraisal.


Book Review


The Complete HUD-FHA Combo Set
Vol. 1 & Vol. 2

Compiled by Henry S. Harrison, MAI, ASA, IFAS, DREI
Vol. 1 & Vol. 2 Combo Set •  $67.50 + S&H
Publication Date: 2013

phone: 1-800-243-4545

Any appraiser doing FHA appraisals needs to have a copy of "FHA Handbook HUD-4150.2" and Chapter 4 from FHA Handbook 4155.2 (only chapter 4 apples to appraisers), the 28 mortgage letters that update the Handbooks and the over 150 of the Frequently Asked Questions supplied by the FHA to help understand their publications.

I want to take this opportunity to share with you my experience in compiling these two FHA Handbooks. While this information is available free of charge from the FHA site, downloading it all is a nightmarish undertaking.

My first plan was to combine this updated 2013 material into one book as I had done in the past. Unfortunately, the FHA has expanded this material so much that it will no longer fit into one volume using my printer – the same printer I have used for many years to print my books because of their good quality, fair prices and reliable delivery time.

If you would like to get a free copy of the FHA Handbook HUD-4150.2 by downloading it from the FHA site here is what you do:
1. Go the the FHA site at www.fha.gov
2. Click on the left hand column under Audience Groups click on "Appraisers"
3. Click on the left hand column under Find Answers click on "Mortgagee Letters and Handbooks
4. Click on the right hand column under Reference Materials "Handbook HUD-4150.2

Here is where I ran into trouble. On this page there is a choice of downloading the handbook as a word fillable form or a PDF version. I could not get the "word fillable form" version to work so I resorted to downloading each of the individual nine PDF files. The result is a manual of about 350 pages.

Unfortunately, this is not all you need. You also need to download from the lenders handbook "Chapter 4 "Property Valuation and Appraisals" from HUD Handbook 4155.2. The subjects of interest to appraisers in this Chapter 4 are as follows:

  • the purpose of property valuation
  • lender responsibility for appraisers
  • appraisal management company (AMC) and third party organization fees
  • verification of compliance with property requirements
  • lender responsibility for determination of property eligibility and accuracy of appraisal value
  • variation in property appraisal and underwriting process
  • property eligiblity for FHA insurance
  • property eligibility under section 223 (e)
  • compliance inspection requirements
  • appraisal assignment to ensure appraiser competency
  • preventing improper influences on appraisers
  • prohibition of mortgage brokers and commission based lender staff from the appraisal process
  • appraiser independence safeguards
  • appraiser selection in the FHA connection, and
  • DE underwriter responsibility for quality of appraisal report.

If you would like to get a free copy of the FHA Handbook HUD-4155.2 by downloading it from the FHA site here is what you do:
  1. Go the the FHA site at www.fha.gov
  2. Click on the left hand column under Audience Groups click on "Appraisers"
  3. Click on the left hand column under Find Answers click on "Mortgagee Letters and Handbooks"
  4. Click on the right hand column under Reference Materials "Handbook HUD-4150.2"

The FHA Handbooks are now over four year old and there are 28 mortgage letters that have been issued. All of them are needed to update these FHA Handbooks. Instead of issuing a new edition of their publications, the FHA has issued 150 FAQs that update the texts:
  • HUD ML 2012-23: Loan Origination Procedure Q&A: 4 pages
  • FAQ: Natural Disaster Protocols: 1 page
  • FAQs UAD and Other Appr Forms ML 11-30: Special FHA UAD requirements
  • L 11-07 Elimination of Master Appr Rpt.: When case numbers can no longer be assigned
  • FAQs Declared Disaster Area ML 12-23
  • ML 12-23  Declared Disaster Areas: Included with mortgage letters
  • FAQs Disaster Loans Before 11/16: FAQ; Natural Disaster Protocols, 1 page chart
  • FAQs UAD and Other Appr Forms ML 11-30: Special FHA UAD requirements
  • ML 11-07 Elimination of Master Appr Rpt,: When case numbers can no longer be assigned
  • FAQs Lead Based Paint:Clarifies who can inspect for lead when the property was built before 1978
  • FAQs Reasonable Fees/Time: Spells out the FHA's position on how reasonable fees are determined.
  • FAQs Meth Remediation: Clarifies what to do when there is methamphetamine contamination
  • FAQs Appraiser Valuation: 37 pages covering 16 subjects
  • FAQs Appraiser Roster Link not active as of 8/8/2013
  • FAQs , Update ML 09-51: Claries by whom and when an update report may be prepared.
  • FAQs Appraisal Portability ML 09-29: Clarifies whom and when a second appraisal report is required
  • FAQs Appraiser Independence ML 09-28: 6 pages clarifying by whom and when fees can be collected.

The bottom line is this: Any appraiser who is doing FHA appraisals needs to have a copy of "FHA Handbook HUD-4150.2" and Chapter 4 from FHA Handbook 4155.2 (only chapter 4 apples to appraisers), the 28 mortgage letters that update the Handbooks and the over 150 of Frequently Asked Questions supplied by the FHA to help understand their publications. I have compiled these documents and sell them as a combined set with included CD-ROMs of all of the resources for your convenience.

The Complete HUD-FHA Combo Set is available from
Forms and Worms 1-800 243-4545 or www.formsandworms.com for 25%-off when you buy the combination.



Article – FHA

FHA Bailout Imminent?
by Henry S. Harrison

The FHA was founded as a government agency as part of the National Housing Act in 1934. For the first time since its creation, it may require a financial bailout from the U.S. Treasury (a.k.a. the U.S. tax payers) so I thought it would be worthwhile sharing my understanding of the FHA and shedding some light on the looming bailout.

The tow major goals of the FHA is to (1) improve housing standards and conditions and (2) provide an adequate home financing system through insurance of mortgage loans. Another goal stated in the National Housing Act of 1934 was for the FHA to help stabilize the mortgage market. The Commissioner of the FHA is Carol Galante.


Historically, the FHA has done much more than insure single family houses. In 1935, Colonial Village in Arlington, Virginia was the first large-scale, rental housing project erected in the United States that was Federal Housing Administration-insured.[During World War II, the FHA financed a number of workers housing projects including the Kensington Gardens Apartment Complex in Buffalo, New York]. It also insured nursing homes. Currently, the FHA has about 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio.

While a government agency seeking more funding isn’t exactly unheard of, the FHA is required by Congress to keep enough cash on-hand to cover expenses at all times. The initial estimates as to how much the FHA might require in taxpayer assistance are said to be around $943 million, according to the Boston Herald. The nearly-$1 billion dollar bailout would be for loans insured by the FHA that were posted as losses. Sen. Susan Collins (R-ME) stated, “It's of great concern to us.”

The FHA has until Sept. 30 to make a decisions as to whether or not they’ll actually require the money in order to continue operation. The Treasury, which does not require Congressional approval, would be providing the bailout which means it would be paid for by the taxpayers.

There has been suggestions that the FHA take over the running of Fannie Mae and Freddie Mac. Can you imagine what it will be like if that happened?

Ask Henry

Sale Value Differs from Appraised Value
Hi Henry,
What to do if the appraised value comes in at ~10% less than the accepted price in a foreclosure?

Thank You
(email withheld by request)

Dear AK,
The question you ask really covers all sales that are different from the appraised value.

When you make an appraisal on the Fannie Mae/Fredde Mac form you are using the federal definition of Market Value. This definition makes a lot of assumptions that often do not apply to an individual sale and often explain the difference between the appraised value and the sale price.

If you have not used this definition of market value and instead have used a custom definition like "distressed value" or "short sale value" it is more complicated but the same principles apply.

In most cases the appraiser should take the information about the sale and use if for another appraisal in the same market area if you get an assignment to make an appraisal where the definition of value is "foreclosed sale" value.

When a client askes you why your value is not the same as an individual sale you might reply, “I estimated market value based on it being a sale that fits the definition of market value which is different from "foreclosure sale" value which may explain the difference”. You might also say that your appraisal is just you opinion of what the value is based on the data available and it most likely will not be the same as a specific individual sale.

Unfortunately, the concept of different definitions of value will produce different appraised values is hard to explain which means that many of your client will not be happy with your explanation.

Good luck!


The Foreclosure Crisis Revisited
by Henry S. Harrison

It has been over 5 years since the housing bubble burst dragging down the whole economy with it. Those of you who are long time readers of Real Estate Valuation Magazine (we have been continuously published for over 20 years) will remember that we saw the bubble burst coming and predicted it would take 10 years for a full recovery. Sadly, it looks like that prediction is coming true. Since that time the Government has taken over Fannie Mae and Freddie Mac and the housing crisis is far from over.

Five years later here is where we are and nationally (the are local exceptions): housing prices are no where near where they were five years ago. The good news is that appraisers were again busy, and the volume of resales is recovering so that many of the Realtors and appraisers are doing O.K. The bad news is that this does not do much to help the overall the economy. What helps the general economy is the construction of new houses. Also it has been reported in many areas the volume.

In spite of the large inventory of foreclosed houses for sale the annual rate of new housing units has risen to about 600,000 units which is about half of the rate of new house construction prior to the bubble bursting. Many of these reported new construction units include units in multifamily buildings.

Many of these new units reflect a growing trend to move into the cities. Toll Brothers has been a large developer of suburban mega-homes. According to an article in Fortune magazine they are now putting up luxury condo in places like Manhattan and the hippest neighborhoods in Brooklyn.

In March 2013, Realty Trac — an online marketplace for foreclosed property — published a foreclosure inventory analysis showing nearly 1.5 million U.S. properties still actively in the foreclosure process or bank-owned (REO). This is up from the same period a year ago. These figures peaked in 2010 at over two million.

Many foreclosures are “Zombie Foreclosures” – houses that are vacant because the homeowner moved. Florida leads the pack with 90,566 zombie foreclosures, Illinois with 31,668 zombies, California 28,821 houses.



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Simple Spelling Errors, Grammar Traps and Confusions
by Dr. Poly Syllabic

Below are the most common errors we see in text from all sources, especially in the hasty emails, on blogs, and in twitter feeds. Note that often it's a single vowel that changes the entire meaning of a word.

WRONG: That sweater really
compliments your hair color.
RIGHT: That sweater really
complements your hair color.
WHY: Compliment means "to appreciate (verbally)." Complement means "to enhance."

WRONG: The tickets to the show were
RIGHT: The tickets to the show were
WHY: Complementary means "in addition to." Complimentary means "without payment needed."

WRONG: I was just
laying around doing nothing.
RIGHT: I was just
lying around doing nothing.
WHY: Laying is what a hen does to an egg! Lying is from the root "to lie down". (It also means "not telling the truth.")

WRONG: There are no
acceptions to that rule.
RIGHT: There are no
exceptions to that rule.
WHY: Acceptions is simply incorrect spelling; there is no such word. Exceptions is properly spelled.

WRONG: You must
except what they are saying.
RIGHT: You must
accept what they are saying.
WHY: Except means "all but this one" and accept means "to admit or include."

affect of the storm will be significant.
effect of the storm will be significant.
WHY: Affect is a verb meaning the "action" of something. Effect means the "result or outcome."
Note one exception: in Psychology, "affect" is a noun that means one's emotional state.

The above mistakes are minor on their own, but if you make too many of them it creates a negative impression on your education, professionalism, and overall expertise.

Dr. Poly Syllabic

Editor’s Note: Are there other grammar or spelling issues that grind your gears? Send them to ruth2@revmag.com