Huge Shortage of Appraisers Causing Delays

MBSauthorityHousing

Housing demand is rising rapidly, but a key cog in the wheel to homeownership is in deep trouble. The people most needed to close the deal are disappearing. Appraisers, the men and women who value homes and whom mortgage lenders depend upon, are shrinking in numbers.

That is causing growing delays in closings, costing buyers and sellers money and in some cases even scuttling deals.

The share of on-time closings has dropped from 77 percent last April to 64 percent today for loans backed by Fannie Mae and Freddie Mac, according to Campbell/Inside Mortgage Finance. Appraisal-related issues in these delays jumped by 50 percent in that time.

“The appraisal shortage is massive. You’re seeing significant delays, you’re seeing cost increases, you’re seeing rate [locks] expire,” said Brian Coester, CEO of Rockville, Maryland-based CoesterVMS, a national appraisal management company.

Housing demand is rising rapidly, but a key cog in the wheel to homeownership is in deep trouble. The people most needed to close the deal are disappearing. Appraisers, the men and women who value homes and whom mortgage lenders depend upon, are shrinking in numbers.

That is causing growing delays in closings, costing buyers and sellers money and in some cases even scuttling deals.

The share of on-time closings has dropped from 77 percent last April to 64 percent today for loans backed by Fannie Mae and Freddie Mac, according to Campbell/Inside Mortgage Finance. Appraisal-related issues in these delays jumped by 50 percent in that time.

“The appraisal shortage is massive. You’re seeing significant delays, you’re seeing cost increases, you’re seeing rate [locks] expire,” said Brian Coester, CEO of Rockville, Maryland-based CoesterVMS, a national appraisal management company.

Since 2007, when the U.S. housing market came crashing down, the number of appraisers has shrunk by 22 percent, according to the Appraisal Institute, an industry association. With so few new cadets, the current population of appraisers is aging. More than 60 percent are over the age of 50.

Ironically, the decline in new appraisers is largely due to new regulations designed to safeguard both banks and borrowers. They were put in place at the end of 2008 by Fannie Mae, Freddie Mac and the FHA, as the entire mortgage banking community was under strict scrutiny after the financial crisis. They changed the rules that would allow appraiser apprentices to do full appraisals and instead require the licensed appraiser to be on-site for the inspection.

The result is that appraisers no longer see a need to pay apprentices, but at the same time, licensing requirements to become an appraiser include 2,500 hours of appraisal experience to be completed in two years as an apprentice.

“The typical appraiser, he’s going to do approximately 10-15 appraisals a week. For him to be able to take a trainee, he needs the ability for the trainee to go ahead and inspect the property for him,” said Coester. “The rules have changed now, and you cannot do what you used to be able to do 10 years ago, which is hire three to four trainees and really have them go and inspect the properties, go and do work for you and really function as an apprentice. That market has been completely eliminated.”

What Happened to Rates Last Week?

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Mortgage backed securities (FNMA 3.00 MBS) gained just +9 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.  But we certainly had some volatility as MBS had a -42 BPS spread between our best pricing of the week (lowest rates) and our worst pricing of the week (higher rates).

The 3rd Quarter is in the bag, and our benchmark MBS gained just +21BPS over a 3 month period.  A very narrow range indeed as mortgage rates were very stable during that period.

We had a slew of big name domestic data points that were overall stronger than expected with terrific consumer, manufacturing and income readings.  OPEC was the biggest international event of the week.

Personal Outlays: The one area of our economy that shows steady inflation (wages) continues its upward trend as Personal Income for August increased yet again.  This time by 0.2% as this has increased each and every month this year.  The market was expecting 0.2%.  But despite monster Consumer Confidence readings and steady increases in wages, Personal Spending was flat at 0.0% which was just a tick below the consensus estimates.

Consumer Confidence:  The September reading was a block-buster at 104.1 which was much stronger than the estimates of 99.8.  Plus, August was revised upward from 101.1 to 101.8.  The Sept reading is the highest level in almost a year.

Consumer Sentiment:  The University of Michigan’s Consumer Sentiment Index (final for September) was better than expected (91.2 vs est 90.0) in yet another report that shows consumers have a good outlook on the future.

GDP: For the third time, we have had to digest the Gross Domestic Data for the 2nd QTR.  And this time, it was revised from 1.1% up to 1.4% which was higher than expectations calling for a revision to 1.3%.  The QoQ Core PCE was 1.8% but the Fed actually uses the YOY Core PCE as their basis for inflation and it came in at 1.7% on Friday.

Durable Goods Orders: This report has seen some wild swings over the past year.  Today’s release showed that the headline August data was flat at 0.0%.  But that was a fairly nice beat over forecasts of -1.4%.  July was revised lower from 4.4% down to 3.6%.  When you strip out the transportation sector, it fell -0.4% which matched market forecasts.  Core Capital Goods Orders (which are nondefense excluding aircraft) improved by a nice 0.6%.

Texas Tea, Black Gold: The markets are still VERY skeptical that the fragile “agreement” will turn into official policy in November but are encouraged that they at least reached a consensus for the first time in 8 years. But news “snippets” of OPEC members like Iraq saying that they cant agree to the terms because the production freeze is based upon a “current” production level that is far below what Iraq is actually producing, has kept many investors from bidding up oil.

What to Watch Out For This Week:

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The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.