Revised appraisal guidelines haunt investors
Posted on January 28, 2011
Just in case you haven’t run into it yet, our wise government – particularly the agencies that oversee mortgages – instituted more new guidelines in December that are just now starting to affect real estate investors. Effective Dec. 2010, in order to continue policing the mortgage industry, the Federal Reserve System engaged new policies for Automated Valuation Models on appraisals. (See http://www.federalreserve.gov/newsevents/press/bcreg/20101202a.htm) The newest guidelines require “interagency cooperation” in inputting data into the huge property database. These agencies include the Office of the Comptroller of the Currency (OCC), FDIC, Office of Thrift Supervision, Federal Reserve System, and the National Credit Union Administration. Further, the guideline goes one step further requiring actual visits to the property for a property condition report. Certainly, this inspection is needed in many circumstances. However, it does slow the process down by several more days and, on REO and foreclosure properties oft times, this can be the kiss of death.
How does this affect you? If you are a real estate investor that uses mortgage financing on potential rentals or flips, you may run into a new set of appraisal problems. Most affected are non-owner occupied loans, second mortgages, and lines of credit. If you’re one of those rare birds that still has a line of credit in place, it means when the bank is reviewing their collateral for the line, your ability to borrow may be reduced – sometimes drastically.
For potential new homebuyers, this doesn’t change things much. If it is an owner occupied property for a traditional or FHA first mortgage, lending institutions policies on appraisals are fairly close to the same as they were prior to December 2010. Some, however, have gone to the “two appraisal” rule. This means, to be safe, they are requiring two independent appraisals on each property. Whether they select one appraisal to go with, choose the lower of the two, or average the two varies with each institution.
Bottom line: In the near future, if you have been dependent on mortgages to purchase investment properties, you may want to adjust your business model. Several investors I know have already been shocked by hugely reduced values lenders are willing to do on investment properties. This is no fun when you’re expecting to have a closing. So, to be safe, do one of two things: (1) Use property you already own to collateralize lines of credit. Realize there must be plenty of equity available to do this smoothly; or (2) Even if you do fewer transactions, simply pay cash. Whether this is your own funds or those of an angel investor doesn’t matter. Paying cash is and has always been the path of least resistance. All others to the back of the line.
Sunday, January 30, 2011
Wednesday, January 19, 2011
China's President: Dump Dollar for Yuan as Global Currency
China's President: Dump Dollar for Yuan as Global Currency
Tuesday, 18 Jan 2011 09:12 AM Article Font Size
By Greg Brown
On the eve of a U.S. visit, Chinese President Hu Jintao made the boldest statement yet on the future of the U.S. dollar as a reserve currency, calling the current global monetary exchange system “a product of the past” while promoting his own country’s currency as a replacement.
In written answers to questions from U.S. media, Hu roundly criticized the U.S. Federal Reserve for unleashing a wave of dollars into the world, prompting sharply rising inflation in places like China and India.
He also rejected the common U.S. complaint that China holds the value of the yuan artificially low to promote exports to support its own rise.
He called on changes to the currency reserve system in place today "to fully reflect the changing status of developing countries in the world economy and finance," reported The Wall Street Journal.
As to the Fed, Hu said that an increased supply of U.S. dollars "has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level."
The Chinese leader went so far as to suggest an overhaul of the monetary regime in place since the Bretton Woods accord at the end of World War II, creating instead system that is more "fair, just, inclusive and well-managed."
Hu’s stance is a dangerous one to both the United States and to China, considering that a wholesale move by major foreign holders out of U.S. dollar investments would destroy trillions in their foreign reserves while thumping the U.S. economy with much higher borrowing costs.
China’s foreign reserves reached $2.85 trillion in 2010, a total heavily weighted in U.S. dollars in the form of Treasury bonds.
Oil prices, a huge component along with food in rising inflation worldwide, are seen breaking $100 a barrel soon with no sign that major products will hit the brakes. U.S. consumers could see a quick return to $4.50 a gallon gas, slowing the recovery.
Merrill Lynch commodity analyst Sabine Shels told Reuters that the breaking point for the global economy is $120 a barrel, which would mean energy had risen to 9 percent of the total economy.
"Whenever the size of the energy sector in the global economy reached 9 percent, we went into a major crisis," said Schels.
Oil touched $147 in July 2008 just as the market began its historic recent plunge.
© Moneynews. All rights reserved.
Read more: China's President: Dump Dollar for Yuan as Global Currency
Tuesday, 18 Jan 2011 09:12 AM Article Font Size
By Greg Brown
On the eve of a U.S. visit, Chinese President Hu Jintao made the boldest statement yet on the future of the U.S. dollar as a reserve currency, calling the current global monetary exchange system “a product of the past” while promoting his own country’s currency as a replacement.
In written answers to questions from U.S. media, Hu roundly criticized the U.S. Federal Reserve for unleashing a wave of dollars into the world, prompting sharply rising inflation in places like China and India.
He also rejected the common U.S. complaint that China holds the value of the yuan artificially low to promote exports to support its own rise.
He called on changes to the currency reserve system in place today "to fully reflect the changing status of developing countries in the world economy and finance," reported The Wall Street Journal.
As to the Fed, Hu said that an increased supply of U.S. dollars "has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level."
The Chinese leader went so far as to suggest an overhaul of the monetary regime in place since the Bretton Woods accord at the end of World War II, creating instead system that is more "fair, just, inclusive and well-managed."
Hu’s stance is a dangerous one to both the United States and to China, considering that a wholesale move by major foreign holders out of U.S. dollar investments would destroy trillions in their foreign reserves while thumping the U.S. economy with much higher borrowing costs.
China’s foreign reserves reached $2.85 trillion in 2010, a total heavily weighted in U.S. dollars in the form of Treasury bonds.
Oil prices, a huge component along with food in rising inflation worldwide, are seen breaking $100 a barrel soon with no sign that major products will hit the brakes. U.S. consumers could see a quick return to $4.50 a gallon gas, slowing the recovery.
Merrill Lynch commodity analyst Sabine Shels told Reuters that the breaking point for the global economy is $120 a barrel, which would mean energy had risen to 9 percent of the total economy.
"Whenever the size of the energy sector in the global economy reached 9 percent, we went into a major crisis," said Schels.
Oil touched $147 in July 2008 just as the market began its historic recent plunge.
© Moneynews. All rights reserved.
Read more: China's President: Dump Dollar for Yuan as Global Currency
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