Posts Tagged ‘mortgage appraisals’

Today’s Mortgage Process Requires More Patience

December 12, 2011

by Peter Boutell, Santa Cruz Sentinel

A few weeks ago I wrote that today’s mortgage guidelines were more lenient and loan approvals were easier to come by than they were 25 years ago. However, today’s loan approvals are much more complicated. They are taking more time, requiring more documents, and require more explanations to borrowers.

Our government has taken over Fannie Mae and Freddie Mac and in an attempt to prevent another meltdown in the mortgage industry, has instituted a wave [as in tsunami] of regulations that we all must adhere to in order to remain in the mortgage business. These regulations have added an enormous amount of paperwork that must be provided by and produced by lenders and borrowers alike. The regulations were supposed to make it harder for unscrupulous lenders to take advantage of unsuspecting borrowers while at the same time make it harder for fraudulent borrowers to take advantage of lenders. These new rules were also designed to make comparison shopping easier so that borrowers could save money. Needless to say, the consequences of these strict guidelines have not produced the intended results.

Not surprisingly, one of the results of these guidelines is that mortgages are taking much longer to process than in the past because mortgage lenders are overwhelmed with meeting these requirements. The amount of paperwork now required to close a purchase or refinance loan is triple what we used to have to produce. The quality-control systems that we must have in place require  verifying and re-verifying information received, which takes countless employee hours.

While there are always exceptions, the paperwork that must go into a borrower’s file has grown exponentially over the years. With tax returns, bank statements, appraisal, preliminary title report, etc. it is not uncommon to have a file that is 375 pages thick. We recently had a file that grew to 784 pages! These files take time to put together, time to review and time to approve. Once we have all the pages that will be required for a file, the file goes in line to be underwritten [we have heard that some banks are taking 15 or more days just in the underwriting queue]. Once approved by the underwriter, the file goes in line to have the loan documents prepared. The documents are then sent to the title company, where the borrowers sign everything [some 50-60 signatures required just on the loan documents] and then the documents are returned to the lender’s funding department where they are reviewed again and the last minute quality-control checks for employment, credit and bank accounts are conducted.

It is a small miracle if the mortgage process can be completed within a 30-45 day period. Some banks are taking 60 or more days to close. In the days of old we were able to complete this process in as few as 5-10 business days. If we lenders, Realtors, title and escrow people, etc. can all stay calm and support each other by setting appropriate expectations, we will have smoother and more timely escrows.

 

 

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HARP Mortgage Refinancing Up 20% in September

December 6, 2011

Jon Prior via Housing Wire

Lenders and servicers refinanced nearly 35,000 Fannie Mae and Freddie Mac mortgages through the Home Affordable Refinance Program in September, a 20% monthly increase just before major guideline changes were announced.

The Federal Housing Finance Agency launched HARP in March 2009 to allow borrowers with mortgages that have loan-to-value ratios between 80% and 125% to refinance their loans if they are held by the government-sponsored enterprises.

Participating lenders and servicers have refinanced 928,600 GSE loans through HARP as of the end of the third quarter, the FHFA said Tuesday. It is an 11% increase from the previous quarter. Nearly 11 million borrowers owe more on their mortgage than their home is worth, trapping them out of refinancing at interest rates hovering around 4%.

"Monthly HARP volume grew in the third quarter as interest rates decreased to new historic lows," the FHFA said.

In October, the FHFA eliminated the LTV cap, upfront fees charged to borrowers and representation and warranty risk in order to provide more assistance to underwater borrowers.

Fannie and Freddie released specific guidelines in November.

Before the changes, borrowers who owed more on their mortgage than their home was worth made up a sliver of HARP totals. In September, 83% of HARP re-financings — nearly 29,000 loans — went to borrowers between 80% and 105% LTV, compared to 5,700 between 105% and 125% LTV, according to FHFA data.

The majority of Fannie and Freddie ‘refis’ go through other programs outside of HARP. In all, lenders refinanced 263,780 GSE loans.

Servicers completed more than 140,000 foreclosure prevention actions for the GSEs, including 83,500 mortgage modifications, in the third quarter. Short sales and deeds-in-lieu of foreclosure added another 30,800 for a total of more than 171,000 foreclosures prevented during the period.

Lenders started foreclosures on more than 224,000 properties, down nearly 11% from the previous quarter, according to the FHFA.

 

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Government Housing Strategy: The Industry Reacts

November 22, 2011

via Mortgage Solutions

The government has today published its strategy on “unblocking” the housing market, stimulating buying, lending, construction and job creation.

The Prime Minister David Cameron has promised the plan "will break the current cycle in which lenders won’t lend, builders can’t build and buyers can’t buy."

A key announcement was the widely touted government and house builder backed mortgage indemnity guarantee for new build properties, aiming to get 100,000 first-time buyers access to 95% LTV loans.

In addition, there were announcements around supporting the private rented sector, self build, tackling empty homes and overhauling social housing.

The property industry has largely welcomed the plans, but with notes of caution:

CML director general Paul Smee

This [new build MIG] scheme is good news for home buyers, developers and indeed the UK economy. Lenders will be able to reduce the level of deposit needed by home buyers in the new build sector, enabling more buyers to buy and so supporting the flow of new housing development, with all its positive consequences for jobs and the economy as a whole.

UK lenders will not be compromising the quality of their lending or increasing their risk of loss through this scheme.

It is also anticipated that lending within the scheme will attract relief on the regulatory capital that would otherwise be required on high loan-to-value lending, because of the significant mitigation of the lending risk.

Paul Broadhead, head of mortgage policy at the BSA

We welcome the government’s support for a new build indemnity scheme initiative aimed at helping those with a modest deposit buy their own home. This joined up thinking from mortgage lenders, builders and the government is good for borrowers, the housing industry and in turn jobs.

For the scheme to deliver its full benefits to consumers, it is important that lenders of all sizes can participate. We look forward to working with the government to help ensure this is the case.

Grenville Turner, chief executive of Countrywide

The measures announced today are a step in the right direction and address the key fundamental issues that have restricted the housing market in recent years.

The government needs to ensure that its promise of increasing house building is followed through and not restricted by planning red tape.

Whilst the proposed new build indemnity scheme is a welcomed boost to homebuilders and prospective buyers, it is disappointing to see a lack of measures to assist the vast majority of home movers.

A Stamp Duty holiday for all homebuyers up to £250,000 by would have been a welcomed boost to the resale market and should still be considered.

We also welcome the consideration of tax break measures for buy-to-let investors. Any government support to encourage investment in the buy-to-let sector will help to relieve the supply and demand imbalance.

Charles Haresnape, managing director of Aldermore Residential Mortgages

Any initiative designed to help the housing market and first-time buyers in particular, has to be welcomed.

However, it will be interesting to hear precisely how the government backed mortgage indemnity scheme will work and how the proposed £400m house building fund translates into new homes.

At the moment there are approximately 100,000 new homes being built every year, but that figure needs to increase to 240,000 if demand for new housing is to be satisfied. It is suggested that the government proposed new initiative will result in just 16,000 new properties, which still leaves the government woefully short of its target.

Graham Beale, chief executive of Nationwide

This scheme seeks to boost the supply of properties available with modest deposits and, as such, we are pleased to be part of it, helping to shape its design and development.

We would really like to see people who are saving for a deposit given more help through higher ISA limits and the flexibility to move their funds between cash and equity ISA products, without the restrictions that are in place now.

Paragon Group chief executive Nigel Terrington

It is pleasing that the government has recognized the important role the private rented sector plays in providing a home to millions of renters.

It is important that the private rented sector has a committed base of investor landlords to enable it to grow, and fostering a fiscal and regulatory environment that encourages that is vital.

Institutional investment will only play a complementary role to the mainstay of the private rented sector, the private landlord, and so whilst there is a focus on attracting greater levels of institutional investment into the sector, policies must not favor institutions over individuals.

Stewart Baseley, executive chairman of the HBF

This scheme will allow people to buy their new home on realistic terms and help in particular hard pressed first time buyers.

It will also be a huge boost to house building. Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs.

Helen Adams of FirstRungNow.com

Funding which only supports new build is good for the house builders who are being subsidised, but does little to move the whole market as there is no onward chain when a new home is purchased.

Tracy Kellett, managing director of buying agents BDI Home Finders

If the government and house builders are taking on the risk, what will the criteria be for people applying for these loans? The real number of people enjoying the scheme is likely to be far lower than the headline number. The devil, as ever, is in the detail.
The government has become so focused on the first-time buyer that it has forgotten the squeezed middle. Any housing strategy has to cascade upwards through the chain, not focus purely on the first link.
Given the scale of the market crisis, it’s unlikely it can do anything at all. Ultimately, only the market can make the market better.

 

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Clever Small Home Architecture Derived From Site Restrictions in Tokyo

November 22, 2011

By Amazing Architecture | Joseph Rossi

River Side House 5 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

The River Side House is an impressive project designed by Mizuishi Architect Atelier and located in Tokyo, Japan. The small home was constructed on a triangle site and occupies a building area of 29.07 square meters. According to the architects, the structure of the residence includes functionally separate areas, as follows. The first is the dining & kitchen area, situated up the stairs and having high ceilings with a feeling of rise towards the roof top. The living space is low ceilinged and has full-opening windows on both sides of the bay, ensuring a feeling of floating. There is also a generous spare room to the east, for having guests over. The interior arrangements of this residence are minimalist and tasteful. The walls are painted entirely in white, inspiring openness and tidiness. Wooden accents and splashes of color here and there add a happy tone to the design. Do you find this project as intriguing as we do?

River Side House 2 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 3 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 4 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 6 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 7 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 8 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 9 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 10 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 11 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 12 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 13 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 1 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 15 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 16 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 17 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 18 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

River Side House 14 Clever Small Home Architecture Derived From Site Restrictions in Tokyo

 

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Not Every Real Estate Market Is Struggling

November 22, 2011

In the Obama years, home values lagged throughout the U.S., with a few exceptions.

Venessa Wong via Business Week

Want to know how bad the real estate market is? Just drive down almost any street in the U.S. and you’re likely to see “for sale” signs lining the road. Come back a month later, it’s a good bet the same signs are still there—and quite possibly a few new ones, too. But while there’s a lot of housing pain, there’s also some good news. That’s because in some markets across the country not only have home values improved, a few have even seen double-digit growth.

So where is this miracle occurring? Believe it or not, the city that has seen the biggest increase in home value is in Florida. That’s right—the state that has seen home values plummet 52.3 percent from 2006 peak levels. Nearly 96,000 loans were modified in Florida through August 2011 under President Obama’s Making Home Affordable program. Joblessness, foreclosures, and high inventory hamper recovery in nearly every corner of the state, with rare exceptions. In this case, the rare exception is Weston, a high-income city of more than 65,000 people near Fort Lauderdale where the median home value has risen 15.1 percent to $280,000 from February 2009 to August 2011.

A survey of the 1,000 largest cities nationwide by online real estate marketplace Zillow for Businessweek.com identified the markets with the biggest gains and losses in home value, ranking Weston the best-performing city since Obama took office. In contrast, the U.S. median home value fell by 9.9 percent over the same period.

What’s behind Weston’s success? Ines Garcia, an agent for EWM Realtors in Weston, describes the city as “Broward County’s cul-de-sac.” “It’s like driving into a gated community: the landscaping, the manicuring all around the city,” she says. “We were very lucky. Weston was one of the last communities to fall and one of the first to recover.”

Other winners: Arlington, Mass., where the median home value increased by 14.8 percent since February 2009; Brookline, Mass., at 13.6 percent; and the D.C. suburbs of Burke, Va., at 13.5 percent, and Vienna, Va., at 12.8 percent, Zillow data indicate.

Of course, the winners are far outnumbered by the losers. The city with the worst-performing market in the survey is only 50 miles from Weston in Homestead, Fla., where the median home value dropped by 48.8 percent since February 2009. Rounding out the bottom worst-performing markets: former manufacturing city Pontiac, Mich., with a 47.4 percent decrease, and New Jersey capital Trenton, at 46 percent.

While those in depressed housing markets hope for solutions from the White House, “I don’t see how any President is responsible for the housing market in a particular area,” says Steven Blitz, director and senior economist at ITG Investment Research in New York. The federal government and national housing policies have a limited impact on a local level.

OBAMA ACCOUNTABLE?

The Obama Administration, the inheritor of a collapsed housing market and financial crisis, has tried to help the hardest-hit housing markets through refinancing and loan modifications. Yet individual markets are influenced heavily by local conditions, such as jobs, school districts, and population growth. Both the best-performing market, Weston, and the worst, Homestead, are in the Miami-Fort Lauderdale metro area, for instance. As housing trends at their core are hyper-local, it makes it difficult to even craft regional solutions. Developing a catch-all national policy is even more challenging.

“The foreclosure prevention efforts by the Obama Administration have helped to slow the bleeding when it comes to foreclosures but have done little to help get the housing market off life support,” says Daren Blomquist, a spokesperson for RealtyTrac.

To stimulate buying, the housing industry has called on the federal government and lending institutions to facilitate mortgages to qualified home buyers. Rather than address housing specifically, says Jeffrey Lubell, executive director of the Center for Housing Policy, a research group in Washington, “the single most important thing that needs to be done now is get the economy back on track. Nothing can help housing more than putting people back to work.” The U.S. unemployment rate stood at 9.1 percent in September, according to the U.S. Bureau of Labor Statistics.

Job creation in the D.C. area, for example—driven by the government—helped nine cities in the capital region rise to the list of top 25 housing markets in Zillow’s research. The unemployment rate in the D.C. metro area was 6.2 percent in August, estimates the BLS.

“Housing will rise with jobs and income. Anything that improves confidence in the future trajectory of jobs and income will raise the arc of growth for housing,” says Blitz.

ONE METRO, MANY MARKETS

Weston, following patterns in the rest of the country, saw the median home value peak in 2006 at $478,000 before plunging. The median value bottomed out in May 2009 at $235,600, according to the Zillow Home Value Index, and has since climbed steadily.

By August 2011, the unemployment rate in Weston was down to 7 percent from a peak of 8.3 percent and the median home value had only recovered to $280,000, well below the peak. Still, among cities it was the best housing rebound in the last two and a half years. The foreclosure rate in September, about 1 in 338 housing units, remains far above the U.S. rate, though it is down 60.7 percent from a year earlier, show RealtyTrac data.

Helping this meticulously landscaped planned community—which offers bike trails, golf courses, scenic lakes, highly ranked schools, a low crime rate, and active homeowner associations—was a rebound in demand from young families, according to Susan Penn, an agent at EWM Realtors. The median household income is $78,030.

Weston also experienced an influx of middle- and upper-class immigrants from Venezuela and other parts of South America. The U.S. Census Bureau estimates the city’s foreign-born population increased to 43.9 percent in 2010 from 37.1 percent in 2006.

As Weston recovered some housing value, Homestead, a city only 50 miles south, was less fortunate. A Miami suburb and agricultural area with an Air Reserve Base, Homestead has struggled since being devastated by Hurricane Andrew in 1992. It has a poverty rate of 29.4 percent and median household income is $36,279 (lower than both the Florida and U.S. medians), according to 2009 Census data.

Lower-income areas and exurbs were generally hit harder by the recession. In Homestead, unemployment skyrocketed to 11.7 percent in August from 6.3 percent in February 2009, estimates the BLS. By August, the foreclosure rate remained high at 1 in 125 housing units and the median home value was 66.7 percent below peak at $76,600.

According to Zillow Senior Economist Svenja Gudell, under current conditions the median U.S. home value will likely fall another 3 percent to 5 percent and not reach trough until 2012 at the earliest. “We need to identify creative solutions,” such as repurposing foreclosed homes as rental housing, refinancing loans, and loosening credit, which involves many players, says Lubell of the Center for Housing Policy.

The Obama years have been bad ones for housing, yet government was not alone in breaking the housing market—and it cannot be alone to fix it.

Click here to see the 25 best- and 25 worst-performing housing markets under the Obama Administration.

 

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The Fuzzy Math of Home Values

November 15, 2011

Alyssa Abkowitz via Smart Money

Jason Gonsalves worked hard to turn his 6,500-square-foot stucco-and-stone home in the suburbs of Sacramento into the ultimate grown-up party pad. Inside are the game room, home theater and custom wine cellar. Outside, there’s the recently added piece de resistance — a wood-burning pizza oven, kegerator and searing station, all flanking an infinity-edge pool that overlooks the lapping waters of Folsom Lake. A spread like that doesn’t come cheap, of course, so when interest rates fell recently, Gonsalves, who runs a lobbying firm, looked into refinancing his $750,000 mortgage. That’s when he got some startling news — even as he was putting the finishing touches on his home, it had dropped more than $200,000 in value over a seven-month stretch.

Or at least, that’s what one popular real estate website told him. Another valued Gonsalves’s pad at a jaw-droppingly low $640,500. And these online estimates left him all the more confused when a real-life appraiser, assessing the house for the refi loan, pinned its value at $1.5 million. "I have no idea how those numbers could be so different," Gonsalves says.

Right or wrong, they’re the numbers millions of consumers are clamoring for. In a housing market that’s been mostly a cause for gloom, so-called home-valuation technology has become one of the few sources of excitement. After years of real estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, Homes.com and Realtor.com are offering to reshuffle the deck. They’ve rolled out at-your-fingertips technology via laptop and smartphone to give shoppers and owners an estimate of what almost any home is worth. And people have flocked to the data in startling numbers: Together, four of the biggest websites that offer home-value estimates get 100 million visits a month, and one, Homes.com, saw traffic jump 25 percent in the three months after it launched a value estimator in May. "Consumers used to use us for home buying and move on," says Jason Doyle, vice president of Homes.com. "Now we can stay engaged with them."

Real estate voyeurism aside, the stakes are high for many of the sites’ visitors. Homebuyers use the estimates to get a feel for what’s on the market and, later on, to figure out whether their bid will entice a seller to play ball. Vigilant homeowners like Gonsalves check their values to help decide whether it’s worth the hassle of refinancing, while others who are ready to sell use them to gauge if they’re priced right for the market. Real estate agents, meanwhile, say they’re increasingly resigned to spending more time answering questions — or arguing — about the estimates. "It’s an evolution for consumers," says Gary Painter, director of research at the Lusk Center for Real Estate at the University of Southern California. Banks and other lenders are piggybacking on the trend as well, with some even showcasing the upstarts’ estimates on their own websites. While lenders say they don’t use the estimates to make final decisions about loans, they say Zillow in particular has become a go-to tool for their preliminary research on homes. "I use it every day," says Zach Rohelier, a mortgage banker at LendingTree.

But for figures that carry such weight, critics say, the estimates can be far rougher than most consumers realize. Indeed, if the websites were dart throwers, they’d seldom hit the bull’s-eye, and they’d sometimes miss the board entirely: Valuations that are 20, 30 or even 50 percent higher or lower than a property’s eventual sale price are not uncommon. The estimates frequently change, too, for reasons that aren’t always easy for homeowners to discern. According to the companies themselves, some quotes have swung by hundreds of thousands of dollars in as little as a month as new data gets plugged into the algorithms the sites rely on. (Those algorithms also change, as happened this summer when Zillow made adjustments that affected all of the 100 million homes in its database.) And while the sites say it’s probably rare that individual homeowners (or real estate agents, for that matter) game the system, they do acknowledge that people can enter information that might push estimates higher. Put it all together, say pros, and you’ve got numbers that have become head-scratching legends in one community after another: a Hollywood Hills aerie losing 47 percent of its value in one month (with no earthquakes or mud slides to explain the drop); a century-old home in Louisville, Ky., that, according to local lore, served as the inspiration for Daisy’s home in The Great Gatsby, quadrupling in value over 30 days; and one townhouse in Brooklyn, N.Y., listed now for $5 million, valued at a whopping $31 million in the midst of the real estate crash — at least according to Zillow.

Zillow says the Brooklyn valuation was an error that it subsequently corrected. And make no mistake, all of the competitors go out of their way to make it clear their numbers are guesstimates, not gospel. "A Trulia estimate is just that — an estimate," says a disclaimer on that site’s new home-value tool. Zillow deploys similar language and goes a step further, publishing precise numbers about how imprecise its estimates can be. And every major site urges home-price hunters to "always consult with a real estate agent or house appraisal specialist," in the words of Homes.com. Indeed, these sites say they have strong relationships with the real estate business in general; they get a significant share of their revenue from the industry, in the form of advertising and subscriptions.

But when the real estate version of Pandora’s box is opened, homeowners don’t necessarily pay attention to disclaimers. Consumers and pros alike say many Web surfers put enough faith in the estimates to sway the way they shop and sell. "I’m constantly explaining to clients that those numbers don’t come from a person," says Mindy Chanaud, a real estate agent in Greenwich, Conn., who launched into what she calls her Zillow spiel when shown a Zestimate of one of her listings. Frank and Sue Parks, former owners of the Gatsby house in Louisville, watched as the site put a $331,000 value on the dwelling in May; by July it had climbed to $1.5 million. (Zillow says the lower estimate reflected errors in its statistical model.) The couple got some potential buyer referrals from the site, but they had to fend off a stream of lowball offers before they sold their place this fall. They’re convinced that the estimate roller coaster accounted for some of that. Says Sue, "It really affected our ability to move the place."

For most of real estate history, of course, determining a home’s value has been an appraiser’s job. Appraisal involves gathering data on recently sold homes in the area and comparing them with the "subject property" on matters like size, condition and characteristics, before coming up with an estimate of the home’s worth. If the property has, say, a swimming pool, but most recently sold homes don’t, the appraiser might add a premium to the sale value. Still, the exercise involves as much art as science, as appraisers acknowledge. The more unique or luxurious a property, the harder it is to accurately value. "Imported marble and a view of the ocean are going to be more or less valuable depending on market conditions," says Susan Allen, a vice president at CoreLogic, a data and analysis provider in California. And critics have accused a few appraisers of inflating the value of properties or rubber-stamping other people’s estimates to ensure that deals went through.

The response, beginning in the late 1980s, was the rise of the machines. Economists started developing automated valuation models, or AVMs; instead of having a person visit the property and crunch calculations, these computer models sync the math with data about comparable sales, square footage, number of bedrooms and the like, all in a matter of seconds. Rob Walker, a managing director at AVM purveyor Lender Processing Services, says the models sped up the approval process for second mortgages and home-equity loans; indeed, for years, the tools were mostly reserved for in-house nerds at lending banks. It wasn’t until 2006 that Zillow took them to the masses, with its Zestimate. The company runs data on more than 100 million homes through its own algorithms that recognize relationships between property characteristics, tax assessments and recent transactions. "Humans don’t make these decisions," says Stan Humphries, chief economist at Zillow.

Scores like these have helped build successful business models for some companies — Seattle-based Zillow, for one, just raised $69 million in an initial public offering. And they’ve become weapons in the arsenal of consumers like Terence Avella, an attorney in Eastchester, N.Y. After he and his wife became enamored of a four-bedroom Victorian with an asking price of $650,000, Avella consulted Zillow, finding a much lower valuation: $510,000. He says the Zestimate reinforced his belief that the house would need extensive renovations — and he put up a lowball bid. By the time the process was over, Avella had settled on an offer of just $580,000 (though the negotiations later fell through). Indeed, in a market where listing prices often reflect hope more than reality, some agents and consumers say that online tools are a useful reality check. Simms Jenkins, an Atlanta marketing executive, says he’s recently relied on sites like these to both buy and sell homes. "I can’t imagine 25 years ago, when people would just go out and spend their entire Saturday looking at homes," Jenkins says. "You don’t have to do that now."

But what’s a godsend to Jenkins is an ongoing mystery to Mike Battaglia. Battaglia lives in a Frank Lloyd Wright inspired mansion in Louisville, on a historic street, across from a lush park. But his neighborhood is decidedly eclectic — homes like his sit near much smaller starter homes — making it a challenge, local appraisers and agents say, to figure out how much each home is worth. Among the online estimates, that difficulty plays out in real time. Homes.com valued the manor at $761,700, but that figure dropped $85,000 in a month. Zillow pinned its worth at $1.1 million in December 2010, then posted no Zestimates at all for several months — only to peg its value at $327,000 in May, a 70 percent haircut. By fall, it was back up to $1 million.

Battaglia, a business consultant, says he knows the numbers are only estimates, but he still thinks that notion doesn’t register with people: "It’s the perception of value that affects people’s psychology." Zillow says its wide range of estimates was a result of volatility in the local market. Homes.com’s Doyle declined to comment specifically on Battaglia’s house, but says that a home in a neighborhood like his could definitely be vulnerable to inaccuracies. "If there’s a transaction next door and someone just gave away a house, it will throw off the model," Doyle says.

Indeed, appraisers and real estate consultants say that those models veer off target with alarming frequency. Typically, data for valuation models come from two sources: records from tax assessors and listing data for recent sales. Middleman companies — the dominant ones are CoreLogic and Lender Processing Services — gather this data from more than 3,000 U.S. counties and license them out to the Web sites and other model-builders. Collection is itself a challenge, because not every county tracks properties the same way. In North Carolina’s high-tech Research Triangle, anyone can get data directly from the Wake County website, while in rural Wright County, Mo., tax rolls are available only on paper. The size of a home could be reported by square footage or by the size of each bedroom and bathroom, so data companies must "scrub" the data to make it uniform. Even then, the data isn’t always useful in the field, say real estate pros. County assessors often use AVMs in newer subdivisions where floor plans don’t vary much. But with custom homes or neighborhoods going through gentrification, the models can go haywire. "You cannot use a computer model in certain areas and expect the value to come out right," says John May, the former assessor of Jefferson County, Ky.

Some properties’ data can be too tough a nut for any computer model to crack. On a quiet street in one of Brooklyn’s grander old neighborhoods stands the brownstone that, according to Zillow, was worth $31 million in 2007. "I don’t even know if there’s ever been a home in Brooklyn worth that much," says a spokeswoman for The Corcoran Group, the agency that now lists the property on the market, for $5 million. Zillow declined to discuss why its earlier estimate was so high, but a look at the house’s records suggests one potential reason for the enormous spread: Although the address is a two-family townhouse, the current owners use the entire house, giving them square footage that’s off-the-charts big by New York City standards.

Public records are hardly the only problem. Automated models aren’t designed to account for the unique details that often make or break a deal — something their designers readily acknowledge. AVMs usually can’t capture data that determines the condition of a property, such as whether there’s been a ton of wear and tear. Is a home right next to the railroad tracks or a golf course or a landfill? AVMs can’t always answer those questions, say industry pros, though GPS technology is improving things on that score. Models also can’t decipher the motivations of a buyer or seller, says Leslie Sellers, a past president of The Appraisal Institute. A couple who’s going through a nasty divorce, for example, may have taken the first offer that came along just to unload the property. For all these reasons, says Lee Kennedy, managing director of AVMetrics, a firm that audits and tests industrial-grade AVMs, the models that banks use often add a "confidence score" to their value estimates, with a low score signaling that it’s best to send in a human appraiser.

Consumers, however, don’t get to see a confidence score; instead, they get disclaimers, some of which are eye-opening. Zillow surfers who read the "About Zestimates" page find out that the site’s overall median error rate — the amount the estimates vary from the actual fair value — is 8.5 percent, and that about one-fourth of the estimates wind up being at least 20 percent off the properties’ eventual sale price. In some places, the numbers are far more dramatic: Gibson County, home of the West Tennessee Strawberry Festival, has a 57 percent error rate; in Hamilton County, Ohio, where the Cincinnati Bengals play, it’s 82 percent. Site users are always one click away from this data, but agents say few homebuyers read it (on Zillow’s homepage, the font for the "About Zestimates" link is slightly smaller than the main home-data type — and quite a bit fainter).

The sites argue that, over time, edits and corrections will help them perfect their numbers — and many of the corrections will come from their customers. On Homes.com, for example, anyone who knows certain specifics, like a homeowner’s surname and the year the home was last purchased, can edit the details to reflect, say, a sprawling two-bedroom addition. Zillow also allows site visitors to modify its property details, and in four years, it has accepted revisions on 25 million homes — perhaps the strongest testament to how seriously consumers take the estimates. Today, Zestimates are helpful enough, says the site, to give consumers an accurate sense of any home’s value. In the meantime, says Humphries, the company’s economist, "We’re always tweaking the algorithm or building a new one."

But in the eyes of some skeptics, that tweaking only increases the potential for off-base estimates. Steve Levine, a real estate agent in Shrewsbury, Mass., says he recently changed his home description on one site, adding the fact that he has a finished basement. Over the next six months, his home rose from $516,000 to $558,000 — a healthy 8 percent — while a neighbor’s nearly identical home sank in value. Levine says he has no way to tell how big an impact his update made, "but being able to change the facts is one more tool for manipulating the system." The sites say they believe intentionally wrong changes are rare, but acknowledge they can only go so far policing those tweaks. "It’s not 100 percent bulletproof," says Homes.com’s Doyle.

In the end, some critics say, the sites’ business models may pose a bigger problem for consumers than their algorithms. Even their flaws help to sustain the buzz around the estimates, drawing curious visitors. The online firms earn significant revenues from advertising, and the more traffic they get, the greater that ad revenue is. Zillow says 57 percent of its revenue comes from display ads from the likes of home-supply store Lowe’s, realty franchisor Century 21 and builder KB Home. Realtor.com’s parent company, Move Inc., generates 42 percent of its sales from listings by local agents, while Homes.com says advertising is its fastest growing revenue area. Trulia expects its traffic to grow now that it has launched a beta version of an online estimator, says head of communications Ken Shuman; after all, he adds, "consumers asked for it." As long as they keep asking, say industry insiders, stumbles in reliability aren’t especially important. "It’s not about being accurate or precise; it’s about being sticky," says Kennedy, of AVMetrics. For their part, the sites say stickiness matters to their business plans, but that they take the estimates very seriously; otherwise, as a Zillow spokesperson put it, "we wouldn’t have a team of Ph.D.s trying to make them better all the time." They depict the estimates as an ongoing experiment that is likely to achieve a very high degree of accuracy — someday. (At least for now, one site is deferring to agents in the home-value game: Realtor.com says it removes its estimates from homes once they actually go on the market.)

In the future, of course, homeowners may look at today’s estimates the way they look at those enormous console televisions from the 1940s — as an awkward early phase for what became a ubiquitous, reliable technology. But in the meantime, many are content to use them, flaws and all, whether in earnest or as entertainment. In an exurb outside Phoenix, Mike Lang, a commercial-property manager, has seen his home jump almost 20 percent in value on Zillow in the past few months — he’s not sure why. Though he’s not moving any time soon, he’s enjoying his time at the top of the real estate heap. "I’ve got the most expensive house in the neighborhood," Lang says.

 

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Google Enters the Mortgage Loan Business

November 8, 2011

Business News Express via Melissa O’Neill

LoanSifter, Inc. (www.LoanSifter.com), provider of the mortgage industry’s most complete and intuitive product and real-time pricing platform, announced today a strategic relationship with Google Inc. that gives consumers access to mortgage loan products and real-time pricing based on LoanSifter’s technology, including side-by-side comparisons of mortgage loan products from multiple lenders through Google’s Comparison Ads.

Google’s Comparison Ads help consumers shop for mortgages online by retrieving quotes based on the borrower’s specific loan criteria.  Through a strategic relationship between both companies, Google will leverage LoanSifter’s industry-leading technology – which automates pricing for lenders using the largest real-time database of investor pricing and eligibility content available in the mortgage industry — to provide Google users with information on mortgage products and pricing from the lenders using LoanSifter.  When Google users get these rates, LoanSifter’s lenders will receive qualified online leads.

Greg Ulrich, production manager at Fairway Independent Mortgage Corporation in Colleyville, Texas, believes that Google’s popularity provides a great opportunity as another channel for borrowers to reach the company, without substantial investment costs.  ”This saves us money, allowing us to pass a greater savings to the consumer,” Ulrich said.

“We chose LoanSifter for our Google auto-quoting because it enables us to customize our pricing more accurately and effectively,” Ulrich added.  ”Other vendors require manual supervision, which would have been problematic in keeping up with market shifts.”

Consumers who search for popular mortgage-related terms or phrases on Google are drawn to Google’s proprietary mortgage Comparison Ads, where they can anonymously provide details such as their desired loan amounts and credit scores.  Google will then retrieve multiple reliable offers from dependable lenders, placed side-by-side so the borrower can compare them.  After investigating different scenarios and choosing a lender, the borrower is then able to contact the lender by phone or e-mail.  Borrowers do not have to fill out lengthy forms or click through walls of advertisements in order to access up-to-the-minute loan products and rates, and the leads generated to lenders are anonymous, so that borrowers can protect their private information until they are ready to move forward in the mortgage process.

“Our relationship with Google will be of tremendous benefit to both lenders and consumers,” LoanSifter President Bruce Backer said.  ”A growing number of borrowers are using the Internet to find the best possible mortgage deals, and Google’s immense popularity makes it a first stop for many.  Borrowers benefit from the side-by-side comparison in an open marketplace, while lenders benefit from LoanSifter’s ability to accurately price mortgage scenarios on their behalf.”

 

 

 

 

 

 

 

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