The average commitment rate for a 30-year fixed rate loan declined to 5.04%, down from 5.16% the previous week according to the latest Freddie Mac report.

The lingering problem that no stimulus can solve is a spiraling combination of consumer insecurity and square footage asking prices that are now out of reality with the repricing of real estate in the Metro NYC region.

We are about to experience a very quick catch-up in price deterioration like many other parts of the country earlier in the cycle. This phenomena will also likely prevent any recovery here until long after the rest of the country. Affordability is no longer relevant in this environment since it is a comparison of purchasing characteristics over the past few years. The data points from these past few years have to be purged from any valid comparison.

The bottom line: There is no free lunch! Not even in Hoboken.

Data Not As Rosy As Presented

Good explanation of my past arguments from The Wall Street Journal:

HEARD ON THE STREET: Signs Of Rot In Big Apple Property

By Liam Denning A DOW JONES COLUMN When it comes to illiquid assets during a slump, marking to market can be a problem. A few haircuts here and there, and everyone ends up looking thin on top. That problem will soon start cropping up in the Manhattan residential property market. Even as the housing crisis shows up in half-built ghost towns across America, New York City's priciest borough has seemed largely immune. The median price of a Manhattan co-op or condo was $900,000 in the fourth quarter of 2008, according to Prudential Douglas Elliman. That's down 12% from the peak, but still up year on year. Like a broker's blurb about "spacious luxury," however, such price signals warrant caution. Some sales are agreed to 12 months or more before they are actually completed - and the price is factored into sales data. To a lesser degree, a similar issue affects the widely followed Standard & Poor's/Case-Shiller index, which uses rolling averages. In Manhattan's case, it pays to look at transaction volume: It's down 50% year on year in the fourth quarter, according to Jonathan Miller, president of real-estate appraiser Miller Samuel. Thinner volumes add to the sense that Gotham's strength is more apparent than real. Soon, the time lag on sales ought to catch up with the deepening gloom in New York's key financial services sector. "The first quarter will be very ugly," Mr. Miller says. (Liam Denning joined The Wall Street Journal from the Financial Times, where he wrote for the Lex column. Previously, he was an investment banker at Goldman Sachs. He can be reached at 212-416-3618 or by e-mail at liam.denning@wsj.com)

More Misguided Advice For Buyers

There are times when I just don't have any empathy for the folks who get themselves into financial trouble. These potential or definite buyers just didn't understand the importance of basic math skills during their younger days.

As the market is dry of first-time home buyers, the latest carrot in the form of realtor advice goes like this:
If you currently own and live in a unit that you've outgrown, this is a good time to upgrade your living standards (due to inventory choice) since what you are losing in opportunity selling price will be offset by your reduced buying costs. If you agree with this thesis, go directly to bankruptcy court; do not pass go and do not ever own real estate!

"Doubling down" on the market's trend is a fool's game - especially at this stage of the cycle. The reasons are simple, even under conservative estimates.

Let's assume the market has dropped 10%. By example, your expected sale proceeds from your existing home are deemed to generate proceeds of $405,000 (down from 450,000) and your desired purchase is valued at $499,500 (down from 555,000).

While your price shifts are viewed in percentages, your "absolute" risk - dollars - has been rolled up to a greater percentage of your worth! Unless you've picked the bottom, you are about to lose even more in your new digs than you are in your past/existing situation. Your larger down payment is about to erode more of your worth in the continued decline and trigger your day with the banker and the judge.

I can't emphasize how many times I've had this conversation over the past six months. If they're friends, I just hit them on the side of the head!

Do you like catching a falling knife? What's your excuse?

Another RE Hero - The Circling Vulture

THE NEW YORK TIMES
February 15, 2009

In the Region | New Jersey

A ‘Vulture’ Preys on Short Hills

By ANTOINETTE MARTIN

THERE is a Circling Vulture casting its shadow over Short Hills real estate — virtually speaking, at least.

Last spring, a blogger by that name set up a nest at the real estate Web site Zillow.com, and started posting reports about declines in asking prices and unraveled deals. Short Hills is a community where such things were once unheard of (and still are not much spoken about, at least by real estate agents promoting properties for sale).

In a few recent posts, Circling Vulture served up fresh data about the following Short Hills properties that are currently on the market.

242 HARTSHORN DRIVE After 125 days, the asking price for this 20,000-square-foot brick Georgian mansion set on 3.5 acres fell $2.75 million, or 29 percent — to $6.75 million from $9.5 million.

65 KEAN ROAD On the market 360 days as of Jan. 29 — with eight price drops for a total of $609,000, or 25 percent — the house went into contract on Jan. 24 while listed at $1.89 million, but the deal fell apart during the mandatory attorney review period.

10 EAST BEECHCROFT ROAD Listed and then relisted, with price drops totaling $250,000 over 234 days, the house has been under contract three times. Its current asking price is $1.75 million.

The Vulture has his facts straight, according to those who know — that is, the licensed brokers with access to multiple-listing-service data.

But several agents from Short Hills insisted in telephone interviews that the mysterious C.V. presents a warts-only picture of the local market, which is actually “slow, but not dead,” as Marc Paolella, a Century 21 broker and appraiser, put it.

Furthermore, declared Karen Eastman Bigos of the Towne Realty Group, “this C.V. person is just plain mean” toward real estate professionals.

The blogger — who did not reveal his or her identity, or comment for this article — indisputably employs a mocking tone. Written under a picture of a buzzard on the Web site is the motto “Capitalizing on the greed and stupidity of others.” In the Q. and A. section of the site, C.V. tartly advises home shoppers, “Remember: always offer full asking price so as not to ‘insult’ the seller.”

Such snarkiness is emblematic of a rising “anti-Realtor movement,” said another blogger about New Jersey real estate, James Bednar. Known online as Grim, Mr. Bednar blogged about the real estate “bubble” before it burst, and currently provides gimlet-eyed market commentary at njrereport.com.

“This provides counterpoint to the entire spin of the real estate industry,” he said after a look at the Vulture’s work.

Mr. Bednar said he began blogging after becoming disillusioned during a house hunt in Montclair in 2005 and 2006, when bidding wars would break out on houses with already inflated asking prices.

Mr. Bednar, a technical support specialist by trade, said hacking into the state’s multiple-listing systems was a fairly simple matter for him.

Several Short Hills brokers theorized that C.V. is motivated by spite, perhaps stemming from a bad experience trying to buy into one of New Jersey’s most exclusive communities.

Short Hills, part of Millburn Township, is a well-established haven for the well-heeled. For decades it has been popular with Wall Street professionals, because of its easy train commute to Manhattan, not to mention the fact that it offers top-rated schools and a glittering temple of fashion, the Mall at Short Hills.

Of course, Wall Street is not supplying as many well-heeled buyers these days. It is still too early to judge the extent of the impact on the Short Hills real estate market, analysts say.

So far, median home prices have fallen about 15 percent since the boom times of three or four years ago, according to Mr. Paolella. But Ms. Bigos, who has been selling real estate in Short Hills for 24 years (following in her mother’s footsteps), conceded that the last quarter of 2008 was “by far the worst” that she had ever seen.

Also, the real estate analyst Jeffrey G. Otteau has consistently pointed out in reports to subscribing brokers that the market is being hit hardest smack in the Short Hills wheelhouse: homes priced above $1.5 million.

The Otteau Valuation Group’s January report said there was a 46-month supply of homes priced from $1 million to $2.5 million on the market in New Jersey. (For homes priced at $2.5 million and above, the figure is 59.1 months, or three weeks shy of five years.)

According to the Circling Vulture report in January, one house in Short Hills — 12 Bruce Circle — sold after 359 days on the market for $1.2 million, roughly half of its original asking price of $2.23 million.

“But that house was overpriced from the beginning,” Ms. Bigos said. “It had a doctor’s office in it, which the owner initially thought would be wonderful to offer to a buyer as a home office — but really didn’t fit with what is happening with the market right now.”

As with the mansion at 242 Hartshorn Drive, being marketed by Vera Chapman of Burgdorff ERA, the broker claimed to be privy to facts that C.V. cannot know, but which add perspective.

“We didn’t cut the price because the market is bad,” Ms. Chapman said. “My client is getting married, and she really wants to sell.”

Copyright 2009 The New York Times Company

Mortgage Rates And The Current Back-Up In Yields

Interest rates at the long end have risen in recent weeks due to the enormous stimulus being thrown at the economy. However, given where we've come from, these 20-30 year rates are simply correcting rather than turning. The distinction is important.

With the Fed's benchmark rates close to zero, there is a lot of "wag" left in this longer end of the tail; so much so that 1% changes at the level where mortgage rates are influenced are going to become common place for a market divided between deflationary and inflationary threats. Furthermore, there is a defined path for the government's intention to lower mortgage rates, even further from their recent historic lows.

The US household balance sheet is estimated to have declined by $13 trillion. That's not a typo! The Fed and Treasury balance sheet has only offset about $3 trillion in comparison.

As the deleveraging of households continues, there is no spending as far as the eye can see. This is a combination of several realities: unemployment, lack of savings and fear itself. If someone's got a bridge to sell you before you miss the chance, ask them to show you the river first. As savings rates increase worldwide, the appetite for safe-haven securities like government bonds will only increase. That demand alone will keep the pressure for lower interest rates for the foreseeable future.

At this juncture, everyone should wish for inflation since it would be a sign of better things down the line but when all is said and done, a 4% 30-year fixed will seem expensive!

We are probably a couple years away from that privilege. Relating these issues to property affordability points us to even better levels than are being touted now.

I have spoken to many prospective buyers about why they would buy now rather than later and it all still seems to comes down to their emotional reasoning rather than necessity. It's time to hand them all a rear view mirror!

RE prices will continue their path downward over a protracted period of time. The only thing that will turn that trend around is a reality check on valuation. This is not a correction that everyone continues to preach. It's a readjustment that may not allow prices to rise again for a very long time.

Hoboken's prospects are beginning to look as dire as predicted. More so than any borough of NYC because we have all of the problems and none of the beneficiary cushions of a more stable and diversified tax base.

That's what the underlying securities are telling us about the prospects for RE. So I ask you, what's a home if you can't afford to maintain it for anything more than a status symbol. We Americans seem to be the only population attached to this emotion and we are about to be taught a nasty lesson.

Adding Insult To Injury - Fed Declares Americans' False Wealth

NEW YORK TIMES
February 13, 2009

Fed Calls Gain in Family Wealth a Mirage

By EDMUND L. ANDREWS

WASHINGTON — The leap in wealth that Americans thought they were enjoying over the last several years has already turned out to be a mirage, according to new estimates by the Federal Reserve.

In its triennial survey of consumer finances, released Thursday, the Fed found that the median net worth of American households increased by a seemingly healthy 17 percent between the end of 2004 and the end of 2007.

But the gains were wiped out by the collapse in housing and stock prices last year. Adjusting for those declines, Fed officials estimated that the median family was 3.2 percent poorer as of October 2008 than it was at the end of 2004. The new survey offers one of the first glimpses of how American families were positioned financially as the roof fell in on the economy, and it provides some sense of how much wealth has been destroyed since then. Indeed, the destruction of wealth is still in full swing: housing prices are still falling, more than two years after the bubble peaked.

The survey suggests that the boom years were not all that wonderful even before the crisis set in. And it indicates that many households will have to greatly increase savings rates, which were below 1 percent, to make up for some of the lost wealth.

Adjusted for inflation, the median household income actually edged down slightly over the three years ending in 2007. The mean, or average, household income jumped by a respectable 8.5 percent.

But a growing share of that income came from investment profits rather than from wages and salaries. And the wealth that Americans were building was overwhelmingly in the form of paper profits that vanished as quickly as they had appeared.

Fed analysts estimated that 35.8 percent of the average family’s assets in 2007 were in “unrecognized capital gains,” such as gains in the market value of houses that people had yet to sell. Slightly more than half of those unrecognized gains came from real estate, and the second biggest source was increases in the value of business assets.

The Fed’s estimates, which are based on a survey of 4,422 households, are in line with estimates that economists have made about the aggregate plunge in wealth since the housing bubble began to deflate in 2006.

Dean Baker, co-director of the Center for Economic Policy Research, estimated that the United States had lost $6 trillion in housing wealth since the peak of the bubble.

The Case-Shiller index of housing prices in 20 major cities, considered one of the most accurate barometers of such prices, has declined about 25 percent since mid-2006. On top of that, Mr. Baker estimated, an additional $6 trillion evaporated as a result of the plummeting stock market, for a total loss of $12 trillion since 2006.

“I’m actually surprised that you didn’t see higher values on stock holdings,” Mr. Baker said, noting that the median value of household stocks, adjusted for inflation, was slightly lower in 2007 than it was in 2001.

“Even when we were near the peak of the bubble, things didn’t look that good, and they’re looking worse today,” he said.

Copyright 2009 The New York Times Company

A Subscriber Notes - What's Up At 109 Grand?

Three 2-BR units suddenly appear (two most recently) for sale in a wide range of unit cost basis. The tax bill for one of them is astronomical! We're talking $25k! An office/commercial space retained by the developer (REMI Companies) is also up for sale and supposedly under contract.

This building doesn't have too many units to gain attention but the owner costs and association financials would bear some more exploration.

Is this a sign of many of Hoboken's condo structures? Well, there is more being borne by the individual than ever before. Condos are no exception in the current tax/budget environment.

Talk of re-pricing in this market adjustment also seems to be targeting something closer to $400 per square foot as the new norm. Bring out the calculators because that is serious money from where even the few properties are currently moving.

San Diego, Manhattan, Miami, Beverly Hills - Far From Done!

U.S. Homeowners Will Lose Up to $10 Trillion, Talbott Estimates

Interview by James Pressley

Feb. 12 (Bloomberg) -- John R. Talbott, a former Goldman Sachs banker, calls himself both an optimist and a realist. When it comes to U.S. housing, the realist has the upper hand.

His new book, “Contagion,” predicts that prices are only halfway through a potential decline that will see homeowners lose up to $10 trillion. Values will fall for four to five more years, he says, as defaults move from subprime to prime mortgages.

When I reviewed the book last week, some readers called the author courageous. Others accused him of being a doomsayer. I put their questions to Talbott, 54, in a telephone interview.

Pressley: Are you spreading doom and gloom?

Talbott: While I’ve been an optimist all my life, I’m also a realist. And for the past five or six years, I’ve been painting a fairly ugly story about how bad this might get.

Pressley: One reader suggested that you’re understating the price decline. He says homes that fetched $225,000 to $275,000 in Lee County, Florida, three years ago now sell for about $40,000, which he calls 1970 to 1980 prices.

Talbott: He makes a good point. The national average of home prices is already off 23 percent to 24 percent. But realize that this is an average and that the epicenter is primarily in California and Florida, with Phoenix and Las Vegas thrown in. You are going to see areas that are off at least 50 percent and I wouldn’t be shocked to find cities that are off 60 to 65 percent.

Back to 1997

Pressley: You say real prices should return to average 1997 levels, adjusted for inflation. Why 1997?

Talbott: I’m trying to get back to a more normal time -- before the explosive growth in home prices, before the crazy bank financing, and -- oh, yes -- before the Internet bubble.

Pressley: The greatest price appreciations during the boom were in America’s wealthiest cities, you say.

Talbott: It’s striking. Middle-income homes in the middle of the U.S. still sell for $100,000 to $150,000. Louisville barely beat the consumer price index over the past 20 to 30 years. Your wealthy cities -- San Diego, Manhattan, Miami, Beverly Hills --went up three- and four- and five-fold in real terms.

Pressley: You predict homeowners will lose $8 trillion to $10 trillion. How so?

Talbott: There was at the 2006 peak about $25 trillion of residential home value. Today, that’s off almost 25 percent. That takes it down to the $18 trillion range, which is a $7 trillion loss. But in a deep recession, home prices might trade even lower than fair value given the high unemployment that exists.

‘Sit Tight’

Pressley: One reader in his 30s bought a home during the peak between 2004 and 2007. What do you advise such people to do?

Talbott: If your mortgage value isn’t terribly different from what you conservatively estimate your home to be worth -- and by that I mean what homes are selling for down the street -- then go ahead, if you’re comfortable in the home, and lock in the interest rates. Make sure you get a 30-year deal at something like 4.5 percent to 5 percent, participate in whatever government plans to lower your principal that Barack Obama and Congress offer, and sit tight. It won’t be the best investment you’ve ever made, but it won’t bankrupt you.

Pressley: One real-estate broker reminds you that housing slumps don’t last forever.

Talbott: When I wrote my first book on housing in 2003, I heard from almost every real-estate broker in the country. They all insisted that housing booms do last forever!

They are right that housing busts don’t last. But there’s no way prices are going to bounce back to where they were. The reason is simple: Banks were funding houses at eight and nine times a married couple’s combined income. They were doing that through CDOs and government-guaranteed Fannie Mae and Freddie Mac loans. Those funding sources are gone. Now they are lending at four to five times combined incomes.

‘Pay the Piper’

Pressley: A reader notes that the Fed has vastly expanded the monetary base. Won’t the resulting inflation work against falling house prices?

Talbott: He’s right in the long term. Governments around the world are printing money to try to save their banks. It’s being masked by real price declines of things like $400 Ralph Lauren sunglasses. And so you’re seeing some deflation. But in the long term we’ll have to pay the piper and inflation will reignite.

Pressley: One reader says the root cause of the bubble lies in inflated real-estate appraisals, in “massive fraud” in the industry.

Talbott: The fraud reached its zenith in the real-estate industry, but it was everywhere. The appraisers couldn’t have done it by themselves. The most massive fraud was by the rating agencies. Dentists were charging $50,000 for $4,000 worth of work. You name the industry, and we were in a funny world in which everybody so valued money and status that they were doing fairly unethical things.

“Contagion” is from Wiley (256 pages, $24.95, 15.99 pounds, 19.20 euros).

(James Pressley writes for Bloomberg News. The opinions expressed are his own. This interview was condensed from a longer conversation.)

To contact the writer on the story: James Pressley in Brussels at jpressley@bloomberg.net

BusinessWeek: Appraisal Fraud Still Abounds

The Financial Rescue
February 5, 2009, 5:00PM EST

Housing Appraisals: Still Blowing Bubbles?

Third-party appraisal managers are supposed to eliminate pressure from lenders to inflate housing values. But unscrupulous subprime players are crowding into the market

By Chad Terhune

Home appraisers played one of the less well-known roles in pumping up home values and contributing to the current financial crisis. Retained by lenders or brokers, they frequently colluded—explicitly or tacitly—in overestimating the worth of houses to justify large mortgages and the lucrative fees each member of the real estate food chain received at closing.

Faced with investigations and lawsuits, the home-finance industry has agreed to a government-approved code of conduct for appraisals that takes effect on May 1. The new rules promote the use of middlemen between the nation's 60,000 freelance appraisers and the lenders and brokers. The middlemen, known as appraisal management companies, or AMCs, are supposed to prevent lenders and brokers from pressuring appraisers to exaggerate assessments. But among those joining the swelling ranks of this formerly niche business are some of the same subprime players that helped inflate the real estate bubble in the first place.

Take NovaStar Financial (NFI) in Kansas City, Mo. A large subprime lender during the housing boom, NovaStar was disciplined by three states—Massachusetts, Nevada, and Washington—for such infractions as employing unlicensed brokers and charging unlawful fees. Without admitting wrongdoing, the company paid $5.1 million in 2007 to settle similar allegations in a class action brought on behalf of borrowers. After its mortgage business collapsed, NovaStar morphed into an AMC last year by acquiring another company and renaming it StreetLinks National Appraisal Services.

Steve Haslam, NovaStar's former chief of retail lending, is now CEO of StreetLinks. He defends NovaStar's past lending as legitimate, noting that the company avoided bankruptcy proceedings, unlike many of its rivals. "We have gone through the fire and come out better for it," he says. His 100-employee AMC will contract with independent appraisers, Haslam says, paying them generous fees, and will issue a "Certificate of Noninfluence" with every appraisal. "This assures Wall Street and lenders that this appraisal was conducted in an independent fashion," Haslam says.

But Bill Garber, director of government affairs at the Appraisal Institute, a nonprofit trade group in Washington, isn't reassured. He worries that subprime foxes have been invited into the appraisal henhouse. The new industrywide rules "have transferred the [improper influence] problem to these appraisal management companies, which are not regulated by anybody," Garber warns.

The new rules grew out of an investigation by New York Attorney General Andrew M. Cuomo. His probe found that one of the biggest companies in the appraisal business, First American (FAF) in Santa Ana, Calif., allowed the huge savings and loan Washington Mutual to exert pressure for higher valuations. Cuomo sued First American's eAppraiseIT unit in November 2007 for fraudulent and deceptive practices. The suit, which is pending in New York state court, spurred the drafting of the Home Valuation Code of Conduct. Mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE), now controlled by the federal government, helped negotiate the code with others in the industry and have said they won't buy loans after May 1 that don't adhere to it. Fannie and Freddie have wide influence because they purchase a large share of all U.S. mortgages, providing fresh cash to lenders.

The new code bans mortgage brokers and loan officers from directly ordering appraisals, which has been the common practice. Instead, it encourages the involvement of AMCs, which are supposed to impose discipline on freelance appraisers and minimize the sway of brokers, agents, and lenders.

Some housing experts and state regulators express skepticism that AMCs are the answer. For one thing, Bank of America (BAC), Wells Fargo (WFC), and several other major banks operate their own appraisal-management companies, so the incentive to inflate home values hasn't been eliminated in those cases. Another concern is the lack of oversight for AMCs, particularly those started by former subprime lenders and appraisers who ran afoul of state rules.

"[The marketplace is] still vulnerable to appraiser pressure because the incentives are still there to get deals done and collect the fees," says Susan M. Wachter, professor of real estate at the University of Pennsylvania's Wharton School. Appraisers helped inflate mortgage values by $135 billion in 2006 alone, she estimates. "Getting this issue right is critical for the housing market to recover."

The federal housing officials who helped craft the code say they will hold AMCs accountable. "The code doesn't do away with appraisal management companies, which some people may have wanted," says James B. Lockhart, director of the Federal Housing Finance Agency, which oversees Fannie and Freddie. "If [AMCs] are applying undue pressure, that would be a violation of Fannie and Freddie rules, and we would take action." Lockhart says Fannie and Freddie can force lenders to buy back loans tainted by inflated appraisals. "If an appraisal management company does not live up to the standards, that will be extremely bad for their business," he adds.

The Cuomo suit alleges that eAppraiseIT, the First American unit, allowed WaMu loan officers to "handpick" appraisers who submitted high valuations. Bank employees allegedly pressured appraisers to boost low initial estimates. In one instance, New York investigators said eAppraiseIT lifted the estimate of a property to $2.3 million from $1.6 million after WaMu told the company the loan would close only at the higher figure. The suit disclosed a Feb. 22, 2007, e-mail from eAppraiseIT's then-president, Anthony R. Merlo Jr., who wrote that the company would "roll over" and submit to WaMu's demands.

WaMu wasn't named as a defendant in the New York suit. A spokesman for JPMorgan Chase (JPM), which acquired the failed thrift last year, declined to comment since the alleged impropriety occurred before the takeover. A First American spokeswoman declined to comment. In a press release, the company previously said its e-mails "have been taken out of context" and that Cuomo's allegations "belie our record of compliance with applicable law."

Former appraiser Pamela Crowley in Palm Bay, Fla., says the new code has unwisely given "a free pass to the AMCs" to expand their market share. Disillusioned with her profession, she has become an online gadfly advocating for consumers' interests. In June 2007, eAppraiseIT went to court to try to stop her criticism of the company on her Web site. But a county judge in Florida wouldn't issue an injunction to prevent her from posting skeptical material about eAppraiseIT.

E-mail and other correspondence between appraisers and AMCs reviewed by BusinessWeek show that at least some AMCs do press appraisers to reconsider their valuations at the behest of lenders. In one appraisal ordered last year by WaMu for a refinancing near Los Angeles, an AMC called Lender's Service told the appraiser her figure was too low. The fax read: "Please correct the following issues and resend appraisal within two hours." The problem? "Appraised value is less than the borrower estimated value." The fax listed the borrower's estimate as $171,000. The appraiser's judgment was $150,000. (Borrowers and lenders sometimes favor a higher appraisal to support a larger loan.)

In other recent exchanges with appraisers, Lender's Service, the country's largest AMC, passed on complaints from borrowers, their real estate agents, or lenders, and suggested that appraisers find comparable home sales that would boost the estimated property value. In an e-mail earlier this year to an appraiser in southern California, a Lender's Service staff member said "the borrower is disputing the value of this report...[and] would like the appraiser to search for another comparable to support a higher value." The appraisers who submitted these reports declined to comment for fear of being blacklisted.

Lender's Service President Ronald L. Frazier says his company's hallmark is integrity. "We are a completely independent third party, separate from the transaction, and we maintain those firewalls during the loan-funding process," he adds. Frazier does note that "the code of conduct has provided our company with some business opportunities."

He says he's not familiar with any of the cases BusinessWeek brought to his attention, though he didn't dispute the authenticity of the communications with individual appraisers. He insists these episodes do not cast doubt on the company's commitment to appraiser independence. "We would never demand dropping [comparable sale figures] or eliminating comps," he says. Lender's Service is a unit of Lender Processing Services in Jacksonville, Fla.

DUBIOUS INDEPENDENCE

AMCs wield immense power over freelance appraisers. To earn a living, many appraisers conclude that they have to seek inclusion on an AMC's panel of preferred appraisers and abide by its dictates. Lenders generally have a few appraisers on staff, but the bulk of the work is done by outside contractors. At closing, borrowers will typically see a $300 or $400 appraisal charge. AMCs generally pocket up to half of that fee. The AMCs say they earn the money by managing orders and assuring accuracy.

The expansion of the AMC business ought to cause concern because of the backgrounds of some of the people jumping in. Catherine Lally, CEO of FHA Choice Appraisal Manager, says she launched the Clearwater (Fla.) company about six months ago after working as a loan underwriter for Premier Mortgage Funding, a large subprime lender now in bankruptcy proceedings. Lally has recruited about 600 appraisers so far from across the country. She uses craigslist ads and mass e-mails that promise to "double or even triple your appraisal business." She's also advertising to mortgage brokers, real estate agents, and others who previously ordered appraisals directly but will be barred from doing so under the new rules.

Lally's firm promotes itself as allowing appraisers to continue working with specific brokers and lenders—a seeming contradiction of the aim of the new industry code. "All [clients] have to do is put your name in the comment box when ordering an appraisal and I will send the order to you," Lally said in a mass e-mail to appraisers in December. "I will diligently try to keep the same business practices and standards they have with you. The only difference is they will not be able to speak with you directly."

In an interview, Lally acknowledges she is offering to help appraisers maintain their previous ties to brokers, agents, and lenders. "I help them keep their relationship if I really feel there is no contact going on," she says.

Larry Holzer surrendered his Florida appraisal license in April 2007 after regulators there found he had made numerous misstatements in an appraisal report for a $250,000 home. In a letter to Florida regulators, Holzer agreed there were some "data discrepancies in the body of the report." He said he was distracted at the time by personal issues.

Now Holzer is back in business, running an AMC in Clearwater called Global Appraisal Solutions. The company promises same-day inspections and delivery of a report within 24 hours. In an e-mail, he defended his credentials: "Appraisers and former appraisers are among the more qualified people in appraisal management," he wrote. "When or if such time should come where appraisal management companies are regulated, I can assure you that Global Appraisal Solutions shall be compliant."

Joni Herndon, chairwoman of the Florida Real Estate Appraisal Board, which handled the Holzer investigation, says a revolving door is allowing dubious characters into the AMC market. Speaking generally, she says: "It is not serving the public to revoke their license for dishonest conduct and then allow them to have an appraisal management company. We need to close that loophole."

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

Guaranteed Mortgages?

Housing finance activists Orson Aguilar and Faith Bautista argued in a Jan. 7 opinion piece in American Banker that to solve the foreclosure crisis, the Obama Administration should guarantee 30- to 50-year fixed mortgages for all families earning up to 120% of the median national income. These loans would have rates of no more than 4.5%. The authors claim as inspiration for their proposal a similar one made by Glenn Hubbard, President George W. Bush's chief economic adviser.

For more on this proposal go to bx.businessweek.com/housing-market/reference/

Terhune is a senior writer for BusinessWeek based in Florida.

Skirted The Worst, But More Declines To Come Here

House price declines in the New York City metropolitan area have so far been "tame compared with those in the rest of the nation," say Moody's Economy.com analysts in a report. In the Edison and Newark, NJ division and the Nassau-Suffolk, NY and New York City division, single-family house prices have declined 10% to 11% from their peaks in early 2006.

This is about half of the national decline to date, although the corrections are "less than halfway through." The condominium market, which makes up a significant share of NYC's housing stock, has seen no declines in prices yet, but the ongoing financial market turmoil and deepening recession all but ensures that "this stability will not last."