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First Time Home Buyer Tax Incentive leading economic improvement

We were treated yesterday and today to some significantly, even surprising, positive economic news. 

• New home sales showed a jump from 395,000, to 433,000 fro m the previous month.
• "New orders for manufactured durable goods in July increased $7.8 billion or 4.9 percent to $168.4 billion. This was the third increase in the last four months and the largest percent increase since July 2007." From the US Census Bureau report today
• Consumer Confidence  surprised investors with a large increase, from  47.4 to 54.1, breaking back over the 50% level.  This is generally thought to be a good indicator of consumer spending changes.
• These follow last week's increase in  leading indicators for the third straight month. Last month the increase was .6%.  For June,  0.8% and for May 1.2%.

It is very encouraging to see these signs of recovery. The question remains how much of this turn is driven by the massive Federal incentive programs. Specifically, the recently ended Cash for Clunkers program, the First Time Home Buyer Program, and the efforts at keeping mortgage rates at historical lows through the direct purchase of Treasury and mortgage bonds. The Cash for Clunkers program was a direct cause for the upswing in car sales and likely a major contributing factor in the increase of durable goods. That program ended this past weekend. 

The First Time Home Buyers Tax Incentive is presently scheduled to end on November 30. Although Senator Bob Corker speaking yesterday at the Chattanooga Association of REALTORS indicated that there is a good deal of support for extending and for expanding the incentive.

Will the stimulus prove successful in creating the impetus for an economic turnaround? Or are these improvements only the temporary results of the Federal interventions in specific markets?

HVCC is the new standards and procedures for residential appraisal orders. It was negotiated by FNMA and FreddieMac with the New York Attorney General Andrew Cuomo in a settlement of a law suit brought by the NY Attorney General's office against Washington Mutual, a lender, and First American, an appraisal management company. The law suit was brought in November 2007 alleging the "appraiser colluded with Washington Mutual, one of the largest savings and loan companies, to inflate home values."

The HVCC procedures require mortgage brokers, who were not involved in the original lawsuit, to use lenders and appraisal management companies, who were involved in the original lawsuit, to order residential property appraisals.

Did you catch that? The appraisal process is being entrusted with the appraisal management companies, the same industry that was cited in the original law suit.

Several problems were identified at the time by industry professionals and the implementation of the HVCC was delayed. Now, 2 months into the actual implementation of HVCC, the chief economist for the National Association of Realtors®, Lawrence Yun, pointed to HVCC as a contributing factor to less than expected improvement in existing home sales.

From today's NAR press release, "Yun said the appraisal problem is serious. "Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales," he said. "In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected." "

The mortgage broker's association, NAMB, is encouraging members to communicate with their local congressional representatives and local media about problems with the HVCC. They also are soliciting information from other industry professionals as well as from home owners and from buyers. Problems might include delays, low valuations, extra costs.

For me personally, I have not experienced problems with delays or low valuations. I have heard of problems with other mortgage brokers. For the most part the appraisal management companies have used the same appraisers that I would have used. And they have received the same valuation that I would have received.

I have seen no change at all in valuations.

What is different is the consumer is paying about more for that valuation.

What is different is the consumer has lost some flexibility with lender options because of difficulties with transferring the appraisal to a different lender.

What is different is that the local appraiser is burdened with additional paperwork in order to deal with the administration and procedures of numerous different appraisal management companies.

What is different is the local appraiser, a small business person with local ties to the community, is getting paid less for the valuation, even as the consumer is paying more. This means that more money is leaving the local economy and going to a large out of state corporation.

These changes do not make sense to me.

When trying to understand why an action was taken, I tend to look at the results and who benefitted from the action.

The mortgage process is not helped. The housing recovery is not helped. Consumers are not helped. Valuations are not better.

Appraisal management companies certainly benefit. Why would AG Cuomo seek to boost the revenues of appraisal management companies? Especially when one of the appraisal management companies was involved in the original law suit.

Judging based on the results of the implementation of HVCC it appears to me that the intentions of the New York Attorney General were to:

•· Increase consumer cost
•· Reduce consumer choice
•· Increase appraiser work load
•· Decrease appraiser income
•· Slow the housing recovery
•· Increase the income for appraisal management companies

Oh, and as I was writing this, I just received notice that one of the appraisal management companies ordered an appraisal from an appraiser who is on the lender's "Do Not Use" list. This means we need a new appraisal, we will miss the closing date, the borrowers will need to pay for a lock extension, and the sale is in jeopardy because we will need a contract extension.

Kind of makes me wonder about the quality of appraisers that the appraisal management company is using. My guess is that the QC standard for selecting the appraiser is the one who will work the cheapest. In this particular case, the QC procedures for approving a quality appraiser appear to be deficient.

At least the appraisal management company apologized. I wonder what the New York Attorney General thinks.

BTW, the appraiser on the lender reject list who was used by the appraisal management company is not someone that we typically would have chosen.

Day Two of Riverbend 2009 brought Train, with Calling All Angels and a favorite song of mine, Drops of Jupiter in her hair. I really want to meet the lady who inspired that song, as well as Virginia.

Train of course is a well known group, but I was not expecting how good they are in concert. A great concert band. They played to the audience, even twice bringing people on stage and letting them sing and dance along. Their show got better as it went, and it started very good.

Drops of Jupiter

Meet Virginia

Calling on angel opens concert

Train Sand Sculpture

Playlist for Train

Willie Nelson was on the road again, this time to the Chattanooga Riverbend Music Festival.

 Since the announcement that Willie Nelson was coming to Riverbend, I have just not been able to wait. Friday's opening act for the main stage did not disappoint. The crowd was ready and so was Willie.

Willie Nelson opens with Whiskey River

On the road again and a Hank Williams medley

Willie Nelson Playlist

The Riverbend Music Festival is a 9 day event with a wide variety of music acts.  Chattanooga has held the festival since 1981, and it seems to get better each year. A first this year the Riverbend Beach, featuring expert sand sculpturing. The crowds are able to watch the artists and to see the progress each day.

 Riverbend Festival is 9 days of live music with continuous acts performing on from 5pm on, on 4 stages. These are in addition to the main stage act, on the Coke Stage, from 9:30 to 11. Every night you are treated to some of the best new acts and some more established acts, all in very intimate settings.

Friday my treat was Infinite Orange. This is a local phenomenon with 3 young men from Soddy Daisy, a neighboring community to Chattanooga. Folks, I had not heard of them before. But I was by myself in not knowing this group.

It is special to see talent at the beginning. Infinite Orange is that.They have a huge following, and they added one old man Friday night.

Visited Art ‘til Dark this afternoon. It is a regular outdoor art showing sponsored by Winder Binder Gallery. Some talented folks. Sculpture, painting, glass blowing, handicrafts. The originality of these artists always amazes me.

Today I met Charles McFarland, a local sculptor. He has worked in steel for over 2 decades, but had only recently turned his skills into creating art. His pieces are both large and small. He works both freelance and by commission. His customers include many corporations in Chattanooga, but also individuals.

Today I also met Gypsy Hundley, a painter from North Carolina. As we talked, I mentioned that last week at the Who-Fest I met another artist whose work used the bright colors and imaginative drawing. Gypsy said, "Yes, my sister, Kim."

Two very talented ladies. With striking use of beautiful colors.

David Smotherman runs Winder Binder Gallery on Frazier Avenue, where the regular Art ‘til Dark shows are held. He also sponsored the Who-Fest last weekend.

Give him a visit and see these great and inspired pieces. The next show is June 6, at the start of Riverbend.

Winder Binder Gallery
40 Frazier Avenue
Chattanooga, TN 37405
Phone: 423.413.8999