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REPORT ANALYZES SEVERITY OF DEFAULT RATES—U.S. VS. EUROPE Although both the United States and Europe experienced price declines starting in 2007, the increase in mortgages default rates over time was much more severe in the United States compared to Europe. For example, in the United States, prices fell 7.7 percent from 2007 to 2008, and default rates spiked 93.2 percent, according to a report from the Federal Reserve Bank of St. Louis. In Europe, prices fell 6.8 percent from 2008 to 2009, yet mortgage defaults increased by 11 percent. The report authors, Juan Carlos Hatchondo, Leonardo Martinez, and Juan M. Sánchez, attributed the difference to two specific regulations used in Europe to prevent mortgage defaults. The first regulation in Europe holds borrowers accountable for paying the deficiency judgment, or difference between the loan balance and the home's value, which makes defaulting less attractive. This makes mortgages in Europe "recourse loans" since borrowers are responsible for the remaining balance. On the other hand, in most of the United States, mortgages are considered nonrecourse, but even when recourse is allowed, the deficiency judgment could be discharged in bankruptcy, according to the report. Second, Europe enforces a policy that limits how much homeowners can borrow when using their home as collateral, with some countries placing limits on the loan-to-value (LTV) ratio. When comparing European countries with LTV limits, the report showed the mortgage default rate was much lower on average, at 3.5 percent from 2007 to 2009 compared to 14.4 percent for European countries with no LTV limit. "As a result of this policy, households have more home equity. More equity means that fewer mortgages end up underwater when house prices drop. As a result, the default rate is lower in Europe. In the U.S., LTV policies are much less restrictive," the report stated. STAT INSIGHT 1/3 Homes nationally that are owned outright and do not have a mortgage. Source: CoreLogic 64 VA LOOKS TO HIRE MORE APPRAISERS IN WAKE OF BUSY FISCAL YEAR 2012 By Jessi Hall, Veterans United Home Loans Hot on the heels of a huge 2012 fiscal year (FY) and the issuing of its 20 millionth home loan, the Department of Veterans Affairs (VA) is working through a mandate to expand its VA Appraiser Fee Panel by 25 percent. "Right now we have just over 4,100 appraisers on our fee panel," said Gerald Kifer, supervisory appraiser of the VA in a WorkingRE.com article. "We are looking to appoint an estimated 1,400 additional appraisers to VA panels nationwide." The expansion comes at an appropriate time. VA loan volume grew a staggering 305 percent from FY 2007 to FY 2012. In an era of tight fiscal lending, the VA loan program appears to have hit its stride. As the availability of "zero down" loan options has nearly evaporated, VA loans continue to offer 100 percent financing to qualifying military borrowers. Purposes of the VA Appraisal The VA appraisal serves two main functions. First, the VA appraiser ensures the home's value either meets or exceeds the VA loan value. Second, the VA appraiser compares the subject property against the VA's list of Minimum Property Requirements (MPRs). Minimum Property Requirements MPRs serve as basic property benchmarks for the VA appraiser. These benchmarks help ensure homes purchased by veterans are "safe, structurally sound, and sanitary." For example: » The roof must be in good condition and have "reasonable future utility." » Electrical and plumbing systems must be in good repair. » Basements and crawl spaces must be dry. » Homes must be termite-free. » Lead-based paint must be treated according to VA guidelines. VA Appraisal Challenges A summary of the VA appraiser's findings is sent to the buyer's lender. Each VA appraisal report pinpoints the "indicated value by sales comparison approach" or the "appraisal value." The report also contains a list of repairs needed to bring the home up to MPR standards. Either of these elements could create problems for potential VA homebuyers. Should the appraisal value fall short of the desired loan amount, prospective buyers must pay the difference in cash, negotiate a lower price with the sellers, or walk away from the purchase. Additionally, any repairs ordered by the VA appraiser must be completed by the seller before the loan can move forward. But a crumbling foundation or faulty electrical system could be more than a potential buyer is prepared to handle. In those cases, it's often better for military buyers to move on to a more suitable property. Cost and Timeline The VA establishes appraisal fees according to state of purchase and property type. Those costs currently range from $350-$700 for singlefamily homes. The agency also sets timeliness guidelines for submission of VA appraisal reports. Timelines vary by region, but the VA generally stipulates a 10-business-day turnaround. In rural areas, where VA appraisers are in short supply, appraisals can take longer to complete. That's a problem Kifer aims to resolve. "We typically have the greatest need for appraisers in rural areas because of a lack of appraisers in those areas," Kifer said. A focus on hiring VA appraisers in rural areas should serve the agency well. Expanding VA appraisal capabilities in less-populated areas can only improve an already user-friendly loan process and could push VA loan volume to an even greater high in FY 2013. Jessi Hall is a former real estate broker and investment property manager. She currently writes about real estate, VA loans, and homeownership for Veterans United Home Loans. VERBOSITY "The mortgage market has improved significantly over the past couple of years and in fact, is leading the economy forward." —Richard Cordray, CFPB Director, in MSNBC interview on August 22

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