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» VISIT US ONLINE @ DSNEWS.COM 39 FANNIE MAE REVISES FIRST QUARTER FORECAST e latest economic forecast from Fannie Mae shows that the underwhelming performance of the economy in the first three months of the year and a shrinking GDP have significantly dulled the optimism economists once had for the overall 2014 economy. Fannie Mae stated that the rough U.S. first quarter has caused its Economic & Strategic Research Group to reduce 2014 economic growth expectations. For the year, the Group forecasts economic growth of 2.1 percent, which is half a percentage point below the 2013 pace. Fannie's sentiments were part of a "one-two punch" this week in which the Bureau of Eco- nomic Analysis released a revised (and sobering) look at the state of the nation's economy and found that real gross domestic product was down 2.9 percent in the first quarter—the fastest rate of decline in the GDP since 2009. According to Fannie, the reversal of an unsustainable buildup in inventory investment shaved 1.6 percentage points from GDP in the first quarter, worse than originally thought. e first reports about the slumping GDP claimed a 0.6 percentage point drag. e drop, whatever the numbers, is being blamed on disruptive weather—particularly in the East, where winter hung on much longer and with more venom than usual—and a rare drop in real exports. e tentative good news is that second quarter activity shows signs of actual improvement, but even that sheen is dulled by the reality that any strength during the remainder of the year will not likely be enough to overcome first-quarter doldrums. Still, no one is calling for anything terrible to happen, and Fannie's chief economist, Doug Duncan, is keen to remind consumers and econo- mists alike that there actually is a lot of positive happening within the morass—it's just a matter of cooler heads and less hyperbole right now. "Consumer spending appears to have been the only real contributor to growth in the first quar- ter," Duncan said. And although spending dipped again in April, it seems to have rebounded in May. "Consumers should get a boost going forward due to continued rising household net worth." Net worth is indeed rising, and at a good pace. Duncan said, however, that net worth remains well below its 2006 peak. Labor market conditions, which have showed steady-though-unspectacular gains, are also positive signs pointing to growth. Home price improvements have contributed to consumers' household wealth, Duncan said, but overall growth in the housing market pulled back in the first quarter, with major housing indi- cators coming in lower year-over-year compared to the first quarter of 2013. More recent housing indicators were mixed, with only moderate improvement despite the decline in long-term interest rates. Duncan said he expects total home sales in 2014 to be about 2 percent lower than in 2013, with new home sales advancing somewhere in the 12-15 percent range. Existing home sales, however, are likely to decline year-over-year. VALUATION FRAUD RISK JUMPS IN FIRST QUARTER Risk of fraud in property valuations spiked in the first quarter, according to a report released at the start of July by a risk analytics firm. Interthinx reported a 1-percent decline in its national Mortgage Fraud Risk Index from the fourth quarter of 2013 to the first quarter of 2014, bringing the index's value down to 100. e index measures fraud trends among loan applications analyzed by the company's fraud detection tool. ree of the component indices—mea- suring identity fraud, occupancy fraud, and employment/income fraud—came down over the quarter. e remaining component, prop- erty valuation fraud, surged up 27 percent to an index value of 128. Analysts for Interthinx attribute the in- crease in valuation fraud risk to a rise in buy- ers purchasing and listing multiple properties in the same neighborhood. "By controlling those markets, these persons have the ability to artificially control the price of a property to their advantage," the company said in its report. Another factor in the spike is an increase in properties "being appraised well above traditional valuation thresholds," Interthinx added. Interthinx president Jeff Moyer called the rise in property valuation risk "troublesome," as "collateral values are a critical element in making sound lending decisions." "To make lending decisions with in- creased confidence in the loan's quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work, and regu- latory compliance on issues such as licensing," he said. In all fraud areas, California remained the riskiest state, bringing a Mortgage Fraud Risk Index of 146. e Golden State also has the dubious distinction of being home to eight of the 10 riskiest metro areas, as well as eight of the 10 riskiest ZIP codes. Also ranking high in fraud risk were the District of Columbia, Florida, Arizona, and Connecticut. Initial claims for state unemployment benefits dropped to 302,000 in mid-July, according to The Labor Department. KNOW THIS

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