WE'RE HEARING...the glass in the Florida mortgage investment market is either half empty or half full, depending on where you are and how you look at it.
Certainly with the nascent recovery the deep-discount opportunities are more scarce, although not to the extent they are in some other states, but an upward path in market values often is more apparent in many areas.
As previously noted on this website, Florida Association of Realtors’ data show on a year-to-year basis monthly home sales and prices have been clearly on the upswing, although the latter have remained relatively low.
As the association also has noted, while housing in the state generally has been on the upswing, new mortgages have not been. Cash sales of homes are still relatively high, and at last count showed no sign of abating. If what we hear in the Orlando area is any indication, one of the hurdles to new origination is that prices have recovered but not enough for some existing homeowners to escape being underwater on their property values relative to the loans on them.
Appraisal hurdles also seem to be contributing to both the limited rise in home values and the relatively high percentage of cash sales.
As an article in the Orlando Sentinel, a local newspaper, tells us, appraisal reviews in the origination process are at times leading to some frustration. Some prices agreed to by the sellers and potential buyers of the properties are coming in too far above comparable values used in appraisal for mortgage financing. This suggests appraisal reform is doing its job, possibly mitigating the risk of a mortgage related bubble due to unsupported values. It also slows the rate and magnitude of gain on investment.
Those considering potential rental investment strategies may also want to note some single-family communities are showing a preference for and trend toward owner-occupied home sales despite the aforementioned equity and appraisal hurdles.
One side note to consider about appraisals and how their evolution might affect mortgage securities related investment in the future is the possibility that they may yet go through another round of reform and adjustment that could make them more accurate. Appraisal executives consistently tell us that although their craft has made great strides since the downturn there is still more that can and should be done when it comes to getting valuations right.
One interesting thought in line with this is a suggestion by Global DMS CEO and co-founder Vladimir Bien-Aime that Fannie Mae's and Freddie Mac's appraisal data could one day be made accessible, a notion he thinks makes sense given their status as taxpayer supported entities. It also fits in with proposals suggesting more of a public utility structure for Fannie and Freddie, perhaps one supporting the broader mortgage securities market. There are obviously hurdles here but it is all worth noting and considering in investment decisions.
Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.
