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By Jack huntress, vice president of residential services, environmental data resources; and Francis (rich) X. Finigan, president, american Continuing education institute
Keep an Eye on the Environment
common environmental concerns can affect values and financing
Since 1991, the Uniform Residen- tial Appraisal Report has required appraisers to supply information
about environmental conditions that are
present on residential properties and
their surrounding areas. The Uniform
Standards of Professional Appraisal
Practice (USPAP) supplies guidance for
reporting environmental contaminations, but possible issues still are overlooked far too frequently.
Although mortgage brokers and originators may not deal with them directly,
environmental concerns can significantly
affect a property’s value and potential
financing. It can be crucial for mortgage
professionals to know more about these
potential issues, as well as how those issues are dealt with once discovered.
contamination. These records can provide significant insight about a potential
property or home and can be of great
use before closing.
nationally, there are more than 1,200
databases that provide records of land-fills, leaking tanks, industrial facilities,
clandestine drug labs and sites that
have been designated for clean up
by the Comprehensive Environmental
Response, Compensation and Liability
Act, aka Superfund. The nearby presence or former presence of all of these
may have the potential to affect a given
residential property and its occupants.
Additionally, commercial data providers have created a number of proprietary records to account for any gaps
in public records. Brokers and originators should keep their clients informed
about these databases, as these may
provide fast — and easy — answers to
questions regarding possible environmental concerns.
known to exist on a property, appraisers
are required to identify the conditions
that would have a negative impact on
the value of the property in question.
USPAP indicates that the impact on a
property’s value may be greater than
simply the cost to resolve the matter, as
diminution (i.e., stigma) may further impact the value of a property.
In these cases, the appraiser may
need to calculate the cost to remediate
the situation. This could be as little as
$10,000 for a tank removal, or as much
as $100,000 for more significant remediation, although these costs are relatively rare in the residential market.
For offsite conditions in which the
property’s title holder is not responsi-
ble for clean up, there still may be the
need to account for costs associated
with mitigation systems to treat, for ex-
ample, vapor migration or contaminated
groundwater, in cases where a property
has a private well. Possible stigmas as-
sociated with the property must be con-
sidered, as well. The most basic exam-
ple of these issues is a property that’s
adjacent to a Superfund or other high-
liability site, which may significantly im-
pact the property’s value.
data resources
Most potential homeowners know that
they should keep an eye out for certain
environmental issues — inspecting for
mold, radon and lead-based paint, for
instance — but few realize the prevalence of records that pertain to land
effect on cost
When environmental contaminants are
Jack huntress is vice president of residential
services at Environmental Data Resources. He
formerly worked as an environmental consultant and in the development of web-based
software for environmental site assessments. Reach him at jhuntress@edrnet.com.
Francis (rich) X. Finigan is president of the
American Continuing Education Institute and
is a real estate appraiser and environmental
expert. He has provided continuing education to real estate appraisers in 20 different
states. Reach him at FXF@aiaqas.com or
(802) 728-4015.
By William p. matz
attorney and broker
Setting the Record Straight
help clarify common misconceptions about loan modifications
Recent increases in default and foreclosureactionshave brought loan modifications to the forefront of the national discussion. Despite
this, a number of common misconceptions remain about modifications,
some of which may deter distressed
homeowners from pursuing what could
be their best solution. Mortgage professionals can do their part by learning
about the options that may be available to their clients — and making sure
that they don’t have any misconceptions of their own.
Many borrowers believe that servicers
cannot modify loans, however, in many
cases, servicers can do exactly that.
Servicers of securitized loans generally operate under pooling and servicing agreements (PSAs), which define
what they can do with defaults. Many
PSAs require servicers to maximize the
returns to the securitization trust, a
provision that may require servicers to
modify loans in certain scenarios. For
instance, servicers may be required to
modify loans if:
1. The net present value is positive, per
the Home Affordable Modification
Program (HAMP) or other analysis; or
2. The owner of the loan will net more
money from modifying than from
foreclosing.
Unfortunately, some PSAs expressly
prohibit modifications, so those servicers have no ability to modify unless
specifically authorized by the trustees.
Participation in HAMP was mandatory for lenders who received bailouts
from the Troubled Asset Relief Program,
but there was an exception made for servicers if the involved investors prohibited
modifications. Although it’s critical to remember that no party is ever required to
modify a loan if a foreclosure would net
more, it’s crucial for brokers and borrowers alike to know that a modification may
be available if it ultimately will leave the
lender in a better financial position.
Another common misconception
about modifications is the notion that
government and credit-default-swap
insurance encourages foreclosure. This
sometimes may be the case, but it’s
important to note that insurers or indem-
nifying parties — such as the Federal
Housing Administration or the Federal
Deposit Insurance Corp. — normally
have loss-mitigation provisions that
mandate alternatives like modifications.
2. Ensure that modification analysis
properly calculates income;
3. Help borrowers determine if modification terms will fit their plans,
assisting them in calculating future
payments and determining if the
terms will be sustainable;
4. Advise them about the credit ef-
fects of different alternatives; and
5. Perform other analyses, as dictated
by individual borrower situations.
Whether a modification is truly ad-
vantageous for a borrower must be
analyzed case by case, as every bor-
rower’s situation and goals are differ-
ent. Accordingly, they should accept
or reject modifications only when they
understand how those modified mort-
gages will integrate into their overall
financial plans, an understanding that
mortgage brokers and originators can
help them achieve. •
William p. matz has been an attorney and
broker for 30 years. His office is in Windsor,
Calif., and his law practice focuses on real
estate, finance and tax. Having also run an
active mortgage business since 1992, Matz
has a unique perspective on the mortgage
crisis. Reach him at (707) 837-2161.
