november/december, 2005 - houston chapter of the southern california chapter of the appraisal...

Newsletter of the Southern California Chapter of the Appraisal Institute

SCCAI The TRENDS Volume 3, November 2005

THE TRENDS Keeping Appraisers Up-to-Date

Volume 3, Number 5

Inside Cover & Contents........................Page 1 Schedule of Events .................... Page 2 2005 & 2006 Officers & Directors.Page 3 New Members .............................Page 4 President’s Message .............. …Page 5 OLR Reg. & USPAP Q&A............Page 5 2005 Heritage Night………………Page 6 USPAP & ASA Joint Dinner.........Page 7 News Articles Membership Benefits & Article....Page 8 Region VII Dinner ...................... Page 9 Chapter News...........................Page 10 Option ARMS Article................ Page 11 Appraisal Form Seminar .......... Page 12 Meet MAI & SCCAI Staffer…….Page 12

THE Staff @ the TRENDS - 2005

Newsletter Coordinators Jill Gribin (818) 225-0097 Ext. 26 [email protected] Aloma B. Law (818) 957-5111 Ext. 20 [email protected]

SCCAI STAFF

2609 Honolulu Avenue, Suite 202 Montrose, CA 91020 www.sccai.org 818.957.5111 fax 818.957.0702 Executive Director Linda Zimmer [email protected] Education Administrator Zouka Rosen [email protected] Member Services Coordinator Aloma B. Law [email protected]

November 2005

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EXECUTIVE COMMITTE

President David Gribin, MAI [email protected]

818-225-0097

Vice President Karen G. Davidson, MAI

[email protected] 714-974-9169

Treasurer

Carol Lynn Chirpich, SRA [email protected]

949-458-6579

2005 Education Coordinator Vince Maher, MAI

[email protected] 818-957-1881

Secretary

Stuart D. DuVall, MAI [email protected]

949-673-6733



SCHEDULE OF EVENTS November/December, 2005

NOVEMBER 2005 DAYS ♦ DATES LOCATION PROGRAM Residential Highest & Best Use & Market Analysis

Wed & Thurs • Nov 2&3

Pepperdine University, Encino

National Course

15 hr. USPAP Fri & Sat • Nov 4 & 5 Pepperdine University, Encino

USPAP basic education

Eastern Branch Chapter Thurs • Nov 10 Desert Springs Marriott Planning & Development of Indian Casinos

Veterans Day Fri • Nov 11 Chapter Office Open Western Branch Chapter Thurs • Nov 17 Spitfire Grill – Santa

Monica New Federal “All Appropriate Inquiry,” Formally “Phase I”

Litigation Seminar Fri • Nov 18 Biltmore Hotel Chapter Developed Seminar

Chapter Office Closing at Noon

Wed • Nov 23

Thanksgiving Day-Chapter Office Closed

Thurs • Nov 24 HAPPY THANKSGIVING

Chapter Office Closed Fri • Nov 25

DECEMBER 2005 DAYS ♦ DATES LOCATION PROGRAM URAR Seminar Wed • Dec 7 Fullerton Marriott-

CalState Chapter Developed Seminar

URAR Seminar Thurs • Dec 8 Glendale Hilton Chapter Developed Seminar

Chapter Office Closing at Noon

Fri • Dec 23

Chapter Office Closed Mon • Dec 26

Eastern Branch Chapter Meeting

“Planning and Development of

Indian Casinos”

Date: Friday, December 9, 2005 (RSVP by Dec 2) Time: 11:30 AM – 1:30 PM - Lunch Location: Desert Springs Marriott – Lake View Restaurant 74855 Country Club Drive Palm Desert, CA 1-800-331-3112

2 hours of AI and OREA continuing education credit

(Flyer with details on chapter website-www.sccai.org)

December Seminars

“The Professional’s Guide to the Uniform Residential Appraisal Report”

Dates: Wednesday, December 7, 2005 - Thursday, December 8, 2005 Time: Check in & Continental Breakfast – 8am Seminar: 8:30am to 4:30pm Location: Fullerton Marriott at CalState (Dec 7) 2701 East Nutwood Ave., Fullerton Glendale Hilton (Dec 8) 100 W. Glenoaks Blvd., Glendale

7 hours of AI continuing education credit and pending 7 hours of OREA approval.



2005 Officers, Directors and

Branch Chapter Chairs PRESIDENT David Gribin, MAI VICE PRESIDENT Karen G. Davidson, MAI TREASURER Carol Lynn Chirpich, SRA SECRETARY Stuart D. DuVall, MAI --DIRECTORS CENTRAL COAST BRANCH CHAPTER

CHAIR Alison M. Moore, MAI VICE CHAIR Jim Mackelburg, SRA, ASA

& IFA ADVISOR Blake Elliot EASTERN BRANCH CHAPTER CHAIR Paul Norlen, MAI VICE CHAIR Don Mowery ADVISOR Nancy Summers NON-VOTING ADVISOR Charles Armstrong SOUTHERN BRANCH CHAPTER CHAIR Thomas Neeson, MAI VICE CHAIR Scott Pettifer, MAI ADVISOR Keith Belsby WESTERN BRANCH CHAPTER CHAIR Thomas E. Curtis VICE CHAIR Donald Bleich, Ph.D ADVISOR TBD IMMEDIATE PAST PRESIDENT Vicki L. Gill, SRA CCOOMMMMIITTTTEEEE CCOOOORRDDIINNAATTOORRSS EDUCATION COORDINATOR Vince Maher, MAI ASSOCIATES' GUIDANCE COORDINATOR Nancy Summers MEMBERSHIP COORDINATOR

Carol Morgan, MAI

Nominations for SCCAI 2006 Board of Directors

The Nomination Committee for the Southern California Chapter of the Appraisal Institute is please to announce the following nominees for the Board of Directors: Chapter President: Karen Davidson, MAI Vice President: Carol Chirpich, SRA Treasurer: Stuart D. Duvall, MAI Secretary: Orell C. Anderson, MAI Immediate Past President: David Gribin, MAI Regional Representatives: Barry Alperin, MAI Beverly Bayer, SRA Tom Neeson, MAI Orell Anderson, MAI Trustee of the Michael Teobaldi Thomas F. Mason Education Trust These are the nominees for the Chapter Executive Officers and the replacing of the Regional Representatives that are to serve for the years 2006 and 2007. The remainder of the Representatives are not to be replaced at this time. Voting took place on September 22, 2005 at the joint meeting of ASA and SCCAI.♦ Members of the Nominating Committee are: Vickie L. Gill, SRA, Joyce Riggs, MAI, Vince Maher, MAI, Kerry Leiman, SRA, Chris Hardy, MAI



NEW MEMBERS Please welcome our new members since January of 2005 JANUARY Clay W. Blockley Vittorio Cavina David A. Cornell Joy C. Fanning John E. Golt Vernon L. Gunther John M. Jamaica David F. Jubitz Daniel J. Kazden Kenneth Stotelmyre Larry E. Traghber FEBRUARY Augustine A. Aguilar Michael Baker Elliot W. Barker Vido A. Gaspara Willie D. Hamer Pauline Hodgson Alan E. Irish Gitonga Kanampiu Michael P. Kearns Luis A. Lopez Don E. Parish Joseph H. Perez Yao-Hwa Tang Huy Tran Melanese D. Way MAY Steve I. Bae Charles C. Call Ethan J. Goldstock Adam W. Hunzeker Andra L. Kees Matthew Moore Douglas A. Nason Torre D. Niles Charlie Park Matthew T. VanEck Jeffrey A. Wallick

MARCH Mike G. Baaden Leslie M. Batzofin Jason Breiter Niklas B. Bringleson Bang Chan Jason N. Donaldson Nicole Green Jason M. Harris Casey O. Jones Ki W. Kim Nancy Kristofferson Michael S. Linsk Hyo M. Park Dylon N. Phan Xuan Quach Brett I. Reynolds Kenneth Richardson Huyen T. Solozano Kevin S. Stephanoff Randy S. Walker APRIL Johnson C. Chien Alec D. Davison Marina Esquerra Edward C. Gardner David B. Gillespy Sandra Grathwol Stephen R. Hannah Patricia J. Muga Kristopher E. Nijst Elizabeth Norton Joseph Rutherford Douglas E. Willits Darrick Yu JUNE Shawn E. Atlow Justin. T. Goldberg Manisha Hunter Mellisa Kim Karen M. Park Breadley A. Wood

JULY Maria S. Aparicio Wanda Burton Jeannine J. Cook Alexander J. Goldberg Cynthia M. Gray Ken S. Griffin Timothy D. Hiltner Charles R. Hull Jarred E. Knuth Kurt Meyer Chris R. Roberts Matthew Sunderland Jorge L. DeLaTorre Ugarte Christine Wensel SEPTEMBER Keeshawn R. Andrews Joy Bednorz Maria Castro-Nguyen Agnes Cavina Todd R. Connelly Patricia DeCastro Eric J. DeLuca Dustin Deminna Michael J. Jordon Wesley Haugen Christopher Hayes Michael Huntley John Kjelstrom Mayling Pouv Robert A. Postier Joyce L. Reweda Phillip J. Saumur Jeffrey C. Settineri Joshua Stude Troy D. Wellington Joseph T. Wong NOVEMBER

AUGUST Marcio Baggio Castro Philip I. Chen Charlene R. Davis Kunjubala K. Desai Linda Emme John A. Foreman Andreas T. Fresh Danny Gallego Susan O. Gordon Philip A. Halbrook Molly Higley Peter S. Hwang Soo Kim Martin Leikarts John P. LeVeqie Rosa Maria B. Meneses Abel E. Morales Cheryl A. Noonan David Parrish Rinaldo M. Ramos Robert D. Roy David Sonboli Amber S. Strickland OCTOBER Stacy L. Antler Stephen D. Austin Stephen Burton Jon Dublin Sam V. Gallo Henry J. Leason John A. Loveless, MAI Jill A. Lovatt David S. Prutzman Timothy T. Rose William T. Wilcox

Mary Augusta Frank Bialobreski Meng Chen Sean M. Crosby Quentin Hafner Robert Z. Jacobson January O. Kim Thong M. Nguyen Ahryn W. Scott Alfred G. Shaheen James M. Shoemaker James B. Treidler Brenna L. Welter

Total Membership - 1, 251



USPAP Q&A The Appraisal Standards Board of The Appraisal Foundation answered the following questions which we thought would be of interest to you. Question No. 1: When will the 2006 Edition of USPAP be available? Response: The ASB held a public meeting on October 28, 2005 in Washington, D.C. At this meeting, the Board will vote on the adoption of proposed modifications to USPAP as presented in the Exposure Draft released in July 2005. Any changes approved at the October meeting will be incorporated into the 2006 USPAP, which is planned for publication in late January 2006. Question #2: Should appraisers start using the 2006 USPAP in January 2006? Response: No. The current 2005 edition of USPAP is effective until June 30, 2006.♦

On-Line Registration We are embarking on a Centralized Registration System so your Southern California Chapter (SCCAI) is pleased to announce the roll-out of On-Line Registration. For 2006 all of our education courses, events and seminars will be registered on-line. Our course schedule for 2006 can be viewed and registration can begin on December 1, 2005. beginning with our January programs. If you have any questions concerning this new procedure please contact the Chapter office at (818) 957-5111 ext. 21 or visit our website at www.sccai.org. ♦

AI Nework News – Fall 2005 http://www.magnetmail.net/images/clients/appraise/attach/fall2005news.pdf

David Gribin, MAI It’s almost time for me to be put out to pasture. This happened to me in late 1994 when my year as President of the Los Angeles Chapter of Institute of Real Estate Management (IREM) ended. I know it will be an empty feeling. All of the memories of 2005 will always stay with me, the Ritz Carlton Installation Dinner, the opening kick-off meeting with the Board of Directors, the Pasadena Special Use Seminar, the Ventura-Santa Barbara Seminar, the First Annual Burt Thornton Golf Tournament and silent auction, and Heritage Night, a special night honoring Kurt Shelger. My fondest thoughts are with each and every board member, thank you for your participation and involvement this year. Thank you to the membership for giving me ideas and advice. Thanks to the National Offices for giving a macro prospective on issues and helping me on sensitive issues. Thanks to past Presidents for your meaningful advice. Why does anyone take on such an endeavor? The main reason is the relationships that are created. Without question, you receive more than you give. A special thank you to the chapter office staff, Linda, Zouka & Aloma; you keep the organization on a steady path. Before year end, pick-up the telephone, call a fellow appraiser, and thank them for their friendship and support, and don’t forget to develop a new relationship. We are a fraternity; we “serve the public good.” Thank you for the opportunity to serve each and every one of you in 2005. We all wish Karen Davidson the best in leading our chapter in 2006.♦

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2005 Heritage Night

The 2005 Heritage Night was held on Thursday, October 27th at the beautiful Rio Hondo Country Club in Downey California.

Presentation to Kurt Shelger by Michael Teobaldi, Jr. MAI

Kurt Shelger, MAI was presented with a memory book compiled of contributions from colleagues of photos, comments and nostalgia for him to keep and have fond memories of his 60 years of service as an appraiser. Kurt’s area of expertise is mentoring other appraisers. The keynote speech was given by Rolland R. Stephens, MAI which covered the formation of the chapter, some very important and memorable milestones, the introduction of calculators and computers and the benefits of change. Reflections of looking back over time and thinking about how the profession has changed and how we do things has changed. How we do things has certainly changed but the basis of why we do them has not changed. Our core values and fundamental principles are still the same. Quotes from the speech: “The most important aspect of our work is that it be unbiased. Our value comes from the fact that we serve as impartial independent third parties. When we become advocates, we become valueless, because we provide no “Unique function”, to the industries we serve. “History makes it clear that the foundation or our success has been: A “willingness to change” how we do things; and A “refusal to change” the reason we do them.” ♦

Kurt Shelger and his colleagues

Past presidents that were present at Heritage Night

David Gribin, MAI, 2005 SCCAI President



EFFECTIVE DATE OF 2005 USPAP Washington, DC – The Appraisal Standards Board (ASB) of The Appraisal Foundation wishes to inform all parties that the 2005 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) will remain effective until at least June 30, 2006. This is a change from the practice of recent years of one-year effective dates that began January 1 and ended December 31. As discussed at its 2005 public meetings and indicated in its 2005 Exposure Drafts, the ASB believes the revised schedule has significant benefits. There are a significant number of proposed edits to USPAP, primarily related to the Scope of Work project. The ASB will take final action on the proposed edits at its public meeting on October 28, 2005. If the edits are adopted, the ASB recognizes that the marketplace will need time to adjust to the changes. Therefore, the Board anticipates the following:

• The 2006 USPAP, 2006 National USPAP Courses and related publications will be released in the first quarter of 2006; and,

• The effective date of the 2006 USPAP is expected to begin July 1, 2006 and extend through December 31, 2007.

“This schedule will allow for a greater transition period for appraisers, clients, education provider and appraisal regulators, especially given the Scope of Work changes to USPAP,” said Carla Glass, ASB Chair. Additionally, the ASB plans that this expansion of the effective dates of USPAP will be a transition to tow-year effective dates for future USPP editions. An official announcement regarding the decisions made at the October 28th public meeting, including the effective dates, will be made following that meeting. For more details on USPAP and the work of the Appraisal Standards Board please visit www.appraisalfoundation.org.♦

Installation of SCCAI Officers And General Membership Meeting

Wednesday, January 18, 2006

Antonello Ristorante Orange County

(Additional Information to follow)

APPRAISAL ENGAGEMENT

LETTERS & COLLECTION OF DELINQUENT ACCOUNTS

Dinner Seminar Jointly Sponsored by

The ASA-Los Angeles Chapter and The Appraisal Institute-Southern California Chapter

Took place on Thursday, September 22nd - 4:30PM

at the beautiful Luminarias Restaurant in Monterey Park California



Norm C. Hulberg, MAI making his presentation

Membership Benefits and Resources As the leading professional membership organization for real estate appraisers, the Appraisal Institute provides many useful benefits and resources for its members. These include a variety of tools to help you promote your business, network with other professionals and enrich your knowledge base. From online forums and publications to products and services from recognized organizations and providers, the Appraisal Institute strives to service the professional needs of all of its members.♦

Tools Lum Library Public Affairs Publications Find An Appraiser InfoExchange Professional Practice & Ethics Counseling

of the Trade… Online Forums Public Relations & Marketing Political Action Committee Leadership Development Education Periodicals

Well respected… Well worth it… Well…what are you waiting for?

DISASTER APPRAISALS OR DISASTROUS APPRAISALS?

By Kerry Leiman, SRA

Note: This article is relevant to property valuation in the aftermath of hurricanes Katrina and Rita. However, appraisals required for any sudden uninsured or underinsured loss of value, such as a fire, earthquakes, floods, theft and vandalism, would have a similar analysis. The extensive damage caused by Katrina and Rita in the Gulf areas will be a tremendous hardship for the property owners affected by these hurricanes. The greatest financial hardships will be to the businesses and individuals that had uninsured property loss. The Internal Revenue Service has a relief measure available to property owners. Property owners can deduct the loss of value (minus $100) related to these events for uninsured or underinsured property damage. In areas that the President of the United States has declared a disaster area (such as those affected by Katrina and Rita), property owners can declare their losses for the year of the event or the preceding year. These deductions can result in significant refunds, or the lowering of taxes, to victims of these events. In many cases, this could be the entire amount of Federal income taxes owed during the year of the event or the preceding year. There are several methods of providing proof. The one that relates to our professions is the decrease in “Fair Market Value (FMV).” Note that FMV is the term used by the IRS. The responsibility of the appraiser is to provide two reports, one immediately before the casualty and one immediate afterwards. Per IRS instructions, a “competent appraiser” must complete the reports. This should result in a large volume of work for appraisers located near the disaster areas. The appraisal report after the event is by far the more complex report due to several factors. One important aspect of report after the event is that it must separate the loss of value from direct property damage as compared to a loss of value to the neighborhood in general because of proximity to the event area. The IRS states “The appraiser must recognize the effects of any general market decline that may occur along with the casualty. This information is needed to limit any deductions to the actual loss resulting from damage to the property.” The IRS also states “A decrease in the value of your property because it is in or near an area that suffered a casualty, is not to be taken into consideration.” I strongly suggest that additional research, documentation and explanations be included in the report to cover this situation as the IRS will, in many cases, carefully evaluate the reports to confirm that this situation has been considered. If the taxpayer has a “history” with the IRS, you must certainly expect this point to be evaluated. For the appraisers that accept assignments for property loss, I suggest the following. First, talk to the accountant or attorney involved with the case. Second, prepare the report as if it were to be used for expert testimony. Third, read Publication 547 from the IRS, as this document may keep your disaster appraisal from being a disastrous appraisal.♦



REGION VII LEADERSHIP DEVELOPMENT

MEETING & DINNER October 14 & 15, 2205 Hilton Gaslamp Hotel

San Diego, CA

Pictured: David Gribin, MAI,2005 SCCAI President, John Ross, Executive Vice President, Appraisal Institute national office and Karen Davidson, MAI, 2005 SCCAI Vice President SCCAI Executive Committee and region representatives were in attendance and covered a wide variety of agenda items over the two-day period.♦

Misa Zane, MAI from Hawaii

The Professionals Guide to the URAR

Final SCCAI Offering December 7th & 8th, 2005

Be the first to learn exactly how the revised Fannie Mae 1004 Form will impact you. Understand the reasons behind the revisions and how USPAP’s Supplemental Standards rule applies. Discuss the significant differences between the prior and he revised URAR Form. Explores the revised definitions, statement of assumptions and limiting conditions and the appraiser’s certification as well as important liability issues.

The value of these seminars go beyond “how to complete the Form.” New appraisers will develop a proper understanding of secondary market guidelines as well as USPAP compliancy issues. For experienced appraiser it will provide a comprehensive review and ability to hone his/her skills. You will also gain a host of tips on appropriate level and content of information that must be reported to effectively complete the Forms. These seminars are approved for 7-hours each of Appraisal Institute credits. Tuition is $175 for Appraisal Institute Members and $200 for Nonmembers. This seminar is expected to sell out early. Register today. For additional details and registration information on this offering please contact the chapter office at (818) 957-5111 ext. 21. or www.sccai.org.♦



HHUUMMOORR……?? Creative Appraisal Definitions Band of Investments - A group of financial officers who hold jam sessions in the back room of the NYSE. Capitalization Rate - The number which is arrived at by dividing the number the client wants by the net operating income. Eminent Domain - From the Latin. Eminent, meaning big, or prominent. Domain, meaning where one lives. Hence, a big house. Fair Market Value - The value of items sold at a country fair. Highest and Best Use - Whatever the person who is paying for the appraisal wants to do with the property. Internal Rate of Return - An often used but seldom understood term of questionable meaning and doubtful significance. Also, the inverse of External Rate of Return. Marginal Utility - Many appraisals. Market Value - Formerly, one sentence which covered the bases pretty well. Now, a page of explanation, some of which appears to be contradictory and imprecise. Depth Tables - Charts used by SCUBA divers and fishermen. Purpose of the Appraisal - To make a living in the appraisal business. Functional Obsolescence - That state of many older appraisers. The Subject - A term police use to identify the victim of a crime. Subject Property - A term police use to identify the belongings of a victim of a crime. Jury - Twelve people who determine which client has the better lawyer. Trapezoid - A device for catching zoids.

News for the Newsletter – WE NEED YOUR INPUT Send me your:

Chapter Events Member Accomplishments Photos Comments Articles Jokes

Send to Roving Reporter, [email protected] or(818) 957-0702. ♦

Southern Branch Chapter News On September 12, 2005, George Dell spoke about the new GIS based data source “Site To Do Business”. He over viewed its contents and relayed its many search features. George is also our representative on the National Board of Directors of the Appraisal Institute (as well as being Chair of Region VII) and passed along topics the Institute is currently studying on a national level, as well as outlining the direction that our organization moving in. Our next meeting is tentatively scheduled for February of next year. For suggestions regarding potential speakers, locations, etc. please contact incoming Southern Branch Chair, Scott Pettifer at [email protected]. ♦

Central Coast Branch Branch Chapter News The Central Coast Branch Chapter held elections for the 2006 Officers in Ventura on November 17th. These elected Branch Chapter officers will serve on the SCCAI Board of Directors: Jim Mackelburg, SRA as CCBC Chair (1-year term), Joyce Riggs, MAI, as Vice-Chair (2-year term), and Michael DaKroob as Associate Chair (3-year term). Joyce Riggs has been a stalwart contributor to the SCCAI for many years, serving in numerous Chapter positions, including SCCAI President in 2003. Joyce was involved in the Merger Committee that created the Central Coast Branch Chapter of the SCCAI, and looks forward to fostering the growth of the branch chapter. A great chance to network with old friends and peers, the meeting served as a lively discussion forum. Topics ranged from proposed meeting/seminar schedules and speaker topics, along with discussion about what appraisers are seeing.♦



Option ARMs: They Should Come With a Warning Label

By Jim De Both President Interest.com

hen daredevils are about to perform a hair- rising stunt, they often will admonish viewers: “Don’t try this at home.” Maybe a similar warning should accompany

one of the newer twists in mortgage financing: option adjustable-rate mortgages or option ARMs. Unless you are extremely well-versed about these complex loans, you risk ending up with a nasty surprise down the road that could cost you your home. An option ARM is a type of adjustable-rate mortgage with as many as four different monthly payment options and, depending on its underlying index, an interest rate that could change every month. In most cases, each month the homeowner gets to choose one of four ways the mortgage check can be treated: a conventional 30-year-loan; a conventional 15-year loan; an interest-only loan or a minimum-payment loan where the payment might not cover the interest. The goal of the option ARM is “to get the payment as low as possible”, explains George Yacik, a vice president at SMR Research, a New Jersey firm that studies the home mortgage market and home equity lending. The option ARM is a direct result of skyrocketing house prices across the nation. Since many first-time buyers need help getting their first home, more of them are turning to option ARMs that can offer starting interest rates as low as 1 percent for the first month Education borrowers is a big challenge when it comes to option ARMs, largely because these is no “Gold Standard” for comparing these types of loans, whose features and construction can change greatly from lender to lender. “There is no standard option ARM product,” Yacik points out. “They vary from one lender to another. Some even allow a borrower to skip a payment or two. If you are sophisticated borrower, you might find option ARMs beneficial, if you manage to locate a lender whose particular option ARM has features that match your specific needs. But if you are a less experienced home buyer, you could slam into a wall of trouble if you don’t understand how these loans work generally and how your lender’s particular version works specifically. The upshot? You could end up owing your lender thousand of dollars more than you initially borrowed. You also could wind up facing bloated monthly payments you no longer can afford on a house in which you have built no equity, a potent mix that could pave the way to foreclosure, Yet with today’s climbing home prices, an option ARM might be the only mortgage for which many people can qualify. “Without them, a lot of people would be shut out of the housing market,” Yacik adds. “As far as the lender is concerned, one loan is better than zero loans”.

side from climbing interest rates, another major problem with option ARMs is “negative amortization,” which occurs when the loan balance rises because you have

not made a big enough payment to cover all of the interest you

owe each month. That unpaid interest gets added to the principal - the amount you borrowed in the first place - and you wind up paying interest on the both the unpaid principal and the unpaid interest. Since the interest rate can change every month with an option ARM, this can cause serious problems. Those option ARMs that allow minimum or skipped payments also might include stipulations calling for a type of balloon payment. When this sort of balloon payment comes due, the borrower must repay all of the unpaid interest, as well as any interest that has accrued on that interest. This can require a big lump-sum payment that, in this case, covers interest only and does not reduce the original principal.

et’s look at how different repayment schemes affect an option ARM loan for $100,000 with a starting interest rate of 4.75 percent amortized over 30 years. At the end of the

30 years. At the end of the first 30 days, you will owe $395.83 in interest. If you made the standard monthly payment, treating it like a conventional 30 year loan, you would send the lender a check for $521.65. That would pay the month’s interest and reduce the total amount owed by $125.82, leaving you with a balance of $99.874.18. If you treat an option ARM like a 15-year loan and pay $777.83 your interest would still be $395.83, and the remaining $382. Would reduce the principal to $99,618. Both of the above examples whittle down the principal amount owed and also cover all the interest due. But if you choose to make interest-only payment, such as $395.83, that means you still owe $100,000 to the lender and have not built any equity in your home. Given that the interest amount could change every month, you also run a very real risk of facing larger monthly payments if rates rise - and most rate changes today are upward. Those bigger payments still would do nothing to reduce any of the loan’s principal.

ow let’s look at what happens when you opt to make a minimum payment of $200 a month. Since that payment is less than the interest owed, the excess unpaid interest

of $195.83 gets added to the principal. In month two, you owe the interest on $100,195.83. At 4.75 percent, that is $396.61. If you make only the $200 minimum payment again, you get the unpaid interest - this time $196.61 - added to your principal, so you would then owe $100,392,44. As you can see the longer you make minimum payments that do not cover the interest, the larger your loan debt grows. In most cases, the debt grows. In most cases the interest at the beginning but stays the same even when the interest rate rises. That’s when you get into trouble. If you have one of those loans that lets you skip a payment from time to time, the entire unpaid interest gets added to the principal. There also might be a penalty payment involved. As noted earlier, if you do wind up in negative amortization, you will at some point have to come up with at least the interest money in one lump sum. After all, lenders make their money from the interest they collect every month. “The bet people are making - lenders as well as borrowers - is that higher home values and lower interest rates will bail people out down the road.” Yacik explains. “It has happened in the last few years and they are betting that it will continue.” Eventually, however, the lender has to be paid, “and we”ll find out how many (borrowers) won’t be able to do that in couple of years.” Still, some people believe that the option ARM gives them their only real opportunity to afford a house in today’s high-flying real estate market. For them, the trickiest question

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is: Once they get that house with an option ARM, will they have to pull off a hair-raising stunt to be able to keep it? Jim De Both is the president of interest.com - a national publisher of mortgage rates and information. Consumers can view additional mortgage information on the internet (http://www.interest.com) ♦

FHA AND THE NEW RESIDENTIAL APPRAISAL FORMS SEMINAR This new seminar will focus on the changes that are centered in the adoption of a new Appendix D to Regulation 4150.2 effective January 1, 2005. For those appraisers who are already familiar with the previous 4150.2 FHA and the New Residential Appraisal Forms will update you on all the changes and provide an opportunity to hone your reporting skills. Appraisers who are not currently on the FHA Roster of Appraisers will also benefit from this seminar. It will provide you with an opportunity to develop a proper understanding of secondary market guidelines and reporting requirements. Gain a thorough understanding of the history of FHA requirements an trace sources of information. The quick Tips section summarizes the important changes in Appendix D. Take this opportunity to discuss the URAR form in detail with suggestions on how to complete them in conformity with the new regulations. This seminar is approved for seven (7) hours of Appraisal Institute continuing education credit. This seminar won’t be approved in all states by December. Please check with your state board for state approval information.♦ TO REGISTER: Online-www.appraisalinstitute.org/education/offering.aspx.

Meet the New MAI John Loveless, MAI, found the process of obtaining his MAI designation a relatively easy accomplishment due in part to the assistance from Nancy Marlis and a mentor assigned by the National office - Jim Amorin. For John, once he decided to complete his MAI, the process took about 18 months. He had became an Associate Member several years ago and had two classes and his demonstration report to complete. He continues to use the qualitative adjustments from this report. John began his appraisal career in 1990 with Marshall & Stevens doing mostly insurance work. In the mid-1990s he worked with Meridian Appraising and founded Capstone Appraising Inc. in 2001. While he works on all types of commercial/industrial appraisals, he enjoys the complexities of hotel/motel appraisal.

The primary trend in the appraisal business he has witnessed in the his 15 years is away from self contained reports towards summary reports. John went to California State at Long Beach and majored in economics. John is single and currently lives in West Los Angeles with his labrador retriever Winston and runs about 60 miles a week. He has run both the Boston and Los Angles Marathons. We wish John congratulations on obtaining his MAI.♦

MMeeeett AAlloommaa BB.. LLaaww SCCAI Office Staff Member Services I have been talking with this lady all year about the newsletter, but until I asked her about herself I had no idea who Aloma Law was. She began working with the Southern California Chapter last November...this is her one year anniversary. She had taken an early retirement and decided she wanted a part time position. Aloma worked with NASA for several years on the Voyager Project in their Science office and on the Ulysses project at Kennedy Space Center in Florida as a project assistant. While at JPL she was an active member on the Director’s Advisory Council for Woman and the Director’s Advisory Council for Minority Affairs. She has also worked as a Training Coordinator for Jacobs Engineering in Pasadena for the past 8 years. Aloma is a proud mother of two grown children and two lovely grand daughters; her proudest accomplishments in life. Aloma is active with Leadership Pasadena, a premier leadership training program for mid-level and high-level professionals. The organization provides comprehensive training through interaction with the community’s top leadership, experiential learning opportunities and community service team projects. The organization identifies people of promise, familiarizes them with community issues and services and develops their leadership skills to prepare them for prominent business, cultural and political roles. Action Arts Inc. is Aloma’s baby. She is the founder, and executive director of this non-profit organization she founded in 1989. Action Arts, Inc. is an arts services organization that provides management and program development assistance to emerging artists and small arts groups in the community. Aloma is truly one amazing woman. Thank you Aloma for working so hard this last year with David on the newsletter.♦

By Jill Gribin

november/december, 2005 - houston chapter of the southern california chapter of the appraisal...

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