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Wednesday, September 23, 2009

Regulators Prove the Road to Real Estate Hell Is Paved With Good Intentions

When I was a journalist in New York City, I was drawn to interview the highly successful police commander of The Bronx, Tony Bouza. I’ve never forgotten the secret of his success which he shared with me. He said — paraphrased here — that if you want to find out what’s not really working in any organization, don’t talk to the chiefs, talk to the indians.

I am reminded of Chief Bouza every time I read about the regulatory “fixes” being handed down from on high. It’s as if those in power are grasping tor dramatic fixes without any input from those involved in the day-to-day business of real estate..

Twice, for example, I have written about the new appraisal nightmare called the Home Valuation Code of Conduct (HVCC) forced upon our industry by New York Attorney-General Andrew Cuomo. Under threat of litigation, Fannie Mae and Freddie Mac agreed to institute rules to keep loan officers and real estate agents from selecting or communicating with appraisers, as the “cure” for appraisal fraud.

The result has been disastrous. Everything we in the business had predicted (and more) has come true, such that 37% of Realtors surveyed by NAR this June — just one month after implementation of the HVCC — said they had had at least one transaction fail to close because of this stupid regulation. Space doesn’t permit me to go into all the details, but you can read them in my Jan. 22nd and May 14th columns at

Now here comes yet another ill-conceived regulatory change threatened for Nov. 1 implementation, this time from the FHA, pertaining to condo approvals.

For years, it has been the rule that in order to qualify for FHA financing, a condo must be in a complex with at least 50% owner occupancy. This was easy to calculate because the condo management office could readily provide this information.

Well, starting Nov. 1, 2009, it will also be required that no more than 30% of the units in that complex be financed by FHA loans. The management company won’t have this information. The only way to verify this would be to pull from public records ALL the deeds of trust for all the units in the complex — an inconceivable hurdle.

Applying Chief Bouza’s lesson, I’d ask regulators to talk to Realtors and loan officers, not just themselves, before issuing such regulations.

[Published Sept. 24, 2009, in the Denver Post's section. Previous columns can be found online at]

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