Category: Regulations

A bill introduced in the U.S. House of Representatives would waive early distribution penalties on certain qualified retirement plans if the funds are used to buy a house that has been in foreclosure for a year or more.

Bill Posey (R-Fla.) introduced H.R. 1526 — the Housing Recovery Act of 2011. It has been referred to the Committee on Ways and Means.

"It’s not an end-all fix," Press Secretary George Cecala said. "It’s just another idea to help the housing market."

The idea is to add stability to neighborhoods by promoting purchases by owner-occupants or those seeking a second home rather than investors who immediately "flip" the home. Under the bill, the purchaser must agree to hold the property for at least two years to be exempt from early retirement plan distribution penalties.

The bill is expected to apply to distributions from Roth IRAs, 401(k) plans and company pension plans. It would require the person to use the retirement distribution within 120 days of receipt by buying a home that "has been in foreclosure for a year or more."

Cecala said Posey, a Realtor, anticipates that the one-year period would begin at the point that the foreclosed property is listed for sale, but said the congressman is open to amending the bill to be more specific about when the clock would start ticking.

Several states have extremely drawn-out foreclosure processes. Foreclosures in judicial state average about 13 months from start to finish. But once foreclosures are repossessed by the lender and enter what is known as real estate-owned status, or REO, it is not uncommon for them to be snapped up once listed for sale.

In Posey’s home state, his district covers Florida’s "Space Coast" not far from Orlando area. He is owner and founder of Posey Realtors & Co. in Rockledge, near Cape Canaveral.

Florida accounted for nearly 9% of U.S. foreclosure activity during the first quarter, documenting 58,322 properties with a foreclosure filing, second behind California, which accounted for nearly 25% of foreclosure activity, according to RealtyTrac.

Florida foreclosure activity decreased 47% from the previous quarter and was down 62% from the first quarter of 2010 — although the state still posted the nation’s eighth highest foreclosure rate with one in every 152 housing units with a foreclosure filing during the first quarter.

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The New York Times

THERE have been changes in federal rules covering how mortgage brokers are paid, and while legal challenges to them persist, the question now is how the new system will work in practice.

Regulators and consumer advocates say borrowers are bound to benefit. Broker trade groups say their industry will shrivel and consumer costs will go up.

Mortgage brokers are middlemen who work with multiple lenders to arrange home loans for customers. They say they add value by helping borrowers find the best deal; their detractors say they add costs that have been hidden in complex fees.

The business has contracted significantly in the last five years. In 2005, during the real estate boom, brokers accounted for 31 percent of mortgages originated, according to Inside Mortgage Finance, a trade publication. Last year it was just 11 percent, and the market was only half as big.

Brokers used to be compensated by a mix of borrower-paid origination fees and lender-paid fees. The most controversial was a “yield spread premium,” paid by lenders when a broker placed a borrower in a loan that charged higher interest than other loans. The justification was that higher rates allowed lower upfront closing costs. The criticism was that the premiums were an incentive to push expensive loans and that the system contributed to a flood of risky loans and thus to the financial crisis.

In response, the Federal Reserve put out rules that prohibit loan originators from being paid by both the borrower and lender on the same deal, and also barring commissions based on anything other than loan size. The rules were set to take effect April 1; two trade groups sued, delaying enactment a few days before a federal appeals court allowed it. Both the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals say they will keep pressing their lawsuits.

On the front line, the problem is that there has been “no clear guidance” on exactly how to arrange commission structures for employees who originate loans, said Melissa Cohn, the president of the Manhattan Mortgage Company, a loan brokerage firm.

“To be honest with you,” she said, “in some cases it’s going to create higher-priced mortgages.” Although the spirit of the law is to protect borrowers, she added, “the reality of it is it’s just going to cause more confusion.”

Mike Anderson, the director of the National Association of Mortgage Brokers, speaking just two days after the rules went into effect, said: “It’s already happening. Rates have already gone up; fees have gone up.” Mr. Anderson, who is also a broker in New Orleans, cited situations in which brokers could no longer cut fees to make deals go through, and others in which banks were raising charges. “The rules basically pick the winners and losers,” he said, with the winners being the big banks. “The losers are the small businesses.”

The Facebook page of the National Association of Independent Housing Professionals is full of complaints from what appear to be mortgage brokers saying the rules will hurt their business, and recounting how unnamed lenders have raised prices.

Despite industry opposition, the change is a victory for borrowers, according to representatives of the Center for Responsible Lending, an advocacy group long critical of the yield-spread premium system. Borrowers “should be getting more honest services from the originator they’re working with,” said Kathleen E. Keest, a senior policy counsel, “because that originator is no longer going to have a conflict of interest if they put a borrower in a loan with a higher interest rate or riskier terms.”

“If people were saying that the way things worked, worked well,” she added, “that’s one thing, but it’s very clear the way things worked before didn’t work for anybody. The notion we need to have the same rules is denying what happened. It’s denying that the way the market was working was disastrous for everybody.”

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The Appraisal Institute

Four states – Illinois, Maryland, Missouri and Nevada – are considering legislation that would prohibit or restrict the use of “distressed sales,” such as foreclosures and short sales, as comparable sales as a part of a residential real estate appraisal.

Homebuilders and real estate sales agents are concerned that the prevalence of distressed sales, and their subsequent use as comparables, is resulting in the appraised value of residential properties not matching the contract sales price, or in the case of new construction, the cost to build.

The Missouri legislation, known as House Bill 292, would prohibit appraisers from using a property that has been sold at a foreclosure sale as a comparable. Similar to the Missouri proposal, the Illinois legislation would prohibit appraisers for the next five years from using as a comparable sale “a residential property that was sold at a judicial sale at any time within 12 months.”

The Nevada legislation would prohibit the use of foreclosures and short sales. The prohibitions contained in the Maryland legislation are somewhat broader and include any property that was sold under “duress or unusual circumstances, such as a foreclosure or short sale.”

There is, however, conflicting language in the Maryland legislation that appears to allow for the use of distressed properties as comparables if the appraiser takes into account factors such as the motivation of the seller, the condition of the property and the property’s history or disposition before the sale. Appraisers in Maryland will oppose this legislation during a hearing March 29.

If these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. Appraisers are required to adhere to comply with the Uniform Standards of Professional Appraisal Practice in federally related transactions. The standard mandates that appraisers “must analyze such comparables sales as are available.” Further, the standard cannot be voided by a state or local government.

Not following USPAP could subject the appraiser to having action taken against their license. Therefore, appraisers would have to make the decision to commit a USPAP violation – which in the case of federally related transactions would be a violation of state law – or to violate the law prohibiting the consideration of distressed sales as comparables.

To read the Illinois legislation, go to . To view the Missouri proposal, go to . To see the Maryland legislation, go to . And to see the Nevada proposal, go to .

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BY JANN SWANSON –Mortgage News Daily

The House Republicans who will ultimately have the most influence on the decision have come out with a plan for reforming the two government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.

Scott Garrett (R-NJ) Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises released what was actually a summary of eight bills, each covering a different aspect of reform and each introduced by a different member of the parent Financial Services Committee.  They cover a broad range of issues involved in bringing the government’s conservatorship of the GSEs to an end and establishing a philosophy as well as a new system of financing the housing industry.

Garret said that this is the first in what will be multiple rounds of "very specific, very targeted bills to end the bailouts, protect the taxpayers and get private capital off the sidelines."  The end result, he said, will formally wind down the GSEs and return the housing finance system to the private marketplace.
"With the American taxpayers on the hook for $150 billion and counting, the bailout of Fannie and Freddie is already the most expensive component of the federal government’s intervention into the financial system.  Americans are tired of the ongoing bailout of the failed government-backed mortgage giants, and they are tired of Democrats’ refusals to address the driving force behind the financial collapse.  While Democrats chose to ignore the problem last Congress, House Republicans stand ready to end the bailout and protect American taxpayers from further losses."

Here is a summary of the bills:

The Equity in Government Compensation Act, sponsored by Spencer Bachus (R-AL), Chairman of the House Financial Services Committee.

The bill suspends the current compensation packages for all GSE employees and replaces them with a system consistent with the Executive Schedule and Senior Executive Service of the Federal Government.  The bill also expresses the sense of the Congress that the 2010 pay packages for senior executives were excessive and the money should be returned to taxpayers.

The GSE Mission Improvement Act, sponsored by Ed Royce (R-CA)

This legislation would permanently abolish the affordable housing goals of Freddie Mac and Fannie Mae.  According to Royce’s comments accompanying the bill, these goals were a central cause behind the collapse of the GSEs and the ongoing goal of the GSEs should be to reduce risk to taxpayers rather than expose them to further losses.  "To meet these goals, the GSEs purchased more than $1 trillion in ‘junk loans.’  These loans accounted for a large portion of the mortgage giants’ losses – losses that were later loaded onto the backs of American taxpayers."

The Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act (H.R. 31), sponsored by Judy Biggert (R-IL) Chairman of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity.
This bill would establish an Inspector General (IG) within the Federal Housing Finance Agency (FHFA,) the conservator of the GSEs, provide him/her with additional law enforcement and personnel hiring authority, and require him/her to submit regular reports to Congress on taxpayer liabilities, investment decisions, and management details.  These reports would be made publically available.
The GSE Subsidy Elimination Act, sponsored by Randy Neugebauer (R-TX) Chairman of the House Financial Services Subcommittee on Oversight.

The proposed legislation would direct FHFA to phase in an increase in the fees it charges for its guarantee as though they were held to the same capital standards as private financial institutions.  The phase-in would be conducted over two years and would, the summary says, level the playing field so that private capital can re-emerge, decreasing the government’s exposure to housing market risks.

GSE Portfolio Reduction Act, sponsored by Jeb Hensarling (R-TX), Vice Chairman of the House Financial Services Committee.

This bill would accelerate and formalize the previously established rate of reducing the portfolios of the two GSEs by setting annual limits on the maximum size of each portfolio rather than using the percentage decrease currently in place.  The bill would cap the portfolios at $700 beginning in year one and bring them down to $250 billion by the end of year five.

GSE Risk and Activities Limitation Act, sponsored by David Schweikert (R-AZ), Vice Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises.
This bill would prohibit the GSEs from engaging in any new activities or businesses.  The bill’s sponsor acknowledges that FHFA already has such a prohibition in place; the bill merely codifies that prohibition.
The GSE Debt Issuance Approval Act, Sponsored by Steve Pearce (R-NM).
Under the requirements of this legislation, the Department of the Treasury would have to formally approve any new debt issued by the GSEs.  Pearce comments that, "This will help protect taxpayers by requiring the formal legal authority of U.S. debt issuance to approve the issuing of agency debt which is roughly the same as U.S. debt."

GSE Credit Risk Equitable Treatment Act, sponsored by Scott Garrett.   
This proposed legislation would apply any of the standards applied to private secondary mortgage market participants to the GSEs. It would, according to Garrett, ensure that the GSEs are not exempt from new risk-retention rules mandated by Dodd-Frank and that they face the same retention standards as private market participants.  Garrett said this bill will make clear that Fannie Mae and Freddie Mac will be held to the same standards as any other secondary mortgage market participants.  Under Dodd-Frank, Fannie and Freddie could still be able to purchase a mortgage from a financial institution that falls outside of the Qualified Residential Mortgage (QRM) definition and issue asset-backed securities backed by non-QRM assets.  Garrett’s bill would clarify that a GSE loan purchase or asset-backed security issuance would not affect the status of the underlying assets.  If the GSEs purchase a non-QRM loan, all lender risk-retention requirements will still apply, and if the GSEs issue a non-QRM security, all securitization risk retention rules will still apply.

The Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises will hold a legislative hearing on the eight bills Thursday, March 31st and then a markup on Tuesday, April 5th. 

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Two indices that measure employment-income fraud, as well as identity fraud, are up more than 30% over last year, according to Interthinx, a firm that measures fraud practices by analyzing fraud risks within mortgage applications.

In its latest Mortgage Fraud Risk Report, Interthinx said mortgage fraud risk in 2010 was highest in areas with heightened levels of foreclosure activity. The report concluded that "criminals may be migrating to those areas" to make a profit.

This  heightened risk comes at a time when fraud schemes are designed to take advantage of distressed housing markets through the deflating of short sale values to generate profits, the report claims.

“As lenders acclimate to changing government regulations and economic conditions, so do the fraudsters,” said Kevin Coop, president of Interthinx. “Our most recent analysis indicates that fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them. Most disturbing is the link between foreclosure activity and mortgage fraud."

Areas with more foreclosure activity — California and Nevada — are experiencing greater fraud risks, according to the report.

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By Zachary A. Goldfarb and David S. Hilzenrath –The Washington Post

The Securities and Exchange Commission is moving toward charging former and current Fannie Mae and Freddie Mac executives with violations related to the financial crisis, setting up a clash with the housing regulator that oversees the companies, according to sources familiar with the matter.

The SEC, responsible for enforcing securities laws, is alleging that at least four senior executives failed to provide necessary information to investors about the companies’ mortgage holdings as the U.S. housing market collapsed.

But the agency that most closely regulates Fannie and Freddie, the Federal Housing Finance Agency, disagrees with that assessment, according to sources familiar with the matter.

FHFA officials think Fannie and Freddie’s financial disclosures, which agency staff members had reviewed before the documents were released to the public, were sufficient, the sources said. One source added that FHFA has sent a letter to the SEC opposing the filing of charges.

An FHFA spokesman declined to comment.

Over the past eight weeks, the SEC sent notices to the executives saying they may face civil charges. The SEC has not yet formally filed such charges and ultimately may choose not to.

The agency alleged that executives at both companies misled investors about their exposure to dangerous mortgage products, such as subprime loans, sources familiar with the matter said.

The executives include former Fannie chief executive Daniel Mudd, former Freddie chief executive Richard Syron, former Freddie chief financial officer Anthony “Buddy” Piszel and current Freddie executive Donald Bisenius, who recently announced that he would leave the company after he received his notice.

The allegations are slightly different for both the companies. One of the chief allegations against Fannie executives is that it characterized mortgage loans as “prime” — meaning high-quality — when they should have been classified in a more risky category of loans.

Meanwhile, Freddie executives are accused of not fully warning investors about the risks associated with subprime loans.

Fannie and Freddie, on the verge of collapse as the financial markets imploded in the fall of 2008, were seized by the federal government. The companies, now owned by taxpayers, have needed $150 billion in aid to stay afloat.

The SEC case may also add to a brouhaha on Capitol Hill over federal expenditures by Fannie and Freddie for former executives. The companies are spending tens of millions of dollars to cover the legal costs of a different set of former executives who face private class-action lawsuits. FHFA officials say the former executives are legally entitled to that coverage.

The SEC case will add to those taxpayer bills because the executives facing allegations are also indemnified.

In the years relevant to the SEC case, Fannie and Freddie routinely submitted their financial disclosures to FHFA’s predecessor agency before releasing them to the public.

“The disclosures and procedures that are the subject of the [SEC] investigation were accurate and complete,” Mudd, now chief executive of Fortress Investment Group, said in a statement released to Bloomberg News this month.

He added, “These disclosures were previewed by federal regulators, and have been issued in the same form since the company went into government conservatorship.”

One person familiar with the matter pointed out that the SEC itself reviewed Freddie’s disclosures in 2008 as part of the company’s application to become officially registered with that agency.

An attorney for Syron said Freddie made accurate disclosures. Attorneys for Bisenius and Piszel could not be reached.

Approval by a federal regulator is not a defense for a misleading securities filing, said Donald C. Langevoort, a Georgetown law professor. It could make it harder for the SEC to prove fraud, but the agency can file other kinds of charges, he said.

Even in charging fraud, “the SEC enforcement staff is well within bounds in proceeding if it believes that the regulators who approved did not have all the relevant facts, and the subject in question knew or recklessly disregarded such facts,” Langevoort said by e-mail.

If the SEC were to take enforcement action against Fannie Mae, Freddie Mac or any of their executives, it would not be the first time. In the past, the fact that other regulators had overseen the companies did not shield them from SEC action.

Before they were taken over by the government, the companies went through twin accounting scandals. Each firm paid a fine to settle SEC fraud charges and was forced to correct past financial reports.

Although the Office of Federal Housing Enterprise Oversight, predecessor of the FHFA, had previously given both companies a clean bill of health, in 2003 and 2004 the regulator accused them of accounting irregularities, and the SEC later agreed.

Mudd and Syron were placed in charge of the companies with mandates to clean up the accounting and organizational problems left by their predecessors.

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Some of the largest banks in the country may boost dividends and restart stock repurchase plans now that the Federal Reserve has completed its comprehensive capital analysis and review.

About two years ago, the central bank advised financial institutions "that safety and soundness considerations required that dividends be substantially reduced or eliminated."

On Friday, the Fed plans to discuss its review with banks that requested a capital action, and all 19 firms that were subject to the stress tests will get "more detailed assessments of their capital planning processes next month."

The mandates to boost capital levels included in Basel 3 and the new requirements in the sweeping Dodd-Frank financial reforms have "substantially clarified the regulatory environment in which these firms will be operating," the Fed said.

From the end of 2008 through 2010, common equity increased by more than $300 billion at the 19 largest U.S. bank holding companies, the Fed said. Allowing these banks to return capital to shareholders improves the entire sector and helps promote the firms long-term access to capital, according to the central bank. The Fed has advised firms to keep dividends to 30% or less of earnings in 2011.

Washington thinktank MF Global anticipates some large firms to act immediately on the Fed decision.

"We would expect most of those banks to make announcements in the coming hours and days," analysts at the Washington-based commodities and derivatives brokerage said.

Under the Fed’s stress tests, banks had to show the ability to maintain at least a 5% Tier 1 common ratio. The most-recent test wasn’t "as standardized" as the Supervisory Capital Assessment Program undertook in early 2009, and doesn’t appear to be as transparent.

"We hear many initial complaints about the black box nature of this stress test," MF Global said. "It is true that the Federal Reserve has provided less detail than in the 2009 test. Yet the Fed did disclose the key economic assumptions. So we believe there is more here than the first impression indicates."

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Federal Reserve policy makers said the recovery is gaining strength and that higher energy prices will have a temporary effect on inflation, while reaffirming plans to buy $600 billion of Treasuries through June.

“The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said Tuesday in its statement after a one-day meeting in Washington. The effects of higher fuel and commodity costs on inflation will be “transitory,” and officials “will pay close attention to the evolution of inflation and inflation expectations,” the Fed said.

The statement represents an upgrading of the outlook by Fed Chairman Ben S. Bernanke and his colleagues, who removed language that the recovery is “disappointingly slow” and that “tight credit” is holding back consumer spending. Policy makers went out of their way to acknowledge higher commodity prices while dismissing any inflation danger.

“This statement takes QE3 off the table, as they are taking off the downside risk in deflation and saying the economy is on track,” John Silvia, chief economist at Wells Fargo Securities in Charlotte, N.C., said in a reference to speculation that the Fed might embark on a third round of quantitative easing. “They are coming to the view that the economy has improved over time. They are going to finish QE2. There is no need for more stimulus at this point.”

Even so, the statement echoed a cautionary note from the prior release, saying that “the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate” for stable prices and maximum employment.

The Fed left its benchmark interest rate in a range of zero to 0.25%, where it’s been since December 2008, and retained a pledge in place since March 2009 to keep it “exceptionally low” for an “extended period.” Officials next meet April 26-27 in Washington.

Payrolls have increased by an average 134,000 a month for the past five months and the unemployment rate has dropped by almost 1 percentage point over three months to 8.9% in February, the lowest since April 2009. Still, the pace of job growth is too slow for officials including New York Fed President William Dudley, who said in a speech last week that a “substantial pickup is sorely needed.”

The average U.S. retail price of regular unleaded gasoline rose to $3.56 a gallon this week, the highest since October 2008.

“Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks,” the Fed said. “Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.”

The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8% in January from a year earlier, matching December’s year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6% to 2%.

One gauge of inflation expectations has approached levels from before the financial crisis intensified in 2008. The breakeven rate for 10-year Treasury Inflation Protected Securities, which is the yield difference between the inflation- linked debt and comparable-maturity Treasuries, declined to 2.45 percentage points yesterday since reaching 2.57 points on March 8, the highest since July 2008, Bloomberg data show.

Gasoline and other “highly visible” commodities have shown “significant increases” since the U.S. summer, Mr. Bernanke said in congressional testimony March 1. “The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation,” Mr. Bernanke said.

The FOMC decision was unanimous for a second consecutive meeting. That means Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, both skeptics of the second round of so-called quantitative easing who voted for the statement today, don’t disagree strongly enough with the path of policy to dissent.

Fed Governor Kevin Warsh, who resigned in February effective at the end of March, didn’t attend Tuesday’s meeting in accordance with FOMC practice.

Mr. Bernanke, in two days of congressional testimony this month, reiterated the Fed’s outlook that while growth will accelerate this year, he still wants to see a “sustained period of stronger job creation.” He has avoided indicating what the Fed’s next step will be after finishing the $600 billion of purchases.

“While indicators of spending and production have been encouraging on balance, the job market has improved only slowly,” Mr. Bernanke, 57, a former Princeton University economist, said March 1 and March 2 in semiannual hearings on monetary policy.

“The economy still needs help,” said former Fed Governor Lyle Gramley, now senior economic adviser at Potomac Research Group in Washington. “Inflation hasn’t risen to a point where something like” the monetary stimulus “would be counterproductive,” Mr. Gramley said before the announcement.

The central bank, through the New York Fed’s traders, is halfway through the purchases, having bought about $304 billion of Treasuries as of March 9. The total is about $419 billion including securities bought by reinvesting proceeds of maturing assets from the $1.7 trillion first round of purchases of mortgage debt and Treasuries.

The Fed chairman has tried to take credit for higher stock prices and lower corporate-borrowing premiums since the central bank started talking about the second round of quantitative easing. In the testimony, he dated gains to two events in August — the FOMC’s decision to stop the securities portfolio from shrinking by reinvesting maturing mortgage debt and a speech signaling the possibility of QE2.

The Standard & Poor’s 500 Index increased 15% from Aug. 10 through Monday. For investment-grade corporations, the difference between companies’ rates and comparable government securities has narrowed to 1.51 percentage point on March 11 from 1.88 point on Aug. 10, according to Bank of America Merrill Lynch index data.

Yields on 10-year Treasuries declined to 2.57% on Nov. 3, when the Fed announced the second round of asset purchases, from 2.76% on Aug. 10. They were up to 3.36% Monday. Mr. Bernanke said the initial drop reflected investor expectations of Fed buying. Yields later rose “as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases,” he said in the congressional testimony.

At the last FOMC meeting in January, policy makers raised projections for economic growth this year and made few changes to forecasts after 2011. They also made little change to projections for unemployment and inflation.

U.S. retail sales increased in February by the most in four months, the Commerce Department said March 11. Further gains may be tempered by concerns over higher fuel prices that helped push consumer confidence to a one-month low in the week to March 6, according to the Bloomberg Consumer Comfort Index.

Expectations for the inflation rate in one year rose to 4.6% in March from 3.4% in February, according to the Thomson Reuters/University of Michigan consumer sentiment survey released March 11.

Atlanta Fed President Dennis Lockhart said in a March 7 speech that he doesn’t expect consumer-price inflation to accelerate because of the rise in food and energy costs. Speaking to economists in Arlington, Va., Mr. Lockhart said he is “very cautious” about further asset purchases, while not ruling out the possibility because turmoil in the Middle East and Africa risks slowing the U.S. economy.

Pleasanton, Calif.-based Safeway Inc., the fourth- largest U.S. supermarket chain by stores, expects that 2011, “while it will be a challenging year,” will be “much better” than 2009 or 2010, Chief Executive Officer Steven Burd said March 8.

“The economy will improve, but only moderately,” Mr. Burd said at the company’s investor conference. “We’re not looking for any kind of a hockey-stick curve here.”

In Congress, lawmakers are debating how to cut spending to reduce a record budget deficit. After the federal rescues of home-finance providers Fannie Mae and Freddie Mac cost taxpayers $154 billion, politicians are also starting to consider ways to reduce support and tax subsidies for the housing market, which the FOMC described as “depressed” in December and January’s statements.

“During a time when we’re trying to create jobs, why in good God’s name would you start to talk about changing policy and tax implications for new-home purchases?” Robert Toll, chairman of Horsham, Pennsylvania-based Toll Brothers Inc., the largest U.S. luxury-home builder, said on a Feb. 23 conference call with investors.

Purchases of new houses in the U.S. fell more than forecast in January and are running at about one-fifth of the record rate in 2005. Housing starts climbed 15 percent to a 596,000 annual rate, a pace that is still less than one-third the homebuilding boom’s peak of 2.27 million in 2006.

Other parts of the economy are strengthening. Manufacturing grew in February at the fastest pace in almost seven years, while orders to U.S. factories climbed in January by the most in more than four years, reports this month showed.

Japan’s earthquake, which disrupted cooling systems at nuclear reactors, “certainly introduces yet another wild card or potential risk that’s out there,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn., before the Fed announcement.

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