Mortgage Choice Act good or bad?

Mortgage Choice Act

Mortgage Choice Act
Choosing a lender (infographic from lender411.com)

Monday’s Reuters “exclusive” report about the Consumer Financial Protection Bureau dropping their investigation on the Equifax data breach caused quite a stir in DC (Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources: reuters.com February 5, 2018).  The exclusive cited unnamed sources.  However, a spokesperson for Transunion (a credit repository) suggested that cybercrime is not within the jurisdiction of the CFPB.

Later that day, Reuters cited Democratic Senators’ concerns and outrage over the alleged investigation pullback (Senators urge Trump administration to resume Equifax probe; reuters.com February 6, 2018).

The next day, Reuters reported that Treasury Secretary Mnuchin desired to meet with CFPB’s Acting Director Mick Mulvaney, based on its initial reports of dropping the Equifax investigation (Treasury’s Mnuchin says he wants answers on Equifax breach; reuters.com February 6, 2018) .  In the same report, Reuters cited the CFPB’s spokesperson saying that the CFPB was working with other government agencies on the Equifax data breach.

The veracity of Reuters’ unnamed sources in the report is not clear.  However, there may be something to the fact that cybersecurity falls under the domain of the FBI and Homeland Security.  Additionally, there are many other agencies investigating the Equifax data breach, as Housing Wire reported on Monday (CFPB reportedly pulling back from Equifax data breach investigation: Reuters reports that bureau is not aggressively pursuing investigation; housingwire.com; February 5, 2018).  The FTC appeared to be the lead agency investigating the matter when the data breach became public news.  Additionally, the House and Senate Financial Committees, as well as all fifty states attorney generals are investigating.

Mortgage Choice Act goes under the radar…

News created drama, such as the Reuters’ CFPB story, allows real consumer issues to fly under the radar.  Consumers should take note that the once dead Mortgage Choice Act has come back to life.  Much like a scene out of Tin Men, the revived legislation is being promoted by the likes of the National Association of Realtors® under the guise of being good for the consumer.

According to the CBO (cbo.gov/publication/53497):

Under current law, a ‘qualified mortgage’ has certain characteristics that make it more affordable…To meet the qualified-mortgage definition, certain costs that are incidental to the loan and that are paid by the borrower…cannot exceed 3 percent of the total loan amount. Lenders offering “high-cost mortgages” (home mortgages with interest rates and fees that exceed certain thresholds) must make certain additional disclosures to borrowers and must comply with restrictions on the terms of such loans.”  The Mortgage Choice Act “…would exclude insurance premiums held in escrow and, under certain circumstances, fees paid to companies affiliated with the creditor from the costs that would be considered in determining whether a loan is a qualified mortgage or a high-cost mortgage.”

The NAR is urging support for this legislation, as well as issuing an open letter to Congress.  The NAR’s rationale is that the Mortgage Choice Act:

“… will enhance competition in the mortgage and title insurance markets, and ensure that consumers will be able to choose the lenders and title providers best suited for their home buying needs.”

This sounds virtuous, but in reality it’s a play to allow broker affiliated lenders and title insurers to charge consumers more without additional disclosures.  NAR says that lenders and title insurers would still be subject to RESPA (which prohibits steering and kickbacks).  But charging consumers excessive fees and affiliated businesses giving kickbacks are not mutually exclusive.  Meaning that a lender charges can be excessive independent of the lender providing a kickback to the broker.  (the CFPB has recently fined brokers and lenders for kickbacks).

Is NAR interested in building consumer trust?

The NAR has for years tried to influence public opinion of Realtors® and the industry.  The NAR Code of Ethics has been used as a focal point to increase positive sentiment towards Realtors®.  However, NAR’s desire to implement a Code of Excellence may have been a beginning shift towards building public trust.

The Code of Excellence, like the Code of Ethics, is a desire to increase competence and proficiency.  But research has demonstrated that showing off accolades and awards doesn’t instill value, nor does it increase sales (Valsesia, Nunes, & Ordanini: What Wins Awards Is Not Always What I Buy: How Creative Control Affects Authenticity and Thus Recognition (But Not Liking). Journal of Consumer Research. Apr2016, Vol. 42 Issue 6, p897-914).

Value, along with quality and price,  has much higher regard than ethics in a consumer’s mind.  This was demonstrated by Carrigan & Attalla’s ground breaking consumer research (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing. 2001.. 18(7),560-577.)

If the NAR is truly interested in building consumer trust, the NAR leadership should get on the correct side of this issue and provide value to consumers instead of giving lip service.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Consumers are devolving real estate

Consumers choose their agents
Consumers directing real estate industry (infographic from househuntnetwork.com)

The National Association of Realtors annual Profile of Home Buyers and Sellers (nar.realtor) reveals insight into consumer real estate trends.  It provides an understanding into home buyers’ and sellers’ experiences and what they want.  One aspect of focus from the Profile is how consumers choose their real estate agent.  The survey consistently indicates that a referral from a friend, neighbor or relative plays a big part in their choice.  But how do buyers and sellers view real estate brands?

There are reams of research about the relationship between brands and consumers.  However, recent data regarding millennials suggest that brand loyalty may be changing.  Jeff Fromm’s article for Forbes (Why Label Transparency Matters When It Comes To Millennial Brand Loyalty; forbes.com; December 13, 2017) points out what consumers are looking for and what they deem important.  Fromm states

If the brand doesn’t provide the information they need, millennials will look elsewhere… when millennials make purchase decisions, they’re considering more than the traditional drivers of taste, price and convenience.  They value authenticity, and make decisions based on the way they perceive brands to impact their quality of life, society as a whole, and how that brand may be contributing positively to the world.”

Real estate brokers and agents should pay close attention to the new consumer research.

This evolution of brand loyalty and how consumers perceive brands may explain the growth of independent brokers.  A 2015 Special Report by Inman Select (inman.com) The Shift Toward Independent Brokerages indicates that the number of real estate agents affiliating with independent brokerages (not affiliated with corporate or franchise real estate companies) grew significantly over the last decade.  The percentage of agents affiliating with independent brokers jumped from about 45 percent in 2006 to about 55 percent in 2015.  About 80 percent of real estate brokerages are independent.  And the trend is expected to continue.

According to the Special Report, the major advantage cited for affiliating with a brand name brokerage is brand awareness.  However, there may be a limit to the influence of a real estate brand.  Unlike retail brands, real estate brands do not have total control over the consistency and quality of the services provided.  That is left to the individual agent.  Independents, on the other hand, cite the ability to quickly adjust to consumers’ needs and being focused on the local real estate market as an advantage.

Yes, the real estate industry appears to be devolving.  Another example of the devolution is a decreasing reliance on the MLS for home listings.  It’s not to say that home sellers are not listing their homes with agents, because an increasing number of sellers are looking to agents for their expertise.  However, brokers and agents are maintaining control over their inventories through alternative means of selling homes, such as pocket listings.  An increasing number of brokers are also restricting their listings from internet syndication to increase the quality of information provided to consumers.  Although it may sound counter-intuitive to not widely broadcast a home for sale on the MLS or internet, however, a lack of transparency remains a problem for some real estate aggregator portals.

Are real estate brokers and agents listening?  The business of real estate is changing and devolving.  Control over the industry has slowly been transferred to real estate consumers.  Real estate consumers are savvy and intelligent.  They know if a broker/agent is really focused on revenue streams, gimmicks and salesy techniques.  Real estate consumers want agents and brokers who are authentic, transparent, and provide a quality service.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

New homes allure is neurological

new homes
New homes (infographic from candysdirt.com)

Last week I mentioned that new home sales jumped 18.7 percent year-over-year, which is a ten-year high.  It should come as no surprise that new homes are selling like hotcakes.  After all, existing home inventory has been and remains historically low, which doesn’t give many options to home buyers.  But there are other reasons for the allure of new construction.  Some of the home buyers’ motives are apparent and some are not so obvious.

The idea of buying new construction goes beyond the “new home feel.”  Buyers of new homes are attracted to modern designs and trends that are incorporated into new houses.  New home construction takes advantage of modern building techniques and materials that allow for the open floor-plan concept that many home buyers prefer.  Many of the materials used in new construction are “engineered” for efficiency and longevity.

Buyers of new homes like the feeling that there will be minimal maintenance for the first year.  Everything is brand new and there is sense of confidence that the home’s systems won’t need major repairs or replacement.  Being the first owner of a home also gives assurance that they won’t have to deal with the poor maintenance habits of the previous owner.  This is a plus for home buyers who don’t have a lot of financial reserves to address home maintenance emergencies.  Instead, they can begin to save and budget for future repairs and replacements that should be years down the road.

New home builders take advantage of current trends in green building practices.  Many new home builders tout their LEED certification, demonstrating their commitment to energy efficiency and sustainable resources.  Green building practices are not only used when the home is built, but is actually built into the design.  Home owners seeking LEED certified builders believe they will have a smaller impact on the environment and save money on energy costs.

A new trend that buyers are pursuing is the “healthy home.”  The healthy home concept emphasizes the quality of the air inside the home.  Home buyers are becoming aware of the physical and environmental benefits of good indoor air quality, which can improve their emotional well-being and reduce the potential for respiratory distress.

But there is another reason why home buyers are attracted to new homes, and it lies within the brain.  Research has demonstrated time and again that consumers respond to novelty.  This means that home buyers have a tendency to want “new.”  This can be interpreted into making an old home new by renovating a kitchen, bathroom, etc.  Or it can mean buying a newly built home.

new homes
the desire for new homes may start with the limbic system (infographic from success-mohawk.com)

The novelty seeking behavior of the home buyer isn’t just a choice, as some may argue, it’s neurological.  Basically, the desire for a new home lies within the brain.  A study conducted by Nico Bunzeck and Emrah Düzel (Absolute Coding of Stimulus Novelty in the Human Substantia Nigra/VTA; 2006; Neuron 51, 369-379) demonstrated that the hippocampal region of the brain responds to novel (new) stimuli.  The hippocampal region is part of the limbic system, which is noted for being responsible for memory and emotions.  It has also been associated with motivation.

The study also discusses the idea that novelty seeking behavior isn’t just emotional, but it is also rewarding.  This means that there is a behavioral loop for seeking new things, including buying a new home.

Home sellers need to take note of these findings.  Translating this study to home buyers may mean that a home’s feeling of “newness” is important, regardless if it’s construction, renovation, or even how the home is decorated.  Understanding what attracts and motivates home buyers can be the tipping point to get a home sold.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Consumer data breach

consumer data breach
Consumer data breach (infographic from breachlevelindex.com)

If you haven’t heard of the Equifax consumer data breach then you’re either uninformed or you just don’t care. Regardless, this breach of personal and private information should make you very concerned.  If not for your own personal data, then for our economy.  The Equifax breach was a massive data heist that included names, birth dates, addresses, phone numbers, and in some cases driver’s license numbers.

Besides causing personal harm, this data breach has the potential to wreak widespread economic havoc.  It was reported that the hack could impact up to 143 million consumers (almost half the country’s population is at risk).  If only 1 percent of the 143 million are not able to buy a home as a result of this data breach because of identification fraud or other credit report problems, that would be about 1,430,000 fewer homes sold, which is about 26 percent of all the existing homes sold in the US last year.  To put it in perspective, there was only a 20 percent drop in existing home sales from market peak (2006) to trough (2009) triggering the worst housing market since the Great  Depression and wiping out much of the country’s real estate wealth.

Let’s be clear, this is not a wake-up call.

The wake-up call came years ago when consumer data breaches and hacking first got the attention of the public and government.  Since, the snooze alarm has continually been reset.  According to the Privacy Rights Clearinghouse (privacyrights.org), since 2005 there have been 7,671 data breaches totaling to 1,070,164,636 records breached.  The clearinghouse only counts the data breaches that “have a high chance of exposing individuals to identity theft.”

One of the first consumer data breaches to draw government ire and fines was the Choicepoint breach in 2005.  The 145,000 consumers affected by that breach pales in comparison to the Equifax consumer data breach.  Choicepoint was fined $10million by the FTC as well as having to provide $5million for consumer redress.

Since Equifax’s public announcement of the consumer data breach, Congress and the Consumer Financial Protection Bureau has called for hearings.  Of course, hearings take time and are a knee jerk reaction to the damage that has already been done.  But the hearings will address the many questions surrounding this incident, such as: how the hack occurred; why it allegedly took Equifax two months to reveal the hack; and why were Equifax executives allegedly allowed to sell company stock before the data breach announcement?

And because of the potential financial and economic impact of hacking and consumer data breaches, the questions that should also be asked include: Why hasn’t government taken steps to protect such information prior this data breach?  How will government protect consumers moving forward?

Are consumer data breaches becoming acceptable?

Equifax’s incident is not the first of its kind, and unfortunately, nor will it be the last.  But it is the largest breach of private and personal information to date.  This incident should make you wonder if the stewards of our private and personal information, along with the government agencies and bureaus, are incapable of or not totally invested in protecting the consumer.

Be vigilant.

Equifax has set up a site to check if you’re affected by this data breach, however many have demonstrated that it does not work properly.  It may be best to assume you’re at risk and take necessary actions to protect yourself. The Federal Trade Commission (www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do), the CFPB (www.consumerfinance.gov/about-us/blog/identity-theft-protection-following-equifax-data-breach) offer tips in protecting your personal and private data.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Real estate BS detector

real estate BS detector
Become a real estate BS detector (infographic from visual.ly)

DARPA issued a recent request for information seeking ideas about how to create automated capabilities to assign “Confidence Levels” to scientific studies, claims, hypotheses, conclusions, models, and/or theories.  In other words, the Defense Advanced Research Projects Agency wants to create a BS detector.  First reported by Adam Rogers for WIRED (Darpa Wants to Build a BS Detector for Science; wired.com; July 30, 2017), DARPA doesn’t look at it as rooting out “BS” but rather establishing the what, why, and how scientists know stuff. Imagine how this could be applied as a real estate BS detector!

The Defense Advanced Research Projects Agency’s stated mission on their website is “to make pivotal investments in breakthrough technologies for national security.”  So, chances are that if they are able to devise a real working BS detector, you won’t know about it.

When it comes to real estate, people sometimes bend the truth.  Additionally, real estate agents are known for “puffery” and are generally not trusted because of the salesy techniques they employ.  But having a real estate BS detector would be huge breakthrough!  Imagine being able to weed through the BS and nonsense that many real estate agents spout when they are clearly trying to sell.  Wouldn’t it be wonderful to check your real estate BS detector, when an agent is pontificating about a house or themselves, to know if the agent is wasting your time?  Unfortunately, the real estate BS detector is not a real device.  However, there are strategies to help you detect real estate BS.

“Luke, trust your feelings.”  Ok, there’s no such thing as a Jedi, but empirical research has demonstrated that intuition can be used to weed out lies.  Many say they rely on their gut instincts to protect themselves.  But the truth is that many ignore or don’t trust their intuition because the rational mind takes over and dominates.  Increasing your intuition could help you detect the real estate BS and prepare for (and maybe prevent) regretful situations.  Becoming more aware about your “gut feeling” can increase your intuition.

Being cynical can also help detect real estate BS.  Don’t be rude of course, but questioning what others say helps you clarify and understand them at a higher level.  It can also reveal untruths.  Question all claims and over-the-top statements.  For example, if you’re dealing with a real estate agent, ask for support to any assertion they make about themselves or their services.  Ask to speak to their references.  Also, ask for additional information that support their opinions on the housing market and deciding on a price to sell or buy a home.

Do your due diligence to discover real estate BS.  After asking questions, take what others say or do during the real estate transaction at face value and take it upon yourself to verify it.  It can save you a headache down the road.  It’s easy to verify many aspects of the real estate transaction, because many local jurisdictions have their databases online.  However, making a call or two to a helpful government employee is straightforward and can provide bonus information.  Verify licenses of real estate agents, loan officers, and even home contractors.  Verify permits of home improvements.  Verify the local schools and the home’s zoning.

Finally, don’t feel pressured to do anything.  The BS artist will make it seem as if you have to act immediately.  But if you are not comfortable with the situation or are not yet ready, take a pause.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.