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.

Original located at https://dankrell.com/blog/2017/12/29/consumers-devolving-real-estate/

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.

NAR should promote Realtor Authenticity

Realtor Authenticity
Rules of Authenticity (infographic from MarketingWeek.com “How to be an Authentic Brand”

Several years ago I told you about the National Association of Realtors’ attempt in shifting consumer attitude towards Realtors.  They are pivoting away from selling Realtor integrity, to selling Realtor value.  In 2014, the NAR voted on creating a Code of Excellence to demonstrate competency.  It wasn’t until this past November that the NAR approved a framework of competencies for agents to achieve.  The eagerly anticipated implementation will allow Realtors to assess and grow their skills and knowledge in many aspects of the business of real estate.  But this Commitment to Excellence, as it is named, may help Realtors increase their competency; but in the end, just like being proficient in the Code of Ethics, it will likely fall short in building consumer trust.  The NAR should promote on Realtor authenticity.

Having agents commit to more training is a good idea in building competency among real estate practitioners.  However, 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).

Realtors have a trust gap.  And a badge indicating competency and a Commitment to Excellence won’t bridge that gap.  The business of residential real estate is likened to a game of smoke and mirrors.  Instead of encouraging Realtor authenticity, agents are often taught techniques of persuasion to increase sales.  Many agents devise gimmicks and expensive marketing materials to entice you to do business with them.  Even before you meet with a real estate agent, they are likely scheming how to gain your trust.  Whether or not they earn it is an entirely different matter.

Instead of creating another Realtor badge, designation or code, the NAR should consult with James Gilmour and Joseph Pine II (of the Strategic Horizons LLP).  The title of their 2007 groundbreaking book sums it up nicely: “Authenticity: What Consumers Really Want.”  Realtor authenticity is sorely lacking in the industry, and it’s not just the NAR; it stems from the brokers who train real estate agents as well.  In order for Realtors to build trust, they need to be authentic.

A brief 2004 article by Michael Angier (Authenticity Matters: Are you the real McCoy; Sales & Service Excellence Essentials. Vol. 4 Issue 9, p10) highlighted the necessity for authenticity in the sales environment.  He stated that “People like to do business with people they like. And they like people who are like themselves… Buyers today are savvy. They have more choices. And they can tell whether the company and the people in it are congruent. They seek out, resonate with and tend to be loyal to companies that are authentic. Your uniqueness and the things you’re best at doing are part of your differentiating position. It’s who you are—your identity. It’s what people can relate to. If there’s anything false, made up or covered over, your prospects will sense it. And they can’t even tell you why they didn’t buy…”  Realtor authenticity would certainly positively affect client satisfaction.

Realtor authenticity will not only build trust but can also increase sales.  And indeed, a 2006 research article by Allen Schaefer and Charles Pettijohn (The Relevance Of Authenticity In Personal Selling: Is Genuineness An Asset Or Liability? Journal of Marketing Theory & Practice. Vol. 14 Issue 1, p25-35) confirms that authenticity is related to sales performance.  Their results indicated that salespeople who felt more authentic in their roles performed at higher levels and had a higher commitment to “personal selling.”

What do you think?  Below is the framework of the Commitment to Excellence Program as adopted by the NAR is below (from nar.realtor/policy/commitment-to-excellence). It seems to me that Realtors should already be striving to be competent in these areas:

1) Being current and knowledgeable about the laws, regulations and legislation affecting the real estate disciplines the REALTOR® engages in, and about real estate in their community generally.

2) Understanding the Code of Ethics is a living document, and keeping themselves informed about its duties and obligations on an ongoing basis.

3) Providing equal professional services to all consistent with Article 10 of the Code of Ethics.

4) Advocating for property ownership rights in their community, state and nation.

5) Acknowledging and valuing that honesty and integrity are fundamental and essential to REALTORS® being known as consumers’ trusted advisors.

6) Becoming and remaining proficient in the use of technology tools to provide the highest levels of service to clients, customers and the public, and facilitating cooperation by sharing accurate, current information with consumers and with other real estate professionals.

7) Keeping up-to-date on laws and regulations governing data privacy and data security, and taking necessary and appropriate steps to safeguard the privacy and integrity of information entrusted to them.

8) Committing themselves to enhancing their knowledge and skills in the real estate areas of practice they engage in on an ongoing basis.

9) Providing superior customer service.

10) Appreciating that courtesy, timely communication and cooperation are fundamental to facilitating successful real estate transactions, and to building and maintaining an impeccable professional reputation.

11) As a broker-owner or principal of a real estate company, being committed to creating and maintaining an environment that promotes excellent customer service consistent with these standards.

Original published at https://dankrell.com/blog/2017/03/09/nar-promote-realtor-authenticity/

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.

DANGER Report not a mea culpa – but forecasts issues affecting housing market

real estateNews about the D.A.N.G.E.R. Report is making the media rounds, but maybe the excitement is more hyperbole than news. And contrary to the recent hype, the D.A.N.G.E.R. Report is not a mea culpa by the National Association of Realtors®.

D.A.N.G.E.R. is an acronym for “Definitive Analysis of Negative Game changers Emerging in Real estate.” The Report was commissioned by the National Association of REALTORS® as that is part of the NAR Strategic Thinking Advisory Committee’s attempt to identify issues affecting the future of the industry; the Swanepoel | T3 Group researched and authored the Report, which identifies trends and offers the residential real estate industry an impact assessment.

Described as a “…mix of yesterday, today and tomorrow…” the Report is intended to assist those in the industry to “…anticipate the forces taking shape that we can’t yet see;” by pointing out possible challenges, threats, and opportunities. Although the result is meant to “inspire” discourse, the reception has so far been mixed. NAR CEO Dale Stinton was quoted to say, “The D.A.N.G.E.R. Report is like 50 things that could keep you up at night. It isn’t a strategic plan. It isn’t telling you to do anything. It’s 50 potential black swans. It’s for your strategic planning processes. Digest it and cuss and fuss and decide whether it’s right or wrong…” (Anrea V. Brambila; ‘Danger’ report alerts industry to 50 biggest threats; inman.com; May 15, 2015).

One issue highlighted in the Report that has attracted the media attention is agent competency and ethics. The use of Report quotes such as, “the real estate industry is saddled with a large number of part-time, untrained, unethical, and/or incompetent agents…” is as if some in the media are saying “we told you so.” But the truth is that competency does not guarantee ethical behavior, and vice versa; the answers, like the issues, are more complex than you might expect – and do not assure advancement.

Like many of the issues reported in D.A.N.G.E.R., concern about agent competency and ethics is not new. The National Association of Realtors® has for years tried to influence public opinion of Realtors® and the industry by publicly promoting the high ethical standards by which Realtors® are held. Many are unaware that a code of ethics was adopted in 1913 by the association, and has since strived to instill and maintain a high level of integrity in the field. And yet with such emphasis on ethics, you might expect that public opinion would be much higher, but the limited research on consumer perception of ethics is mixed at best. And according to one study, consumers consider price, quality, and value more important than ethical criteria in purchase behavior (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing. 2001;18(7),560-577).

The D.A.N.G.E.R. Report may have missed the mark by not acknowledging that the industry’s transformation over many decades has been mainly influenced and driven by market forces, regulation, and technology. Discussing “black swans” with regard to these three areas may have been more valuable and practical to professionals and consumers.

However, as much as we try to identify unforeseen events; they are just that – unexpected and unanticipated. Take for instance the extreme changes that have occurred over the last ten years in the real estate industry – much of which were due to market forces, regulation, and technology.

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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.

Skepticism increases 1.3% on conflicting housing data

by Dan Krell © 2012
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housing dataWhen the National Association of Realtors® announced last week that April’s existing home sales increased 3.4% to an annually adjusted rate of 4.62 million compared to a downwardly revised 4.47 million in March (http://www.realtor.org/news-releases/2012/05/april-existing-home-sales-up-prices-rise-again), I have to admit I was a bit skeptical. The local market is not exactly humming along, so as I read in the above referenced NAR release that April’s existing home sales rose 10% over the figure from April 2011, I thought some perspective is needed.

Let me quote you some housing statistics. The number of Montgomery County single family homes that sold increased 5.1% in February, 14.7% in March, 33.9% in April and 27.9% in May (MRIS data reported by the Greater Capital Area Association of Realtors®; gcaar.com). These numbers are not from 2012; but rather, these are the local stats from 2010 compared to closings from 2009. Yes, as you remember – 2010 was a spectacular year for local real estate!

Sarcasm aside, the number of Montgomery County single family home closings increased 5.8% during April 2012 (compared to 2011); and the number of Montgomery County condo closings also increased 8.1% during the same time. But, Montgomery County year-to-date settlements are still below the number of settlements that occurred during the same time in 2011 (-1.4% for single family homes; and -2.8% for condos). Although the 690 single family home settlements that occurred in April 2012 is higher than 652 that occurred in April 2011, the 2,034 single family home settlements that occurred year-to-date through April 2012 is lower than the 2,062 settlements that occurred the same period in 2011. Regardless, the number of settlements is far lower than what we have seen in past “normal” markets (for example, GCAAR reported that there were 849 settlements of Montgomery County single family homes in April 2001).

It must be noted that although the first half of 2010 seemed to be on a role, the number of 2010 Montgomery County single family home closings actually ended the year slightly lower than 2009. So, even though we have a month of some positive news, let’s be cautious about making assumptions.

housing dataOk, I know you’re going to ask about NAR’s statements about rising home sales. Sure, NAR chief economist, Lawrence Yun, was reported to say that “the housing recovery was underway.” He was also quoted to say, “A return of normal home buying for occupancy is helping home sales across all price points, and now the recovery appears to be extending to home prices…”

However, the latest release of the S&P/Case-Shiller Home Price Indices (May 29th; standardandpoors.com) states “that all three headline composites ended the first quarter of 2012 at new post-crisis lows.” Although there was a 1.6% decrease in home prices in the Washington DC metropolitan area in February compared to January, there was a 1% increase in March compared to February; however, prices have decreased 0.6% for the year.

Although media headlines shout that housing has turned a corner, it’s a little premature to assume that the housing market has normalized with only one month’s data. The housing market has turned so many corners in recent years that I think we’ve made several circles! Just as in 2010, let’s see the final tally. There’s still some data to collect; let’s see how the housing market fares through the remainder of the summer.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 28, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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