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.

Confidential information

confidential information
Keeping your information confidential (infographic from larealtors.org)

A real estate agent, who allegedly represented Paul Manafort’s family, recently asserted his fiduciary privilege to avoid appearing in front of a grand jury.  However, as Politico reported, his efforts were thwarted by a judicial opinion, and subsequently reported to the grand jury.  But can confidential information be disclosed?

A fiduciary is generally described as someone who acts as a custodian of their client’s rights and/or assets.  The fiduciary has a responsibility to act with honesty and integrity, as well as act in their client’s best interest and not exert influence or pressure on their client for their own or others interests.

Both the National Association of Realtors and the Annotated Code of Maryland (COMAR) reference directly and indirectly a real estate agent’s fiduciary obligation and handling confidential information.  The NAR Code of Ethics Standard of Practice 11-2 states that a Realtor (when acting as an agent or subagent) has “the obligations of a fiduciary.”  COMAR states about the brokerage relationship (MD BUSINESS OCCUPATIONS AND PROFESSIONS Code Ann. § 17-534):

Except as otherwise provided by this title or another law, keep confidential all personal and financial information received from the client during the course of the brokerage relationship and any other information that the client requests during the brokerage relationship to be kept confidential, unless (i) the client consents in writing to the disclosure of the information; or (ii) ) the information becomes public from a source other than the licensee.

Of course, all jurisdictions are different, having their own laws and customs that govern the actions of real estate agents.  Manafort’s alleged real estate agent claimed a fiduciary privilege under the DC and VA real estate statutes, which is similar to Maryland’s.  However, in a recently unsealed Memorandum Opinion (www.dcd.uscourts.gov/unsealed-opinions-sealed-cases), Chief Judge Beryl A. Howell of the US District Court for DC believes that real estate agents don’t have an “absolute duty of confidentiality.”  She opined that a real estate agent is not excused from complying with an obligation to respond to a grand jury.  But what about confidential information?

Judge Howell wrote:

The respondents take the position that a court order compelling compliance with federal grand jury subpoena is required to overcome the confidentiality protection afforded to real estate brokerage records under District of Columbia and Virginia law. They rely on identical provisions of District of Columbia and Virginia statutes that require a real estate licensee engaged by a buyer, such as the Clients, to ‘[m]aintain confidentiality of all personal and financial information received from the client during the brokerage relationship and any other information that the client requests during the brokerage relationship be maintained confidential unless otherwise provided by law or the buyer consents in writing to the release of such information.’ D.C. Code § 42-1703(b)(1)(C); Va. Code § 54.1-2132(A)(3) (emphasis added). The government does not dispute that these statutes extend confidential treatment to the subpoenaed information, but argues that ‘the laws do not impose an absolute duty of confidentiality on real estate agents’ or excuse compliance with ‘a legal obligation—enforceable by a federal court—to respond to the grand jury’s request for documents, testimony, or both.’”

A real estate agent’s fiduciary obligation and handling confidential information is not taken lightly.  Thankfully, most real estate agents don’t face a grand jury subpoena.  However, during the course of daily business, a real estate agent does have an obligation (whether by NAR Code of Ethics, their local statute, or both) of keeping their client’s personal and financial information confidential.

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.

Home listing syndication is big business

home listing syndication
Home listing syndication (infographic via trendmls.com)

Your home listing is a hot commodity!  Not just to home buyers looking to buy, but to those who buy and sell information on the internet.  MLS home listing information syndication is big business.

Much of what you see, hear, and read on TV, radio, and the internet is syndicated and distributed through a broad network of affiliated outlets.  The purpose is to have as large of an audience as possible.  The larger the audience, the larger the advertising revenue.  Syndicating and distributing media content has been around for a very long time, and has been very a lucrative industry for those involved.

Internet syndication is no different and has become sophisticated, such that websites will pay for licensed content.  The content attracts visitors and generates revenue via ads and/or pay-per-click.  Needless to say, internet syndication has developed to become a multi-billion-dollar industry.

When you think about making money in real estate, you probably think about buying and selling property, not the internet.  Most people don’t realize that real estate information generates $billions on the internet.  Real estate portals generate revenue by publishing content that attracts home buyers and sellers.  The sought after content, of course, is your home’s MLS listing.  Websites generate income by selling real estate and other professionals access to consumers who visit their sites to view your MLS listing.

You may not know this, but your home’s listing is copyright-protected by your agent’s Multiple Listing Service.  The content is licensed and syndicated to internet real estate portals and other publishers for a fee.  How much do websites pay for MLS licensed content?  Heck, you’d be hard pressed to find that information, much less acknowledgement that there is a fee paid at all!  And I suspect that information is not readily disclosed because consumers would be up in arms if they knew.

However, an article by Natalie Sherman appeared in the Baltimore Sun on January 27, 2015 (MRIS looks to partner with Zillow) gives a hint about the monetary relationship between MLS boards, syndicators and publishers.  Ms. Sherman wrote:

“Under the current system, Zillow pays to receive listings from Listhub.com, which has agreements with hundreds of multiple listing services, including MRIS, to provide syndication services to sites such as Zillow. Earlier this month, Zillow and Listhub said their existing deal would not be renewed.

A representative for Zillow, which has been working to establish more direct relationships with brokers and listing services for years, said a new deal would help keep the site more up to date.”

The article refers to the 2015 shakeup of real estate listing feeds to specific websites, such as Zillow.  At that time, Zillow sought direct deals with individual MLS boards, such as our local MRIS (now part of Bright MLS), to get MLS home listing feeds.

Chances are that you are unaware that the information about your home that is uploaded to the local MLS (including pictures of your home) become the property of the MLS.  Much less, you may not know that the information is licensed to others for a fee to be used on other websites.

Even though the MLS boards charge subscription fees to agents for the privilege of uploading and viewing content, they might argue that the fees generated by licensing and selling your information helps maintain the MLS system.  However, not disclosing this aspect of the real estate listing poses some ethical questions that must be addressed.

Of course, there are real estate brokers who have opted-out of syndication of their MLS listings.  These brokers want to retain control of  home listing information to ensure accuracy and maintain professionalism when presenting your home to the public.

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.

Listing agent secrets you need to know

Listing agent Secrets

There are a number of topics that your listing agent probably won’t discuss with you, or can’t properly explain.  Here are several listing agent secrets that you need to know:

Your agent won’t sell your home

home for saleYour home will likely sell to a home buyer who is represented by a buyer agent. This notion is supported the 2016 National Association of REALTORS® Profile of Home Buyers and Sellers (nar.realtor), which reported that 88 percent of home buyers used an agent to buy a home.  The remaining 12 percent of home buyers purchased through other means, including with the help of the listing agent, or even a FSBO.  Although your listing agent may claim to have sold the most homes in the neighborhood, the truth may actually be that they are only facilitators.  The buyer agent who actually “sells” the home is labelled the “selling agent” by the industry.

Buyers are not finding homes in print

listing agent secrets
Agent secrets (infographic from nar.realtor)

Print advertising no longer is the means of selling a home. More information from the 2016 National Association of REALTORS® Profile of Home Buyers and Sellers indicate that having a nice spread in a magazine, or posting open houses in the local paper is probably a sales ploy to get your listing.  The Profile reported that home buyers reported how they found their home as follows (nar.realtor):

  • Internet: 51%
  • Real estate agent: 34%
  • Yard sign/open house sign: 8%
  • Friend, relative or neighbor: 4%
  • Home builder or their agent: 2%
  • Directly from sellers/Knew the sellers: 1%
  • Print newspaper advertisement: 1%

Bigger is not better

Another one of your listing agent secrets is that the larger your agent’s brokerage or team, and having a high number of homes actively listed may actually be detrimental to your home sale!  An empirical study by Shiawee X. Yang and Abdullah Yavaş (Bigger is Not Better: Brokerage and Time on the Market; The Journal of Real Estate Research; 1995, Vol. 10, No. 1, pp. 23-33) reported the following results:

  1. The amount of agent’s commission is not indicative of your home’s time on market;
  2. The size of the listing firm does not affect your home’s time on market;
  3. Homes listed and sold by the same firm (i.e., dual agency) does not reduce time on market;
  4. The more active listings your agent has, the longer your home may sit on the market because they do not devote to the time to your sale.

Yang and Yavaş suggest that the larger the listing firm, the more incentive to “cheat” days on market by circulating new listings within the firm before entering it in the MLS, which also increases the chances of a dual agency situation.  “Private placement,” or pocket listings can have similar dual agency results.

Dual agency could cost you

Chances are that your listing agent doesn’t totally understand dual agency, and therefor may not be able to explain how it affects your sale and potentially your sale price.  The Maryland Real Estate Commission’s “Understanding Whom Real Estate Agents Represent” disclosure states:

The possibility of dual agency arises when the buyer’s agent and the seller’s agent both work for the same real estate company…The real estate broker or the broker’s designee, is called the “dual agent.” Dual agents do not act exclusively in the interests of either the seller or buyer, and therefore cannot give undivided loyalty to either party. There may be a conflict of interest because the interests of the seller and buyer may be different or adverse.

One of the listing agent secrets is that dual agency may not be beneficial to you, and can even lower your home sale price.  There are a number of empirical studies that indicate conflicts of interest and other issues that arise out of dual agency.  But a study by Joachim Zietz and Bobby Newsome (Agency Representation and the Sale Price of Houses; Journal of Real Estate Research; 2002, Vol 24, No 2 pp. 165-91) found that a home’s sale price drops about 3.7 percent when the listing and buyer agents are from the same firm.  They stated:

the fact that buyers may obtain a lower price by engaging a buyer’s agent from the same firm as the listing agent raises the issue of whether or not the listing firm is shortchanging the seller. The evidence appears to suggest that the agency relationship between seller and listing agent may be compromised.

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.