Housing Finance Reform Time

housing finance reform
Mortgage process

Earlier this year, President Trump released a memorandum indicating the need to reform the current structure of housing finance.  Although some believe this initiative is a distraction, the reality is that housing finance reform has been in the government sights for years.  In fact, the current state of mortgage markets was only meant to be a temporary fix after the financial crisis of 2007

Housing finance reform has been a popular political subject for years.  Even before the financial crisis that resulted in the Great Recession, housing finance reform was front and center as a means to increase homeownership.  However, it wasn’t until after the financial crisis that touched off in late 2007 that Congress saw the need to make immediate major reforms to the mortgage industry.  Although a strategy was mapped out, not everyone agreed on the plan. 

One of the first steps taken by Congress was passing the bipartisan Housing and Economic Recovery Act of 2008 (HERA).  The purpose of HERA was to be a comprehensive attempt addressing the identified problems and concerns (at that time) that caused the financial crisis.  HERA created the Federal Housing Finance Agency (FHFA) to provide oversight of the Government Sponsored Entities (GSE).  Among the goals set by HERA was to “modernize” FHA and reduce Fannie and Freddie’s role in mortgage markets.  The fate of Fannie and Freddie has been debated ever since. 

The subsequent government takeover of Fannie and Freddie all but froze out any private participation in the mortgage markets.  A 2010 CBO report indicated that 90 percent of all mortgages were owned by Fannie Mae, Freddie Mac, and Ginnie Mae.  Some estimate government’s involvement has been much higher when including FHA and VA loans.   

Fast forward to March 27th 2019, when President Trump issued a memorandum on the urgency of housing finance reform.  Although the memorandum provides a rationale to change the system, the timing couldn’t be any more ideal (to help a seemingly plateaued housing market).  The President’s push for reform acknowledges the dominant role of the GSE in mortgage markets without much competition from the private sector.  The plan is to reduce taxpayer risk by expanding the private sector’s role.  Furthermore, the goal is to “modernize government housing programs, and make sustainable home ownership for American families [our] benchmark of success.”

On September 5th, the Treasury Department submitted its plan on housing finance reform.  The pan, as described by a Treasury press release (Treasury Department Submits Housing Reform Plan to President; treasury.gov)  “includes nearly 50 recommended legislative and administrative reforms to define a limited role for the Federal Government in the housing finance system, enhance taxpayer protections against future bailouts, and promote competition in the housing finance system.”

Although the result of HERA was a government monopolized housing finance industry, it was not the intention.  Housing finance reform means returning to a competitive market that includes the private sector.  However, it does not imply the end to government participation. Prior to the financial crisis, the competitive mortgage industry helped a record number of home buyers achieve homeownership.  Reforming housing finance markets is key in returning to a stable and reliable housing market across all sectors and price points.  Housing finance reform will increase homeownership opportunities for those who have struggled with the prospect of buying a home.  And of course, home sellers will benefit from increasing numbers of home buyers entering the housing market.

Original article is located at https://dankrell.com/blog/2019/10/07/housing-finance-reform-time/

By Dan Krell
Copyright© 2019

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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.

Identity protection real estate

identity protection
Be proactive with identity protection (infographic from nsa.gov)

Even with precautions and laws to protect your sensitive data while conducting financial transactions, there can still be a weak link in the chain that can put your personal data at risk.  You may not have heard about the latest data breach, but it involved the potential leaking of over 24 million mortgage documents. Identity Protection during the real estate process takes awareness and vigilance. However, what do you do after the transaction is over?

The data breach to which I refer was discovered and reported by Bob Diachenko, Cyber Threat Intelligence Director of Security Discovery with the assistance of Zack Whitaker of Techcrunch.  This data breach was discovered by Diachenko just by searching public search engines.  According to Diachenko’s report (securitydiscovery.com/document-management-company-leaks-data-online), the unprotected database contained about 51 GB of credit and mortgages information.  The database potentially exposed more than 24 Million files.

Essentially, the over 24 million unprotected records (24,349,524 according to Diachenko) that existed on the database were likely scanned (OCR) from original documents.  Diachenko stated, “These documents contained highly sensitive data, such as social security numbers, names, phones, addresses, credit history, and other details which are usually part of a mortgage or credit report. This information would be a gold mine for cyber criminals who would have everything they need to steal identities, file false tax returns, get loans or credit cards.” 

Diachenko and Whitaker tracked down the owner of the database and found that the exposed database belonged to a third party.  After the database was secured, however, Diachenko found a second vulnerable server that contained original documents.

How is consumer iinformation handled through through institutional real estate transactions?

According to Whitaker, the documents date as far back to 2008, possibly further.  The documents concerned “correspondence from several major financial and lending institutions” including government entities such as HUD.  Whitaker stated that not all data was “sensitive,” however the database included: names, addresses, birth dates, Social Security numbers, bank and checking account numbers.  They also found some documents that contained other “sensitive financial information,” such as bankruptcy and tax documents, including W-2 forms. 

To understand the broader implications of identity protection in a real estate transaction, read Diachenko and Whitaker’s first (techcrunch.com/2019/01/23/financial-files) and second (techcrunch.com/2019/01/24/mortgage-loan-leak-gets-worse) report. The reporting of Diachenko and Whitaker is significant because it exposes how your identity and sensitive information can be mishandled in the broader financial transactional process that occurs between entities.  Even though direct correspondence with you may be encrypted and secure, security lapses can occur during the institutional transaction process (such selling and/or transferring a mortgage)

The moral of the story is that once your information is out of your hands, you cannot assume it’s 100 percent secure.  Even blockchain technology, which has been touted as a safe means of digital data management, has weaknesses.  And as governments and financial institutions are looking to blockchain as the “answer” to data security, there are reports of “attacks” of increasing sophistication according to James Risberg (Yes, the Blockchain Can Be Hacked; coincentral.com; May 7, 2018). 

Take your identity protection seriously when buying and selling a home

Be vigilant and proactive to protect your identity and sensitive information.  Be wary of unsolicited requests for information, even if it appears to be from someone with whom you are conducting business. Always make a call to confirm the request. Consider a credit freeze to prevent fraudsters from opening credit accounts in your name.  Check your credit report regularly and dispute errors.  If you’ve been a victim of identity theft, the FTC’s IdentityTheft.gov site can help you report it and create a recovery plan.  You can learn more about protecting yourself from identity theft from the FTC (consumer.ftc.gov) and the Federal Reserve (federalreserveconsumerhelp.gov).

Original published at https://dankrell.com/blog/identity-protection-real-estate

By Dan Krell. Copyright © 2019.

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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.

Does a shutdown affect home sales?

shutdown
Home Sales (infographic from nar.realtor)

There hasn’t been this much anxiety about a government shutdown since October 2013.  Back then, the government was “shutdown” for sixteen days.  Of course, when the federal government “shuts down,” it’s really a partially interrupted.  A majority of government operations continue.  But even a partial government shutdown has the potential to affect home sales.

Since only a portion of government employees get furloughed during a shutdown, there is always confusion about which agencies are affected.  Back in 2013 many home buyers were jittery about getting their FHA and VA loans processed so they could settle on time (the FHA is a part of HUD, while VA mortgages are guaranteed by the Department of Veteran Affairs). Additionally, many industry insiders were unsure about the impact a government shutdown would have on the recovering housing market. 

Today we have some idea how government housing programs, specifically mortgages, will be affected during this time because most federal agencies publicly post their shutdown contingency plans. 

FHA’s 2013 shutdown contingency was focused on maintaining consistency in the housing recovery.  The contingency plan stated “The Office of Single Family Housing will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market.  Approximately 80% of FHA loans are endorsed by lenders with delegated authority.  The remaining 20% are endorsed through the FHA Homeownership Centers, leveraging FHA staff with a contractor that works on-site.

The current FHA contingency is confident that most FHA loans will be unaffected.  However, there is a warning that an extended shutdown can impact home sales.  HUD’s Frequently Asked Questions in the event of a Government Shutdown, statement on FHA’s operations states:


“Because we are able to endorse most single family loans, we do not expect the impact on the housing market to be significant, as long as the shutdown is brief. With each day the shutdown continues, we can expect an increase in the impacts on potential homeowners. home sellers and the entire housing market. A protracted shutdown could see a decline in home sales, reversing the trend toward a strengthening market that we’ve been experiencing.

VA loans may be better positioned.  It is widely acknowledged that the Veteran Affairs learned from the government shutdowns that occurred in 1995-96. During that time, “Loan Guaranty certificates of eligibility and certificates of reasonable value [appraisals] were delayed.”  However, because VA funding includes “advance appropriations,” a majority of the VA’s operations will continue during a federal government shutdown (including mortgages).  The VA’s contingency plan indicates that in the event of a government shutdown 95% of VA employees will be fully funded or required to perform “excepted” functions.

Will a short-term federal government shutdown affect the housing market?  Probably not.  VA loans are expected to continue without much issue.  However, certain HUD functions required for FHA mortgages could be limited, but not expected to cause delays in the short-term.

However, an extended shutdown has the potential to affect home sales.  Consider that FHA’s mortgage market share increased to approximately 17 percent in 2017 (compared to about 13 percent in 2013).  Significant FHA settlement delays could occur in long-term, which would surely have an impact on the housing market.  However, considering that home sales have dropped off since the summer, and the market is typically slow during this time of year, the effect on housing will probably be negligible. 

Original published at https://dankrell.com/blog/2018/12/23/shutdown-affect-home-sales

By Dan Krell. Copyright © 2018.

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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.

Mortgage Choice Act good or bad?

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.

By Dan Krell
Copyright © 2018.

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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.

Mortgage lender shell game

mortgage lender
How to choose a mortgage lender (infographic from consumerfinance.gov)

Realtors and other real estate professionals eagerly look forward to the annual Profile of Home Buyers and Sellers.  The Profile, published by the National Association of Realtors, provides insight into the preferences and decisions of home buyers and sellers. After thirty-five years of publication, the Profile has become somewhat of an important contribution to housing trends and economics.  But did you know that the mortgage lender and the mortgage industry has a survey of their own?

The National Mortgage Database (NMDB) is a multiyear project conducted by the Federal Housing Finance Agency (fhfa.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov).  The NMDB project incorporates two consumer surveys, the National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers.  The NMDB is meant to provide statutory guidance and lending policy direction.  The database has yielded interesting data about how and why borrowers choose their mortgage lender, as well as their experiences and interactions during the mortgage process.

The NMDB has produced a colossal amount of data across many aspects of the consumer-mortgage lender relationship.  The preliminary analysis indicated that consumers don’t really shop for a lender.  Many home buyers use the mortgage lender recommended by their agents and others.  Most notable is that about half of the home buyers surveyed only considered one mortgage lender.  Not a surprise is that the small percentage of home buyers who apply to more than one lender are typically motivated by better terms (such as interest rate).

The mortgage lender is an important aspect of the home buying process.  Unfortunately, the NMDB suggests that home buyers are not doing their homework, and possibly choosing their mortgage lenders for the wrong reasons.  The mortgage process is an intricate dance between the buyer, the loan officer/processor and the underwriter.  The mortgage lender can either provide a smooth and “stress free” closing, or a bumpy process that can cause anxiety and delays.

When you’re buying a home, “time is of the essence” (it states that on the first paragraph of your contract).  Choosing the wrong lender can cause delays and potentially cost you money.  Issues can occur with any mortgage lender at any time during the mortgage process.  Problems can sometimes stem from the inexperience of the loan officer/processor, who does a poor job communicating what is needed from you.  More often, issues arise during the underwriting process because of a slow turnaround time.

Believe it or not, many mortgage lenders have their loan officers, processors, and underwriters separated in different offices.  Sometimes the different offices are located in different cities, which can add time to the process.  Sometimes. lenders have their processing and underwriting all in the same office, which helps facilitate communication and a loan approval.

As a home buyer, RESPA gives you the right to choose your mortgage lender.  The process of choosing the best lender for you should not be much different than choosing your Realtor.  Ask your agent and others whom you respect for referrals.  Do your homework and consider at least three of the referrals, if not more.

In addition to comparing interest rates, compare the lender fees.  Lender fees can vary and can add unnecessary cost to your closing.  Since you will be communicating with the loan officer and processor a great deal through the home buying process, talk to them to get a feel for how they interact with you.  Besides to asking about their company, ask the loan officer about their background and experience.  Find out how their underwriter operates and ask about the underwriting turnaround time.  And make sure the lender is licensed.  You can check a lender’s licensing by checking with the consumer portal of the Nationwide Multistate Licensing System  (also known also known as the Nationwide Mortgage Licensing System or the NMLS).

Original located at https://dankrell.com/blog/2017/12/15/mortgage-lender-shell-game/

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.