Real Estate News and Commentary

February 26, 2008October 5, 2019

Stereotyping, Bias and Equal Housing

by Dan Krell

What comes to mind when you think about equal housing? If you are like many, your first inclination is to think about incidents of racial or sexual discrimination. Unfortunately, however, there are many other forms of bias that have affected (and still affect) some home buyers.

Why do people have bias towards others? Dr. Mahzarin Banaji, Professor of social psychology at Harvard University, has studied stereotypes and bias for over twenty years and has published many studies about the topic. In a past Psychology Today article, Dr. Banaji stated that this area of research has shifted from the outward expression of bias to inward beliefs and stereotypes. She found that even though individuals may outwardly express their acceptance of all people, their beliefs may be vastly different. Does this mean that it is human nature to seek out and perpetuate differences in people?

One suggestion is that our beliefs and internal creations of stereotypes may be a manifestation of societal, cultural, and familial influences combined with an individual’s personal experiences. As we outwardly strive for an equal society with no boundaries, psychological research indicates that we as individuals are a long way from unconditional acceptance of others. In other words, bias and stereotyping may reveal more about us individually than they do about our present culture.

Until we can change the nature of our inward stereotypes and eliminate the outward expression of all bias, we continue to need laws to protect those who are victims of stereotyping, bias, and discrimination. Federal and local laws prohibit discrimination against protected classes of individuals. Federal law prohibits discrimination due to race, color, sex, religion, national origin, mental or physical handicap, and familial status. The State of Maryland adopted the Federal protected classes and added additional protected classes, under article 49B in the Annotated Code of Maryland (COMAR), of martial status and sexual orientation.

Chapter 27 of the Montgomery County Code also protects classes of individuals from discrimination in real estate transactions. In addition to the Federal and State protected classes, Montgomery County law also protects individuals form discrimination due to ancestry, source of income, presence of children, and (effective February 20, 2008) gender identity.

According to a County Council Press Release (Release ID: 07-091), the new Non-Discrimination – Gender Identity legislation, “affirms the rights of transgendered residents of Montgomery County to equal treatment under the law.” Additionally, thirteen states and the District of Columbia (as well as other jurisdictions) have passed similar legislation.

In a real estate transaction, a person’s ability to purchase or rent a home is the only item of significance. Unfortunately, bias, stereotyping and discrimination continue. If you have been a victim of discrimination, you can report the incident to the following: The Department of Housing and Urban Development (www.HUD.gov) investigates claims of housing discrimination on federally protected classes; The Maryland Commission on Human Relations (www.mchr.state.md.us) investigates complaints of discrimination based on COMAR article 49B protected classes; The Maryland Real Estate Commission also investigates discrimination based complaints against real estate licensees and brokers, and takes any necessary actions including revocation of licenses; and The Montgomery County office of Human Rights (240-777-8450) investigates housing discrimination complaints filed within the county.

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 February 4, 2008. Copyright © 2008 Dan Krell.

February 26, 2008November 23, 2021

Know Your Home Warranty Coverage

by Dan Krell
Google+

The most expensive purchase you may make in your life may be a home. After spending so much money on a home, the last thing you would want to think about is, “what if the appliances or systems break down?”

If the home that you purchased is newly built, your home has a number of manufacturer and builder warranties that cover various structure components, systems, and appliances. If you are unaware of your warranties, you should contact the builder, builder representative, or your real estate agent to determine what items are warranted as well as the length of those warranties.

However, if the home you purchased is not newly built, then chances are that all or most of the original manufacturer and or builder warranties have expired. The good news is that a home warranty can be purchased at settlement. Home sellers sometimes offer home warranties as an incentive for home buyers, while some real estate agents buy a home warranty for their clients as a closing gift. Home owners sometimes purchase a home warranty plan years after they move in to their home.

A common misconception is that a home warranty will unconditionally cover any problem and replace non-working systems and appliances without cost to the home owner. The truth is that home warranties have limitations to the scope of their coverage and services as well as conditions under which a home owner may make a claim. A home warranty is a service contract and in some cases the warranty acts like an insurance policy; home warranty plans vary depending on the company offering the plan and level of coverage. If you are deciding on a home warranty company, compare companies by reviewing differences in coverage, deductibles and service fees. Typical plans last a year and are renewable, however some companies offer multi year plans. Typical coverage may include appliances such as dishwashers, clothes washer and dryer. Some companies may offer coverage for furnaces, air conditioning, plumbing fixtures (such as hot water heater), and some electrical fixtures. Expanded coverage may cover hot tubs and pools (at an expanded price of course).

Home warranty companies want you to call them when you need service, so they can send an affiliated service provider. If you call someone other than the home warranty company to repair the broken item, the warranty may not cover the expense of repairs. If the home warranty company’s service technician can repair the broken item, then there is usually no further cost other than to pay for the service call. However, if the item is not repairable then the home warranty company may replace it. The home warranty company may deny the claim to replace an appliance or system for various reasons (such as, improper instillation, improper maintenance, unusual usage, and code violations). Additionally, if the appliance or system is beyond the average life expectancy, the home warranty company may pro-rate the replacement cost to the item’s age.

If you have a home warranty or anticipate receiving a plan at settlement, you should become familiar with the plan coverage. If you are confused about your coverage, you can call the home warranty company to get an explanation of your plan.

January 28, 2008October 5, 2019

Will mortgage loan-limits increase?

by Dan Krell

Are you planning to buy a home this year? If you are planning to purchase a home that is priced more than $417,000, you could get a lower interest rate-if Congress raises conforming loan limits.

First, a very basic primer in mortgage jargon: “Conforming” refers to mortgages that correspond to Government Sponsored Enterprises (GSE) guidelines. GSE refers to those quasi-government enterprises that include (among others) Fannie Mae and Freddie Mac. Conforming guidelines include underwriting criteria that lenders use so they can sell the loans to Fannie Mae and Freddie Mac. The guidelines have strict borrower criteria as well as loan limits. The loan limit is set annually as a reflection of changes to the national average single family home price as determined by the Federal Housing Finance Board’s Monthly Interest Rate Survey. A “jumbo loan” is a mortgage that exceeds conforming loan limits; and usually has higher interest rates because of the higher risk involved.

Two large associations advocating for higher loan limits include the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB). Both the NAR and NAHB argue that increasing conforming loan limits would solve liquidity problems in the jumbo loan market, which would make lending for loans up to $625,000 easier for home buyers who are looking to purchase a home over the current loan limit of $417,000. The NAHB suggest that loan limits be raised temporarily while secondary markets normalize, and be re-evaluated after a two year increase. The NAR cites the need for stimulation of the housing market and the lowering of interest payments to those obtaining loans over the $417,000 limit.

The issue of raising GSE loan limits is not as simple as stimulating a sluggish housing market; as Federal Reserve Board Chairman, Ben Bernanke, made clear to Congress in September 2007. His statement to Congress implied that any increase in loan limits could provide false security to investors on the secondary market – increasing risk to those investors, their companies, and the government. Additionally, Dr. Bernanke implied that if Congress is inclined to increase the loan limits that it should be done quickly, temporarily, and ensures that any increase will function as intended.

What’s the risk? A recent report from the Office of Federal Housing Enterprise Oversight (OFHEO.gov) (the government entity whose mission is to ensure the safety and soundness of Fannie Mae and Freddie Mac) entitled “Potential Implications of Increasing the Conforming Loan Limit in High-Cost Areas” reports that any loan limit increase would only help those in high cost areas as most jumbo loans tend to be geographically centered (California had almost forty-nine percent of the jumbo loans originated in 2007). One unintended consequence from raising loan limits to lower mortgage interest payments may be that home prices will increase to make high-cost areas actually cost more. Additionally, anticipated savings benefit may not be achieved as Fannie Mae and Freddie Mac have to charge for taking any increased risk.

As for now, it appears that loan limits for 2008 will remain the same as 2007. It is clear that although there are benefits, there may also be too many questions left unanswered before Congress can act quickly to raise GSE loan limits.

January 15, 2008November 23, 2021

Mortgage Guidelines Get Tougher

by Dan Krell
Google+

Like bears awakening from their hibernation, home buyers are slowly emerging from the holiday season and begin to look for a home to purchase. Many home buyers will find that that the challenge of buying a home this year will be more than finding the perfect home, but finding financing. Many home buyers expecting the mortgage process to be quick and painless may find that it is neither quick nor painless; others, expecting to be approved with a sub-prime mortgage, will be turned down. In the recent past, most home buyers found a way to obtain financing; this year may be different as the mortgage crisis fallout has changed the way lenders underwrite their programs.

Ask anyone in the mortgage industry and they will tell you that the entire mortgage landscape has changed. Some popular mortgage programs are no longer available, while other programs have been significantly changed. It may be a challenge for home buyers to locate a lender that offers a reduced documentation mortgage. These programs still exist, but have more restrictive guidelines; reduced documentation mortgages are requiring more verifications, higher credit scores and larger down payments.

Self employed home buyers will find that the popular “No Doc” is no longer available. The “No Doc” loan required no documentation or verifications from the borrower, hence the name. Although the program typically required a higher credit score, the “No Doc” loan was popular with self employed borrowers because employment, income, or asset verifications were not required.

Home buyers who need a low or no doc loan will have to look hard for alternatives. Most “liar loans” are no longer offered, or are offered with some type of verification. If you come across a stated income mortgage program, be prepared to sign an IRS form 4506 that will allow the mortgage company to verify the stated income. You should also expect a higher down payment and a higher than average interest rate.

As a way to assist home buyers with less than perfect credit, Fannie Mae and Freddie Mac created their expanded criteria programs in the mid to late 1990’s. These programs offered these home buyers a mortgage with minimal down payment and a reasonable interest rate; however the interest rate varied on the borrower’s credit score. However, like other mortgage programs, these expanded programs have also changed their requirements which include, among other items, increasing credit score requirements.

As the sub-prime mortgage industry has all but dried up, the FHA mortgage (HUD.gov) has picked up the pace. But even the venerable FHA loan is changing; FHA approved lenders are also tightening up their lending guidelines (in anticipation of new FHA guidelines). Some of the changes include credit score driven approvals as well as variable loan pricing (the interest rate will vary based on the borrower’s credit score).

For home buyers considering purchasing a home this spring (or any other time), talking to a lender should be their first priority. The mortgage crisis has changed the way mortgage lenders operate, including how lenders view borrowers. Home buyers should be prepared to provide more documentation and information to their lenders, as well as a possible higher down payment.

January 15, 2008October 5, 2019

New legislation affects home owners and home buyers

by Dan Krell

As the end of the year is a time of reflection, let’s reflect on the new legislation that directly affects home owners and home buyers. Although this is not a complete list of new laws, here are a select few that concern taxation, eminent domain, and privacy.

Buying a home in Montgomery County will cost a bit more next year as recordation tax rates will increase effective March 1, 2008. Current recordation tax rate is $3.45 per $500 (or more commonly described as $6.90 per $1,000); the first $50,000 of the purchase price is exempt from this tax if the purchaser will live in the home. The new recordation tax rate will add an additional $1.55 per $500 (a total of $5.00 per $500) for any amount over $500,000.

Confusion about property taxes and new tax assessments will hopefully be a thing of the past as the property tax disclosure requirement will go into effect April 1, 2008. The law requires any home seller to disclose present and estimated future property taxes for the property for sale. The tax amount must contain the current state, county, and municipality tax as well as any special services tax imposed. The estimated future tax must represent an accurate portrayal of any future tax increase. Estimating future property tax increases may sound tough, but don’t worry – the Montgomery County Department of Consumer Protection is required to assist home sellers and real estate agents with the tax estimations.

Additional property tax legislation includes the Homestead Tax Credit. The credit caps any property tax increase due when the home is reassessed. For homes purchased after December 31, 2007, the law requires home owners to file the one-time application within 180 days of the purchase. All other home owners have until December 31, 2012 to file the application.

Eminent domain has been a recent hot topic. Four changes to eminent domain in Maryland went into effect July 1, 2007. The first is the requirement to file for condemnation within four years of the decision to acquire the property. Subsequent changes increased the cap on mandatory payments to the displaced: the cap to displaced property owners increased to $45,000; the cap to displaced tenants of rental property increased to $10, 500; and the cap for moving and relocation expenses increased to $60,000.

Privacy protection is always a concern. However, effective January 1, 2008, all businesses including real estate brokers are required to take “reasonable steps” to ensure that personal information is protected when client records are destroyed. Additionally, businesses are required to notify their clients as well as the Maryland Attorney General’s office if there is a security breach of electronic files containing client information.

Also becoming effective January 1, 2008 is the ability for a consumer to place a security freeze on their credit report. Without the freeze, anyone with basic information can request a credit report. If the freeze is requested, the information can not be accessed without express prior authorization of the consumer.

For more information on the new legislation, you can go to the Maryland General Assembly website (http://mlis.state.md.us) or the homepage for the County Council of Montgomery County (www.montgomerycountymd.gov/csltmpl.asp?url=/content/council/index.asp).