real estate Archives - Page 51 of 86 - Real Estate News and Commentary

February 25, 2015July 6, 2019

Stumbling housing market reignites housing policy debate

Surely 2015 is to be the year when the housing market would bounce back from its recent disappointing performance; at least that’s what I wrote back in November. But as January’s news from the National Association of Realtors® (NAR) is not as rosy as we expected; a housing policy debate, that has been subdued since 2010, gets heated.

The NAR revealed in a February 23^rd press release (nar.realtor) that although the pace of home sales increased compared to the same time last year, existing homes sales have declined to the lowest rate in nine months. The typically optimistic Lawrence Yun (NAR Chief Economist) was cited as saying “the housing market got off to a somewhat disappointing start to begin the year with January closings down throughout the country.” Adding that “seasonal influences” can make January data erratic, the combination of low inventory and home price gains over the pace of inflation seems to have slowed home sales – notwithstanding low mortgage interest rates.

Keeping mortgage interest rates low is not the sole solution; however, if it was, the housing market may have bounced back several years ago. Although a myriad of causes have been blamed for a lackluster housing market that has been trying to make a comeback for six years, most are correlational and incidental.

However, Richard X. Bove (Equity Research Analyst at Rafferty Capital Markets) recently made a case for a sole cause in his February 23^rd commentary (There’s a new mortgage crisis brewing; cnbc.com/id/102447414). Bove described how mortgage markets are in trouble; rules and regulations put into place to strengthen the market by increasing borrower standards have dried up a lot of the funding. And not necessarily in the way you might expect; besides shrinking the pool of qualified buyers, Bove suggested that the rules and regulations have made mortgage lending unprofitable and unpalatable for some lenders (leading them to walk away from the business).

As a response, it would seem as if the Federal Housing Finance Agency (FHFA) took steps to make mortgages increasingly available (returning to 3% down payment loans, and increasing the number of loans on Fannie and Freddie’s balance sheets). These actions, along with recorded losses in Q4 2014, Bove described, is making some nervous.

If you don’t remember, the FHFA was created in 2008 as a temporary conservator to Fannie Mae and Freddie Mac; whose original goals included: ensuring a positive net worth for Fannie and Freddie; reducing Fannie and Freddie’s mortgage portfolios; and facilitating a streamlined and profitable model for Fannie and Freddie.

Bove’s catch-22 conclusion, of either hindering the housing market by stopping Fannie and Freddie’s growth or increasing Fannie and Freddie’s debt obligations with continued growth, is not a new dilemma. The debate has been ongoing since 2008.

Having faded somewhat since 2010, the housing policy debate heated up during testimony given by FHFA Director Mel Watt on January 27^th during the congressional hearing, “Sustainable Housing Finance: An Update from the Director of the Federal Housing Finance Agency.” Trey Garrison of HousingWire succinctly portrayed opposing views (January 27, 2014; FHFA hearing: GOP fear housing policy headed for Crash 2.0; housingwire.com): “Democrats said policies in the past year are necessary to expand housing opportunities to lower income and challenged borrowers…” while, “…Republicans…said the administration is adopting dangerous policies that risk another housing crash that will put taxpayers on the hook for billions.”

By Dan Krell
© 2015

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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.

February 18, 2015October 5, 2019

New rules in Real Estate

Real estate canon used to be straight forward and for the most part consistent. For instance, if you planned a sale, you would target spring time because that was generally accepted as the time when home buyer activity was the greatest; or buying a home was a rite of passage. But since 2008, what was generally accepted has been persistently challenged; home buyers and sellers have shifted into a new paradigm with new rules.

It is no coincidence that Zillow Talk: The New Rules of Real Estate (by Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries, Ph.D.) comes at a time when significant changes in consumer beliefs and expectations about real estate have become widely recognized. The book is described by Zillow as “…poised to be the real estate almanac for the next generation.” And looking at the table of contents, you might think that the highly acclaimed tome is just another book about the buying and selling process; yet it seems to discuss practical aspects about buying and selling a home, as well as possibly confronting real estate myths.

It will remain to be seen how influential the work will become, as research has indicated that home buyers are typically well informed and out in front of housing trends.

A 2012 study by Karl Case, Robert Shiller, & Anne Thompson (What have they been thinking? homebuyer behavior in hot and cold markets. Brookings Papers on Economic Activity, 265-315) revealed perceptions and expectations of homebuyers from four metropolitan markets over a 25 year period. The authors concluded that the surveyed home buyers were well informed and very much aware of home price trends prior to their purchase. Data suggested that home buyer opinions (beliefs) fluctuated over time; there was more agreement among respondents during strong markets, and increased doubt during times of market uncertainty. There was also a strong correlation between price perceptions and actual movement in prices. Although home buyers were “out in front” of short term market movements, their short term expectations “underreacted” to actual home price changes; while long term expectations were persistently “more optimistic.”

Suggesting a set of “guidelines” for real estate is a trap that implies that the housing market is straightforward and static; where personal and regional differences don’t matter and the market doesn’t change. However, David Wyman, Elaine Worzala, and Maury Seldin raise the question about becoming complacent with trends and models. In a 2013 exploratory paper (Hidden complexity in housing markets: a case for alternative models and techniques, International Journal of Housing Markets and Analysis, 6:4, 383 – 404) they discuss how rigid market models may lead to rules where buyers and sellers could make poor decisions.

The authors’ discussion of “complexity theory” in real estate in not unlike the application of “chaos theory,” which focuses on letting go of assumptions upon which rules are definitive; and view housing as a dynamic and changing environment. Citing incidents leading up to the financial crisis, the authors make a case for understanding the market as complex and using common sense before making (buying and selling) decisions.

So as we begin to understand the new real estate dogma, it is likely that the new rules will most likely change along with the market. And much like the housing market, consumer beliefs are also dynamic – which seem to be ahead of the industry experts.

Dan Krell
© 2015

February 11, 2015September 21, 2019

Protect your identity when buying a home

Last year, hackers targeted a number of retailers to compromise shoppers’ financial and personal information. A recent hack of a health insurer possibly jeopardized policy holder data. And Krebbs Security (krebsonsecurity.com) reported on February 15th about an investigation being conducted by the Defense Contract Management Agency of a possible hacking.

Surely the reports of stolen data by hackers have made you more aware of protecting your credit cards when shopping. But how protective are you about handing over personal information to mortgage lenders, real estate brokers/agents, and title companies? If not managed or disposed of properly, your sensitive personal information could be at risk of being stolen – an identity thief only needs a few pieces of personal information to access bank accounts, credit card accounts, health record/insurance, etc.

When buying a home, your information is “out there;” and you are trusting those who have it to protect it. If you want to obtain a mortgage, you must complete a mortgage application; which requires a social security number, date of birth, address, employment, and other information. Mortgage lenders also collect financial documents (such as w-2’s, tax returns, and bank statements) to verify income and asset information on your application.

Additionally, your real estate agent may ask you to complete a financial information sheet to demonstrate to the seller your ability to purchase the home. And as a means of record keeping, transaction files maintained by brokers and agents may also contain copies of deposit checks, credit card information, and other financial instruments.

Renters may be required to submit personal information too. A rental application is a lot like a mortgage application, asking social security number, date of birth, address, employment, and other information.

The National Association of Realtors® (nar.realtor) Data Security and Privacy Toolkit states that although there is no federal law specifically applicable to real estate brokers, the Gramm-Leach-Bliley Financial Modernization Act applies to businesses that qualify as financial institutions; which may subject brokers to comply with “Red Flag Rules” (and other rules), and require policies and procedures to protect against identity theft.

States have also implemented laws to protect consumers from identity theft. For example, the Maryland Personal Information Protection Act (MD Code Commercial Law § 14-3501) describes personal information as an individual’s first name or first initial and last name in combination with any one or more of the following: Social Security number; driver’s license number; financial account number (including credit cards); and/or an Individual Taxpayer Identification Number. Additionally, the law requires a business to take reasonable steps to protect against unauthorized access to or use of the personal information when destroying a customer’s records that contain personal information.

When choosing a mortgage lender and real estate agent, you might consider asking about the company policy on protecting personal information. Some questions about personal data might be: what types of information will be collected; what is it used for; who has access; when transmitted, is it encrypted; how long will the information be retained; and how will the information be disposed? Besides the management of your personal data, you should ask about procedures in case there is a suspected data breach.

To learn more about protecting your personal information and protecting yourself from identity theft, visit these consumer websites: FTC (consumer.ftc.gov/features/feature-0014-identity-theft) and the FDIC (fdic.gov/consumers/privacy).

By Dan Krell
© 2015

February 4, 2015November 23, 2021

Coming this summer – A new real estate settlement experience

For many, August 1^st will be like any other summer day. However for those in the lending and real estate industries, August 1^st is when the Consumer Financial Protection Bureau’s (CFPB) new lending, closing disclosures and rules go into effect.

“Know Before You Owe” is a project that began before the official opening of the CFPB (which officially opened July 21^st 2011), and undertook the remaking of mortgage disclosures to make them more consumer friendly. You might say the project started with the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandated the creation of the CFPB as well as amends the Real Estate Settlement Procedures Act (RESPA). Sec 1098 of Dodd-Frank states that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so as to help borrowers understand the financial aspects of their loan clearly and to be nontechnical.

A change in industry disclosure and compliance to enhance consumer protection is not new. RESPA and the Truth in Lending Act (TILA) were both devised as consumer protections, and amended over the years. RESPA was enacted in 1974 as a protection for consumers from abusive and predatory lending practices to help home buyers better shop for services related to the home buying process. Enacted in 1968, TILA provided guidelines for which lenders are required to inform consumers about the cost of their loan; which includes the disclosing the Annual Percentage Rate (APR), finance charges, amount financed, and the total amount paid as scheduled. The new integrated disclosure forms replace the Good Faith Estimate (GFE) and Settlement Statement (HUD1) required by RESPA and the Truth and Lending Disclosure Statement required by TILA with a Loan Estimate and a Closing Disclosure.

RESPA and TILA require disclosures to be provided to you within three days upon making your mortgage application, as well as not having changed prior to your closing of the transaction. Changes to these regulations and disclosures have often been made to keep up with the industry as well as to enhance consumer disclosure and education; the most recent revisions being made immediately after the financial crisis. Although redesigned to be more efficient and accurate, the most recent revision of the GFE and the Truth in Lending Disclosure Statement remained technical in nature. Many claimed the forms remained confusing making it difficult to compare mortgage costs between lenders; costs were not always labeled consistently and sometimes changed prior to closing.

By combining these disclosures into two forms in a clear and understandable language, the forms present important information conspicuously to help consumers decide if the mortgage is affordable and warn about loan features that they may want to avoid. The new forms seek to standardize fee and cost disclosures so as to make shopping easier; with standard cost and fee disclosures, comparisons will be more like comparing two apples rather than an apple to an orange.

One of the more important aspects of the new rules is that the new Closing Disclosure be given to the borrower three days prior to settlement. During the three days prior to closing, changes to the Closing Disclosure that increase charges are prohibited (unless allowed by exception). You can find more information about the CFPB and view the new disclosures at the CFPB website Know Before You Owe (consumerfinance.gov/knowbeforeyouowe).

January 30, 2015July 5, 2019

Fair housing and disparate impact – Supremes hear arguments

April is designated as Fair Housing Month. The timing for the commemoration is not arbitrary, but is the memorialization of the passing of the Fair Housing Act, which was enacted April 1968. According to HUD (hud.gov), “HUD hosted a gala event in the Grand Ballroom of New York’s Plaza Hotel” to celebrate the first year. Fair Housing Month celebrations held during April have become a “tradition” as events to remember the achievement became more prevalent. Fair Housing Month has become more than just recognition of the realization of passing a law; it has also become a celebration of diversity.

It’s January, and there’s an early buzz about Fair Housing; not because of any celebration or proclamation, but because of a case being considered by the Supreme Court of the United States. Oral arguments were heard last week by the Court in the matter of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project. Although still obscure, the case may be one of the most important and controversial cases the Court will hear this year.

Amy Howe, in her January 6^th article for SCOTUSblog (Will the third time be the charm for the Fair Housing Act and disparate-impact claims? In Plain English; scotusblog.com), succinctly described the case that emanates from Texas: “In 2008, the Project filed this lawsuit against the state agency. It argued that the agency had allocated the tax credits in a racially segregated manner: it disproportionately granted the housing credits in minority areas of the Dallas region, while at the same time disproportionately denying them in white areas of Dallas. A federal district court agreed with the Project, finding that the agency’s allocation of tax credits violated the FHA because it had a disparate impact on minorities. Under the ruling, it did not matter whether the agency intended to discriminate against minorities; the effect was enough to violate the law. The U.S. Court of Appeals for the Fifth Circuit agreed that a disparate-impact claim could be brought under the statute. The state then asked the Supreme Court to weigh in, which it agreed to do in October of last year.”

Howe stated, that “The Fair Housing Act makes it illegal to ‘refuse to sell or rent . . . or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race…’” This is the third case “…in less than four years, the Supreme Court granted review to consider whether this language allows lawsuits based on disparate impact. A disparate-impact claim is an allegation that a law or practice has a discriminatory effect, even if it wasn’t based on a discriminatory purpose.” The first two cases were settled before oral arguments.

According to the National Fair Housing Alliance (nationalfairhousing.org), disparate impact “…is a legal doctrine under the Fair Housing Act which means that a policy or practice may be considered discriminatory if it has a disproportionate “adverse impact” against any group based on race, national origin, color, religion, sex, familial status, or disability…” and “…safeguards the right to a fair shot for everyone.”

The outcome could affect more just the policies of a Texas housing agency. Although the Court’s opinion may not be given until later this year; the outcome will surely be felt beyond the housing and lending industries.

By Dan Krell
© 2015