Real estate year in review 2015

2015 could have been considered a “damn if you do and damn if you don’t” year for the Fed. The Fed is often criticized (sometimes harshly) for their action and inaction. And as the historic run of near zero interest rates ended this year, many criticized the Fed for waiting too long to raise interest rates, while others said it was still too soon. The full impact of the first Fed rate hike in nine years won’t be known well into the next year.

Another real estate milestone that occurred this year was the implementation of the TRID (TILA-RESPA Integrated Disclosure) rule. Although the Consumer Finance Protection Bureau decided to delay enactment once; the decision to put the rule in effect in October was not only significant, but a historic change to the real estate settlement process. Initially, there was mixed reception; some lenders indicated that they have transitioned smoothly, while others reported having difficulty. Even Congress attempted to provide a grace period for those still transitioning (Homebuyers Assistance Act, H.R. 3192). Like the Fed’s rate increase, the full effect of TRID on consumers and the industry won’t be realized until next year.

Even though the 2015 housing market started slowly, because of record cold weather; the market demonstrated its resiliency with increased sales and continued home price growth throughout the year. Some markets were on fire this year; such as the Seattle WA region, where multiple offers and single digit days on market were the norm and home price indices exceeded the national average. However, most other regions (such as the Washington DC region) experienced average growth. The lack of inventory in some markets was said to add pressure on price growth. Home sale growth is expected to continue in 2016, as housing formation and employment outlooks are brighter. While home prices are still below the 2006 peak, home prices are expected to increase with a market expansion. And as housing affordability decreases, some housing critics are clamoring to predict another housing bubble.

San Francisco CA was one of 2015’s hottest markets. The market was so heated that many described it as “insane.” Madeline Stone reported that San Francisco teardowns sold for well above $1M while resales typically sold for 70% above list price (San Francisco real estate has gotten so crazy that this startup founder was offered stock options for his house; businessinsider.com; March 31, 2015).

And of course, there is the notable sale of a 765sf two-bedroom home that sold for $408,000 earlier this year (17% over list price). The significance of the 100-year-old San Francisco home is that it was described as a “shack” and needed much more than TLC (Daniel Goldstein; San Francisco earthquake shack sells for $408,000; marketwatch.com; October 22, 2015).

And what can be more proof that the real estate market has been recovering (at least for those who can afford it) than the world’s priciest home sale. Patrick Gower, Francois De Beaupuy , and Devon Pendleton reported on December 15th (This $301 Million Paris Chateau Is the World’s Priciest Home; bloomburg.com) about the sale of Chateau Louis XIV for €257Million (approximately $301Million); a private sale to a Middle Eastern buyer. Located in a 56-acre park, the recently built Paris estate is said to have taken three years to build. Amenities include an aquarium, cinema and a wine cellar, and a gold-leaf fountain.

By Dan Krell
Copyright © 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 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).

February 27, 2014July 4, 2019

RESPA empowers home buyers and consumers

Although the Real Estate Settlement Procedures Act (RESPA) is one of those laws that you don’t hear much about, it’s a consumer protection statue that has been around for while. Enacted in 1974, RESPA was intended to help home buyers be better shoppers by requiring the disclosures regarding the nature and costs related to the real estate settlement process. Keeping RESPA relevant, there have been modifications and clarifications through the years, most notably the change of administration and enforcement in 2011 from HUD to the Consumer Finance Protection Bureau (CFPB).

RESPA is generally known for empowering consumers in the real estate process by allowing consumers (in most cases) to choose service providers, and prohibiting kickbacks (e.g., unearned fees) for referrals. Section 8 of RESPA prohibits real estate service providers from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage. While Section 9 prohibits a home seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale.

RESPA also requires the disclosure of affiliated business arrangements associated with a real estate closing. An affiliated business relationship is considered to exist when there is a direct or indirect referral from a service provider to another provider of settlement services when there is an affiliate relationship or when there is a direct or beneficial ownership interest of more than one percent. The disclosure of such a relationship must specify the following: the nature of the relationship (explaining the ownership and financial interest) between the provider and the loan originator; and the estimated charge or range of charges generally made by such provider. This disclosure must be provided on a separate form at the time of the referral (or at the time of loan application or with the Good Faith Estimate if referred from a mortgage lender). In most cases, you’re not required to use the referred affiliated businesses.

RESPA violations are serious, and penalties can be severe. For example, HUD (hud.gov) lists the penalties for violations of Section 8 “… anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.”

The real estate industry takes RESPA very seriously; the industry educates service providers about empowering consumers, as well as regulation compliance. And although modifications of RESPA are to keep up with the real estate industry; some still claim that there are sections of RESPA that remain vague, as demonstrated by the Supreme Court opinion of Freeman v. Quicken Loans, and further clarifications (such as the RESPA Home Warranty Clarification Act of 2011).

In the past, RESPA violations were pursued vigorously by HUD; resulting in settlements as well as criminal investigations. Today, the CFPB (consumerfinance.gov) has taken over the reins, and continues the pursuit of RESPA violations with the same if not increased vigor. More information and guidance about RESPA can be obtained from the CFBP (consumerfinance.gov).

by Dan Krell
© 2014

August 22, 2012August 22, 2012

Congress moves to clarify RESPA

Dan Krell, Realtor®
DanKrell.com
© 2012

The Real Estate Settlement Procedures Act of 1974 (RESPA) was enacted to protect consumers against certain abusive practices such as kickbacks; it was also supposed to help them become better shoppers for settlement services. RESPA violations were enforced by HUD; however, enforcement became the responsibility of the newly formed Consumer Financial Protection Bureau (CFPB) as of July 21st 2011.

Over the years, RESPA may have been the basis of a number of class action law suits relating to kickbacks, fees, and other lender/title issues. Two recent cases that were heard by the Supreme Court of the United States (SCOTUS) may have demonstrated how the law protects consumers as well as possibly revealing its limitations. Some have even argued that some sections of RESPA may be vague; which has prompted Congress to recently act to clarify RESPA, and may prompt future clarification as well.

On June 28th, (SCOTUS) decided on First American Financial V. Edwards, dismissing the appeal; which made the 9th circuit court ruling stand that allows Edwards to pursue the case regardless of financial harm.

Kevin Russell, partner at Goldstein & Russell, P.C. and contributor to SCOTUSblog.com, couldn’t have better summed up the case: “The specific question before the Court in Edwards was whether a plaintiff alleging that her title insurance company violated the Real Estate Settlement Procedures Act (RESPA) must show that she suffered an injury from the insurance company’s unlawful conduct beyond the violation of her legal rights under the statute. RESPA prohibits title insurers and other real-estate-related companies from participating in kickback schemes related to real estate closings. Congress provided that a consumer who discovers an illegal kickback related to her closing can sue to recover statutory damages (and attorney’s fees) without having to prove that the violation caused her any financial injury or any diminution in the quality of the services she received. All she has to show is that the defendant violated her statutory right to have her closing free of the conflicts of interests that arise when the participating companies are paying each other kickbacks.” (http://www.scotusblog.com/?p=147974)

Back in May, SCOTUS offered an opinion on Freeman v. Quicken Loans; where the plaintiff argued that there was a violation of RESPA because they were charged for services they did not receive. SCOTUS’s decision ruled in favor of Quicken Loans. The ruling indicated that the section of RESPA in question, Section 2607(b), only applies to fee splitting – not the actual fees that a provider charges; the opinion stated that this section of RESPA “…manifestly cannot be understood to prohibit unreasonably high fees…” (scotusblog.com)

The issue highlighted by the opinion in Freeman v. Quicken Loans may be evidence that there are vague areas and limitations to RESPA. Clarification of RESPA may be achieved through changes in the law made by Congress; as in this recent bill (passed by the House on August 1st) titled, H.R. 2446: RESPA Home Warranty Clarification Act of 2011. Partnerships between home warranty companies and real estate brokers have attracted attention from HUD as well as inspiring a few class action suits; this bill clarifies that home warranties and other residential appliance and component service contracts are excluded from RESPA.

Information about RESPA can be obtained from the Consumer Financial Protection Bureau (consumerfinance.gov).

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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 August 20 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

September 15, 2011August 1, 2019

A novel idea: Consumer friendly mortgage disclosure

Even before its official first day of operation (July 21st), the Consumer Financial Protection Bureau (CFPB: consumerfinance.gov) has been hard at work. The newly formed bureau (created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) has been working toward their stated mission “…to make markets for consumer financial products and services work for Americans…”

What better way for the CFPB to begin its operations than to make an easy to understand mortgage disclosure? Back in May, the CFPB announced its creation of the “Know Before Your Owe” project, which has sought to consolidate mortgage disclosures as well as decrease the confusion of mortgage shopping. The “Know Before Your Owe” project will merge two lender disclosures: one required by the Real Estate Settlement Procedures Act (RESPA) and the second required by the Truth in Lending Act (TILA).

Devised as a protection for consumers from abusive and predatory lending practices, RESPA was enacted in 1974 as a “…consumer protection statute designed to help homebuyers be better shoppers in the home buying process…” As of July 21st, the CFPB has taken over administration and enforcement of RESPA, which was previously administered by the Department of Housing and Urban Development (HUD).

First enacted in 1968, TILA provides a framework for which lenders must inform consumers about the cost of their loan. TILA requires such disclosures as the Annual Percentage Rate (APR), finance charge, amount financed, and the total amount paid as scheduled. TILA is enforced by various government agencies, which now includes the CFPB.

RESPA and TILA require several 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 round was after the financial crisis in 2008. Designed to be more efficient and accurate in providing information to consumers, the most recent changes to the Good Faith Estimate (GFE), along with the Truth in Lending Disclosure Statement, continue to be confusing for many people.

Many consumers were easily confused by past versions of the GFE and the Truth in Lending Disclosure Statement because it was difficult to compare mortgage costs between lenders; costs were not always labeled consistently. The new form seeks to standardize fee and cost disclosure such that making a comparison will be more like comparing two apples rather than an apple to an orange.

The combination of these two disclosures is not only an effort of the CFPB to increase transparency in the lending process, but it is also mandated by the “Dodd-Frank Act.” The “Know Before Your Owe” project began testing two versions of a new disclosure that would consolidate the combined five pages of overlapping information into one easy to follow form of two pages. The prototypes provide easy to follow information regarding the loan; and also include clear sections highlighting cautions, comparisons, lender fees and a loan summary.

Since testing began in May, the CPFB has been requesting feedback from consumers and professionals about the new disclosure. Although the finalized form is not expected to be in use until next year, you can view the prototypes as well as provide feedback on the CPFB website until September 19th.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.