Lawmakers have been talking about reforming the secondary mortgage market since the housing bust, but the effort has remained largely in the planning stage. Now it’s moving forward.
In the House last week, the Financial Services Committee passed a bill, called the PATH Act, which would phase out the two secondary mortgage market companies, Fannie Mae and Freddie Mac. The bill would also make major changes to the way FHA conducts its business. “PATH” stands for “Protecting America’s Taxpayers and Homeowners.”
In the Senate, comprehensive legislation has been introduced that would also phase out Fannie and Freddie but, unlike in the House, the federal government would remain as an insurer of last resort, much like the FDIC is the insurer of last resort for troubled banks. In the House, there is no plan to keep the federal government involved in mortgage financing except through a much-modified FHA (not counting specialized markets like those served by the Rural Housing Service and the Department of Veterans Affairs).
NAR has long called for replacing Fannie and Freddie while ensuring continued mortgage market liquidity through the maintenance of an explicit federal presence in the market. On that basis, the Senate approach, called the Housing Finance Reform and Taxpayer Protection Act, is the better starting point of the two. But a lot more discussion is needed, both in the House and in the Senate. In both approaches, questions remain about how households would fare should ether become law in their current form.
It’s unclear how far Congress will get this year in taking the next step to pass either of these bills or to consider other bills that need to be factored in, including those that just focus on FHA reforms. But now that the process is getting started in earnest, anyone with an interest in the availability of mortgage financing will want to pay attention to what’s happening. Because even if the process takes a couple of years, there will be key points in which input from the real estate industry is needed to move the debate in the direction that best protects households who want to buy.
In the 6-minute video above, NAR analysts talk about the concerns NAR has with the approach that was passed last week by the House Financial Services Committee. They also talk about what’s moving through the Senate and why engagement by NAR members will be so important in the months ahead.
The big challenge for the housing market today remains the lack of inventory, even though interest rates are rising, NAR Chief Economist Lawrence Yun said at his monthly press conference earlier this week in which he released the latest existing-home sales data from the association.
Rising interest rates are a concern, particularly in high-cost areas, but as of right now rates remain historically low and their impact is not yet showing up in the numbers, particularly in the Midwest and lower-cost areas. The national median rate today is 4.07 percent, almost 40 basis points higher than a year ago, when it was 3.68 percent. So what rates do in the future will be extremely important.
But, at least for today, the bigger concern remains too few homes available for sale, especially among homes in the lower price range. The lack of inventory is fueling rapid price appreciation, which Yun says is bad for the market. “This double-digit price appreciation is not sustainable and it’s not healthy. We need to tame the price growth.”
On a year-over-year basis, price growth last month was 13.5 percent on a national basis. In the West, the growth was even greater, about 20 percent. (Much lower growth in the Northeast, about 7 percent, is what brings the median down to the 13.5 percent.)
Yun says the market needs new construction more than anything, so he was disappointed that permits actually went down last month. Since the recovery began, construction has picked up a bit, but it’s remained well below where it needs to be to have a material impact on inventories, so that permits actually dropped last month is not good. “Very disappointing,” Yun said about last month’s report on housing starts.
On the whole, the upper-end market is doing a bit better than lower-priced segments, mainly because it’s the lower-priced segments that aren’t offering buyers a lot to choose from, so the sales rate for homes at about $100,000 or lower is just not growing at the same pace as higher-end homes.
On a positive note, distressed sales continue to fall and now comprise about 15 percent of the market, down from 26 percent just a year ago.
The picture that Yun painted is of a market that continues to improve despite the latest dip in sales and that’s not yet feeling a pinch from rising interest rates but is continuing to feel a pinch from the lack of inventory, which is driving too-rapid a rate of price appreciation.
Patent trolls have been a growing problem for all types of businesses, and real estate companies haven’t been spared. Recently, a patent troll sent thousands of letters through several affiliated legal entities to brokerages and other companies threatening lawsuits for using multifunction office machines (copier, scanner, and fax machine, all in one) for which it owns patents. The company has since retreated a bit, in part because of claims that have been filed with regulators challenging the scope of its patents, but the broader problem persists.
For that reason, NAR joined with dozens of other organizations in a letter to federal lawmakers today, calling on them to move forcefully against this type of abusive business practice. (Patent trolls purchase broad patents and then make money by requiring users to pay a licensing fee for using products or services that allegedly use the patented technology or face a lawsuit.)
“Managing frivolous patent suits unfortunately has become an expensive distraction for a large cross section of American businesses,” the groups say in the letter. “Instead of focusing on innovation, job creation, and economic growth, we are forced to deal with legal games that have serious consequences.”
Several lawmakers have introduced legislation to curb patent abuses, and President Obama has also moved on the administrative front, but comprehensive legislation is really what’s required to curb the practice. And that’s what NAR is calling for in the letter with its partners. “Meaningful reforms . . . would make it more difficult for patent trolls to continue their destructive business model,” the groups say.
It will be a challenging road for the industry to get these abusive practices behind it, but the word is getting out that change is needed, and that’s an important start.
For questions about this issue, send an e-mail to NAR policy analyst Melanie Wyne at email@example.com.
When you’re busy selling real estate or running a brokerage, you can’t be expected to follow every twist and turn in Washington over this rule or that rule. But there was one important twist just a few weeks ago that will make a genuine difference in your business—and yet you won’t notice a thing. That’s why it’s so important.
On July 2, the Federal Reserve released its rule implementing the international BASEL III capital standards. Originally, the Fed wanted to require banks to hold more capital in reserve for most of the residential mortgages they make, which would have made these loans far less attractive to banks than other types of products. What’s more, costs to your buyers would have gone up significantly. But when the rule came out, the increased capital requirements weren’t in there—they were one of the few things the Fed changed prior to publication.
Why? Because the National Association of REALTORS® and other real estate organizations made a clear case for not harming the attractiveness of home mortgage lending in the way that had been proposed.
To be sure, had the changes taken effect, business would have dropped off and the real estate market weakened. But NAR and the others also made it clear that the risk-weighting just wasn’t necessary, in part because the bad exotic loans of the housing boom were now a thing of the past and also because the upcoming qualified mortgage (QM) rule set standards for strong loans without requiring banks to hold more capital.
QM takes effect early next year, but banks are already underwriting to its standards and the loans are performing well. So with these new underwriting standards in place, the added reserve requirements simply aren’t needed. And the Fed agreed.
NAR still has concerns with the QM rule, but for the most part, the rule came out with sound standards that the association can support. (The outstanding concerns have to do with a cap on certain fee limits, and NAR is continuing to let regulators know why they’re a problem.)
With QM and BASEL III released, there’s much less of the regulatory uncertainty that lenders have been concerned about since the big Wall Street reform bill, Dodd-Frank, was enacted a few years ago. There’s still one more important rule to come out: the qualified residential mortgage (QRM) rule that is intended for loans packaged into securities and sold to investors. But putting that rule aside, the regulatory environment is much clearer now than it was just a few months ago. And so far, regulators are showing that they understand NAR’s mantra about doing no harm to the market.
To make the impact of the BASEL III rule more clear, NAR regulatory analyst Charlie Dawson and Senior Economist Ken Fears sit down for a discussion that gets at the heart of the issue in this 4-minute video.
“Change doesn’t happen without conflict,” said Brad Inman as he kicked off Day 2 of Real Estate Connect. And it was on this day that the continuing evolution of mobile technology and social media — and its infusion into every day business — hit home for many an attendee.
Tom Gonser of DocuSign shared the massive growth numbers of his e-signature platform, now with over 40 million identities saving people 150 million work hours and 2 billion days of turnaround time. Moreover, their mobile signature growth is staggering. “We expect to break the 50 percent threshold (of Docusign contracts signed on mobile platforms) by the end of 2013, many being international,” said Gonser. Mobile has not only led to increased use, it’s now a global standard, with over 188 countries being represented in its user-base.
Gonser continued the “disruption” narrative of the conference as well. “Zero infrastructure companies…” like the startups shown-off during Connect, “…are the new normal.”
Guy Wolcott epitomized the zero-infrastructure ideology while showcasing how he pivoted from a traditional brokerage to tech startup darling. His app, Homesnap, allows a smartphone user to pull all public information available on a home through geolocation by simply taking a picture of it, is one of the most popular real estate apps available for iPhone.
“I wanted a fun, easy to use ‘Shazam for homes,’” he put it, all so that consumers can “do what they want, when and where they want to do it.”
The mobile technology and social media “morphing of industry,” as Brad put it, was then highlighted in Tamara Mendelsohn’s “Building and Measuring the Social World” presentation.
Mendelsohn, the VP of marketing for the event management website Eventbrite, shared her company’s social business blue print; stating that “social media is no longer a strategy, it’s how you do business.” By “knowing your authentic self, humanizing your community, think about your product as an experience, and having fun with your community and brand,” one can now measure the value of things like a “share” on Facebook, to the tune of $4.15 for each Eventbrite event share on social media. By allowing others to speak for your brand and harnessing your message within their own social sphere framework, then sourcing it for your marketing, one can grow their brand’s reach. Bringing “digital communities closer together” as she put it, is something every real estate practitioner and broker should take note of.
Veering back to technology, Continue reading »
Empowerment was the name of the game for Day 1 of Inman News’ Real Estate Connect in San Francisco. Consumer empowerment; technological empowerment and access; and the broker and agent DIY ethos were all on full display.
Hear It Direct kicked off the day with a panel of buyers and sellers who talked about their buy/sell experience. The group, all California-based, consisted of a multi-state housing investor, a set of move-up buyers/sellers experiencing life-changes, and a couple of first-time buyers. The common threads: There’s an information gap during the search experience, and there’s a communications gap with agents and brokerages.
All these consumers were savvy and cynical in the ways of real estate marketing, and all were visually driven, citing their need for virtual tours and numerous listing photos. The iPhone was the top tool for all, using app geolocation to view listings and open houses within their targeted search area while physically in the area. Mobile targeting of specific homes was their segue way into local, detailed information searches about the home on smartphones, tablets, and laptops. The lack of features as simple as pictures on a listing signaled a problem property or a “lazy agent,” one panelist said.
These panelists performed searches for months, and in one case over a full year, before first contact with their agent. But when ready, they acted quickly to pick an agent and act upon the work they had done in the preceding months.
When it comes to communications, the panelists wanted it on their terms, quickly. They wanted to be prepared for their experience and the market and told upfront what would be expected of them. They wanted to be partners in the transaction process but said they seldom received the information they wanted or the experience they expected.
None of this was a surprise to the brokers and agents in the industry panel that followed—but these insights should be a wake-up call to brokers who aren’t in sync with such expectations, the panelists said. The industry panel included practitioners Sue Adler, CEO of HearItDirect and leader of the Sue Adler Team, Keller Williams Realty in New Jersey; Dawn Thomas, broker-associate, Intero Real Estate Services (@SVandBeyond); Michael Williamson, executive vice president and partner, John Aaroe Group; and Joe DiRaffaele, owner, DiRaffaele Group, Coldwell Banker Premier Realty in Las Vegas. They were joined by industry consultants Michael McClure and Rob Hahn and real estate tech company reps Joelle Senter of dotloop and Nick Taylor of Zillow.
Getting in sync starts with enhanced training so agents better educate clients on the nuances of the transaction. “Don’t assume [buyers and sellers] know specifics about the transaction, because they don’t,” said Williamson, adding that client customization of broker services—having the ability “…to be all things to all people…”—will be an ongoing challenge for brokers.
Rob Hahn’s last words were poignant: “All of our industry politics and inside baseball doesn’t matter to those people [the panel].”
It all boils down to hardware, design, content, and entrepreneurship shifting into a “by the people, for the people” ideology in which consumers aren’t just the end user, they’re partners in the change, said InmanNews and Real Estate Connect Founder Brad Inman in his general session keynote.
Brad’s vision has always been on consumer-centrism and making the real estate transaction easier. At the conference this week he’s using the term “future proof” to describe the resources and tools that will take us to that vision.
Innovation is coming from all direction—and entrepreneurs don’t necessarily need venture capitalists and angel investors to acquire the capital to launch a company or product, Brad told the audience yesterday. These “misfits… rebels… and troublemakers…” as he calls them, can now crowdsource for funds by taking concepts directly to users for cash via kickstarter.com and the like.
So, are you feeling empowered?
Tax reform is a topic that comes up every few years and now we’re at the beginning of another possible go-round, but this time it’s a little different because the Senate Finance Committee wants to start from scratch. That’s old news by now. The committee’s “blank slate” approach has been widely talked about in the media. But one thing you likely haven’t heard in the media is exactly how this process is going to play out. There’s certainly been speculation on how it will play out, but it’s safe to say that this approach really creates a novel situation, and it will be interesting for everyone to see what actually happens.
One thing we know is, NAR very much wants to preserve the provisions in the Tax Code that help keep the economy strong by supporting a vibrant real estate market. This week it asked its members to let their senators know they want to keep residential and commercial real estate provisions in the Tax Code. This gives REALTORS® a chance to remind senators just how integral to our economy real estate is.
There are a number of provisions REALTORS® are asking senators to focus on. Among them are the deductions for mortgage interest and property taxes, and the exclusion of home sale proceeds from capital gains taxes (up to $500,000 for a couple filing jointly). The extension of mortgage debt relief is another. That provision excludes debt forgiveness from taxation as income.
On the commercial side, depreciation and 1031 tax-deferred exchanges are among the association’s priorities.
However tax reform plays out this time, you can be sure it’ll be a long process and there will be many twists and turns. And that’s just in the Senate. The House will have its own version (already the chairman of the Ways & Means Committee has held hearings and work groups). You can imagine it will be a very involved road ahead as the two houses write their bills and then reconcile them into something that can go to the president.
Yet within this very long process will be key moments when people must step up and stand behind their interests, and this is one of those times. Senators must know now what provisions are critical for real estate. That’s why NAR is asking its members to contact their senators.
Take action now at the RealtorActionCenter.
To learn more about what’s happening, REALTOR® Magazine interviewed two NAR Government Affairs staffers, the association’s Director of Tax Policy Evan Liddiard and one of its senior legislative representatives, Ken Wingert, in this short video.