If there was one major takeaway from the National Crime Prevention Council’s 2013 Mortgage Fraud Virtual Conference, it was this: The mortgage market, while no longer a wicked stepchild of the housing crisis, must still be carefully monitored. Though its tantrum-throwing days may be over, the $1.1 trillion government loan industry has the potential to cause serious economic damage should fraudulent mortgage activity persist unchecked.
“What is old is new again,” says Michael Stolworthy, Director of Fraud Prevention for the U.S. Department of Housing and Urban Development. “We’re starting to see some disturbing trends. The same old type of mortgage cases are coming up.”
False statements on loan applications, inflated appraisals, and loan modification schemes are just some of the ways fraud is reappearing in the mortgage market. And with government loans on the rise—the number of mortgages insured by the Federal Housing Administration has nearly doubled since 2006—the potential for mortgage fraud increases, especially among applicants in shaky financial condition.
“Back during the mortgage boom, people who had taken out second and third mortgages were living the champagne lifestyle on a beer budget,” says Robert Simken, a former real estate practitioner turned police officer in Eustis, Fla. “Now, those same people are living in homes that are underwater and willing to do just about anything to get out of their bind.”
Problems arise when that “anything” includes turning to loan counselors, lenders, and alleged real estate professionals who make promises they never plan to keep. “If an opportunity comes along that seems too good to be true and the little hairs on your neck stick up and say ‘danger,’ don’t just ignore them,” Simken warns.
Through public outreach campaigns and educational seminars, organizations like the National Crime Prevention Council stress the importance of using an accredited real estate professional when contemplating any property transaction. “Half the people haven’t checked the qualifications of the individual helping them buy a home,” says Ann Harkins, CEO and President of NCPC.
Simkens agrees that home owners should seek advice from a noted professional. “You don’t go to the butcher for brain surgery and you don’t go to a brain surgeon for chopped meat,” he says. “It’s important to find an expert and not just someone who shows up and can recite the jargon.” Continue reading »
Major news outlets have been talking about the Obama Administration possibly requesting $943 million from the U.S. Treasury this year to shore up the finances of the Federal Housing Administration. But whether the 80-year-old agency will actually need the cash infusion is far from clear.
The $943 million figure is part of the Administration’s fiscal 2014 budget proposal, but it’s simply a projection based on current conditions. Whether the funds will actually be needed won’t be known until September, six months from now, when the current fiscal year ends.
Today’s headlines about the bailout stem not from the agency’s single-family mortgage portfolio but from its portfolio of reverse mortgage loans, which it calls home equity conversion mortgages (HECM). These are loans that enable seniors to draw a steady stream of monthly income by tapping the equity in their house. FHA backed almost 55,000 reverse mortgage loans in 2012, making it the biggest participant in the market by far.
FHA Commissioner Carole Galante has since taken steps to pare back the agency’s reverse mortgage risk. Among other things, the agency has reduced its insurance exposure by eliminating its standard, fixed-rate reverse mortgage product, reducing the maximum amount of funds available to borrowers.
Agency Has Played Big Economic Role
The agency has really been the unsung hero of the housing market since the downturn hit several years ago, and the pressure on its reserves is the price the federal government has been paying to help keep mortgage funding flowing to first-time buyers and moderate-income households while private lenders have pared back their lending in the conventional market through tightened underwriting standards.
Unlike in the conventional market, during the housing boom FHA never loosened its underwriting standards and its financial position remained strong during the downturn, which made it one of the most stable participants in the mortgage market after the crash.
Its market share grew considerably during that time while it took up much of the slack left by the private market. Part of its growth was also driven by federal policy changes that enabled hard-hit home owners to replace their troubled mortgages with safe FHA financing. As home values plummeted in 2005 and 2006, the FHA mutual mortgage insurance fund, the agency’s main vehicle for backing single-family mortgages, came under pressure. But FHA was still able to retain its reserves for its congressionally required 30 years. (FHA also maintains a congressionally required 2-year surplus reserve account.)
FHA has since taken a number of steps to keep its finances healthy. These include increases in its upfront and monthly premium structures and tightening its enforcement over bad lenders.
The result has been a remarkable run. At a time when the two secondary mortgage market companies Fannie Mae and Freddie Mac were using Treasury funds to keep them operating after the federal government put them in conservatorship, and many of the country’s largest banks were taking assistance under the Troubled Asset Relief Program (TARP), FHA continued to operate under its own reserves.
Of course, even FHA came under pressure when home prices were seeing steep declines, and for a while last year it looked like the agency would need to tap Treasury funds to keep its reserve accounts fully funded, but in the end the improving housing market made that unnecessary as rising home values relieved much of the pressure on its reserves. The agency also received a one-time payment as its share of the National Mortgage Settlement. The National Mortgage Settlement is the 2012 agreement between five of the country’s largest banks and the federal government to address widespread problems found in the way the banks were processing their foreclosures.
The agency still has years of reserves left to meet all of its exposure should its entire portfolio of loans go bad. What it doesn’t have is the full 30-year requirement (plus the 2-percent surplus requirement), which is far beyond what banks and other financial institutions have to keep on reserve.
Lawmakers in the House are even looking at whether it’s time to reconsider the 30-year reserve requirement for the agency. Rep. Michael Capuano (D-Mass.), ranking member of the House Financial Services Subcommittee on Housing and Insurance, has introduced legislation to modify the 30-year reserve requirement. Rep. Maxine Waters (D-Calif.), ranking member on the full House Financial Services Committee, suggested in a recent hearing that it’s time for Congress to look hard at the requirement.
Were the requirement in fact eliminated, much of the pressure on FHA’s reserves would be relieved and the agency would be treated more closely to the way other financial institutions are treated.
Bottom line: The FHA has absorbed a lot of the problems in the housing market over the years and as of today it remains one of the lone housing finance agencies to come through the financial crisis without a bailout.
In the 90-second video above, House Financial Services Committee Ranking Member Rep. Maxine Waters (D-Calif.) asks NAR President Gary Thomas whether it’s time to revisit the 30-year reserve requirement for FHA. The question was posed during an April 10 hearing on the state of FHA. President Thomas was one of the panelists at the hearing, held by the committee’s housing and insurance subcommittee. Thomas said the requirement should be looked at.
The foreclosure crisis is easing but chances remain good that you’ll continue to list and sell foreclosures for a while. If you’ve had tenants in some of the foreclosures you’ve already sold than you’re probably familiar with that 2009 federal law that protects tenants against eviction when the owner loses the property to the lender.
The law is “The Protecting Tenants at Foreclosure Act” and it gives tenants two types of protection, depending on their situation. If they’ve signed a long-term lease agreement with the owner, than they’re entitled to continue renting their home for the duration of that lease agreement. So, if they have nine months to go on their lease when the owner loses the property to foreclosure, than you as the listing agent of that property have to honor that existing lease. That means no eviction or no rent increases (unless a rent increase is part of the existing lease) until the agreement expires.
If they haven’t signed a long-term lease, than they’re entitled to a minimum of three months notice before they have to leave.
There are exceptions to the law and other provisions you have to be aware of, but those are the two basic components.
Learn a little more about the law, and what protections you must accord tenants in these transactions, in this 5-minute video with NAR Regulatory Affairs and the National Law Center on Homelessness and Poverty.
The scenario happened like a perfectly-scripted movie: a Keller Williams team based in Plantation, Fla. decides to play their odds at the lottery. For just $20 each, the 11 co-workers could have the chance to win a $338 million Powerball jackpot. Through a series of group text messages and e-mails, the team organized their efforts and collected $240—or 120 tickets—for the March 22nd Powerball. Everyone at Keller Williams Partner Realty participated, except for Jennifer Maldonado, the newest member of the team. “I just started work,” the administrative assistant told team leader Laurie Finkelstein Reader. “I think I can spend $20 on something else.”
Finkelstein Reader warned Maldonado about the consequences of her choice. “Jen, if you don’t pay we’re going to win,” she said, staring her co-worker straight in the eyes. “Don’t worry,” Jen answered with a slight laugh. “I’ll take the fall for you.” (Yes, we all know where this one is going…)
Cut to Saturday when the Powerball numbers were announced. Finkelstein Reader got back on the group text that night—her husband was too tired to stay up for the results—and inquired about whether or not anyone had checked the winning numbers. “We only got five out of six,” one co-worker replied with the nonchalance of someone unaware that the team had just won $1 million.
They celebrated until dawn—even Finkelstein Reader’s husband jumped out of bed screaming, “I’m not tired anymore!”—and chatted for hours about their good fortune, which would amount to $83,333.33 per person, after taxes. “We all got on the phone and it was just ten of us completely freaking out,” Finkelstein Reader says.
But festivities quickly came to a halt the next morning when the team realized that Maldonado hadn’t participated in the pool. Maldonado, who had been carefully monitoring her spending, was happy for the team but visibly shaken by the news.
“The next thing I did was what would come naturally to anyone on my team: I asked everyone what they thought about including Jen in the earnings,” Finkelstein Reader says. “Of course, they were all on board.”
After receiving unanimous consent, Finkelstein Reader handed over what she describes as “a fat stack of cash” to Maldonado, who was brought to tears by the thoughtful gesture.
And that may have been the end of this story, if not for one little Facebook post about the altruistic act that went viral faster than you can say, “cats singing on YouTube.” Within hours, word spread far and wide about the jackpot-winning team and their decision to include the ill-fated admin. Soon national news programs like Dateline, Inside Edition, The Today Show, and more all clamored for a chance to cover the philanthropic feat.
Even Hollywood has been calling, though the team isn’t willing to answer quite yet, that is unless the right offer comes along. “I would go to California if Ellen asked,” Finkelstein Reader admits. “I tell everybody I just want to dance with her!”
Fame and foxtrots aside, Finkelstein Reader says the money has only cemented the already cooperative atmosphere synonymous with a real estate team. “Before this happened, we were every bit the way you see us now,” she says. “The only thing different is that we won a million dollars.”
It’s one of those days, the kind when the sky is just a stretch of turquoise blue and a smattering of cotton-ball clouds. To the right, tall wisps of wheat and grass, to the left, towering hills shaded purple and green, cut in places by thin, glistening streams…
No, this isn’t a description of the backdrop for a soon-to-be released Western film. It’s the scene Greg Fay, founder of Fay Ranches brokerage, sees all the time while showing premium ranching and sporting properties to his clients. And with price tags ranging from $1 million to $100 million, Fay likens the complex process of taking a ranch from due diligence to the closing table as nothing short of real estate combat. But if this is a battle, Fay — whose gross sales for Fay Ranches topped $180 million last year — may have already won the fight.
“It’s not an investment prone to the vagaries of human whimsy like the SEC having a bad day and the stocks responding to it,” Fay says about the motivation behind the increasingly popular ranch ownership trend. In fact, for Fay’s clients — many of whom he describes as among the most successful businessmen in the world — ranch real estate is more viable an option than dealing with the fickleness of today’s stock market. “When it comes to ranches, my clients are very bullish,” he says, perhaps with pun intended.
But beyond the financial benefits, there’s a recreational and familial aspect to ranch ownership too. “You can just watch clients’ shoulders drop as they get to the ranch,” Fay says. “Then they get to see their kids or grandkids running around, skipping stones in the pond or riding 4-wheelers or a horse.” For Fay’s clientele, it’s about giving their children these “non-Nintendo moments” — like observing a bull moose ramble in an open field or listening to an elk bugle on a quiet night. “You can’t get those same experiences from stocks,” he says. “All you get from stocks is heartburn.”
However, convincing potential buyers that ranch ownership is an investment worth making still takes work — and a little bit of creative marketing. “Catching a big fish can be one of the strongest sales tactics we have,” Fay says, adding that many times, a “showing” consists of fly fishing, hiking, or even floating clients down the river on drift boats so they can get a better sense of the expansive landscape as they leisurely cruise on the water.
One of Fay’s favorite moments happened with two of his longtime clients: They were interested in purchasing a property but weren’t quite convinced. At dusk, Fay brought them to a particularly beautiful vista boasting panoramic views of the hilly, lush terrain. As the sun set between the mountains, Fay arranged a twilight happy hour, complete with folding chairs and margaritas for all. “My client’s wife was hurting a little the next morning,” he says, “but they bought the ranch!”
REALTORS® who are interested in specializing in ranch and land sales can learn more about becoming an Accredited Land Consultant at REALTORS® Land Institute.
Most people are familiar with Easter Seals—a non-profit organization that provides assistance to disabled individuals and their families—but not everyone may be aware of the storied history behind the charity, or its connection to real estate.
The origin of Easter Seals dates back to 1907, when the son of Ohio businessman Edgar Allen was killed in a tragic streetcar accident. Allen knew that with the right medical care his son could’ve been saved, and so he sold his business to begin fundraising for a new children’s hospital in town. Through his involvement with this hospital, Allen came to learn how stigmatized disabled children were—kept away the public and denied adequate care—and was inspired to start the National Society for Crippled Children, or what would later become Easter Seals.
Today, Easter Seals is the leading non-profit provider of services for individuals with a variety of special needs, and looks to all industries for financial support. In the real-estate realm, Century 21 has been a longtime sponsor, raising a total of $106 million over its 34-year involvement with the organization.
“It’s been a tremendous venture,” says John Kersten, head of fundraising for Century 21 Town & Country in Utica, Mich. Kersten’s brokerage was this year’s top Century 21 Easter Seals fundraiser, bringing in $847,000 for the cause. Kersten began fundraising about 15 years ago, and has since built up his efforts to include prizes like a $50,000 cash giveaway plus a Corvette Coupe. With a one in 5,000 chance of winning—and at the cost of only $50 a ticket—the charity raffles have become tremendously popular throughout the Metro Detroit area.
Other Century 21 brokerages across the nation organized activities as varied as golf outings and casino nights to beer and barbeque cook offs or charity walks. Through these and other means, the company collected $2 million for Easter Seals in 2012.
“We’re just glad to be able to raise money for a charity that reaches out to the community with their service and has the ability to help such a cross section of people lead more independent lives,” Kersten says.
And as beneficial as charitable giving is for the community, it’s just as valuable for boosting office morale and colleague camaraderie, says Patsy Molloy, director of marketing and corporate relations at Easter Seals. “Charity fundraising is great for real estate businesses who want their agents or other employees to feel good about giving back,” she says. “It’s about knowing they’re all part of something very special.”
It’s a phone call no association wants to receive. Fair Housing testers say sales associates in the market violated the law by treating households differently based on race and ethnicity.
That’s what happened to the Lehigh Valley Association of REALTORS® in Pennsylvania, but the story doesn’t end there.
Taking the view that even a single allegation of discrimination is one too many, the association worked with community groups to institute a hard-hitting campaign to educate its members about Fair Housing. “We made a decision to be part of the solution,” says Andrea Decker, the association’s president in 2012, when the Fair Housing testing was conducted.
The campaign combines the latest best practices on federal Fair Housing rules from NAR, the U.S. Department of Housing and Urban Development, and other groups, with an outreach program that vests brokers in the education process.
“We decided brokers were the best means to mitigate this issue,” says Justin Porembo, the Lehigh Valley association’s government affairs director. “We asked them to have an educational forum at each of their monthly staff meetings to keep the conversation about Fair Housing going.”
A new task force was created to develop monthly Fair Housing topics that brokers could use in their meetings. The task force also looked at ways to increase minority representation on the association’s board, and it worked with HUD to create a publication directed at consumers to help them understand Fair Housing and how to report activity that they think might violate the law.
The campaign has been in place for about a year now and it’s impact has been significant. “Ultimately, we feel the outcome was positive,” says Ryan Conrad, the association’s CEO. “We’re moving forward.”
In a 6-minute video. Conrad and others walk you through the details of the report by the Fair Housing testers, how the association responded, and what the outcome has been.
Share the video in time for Fair Housing Month, April 1-30.
Tax provisions are once again under discussion as lawmakers look at dueling budget plans
The federal budget process for next year began last week with release by the Senate and House budget committees of their fiscal 2014 plans. The House plan, prepared under the leadership of Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, is intended to bring the federal budget into balance in 10 years by limiting spending to about 19 percent of the gross domestic product.
The Senate plan, prepared under the direction of Sen. Patty Murray (D-Wash.), chair of her chamber’s budget committee, is intended to put the budget on a sustainable path to balance by reducing it by about $1.85 trillion, half coming from cuts and half from new revenue. The new revenue would come in part by making changes in the tax code, including by closing “loopholes” and “eliminating wasteful spending in the tax code.”
The budget is just a financial blueprint and doesn’t have the force of law, so even if some version of these two proposals is eventually passed by Congress, any actual spending cuts or tax law changes can’t be known at this point just by looking at these documents.
Even so, they’re important to real estate because they point to what battles REALTORS® could be facing in the months ahead. For example, in talking about closing tax loopholes or eliminating wasteful tax expenditures, lawmakers can use that language as a starting point for looking at deductions and credits that are available to households and individuals today. Could that include the mortgage interest deduction? That’s a possibility, says Evan Liddiard, NAR’s policy analyst on tax issues.
Liddiard sat down with Colin Allen, an NAR Legislative representative, last week to talk about how real estate fares under the two budget proposals in Congress and what comes next in the process. Get their take on how the budget battle is shaping up in the 4-minute video above.
Next step in the process is release of the Obama administration’s budget proposal, which is expected in early April. Last year the administration called for curtailment in the value of itemized deductions for wealthier households.
A political analyst looks at the issues facing the Republicans and Democrats as they look to next year’s congressional races and the 2016 presidential contest.
Much like the secret meetings at the Vatican to determine the new pope, the major political parties are holding their own “conclaves” right now to figure out how to approach the next couple of election cycles, says Amy Walter, national editor of the Cook Political Report. Walter spoke during a luncheon at NAR’s Association Executive Institute event in San Diego, Calif., which ends this week.
Both parties face obstacles over the next several years, Walter says. Unsurprisingly, the biggest issue the GOP has to deal with is appealing more to minorities, a topic discussed at length in the months following the 2012 presidential election.
The Romney campaign believed that the 2012 election would play out much like the one in 1980, in which voter dissatisfaction with the economy and with the general direction of the economy led to Ronald Reagan beating Jimmy Carter, Walter says. However, minorities totaled just 11 percent of the electorate in 1980, she said. In 2012, they made up 26 percent. That trend will continue as 50,000 Latinos turn 18 every month in the United States.
“If your base is older, white voters, the trend line isn’t exactly going in the right direction,” Walter says.
This will make it more difficult for the GOP to win future presidential elections, she adds. Right now, if you look at the national picture, Democrats have a virtual lock on 17 states and the District of Columbia, which equates to 242 electoral votes. The GOP, by contrast, only has about 13 states that are practically guaranteed, which amount to 102 electoral votes.
This gap is at the heart of the effort by GOP Chair Reince Priebus to reach out to minorities over the next few years, Walter says. Additionally, Republicans are touting young rising stars like Louisiana Gov. Bobby Jindal and Florida Senator Marco Rubio, who are of Indian and Latino descent, respectively.
Despite their success in winning the presidency again last year, the Democrats have significant challenges of their own, Walter says. At the state level, the average GOP congressional district has gotten whiter. That’s due to a combination of redistricting and the fact that Democratic voters tend to cluster in urban areas with a much smaller geographic footprint.
Additionally, the 2014 midterm elections could shift the momentum back to the GOP, she says. Most of the close battles for Senate seats are going to be in states that tend to vote Republican. And minority and young voters typically don’t turn out as much for midterms. That means it will be very difficult for the Democrats to win back a majority in the House and maintain a commanding majority in the Senate for the foreseeable future. “It’s going to be a lot of defense for the Democrats [next] year,” Walter explains.
Also, there’s still some uncertainty as to who the Democratic candidate for president in 2016 will be. Hillary Clinton would seem to be an obvious choice, but it’s not entirely clear whether she’s going to run. And other than Vice President Joe Biden, the Democrats don’t have that many appealing candidates to choose from, Walter says. In contrast, GOP has a surprisingly deep and diverse group of potential candidates right now, including Jindal, Rubio, South Carolina Gov. Nikki Haley, and Kentucky Rep. Rand Paul.
“If [Hillary Clinton] doesn’t run, it’s going to be a thin bench for the Democrats,” Walter says.