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 »
Perhaps you’ve just noticed the headlines emerging around Libor, or maybe you haven’t even seen them yet. Either way, this story, which has been in the European press for a few weeks now and is just now starting to get picked up on our side of the Atlantic, has big implications for real estate and mortgage finance. Here’s a quick rundown of what it is and how it could affect you.
Q: OK, let’s start with the basics. What’s Libor?
A: Libor is an acronym that stands for the London interbank offered rate (not the Long Island Board of REALTORS®, at least not in this case). That’s the average interest rate banks around the world use to lend money to each other. The rate is set (as the name indicates) in London by financial data services firm Thomson Reuters and overseen by the British Bankers Association (BBA). It’s theoretically calculated by major member banks independently submitting to the BBA their best estimates of the interest rates other banks would charge them to borrow money. When you remove the top four and bottom four estimates, then average out the remaining ones, you get Libor.
Q: Why is Libor a big deal? I hadn’t even heard of it until recently.
A: Libor impacts the rates used for credit card, mortgage, and student loan debt. There’s no precise figure, but at least $300 trillion — and quite possibly more than double that amount — worth of financial products are affected by it. To put it another way, that’s more than four times the economic output of the entire world over a four-year period. So, even a tiny rate change can mean millions or even billions of dollars gained or lost. This infographic provides a good breakdown how Libor impacts the financial ecosystem. Continue reading »
By Brian Summerfield, Online Editor, REALTOR® Magazine
REALTOR® Magazine’s editors are in Washington, D.C., this week for the 2011 Midyear Legislative Meetings & Trade Expo. Here’s a high-level look at some of what we’ll be covering here at Speaking of Real Estate:
- An examination of the priorities and performance of Congress.
- Proposals to reform government-sponsored enterprises Fannie Mae and Freddie Mac.
- How to keep mortgage capital flowing.
- The REALTOR® Party Political Survival Initiative.
- The economic outlook for residential and commercial real estate.
Be sure to check in to this blog and check out our Daily News to get the latest reports and analyses coming out of Washington this week. And don’t forget to visit Midyear Live, which brings you a members-eye-view of this event.
By Katherine Tarbox, Senior Editor, REALTOR® Magazine
The day before the National Association of REALTORS® starts its Home Ownership Matters Bus Tour at the Chicago Flower & Garden Show, REALTORS® from the Chicago area gathered at NAR headquarters Friday for a town hall-style meeting. The topic: the state of home ownership in America today.
2011 NAR President-Elect Moe Veissi, in Chicago for the kick-off, encouraged REALTORS® attending the meeting to start talking with peers and clients about how much the U.S. economy is affected by home ownership. ”We need to spread the word,” he told the 100 or so REALTORS® in the audience. Key messages he asked members to share:
- The housing market makes up $4 trillion, or about 15 percent, of the total U.S. gross domestic product.
- The housing industry has led the way out of six of the last eight U.S. recessions.
- For every two homes sold in the United States, one job is created.
Veissi asked members to join in the fight by voicing their concerns to their elected officials and by sharing these statistics publicly in their community. ”Let’s help the American consumer understand how vital home ownership is to a healthy U.S. economy,” he said, “and how it helps to create the thing we need most right now, jobs.”
By Kelly Killian, Manager of Editorial Development, REALTOR.org
NAR received the following e-mail last week from a Washington-state REALTOR®, and it served as a thoughtful and important reminder of why we — and all of you — do what we do:
I had a thought … I know for many years we had to fight to keep banks out of real estate and we, as an organization, spent a lot of money to hold them off. Given the events of the last five years, the mess with the mortgage companies and banks going out of business, I have tried to imagine if there weren’t any REALTORS® to fight that battle, how much worst this last 3-4 years could have been. I wanted to thank you for the work you do for our members and the spirit in which you do it for Americans and the fight for homeownership. I, for one, am proud to be a REALTOR® and gladly pay my dues to keep us all at work.
Indeed, working with Congress to keep banks out of the real-estate brokerage business, is just one of the very important policy accomplishments NAR and the many REALTOR® advocates and volunteers have achieved on behalf of all of our nearly 1.1 million members — and their clients.
Recently, NAR outlined some 50 key legislative and policy accomplishments in 2010 — just a portion of the work conducted on behalf of REALTORS® last year. Among the efforts that served to protect REALTORS®’ business interests, sustain residential and commercial housing opportunities, and eliminate barriers to credit were extending the closing-date requirement for the home buyer tax credit, ensuring the continued funding of the National Flood Insurance Program, and securing RESPA guidance from HUD.
And the work continues in 2011, with our efforts toward secondary-mortgage market reform, preserving the mortgage-interest deduction, and much more.
By Robert Freedman, Senior Editor, REALTOR® Magazine
Sen. Johnny Isakson (R-Ga.) is drafting legislation that would phase out the federal backstop role in the secondary mortgage market over 10 years while leaving a private company that’s created to replace Fannie Mae and Freddie Mac with a hefty reserve fund to cover any future catastrophic market events so the federal government doesn’t have to step in.
Isakson outlined his plan in broad strokes to hundreds of politically involved REALTORS®, who were in Washington, D.C., on Wednesday to learn about and to give input into NAR’s 2011 federal legislative and regulatory agenda.
Isakson’s proposal is likely to be just one of many that will be introduced in the legislative session ahead to reform Fannie Mae and Freddie Mac, the two government chartered secondary mortgage market companies that have been under federal conservatorship since the mortgage crisis.
The Obama administration is expected to submit its own plan for reforming the two companies, kicking off a comprehensive debate over how to ensure a robust conventional mortgage market going forward.
Currently, Fannie Mae and Freddie Mac are involved in more than half of the mortgage market (and FHA about a third), but there is widespread agreement within the administration, Congress, and industry groups that the companies must either be replaced or reformed so that the secondary market is no longer characterized by private, profit-motivated companies that receive taxpayer-funded support in the event of collapse, as happened in the wake of the financial crisis.
Isakson said he envisions the companies being replaced by a new entity, which he tentatively called the Mortgage Security Agency, that would be backed 100 percent by the federal government during its first year. It would generate money for reserves funded by a 50 basis-point fee on the mortgages it handles. For each of the next nine years, the federal guarantee role would be reduced by 10 percentage points until year 10, when the federal backing would stop completely. The agency would retain its reserve fund, which would function as its backstop in the event of a financial crisis.
“We have to get the government out of the sponsorship of business, but we can’t do it overnight,” he said.
By Brian Summerfield, Online Editor, REALTOR® Magazine
One of the biggest obstacles for a recovery in housing has been — and will continue to be — mortgage lending. Although rates fell to historic levels in 2010 and will likely remain relatively low through a good portion of this year, credit still isn’t easy to come by, even for many borrowers who would be considered safe in a normal market.
With that in mind, what can we expect in mortgage finance during 2011? Here are a few predictions, with help from Tom Wind, managing director at J.I. Kislak Mortgage, former CEO of JPMorgan Chase’s residential mortgage lending businesses, and former president and COO of CitiMortgage:
1. Several proposals will be made to reform and reconstitute Fannie Mae and Freddie Mac, but no new plan will be implemented this year. The U.S. Treasury Department is expected to offer recommendations to Congress this month on how to restructure the mortgage market, and incoming GOP representatives have made Fannie and Freddie reform a top priority for its agenda this year. However, Wind expressed some reservations about a speedy resolution to the issue. When some sort of reconstitution — or even replacement — of Fannie and Freddie does come, though, it will probably include an overt guarantee of government backing, he added.
“Government support is essential to a well-functioning market,” Wind explained. “There may be times when the market can function without it, but long-term, ensuring the liquidity of mortgages is essential.” Continue reading »
By Robert Freedman, Senior Editor, REALTOR® Magazine
When you look at the success of FHA over the last few years since the downturn you have to wonder what’s up with the banks.
A case in point is its credit score policy. Even for struggling households whose credit score is as low as 580, the agency will back their mortgage as long as they’re buying their primary residence and they can show they’re prepared to be responsible home owners—and they can still get a low down payment.
FHA’s reward for this policy, if you can call it that, is a 30-percent market share and a continuing sound financial position, notwithstanding the chatter in the media earlier this year when it took steps to boost a secondary reserve after it dipped below a congressionally mandated level.
You see nothing like this with the banks, despite the tens of billions of dollars they received from the federal government under the Troubled Asset Relief Program (TARP) and the Federal Reserve’s $1.25 trillion investment in mortgage-backed securities.
Banks today will hardly look at borrowers with credit scores below 650. And for those with scores as low as 620, households probably don’t even get the option of submitting an application.
This is more than a shame for the borrowers, many of whom, as FHA has demonstrated, are well prepared to be home owners; it’s an unnecessary constraint on home sales. Continue reading »
By Stacey Moncrieff, Editor in Chief, REALTOR® Magazine
Nearly 800 people attended REALTOR® Magazine’s October 28 webinar regarding recent foreclosure freezes by several national lenders. Since that session, media attention on the freeze has waned a bit. However, delays and buyer concerns continue. We didn’t have time— or answers—for all the questions posed during the 60-minute webinar. So senior editor Rob Freedman and I followed up with our speakers:
· NAR Associate General Counsel Ralph Holmen
· American Land Title Association Counsel Steve Gottheim
· NAR Managing Director of Regulatory Policy Jeff Lischer
They provided critical answers on liability, title insurance, disclosure to buyers, and more. When an answer was provided by a single speaker, we noted it.
By Robert Freedman, Senior Editor, REALTOR® Magazine
Analysts and practitioners are trying to sort out the impact on markets from bank-imposed foreclosure reviews after their discovery in September of improperly processed foreclosures. NAR Chief Economist Lawrence Yun says inventories could be eased in the short-term as distressed properties are held off the market, which could help prices temporarily, but eventually the properties will return, dragging out the recovery.
On the plus side, Yun says buyers have shown an appetite for deeply discounted homes, so homes whose mortgages are undergoing review won’t necessarily linger once they come back onto the market. “What we’ve seen recently is that buyers are comfortable buying foreclosed properties, so if houses trickle in because of the moratorium, there will be buyers for them but at a later stage,” he says.
Yet, conditions are changing quickly, so it’s too soon to know what the impact on households’ ability to buy these properties will be. It will be hard to quantify, for example, what impact the foreclosure reviews will have on household confidence.
In a positive sign, some households don’t appear to be too discouraged by the reviews, although that could change if the reviews take a long time to complete.
Joe Kendall, associate broker of Sandals Realty in Fort Myers, Fla., where distressed sales are a large part of the market, says he’s aware of buyers’ concerns about buying foreclosed homes now. But at least as of last week, he personally hadn’t had a deal hit a snag because of that reason. “Price is driving everything today,” he says. “Regardless of what they’re hearing in the media about the problem, people who’ve been waiting on the sidelines for prices to come down are willing to risk a delayed closing to pay $60,000 for a house that a few years ago went for $225,000.” Even so, he says things can change quickly, and the foreclosure issues could hurt despite households’ appetite for deeply discounted properties.
In another positive sign, he says, banks have gotten much more efficient at processing short sales and now he’s seeing owners of homes that might have gone into foreclosure two years ago getting the green light from the lender to sell their house as a short sale. “I now have banks e-mailing me to see if I’ve got a contract yet on these short-sale listings,” he says. “A year ago you wouldn’t have seen anything like that.” Continue reading »