04/17/2013 Florida Realtors News

Daily Briefing: Wednesday, April 17, 2013

TODAY'S TOP STORIES

Lenders loosen up on home loans

CHARLOTTE, N.C. – April 17, 2013 – Lenders are warming up to home shoppers lacking big downpayments as the housing market improves, new data show.

In the first quarter of this year, 19 percent of conventional loan offers made by lenders on the LendingTree online exchange were for loans with downpayments between 5 percent and 10 percent, LendingTree says.

That was up from 6 percent of offers the same time last year and just 1 percent of offers two years ago, LendingTree says.

Meanwhile, the number of lenders quoting non-Federal Housing Administration loans with 5 percent to 10 percent downpayments on Zillow Mortgage Marketplace is almost double what it was two years ago, Zillow says.

The growth of the availability of low-downpayment loans is notable in that, following the housing bust, those consumers had little choice outside of generally higher-cost loans from the FHA. “For years, it’s been FHA or nothing,” for the low-downpayment borrower, says Guy Cecala, publisher of Inside Mortgage Finance. “This shift is a sign that mortgage origination is loosening up.”

But the industry is still a long way from the easy-lending standards that caused the housing bust. Borrowers now must show a strong credit history and documented income to get loans, Cecala says.

Several factors are driving more low-downpayment loans outside of the FHA, including:

• Higher FHA costs. While the FHA requires just 3.5 percent down, its annual insurance premiums have more than doubled in the past two years. The last increase took hold April 1.

The higher costs are “causing a shift back toward conventional loans,” says Cameron Findlay, chief economist at Discover Home Loans.

Following the latest rate increase, FHA applications for home loans fell by almost 14 percent for the week ended April 5 while applications for conventional loans rose more than 5 percent, the Mortgage Bankers Association says.

• A rebounding private mortgage insurance industry. Lenders generally don’t make loans that they can’t resell to mortgage giants Fannie Mae or Freddie Mac. While Fannie Mae will buy a loan with as little as 3 percent down, and Freddie Mac at 5 percent, loans with less than 20 percent down require borrowers to also get private mortgage insurance.

When the housing market crashed, the private mortgage industry lost billions and such insurance was tough to get. Now, the industry is on the rebound and the cost for insurance for borrowers with higher credit scores has dropped. As such, more home loan borrowers are finding it a better financial move not to put 20 percent down and instead pay for the insurance, says Matt Johnson, loan officer at Sterling Bank in Seattle.

Rising home prices have also helped lenders get more comfortable with low-downpayment loans.

The growth of lower downpayments is also reflected in Fannie Mae’s portfolio. In the first quarter of 2012, downpayments between 3 percent and 10 percent accounted for 15 percent of Fannie’s home purchase loan business. That rose to 18 percent in the third quarter.

The borrowers are still high quality. Last year, home loans acquired by Fannie Mae with less than 20 percent downpayments originated from borrowers with an average FICO score of 755, Fannie Mae says. Scores of 740 or higher are generally needed to get the best pricing on home loans.

Copyright © USA TODAY 2013

Broker to pay $39K fair housing violation

A Mass. attorney who added a restrictive contract covenant will also pay $39K. HUD WASHINGTON – April 17, 2013 – The U.S. Department of Housing and Urban Development (HUD) announced a $90,000 Conciliation Agreement with Coldwell Banker Residential Brokerage and the seller of a home in Worcester, Mass., settling allegations they violated the Fair Housing Act by preventing the sale of a house to be used as a group home for persons with disabilities.

“This case emphasizes that no one is above the law,” says HUD General Counsel Helen Kanovsky. “Sellers of property – as well as their real estate agents and law firms who assist them – are all required to adhere to the Fair Housing Act.”

The Fair Housing Act prohibits discrimination in rental or sales transactions based on, among other things, disability. HUD says that includes blocking a sale if people with disabilities will use the home.

In the case, a prospective buyer planned to rent the house to a non-profit organization that provides housing for persons with disabilities. But when the seller, Erwin Miller, executor of the estate, learned the house would be used as a rental property, he agreed to sell the home only if it had a restrictive covenant attached to the sale.

Miller stated in an email, “If they rent to a responsible family it is okay, BUT no unrelated individuals, students, dorm! Neighbors will fight this,” an email from Miller stated.

Miller’s attorney at Bowditch & Dewey, LLP, Donna Truex, then recorded a restrictive covenant that prohibited use of the house as a group home for disabled persons.

The listing agent, an independent contractor associated with Coldwell Banker Residential Brokerage, then emailed the restrictive covenant to the prospective purchaser’s sales agent. The buyer withdrew from the sale.

However, the prospective buyer and his sales agent later filed a complaint with HUD. After receiving the complaint, HUD filed its own Secretary-initiated housing discrimination complaint alleging that the actions of the seller, real estate agent Maureen Kelleher, and attorney Donna Truex violated the Fair Housing Act.

Under the terms of the agreement negotiated by HUD’s Regional Counsel in Boston, Coldwell Banker Residential Brokerage and Bowditch & Dewey will each pay $39,000 to the prospective buyer and $6,000 to his sales agent. Both businesses will also provide fair housing training to their employees. In addition, Bowditch & Dewey, LLP, will donate 100 hours of free legal services directly related to fair housing and 100 hours of free legal services directly related to the promotion of disability rights.

“HUD is committed to promoting housing opportunities for people with disabilities in mainstream settings,” says John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “We’re pleased the parties in this case were willing to resolve this matter in a way that advances that goal.”

Tangled web ensnares foreclosure debacle

WASHINGTON – April 17, 2013 – A belated attempt by bank regulators to get compensation for homeowners who were foreclosed on by mistake turned into a debacle by the time it was shut down in February and is now becoming a scandal as more details emerge.

The Independent Foreclosure Review (IFR) was set up in 2011 to engage outside consultants to look at foreclosures taking place in 2009 and 2010 and determine where errors were made.

But last February, regulators decided after two years with only 100,000-some cases reviewed that the process was too much trouble, and opted instead for a $9.3 billion settlement with the biggest mortgage companies that awards the victims pennies on the dollar for their losses.

In all, 80 percent of those subject to the foreclosures covered by the agreement will get $1,000 or less, while the outside consultants who handled the review reaped a windfall of $2 billion – nearly $20,000 for each case actually reviewed.

At a hearing last week before a Senate Banking subcommittee, lawmakers grilled representatives of the two regulatory agencies involved, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, about these consultants and the review process.

Sen. Elizabeth Warren, D-Mass., asked repeatedly whether the agencies were going to notify victims who had been illegally foreclosed on that this had happened. But lawyers for both regulators demurred, saying a decision had not yet been made.

“You have made a decision to protect the banks but not to help the families who were illegally foreclosed on,” Warren retorted. “You know of cases where the banks broke the laws, but you are not going to tell the homeowners. People want to know that their regulators are watching out for the American public, not the banks.”

Earlier last week, Warren and Rep. Elijah Cummings, D-Md., the top Democrat on the House Oversight committee, sent a letter to the regulators rejecting their excuses for not releasing details of possible illegal activity because of confidentiality concerns.

“Federal Reserve staff argued that the documents relating to widespread legal violations are the ‘trade secrets’ of mortgage servicing companies,” Warren and Cummings wrote.

“We strongly believe that documents should not be withheld from any member of Congress based on the flawed argument that illegal activity by banks is somehow their proprietary business information. Breaking the law is not a corporate trade secret.”

In late March, the Government Accountability Office issued a report on the IFR that sharply criticized regulators for giving the consultants guidance that was too broad and for insufficiently monitoring the consistency of methods and results.

The GAO report also said regulators “adversely impacted transparency and public confidence” through insufficient communication with eligible borrowers and the public in general.

Last week’s Senate hearing was titled “Outsourcing accountability? Examining the role of independent consultants” and zeroed in on the role of the consultants themselves. These outside consultants have an inherent conflict of interest because they often work with the banks on compliance and legal issues.

The IFR debacle has thrown a spotlight on one consulting firm in particular, the Promontory Financial Group, which could serve as a poster child for the revolving door in financial regulation in Washington.

The group, which collected some $1 billion for its work in the failed IFR, was founded by Eugene Ludwig, who headed the OCC during the Clinton administration. Since it first opened its doors in 2001, it has grown to 400 employees, many of them former staffers at the regulatory agencies.

An article in this month’s American Banker Magazine describes how Ludwig built Promontory “into a shadow network between banks and regulators.”

As an example of just how quickly the door revolves at Promontory, the magazine noted that the firm in January hired Julie Williams, former chief counsel at the OCC, and the regulator replaced her days later with Amy Friend, who was a managing director at Promontory.

And earlier this month, Promontory announced it was hiring Mary Schapiro, who stepped down in December as chairman of the Securities and Exchange Commission.

In the other direction, Sarah Bloom Raskin, who became one of the seven members of the Fed’s Board of Governors in 2010, had been a managing director at Promontory earlier in her career.

This is heady stuff, even for a Washington thoroughly inured to conflict of interest. Lawmakers are right to throw the spotlight on these consultants, who are taking the concept of Beltway Bandits to a new level.

It’s probably too late to help the foreclosure victims, who are now unlikely to see any meaningful compensation from errors made by the banks. But the probe of the IFR debacle is a step in the right direction to make bank regulators focus on protecting citizens instead of banks.

Copyright © USA TODAY 2013. Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington, D.C., for Dow Jones news service, Barron’s, Institutional Investor and Bloomberg News service, among others.

Small business: Social media outcasts?

NEW YORK – April 17, 2013 – Most small businesses feel like they are wasting their time on social media, according to a new survey.

About 61 percent of small businesses don’t see any return on investment on their social-media activities, according to a survey released Tuesday from Manta, a social network for small businesses. Yet, almost 50 percent say they’ve increased their time spent on social media, and only 7 percent have decreased their time.

What businesses are trying to get from social media: 36 percent said their goal was to acquire and engage new customers, 19 percent said to gain leads and referrals, and 17 percent said to boost awareness.

Facebook was most cited as the hardest-to-maintain social-media platform, the survey said.

In an age when a company such as Netflix is so heavily integrated into social media that it plans to make disclosures to investors on Facebook and Twitter, and a tech giant such as Enterasys Systems makes headlines by hiring based on tweets rather than resumes, many small businesses worry their customers will leave them behind if they don’t interact with them on social media. Plus, it’s been a smash hit for some. Of the businesses that saw a return on investment in social-media activities, 30 percent measure that amount as above $2,000.

Terry Benton, owner of Terry’s Fabric Cottage in Sulphur, La., was surprised to hear that her quilting store wasn’t in the minority of businesses disappointed in the way their social-media campaigns have panned out. She says she created accounts for her business on Facebook, LinkedIn and Twitter a little over a year ago, spending about five hours a week updating the platforms.

She built it, but no one came. She’s backed off in the past three months after scoring only 60 “Likes” on her Facebook page at its peak, she says. “I love reading things on the Internet, so I thought the social-media stuff would be great for me, but it really has not turned out well at all.”

Pam Springer, CEO of Manta, says small businesses get returns from social media – they just don’t know what they are when they see them, and she says it’s “good news” that companies are spending more time on social media. If they’re really getting no returns, she says, it’s probably because they don’t know how to launch a successful social-media campaign, and they give up too fast if the campaign falls flat.

Businesses, she recommends, should use online resources like forums, and, yes, social media, to connect with each other for advice. According to the survey, only 36 percent of businesses do this.

“They have a high propensity to become maybe not as patient as they should be,” Springer says. The attitude becomes “I don’t want to deal with it. I don’t have enough time. It’s intimidating to me.”

Many small business, though, just don’t have a place in social media, says Stephanie Schwab, CEO of Crackerjack Marketing. They join because of peer pressure and media pressure even though they don’t understand what they’re trying to get out of a social-media campaign. Some make the mistake of prioritizing social-media activities over marketing techniques already proved to work, such as having a website.

“Just thinking that Facebook alone will send droves of customers to your doorstep is a mistake,” she says.

Regina Hartt, owner of Hartt’s Pool Plastering in Turlock, Calif., says social media hasn’t helped her business because there are too many disreputable companies in the construction business, and no amount of “Likes” on Facebook is going to sway a customer to spend $5,000 to $40,000 on a pool job. Hartt created a Facebook page for her business over a year ago, but she says out of the 200 to 300 jobs she does a year only three or four come from people who have found the business online.

“They want someone who’s going to do a good job, and seeing someone’s comment on a Facebook page isn’t going to be enough,” says Hartt, who gets most of her customers through referrals.

Copyright © USA TODAY 2013

Web makes a home’s custom blueprints cheaper

WASHINGTON – April 17, 2013 – A growing number of homebuyers shell out thousands of dollars to create blueprints for high-end properties using websites such as ThePlanCollection.com, ePlans.com, HomePlans.com, FloorPlans.com and DreamHomeSource.com.

The sites have seen a jump in business since the housing market began its recovery. Hillary Gottemoeller of Hanley Wood Business Media says many of homes are now smaller in size but have such pricey details that building costs can top $1 million.

Some buyers want amenities as master bathrooms with a shower and a soaking tub, porches with indoor/outdoor kitchens and fireplaces, chef-quality kitchens, and his-and-her walk-in closets. Sites report an increase in luxury plans for large single-level homes with flex space that can serve as dining rooms, offices, guest rooms or home gyms.

Design plans can cost under $500 if purchased online as-is, but buyers can spend over $5,000 for customizable plans. Moreover, buyers sometimes have to modify plans based on local building requirements, and those types of revisions can wipe out any savings from buying an online blueprint.

Source: Wall Street Journal (04/05/13) P. M3; Grant, Kelli B.

© Copyright 2013 INFORMATION, INC. Bethesda, MD (301) 215-4688

Lenders try to appeal to cash buyers

SARASOTA, Fla. – April 17, 2013 – More mortgage lenders are targeting their mortgage loans toward the 76 million baby boomers driving the housing recovery. Older adults are largely a generation who pays cash for a home but then prefers or needs to take out a mortgage after the deal is completed.

Taking on debt post-purchase allows buyers to take advantage of lower interest rates while giving them the flexibility and purchasing power to compete with institutional investors for foreclosures and other distressed properties.

Since most banks selling foreclosures greatly favor all-cash offers over ones contingent on financing, it also gives buyers who finance after a cash purchase an edge over other mortgage customers.

Source: The Herald-Tribune, April 1, 2013, Josh Salman

© Copyright 2013 INFORMATION, INC. Bethesda, MD (301) 215-4688