Friday, April 4, 2014


In the News
Presented by Prairie Title                                  April 4, 2014
 
Commentary by Frank Pellegrini,
Prairie Title CEO
 
It is widely accepted that a healthy housing sector is fundamental to the well-being of our economy. As such, it is not surprising that full recovery from the Great Recession hinges in great part on the strength of the housing market.
We’re watching some notable stories on that aspect of the recovery. These include discussions over the continued deductibility of home mortgage interest in plans to reform the tax code and the fate of Fannie Mae and Freddie Mac.
 
Of course, every issue has at least two sides. The argument over the mortgage interest deduction is no different. Compelling arguments are being asserted to keep it as is, limit it, or do away with it. Some experts insist that without the deduction home ownership would cease to be desirable, and others assure us that its impact on the overall decision to purchase a home is negligible. Some believe the deduction only benefits the wealthy, others try to convince us that the middle class would be deeply harmed without it. To see pros and cons you may be interested in this March piece in the Wall Street Journal.
 
What to do with secondary market giants, Fannie Mae and Freddie Mac, is equally controversial, particularly against the backdrop of the recent stellar financial performance of both entities. Nonetheless, it is the concern of many that the involvement of government and its support is too deep.
 
A recent proposal offered by Senators Tim Johnson and Mike Crapo would create a new agency and would restructure the way mortgage loans are transacted on the secondary market. Since a vibrant and fluid environment for mortgage securitization is essential to the health of housing, this and other similar proposals require close scrutiny. View the current proposals side by side here.
Questions or comments? Call me at 708-386-7900, or send me an email: frank@prairietitle.com.
 Other stories we’re following:
ARMs make a comeback.
Mortgage rate watch.  
FHA’s newest policies for mortgage insurance premiums.
 
 
 
 
 
 
 
 
 

Thursday, March 6, 2014

QM Firmly In Place

In January, the "Qualified Mortgage" (QM) was born. The QM, a type of mortgage designed with consumer interests at its core, is the offspring of the Consumer Financial Protection Bureau (CFPB).

 Recognizing that consumers were harmed by aggressive marketing of mortgages that borrowers were not able to repay, the CFPB set out to create a basic standard of mortgage underwriting that squarely addresses ability to repay. The QM rule sets limits for interest rates, maturity, payment limits, and limits on upfront costs. In addition, loan originators must verify and document all information collected to establish the borrower’s financial condition. If a loan complies with the QM standards, the lender is afforded a "safe harbor " against attacks on the loan’s enforceability.


If a loan does not qualify as a QM, severe penalties may be imposed against a lender. Further, borrowers may have defenses against foreclosure if they find themselves unable to fulfill the obligations of the mortgage.

The limit on upfront costs (points and fees) is 3 percent of the mortgage amount. This limit includes all costs associated with services rendered by affiliates of the lender (i.e., appraisal, credit reporting, title insurance, settlement, etc.). Costs for services furnished by non-affiliates do not have to be loaded in the 3 percent cap.
Advocacy efforts by groups representing affiliated service providers have sought to change this dichotomy. H.B. 3211, currently under debate in the U.S. House of Representatives, seeks to treat all fees and costs associated with processing, underwriting and closing the loan the same (whether rendered by an affiliate or non-affiliate). The fate of the QM as Congress scrutinizes the implications of its implementation is a story all in the real estate industry should be following.

 Questions or comments? Call me at 708-386-7900, or send me an email: frank@prairietitle.com.
 
 
 
Other stories we’re following:
Cyber Security guidelines:

Home sellers returning for Spring?

GSE reform closer?

Monday, February 23, 2009

FORECLOSURE RELIEF QUESTIONS

Questions continue to hover over the foreclosure relief scene like low lying clouds. Of course, we've all heard the objections of those dutifully making their payments on time. Why should the responsible assist the irresponsible, is how the argument goes. In lofty philosophical arenas, the debate will likely rage for months to come, perhaps years.
But, on a more mundane level, I have been reading that foreclosure relief measures recently enacted may not achieve great results for very basic reasons. For starters, statistics indicate that as much as one-third of residential properties are not owner-occupied. As such, these properties are not eligible for refinancing or for mortgage modification under current relief measures.
Further, it is believed that many who will take advantage of refinance or modification will fall into default again, anyway.
Finally, there is nothing to coax lenders into participating in relief programs. If enough lenders take a pass, avenues for borrowers will be limited and many foreclosures will not be averted. Even lenders willing to participate may find difficulties in trying to restructure loans that have been sold in bundles on the secondary market.
While it is good news that something is being done and plans are being crafted to fix troubled mortgages, I wish that all the well-intentioned energy of lawmakers could be directed more toward outcomes and results rather than smithing sweeping, altruistic platitudes.

Friday, January 30, 2009

Is it a home or just a house?

Just this morning (January 30, 2009), Reuters reported that sales of newly-built homes plunged to the lowest level since these statistics were first recorded. I was not surprised by the substance of this announcement. After all, we are confronted daily with indicators of the ever-deepening economic crisis. What surprised me was that statistics only go back to 1963. I suppose I assumed that such an important measure would date much further back than a mere 46 years ago.
That brought to my mind the recollection that my parents purchased their first home just one year before. It was a newly-constructed home that they bought. I guess they were included in those very early reports. It was located in a modest suburb and had a "garden" apartment to help with the mortgage payment. They had realized their piece of the American dream just seven years after arriving in the United States with family in tow.
In the same article, Reuters suggests that housing is "the root of the worst financial crisis in more than 70 years." If you have read any of my postings, you know that I could not agree more.
Having provided a backdrop, I now ask you to consider the advise of "personal finance guru", Chris Farrell, who, also just today, instructs us that now is a good to to look for housing, but not necessarily to buy. No telling how much lower prices will go is his rationale.
In other words, treat home ownership as portfolio management. It's easy: buy low, sell high (somehow, I seldom get that right). So, folks that are taking Mr. Farrell's advise are out there waiting to buy. They are waiting for prices to hit bottom so that they can make a killing in real estate.
What ever happened to the notion of house as home? We used to buy residences for shelter and to raise our families. Our homes should be reflections of who we are and extensions of our dreams and aspirations. The home is a cocoon where a family is safe and secure, is nourished, nurtured and allowed to grow. When did we begin to regard it merely as investment strategy?
I know that in 1962 my parents did not fret over whether the timing was right nor were they concerned about how fast their new home's value would rise. They were just anxious to provide a home and start realizing the rich return offered by many years of happy memories.
I agree with Reuters assessment that housing is at the root of our current economic woes. But, perhaps, it is so for more profound reasons than we think. It may be worth considering that, if we stop feeding the notion that housing is our sure-fire ticket to easy street and get back to the bedrock principle that, above all else, a house is a home, then the true recovery can begin.

Thursday, January 15, 2009

U.S. Congressman Proposes Bill for Government Refinances

Although I've never been to Merced, California, the pictures on the city's website depict a very inviting scene. White stucco buildings framed by palm trees and all set against a sky of brilliant azure. They evoke notions of the California us icy and snow-laden Midwesterners yearn for and dream of. But when you study the homepage more carefully, you'll be struck by a very sobering link captioned "I want to ... avoid foreclosure". The reason for this is that Merced, California, has one of the highest foreclosure rates in the country.
Merced is located within the U.S. Congressional district represented by Representative Dennis Cardoza. Earlier this month, Mr. Cardoza proposed a bill in the U.S. House of Representative suggesting a plan very much like the one suggested by Professors Hubbard and Mayer of the Columbia Business School; and that I have written about in this blog on October 8, 2008 and November 17, 2008. Mr. Cardoza, in support of his proposal, states, "You cannot fix the economy unless you fix the foreclosure crisis." He contends that the core of the current economic crisis is the "ravaged housing market" The following link will take you to the full story published in the Merced Sun-Star on January 8, 2009: http://www.mercedsunstar.com/167/story/628022.html
I could not agree with you more, Rep. Cardoza. The fact that housing alone supported a floundering economy a few short years ago further buttresses the argument that the ailing housing sector is exacerbating the ills in the larger economy. I hope this bill has legs and makes it through Congress. If not, I hope it at least has impact on where we should focus attention in creating solutions.
I am with you all the way, Congressman Cardoza. I wish I could vote for you, but, sadly, I am here in Chicago; shivering.

Monday, November 17, 2008

After fumbling around with TARP (Troubled Asset Relief Program) for too long, attention is finally returning to the fundamental weakness creating and sustaining our current economic woes, mortgages that people cannot afford on homes of insufficient value to provide adequate collateral for those mortgages. The plan that everyone is looking at now is one proposed by FDIC Chairperson, Sheila Bair, to modify non-GSE mortgages that are past due already or projected to become delinquent by the end of 2009. The basics of the proposal call for the government to cover servicing expenses and to share losses if the modified loans subsequently default anyway.
While efforts to address a core vulnerability of the economy must be applauded, this plan like so many others strike me as just another typical bureaucratic response. After all, the goal of any bureaucrat is job security. This is a splendid plan to keep all those operatives in the Treasury Department and FDIC busy for years. There are eligibility requirements to review, tests to be applied, reviews to be conducted, rules to be drafted, standards to be applied, reviewed, revised and then re-applied, re-reviewed, revised again, ... etc., etc., etc.
Why are we not talking about a plan like the one suggested by Drs. Hubbard and Mayer of Columbia Business School as summarized in the October 2d Wall Street Journal (I wrote about it in this blog on October 8)? The elegant simplicity of that plan obviously makes it unworthy of examination. I guess that since the Hubbard and Mayer plan does not involve an army of eager government operatives to administer it can't work. I fear that, despite good intentions, we are on the wrong path again.

Tuesday, October 14, 2008

So, you don't think title insurance is important.

For decades title insurance was the quiet, back-room side of the real estate industry. It was far from the glow of the spotlight enjoyed by other segments of the business. But, lately, greater attention is being directed our way; and much of that has to do with the writings and work of Hernando de Soto. No, not the 16th century Spaniard who, with Francisco Pizarro, witnessed the conquest of Peru; but, a contemporary de Soto who is wielding even more profound influence on that country than the conquistadors of old. In fact, this modern de Soto's has left his mark on many other countries, as well; from Central and South America to Africa and as far away as the Philippines. Our de Soto is a Peruvian economist and author of the international best-seller, The Mystery of Capital - Why Capitalism Triumphs in the West and Fails Everywhere Else.
Now, what does this have to do with title insurance? Simple. Professor de Soto teaches us that it is the very lack of formal property rights in many parts of the world that is the true source of poverty. Since 1979, de Soto has been studying the complicated and convoluted structures in many countries that present overwhelming obstacles to those seeking to establish ownership of property. He found that these hurdles force the majority of the poor to live and work outside of the established legal system. They build informal structures, arrangements, and understandings recognized generally by their own communities, but of no consequence to any beyond their narrow borders. The gravity of this reality is astounding when you consider that, unless you can firmly prove ownership of any property, you are unable to sell it at a profit, or, more importantly, leverage it to acquire more property, thereby building wealth.
Western legal mechanisms allow owners of property to clearly evidence their titles. This is so deeply entrenched in our economic psyche that we are not always conscious of this crucial aspect of our success. In fact, de Soto thinks that we take our system so much for granted that we have actually lost all awareness of its existence.
Now, when you couple our tradition of establishing enforceable property rights with a written guarantee of protection, you have a very powerful weapon in the arsenal of a vibrant economy.
Title insurance provides the guarantee of protection of property rights. Because of title insurance, real estate titles can be leveraged with greater fluidity and universal acceptance. This allows owners to employ their holdings to acquire more assets, achieve greater goals, and build wealth. When considered in this light, title insurance is at the very foundation of our success as a developed nation and economy. I daresay that we should no longer be thought of as the behind-the-scene player on the real estate stage; but, rather, as the star of the show.

To learn more about de Soto, you may check out the article I wrote in December of 2006 for Metro Chicago Real Estate Magazine and which is posted on the Prairie Title website. You may also want to visit www.alta.org to read a more extensive piece written for the September/October 2008 issue of Title News.