To Raise or Not To Raise - that is the question.

When the Fed decided not to raise interest rates, at least for now, at its mid-September meeting, the action left many experts as well as lenders and real estate professionals surprised and perhaps a little bit puzzled. Leading up to the meeting, it seemed likely that rates would rise but the Fed came to the conclusion that… “in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market,” in the words of Fed Chair Janet Yellen.

Many economists argue that the time was right for the Fed to raise rates in September (or perhaps even before that). For instance, BMO Harris Chief Investment Strategist Brian Belski maintains that the next step for the Fed “must be a rate hike.” next step for the Federal Reserve must be a rate hike.

Jeff Cox of CNBC argues that “The Federal Reserve may have missed its last, best chance to raise interest rates,” while Bill Gross of Janus urges the Fed to “Get off Zero, now.” Gross argues that, “…zero destroys existing business models such as life insurance company balance sheets and pension funds, which in turn are expected to use the proceeds to pay benefits for an aging boomer society."

As it affects housing, rising interest rates may be viewed through two lenses. There are legitimate concerns that rising rates will severely damage our industry. At the same time, we all want the economy to prosper since a healthy economy typically stimulates activity and growth in the real estate sector.

In my view, the best outcome lies in achieving just the right balance. For now, current rates are advantageous for consumers looking to get into the market, move up to a bigger house, or simply refinance existing debt. However, we know they will rise at some point. We hope that policy-makers are deliberate, cautious, and prudent in searching for the perfect balance.

What do you think?

In The News - TRID and Rates

In the News

Presented by Prairie Title          

Commentary by Frank Pellegrini, Prairie Title CEO

September 22, 2015

In less than two weeks, our industry world will “change, change utterly” to paraphrase the Irish poet W.B. Yeats. Our industry changeover will be nothing like the upheaval Yeats wrote about in his tribute to Irish revolutionaries (a number of whom lost their lives) in 1916. Yeats went to say “A terrible beauty is born.” Perhaps that echoes our situation a little bit — with no lives at stake, of course.

Our business is undergoing a revolution, and while the forced change in the way we do business may seem “terrible,” recognizable “beauty” can come out of our implementation of TRID. Most importantly, the new TILA-RESPA Integrated Disclosure rule is intended to benefit consumers by making the residential real estate lending and closing process simpler and easier to understand. In my view, a more consumer-friendly process has been a long time in coming. We should be able to lend and close on residential real estate transactions in a manner that is not intimidating to the uninitiated while protecting consumers and industry interests alike. I see the beauty in that.

My best advice as we move forward? Keep calm, be prepared and keep you arms and legs in the car as the ride begins. Things may get a little wild but the payoff will be there.

When you get the inevitable questions from home buyers and sellers about TRID, there are great resources out there you can recommend. MBA, NAR and ALTA all have terrific consumer-oriented information on their sites, and the CFPB just released new consumer TRID Tools.

In other news, on September 17 the Fed announced that it would not raise interest rates — for now. In the announcement, Fed Chief Janet Yellen said, “Recovery from the Great Recession has advanced sufficiently far, and domestic spending appears sufficiently robust, that an argument can be made for a rise in interest rates at this time,” Yellen said in her opening statement. “We discussed this possibility at our meeting. However, in light of the heightened uncertainties abroad and a slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term.”

Yellen affirmed that a rate increase could be in the works as soon as next month. In other words, stay tuned. What if rates do rise in the near term? NAR has some thoughts.

Let’s keep the discussion going. Call or email me; or write a comment below.

 

Other stories we’re following:

Mortgage Bankers See Seller’s Market in 2016.

Millennial Magnet: Transparency and Technology.

The Vitals on Title Insurance.

Fannie: Economy to Grow in Second Half.

TRID Enforcement

TRID Enforcement Remains a Big Question


An impressive coalition of nearly 20 trade groups representing lenders, banks, credit unions, title companies and others have banded together to urge federal regulators to provide guidance on how they plan to enforce the new mortgage disclosure regime that goes into effect Oct. 3.

The implementation of the CFPB’s new integrated disclosure rule (TRID) in less than 3 weeks poses significant "challenges" for mortgage lenders, according to a letter signed by the 18 groups. CFPB has indicated that regulators will be "sensitive to the good-faith efforts" of lenders to comply with what is known as TRID, but what constitutes a “good-faith effort” is rather subjective. We really need more specifics from regulators on what that means. (Though the CFPB wrote the rule, enforcement of the new disclosures is spread out among various regulators.)

In their letter of September 8, trade group leaders said: "We urge the Federal Financial Institutions Examination Council to provide needed certainty by articulating precise policies for examining and supervising financial institutions for the initial months after the TRID implementation. The FFIEC should formally implement a clearly articulated transition period that addresses how regulators will oversee and examine regulated institutions for TRID compliance during this transition period."

The signers rightly note that the TRID framework represents a "sea change for every participant in the mortgage lending process," including borrowers, lenders, appraisers, real estate agents, mortgage brokers, builders and other service providers. Not providing detailed guidance as to how regulators will judge “good-faith efforts” is clearly not fair to industry members who are working very hard to implement the new rule.

I urge you to contact your trade group to express your support for the industry-wide effort to get clarity on this important issue. The fall and early winter will be challenging enough without an undefined enforcement threat hanging over everyone’s head.

Referrals and Inducements

Shedding Light on Inducements

I am struggling to understand what constitutes an illegal inducement —and what to do about it — and I seek your input. As we all know, the Real Estate Settlement Procedures Act (12 USC §2607) specifically prohibits the exchange of anything of value for referral of business related to a federally insured mortgage transaction.

We all agree that under RESPA payments tied to numbers of referrals are not allowed. Recently, a number of agreements through which payments are made to “business partners” (generally considered compliant in the past) have been scrutinized by the CFPB and found to be illegal inducements under RESPA. These cases have resulted in crippling fines and other onerous consequences for the participants.

So, what about an instance where a branch manager of a title insurer entices an attorney agent away from a competitor with the offer of a more generous agent split? Or when a service company for attorney agents offers searches and support services for a nominal amount (or free for that matter) to secure an attorney’s membership in its attorney-agent program? What about when referrals of clients are predicated upon required use of an affiliate? Are these practices the natural flow of a briskly competitive free market? Do they constitute questionable market conduct, at best? Or are they simply illegal inducements?

Traditional free market practices (such as these) may not be suitable where the selection of the provider is not made by those who ultimately foot the bill. Because of the state’s inability to adequately enforce RESPA (significantly exacerbated by the current budget crisis in Illinois), we do not receive much guidance through local enforcement. That’s where the consumer comes in.

I wonder how consumers might react if they were made aware of sweet deals among referral sources? Are the costs to consumers higher as a result? With the new CFPB consumer complaint portal we may have an opportunity to see how they react. Educating and engaging consumers about questionable practices may be just the way to get some sunshine on a very shadowy corner of the business. As Justice Louis Brandeis said, “Sunlight is said to be the best of disinfectants.”

What do you think? Let’s talk about it. 

TRID, of course.

In the News  

Presented by Prairie Title         
Commentary by Frank Pellegrini, Prairie Title CEO        

August 24, 2015 – TRID. What else? As we move toward implementation of the new TILA-RESPA integrated disclosure rule in six short weeks it’s a challenge to focus on anything else. On Oct. 3 our world will change dramatically. Rarely does such a drastic, externally-imposed change in the way business is transacted occur in an industry, but occur it will.

TRID is a direct descendant of the Dodd-Frank act, passed into law in 2010 in the wake of the financial calamity that roiled the world beginning in late 2008. At more than 2,300 pages, Dodd-Frank is a behemoth. Among its offspring is the Consumer Financial Protection Bureau which is charged with creating and then enforcing hundreds of rules like TRID that will govern how financial services businesses will interact with consumers.

CFPB’s advice to consumers before they enter the home buying process is: Know before you owe. On the industry side, we had all better “know” long before we get the closing table. Dodd-Frank enforcement penalties are steep. Even one violation can cost you $5,000 and it goes up sharply from there.

It is unclear at this point exactly how stringent CFPB enforcement policies will be in the early months of the TRID era. Directory Cordray stated in a June 3 letter to members of Congress that the CFPB’s “oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the rule on time.” Clearly, the key term is “good-faith efforts.” We will all make mistakes, but it seems if we prepare properly and make every effort to comply with the new rule the Bureau will be tolerant of those mistakes in the early going.
If you’re looking for more information as you continue to prepare, there are resources aplenty, including:

· CFPB’s Know Before You Owe page
· TRID questions answered during ALTA town hall
· Mortgage Bankers Association guidance
· Realtor.org’s TRID page

Let’s keep the discussion going. Call or email me, or write a comment.

Other stories we’re following:    

NAR: Home Prices Rise in Nearly all U.S. Metros.                      
Cook County Opens e-Recording of Deeds.              
REITs up 5 Percent in July.
Q2 Loan Originations up 22 percent.

Educating the Consumer

For a long time I’ve been perplexed by the self-imposed silence the title industry practices when it comes to home buyers and sellers. In our business, virtually all of our outreach efforts have been aimed at intermediaries (attorney, lenders and brokers) rather than the people whose lives are actually affected by the real estate transactions we process for them.

We let others do our talking for us – typically we don’t talk to consumers until they are across the closing table from us – yet we offer products and services that are invaluable to those very consumers even if they don’t realize it. With TRID implementation around the corner, we have a great opportunity to change that dynamic.

To quote an article by author by Nancy Tarr posted on Housing Wire.com, "Consumers have always looked to real estate professionals for help understanding how to buy and sell a home. Traditionally, real estate agents and brokers have led consumer education efforts, and they will continue to play a leading role. But, it’s clear that lenders, as well as title insurance and settlement service providers, will need to play a larger role in helping home buyers and sellers understand the new residential real estate environment."

The American Land Title Association just released a revised, expanded and updated Closing 101 web site specifically created to offer consumers in-depth information about the home buying/selling process. And with electronic closings coming, it is even more imperative that we ramp up our efforts to educate consumers.

I’ve given a great deal of thought to this idea over time and I believe that now is the time to move toward a new communications model for the industry. We’ve been using web sites and social media to provide information directly to consumers with some success, but we need to couple our social media efforts with direct outreach to consumers through new and traditional media as well as other means of connecting.

What do you think?

Post a comment and let’s discuss the future of communications in the real estate industry.

Navigating through Stormy Weather

Times are interesting in the real estate business. As whole, we’re in much better shape than five or six years ago on both the residential and commercial sides of the industry. Though we are not seeing tremendous growth on the financial side of our businesses, real estate activity is good and, broadly speaking, we are holding our own as a rising tide has lifted us all.

Meanwhile, strong winds are brewing that will buffet us in the coming months. In less than 60 days, we will all be dealing with the day-to-day implementation of the new TILA-RESPA rule. While lenders will be hit hardest by the new regulatory requirements, title and settlement companies also will be scrambling to find their way in our new closing environment.

As we batten down the hatches for the incoming regulatory storm, in the title industry we are also facing self-imposed pressure as we continue to implement an industry-wide Best Practices initiative. Together, these twin challenges will have a major effect on how we do business. The headwinds we are facing come close to creating a perfect storm of external and internal pressure that will make for a daunting fall and winter.

We’ll get through it, no doubt, and emerge in 2016 as stronger businesses that offer even greater protection to home buyers and commercial real estate investors. As the proverb goes, “We cannot direct the wind, but we can adjust our sails.”

While we do just that, bear with us as we navigate through some rough weather.

Questions? Comments?

Frank