In the News

December 17, 2015 

Well, the Fed has acted, at long last. Yesterday, Fed governors voted to raise interest rates for the first time since before the financial crisis began in late 2008. It was a modest increase, just 0.25 percentage points, but monumental in the sense that it was so long in coming. The New York Times called it, "a vote of confidence in the strength of the American economy at a time when much of the rest of the global economy is struggling."

The Fed announcement emphasized that any additional increases will come slowly. "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."

Just before the announcement, a column published in the Washington Post even questioned whether the Fed would quickly end up back where it started. Wonkblog author Matt O’Brien states: "The simple story is that central bankers, who pride themselves on choosing the hard right over the easy inflationary wrong, tend to look for any excuse to end zero interest rates, even if they have to invent one. But raising rates before the economy is ready means you will have to cut them back down to zero in rather short order — which has been the case in Europe, Japan, Sweden and Israel."

What will the news mean for the real estate market? No one knows for sure, of course, but I suspect that it will be something of a non-event. The market has been churning through its own recovery in fits and starts over a number of years, and it’s hard to imagine this one event, or even a series of small increases, will have a great impact.

From my perspective, we head into 2016 in generally good shape. Builders are confident, loans are being processed despite some TRID headaches and the commercial outlook is good. We are in a much better place than we were just a few years ago, and for that we should all be grateful.

This is our final In The News of the year. Happy Holiday Season to all. See you in 2016!


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


Other stories we’re following:

Construction Spending Near 8-year High.

TRID and Lending.

Mortgages for Underserved Markets?

Economic Headwinds won’t Stop Growth.

Are Boomers In The Way?

Ken Harney, one of my favorite real estate writers, wrote an intriguing column last week asking whether Baby Boomers are getting in the way of a prosperous real estate market. Harney starts the column with this paragraph:

“They rocked at Woodstock, marched in protest on campus, distrusted authority, and then as adults, took out mortgages and bought lots of real estate. But now, say some economists, baby boomers aren't selling their houses as earlier generations did — they're not downsizing fast enough as they approach and pass traditional retirement ages — and that's contributing to inventory shortages of homes for sale as well as rising prices.”

There are so many factors at play in the residential real estate market that I hesitate lay blame at any particular group’s feet. (Full disclosure here: Mary and I are smack dab in the middle of the demographic, and still in our home). Sure, Boomers are staying in their homes longer, but there are many reasons: 

·         Some are waiting for their individual markets to improve so they can realize the promise of using equity from their homes in their retirement years.

·         Some are frustrated because the housing market where they want to live doesn’t have enough inventory of available, affordable homes to move into.

·         Some just like living where they live.

Movement at the “more mature” end of the housing demographic is intertwined with all other elements of the residential market. If couples that have raised their families stay put, then younger families have a hard time finding homes to raise their families in. As a result, Millennials have a harder time finding their first home. On the other hand, if Boomer couples leave their family homes, they are often competing with Millennials for smaller single family home and condos. And the loop goes round and round.

But changes are coming, Harney asserts. He quotes Fannie Mae's Simmons: “Boomers will not inhabit this vast inventory (32 million homes) forever,” and when their circumstances change — which they inevitably will with age — watch out. “Their actions will reverberate through the housing market.”

What do you think?

E-Closings: Coming soon to a Lender near You?

I read with interest an article published in National Mortgage News just the other day titled, "What the GSE Plan to Collect TRID Documents Means for E-Closings." The article got me to thinking about the future of closings and how the technological revolution we live in every day will affect the future of the business I hold dear.

The thesis of the article, as written by Bonnie Sinnock, is: "A plan by the government-sponsored enterprises to begin electronically collecting the new Closing Disclosure data is designed to promote Fannie Mae and Freddie Mac's loan quality and risk management goals. But the initiative may also prompt broader use of electronic signatures and paperless processing in the mortgage industry."

Couple that with Quicken Loans’ announcement last week that it now officially offers a fully online mortgage through its new end-to-end online product, Rocket Mortgage, and it’s enough to make a mortgage industry veteran run for cover.

So much needs to shake out yet before we know what final form e-closings will take – and how deeply they will take root in our business – but without a doubt we are moving in that direction. What can we do now to prepare?

Above all else, make cybersecurity a top priority in your office. Study it, implement changes, bring in a consultant to help you get it right — do what you need to do but make it happen. Make no mistake, any company that has problems keeping information secure won’t be in business very long.

Earlier this year, Kelly Adkisson, a managing director at　Accenture Credit Services, explained to HousingWire that: "Millennials are expecting different services and capabilities from lenders." Accenture’s research suggests the emergence of a new high value customer segment – "Generation D," people who are deeply digital, integrating online and social media into the fabric of their lives.

Because they have grown up online, they are comfortable living in that world day to day, but they also understand better than my generation the risks inherent online. They’re willing to transact business (including real estate closings) online, but their sensitive information must be kept secure.

What do you think?

TRID Challenges

In the News

Presented by Prairie Title            

Commentary by Frank Pellegrini, Prairie Title CEO  

November 18, 2015

I just returned from the National Association of Realtors Annual Convention where much of the talk was centered on prospects for the future, marketing to millennials and cybersecurity. I was invited to make a presentation to convention attendees about progress in implementing our new closing process in the TRID era. As I told the audience, we are experiencing broad differences in preparedness and processing, and refinance transactions have proceeded more smoothly than purchases. Challenges we have encountered include:

·         Loans through the Veterans Administration are made more complex due to the required allocation of credits and charges between buyers and sellers.

·         Implications of the notice period and having all the transactional details from all parties on time.

·         Calculating and agreeing upon the disclosure amount for title insurance in accordance with the formula prescribed in the Rule.

·         Accessing the “mid-ware” platform for uploading and downloading collaborative information with lenders.

By the time the traditional home-buying season is in full swing we’ll all be much better versed in the new lending and closing process, and transactions ought to be proceeding more smoothly for consumers and industry professionals alike. We’ll keep marching toward that goal.

Meanwhile, on the cybersecurity front, one of the NAR forums focused on how small real estate businesses, agents and their clients are fast becoming the targets of sophisticated cyber scammers. Melanie Wyne, NAR technology policy expert said that while we often hear in the news about large companies falling victim to hackers, small businesses, which often lack the vast technology and legal teams of larger businesses, actually account for the majority of attacks.

As we and our vendors continue to update our software and systems for the new closing environment, being extra vigilant about securing the information consumers entrust to us is more critical than ever.

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

 

Other stories we’re following:  

• Title SNAFUs and You.
• First Time Buyers 29 percent in September.
• Home Purchases Predicted to Rise in ’16
• Last Fed Rate Hike? Before the iPhone.

Government by (Default)

In Washington last week there was a changing of the guard in the U.S. House. As one Speaker departed and another took his place, simultaneous action occurred to keep the nation from defaulting on its prior obligations and sidetrack the endless, nauseating budget debate that has been going on for years in our nation’s capital. Feel how you will about the process and the outcome, but at the very least a budget framework is in place and our legislators can move onto other matters (such as the TRID grace period passed in the House and pending in the Senate?).

To an extent, change was the catalyst that made something happen in Washington. What will be the catalyst for action in Illinois? For months now our legislature and governor have been at loggerheads over the state budget and that is having real impact on people’s lives and the business climate. The stalemate in Springfield was ushered in by change in the form of the election of pro-business Governor Bruce Rauner, and it is highly unlikely that any of the main combatants will be leaving the scene voluntarily as former Speaker John Boehner did.

So where does that leave us, the taxpayers of Illinois? What action on whose part can bring about a resolution?

Legislative leaders and the governor are scheduled to meet this week for the first time in quite a while. Perhaps further talks will move them closer to a resolution. Until some undetermined pressure point is reached, however, it seems unlikely that an agreement will happen. Fiscal pressure might be the key at some point in time, but in my view pressure bubbling up from below, from those of us who go to the polls every two years, is the most likely change agent that will pave the way for a breakthrough.

For my friends on the Democratic side of the email, that means contacting your legislators and the leadership of both houses to stress the need to compromise and reach agreement soon. For my Republican friends, you’re not off the hook. Contact Gov. Rauner, absolutely, but also make it clear to Republican legislators that they need to help convince the governor that reaching a budget agreement is vital.

Of course, just like in Washington, most parties will not be delighted by many of the details of any budget agreement, but that’s how government in a democracy works. We need to move forward before Illinois becomes even more of a laughingstock nationally.

I urge all to be active, get in your legislator’s ear, and help create momentum to move toward resolution. Until the next round of elections a year from now, our only recourse is to contact legislators and the governor directly to clamor for an agreement. We are the agent for change. 

An easy and effective way to have your voice heard is through the Title Action Network.  You can join TAN in seconds and it costs nothing.  However, through TAN your voice is added to those of other concerned professionals for a strong and clear message to lawmakers, regulators, and policy makers.

The Claims Canard

You’ve probably heard some version of this refrain: "Why should I buy title insurance? It’s a scam. Title insurers never pay claims." That canard has been knocking around the real estate business for decades and is simply not true.

Following that type of thinking, each year, approximately 20 percent of homebuyers fail to protect their investment by not being certain they obtain an owner’s title insurance policy. Unfortunately, this leaves them exposed to serious financial risks. Title insurers do pay claims – millions of dollars worth each year – but the focus of title insurance is on preventing claims rather than assuming risk the way other types of insurance such as auto and homeowner’s do.

So our efforts are upfront. During the home-closing process, title professionals diligently examine public records, and if a problem is discovered the title professional works to resolve it before a purchase closes. In fact, during the title search, title companies find and fix problems with the title in more than 30 percent of transactions – usually unbeknownst to the consumer or lender.

While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal. Examples include:

• Undiscovered tax liens
• Forged signatures in the chain of title
• Recording errors
• Undisclosed easements
• Title claims by missing heirs or ex-spouses

Owner’s title insurance protects property rights from threats like these. Here’s a real-life example of how it works.

True Story

A family in Missouri unknowingly purchased their home from a seller who had taken out a $419,000 loan on the property. This fact was not discovered during the closing process, and the family’s lender paid the seller directly instead of paying off the existing loan. The family eventually faced foreclosure because that other lender had a claim against their property. Fortunately, the family had owner’s title insurance. The title company paid the debt and the family kept their home—and peace of mind. 

This story has a positive ending, but without owner’s title insurance, the family could have faced serious costs, and even eviction.

The next time you hear that claims canard, assure the speaker there is no basis in fact for it. No home owner should ever be without title insurance.
 

Notes from Boston

Mary and I are just back from the annual American Land Title Association Convention, held in Boston this year. Two topics were top of mind for title insurance professionals as we gathered from across the country: TRID and outreach to homebuyers.

As far as TRID is concerned, we’re now a week past the implementation date, and new loans are being processed under the new rule. In the title business, most of us are still awaiting our first new Closing Disclosure Forms as lenders work their way through the new process. Most of the talk about TRID at the convention revolved around potential issues that title underwriters and agents feel might be coming down the pike and efforts in Congress to institute a formal grace period for those moments when good faith efforts fall a little short.

The House of Representatives passed the Homebuyer Assistance Act in veto-proof, bipartisan fashion last week, and we hope the Senate will follow suit soon. While the White House has threatened a veto, let’s hope that the President will relent when the bill reaches his desk, or at least the Senate also passes the bill with a veto-proof majority. Asking Washington to institute a grace period is not asking for special treatment. Lenders, attorneys and title industry members simply want to be able to implement the new rule as seamlessly as possible in the coming months without being overly concerned about daunting repercussions for honest mistakes. 

I urge you to contact your senators in support of this bill. As third in command of Democrats in the Senate, Illinois Sen. Dick Durbin is a particularly crucial leader to get on board.

Regarding consumer outreach efforts, ALTA is urging members to get more deeply committed to educating home buyers and sellers about the residential real estate process. There is growing awareness that consumers in the coming years will increasingly be making decisions regarding vendors throughout the transaction process. Arming them with comprehensive, easy-to-understand information is a first step in helping consumers make good choices.

Take a look at ALTA’s homeclosing101.org web page and direct your customers to the page for more information about our industry. The Realtors’ and Mortgage Banking Association’s web sites also have consumer-oriented educational tools. Better consumer outreach is critical, I believe, as members of the home-buying public become more sophisticated in their approach to the residential real estate process. Let’s help them get there.

Questions, comments? Please post your thoughts for all to see and respond to. 


Frank