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Dennis Norman  Friday, 30th of July 2010 at 07:23:40 PM
 Dennis Norman The Financial Crimes Enforcement Network (FinCen), a bureau of the U.S. Department of the Treasury, released their 2009 Mortgage Loan Fraud (MLF) study which found the number of mortgage fraud suspicious activity reports (SAR’s) filed in 2009 grew 4 percent compared to 2008.
California Top State for Mortgage Fraud Suspicious Activity in 2009
In terms of the number of SAR’s that were filed indicating that the lender felt there was the presence of fraud on a loan during 2009,California had the most with 26,201 such filings, followed by Florida with 18,320.
 Source: Financial Crimes Enforcement Network Los Angeles Top Metro  Area for Mortgage Fraud Suspicious Activity in 2009
Los Angeles was at the top of the charts for Mortgage Fraud activity in 2009 according to the report, with 10,656 suspicious loans in 2009, followed closely by Miami-Fort Lauderdale-Pompano Beach, Fl, with 10,089.
 Source: Financial Crimes Enforcement Network
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Dennis Norman Friday, 30th of July 2010 at 04:11:13 PM
 Dennis Norman A report published by Lender Processing Services (LPS) analyzing homeowner’s performance on their mortgages as of June 2010 shows some encouraging news; there are signs that the foreclosure and mortgage delinquency rates are stabilizing, albeit at very elevated levels. Continue reading Foreclosure and Mortgage Delinquency Rates Stabilizing
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Dennis Norman Thursday, 29th of July 2010 at 04:01:39 PM
 Dennis Norman This week I attended an event at the St. Louis Association of REALTORS® in which Lawrence Yun, Chief Economist for the National Association of REALTORS® was the featured speaker and gave his take on the housing market as well as his housing market outlook. Continue reading Housing Market Outlook and Forecast
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Dennis Norman Wednesday, 28th of July 2010 at 05:37:17 PM
Dennis Norman With mortgage rates near an all-time low one might expect a lot more people taking advantage and buying a home. However, even low interest rates have not been enough to fire up home-buyers although, for the second consecutive week, there has been a little increase in activity. Continue reading
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Robert Fishel Wednesday, 28th of July 2010 at 11:23:46 AM
Fannie Mae Rolls out New Loan Quality Initiative (LQI) Program – Tightens underwriting requirements and aims to reduce borrower fraud.
These rules could derail some closings for buyers who rack up purchases or even take out new store credit cards before their home sales have closed. Continue reading Fannie Mae Tightens Underwriting Standards
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Dennis Norman Tuesday, 27th of July 2010 at 09:41:20 AM
Dennis Norman This morning S&P/Case-Shiller Index report for May was released showing that the annual growth rates in 15 of the 20 Metro Area’s their reports cover improved in May compared to April 2010. The 10-city composite is up 5.4 percent from the year before and the 20-city composite is up 4.6 percent from the year before. Continue reading Case-Shiller; Housing market not in any form of sustained recovery
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Dennis Norman Monday, 26th of July 2010 at 11:06:34 AM
Dennis Norman Asking this question now is about like asking a newly divorced person their thoughts on marriage….nonetheless in challenging times many of us reflect upon our past investment decisions, investment philosophy, etc and see what can be learned from our past to help us in the future. Continue reading Is a home a good investment?
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Dennis Norman Monday, 26th of July 2010 at 10:31:38 AM
 Dennis Norman Yes, the headline is correct….New home sales in June were up 23 percent from May, but unfortunately the revised May annual new home sales rate of 267,000 was the lowest rate of sale on record therefore even after a 23.6 percent increase it only brought June up to 330,000 new homes, a rate that is now the second lowest new home sales rate on record. June’s new home sales rate is 16.7 percent below a year ago.
There is some good news in the report; the inventory of new homes (seasonally adjusted) at the end of June is 7.6 months, a 20.8 percent decrease from May’s revised inventory of 9.5 months and is a 10.6 percent decrease from June 2009 when the inventory was 8.5 months.
My Mantra
As has been my long-running mantra, I don’t like “seasonally adjusted” numbers and “rate” of sales. Why, for one I can’t figure out how in the world they compute the numbers. Second, I just don’t think discussing  the “rate” of new home sales paints a realistic picture of the market. I think this holds especially true when we have artificial forces affecting the housing market such as tax credits as we have seen what an artificial “bubble” in the market this can cause.
Here is the raw data, the ACTUAL new homes sold- no fluff, no “adjusting”
- 30,000 new homes sold in June, an increase of 15.4 percent from May’s 26,000 new homes sold (revised) but is an 18.9 percent decrease from June 2009 when there were 37,000 new homes sold.
- 53.3 percent (16,000) of the new homes sold were in the South region- an increase of 23.0 percent from May.
- the west region had 5,000 new homes sold, a decrease of 16.7 percent from May’s revised sales.
- the Midwest had 5,000 new homes sold, an increase of 25.0 percent from May.
- The Northeast had 4,000 new homes sold, an increase of 33.3 percent from May.
- YTD – In the first six months of 2010 there have been 183,000 new homes sold, a decrease of 2.7 percent from the same time last year.
- Median sale price of new homes in the US in June was $213,400, a 1.4 percent decrease from May’s median new home price of $216,400 and 0.6 percent decrease from a year ago when the median new home price was $214,700.
- New Homes in the US in May have been for sale for a median time of 12.4 months since the homes were completed, a 12 percent decrease from May’s revised figure of 14.1 months.
My prediction for 2010
I’m encouraged by indications of some price stability we are seeing as well as decreasing inventory of new homes. I’m concerned about the new home permits and starts as they appear to be greatly outpacing sales and could lead to increased inventories and I’m also concerned about the underlying economy and general anemic behavior of the real estate market. Clearly this market is not going to fix itself overnight, nor this year even. However, having said that, I’m going to stick with, what I think is perhaps somewhat optimistic, prediction of 336,600 – 355,000 new home sales in 2010.
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Dennis Norman Friday, 23rd of July 2010 at 12:08:21 PM
Dennis Norman Multiple Offers and Homes Selling for prices ABOVE list price? Is this a reprint of a post from 2005?
Nope. Believe it or not, this is exactly what was in a report released this morning by Zip Realty. The report is based upon home sales activity in the second quarter of this year and says that, despite slowdowns in home sales across the country, California is still the nation’s hottest spot for home buying activity.
California was home to 91 out of the country’s 100 “hottest” zip codes in terms of home sales during the quarter. Zip Realty’s definition of a “hot” market is one in where “homes were selling on average for most above list price“. So being the cynic that I can sometimes be, and, seeing how economists and reporters are constantly “playing with” stats to make them illustrate their point (I would never do this of course:) ) I guess from this report one could instead say that more California home owners under-price their homes more than anywhere else in the U.S. But let’s just stick with the “glass is half-full” approach and say the California market is hot.
Highlights from the report:
- Berkeley, CA 94703 is the country’s “hottest” zip code with homes selling on average for almost 8 percent above the asking price.
- Winchester, CT 06098 was the nations “coldest” zip code, with homes selling there on average 30 percent under list price.
- ZIP codes in California, and specifically the Bay Area, remain the “hottest” for buyer demand, including ZIP codes in Berkeley, Oakland and San Jose. See the chart below for the full list of the country’s ten hottest ZIP codes.
- The country’s “coldest markets” have warmed slightly since Q2 of 2009 — with homes in the country’s 10 coldest ZIP codes selling for an average of 18 percent below asking price in Q2 of this year, as compared to an average of 22 percent below asking price in Q2 2009.
- High-end housing markets nationwide continue to offer relative bargains for buyers. For example, in Miami’s Palm Beach (33480), buyers paid an average of around $1.1 million for a home in Q2, an average of $232,492 below list price. In Cape Cod’s Osterville (02655), homes sold on average for 16 percent below asking price, or an average of $180,437 under asking.
- According to the total number of home searches on Zip Realty, Phoenix and its surrounding neighborhoods continue to be the most popular searched areas in the country.
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Dennis Norman Friday, 23rd of July 2010 at 09:06:12 AM
Dennis Norman Home sales activity was up in May, but the mix of sales shifted toward less-expensive properties in many cities throughout the U.S. according to the May 2010 Radarlogic Housing Market Report. In addition, the report states that while their home price composite index for the 25 metro areas covered did increase in May by 2.1 percent on a year-over-year basis, the “ gains were not large enough to be described as a recovery” and “ there was more evidence of weakness in the market than strength.”
Highlights from the report include:
- Home prices have remained stagnant since the beginning of 2009- while there were seasonal periods of strength sine then, overall the trend has been relatively flat.
- Property sales in the 25 metros covered by the index increased in May by 41 percent from the year before.
- Motivated sales decreased as a percent of total sales on a year-over-year basis but still accounted for 24 percent of home sales (RPX does not include short-sales in this number).
- Since January 2009 sales has increased in the 25 metros covered by 45 percent.
- Only nine of the 25 metros tracked by Radar Logic showed annual price improvement. Only 20 showed month-over-month improvement.
The 25 metro areas that make up the Radar Logic composite index are: Atlanta, Boston, Chicago, Charlotte, Cleveland, Columbus, Detroit, Denver, Jacksonville, Los Angeles, Las Vegas, Miami, Minneapolis, Milwaukee, New York, Philadelphia, Phoenix, Sacramento, Seattle, San Francisco, San Diego, San Jose, St. Louis, Tampa and Washington, D.C.
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Dennis Norman Thursday, 22nd of July 2010 at 03:55:24 PM
Dennis Norman Last month I said that I expected to see some elevated numbers in the existing home sales report for May and June since this report would reflect the actual closing of the home purchases from buyers that raced to buy before the April 30th home-buyer tax credit deadline. Even though Congress has extended the deadline to close on these purchases until August 31st, the majority of the tax-credit induced sales will have closed by June 30th and therefore be reflected in today’s report which I would say has happened.
Today’s existing home sales report from theNational Association of REALTORS(R) shows existing home sales in June were at at a seasonally adjusted-annual rate of 5.37 million units which is a decline of 5.1 percent from May but is 9.8 percent higher than a year ago..
Prices on the rise for fourth consecutive month -
The median home price in the U.S. in June was $183,700 an increase of 5.2 percent from May and an increase of 1.0 percent from a year ago when the median price was $181,800.
Inventory levels increase-
Inventories decreased in May after being on the rise three consecutive months but were back on the rise again in June as the number of existing homes for sale in June finally increased to 3,992,000, an increase of 2.5 percent from May and an increase of 4.7 percent from a year ago. The number of months “supply” this inventory represented in June, based upon current sales levels, increased to 8.9 months making it the highest level since August 2009.
Metro Home Sales and Prices -
NAR publishes existing home sales for 20 major metropolitan areas of the U.S. Highlights from that report include:
- Pittsburgh, PA pushed Portland out of the first spot where it reigned for three months with the largest year-over-year increase in existing home sales in June with Pittsburgh seeing an increase of 23.9 percent in sales from a year ago.
- Boston, Massachusetts spent it’s second month at number two for June with a 23.7 percent increase in existing home sales from a year ago.
- New York, NY was number three with a 21.0 percent increase in existing home sales from a year ago.
- St. Louis, MO (my hometown) led the way in price increases from a year ago, with June’s median home price of $161,500 representing a 9.9 percent increase from a year ago when the median price was $146,900.
- San Diego, CA came in second for the second consecutive month with a median price of $397,600, a 8.4 percent increase from a year ago when it was $366,900.
- Boston, MA came in third with a median price of $391,600, a 8.2 percent increases from a year ago when it was $361,800.
Lawrence Yun, NAR chief economist,said the market shows uncharacteristic yet understandable swings as buyers responded to the tax credits. “June home sales still reflect a tax credit impact with some sales not closed due to delays, which will show up in the next two months,” he said. “Broadly speaking, sales closed after the home buyer tax credit will be significantly lower compared to the credit-induced spring surge. Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels.” (hey, I’ve been saying this for months 
I don’t like “seasonally adjusted rates of sales”:
If you have been reading my posts for a while you know by now I don’t like “seasonally adjusted” numbers when artificial stimuli, such as homebuyer tax-credits, can cause an unseasonal spike in sales activity. I much prefer to see the actual numbers and try to garner from them what is going on in the housing market.
The following are the ACTUAL Existing Home sales reported by NAR without any adjustment or fluff:
- There were 564,000 existing homes sold in June which is a 7.2 percent increase from May and a 8.3 percent increase from a year ago.
- Below are highlights from each region:
- Northeast – 103,000 homes sold in June, a whopping increase of 30.4 percent from May and an increase of 14.4 percent from the year before.
- Midwest - 131,000 homes sold in June, an increase of 0.8 percent from May and an increase of 9.2 percent from the year before.
- South - 206,000 homes sold in June, an increase of 5.6 percent from May and an increase of 9.0 percent from the year before.
- West – 124,000 homes sold in June, an increase of 1.6 percent from May and a increase of 1.6 percent from the year before.
Other highlights of the NAR Report:
- Distressed sales accounted for 32 percent of all home sales in June, up from 31 percent in May.
- First-Time homebuyers accounted for 43 percent of the home sales in June, down from 46 percent in May.
- Investors were the buyers of 13 percent of the homes in June, down from 14 percent in May.
- Repeat home buyers were responsible for approximately 44 percent of June’s sales up from 40 percent in May.
My Take On the Numbers:
We have clearly seen a boost to the housing market as a result of the home-buyer tax credit and continue to get a little support as the deals close. Unfortunately the economy still has major issues….Fannie Mae’s housing forecast in June took a sharp turn downward (which I will be writing about in the next day), unemployment increased today and there is still much political unrest in the country. I think the best we can hope for at this point is for some stabilization in the housing market which we are seeing some glimpses of. It will be quite a while before I will be using the “R” word though (recovery).
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Dennis Norman Wednesday, 21st of July 2010 at 02:52:12 PM
Dennis Norman Last week I said that in my real estate career I’ve not seen a time that lower interest rates didn’t spur some sort of activity in the market. Finally, it happened, at least a little. According to the Mortgage Bankers Association (MBA) weekly mortgage applications survey for the week ending July 16, 2010, the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) increased 3.4 percent from the week before. This makes only the second time in the last 11 weeks this index has increased. The four-week moving average of home purchase mortgage applications made some progress but has not come out of the red yet and is down 1.3 percent.
After last weeks dip in the Mortgage Refinancing index, it is back on the rise increasing 8.6 percent hitting the highest level since May 15, 2009. The refinance share of mortgage applications increased to 79.4 percent, the highest level since April 2009.
Last week I gave my “we can’t ignore reality” speech and, even though I am encouraged by the slight increase in home purchase mortgage applications, I think we still have many underlying issues that are going to challenge the real estate market for some time to come.
Interest rates for the week ended July 16, 2010:
- 30 year fixed-rate mortgage interest rates decreased to 4.59 percent (can you say CHEAP??) from 4.69 percent, with fees increasing to 1.04 percent from 0.96 percent on loans that are 80 percent of the value of the home. This is the lowest interest rate for a 30-year fixed rate mortgage in the history of the MBA index.
- 15 year fixed rate mortgage interest rates decreased to 4.05 percent from 4.12 percent, with fees decreasing to 0.88 percent from 1.04 percent on loans that are 80 percent of the value of the home. This is the lowest interest rate for a 15-year fixed rate mortgage in the history of the MBA index
- One-year ARM interest rates decreased slightly to 7.17 percent from 7.20 percent, with fees increasing to 0.24 percent from 0.22 percent on loans that are 80 percent of the value of the home.
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Dennis Norman Tuesday, 20th of July 2010 at 11:45:15 AM
Dennis Norman Finally, some good news!
This morning Standard & Poor’s released their S&P/Experian Consumer Credit Default Index for June showing that first-mortgage default rates declined 5 percent from the month before and were down 45.2 percent from a year ago.
I have been saying for a while, we are not going to see any sort of sustainable recovery of the housing market until we see mortgage delinquency and default rates decline thereby bringing down the foreclosure rate and ultimately easing the downward pricing pressure on the housing market caused by foreclosures. Maybe, just maybe, this is the beginning of the trend for such a decline in delinquencies. Let’s hope we see similar declines in the coming months.
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Dennis Norman Tuesday, 20th of July 2010 at 10:42:55 AM
The U.S. Census Bureau and US Department of Housing and Urban Development (HUD) issued a their report on New Residential Construction for June 2010 showing a decrease in building permits and a decrease in new home starts from May.
The report shows the following:
- Building permits issued for single-family residences in June were at an annual rate of 421,000 which is 3.4 percent below the revised May rate of 4216,000 and a decrease of 6.7 percent from a year ago when the rate was 451,000.
- Housing starts for single-family residences in June were at an annual rate of 454,000 which is a decrease of 0.7 percent from the revised rate for May of 457,000 and an decrease of 4.6 percent from a year ago.
- Homes completed in June were at a rate of 676,000 homes, an increase of 31.3 percent from May’s revised rate of 515,000 homes and an increase of 32.5 percent from a year ago.
As I say every month, we need to remember that all the numbers above are “seasonally adjusted” annual rates and the year over year comparisons are just comparing the numbers for June 2010 versus June 2009. Another way I like to look at where things stand is to simply look at the year to date data; actual numbers, not seasonally adjusted, compared to last years ytd numbers at this same time. I think this may give a little better comparison so those numbers are below:
- Through June 2010 there have been 245,100 permits issued for new homes compared with 203,000 this time last year for an increase of 20.7 percent.
- In June there were 42,900 permits issued, an increase from May’s 42,100 permits.
- Through June 2010 there have been 256,400 new homes started compared with 202,100 this time last year for an increase of 26.9 percent.
- In June there were 45,500 new homes started, an increase from May’s 43,300 new starts.
- There have been 243,800 new homes completed through June 2010, pretty much the same as this time last year when there were 243,600 homes completed.
- In June there were 60,000 new homes completed, an increase from May’s 42,600 completions.
Let’s do one of my favorite things and look at the raw numbers and not seasonally-adjusted numbers to compare construction activity to sales:
- Through the end of May, 2010 (the most recent period sales data is available for) there have been 159,000 new homes sold and there have been 183,800 new homes completed, outpacing sales by 15.6 percent.
- For the 12-month period June 2009 through May 2010 there were 383,000 new homes sold and there were 504,800 new homes completed, outpacing sales by 31.8 percent.
- Through the end of May there have been 210,900 new homes started outpacing the new ytd home sales activity through May by 32.6 percent.
As expected, building permits and starts have dropped after the temporary spike upward which was the result of home-buyers rushing tobeat the tax-credit deadline of April 30th. A concern of mine however is that new home starts and permits continue to outpace new home sales in both YTD numbers as well as in the prior 12 month period as I have shown above. Replenishing inventory of new homes would make sense if the underlying real estate market was showing some solid signs of recovery and growth but unfortunately it is not so I’m afraid if this trend continues it is going to lead to an over-supply of new homes again which will not be good.
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admin Monday, 19th of July 2010 at 05:34:38 PM
Landlord attempted to evict single mother for filing fair housing complaint
The U.S. Department of Housing and Urban Development (HUD) announced Friday that a HUD Administrative Law Judge has ordered an Iowa landlord to pay $52,150 in damages and civil penalties for retaliating against a single mother of three by threatening to evict her because she filed a housing discrimination complaint.
The Fair Housing Act makes it unlawful to retaliate against individuals because they exercised their fair housing rights.
“HUD will not tolerate retaliation against individuals who file discrimination complaints,” stated John Trasvina, Assistant Secretary for Fair Housing and Equal Opportunity. “Discrimination victims are not alone when exerting their rights under the Fair Housing Act.”
In November 2008, the mother of three filed a housing discrimination complaint against Cedar Rapids landlord Robert Miell alleging that he refused to rent her a three-bedroom apartment and unjustly charged her a higher security deposit because of her sex. HUD found no evidence of sex discrimination, but charged the landlord and management company in September 2009 with unlawfully retaliating against the tenant by terminating her lease and attempting to evict her because she filed a housing discrimination complaint.
An Administrative Law Judge awarded the tenant and her family $20,150 in damages and assessed a total civil penalty of $32,000 against the landlord and his management corporation.
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Dennis Norman Friday, 16th of July 2010 at 11:36:56 PM
Dennis Norman 07/17/10-Correction – This past week Congress passed H.R. 4173, the Wall Street Reform and Consumer Protection Act which is the most comprehensive reform to the banking industry since the Great Depression. The bill now awaits President Obamas signature which is expected to happen in the coming week.
This is a very comprehensive bill and I’m not sure even the Congressmen that passed it know everything that is in it, so I’m certainly not going to even pretend to know that much about the bill, but the one thing I do know is the Home Valuation Code of Conduct (HVCC) is dead. It’s been a while since I have written about HVCC but to refresh everyone’s memory HVCC is something has wreaked havoc with home buyers, REALTORS and appraisers. HVCC, which went into effect on May 1, 2009, has caused issues and confusion in the real estate industry and among professionals in the industry. Killing HVCC will be, in my opinion, be a positive thing for the real estate market.
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Dennis Norman Friday, 16th of July 2010 at 10:26:59 PM
The Justice Department today filed a lawsuit against the owner, management company and former manager of Summerhill Place Apartments, a 268-unit apartment complex in Renton, Wash., for violating the Fair Housing Act by discriminating on the basis of race, color, national origin and familial status in the rental of apartments.
The lawsuit, filed in the U.S. District Court for the Western District of Washington, names as defendants Summerhill Place LLC (the owner of Summerhill Place Apartments), GRAN Inc. (the management company) and Rita Lovejoy (the former on site manager). The suit alleges, among other things, that the defendants steered Indian tenants away from one of the five buildings at Summerhill, treated tenants from India less favorably than other tenants, and discouraged African Americans, Hispanics and families with children from living at Summerhill.
“Few things are more fundamental to success and happiness than having a safe place to live. Fair and equal access to housing is a cornerstone of our society,” said U.S. Attorney for the Western District of Washington Jenny A. Durkan. “Apartment owners must ensure that their managers treat all tenants, and potential tenants, in a fair and equitable manner without regard to race, national origin or whether they have children. The U.S. Attorney’s Office will actively pursue these cases with the goal of fairness and equity for all.”
As alleged in the complaint, two Summerhill employees contacted the King County Office of Civil Rights (KCOCR) in 2007 and complained of discriminatory housing practices at Summerhill. KCOCR then contracted with the Fair Housing Council of Washington to conduct testing at Summerhill. After testing was conducted, KCOCR referred the matter to HUD. After an investigation, the Secretary of HUD determined that there was reasonable cause to believe that discriminatory housing practices had occurred and issued a charge of discrimination. The defendants elected to have the matters asserted in the HUD charge heard in federal court.
“Housing discrimination is illegal and unacceptable,” said Assistant Secretary for Fair Housing and Equal Opportunity John Trasviña. ”HUD and the Justice Department work to eliminate it.”
The suit seeks monetary damages for those harmed by the defendants’ actions, civil penalties and a court order barring future discrimination.
Fighting illegal discrimination in housing is a top priority of the Justice Department. The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability. More information about the Civil Rights Division and the laws it enforces is available at www.usdoj.gov/crt . Individuals who believe that they have been victims of housing discrimination can call the Housing Discrimination Tip Line at 1-800-896-7743, e-mail the Justice Department at fairhousing@usdoj.gov, or contact HUD at 1-800-669-9777.
The complaint is an allegation of unlawful conduct. The allegations must still be proven in federal court.
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Dennis Norman Friday, 16th of July 2010 at 07:21:41 AM
Dennis Norman Worst Street In America for Mortgage Fraud is In Orlando (actually they have 5 of the top 10 streets)
According to the 2010 Mortgage Fraud Trends Report released by CoreLogic this week, fraud risk in the mortgage industry has declined by 25 percent since it peaked in the third quarter of 2007. Even though the trend is down it is still estimated that there were $14 billion in fraud losses experienced in 2009 alone.
CoreLogics’ fraud index can drill down to show states, cities and even streets that have the highest mortgage fraud risk. Highlights of the report:
- Overall mortgage fraud risk has been steadily decreasing since 2006 and appears to have leveled off in 2009
- Short sale volume from first quarter of 2008 through fourth quarter of 2009 increased by more than 300 percent
- Nearly one in every 200 short sales were deemed “very suspicious” by lenders meaning the property was resold less than 60 days after the short sale and the sale price was more than 20 percent higher than the short sale price.
- The most common type of mortgage fraud (31 percent) is related to the borrower’s income.
- States with the highest mortgage fraud risk are Florida, South Carolina, North Carolina, California and Georgia.
- The highest risk zip codes are Jamaica, N.Y., Orlando, FL, Miami, FL, Atlanta, GA and Detroit, Mich.
- The top scoring street for mortgage fraud is in Orlando. In fact, 5 of the top 10 ten streets with the highest risk of mortgage fraud in the report were in Orlando. Other cities with streets in the top 10 were Prior Lake, MN, Chicago, IL, Oakland, CA, Atlanta, GA and Urbana, IL.
How about that? They can even identify the “risky street”. In the case of the street in Orlando the report didn’t give a name but did say there were 28 loans on the street from 2007 to 2008, the same company was the seller in most cases and the properties are now selling for about 10 percent of what they originally “sold” for.
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Dennis Norman Thursday, 15th of July 2010 at 10:35:34 AM
Dennis Norman According to a report released this morning by RealtyTrac there were 1,961,894 foreclosure filings in the first six months of 2010 on 1,654,634 housing units in the U.S. This reflects a 5 percent decrease from foreclosure activity for the prior 6 month period but is an 8 percent increase from the same period of 2009. What is just a sickening statistic in the report is that, during the first six months of 2010, 1.28 percent of all housing units in the U.S., or one in 78, received at least one foreclosure filing during that period.
For the month of June there were foreclosure filings reported on 313,841 U.S. properties, a decrease of nearly 3 percent from May and a decrease of nearly 7 percent from June 2009. However, June marked the sixteenth consecutive month with over 300,000 foreclosure filings during the month.
James J. Saccacio, chief executive officer of RealtyTrac, said “the midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions…….the roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market.”
States with Highest Foreclosure Rates in first half of 2010-
- Nevada – One in ever 17 housing units
- Arizona – One in every 30 housing units
- Florida – One in every 32 housing units
- California – One in every 39 housing units
- Utah- One in every 52 housing units
- Georgia – One in every 56 housing units
- Michigan – One in every 58 housing units
- Idaho – One in every 60 housing units
- Illinois – One in every 62 housing units
- Colorado – One in every 71 housing units
So while it is good to see the month-over-month foreclosure rates decrease the rates continue to hover around record levels which is not good. Plus, as Mr. Saccacio addresses with his comment about the massive numbers of distressed properties and underwater loans “sitting just below the surface” and as I addressed last week in my post ‘Shadow’ Foreclosure Inventory is the 800 lb Gorilla, this problem is far from over unfortunately.
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Dennis Norman Wednesday, 14th of July 2010 at 10:49:31 AM
Dennis Norman According to a report released by Trulia.com, 24 percent of the homes for sale as of July 1, 2010 have experienced at least one price cut. This is a 9 percent increase from the prior month.  The average discount for price-reduced homes continues to hold at 10 percent off of the original listing price.
Western U.S. Leads with Price Reduction Increases
For the first six months of this year, cities in the Western U.S. saw a reduction in their price declines, however for this month those same cities have experienced some of the largest surges in price reductions in the U.S. when compared to the prior month. Oakland saw a 38 percent increase in price reductions, San Diego 25 percent, Honolulu (wow, way west) 21 percent and Las Vegas reductions increased by 20 percent.
Most of the largest U.S.cities saw Price Reduction Increases
Twenty two of the top 50 cities across the U.S. experienced price reduction levels at 30 percent or more, compared to just 10 cities in the previous month. Minneapolis leads the way with 40 percent of its home listings experiencing at least one price cut. This is the third straight month that Minneapolis has held the top spot and no other city has reached the 40 percent mark since Trulia started tracking home price reductions in April 2009. With an average discount for price-reduced homes at nine percent, the city’s total dollar amount slashed from home prices was $30.1 million.
Luxury Market Still Hardest Hit
Luxury homes (those listed at $2 million and above) continue to be hit the hardest by price reductions with the average discount being 14 percent off list price.
To see Trulia’s report showing price reductions for the 50-largest cities in the U.S. as of July 1, 2010 click here.
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Dennis Norman Wednesday, 14th of July 2010 at 09:56:55 AM
Dennis Norman I’ve been in the real estate business for over 30 years now and hate to admit that I’m witnessing something now I’ve never seen before. Throughout my career I’ve seen the real estate market struggle at times usually at the hands of a recession, stagflation, high interest rates, high unemployment or some other economic issue. However, lower interest rates always seemed to help spur activity and move the market Even in the early ’80′s when mortgage interest rates soared to near 18 percent home-buyers reacted when sellers offered lower interest rates through owner-financing and buy-downs, but not today. We are looking at mortgage rates that are just down-right CHEAP and home-buyers are still making themselves fairly scarce. Not good…
According to the Mortgage Bankers Association (MBA) weekly mortgage applications survey for the week ending July 9, 2010, the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) decreased 3.1 percent from the week before. This index has decreased in 9 out of the last 10 weeks.
The four-week moving average of home purchase mortgage applications lost the little bit of ground it gained the week before and is now down 2.4 percent.
Last week the Mortgage Refinancing index was on the rise as home-owners rushed to take advantage of low rates and refi but this index decreased 2.9 percent as the refinance share of mortgage applications remained constant at 78.7 percent.
I think the bottom line is we can’t ignore reality. Low interest rates and home prices don’t make up for fear and uncertainty that many people have today about their jobs or businesses, unemployment, bankrupt or near-bankrupt states they may live in or where our country is headed between record-level spending and debt, wars, and so on…..OK, I’ll stop the gloom and doom thing….I’m really not that way, I just think reality is you can tell people “everything is OK and getting better” all you want, and some will believe it no matter how bad their plight, but I think the majority of us don’t care what we are being told if we don’t see it in our world. Therefore, low rates notwithstanding, we are not going to see a recovery of the housing market until we see a recovery in the areas of jobs, government spending and debt and people feel more comfortable with their financial future…(in my humble opinion of course)
Interest rates for the week ended July 9, 2010:
- 30 year fixed-rate mortgage interest rates increased slightly to 4.69 percent from 4.68 percent, with fees increasing to 0.96 percent from 0.86 percent on loans that are 80 percent of the value of the home.
- 15 year fixed rate mortgage interest rates increased slightly to 4.12 percent from 4.11 percent, with fees increasing to 1.04 percent from 0.93 percent on loans that are 80 percent of the value of the home.
- One-year ARM interest rates remained steady at 7.20 percent with fees decreasing to 0.22 percent from 0.24 percent on loans that are 80 percent of the value of the home.
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Jim Carr Tuesday, 13th of July 2010 at 09:49:26 PM
Think quality, not quantity.
The “common wisdom” is that you need to post to Craigslist multiple times per day for it to be effective. That, pardon my French, is a load of crap put out by Craigslist posting service companies that want you to pay for more and more ineffective Craigslist ads and reinforced by people who haven’t done the research. It seems like more is better, but not only is not “better” it can hurt your business.
Craigslist users are not idiots. They know how to use the Search feature to narrow their choices. Nobody, and I mean nobody, simply browses the list from top to bottom in a busy category. That’s just stupid. And people don’t look at just the first listing they see. We’re information junkies, so we’re going to shop around and compare.
What do the Stats Tell us?
I’ve done the testing and research. Posting once per day is about all you need to be effective. For example, I recently had a client contract with me to post a house for rent in Tampa Bay, Florida. Unfortunately, within a couple of days I had a post flagged and removed. Since my ads are rarely flagged (about 1 in 750), I did a little research to find out why.
It turns out that my client was also posting ads for the same rental using a couple of different Craigslist accounts. People were seeing my ads along with several other ads for the same property on the same day. It’s no wonder they were flagging the posts. Whenever I get a post flagged, I stop posting for two days to let things “cool down” for a bit, which is what I did here. Unfortunately, my client didn’t stop posting the other ads, so when I started up again, my new ads were flagged and removed.
I have a system for tracking how many times my Craigslist ads are viewed, and in this case, over 40% of the people who viewed my ads viewed them more than once. And remember, I wasn’t able to post my ads every day or have them stay on-line until reposted because of the flagging problem. We didn’t need those other ads, and by coming across as a spammer, my client was losing credibility with prospects.
Sales and Marketing – Two Different Words
You may be thinking, “Marketing experts tell us our ads need to be seen multiple times to be effective.” That’s true when it comes to push media, like newspapers, television and radio. Craigslist is a pull medium, which means that you have hot prospects actively looking to spend their money. Multiple ads don’t help you. Craigslist is less about marketing and more about selling. You’ve already got the reader’s attention, so make good use of it.
The key to getting the most out of Craigslist is having an effective ad. You need to get your message to pop out to the viewer. Your ad should give the viewer the information he needs and wants while at the same time convincing the viewer that you’re a reputable business. If you’re known in the community, your ad should reflect your brand because recognition builds confidence. If you run multiple ads for different homes, your brand should be recognizable in all of your ads.
I use my marketing and web design expertise to create ads that – I know this is crazy – actually work! My goal with each and every ad is to get the visitor to stop looking at other ads and make a call, send an e-mail, or drive by for a visit. They know what they want, and my job is to make them say, “This is what I’m after, and it looks like a business I can trust.” Anybody can put together a text-based ad in ALL CAPS with spelling mistakes, but what does that say about your business? An attractive, HTML based ad that’s informative and easy to read tells the prospect that you’re serious about what you do.
It’s important to make a good first impression in any business transaction. You wouldn’t wear cut-off jeans, flip-flops and a ratty t-shirt to show a home, so why would you create a Craigslist ad that’s just as sloppy? You wouldn’t mumble and speak in half-sentences while talking to the prospect, so why create ads that are difficult to understand?
Wanted: Amazing Headlines
There’s one other factor that is often overlooked: the headline. Spammers are well known for putting all sorts of odd symbols in their headlines, but does it encourage people to click the links? In my experience, no. They make they headlines harder to read, and it makes the ad look like it was posted by a spammer. Do you see ads in magazines and newspapers with these odd symbols? Of course not. The headline needs to grab the visitor’s attention and indicate what your ad is about. They should be easy to read, which means not using ALL CAPS because IT’S JUST NOT EASY TO READ SOMETHING WRITTEN IN ALL CAPITAL LETTERS.
I use my statistical analysis tools to tweak headlines by changing them around to see which ones work best. It’s amazing how much difference a headline can make. I use Google Adwords (search advertising), and the software tells me how many times each ad was served and what percentage clicked on the ad. I always run two ads at the same time with different headlines to see which one does better. Through experience I’ve learned to write great headlines to get high click-thru rates. I do the same for my Craigslist ads.
Craigslist is a valuable marketing tool, but there’s more to it than just slapping together an ad and “spamming” a category.
About the author: Jim Carr is a Phoenix based website designer and programmer who offers a Craigslist Posting service for his many real estate clients.
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Dennis Norman Monday, 12th of July 2010 at 10:08:11 AM
Dennis Norman Last month I wrote about a new policy implemented by Fannie Mae that would “lock-out” borrowers from getting a Fannie-Mae insured loan for 7 years if they did a “strategic default” or otherwise did not act in good faith and were foreclosed upon. In a nut shell, the borrower that Fannie Mae is targeting here is the borrower that has the financial ability to make their payments, accept a loan modification or other “work-out” from Fannie Mae but instead chooses just to walk away from their home and letting the lender foreclose.
In addition to locking out borrowers from a new loan for 7 years Fannie Mae has also made it clear in a recent announcement that they will “take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans“. Obviously, they can only do this in those States that allow a lender to sue a borrower for a deficiency but many states allow this. Many real estate agents have been working with clients to try to help them deal with being underwater on their homes, facing foreclosure, etc and even suggesting or coaching them through a “strategic default”. Not only should agents not be giving legal advice, it is clear that they should not be advising clients to do a strategic default either in light of the consequences to the borrower. Recommending the client seek appropriate advice from an attorney and CPA is probably the best advice to give to a borrower considering a strategic default.
Fannie Mae said that this month (July) they will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.
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Dennis Norman Friday, 9th of July 2010 at 01:50:30 PM
Dennis Norman For way too long I’ve been writing about record, or near- record, levels of foreclosures and mortgage delinquencies. My ongoing concern about this, in terms of the housing market, is that I just don’t see how we are going to have a sustainable recovery of the housing market while we have 1 in 8 homeowners with a mortgage in the U.S. currently either delinquent on their mortgage or in some stage of the foreclosure process.
Lately there has appeared to be some leveling off of mortgage delinquencies and foreclosure growth is at a slowing rate, both of which are good things. Earlier this week I wrote about a report that came out from LPS Applied Analytics, one of the largest mortgage servicers in the U.S., that discussed the mortgage delinquency rate for May. This morning I was giving more thought to something in the report that I saw the other day but it didn’t hit me at the time but now I realize it is potentially the 800 lb gorilla in the room.
According to the report, the average number of days for a loan to move from 30 days delinquent to foreclosure sale has been steadily increasing and is now at an all-time high of 449 days. So, if you add the initial delinquency, that means on average 479 days lapse from the time a borrower misses a payment until they are foreclosed on. While I love the amount of time the struggling homeowner has to stay in their home before losing it, it concerns me greatly that it is taking about 16 months for the lender to complete a foreclosure, and that this is a record high amount of time. What that tells me is, for one reason or another, lenders are stalling and slowing the foreclosure process so any encouragement we have seen of late in this area may be “artificially created” as the result of lenders reluctance to foreclose rather than a result of the housing market and economy actually improving.
The problem is the lenders can’t put off the inevitable forever…at some point they are going to have to pick up the pace and start foreclosing on loans rather than stalling and that I’m afraid is going to keep the foreclosure rates at levels that will negatively impact the housing market.
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Dennis Norman Thursday, 8th of July 2010 at 04:55:13 PM
Dennis Norman I may be getting desperate to find something good to write about with regard to the Housing Market, but nonetheless I found some good news today! According to a report titled “Foreign Investment in U.S. Real Estate” that was released recently by the National Association of REALTORS®, investment in residential real estate in the U.S. by foreigners shot up by almost 80% for the 12-month period ending April 2010 from the 12 month period ending April 2009.
For the 12 month period ending April 2010 foreign purchases of residential real estate in the U.S. totaled $64 billion which is almost double the $36 billion in foreign purchases for the 12-month period ending April 2009.
Not surprisingly, the bulk of this activity took place in States that are popular vacation destinations, which also include some of the states where home prices have been beat down the hardest and foreclosure activity the greatest. Florida led the way with 22 percent of the foreign purchases being in the sunshine state, followed by California at 12 percent, Arizona at 11 percent and Texas at 8 percent.
 So there you have it, some good news!
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Dennis Norman Wednesday, 7th of July 2010 at 10:23:00 AM
Dennis Norman While near historic-low mortgage interest rates are causing homeowners to refinance their existing mortgages, it does not appear the rates are bringing out the home-buyers. According to the Mortgage Bankers Association (MBA) weekly mortgage applications survey for the week ending July 2, 2010, the MBA Purchase Index (a measure of the volume of loan applications related to a home purchase) decreased 2.0 percent from the week before. This index has decreased in 8 out of the last 9 weeks.
The four-week moving average of home purchase mortgage applications is up a scant 0.5 percent.
On the other hand, the Mortgage Refinancing index increased 9.2 percent as the refinance share of mortgage applications increased to 78.7 percent this week from 76.8 percent the week before marking the highest refinance share of mortgages since April 2009.
“Mortgage rates remained near record lows last week, as incoming data on the job and housing markets were weaker than anticipated. As more homeowners locked in to these low rates, the level of refinance applications increased to a new 13-month high,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “For the month of June, purchase applications declined almost 15 percent relative to the prior month, and were down more than 30 percent compared to April, the last month in which buyers were eligible for the tax credit.”
Interest rates for the week ended July 2, 2010:
- 30 year fixed-rate mortgage interest rates increased slightly to 4.68 percent from 4.67 percent, with fees decreasing to 0.86 percent from 0.96 percent on loans that are 80 percent of the value of the home.
- 15 year fixed rate mortgage interest rates increased slightly to 4.11 percent from 4.06 percent, with fees decreasing to 0.93 percent from 0.97 percent on loans that are 80 percent of the value of the home.
- One-year ARM interest rates increased slightly to 7.20 percent from 7.05 percent, with fees decreasing to 0.24 percent from 0.27 percent on loans that are 80 percent of the value of the home.
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Dennis Norman Tuesday, 6th of July 2010 at 07:52:44 AM
Dennis Norman Homeowners’ mortgage delinquency rates increased in May 2.3 percent from April rising to 9.2 percent of all mortgages being delinquent. This information comes from a report issued by LPS Applied Analytics, one of the largest mortgage servicers in the U.S.
According to the report there are, as of May 31, 2010, 7.3 million home mortgages currently in some stage of delinquency. After seeing a couple of months of improvement there was a turn for the worse in May of the “deterioration ratio”, the reltionship between the number of loans going to a “worse” status for every one that has improved. In May this deterioration ratio increased to 2.5 loans getting worse for every 1 getting better.
Other highlights from the report:
- Total U.S. Mortgage delinquency rate 9.20 percent
- Total U.S. Foreclosure Inventory Rate 3.18 percent
- States with the most delinquent loans and foreclosures:
- Florida, Nevada, Mississippi, Georgia, Arizona, California, Illinois, New Jersey
- States with the fewest delinquent loans and foreclosures:
- North Dakota, South Dakota, Wyoming, Alaska, Montana, Nebraska, Vermont, Colorado, Iowa and Minnesota
When you really give some thought to these statistics I think you’ll find them disturbing, making even sickening, to think that almost 1 out of every 10 homeowners with a mortgage in the U.S. are delinquent on their mortgage (and ultimately at risk of losing their home) and that about 1 in every 8 borrowers are either delinquent on their mortgage or in some stage of foreclosure. So if sometimes while reading my posts you wonder why I seem somewhat negative, or even cynical, toward some of the reports about a “recovery” of the housing market, now you know why. I’m no economist but I just don’t see how we can have a housing recovery while 1 in 8 of us are either losing or at risk of losing our homes.
Mortgage Delinquency and Foreclosure Rates by State:
 Source: LPS Applied Analytics
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Dennis Norman Monday, 5th of July 2010 at 01:37:06 PM
Dennis Norman While there has been much discussion about the causes and effects of the Housing Boom as well as the Bust (including by yours truly in prior posts) I don’t think we need to refrain from continuing to examine this part of history that is affecting millions of people across the country. Perhaps we can learn some lessons from this that will help us avoid another such collapse of the housing market in the future.
My topic today actually has a silver lining of sorts. The topic is debt and how so many homeowners across the country leveraged themselves into a mountain of debt during the housing boom only to later have that mountain collapse on them. My attention was drawn to this subject by a presentation done by Karen Dynan of the Brookings Institution entitled “Household Leveraging and Deleveraging“.
American’s Debt Grew At a Much Faster Pace Than Income
As you can see from the chart below the percentage of American’s disposable personal income that is needed to pay debt payments on mortgage and consumer debt peaked in the mid to late ’80s just over the 12 percent range but then dropped back down to just below 11 percent by the early 90′s. By the height of the real estate boom this percentage had grown significantly and peaked at just under 14 percent in 2007. Clearly the cost of home ownership during the boom was increasing at a faster pace than homeowners income.
 Chart by Information St. Louis, Inc. - Data Source Board of Governors of the Federal Reserve Dynans’ report attributes the rise in debt to having probably been “the combination of increasing house prices and financial innovation.” I think “financial innovation” is a nice way to describe sub-prime, interest only and other such creative ways to finance homes that became prevalent during the boom.
As the chart below depicts, consumers mortgage debt grew dramatically during the housing boom even though “other debt” remained fairly constant.
 Source: Household Leveraging and Deleveraging - Karen Dynan “Everyone” Was Borrowing – Not Just Sub-Prime Borrowers
Contrary to what is sometimes portrayed, it wasn’t just sub-prime borrowers that were racking up debt during the housing boom. The chart below shows a fairly consistent increase in household debt across several demographics.
 Source: Household Leveraging and Deleveraging - Karen Dynan Obviously this rather rapid and intense increase in household debt, particularly mortgage debt, is a major factor behind the record number of mortgage delinquencies and foreclosures we are currently seeing. Rising home prices (at astonishing rates in some markets) during the boom forced many homeowners to take on more mortgage debt than they should. Many even admit buying homes with initial “teaser” interest rates realizing they would not be able to afford the payment in two years when the teaser is gone, but simply planned to sell the home (at a profit) beforehand and move on. This, like musical chairs, works until the music stops as it did in 2007.
The Importance of Defaults
If you have defaulted on your mortgage or lost a home in foreclosure, you are helping out our economy! Well, sort of. According to Dynan’s report, the record rates of charge-offs by lenders of mortgages as a result of defaults and foreclosures that have occurred in the past year has resulted in mortgage debt in 2009 declining 2 percent rather than staying flat.
 Source: Household Leveraging and Deleveraging - Karen Dynan Now for the Silver Lining-
I promised you a silver lining and here it is. American’s now have less household debt! Beginning with the 2nd quarter of 2008 consumers home mortgage debt, after increasing over a trillion dollars just two years before, actually decreased and has continued decreasing every quarter since. Consumer started decreasing as well in the 4th quarter of 2008 but has grown slightly again in the 1st quarter of this year.
 Source: Household Leveraging and Deleveraging - Karen Dynan In addition, as the debt-service chart at the beginning of this post shows, the portion of income that is necessary to pay debts for the American consumer has fallen over 1 percent from it’s peak and is still headed downward.
Is This Self-Control Or Is There No Choice?
Ah, critics could argue that the consumer has not really learned anything from the housing bust and the only reason debt has dropped is that banks and other lenders aren’t lending. Well, it is certainly true that lending standards have tightened significantly and bankers are acting like, uh, well, bankers again (the pre-boom ones) as shown by the chart below. However, Dynan’s report indicates that 20 percent of senior loan officers reported in May 2010 that demand for consumer loans had fallen relative to 3 months earlier. Probably better proof that consumers are exercising self-control is the MBA mortgage application survey which, in recent weeks, have shown a decrease in mortgage applications from both home-buyers as well as home owners seeking to refinance.
 Source: Household Leveraging and Deleveraging - Karen Dynan What Does The Future Hold In Store?
Karen Dynan suggests that we are going to see consumers continue the trend of reducing debt. She bases this on the high ratio of average household debt to assets which, as the chart below illustrates, peaked in the past year at a level that was 50 percent higher than in 2000.
 Source: Household Leveraging and Deveraging - Karen Dynan Dynans’ report goes on to say the following about the future:
- Mortgage charge-offs are likely to remain high
- Foreclosures will be on the rise again after being delayed by HAMP and other factors
- Even when lender’s ease up, new borrowing is going to be dampened due to borrowers lacking home equity
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Dennis Norman Saturday, 3rd of July 2010 at 08:03:22 AM
Dennis Norman Less Is More
Over the past decade or so it seems everything has gotten “super-sized” to the point of absurdity in my opinion. Therefore I find it refreshing to see that, according to the “Home Trends 2010″ report by the Real Estate Buyer’s Agent Council, home buyers are scaling down both in size and in features. Perhaps the past couple of years has humbled many of us and given us a different perspective on materialistic things?
Anyway, before I go off on a tangent, here are highlights from the Home Trends report:
- The average size of new single family homes decreased in 2009 after being flat in 2008.
- Homes built with at least 3 bedrooms decreased in 2009 for the first-time since 1992 (I guess more and more of my fellow baby-boomers are becoming empty nesters?)
- Homes built with 4 or more bedrooms has been falling since 2007.
- Homes with two or more stories peaked in 2006, then began a downward trend.
The ten most likely features that builders will include in a new homes:
- Walk-in-closet in master bedroom
- Laundry Room
- Insulated front door
- Great Room
- Low-e windows
- Linen Closet
- Programmable thermostat
- Energy efficient appliances and lighting
- Separate shower and tub in master bedroom
- 9-foot ceilings or higher on 1st floor
New homes are no doubt being built with affordability and efficiency in mind. Nonetheless buyers seem unwilling to give up master bedroom suites with nice master baths, although some of the “super-size” stuff is gone, such as multiple shower heads. What else is getting cut? According to the report, builders say that an outdoor kitchen is the first to go as well as outdoor fireplaces, sun-room, butlers pantry and a media room.
So, I wonder what is going to happen to all those “McMansions” that were built during the last decade as us baby boomers age, become empty-nesters and don’t need the space? Hmm…not so sure the X’rs and Y’rs are going to super-size their space.
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Dennis Norman Friday, 2nd of July 2010 at 02:13:26 PM
Dennis Norman By now most real estate agents and brokers have probably heard about the changes to RESPA (Real Estate Settlement Procedures Act) that went into effect at the beginning of this year. One thing that has been a frequent topic of conversation among agents is whether or not they will still be able to collect referral fees, or commissions, from Home Warranty Companies they refer business to. This is a standard practice that has taken place for many years now.
Well, last week HUD published an “interpretive rule” in the Federal Register which makes it pretty clear to me that the short answer to the question is NO. This is in conflict to an earlier opinion by the National Association of REALTORS® in which when addressing this issue said “with regard to home warranty marketing agreements, NAR believes that agents and brokers provide bona fide and separate services for the reasonable compensation they receive.”
The following are excerpts from HUD’s interpretive rule (click on the link to read entire statement):
- RESPA does not prohibit a real estate broker or agent from referring business to an HWC. Rather, RESPA prohibits a real estate broker or agent from receiving a fee for such a referral, as a referral is not a compensable service.
- A referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or
part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge
attributable in whole or in part to such settlement service or business.
- The compensation for the HWC services provided by the real estate
broker or agent is contingent on an arrangement that prohibits the real estate broker or agent from performing services for other HWC companies; e.g. if a real estate broker or agent is
compensated for performing HWC services for only one company, this is evidence that the compensation may be contingent on such an arrangements.
- HUD has stated that the mere taking of an application is not sufficient work to justify a fee under RESPA.
So, it appears to me the normal marketing agreements, commissions, etc paid by home-warranty companies to agents are going to be a think of the past.
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