Team Empowerment Mortgage Chatter: May 16; News & Headlines; Moving Up? Doing Now May Make Sense; Realtors® Go Green With New & Improved Designation; New FTC Rule Impacts Realtors®’ Short Sale Business; Impact of Dodd-Frank on Real Estate

“There is no scarcity of opportunity to make a living at what you love to do, there is only scarcity of resolve to make it happen” -Wayne Dyer


News & Headlines

NAR has issued its opinion of the potential implications of QRM. The public opinion period ends on June 10, and NAR’s opinion, which includes, “…strong evidence shows that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk, and not high down payments…” carries some weight. NAR

The National Information Center released consolidated financial statements for bank holding companies for the 1st quarter, providing additional information to the FDIC data to be released soon. Banks continued to add agency mortgage-backed securities from January through March to the tune of about $30 billion. This is a strong number, although not as notable as $38 billion and $48 billion in the 4th and 3rd quarters, respectively. For those interested in the non-agency MBS market, non-agency holdings declined $8.6 billion over the same period. Once again, looking at the move in non-agency amounts one wonders what would happen if Freddie & Fannie ceased to exist. The latest H.8 report from the Fed shows that domestic bank holdings of agency MBS have increased by $15 billion over the week ending on May 4. This latest spike brings the year-to-date spike in agency MBS holdings of domestic banks to $58 billion, mostly attributed to the purchases of large banks instead of small banks.

Focusing on more temporal things, we had a nice little rally on Friday. Traders attributed this to the opinion that the inflation numbers were not worse than they actually were, another Treasury auction was out of the way, weak commodity prices help the Fed keep short term rates stable, and so forth. By the end of the day 10-yr notes closed at 3.19%, practically unchanged for the week. MBS prices were roughly unchanged for the week.

Many agree that the “wildcard” remains the situation in Europe, which includes Greek debt and the arrest of IMF’s Strauss-Kahn, and this might be the focus this week. But the U.S. is set to hit its $14.3 trillion debt limit today. Over the weekend, Republicans spelled out in greater detail what they want in return for supporting an increase to the debt ceiling. Democrats warned of the likely consequences of allowing the nation to default. Economic news this week is on the light side. Today we have the Empire Manufacturing number, about half of last month’s. Tomorrow is Housing Starts and Building Permits for April, along with Industrial Production and Capacity Utilization. Wednesday is the MBA’s app data, and the 4/27 FOMC minutes. Thursday is Jobless Claims, and Existing Home Sales. Then on Friday are Leading Economic Indicators and the Philly Fed. The current 10-yr is sitting around 3.18% and MBS prices are better by a shade.

Moving Up? Doing It Now May Make Sense

An issue that may have a gigantic impact on the housing market later this year is the lowering of the conforming loan limits. Without an act of Congress, these limits will return to the lower limits that existed prior to 2008. Today, we want to shed light on this issue and what it means to someone thinking about buying either a first home or move-up home valued over $400,000 in certain markets in the country.

What is the ‘Conforming Loan Limit’?

The ‘conforming loan limit’ sets the maximum loan amount, which either Fannie Mae or Freddie Mac are allowed to purchase individual loans. If a loan is larger than this limit, it is considered a ‘jumbo’ loan and is automatically disqualified from being sponsored by Fannie and Freddie. It would have to be handled by the private market.

A Little History

Prior to 2008, the loan limit was $417,000. When prices started to rapidly escalate in certain regions of the country, the limit was increased. In some counties, that limit jumped to over $700,000. These new limits are scheduled to expire this October. If this happens, Fannie Mae and Freddie Mac may no longer be involved in these loans.

What Impact Will This Have on a Buyer?

It will cost more in mortgage payments if buyers are purchasing a home over the limit in a region where the limit changed. The Mortgage Market Note explains:

For the affected borrowers, because mortgage rates for jumbo mortgages tend to be higher than rates for conforming loans, financing costs may be higher… Over the latest year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.

Just a ½ point increase in mortgage rate on a $500,000 mortgage means an additional $154.84 in your monthly mortgage payment; a difference greater than $55,000 over the life of a 30 year mortgage.

Which Counties are Impacted and to What Degree?

Below is a map of the regions affected from the Mortgage Market Note. You can get a breakdown of each impacted county in this report also.

Bottom Line

If you are thinking about buying a home in the near future, you should know how this issue may impact you. Sit down with a real estate professional familiar with your area for further advice.

Realtors® Go Green with New and Improved Designation

The National Association of Realtors® is modifying its popular Green Designation program to focus on residential real estate practice.

“NAR research has consistently shown that there is a considerable and growing market for green buildings, and many of today’s consumers want homes and communities that are more resource efficient and sensitive to the larger environment,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I. “NAR’s Green Designation helps Realtors® meet that consumer demand for green building practices. These revisions will help Realtors® continue to bring value to buyers and sellers who value eco-friendly and energy-efficient homes.”

Because of high member demand for the residential aspect of the curriculum, the commercial and property management electives will no longer count as credit toward the designation but will be made available to members interested in those areas of study. The changes will include replacing the two-day core course and one-day elective courses with three one-day courses: Green 100: Real Estate for a Sustainable Future (day 1); Green 200: The Science of Green Building (day 2); and Green 300: Greening Your Real Estate Business (day 3).

Students will need to complete all three days to earn NAR’s Green Designation. The updated program will be launched in late summer 2011. Until then, NAR’s Green Resource Council has reduced the prices of the existing online core and elective courses. The core course was $295 and is now $230; the residential elective was $125 and is now $99; and total cost for the full designation was $420 and is now $329.

NAR’s Green Designation was peer-reviewed by the Environmental Protection Agency and the U.S. Green Buildings Council, and received the 2009 Award of Excellence from the American Society of Association Executives. The Green Resource Council has forged strategic relationships within the green industry to create awareness of the designation, advance its mission, and provide continued education to the designee base. Other green industry initiatives include the creation of the Green MLS Toolkit, online at

New FTC Rule Impacts Realtors®’ Short Sale Business

A new rule from the Federal Trade Commission that aims to protect home owners from mortgage relief scams may impact real estate professionals who represent clients involved in short sale transactions. Several hundred Realtors® learned more about the new rule and its impact on their business at the “Risk Management and License Law Forum” during the Realtors® 2011 Midyear Legislative Meetings & Trade Expo in Washington, D.C. today.

National Association of Realtors® General Counsel Laurie Janik overviewed the FTC’s Mortgage Assistance Relief Services rule, which took effect on January 31, 2011. The goal of the rule is to protect distressed home owners from mortgage relief scams and ensure that people who provide counseling, advice and other services to troubled home owners are indeed providing a benefit for the fees they charge. The rule bans all upfront fees for renegotiating mortgage terms and mandates that certain disclosures are made to consumers if a short sale is negotiated with a lender on their behalf or when advertising short sales experience.

“As the leading advocate for home ownership, NAR supports efforts to ensure that mortgage assistance relief services truly benefit consumers,” said Janik. “Nevertheless, NAR has some concerns about the rule and its application to real estate professionals involved in short sales transactions. We are working closely with the FTC to clarify several aspects of the rule in relation to real estate professionals when they are performing traditional real estate functions in a short sale transaction.”

The rule is primarily directed at companies that offer loan modification services to consumers, but it also may impact real estate professionals who represent clients involved in a short sale transaction, especially when advertising short sale negotiation services or other short sale expertise; communicating with a consumer about a possible short sale before the listing agreement is executed; negotiating a short sale on behalf of a consumer; or arranging a short sale negotiation for a consumer. The rule only applies to residential real estate transactions.

In the meantime, Realtors® must already be complying with the rule by not taking any upfront fees and using specific disclosure language. The rule necessitates when and how the disclosures must be presented to consumers and that they are made clearly.

Currently, there are three types of disclosures that a real estate professional may need to make to consumers. First, a real estate professional now needs to include a clear and prominent disclosure in all commercial messages that advertise their short sale services.

Second and third disclosures are required by real estate professionals before they begin mortgage assistance services on their client’s behalf and at the time they present their client with the lender’s short sale approval letter.

“NAR is discussing with the FTC some language in the second and third disclosures and well as some other requirements found in the MARS rule. The FTC is considering possible options to help make the rule more applicable to a real estate brokerage,” said Janik.

 The Impact of Dodd-Frank on Real Estate

Although the 2,314-page Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law last year doesn’t affect real estate brokers and agents as much as, say, mortgage originators, it does have some significant implications for the industry, said Phillip Schulman, a partner at the Washington, D.C. law firm K&L Gates LLP.

In his remarks at the Real Estate Services Forum Thursday during the REALTORS® Midyear Legislative Meetings, Schulman told attendees that the mortgage lending sector was targeted by many of the bill’s provisions.

“[Dodd-Frank] came down hard on loan officers and mortgage brokers. Why? Because they were the ones working with the borrowers,” said Schulman, adding that in the future all originators will be qualified, licensed, and registered, as well as issued a unique identifier.

“Anytime there’s a violation committed by a loan officer, it’s going to be reported in a nationwide system,” he said.

The bill also affects the financial sector, particularly in terms of the structure of securities, which are debts or equities that are packaged for investment. To avoid the financial fraud of the previous decade, Dodd-Frank requires financial companies that create securities to hold a minimum 5 percent stake in them – the exception being securities that are composed of qualified residential mortgages (QRM).

Current QRM requirements for borrowers include no option adjustable-rate mortgages (ARMs), no bankruptcy in the past three years, no prior short sale or foreclosure, and points and fees charged by the lender totaling less than 3 percent of the loan’s value. Furthermore, lenders and regulators have recently recommended implementing a higher minimum down payment.

The increasingly stringent requirements pose a serious challenge to a viable housing market, Schulman noted.

“The eligible loan is shrinking and shrinking, and it’s going to be harder for someone who has any dents or scratches in their credit to get a loan,” he said. “It’s all well and good to get the riff-raff out of the business and get rid of these exotic, fly-by-night financial products, but let’s not throw the baby out with the bath water.

“We just came through a decade of this laissez-faire attitude. The atmosphere was one of easy money. We put millions of Americans in homes who probably should not have been there. Today, Washington is all about risk management. Congress and regulators stepped in and were asked to regulate. So they did what they always do. They overregulated. I think until we earn back the trust of the Congress and the regulators and even the American people, we’re going to continue to be scrutinized like never before.”

Here are a few other important, real estate-related changes brought about by the bill:

Bureau of Consumer Financial Protection:, this new behemoth regulatory agency – which Jay N. Varon, Schulman’s fellow speaker and a litigation partner with law firm Foley & Lardner LLP, characterized as the “centerpiece” of Dodd-Frank – will officially launch on July 21. This organization will encompass a half-dozen current regulatory agencies and 18 consumer statutes, including RESPA. It will also have what Varon called “nuclear” penalties, meaning punishments for violations will be much more stringent than they are now.

Prohibitions on steering and loan-officer compensation:

Dodd-Frank changed the compensation model for loan officers to prevent them from steering consumers into loans that may not be right for them, yet profitable for the lending company. According to Schulman, loan officers will collect the same sum per loan, whether it’s a 30-year fixed mortgage or an option ARM. Still, he said this new arrangement isn’t entirely fool-proof. “Businessmen figure out a way to make every system work. Sure, they’ll pay them 50 basis points for loans of all kinds. But they can also pay them bonuses based on total volume,” he explained.

Appraisals and AMCs:

New regulations in Dodd-Frank are designed to protect appraiser independence, Schulman said. These rules also sunset the Home Valuation Code of Conduct (HVCC), which caused a great deal of consternation among real estate professionals who say it contributed to the collapse of deals after it was enacted in 2009.

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