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Beware of ‘Churning’ in All Its Forms

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | January 12th, 2018

“Churning” is a four-letter word in the mortgage business.

The term refers to aggressive lending practices. The most common churning scenario: Soon after a buyer closes on a home, rival lenders offer to refinance the mortgage. The poachers offer the unsuspecting borrower a lower interest rate, but they have to pay closing costs all over again, and perhaps some additional fees -- so there is little or no real savings. In some cases, the new loan could even be more costly than the old one, even with the lower rate.

Churning seems to be on the rise lately. With a continued decline in people applying for home loans, some lenders are tripping over themselves to snatch away other lenders’ clients.

Just last fall, the government took steps to stop lenders from going after veterans and servicemen and women who have used their housing entitlements to purchase homes with loans backed by the Veterans Administration (VA).

According to the San Antonio Express-News, one Air Force veteran hadn’t even finished unpacking in his new Texas home when he received his first call from a lender about refinancing.

The refi schemes have brought howls of foul play from the original lenders, who were counting on the loans being on their books at least long enough to recoup their cost to make the loan and perhaps earn a profit. And it caught the attention of muckraking Sen. Elizabeth Warren, D-Mass., among others. In a September letter to Ginnie Mae, the principal financing arm for government loans, Warren demanded the agency put a stop to lenders “aggressively marketing VA refinance mortgages that benefit them but harm veterans and the American taxpayers.”

In response to the letter, Ginnie Mae -- which packages government loans into securities for sale to investors in much the same way Fannie Mae and Freddie Mac do with conventional loans -- said it had restricted how often a lender is permitted to place a mortgage to the same borrower whose initial mortgage is in a Ginnie Mae loan bond.

The agency also said it would closely track how quickly certain lenders refinance VA borrowers and the rates they charge. If lenders refinance borrowers too quickly, or if they charge rates that are more than 1.5 percentage points above the market, they may face penalties.

But Joseph Murin, who was Ginnie Mae’s president under both Presidents Bush and Obama during the first years of the housing crisis (2008-09), says he doesn’t think the agency has gone far enough to stop the practice. Murin, who is now chairman emeritus of Maryland-based NewDay USA, says the moratorium placed on refinancing should be 12 months, not the current six. Murin claims NewDay is losing some loans as soon as 30 days after they close -- something he says is previously unheard of.

As he sees it, too many lenders are “pilfering” refi loans as a “back-door means to survival” when they could shift their focus to making new loans to new borrowers.

But pressuring VA borrowers into refinancing isn’t the only kind of churning. In some cases, wholesale lenders are stealing customers from mortgage brokers.

Wholesale lenders don’t make loans directly. Rather, they originate loans through a huge network of mortgage brokers, who help borrowers choose a loan they like, fill out all the paperwork and then send the package off to one wholesaler or another. Sometimes, brokers actually close the loan and then deliver it to the wholesaler.

The system works well: Brokers do all the legwork, and borrowers get a lender of their choice. But in some cases, wholesalers jump to refinance the broker’s customers shortly after they close on the original mortgage.

The practice has been going on for years, according to Anthony Casa of Garden State Home Loans in New Jersey. But now, a group calling itself BRAWL -- Brokers Rallying Against Whole-tail Lending -- is calling out the bad guys. (The group coined the term “whole-tail” to refer to shady companies straddling the line between wholesale and retail.)

“Mortgage brokers have known about whole-tailers’ shady tactics for years, but we just didn’t have a voice before,” says Casa, a founding member of BRAWL. “We’re speaking up now.” The Jersey broker says his colleagues are “the ones handing buyers the keys,” but then underhanded wholesalers are “stealing our customers.”

BRAWL seeks to out “lenders who appear to offer both wholesale and retail services, when the truth is that their wholesale divisions exist for one reason only: to feed their retail machines.” In an open letter to the broker community, the group asks members to “pledge to partner only with true wholesale lenders until the whole-tailers put an end to their selfish and greedy ways.”

The third form of churning is called “trigger leads,” which are leads sold by the national credit repositories to lenders on a daily basis.

Every time a would-be borrower’s credit record is pulled by a lender, the credit agencies package the request with others as potential leads and peddle them to other loan originators based on the specific types of consumers that fit their lending parameters.

Then, the would-be borrower is inundated with other loan offers, ostensibly so they can compare the poachers’ products against the original quote. According to the National Credit Reporting Association (NCRA), some lenders who use trigger leads lie about how they know the borrower has applied for a mortgage, and some flaunt the rules by using deceptive practices to persuade the consumer to take a loan with their companies.

Uncle Sam’s official position on the practice is that it’s good for consumers because it promotes competition. But original lenders don’t like it, and sometimes, neither do the borrowers.

Terry Clemans, NCRA’s executive director, says trigger leads are basically pre-screened offers of credit, similar to the “pre-approved” credit card offers that fill your mailbox. “Opting out is the only current way for consumers to avoid being part of the trigger lead program and exercise their rights to cease any type of pre-approved offers,” he says.

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Homes in Ten Years

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | January 5th, 2018

What will houses look like, and live like, a decade from now?

New Atlas (formerly Gizmag), a science and technology website, recently put that question to Morris Miselowski, a self-described “futurist and transformation provocateur.”

As you might expect, Miselowski says technology will be a big driver, permeating practically every corner of our lives. But he sees a number of other trends that will have taken hold a decade from now, including multifunctional furniture, structures designed to accommodate three generations under a single roof, and houses that monitor our health.

These predictions aren’t exactly off-the-wall. Indeed, some aspects have already taken hold. But some of what Miselowski sees coming is rather far out.

For example, he suggests that there will be a major focus on smart surfaces that reduce the amount of work you have to do around the home. He sees such things as self-cleaning cutlery and china, as well as surfaces that tell you when it’s time for a deep clean. He also suggests that windows will be cleaned robotically (as some floors already are).

Miselowski also predicts that floor plans will continue to shrink, and that the typical house won’t be able to accommodate much furniture. Pieces will have to serve more than one purpose. As an example, he mentioned a relatively new robotic furniture system called Ori, which contains a bed, table, bookshelf and other pieces.

Engineered in Massachusetts, the Ori system can be reconfigured instantly, making your space feel substantially larger than it actually is. For what it’s worth, Ori takes its name from “origami,” the Japanese art of folding paper to create beautiful objects.

For the rental market, Miselowski notes the coming trend of rental properties including furniture. He explains that people will be even more transient than they are today -- willing to move on short notice, but unable to easily transport big pieces. Therefore, large pieces of furniture like sofas and beds will often come with the property you rent, he says. And as a result, people will be “investing in transportable pieces, such as unique artwork and handcrafted soft furnishings that stamp our personality on the spaces we inhabit.”

Here’s what Miselowski has to say about the multi-generational trend: As property and child care costs continue to rise, more houses will be designed to accommodate three generations living under one roof, with such features as two or more living spaces, a separate kitchenette and a large communal space where all the generations can gather together.

Other houses will feature flexible floor plans with walls that can be moved easily, adapting to occupants’ changing needs throughout the day.

Regarding technology, Miselowski says it will play an ever-increasing part in our lives. A decade from now, he says, “intuitive devices that do the thinking for us will be the norm.” Consider this scenario: “You’ll walk through the door and your home will automatically create a customized environment to suit your needs, including setting the perfect temperature, opening the blinds and suggesting what to have for dinner based on what’s in the fridge.”

Even better, in-home technology will be more seamlessly integrated. Wi-Fi, he points out, has already begun to be integrated into the walls of new builds, giving occupants perfect connectivity anywhere inside.

Technology will have its greatest impact in the kitchen, Miselowki says. “In 10 years’ time, it will be a multipurpose space that shifts smoothly between cooking, dining and entertaining,” he says.

Countertops will come into their own. No longer static objects, the average kitchen counter will perform myriad functions a decade from now: “Touch the surface and it will transform from prep area to induction cooktop or technology station,” the futurist says. “It will perform time-saving tasks, too, such as measuring ingredients and choosing the correct cooking temperatures. The kitchen will be a fully connected space that can monitor the progress of your cooking, connect to social media to discover what your guests like to eat, and tell you whether the milk in the fridge is still fresh.”

Finally, Miselowski notes that attitudes toward property ownership are changing. For baby boomers, owning a home was a sign of success. But their children aren’t so interested. They’ll be long-term renters and lead a more nomadic lifestyle, “happy to pack up their lives and accept that job on the other side of the world.”

The trends of downsizing and moving closer to the city will continue, particularly among boomers. Consequently, he predicts an increase in compact, four- to six-story, inner-city dwellings near public transportation. These homes, he says, will be in mixed-purpose builds, often above shops and cafes.

“There was once a real stigma attached to living in the flat above the shop, so this just proves how much our attitudes have changed in a generation or two,” he says.

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Odd Parcels: By the Numbers

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | December 29th, 2017

Despite the tragic massacre in Las Vegas where 59 people died during a concert this fall, big money is continuing to flow into the housing market there.

Kenneth Lowman, broker/owner of Luxury Homes of Las Vegas, reports that Sin City’s luxury home market is on pace for its best year in the past decade. So far this year, there have been 364 sales of houses at more than $1 million each. That’s a 35 percent jump from last year’s 268 luxury sales.

According to another Vegas-area luxury realty broker, Rob Jensen, sales of big-ticket houses in September were up 49 percent over a year ago. The most expensive sale in September was a $7.45 million home, followed by a $5.5 million home on the same street.

Lowman also reports that with about 400 luxury homes still on the market, Vegas’ high-end sector is “solid and balanced.”

About 20 percent of the luxury sales are in Summerlin, a master planned community with several guard-gated neighborhoods. “We have new communities raising the bar for luxury home prices and quality,” Lowman says, including one where lot prices start at $3 million. “World-class communities like this will attract buyers that might have passed over Las Vegas previously.”

Most immigrants to this country don’t buy houses when they arrive. They rent. Indeed, 1 in 4 apartment households is headed by an immigrant.

According to research commissioned by the National Multifamily Housing Council, more than four-fifths of the 18- to 34-year-olds who came to the states between 2006 and 2015 still rent. And 7 out of 10 who arrived between 1996 and 2005 are still renters.

The majority of the most recent immigrants who rent came from the Middle East, Southern Asia and sub-Saharan Africa. The fewest hailed from Canada.

Those from Southern Asia had the highest incomes, at just over $70,000 a year, yet they rented more often than they bought. Canadians had a median annual income of $70,000, while the annual median for Europeans was more than $60,000. Immigrants from the Middle East had the lowest median income, under $30,000.

Purchasing a home for cash certainly has its advantages, and not just for the seller. But if you are a cash buyer, it may not be smart to make a lowball offer, advises Beth Atalay, the broker/owner of Cam Realty and Property Management in Clermont, Florida.

For the seller, as Atalay posted on the ActiveRain real estate site, cash offers usually mean a quick closing with few, if any, contingencies, save for a home inspection. Cash can mean no appraisals and no worries about financing falling apart. And for buyers, paying cash generally means no out-of-pocket expenses related to obtaining a mortgage and no interest charges for the time they own the property.

But buyers have to realize that either way, cash or mortgage, the sellers will eventually get their money, Atalay pointed out. She offered this example:

Say a house is listed at $290,000 and receives three offers. One is $220,000 in cash, to close in two weeks. Another is for $295,000 -- $5,000 over the asking price -- to close in 30 days. And the third is for $290,000 with government-insured financing, to close in 45 days, but asking a 3 percent seller concession to cover closing costs and prepaid items such as property taxes.

If cash is king, the seller would accept the first offer, Atalay says. But by waiting just 14 more days, the seller would net $75,000 more by taking the second offer.

The question is, which would you accept?

The residential sector of the real estate universe accounts for less than 8 percent of the water used in the United States, according to a new report from the National Association of Home Builders (NAHB).

In 2010, residential water use totaled 27,400 million gallons per day (Mgal/d).

But from a more holistic perspective that considers water used for all purposes, residential use is a relatively small share of the nation’s thirst. Total withdrawals of water in 2010 were 355,000 Mgal/d. Consequently, the 27,400 Mgal/d used by residences accounted for just 7.7 percent of the total.

NAHB calculates that America’s typical home uses about 260 gallons of water per day. But the average varies widely by state, from a low of 100 gallons per day in Maine to a high of 472 gallons in Nevada.

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