Great NY Times Article - Why Home Prices Change (or Don't)

On Sunday, Robert J. Shiller wrote a must read article in the Times, Why Home Prices Change (or Dont').

Every type of real estate professional should understand the economics behind residential housing and this article objectively lays out the facts. Plus, if you don't know, Mr. Shiller's credentials include being a Professor of Economics at Yale - so pay attention to what he has to say.

The article looks at the economics of residential housing and compares this investment vehicle to stocks. Most importantly, it looks at last year's gains in housing and explains that its not a predictor for the next 10 years in growth and should only be viewed in terms of just being a growth for last year.

As the article states: "Over the 100 years ending in 1990- before the recent housing boom - real home prices rose only 0.2 percent a year, on average". Mr. Shiller explains that while it may psychologically feel like prices keep going up, one must look at prices after correcting for inflation. In such, there is not much growth in the long term.

So, real estate professionals, houses are a good buy if you want to live there. They may be good if you add money to the house through construction. Yet, if you want to buy, hold and not invest in a product, do not buy a house.

Rental Permit / Accessory Apartment Search Tool by the Town of Brookhaven

Brookhaven has added a great feature to its website called House Rental Search.

With this tool, the user can "see all of the active accessory apartment and house rental permit on the street you selected in the hamlet chosen". Remember, Villages control their own rental permits, so users in Villages must contact their Village.

This feature is going to make it completely transparent to tenants if the Town has permitted their rental. Remember, without a permit, a landlord cannot enforce a lease and is subject to many fines as well.

Now Brookhaven only needs to make getting a permit as easy as looking up if one exists. This way, safety can be the paramount concern over enforcement, which this tool will greatly increase.

Landlords and real estate agents - MAKE SURE YOU HAVE PERMITS. The Town has enabled tenants to really crackdown on your illegal rentals and be sure that they will.

Ability-to-Repay and Qualified Mortgage Guide Issued by CFPB

Today, the Consumer Financial Protection Bureau (CFPB) issued a Small Entity Compliance Guide to the new Ability-to-Repay regulations, which are scheduled to commence effectiveness on January 10, 2014.

To remind our readers, the Ability-to-Repay regulations require loan originators to "make a reasonable, good-faith determination before or when [they] consummate a mortgage loan that the consumer has a reasonable ability to repay the loan, considering such factors as the consumer’s income or assets and employment status (if relied on) against:

• The mortgage loan payment
• Ongoing expenses related to the mortgage loan or the property that secures it, such as property taxes and insurance you require the consumer to buy
• Payments on simultaneous loans that are secured by the same property
• Other debt obligations, alimony, and child-support payments"

As stated within the Guide: "The purpose of this guide is to provide an easy-to-use summary of the ATR/QM rule."

Remember, ATR stands for Ability-to-Repay and QM stands for Qualified Mortgages.

So, real estate professionals, you should know that lenders will have to independently verify a borrower's Ability-to-Repay starting in January of next year and you should start now to become familiar with these new rules to effectively represent your clients. This Guide is a great starting place.

Upcoming 2013 New York Real Estate Expos and Conferences

Here is a list of some upcoming events in our area.

Lieb School is not currently involved as a sponsor or otherwise in any of these events beyond providing the list with links to our friends and students. Yet, we always encourage real estate professionals to learn and want to provide you with a resource of some places to get educated.

• April 11, 2013:  The “New Normal” for REIT M&A
• April 15 - 16, 2013:  RealShare Net Lease
• April 16, 2013:  New York City Development Finance Conference
• April 17, 2013:  CRE Investment Summit 2013
• April 19, 2013:   NY Retail Summit
• May 8, 2013:  Real Estate Mezzanine Financing Summit
• May 29-30, 2013:  US Real Estate Opportunity & Private Fund Investing Forum
• October 8, 2013:  NYC Real Estate Expo

                       

TITLE WAVES - Free CE on 4/30 (Nassau County) and 5/3 (NYC)

FREE Continuing Education

April 30th at First American in Uniondale 

& 

May 3rd at Chase Plaza in NYC. 

Sign Up Today at www.liebschool.com 

Freddie Mac Streamlined Modification

Some information on Freddie Mac's Streamlined Modification program by an Assistant Case Manager at Lieb at Law, P.C., Laura Palermo:     

           As of July 1, 2013 Freddie Mac is going to temporarily offer a new type of mortgage modification called a Streamlined Modification. The Streamlined Modification differs from the Standard Modification by way of the application process. Traditionally a delinquent mortgage holder (a.k.a. “borrower”) would have to endure a drawn-out review process which requires the borrower to submit a Borrower Response Packet which includes financial documentation and proof that they are/were experiencing a hardship. During this process the lender may request any and all documents which they feel is necessary for proof that the borrower encountered a hardship and now is able to afford a loan modification should one be granted. The modification application process can be daunting depending on the lender and the elements of the borrower’s situation.

            The Streamlined Modification does NOT require the borrower to submit a Borrower Response Packet; meaning that the lender no longer has to verify the borrower’s income or hardship.  Similar to the Standard Modification, if the borrower is eligible, the borrower will be required to successfully complete a trial period of at least three months prior to being offered a permanent modification, which will be subject to the same terms as defined for the Standard Modification.

            The eligibility requirements for the Streamlined Modification are as follows:

1.      Mortgage must be a first-lien which is owned, securitized, or guaranteed by Freddie Mac.

2.      The pre-modified mark-to-market loan-to-value (MTMLTV) ratio (gross unpaid principal balance of the current loan, including any principal forbearance as a result of a prior modification, divided by the property value) must be greater than or equal to 80 percent.

3.      Mortgage must be obtained at least 12 months prior to modification.

4.      Borrower must occupy the property as their primary residence

5.      Borrower must be at least 90, but not more than 720 days delinquent on their mortgage payment.

While this does sound like a great alternative to the Standard Modification it can be a risky move on Freddie Mac’s part. For example, the Streamlined Modification review guidelines (i.e. no verification of income necessary) are very similar to a previously common practice by lenders and servicers called a “blind modification”. The blind modifications granted borrowers with a refinance or modification without ever reviewing their finances. For some borrowers it worked wonderfully, while for others they could still not afford their payments and then would find themselves again in default with no further options for modification.

Despite the potential risk, I have high hopes for the Streamlined Modification program as it will present many delinquent borrowers with the opportunity to bring their mortgage current and out of delinquency without having to incur as many fees. Also, this may present many borrowers who are ineligible for Standard Modification due to their inability to prove hardship or verify their income to keep their homes.  For further information on the new program check out Freddie Mac’s news brief, click here.