New Homeowners May Need to Rethink Approach Before Buying

Purchasing a home remains one of the largest financial investments most people will make in their lives. Some things do not change. What has changed is the perception that owning a home is a necessary component of achieving the American Dream. The dream turned into a nightmare for millions of Americans when the housing market collapsed. The antiquated notion that real estate and houses always go steadily up in value was obliterated. Some of the top housing markets in the country were also the hardest hit and had the steepest drops in home prices.

Some people learned the lesson the hard way when they were unable to pay their monthly mortgage or sell their home for enough to pay off the loan. Many people who purchased foreclosures discovered first-hand the importance of always buying title insurance. Others watched home ownership become more elusive for them as new regulations and more cautious lenders changed the requirements for obtaining a home loan. As the housing market improves and activity increases, potential new home buyers need to approach the process differently than previous generations of buyers.

Prequalification applies to more than finances
Any potential home buyer should absolutely check their credit report and assess their financial situation and goals themselves before they speak with any professional. These same home buyers should also take a personal inventory of their own priorities and long-term goals. Owning a home is not right for everyone. Just as some people get married too young, some people who purchase their first home are financially capable at the time, but not ready for the many other responsibilities that come with home ownership. Millennials are more likely to embrace apartment living and opt to rent long-term over buying. Some people who owned a home previously and lost it to foreclosure feel a part of their life is left undone until they again own a home. These same buyers should also carefully consider why they want to own a home and whether or not it is necessary to live a fulfilled life.

Potential home buyers have a lot of homework
Home buyers are responsible for providing their lender with all the necessary paperwork and documentation to obtain financing. They also have a responsibility to sellers and real estate professionals. It is reasonable and becoming more common that all offers to purchase be accompanied by a verification of funds letter. Just as a home buyer expects the seller to be fully capable of transferring ownership by a specified day, it is only right that buyers be capable of closing without any preventable delays. Buyers should also speak with a professional about what title insurance policy is right for them before they reach the closing table. Title insurance is vital, and all purchasers should make an informed decision on their policy.

Most delays to closings are due to problems on the buyer's side. This is why a large number of REO "Real estate owned" companies include a "per diem" clause in all of their contracts. More individual sellers are now adding the same type of clause to their agreements. Closing delays increase the seller's costs. They must maintain utilities along with security and lawn maintenance on the property. Prorated costs have to be recalculated and the schedule of the seller changed.

It is important to be ready to take action
A limited inventory in many areas is providing a steady increase in home prices. While interest rates are still low currently, that can change quickly. New home construction is not yet up to full speed and many areas of the country still have high unemployment numbers. The market has remained in a bit of a holding pattern for several years. That can change fast. Buyers who are too picky can see the best home for them sold to someone else. Those who take too long to purchase can potentially see a previously affordable home move out of reach due to higher interest rates.


Buyers must spend an adequate amount of time assessing their own situation, commit to a Realtor who is knowledgeable about the local market, and protect themselves with title insurance and proper legal counsel as they take confident steps toward home ownership in this new market.

New home starts slow, but remain steady

The U.S. economy has been slow to pull out of the Great Recession. Household spending is lower in large part because consumers remain cautious. Many families that were confident with their financial situation prior to the housing market collapse, had their lives disrupted in some way. Another factor hindering consumer spending is rising rent prices across the country. A Harris poll commissioned by Freddie Mac found that saving for a down payment ranked fourth on the list of priorities for most renters. Respondents were more focused on their children's education, saving for retirement, and being prepared for unexpected emergencies.

Rents expected to rise throughout 2016
David Brickman is executive vice president for Freddie Mac Multifamily. Brickman recently said on CNBC that rising rents are keeping many previous home owners from buying again and keeping a new crop of first-time buyers on the sidelines. National Association of Realtors Chief Economist Lawrence Yun said in his 2016 economic and housing forecast that rent prices rising faster than income combined with rising interest rates will slow the momentum of new home starts. The slow new home starts will drive up prices of existing homes. Yun predicts home prices and rents will increase in 2016.

New home permits hit one-year low in March 2016
Reuters reports that new home starts totaled just 1.09 million units for March of 2016 instead of the predicted 1.17 million. That was down from February's 1.19 million units and the lowest level since October of 2015. Still, the February number of new starts for single-family homes was the highest amount since October of 2007. Economists say the construction sector behaved like many other business sectors in Q1 2016. Retail sales, business spending and international trade all appeared to stall as the U.S. dollar dropped against the euro. The positive economic news is that there are more jobs available for millennials and more young people are moving out on their own to form new households.

Title insurance on new constructions
Some home buyers question whether they need an owner's title insurance policy on newly built homes. The lender always requires a policy for the amount of the mortgage. This protects the lender's interest in the property, but does not provide any protection to the homeowner. An owner's title insurance policy is most often for the total amount of the purchase price. This owner's policy protects the purchaser for the entire time they own the property and any of their heirs inheriting the home after their death. In addition to that long-term coverage, the title insurance will identify potential risks prior to a sales transaction.

Protection from mechanic's liens and other undiscovered items
New homes are built on lots that were recently part of a larger parcel. That parcel can have issues that affect all the lot owners. Also, builders with decades of financial stability have encountered hard times and not made agreed payments to contractors like roofers, plumbers electricians, etc. When these contractors file mechanic's liens, the lien attaches to the property, even if the home is built for someone else and already changed ownership. While some builders offer a title policy through an affiliated title company, the Real Estate Settlement Procedures Act (RESPA) gives home buyers the right to shop and compare policies and choose a title company for themselves based on price and policy features that best suit their needs.

Buying with confidence
The National Association of Home Builders (NAHB) provides some helpful advice for people of all ages who are planning to purchase a new constructed home. There are different factors and other considerations with buying a new home that are not involved with purchasing an existing home. Regardless, buyers should talk with a title insurance professional about the type of policy and coverage that will provide full protection of their financial investment and their family's future.

Everyone Should Take Interest in California's Housing Crisis

With a gross state product of (GSP) of more than $2.3 trillion, California has an economy that rivals that of most countries and is the largest state economy in America. Home to almost 40 million people, the state has a median home value of $371,400, according to the US Census. Median gross rent is $1,243. All of that with a median household income of $61,489 and a per capita income of approximately $29,906. You do not have to be an economist to see that those numbers add up to millions of people having difficulty finding affordable housing.

Home prices skyrocketed in the early 2000s with easily obtainable mortgages. When banks tightened their lending requirements in early 2007, prices dropped. This brought many cash buyer investors into the market. Now, with the median price at about $650,000 for the San Francisco Bay Area and the most affordable region being the Central Valley at a median home value of around $290,000, California has one of the lowest Housing Affordability Indexes in the country. It also is the most expensive state in the country to lease a home.

The California Economic Summit

Early in April of 2016, housing experts came together with builders, lawmakers, city planners, and environmentalists at the California Economic Summit to address the housing crisis that is affecting millions of Californians. Their goal is to find a way that people of all income levels can afford quality housing. It is crucial to the health of the state's overall economy that California address its low Housing Affordable Index. By finding ways to lower the percentage of annual income a household must devote to housing, they free up billions of dollars to be spent in other areas of the economy. For years separate groups have been advocating affordable housing for seniors, the homeless population, and veterans. The reality is that California's housing crisis is affecting everyone. New numbers for 2016 show that the housing crisis goes beyond people with minimum wage jobs. It is hitting middle class people and altering their lifestyle and spending.

Why the rest of the country should care

Many people never thought about title insurance before the housing market collapse. The quick shifting of ownership by banks after foreclosure led to many title issues. Approximately one of every three title searchers reveals a cloud on the title or some other defect in the public record that needs clearing to close the real estate transaction. The national housing crisis shined a spotlight on the need for homeowners to have their own title insurance policy, in addition to the lenders coverage. A recent report by the Public and Affordable Housing Research Corporation (PAHRC) reveals another problem growing beneath the radar for every state in the country. While federal programs are providing homes for approximately 5 million American families, there are many more applying for assistance who can't even get on a waiting list for aid.

There are 2.76 million families on the existing waiting lists for housing vouchers. Analyst estimate that an additional 9.5 million households would apply for housing vouchers were there no caps on the waiting lists. Housing agencies have closed their waiting list due to limited resources and vouchers. These numbers do not take into consideration the eligible families who do not seek federal assistance, but are still struggling to keep a roof over their heads.

One in four renters across the US pay over half of their income toward housing. Even for people living in the Eastern United States, California's housing problems are closer than many people realize. We have all seen how one sector of the economy affects the total economy and lifestyle of all Americans. To seriously address issues like poverty and the needs of our aging population, we must consider affordable housing for everyone. It is the only way to protect future generations of hard-working Americans in every state from having their dreams of home ownership evaporate away before their eyes.

Title insurance protects the current home owner and their heirs. A standard title insurance policy will usually protect against fraud, forgeries, and other title issues. For more complete coverage, talk to your title insurance representative.

NAR Report Indicates a Strong Summer for Home Sales

Many home buyers and builders watched the 2015 housing market with cautious optimism. It now appears that after 10 consecutive months of sluggish sales numbers, the housing market could be poised for a strong summer. The recent NAR Pending Home Sales Index shows the number of houses under contract increased by 3.5 percent in February of 2016. That put pending home sales at their highest level since July of 2015. Industry analysts say pending sales reached a nine-year high in April of 2015. This recent uptick surprised many economists and comes as welcome news to real estate agents, builders, title insurance companies, and others employed in the housing sector.



Lenders more welcoming of home buyers

According to Bankrate, a 30-year fixed rate mortgage currently has an interest rate of about 3.70 percent. Additionally, some of the mortgage guidelines implemented after the housing market collapse are now relaxed. Programs like HomeReady™ help low-income and moderate-income home buyers obtain low-downpayment home loans. It also has expanded eligibility for houses located in areas hit by disaster, that are designated as low-income, and minority-heavy areas. This program is backed by the U.S. government through Fannie Mae and available from most mortgage lenders. The HomeReady™ program can also be used for refinancing up to 95 percent loan-to-value (LTV). Perhaps best of all, HomeReady™ is not limited to first-time buyers. Borrowers with a credit score of at least 620 may qualify.

Title insurance a key component of successful transactions

Lending institutions understand the importance of title insurance to protect themselves, but many individual home buyers still do not understand why they should have their own policy. Title insurance protects buyers in the event there are any undisclosed liens or easements on the property. The title insurance policy required by lenders only protects the lending institution's financial position in the property, not the home buyer. Title insurance is more important to home buyers now and in the future than it has ever been. The loose lending standards that led up to the housing market collapse resulted in countless second and third mortgages on homes with sketchy paperwork and little likelihood of proper disposition. Foreclosures were rushed and titles to real estate changed hands numerous times. All of this can create complications and clouds on titles. A owner's title insurance policy is every home buyer's best protection against the possible defects of a title that may be missed by a public records search.

Rising rents make homeownership more appealing

According the the U.S. Census, the number of households renting their primary residence is steadily increasing. The renter share of all U.S. households was approximately 34 percent in 2009. That number had increased to 37 percent in 2014. Many young people saw their parents struggle to maintain ownership of their home. What was once a deeply entrenched component of living a full life appeared more of a burden and source of stress to newly forming households. Millennials are more open to a community lifestyle and renting rather than putting down roots. Another factor adding to the increase in renter numbers is the aging population. More seniors are opting to move from high-maintenance homes to retirement communities that take care of maintenance and basic upkeep. The slight increase in demand quickly resulted in a rise in rent prices.

Home buyers more empowered today
The Consumer Financial Protection Bureau (CFPB) is helping make home buying a simpler and safer investment for people. As more people find it less expensive to purchase a home than rent, more households embrace the many benefits and freedoms that are unique to home owners. Over 6 million homes are expected to change hands in 2016. These home buyers have an abundance of programs and information available to them that can help facilitate a smooth transaction they will feel good about for many years to come.

The Consumer Financial Protection Bureau has Expanded Coverage for Rural Lending

The Consumer Financial Protection Bureau (CFPB) recently began implementation of the Helping Expand Lending Practices in Rural Communities (HELP Act). This act helps small creditors that operate in rural locations and areas with few lenders to provide home loans. It expands the definition of "small creditors" and enables more lending institutions to take full advantage of the special lending provisions of home loan rules that took effect in January of 2014.

HELP Act

Known as H.R. 1259, the Helping Expand Lending Practices in Rural Communities Act provides guidelines for the Consumer Financial Protection Bureau to designate some counties as rural areas. This allows the Bureau to enact regulations under its authority. As such, the Bureau has authority to spend money from the Federal Reserve without appropriation. It is estimated that the HELP Act will increase CFPB direct spending by about $3 million over the ten year period from 2014 to 2024. Under this circumstance, pay-as-you-go procedures are applicable.

The term "rural" is based on Urban Influence Codes (UIC). These codes, set by the Department of Agriculture, make a distinction between what is a metropolitan location and what qualifies for rural development home loans from the USDA. Under the HELP Act, the CFPB is directed to develop a process by which areas that do not currently meet the UIC standards for rural areas be given an opportunity to receive rural designation. The HELP Act lists the criteria the Bureau should use when evaluating an application for a county to be designated as rural. All applications must also be made publicly available for comments. The Bureau must then make a decision as to whether or not the application is approved within 90 days of the end of the public comment period.

New rule takes effect March 31, 2016

The rule begins March 31 and the period for public comments is 30 days. It will allow more lenders to qualify for the small and rural credit provisions. The CFPB established special lending provisions for small lending institutions in January of 2014. The Bureau has taken several steps since that time to expand the definitions of both "small creditors" and what fits the definition of "rural area". Previously, these small lending institutions qualified for special provisions only if over half of its loans were for rural areas or areas classified as under-served. Beginning March 31, creditors can qualify for special provisions when they originate one home loan for a property located in a rural or under-served area during the previous calendar year. The Bureau plans to monitor how these changes effect lending and make any necessary adjustments as it sees fit.

Balloon payments

A controversial aspect of the HELP Act is that it allows these newly designated rural lenders to make Qualified Mortgages that have balloon payments. This runs contrary to the current Ability-to-Repay rule established by the CFPB. The rule does not allow balloon payments or other features that are considered risky on Qualified Loans. Additionally, lending institutions that meet the new standard for small lenders may originate loans of high value that have a balloon payment. These high value loans do not have to have an escrow account.

CFPB partners with Zillow

The CFPB also announced recently that it will partner with Zillow to collect information about home buyers. The CFPB will pay individuals to participate in surveys about their experience of searching for homes, obtaining a home loan, and the buying process of their primary residence. The Bureau says it will use information gathered to create more resources for educating future home purchasers and provide them with knowledge necessary to make more informed decisions about their personal finances.

The New HMDA Rule from the CFPB

In an effort to improve the information reported by lending institutions on residential mortgages, the Consumer Financial Protection Bureau (CFPB) finalized a new rule for the Home Mortgage Disclosure Act (HMDA) in October of 2015. The Bureau hopes this will simplify the process of reporting this vital information for banks and other lenders. In addition to working with other federal agencies to better assemble and organize information from financial institutions, the Bureau has requested public feedback on the submission process, error thresholds, consequences for exceeding these thresholds, and how the process may be improved with technology.

Changes to HMDA data reporting

Improved monitoring of fair lending: Banks and other lenders are now required to further detail the underwriting practices and how these practices affect a borrower's interest rate and other fees. The rule requires more information on how lenders analyze an applicant's deb-to-income ratio. Ensuring fair lending practices to all people in every community is one of the primary reasons the CFPB was formed after the collapse of the housing market. The new rule stipulates that lenders must report, with a few exceptions, applicant information on any loan that uses the applicant's dwelling as collateral. That includes home purchase loans, reverse mortgages, and open lines of credit.

Data lenders are required to report is updated: The new information that now must be reported includes loan duration, the duration of any incentive teasers or introductory interest rates, the details of any prepayment penalty and the property value. The additional data will improve the analysis of area market conditions and help regulatory agencies and the public identify any possible discriminatory lending.

Streamlining the reporting process

Aligning data requirements with industry standards: Banks and other financial institutions were previously collecting the same data required for HMDA compliance for their own internal processing and to prepare the loans for sale on the secondary market. The new rule updates data requirements to align with recognized and common industry standards. The CFPB hopes this will make data reporting easier for lenders by using definitions recognized by practically all financial institutions and people in the mortgage sector.

Lighten reporting burden on small banks: The new rule also eases the reporting burden for credit unions and small banks that operate outside the market of a large metropolitan area. Additionally, small depository corporations with a low volume are no longer required to report HMDA data. It is estimated that this one change alone reduces the total number of financial institutions required to report HMDA data by 22 percent. It also helps lower compliance costs for these small organizations that have few people on staff.

The CFPB is primarily focused on protecting consumers and making sure they have all the information needed to make informed financial decisions in all areas of their life. The CFPB provides consumers with resources free of charge at the CFPB site. Financial institutions will be required to collect data according to the new rule on January 1, 2018. After necessary modifications are made to protect borrower privacy, the data will be made available to the public in 2019.

Public participation is a part of how the HMDA protects all consumers. The information collected under the HMDA is analyzed by consumer groups, regulators, research organizations, educational institutions, and more. For the HMDA to remain effective, it requires quality data on home loans and the individuals who are applying for credit. In an ongoing effort to improve the function of the CFPB, the Bureau recently announced that it is accepting applications for 23 seats on the Advisory Board and Councils that will become available later in 2016.

CFPB Asks for Feedback on Home Mortgage Disclosure Act

The Consumer Financial Protection Bureau (CFPB) is requesting feedback from the public on resubmission of mortgage lending data that is reported under the Home Mortgage Disclosure Act (HMDA). The federal agency finalized a new reporting requirement for the HMDA in October of 2015. Due to the new requirements, the resubmission guidelines may also need changing. This is why the Bureau is asking the public for help on what changes may be best.

The Home Mortgage Disclosure Act

Congress originated the HMDA in 1975. Enforcement fell under the Federal Reserve Board's Regulation C. in  2011. Authority to write rules for Regulation C was transferred to the CFPB when it was formed by the Consumer Protection Act of 2010 (Dodd-Frank Act). The HMDA stipulates that lenders must report data about the home loan applications they receive, purchase, and originate. This allows regulators and the public to monitor whether or not lenders are properly serving the housing needs for the communities in which they are located. It also helps with the distribution of public-sector investing and brings additional private investments when needed. One of the primary purposes of the HMDA is to prevent discriminatory lending practices by identifying any inappropriate patterns in the origination of home loans.

It is imperative that the information gathered is accurate to fulfill the purposes of the HMDA. The CFPB conducts examinations to ensure the data reported is accurate and establishes resubmission guidelines that detail when the lending institutions will correct and resubmit data.

Request for public feedback

Some have asked the CFPB if its guidelines for resubmission of mortgage lending data would be changed to reflect the additional data submission required under the new rules. The Bureau is asking the public to comment on any changes to the resubmission guidelines needed under the new regulations. More specifically, the CFPB's resubmission error thresholds and how these thresholds should be calculated. The Bureau also asks for comments on whether or not the thresholds should change according to the size of a submission or the type of data in the submission. The CFPB also would like to know public opinion on what the consequences of exceeding a threshold should be. Other points in the request for information are about how the CFPB reviews lending data, processes that can be carried out by technology, improvements to the data collection process, and any input that will help the Bureau reduce errors in the HMDA data. The request for information is open for 60 days after its publication in the Federal Register. More information about the request for information is available at the Consumer Financial Protection Bureau website.

An ongoing effort to improve the mortgage industry

Richard Cordray is director of the CFPB. He reiterated the importance of the HMDA to protect the public from discriminatory lending practices and provide accurate information about home lending in communities across the country. The purpose of the Bureau is to make regulations and guidelines clear and streamlined for consumers. In addition to protecting the public by establishing and enforcing rules for lenders, the Bureau takes complaints from consumers, promotes mortgage education, studies consumer behavior, monitors the housing and mortgage market for an new risks to borrowers and home buyers, and strives to eliminate any unfair or abusive lending practices.

The Consumer Financial Protection Bureau was established as a result of the housing market collapse. That market collapse resulted in hundreds of thousands of foreclosures and even more properties with title problems. It is essential that all home buyers are aware they can turn to the CFPB with any question or concerns and that they have a personal title insurance policy in addition to the policy required by their lender.