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.

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.

Technology, Walkability, and Resilience are the Key Housing Words for 2016

As building companies get back to the business of constructing houses, they find the housing landscape has changed significantly. While the economy and housing market has been sluggish, technology has surged right along. Young people embrace technology and are less inclined to seek employment working with their hands. To remain competitive, builders must not only attract young buyers, but also find ways to attract them as workers to help build homes. To do both, construction companies and builders must learn to utilize technology to their advantage. A top feature young buyers want is walkability. Another issue that is always a major concern for every home owner is how well their house can withstand inclement weather. Builders and REALTORS  must understand the issues currently relevant to home buyers and those issues that will continue being important in future years.

Technology

According to the National Association of REALTORS report "Real Estate in a Digital Age," 68 percent of first-time home buyers are Millennials. Thirty-two percent of all home buyers are between the ages of 25 and 34. These buyers begin their search online and are connected to the internet 24/7. Many older generations also rely on technology to find homes and research things like title insurance and mortgages. Even old marketing techniques like open houses that were near extinction a few years ago are finding new life thanks to technology. Savvy builders and REALTORS use Twitter and Facebook to post live updates and promotions that will entice all potential buyers in the nearby area to stop by. The QR code has little worthwhile use in many industries, but it provides a wealth of information about a home for sale to interested buyers. Every real estate agent and builder who has filled one of those little plastic information boxes with flyers, only to get an angry caller the following day complaining it is again empty, understands the value of providing pertinent information on-site at all hours of the day. Technology can do that in a variety of ways. Increasingly, buyers are expecting builders to use technology for communication and showing things like elevations, floor plans, and site maps.

Walkability

The American Institute of Architects (AIA) conducted a Home Design Trends Survey in the third quarter of 2015. Their survey found more buyers seeking a sense of community and opting to located in or near one of the many expanding metro areas across the United States. Some of the community design trends that are currently gaining strength and expected to remain popular for the foreseeable future include walkable neighborhoods, access to public transportation, multi-generational housing,  and mixed-use buildings. AIA Chief Economist Kermit Baker said there has been a significant change in driving habits of the population in recent years. More people use public transportation and want to be near their employment and other commercial activities. For single family homes, these buyers look for contemporary-style with low-maintenance features. Some traditional wants like single-story layouts and front porches remain popular. Regardless, owners still need quality title insurance to protect their investment. A growing number of households are single adults with or without children. They like smaller, simple spaces with an emphasis on aesthetics.


Resilience

Presenters at the recent BUILDER Sustainability Summit emphasized the need for community leaders to think about resiliency before disasters occur. Threats like hurricanes, tornadoes, flooding, and heavy snow can affect people in all parts of the United States. Regardless of where a home is located, it needs title insurance and must be able to withstand one or more of these natural disasters. Alex Wilson is an architect who believes resilient design doesn't have to be expensive. Wilson listed ways builders can construct houses that are better able to withstand disasters:

• Include timber framing and hurricane straps on houses in storm-prone areas.
• Improve living conditions of homes that lose power with better insulation and passive solar features.
• Limit the need for mechanical cooling by orienting homes on an east/west axis, install better windows with some shading, attach awnings, use larger overhangs, reflective roofs, and natural ventilation.
• Have flood barriers along driveways in low-lying areas.

Walkable communities are more resilient. When disaster strikes, it is much easier to provide needed services in areas that are pedestrian friendly. Just as home owners must protect their investment with title insurance, community leaders must protect their local area through resiliency planning before the natural disaster occurs.

A Guide to Working With First-Time Home Buyers

Buying a home is exciting. It is easy for buyers to be distracted by all the things they want and to overlook many aspects of the home buying process that are important. For the mortgage company, it is all business. They make sure they are protected by things like title insurance. First-time buyers want the most home they can afford. Sometimes, they pursue more than they can comfortably afford. Without proper guidance and counsel from a knowledgeable REALTOR, these novice buyers will skip on procedures such as home inspections by a third-party professional and their own title insurance policy to try and cut their costs.

Connectivity increases vulnerability

The National Association of REALTORS states in their "Real Estate in a Digital Age" report that 68 percent of first-time buyers are Millennials between the ages of 25 and 35. They make a decent living with an average income of $84,500. Many of them witnessed the housing market collapse and have seen their parents struggle to keep a roof over their family's head. Many of these young buyers have opted to pay down their college debt before they even consider buying a home. They are connected to one another and an infinite source of information on all things (the web) practically 24 hours a day and 7 days a week. However, these accomplished and knowledgeable buyers are vulnerable in many ways. A study by Wombat Security Technologies found that young people 18 to 25 are more vulnerable to phishing attacks because they are so open to provide personal information if they believe doing so will provide additional convenience.

Working with first-time buyers requires tact

It is important to reach and work with all first-time buyers in a way they are comfortable without allowing them to make costly mistakes. These novice buyers think they know more than they actually do. Just as they are more likely to fall for phishing scams, the information they gain from doing their own research online may not be from credible sources. For example, they may stumble across a blog that advises them against purchasing their own title insurance policy because they are already paying for a policy for the mortgage company. But that is not enough to protect the home buyer's investment. Agents must be a resource of reliable information without being condescending.

Really listen and understand their priorities

Far too often, real estate agents fall into a pattern of just going through the motions. Each transaction begins to look the same, and the agent tries to do too much of the decision making for the home buyer because they think they know what is best. It is true that many first-time buyers do not have any understanding of the process, but the agent still works for them and in their best interest. Just because many new home buyers in the market are gravitating to a specific area, price range, or style, that does not mean it is right for every buyer. It is just as important to gather the right information from your buyer as it is to provide them with information.

Be clear about your role upfront

Some first-time buyers do not understand the value of REALTORS. They think agents make a lot of money without actually doing much work. Establish yourself as a resource early in in the relationship, but make sure they understand what you can and can't do. Be sure to provide them with an agency agreement and have them sign a document that explains the different types of agency relationships. Some agents avoid having uncomfortable conversations because they think it might scare potential clients away. It is better to thoroughly discuss the value you bring to them and how you are compensated early, rather than have lingering misunderstandings and conflict down the road.

Taking the time to nurture relationships with first-time buyers is challenging, but also rewarding. Just as many home buyers overlook the value of title insurance, many real estate agents choose to not invest in working with first-time buyers. Title insurance is important to protect a home buyer's investment. Working with first-time buyers is important to have future referrals and a balanced real estate business.