May 22, 2017
Using Home Equity Responsibly
Chase.com quoted me in How a Home Equity Line of Credit Can Help Your Family. It reads,
If you’re a homeowner, you could qualify for a unique financial product: the Home Equity Line of Credit (HELOC). HELOCs allow you to borrow money against the equity you have in your home and similar to a credit card, they offer a revolving credit line that you can tap into as needed.
“Equity is the market value of your home less what you owe on your mortgage balance,” explains David Lopez, a Philadelphia-based member of the American Institute of Certified Public Accountant’s Financial Literacy Commission.
With home values on the rise and interest rates historically low, HELOCs are an attractive option right now. Plus, according to Lopez, for most borrowers, there’s the added benefit of a potential tax deduction on the interest you pay back.
However, since your home is on the hook if you can’t meet your debt obligations, you’ll have to be cautious, explains David Reiss, a professor at Brooklyn Law School and editor of REFinblog, which covers the real estate industry.
So, what are the most common reasons you might consider leveraging this tool? According to the Novantas 2015 Home Equity Survey, 50 percent of people said they opened a HELOC to finance home renovations, upgrades and repairs.
That was the case for Laura Beck, who along with her husband, used their equity to fund a substantial home renovation that doubled their square footage and home’s value.”The HELOC let us do a full renovation right down to re-landscaping the yard without being nervous about every penny spent,” she says.
Interested? Here are a few of the most common reasons people leverage a HELOC:
Home improvement expenses
Upgrades to your home can increase the market value and not to mention, allow you to enjoy a house that is customized to fit your family’s needs.
Pro Tip: Some improvements and energy efficient upgrades, such as solar panels or new windows may also score you a bonus tax credit, says Lopez.
Debt Consolidation
Exchanging high interest debt (like credit cards) for a lower interest rate makes sense, especially since interest payments on your HELOC are usually tax deductible, says Lopez.
Pro Tip: Reiss stresses how important it is to “be cautious about converting unsecured personal debt into secured home equity debt unless you are fully committed to not running up new balances.”
Surprise expenses
When faced with a situation in which money is the only thing preventing you from getting the best medical care, a HELOC can be a literal life saver, Reiss explains.
Pro Tip: If you need to pay an existing medical bill, however, try negotiating with the health care provider rather than use your equity, says Reiss. Often, they are willing to work something out with you, and you won’t have to risk your house.
College expenses
Reiss explains how a good education can improve one’s career outlook, increase earnings, and has the potential of offering a strong return on your investment.
Pro Tip: Before turning to your equity for education costs, try to maximize other forms of financial aid like scholarships, grants, and subsidized loans.
No matter your reason for considering a HELOC, if used responsibly it can be a great tool, says Reiss. For information on how to qualify, speak to a banking professional to see if this is a good option for you.
May 22, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- A Florida couple is unhappy. The Eleventh Circuit upheld a fine and probation sentence given to the couple by a lower district court. The initial ruling, stemmed from the couple’s failure to disclose an insurance company’s payout of a sink hole found on their property. Furthermore, the couple did not repair the sink hole with the funds received which added to the damage of their failure to disclose issue.
- Wells Fargo Bank NA plead with the Supreme Court regarding a Nevada Lien Law. The Nevada law allows homeowner associations “seeking back dues in foreclosure” to receive lien priorities over lenders. The Ninth Circuit invalidated the law, and Wells Fargo Bank is hoping the U.S. Supreme Court will do the same.
- The Department of Revenue failed in their attempt to tax rooftop solar panels. An appellate Arizona court recently “upheld the state law exempting rooftop solar panels from property tax valuations.”
May 22, 2017 | Permalink | No Comments
May 19, 2017
Understanding The Ability To Repay Rule
The Spring 2017 edition of the Consumer Financial Bureau’s Supervisory Highlights contains “Observations and approach to compliance with the Ability to Repay (ATR) rule requirements. The ability to repay rule is intended to keep lenders from making and borrowers from taking on unsustainable mortgages, mortgages with payments that borrowers cannot reliably make. By way of background,
Prior to the mortgage crisis, some creditors offered consumers mortgages without considering the consumer’s ability to repay the loan, at times engaging in the loose underwriting practice of failing to verify the consumer’s debts or income. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Truth in Lending Act (TILA) to provide that no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan according to its terms, as well as all applicable taxes, insurance (including mortgage guarantee insurance), and assessments. The Dodd-Frank Act also amended TILA by creating a presumption of compliance with these ability-to-repay (ATR) requirements for creditors originating a specific category of loans called “qualified mortgage” (QM) loans. (3-4, footnotes omitted)
Fundamentally, the Bureau seeks to determine “whether a creditor’s ATR determination is reasonable and in good faith by reviewing relevant lending policies and procedures and a sample of loan files and assessing the facts and circumstances of each extension of credit in the sample.” (4)
The ability to repay analysis does not focus solely on income, it also looks at assets that are available to repay the mortgage:
a creditor may base its determination of ability to repay on current or reasonably expected income from employment or other sources, assets other than the dwelling (and any attached real property) that secures the covered transaction, or both. The income and/or assets relied upon must be verified. In situations where a creditor makes an ATR determination that relies on assets and not income, CFPB examiners would evaluate whether the creditor reasonably and in good faith determined that the consumer’s verified assets suffice to establish the consumer’s ability to repay the loan according to its terms, in light of the creditor’s consideration of other required ATR factors, including: the consumer’s mortgage payment(s) on the covered transaction, monthly payments on any simultaneous loan that the creditor knows or has reason to know will be made, monthly mortgage-related obligations, other monthly debt obligations, alimony and child support, monthly DTI ratio or residual income, and credit history. In considering these factors, a creditor relying on assets and not income could, for example, assume income is zero and properly determine that no income is necessary to make a reasonable determination of the consumer’s ability to repay the loan in light of the consumer’s verified assets. (6-7)
That being said, the Bureau reiterates that “a down payment cannot be treated as an asset for purposes of considering the consumer’s income or assets under the ATR rule.” (7)
The ability to repay rule protects lenders and borrowers from themselves. While some argue that this is paternalistic, we do not need to go much farther back than the early 2000s to find an era where so-called “equity-based” lending pushed many people on fixed incomes into default and foreclosure.
May 19, 2017 | Permalink | No Comments
May 18, 2017
Secrets of The Title Insurance Industry
The New York State Department of Financial Services has proposed two new regulations for the title insurance industry. Premiums for title insurance in New York State are set by regulators, so title insurance companies cannot compete on price. Instead, they compete on service. “Service” has been interpreted widely to include all sorts of gifts — fancy meals, hard-to-get tickets, even vacations. The real customers of title companies are the industry’s repeat players — often lawyers and lenders who recommend the title company — and they get these goodies. The people paying for title insurance — owners and borrowers — ultimately pay for these “marketing” costs without getting the benefit of them.
The first regulation is intended to get rid of these marketing costs (or kickbacks, if you prefer). This proposed regulation makes explicit that those costs cannot be passed on to the party ultimately paying for the title insurance. The proposed regulation reads, in part,
(a) As used in this section:
(1) Compensation means any fee, commission or thing of value.
(2) Licensee means an insurance agent, title insurance agent, insurance broker, insurance consultant, or life settlement broker.
(b) Insurance Law section 2119 authorizes a licensee to receive compensation provided that the licensee has obtained a written memorandum signed by the party to be charged, in accordance with such section.
(c) A licensee shall not charge or collect compensation without such a memorandum, nor shall any such licensee charge or receive compensation except as provided in Insurance Law section 2119.
(d) The memorandum shall include the terms and date of the agreement, and the amount of the compensation. Where compensation is permitted, to the extent practical, the licensee shall obtain the written memorandum prior to rendering the services. The licensee shall not stipulate, charge or accept any compensation if the licensee has not fully disclosed the amount or nature of the compensation or the basis for determining the amount of the compensation prior to the service being rendered. (5-6)
The second regulation is intended to ensure that title insurance affiliates function independently from each other.
While these proposed regulations are a step in the right direction, I wonder how effective they will be, given that title companies cannot compete on price. Maybe it would be better to let them do just that, as some other states do . . .
These are mighty technical proposed regulations, but they will have a big impact on consumers. Have no doubt that industry insiders will comment on these regs. Those concerned with the interests of consumers should do so as well.
The Department of Financial Services is accepting comments on these two proposed regulations through June 19th, 2017.
May 18, 2017 | Permalink | No Comments
May 16, 2017
Manafort’s Mystery Mortgage
NBC News quoted me in Manafort Got $3.5M Mystery Mortgage, Paid No Tax. It opens,
Former Trump campaign manager Paul Manafort took out a $3.5 million mortgage through a shell company just after leaving the campaign, but the mortgage document that explains how he would pay it back was never filed — and Manafort’s company never paid $36,000 in taxes that would be due on the loan.
In addition, despite telling NBC News previously that all his real estate transactions are transparent and include his name and signature, Manafort’s name and signature do not appear on any of the loan documents that are publicly available. A Manafort spokesperson said the $3.5 million loan was repaid in December, but also said paperwork showing the repayment was not filed until he was asked about the loan by NBC News.
News of the missing documents comes as New York Attorney General Eric Schneiderman is taking a “preliminary look” at Manafort’s real estate transactions, according to a source familiar with the matter.
On August 19, 2016, Manafort left the Trump campaign amid media reports about his previous work for a pro-Russian political party in Ukraine, including allegations he received millions of dollars in payments.
That same day, Manafort created a holding company called Summerbreeze LLC. Several weeks later, a document called a UCC filed with the state of New York shows that Summerbreeze took out a $3.5 million loan on Manafort’s home in the tony beach enclave of Bridgehampton.
Manafort’s name does not appear on the UCC filing, but Summerbreeze LLC gives his Florida address as a contact, and lists his Bridgehampton home as collateral.
A review of New York state and Suffolk County records shows the loan was made by S C 3, a subsidiary of Spruce Capital, which was co-founded by Joshua Crane, who has partnered with Donald Trump on real estate deals. Spruce is also partially funded by Ukrainian-American real-estate magnate Alexander Rovt, who tried to donate $10,000 to Trump’s presidential campaign on Election Day but had all but the legal maximum of $2,700 returned.
The mortgage notice for the loan, however, was never entered into government records by the lender. A mortgage notice normally names the lender, and gives the interest rate, the frequency with which payments must be made, and the length of the mortgage.
Real estate experts contacted by NBC News called the omission “highly unusual,” though not illegal.
David Reiss, a professor at Brooklyn Law School who specializes in real estate law, said, “It would be totally ill-advised to not record the loan on the property that is being secured. … Recording the mortgage on the property protects the lender.” Without it, there’s no public record that the borrower owes money.
May 16, 2017 | Permalink | No Comments
May 17, 2017
Assessing RESPA
By David Reiss
The Consumer Financial Protection Bureau issued a Request for Information Regarding 2013 Real Estate Settlement Procedures Act Servicing Rule Assessment. The Bureau
is conducting an assessment of the Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), as amended prior to January 10, 2014, in accordance with section 1022(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is requesting public comment on its plans for assessing this rule as well as certain recommendations and information that may be useful in conducting the planned assessment. (82 F.R. 21952)
This is certainly a pretty obscure initiative, albeit one required by the Dodd-Frank Act. But it is worth determining what is at stake in it. The Request includes some additional background:
Congress established the Bureau in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).1 In the Dodd-Frank Act, Congress generally consolidated in the Bureau the rulemaking authority for Federal consumer financial laws previously vested in certain other Federal agencies. Congress also provided the Bureau with the authority to, among other things, prescribe rules as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws and to prevent evasions thereof. Since 2011, the Bureau has issued a number of rules adopted under Federal consumer financial law.
Section 1022(d) of the Dodd-Frank Act requires the Bureau to conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law. The Bureau must publish a report of the assessment not later than five years after the effective date of such rule or order. The assessment must address, among other relevant factors, the rule’s effectiveness in meeting the purposes and objectives of title X of the Dodd-Frank Act and the specific goals stated by the Bureau. The assessment must reflect available evidence and any data that the Bureau reasonably may collect. Before publishing a report of its assessment, the Bureau must invite public comment on recommendations for modifying, expanding, or eliminating the significant rule or order.
In January 2013, the Bureau issued the ‘‘Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X)’’ (2013 RESPA Servicing Final Rule). The Bureau amended the 2013 RESPA Servicing Final Rule on several occasions before it took effect on January 10, 2014. As discussed further below, the Bureau has determined that the 2013 RESPA Servicing Final Rule and all the amendments related to it that the Bureau made that took effect on January 10, 2014 collectively make up a significant rule for purposes of section 1022(d). The Bureau will conduct an assessment of the 2013 RESPA Servicing Final Rule as so amended, which this document refers to as the ‘‘2013 RESPA Servicing Rule.’’ In this document, the Bureau is requesting public comment on the issues identified below regarding the 2013 RESPA Servicing Rule. (Id., footnotes omitted)
The Bureau will be evaluating servicer activities such as responses to loss mitigation applications and borrower notices of error. It will also be evaluating fees and charges; the exercise of rights by consumers under the rule; and delinquency outcomes.
The Bureau is requesting comment on some technical subjects relating to the assessment plan itself. But if you think you have something to add, you should submit comments by July 10th here.
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May 17, 2017 | Permalink | No Comments