November 14, 2016
Monday’s Adjudication Roundup
- A Texas federal judge on Wednesday issued tailored sanctions against American Realty Investors Inc. in a $63 million real estate suit over a deposition for which the company’s vice president was not adequately prepared and company counsel allegedly objected hundreds of times
- Fannie Mae and a bankrupt homeowner sparred over standing in a suit alleging the mortgage lender illegally got its hands on personal credit reports, as both sides made their case in Virginia federal court on Thursday as to whether the mortgage lender caused harm
- Royal Park Investments’ $6.7 billion proposed class action alleging U.S. Bank failed to warn investors about soured residential mortgage-backed securities may be dismissed eventually, but it isn’t over yet, a New York federal judge ruled Wednesday in a fight over missing evidence.
- PHH has agreed to pay $28 million to end claims brought by New York financial services regulators accusing the mortgage services provider of running afoul of state and federal laws protecting homeowners, New York Gov. Andrew Cuomo’s office announced Wednesday.
November 14, 2016 | Permalink | No Comments
Friday’s Government Reports Roundup
- The Department of Housing and Urban Development is finding innovative methods to ensure that Public Housing Authorities are obliging to all fair housing, civil rights, and relocation requirements as listed in the Rental Assistance Demonstration.
- The federal government is spending money to help American citizens obtain rental housing and homes; however, a recent study showed that the American citizens with the most need do not receive this needed assistance.
- The U.S. Government Accountability Office completed a four year study regarding mortgage-backed securities. The office found nine violations by fellow government agencies.
November 11, 2016 | Permalink | No Comments
Leading The Armed Forces
Xenophon of Athens was a soldier in a military campaign in Persia over two thousand years ago that he recounted in Anabasis (“An Ascent”), also known as The Persian Expedition. He writes,
There is small risk a general will be regarded with contempt by those he leads, if, whatever he may have to preach, he shows himself best able to perform.
A thought for forthcoming Veterans Days.
November 11, 2016 | Permalink | No Comments
November 10, 2016
Home Mis-Inspector
REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category. Please vote here if you like what you read.
Realtor.com quoted me in Yikes! What If Your Home Inspector Missed Something Huge? It opens,
Your offer has been accepted, and there’s just one more obstacle between you and your new home: the inspection. It can be a stressful event for both buyers and sellers as they wait for the report, hoping no major issues will surface that could sideline the deal.
But what if you make it through that day, let out a big sigh of relief, seal the deal, and then a few weeks or months later find an issue in your new home—a bat infestation, a leaky roof, a CDC-level mold problem—that the home inspector didn’t catch? Just how much peace of mind does a home inspection really buy you?
Find out how you can protect yourself.
Sadly, there’s no insurance home buyers can take out to protect themselves from a faulty inspection. As such, the most important step home buyers can take to prevent that scenario is to select a reputable inspection company.
Make sure you choose a firm that has been in the residential inspection business for a while and has a strong reputation (real estate agents and lenders often have recommendations).
But most important, your home inspector should have adequate insurance.
Keith Balsiger, president of Balsiger Insurance in Las Vegas, says buyers should ask for a current certificate of insurance that shows the inspection company has both general liability insurance and professional liability insurance (also known as errors and omissions insurance). This is what would potentially cover you as a buyer if there was a major “miss” on the part of the inspection.
If you want to be extra safe, you can call the insurance agency of the inspection company to confirm the coverage on the certificate is still valid.
You also want to closely examine the terms of the liability insurance. David Reiss, professor of law at Brooklyn Law School, says some contracts will state that the company is liable only for the cost of the inspection, which won’t be much solace if you find yourself on the hook for repairs that could cost hundreds of thousands of dollars.
“Ideally, you would not want there to be any limit on the inspector’s liability in case he or she was negligent in doing the inspection,” says Reiss. At the very least, make sure the limit exceeds the cost of the inspection alone.
Why buyers should attend the home inspection
As an added safeguard, buyers should be physically present during the inspection. If an inspector balks at this idea, that’s a red flag. Make sure to find out what is covered by the inspection, and if there’s anything you want the inspector to scrutinize in particular (say, you know the boiler is old or the basement has water stains, suggesting flooding issues), state that upfront.
“It’s a buyer’s job to make the most of the home inspection,” says Bryant Dunivan Jr., a real estate and consumer protection attorney in Brandon, FL. Here are some things to watch for during the inspection:
- The inspector is working off a checklist of items that was in the contract.
- Major systems (air conditioning, heating, water, etc.) are tested.
- The inspector actually enters attic and crawl spaces.
- A report complete with pictures is provided.
What to look out for in a home inspection
Robert Pellegrini Jr., president of PK Boston, a real estate law firm based in Boston, says a typical red flag disclaimer on the inspection report is a statement that there was a problem with “access” to roofs, eaves, and areas behind locked or blocked doors or crawl spaces.
“That serves to absolve the inspector of any liability,” Pellegrini says.
Urge the home seller to remove all barriers that might prevent an inspector from doing a thorough job. Some home buyers even take the process into their own hands and hire drones or robots to view inaccessible areas.
Uh-oh! You’ve closed, but there’s a problem
No matter how many precautions you take, the nightmare scenario does happen: You move in and then discover a problem. A big one. Can you bring it up with the seller? After all, sellers are required to disclose any known issues about the home.
Well, here’s the rub: Proving the seller knew about something after the fact is nearly impossible, and the legal cost involved in trying to prove it is often too steep to make an attempt.
Which brings us back to the home inspector. If you encounter a problem, bring it up with your inspector. As long as you used one with decent liability insurance that covers more than just the cost of the inspection, odds are decent you’ll be compensated for any damages. Again, you’ll have to prove it. For example, if the inspector said the roof was in good condition, but there was a leak months later during a big storm, you would have to prove that nothing happened in the intervening time that damaged the roof.
“Bottom line: You would probably need pretty clear facts on your side to win,” Reiss says.
November 10, 2016 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- An article titled, “Why Housing is the Political Issue Candidates Aren’t Talking About,” analyzes the American housing issues that continue to make it hard for Americans to purchase homes.
- Incomes are rising and homeowners are sparing no cost to renovate their homes. An article titled, “Homeowners will Spend a Record Amount on Home Renovations Next Year,” estimates that homeowners will spend 327 billion dollars to renovate their homes.
November 10, 2016 | Permalink | No Comments
November 9, 2016
Housing Finance Reform, Going Forward
President-Elect Trump
Two high-level officials in the Treasury Department recently posted Housing Finance Reform: Access and Affordability Going Forward. It highlighted principles that should guide housing finance reform going forward. It opened,
Access to affordable housing serves as a cornerstone of economic security for millions of Americans. The purchase of a home is the largest and most significant financial transaction in the lives of many households. Access to credit and affordable rental housing defines when young adults start their own households and gives growing families options in choosing the quality and location of their homes. Homeownership can be an opportunity to build wealth, placing a college education within reach and helping older Americans attain a secure retirement. Whether they are aware of it or not, some of the most momentous decisions American families make are shaped by how the housing finance system serves them.
Financial reform has sought to reorient financial institutions to their core mission of supporting the real economy. The great unfinished business of financial reform is refocusing the housing finance system toward better meeting the needs of American families. How policymakers address this challenge will be the critical test for any model for housing finance reform. The most fundamental question any future system must answer is this: Are we providing more American households with greater and more sustainable access to affordable homes to rent or own? It is through this lens that we will assess the performance of the current marketplace and evaluate a set of policy considerations for addressing access and affordability in a future system. (1-2)
These principles of access and affordability have guided federal housing finance policy for quite some time, particularly in Democratic administrations. They now appear to fallen by the wayside as Republicans control both the Executive and Legislative branches.
President-Elect Trump has not yet outlined his thinking on housing finance reform. And the Republican Party Platform is somewhat vague on the topic as well. But it does give some guidance as to where we are headed:
We must scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders, and avoid future taxpayer bailouts. Reforms should provide clear and prudent underwriting standards and guidelines on predatory lending and acceptable lending practices. Compliance with regulatory standards should constitute a legal safe harbor to guard against opportunistic litigation by trial lawyers.
We call for a comprehensive review of federal regulations, especially those dealing with the environment, that make it harder and more costly for Americans to rent, buy, or sell homes.
For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current Administration and Democrats have prevented any effort to reform them. Their corrupt business model lets shareholders and executives reap huge profits while the taxpayers cover all loses. The utility of both agencies should be reconsidered as a Republican administration clears away the jumble of subsidies and controls that complicate and distort home-buying.
The Federal Housing Administration, which provides taxpayer-backed guarantees in the mortgage market, should no longer support high-income individuals, and the public should not be financially exposed by risks taken by FHA officials. We will end the government mandates that required Fannie Mae, Freddie Mac, and federally-insured banks to satisfy lending quotas to specific groups. Discrimination should have no place in the mortgage industry.
Turning those broad statements into policies, we are likely to see some or all of the following on the agenda for housing finance reform:
- a phasing out of Fannie Mae and Freddie Mac, perhaps via some version of Hensarling’s PATH Act;
- a significant change to Dodd-Frank’s regulation of mortgage origination as well as a full frontal assault on the Consumer Financial Protection Bureau;
- a dramatic reduction in the FHA’s footprint in the mortgage market; and
- a rescinding of Obama’s Affirmatively Furthering Fair Housing Executive Order.
Some are already arguing that Trump and Congress will take a more pragmatic approach to reforming the housing finance system than what is outlined in the Republican platform. I think it is more honest to say that we just don’t know yet what the new normal is going to be.
November 11, 2016
Surveying Mortgage Originations, Going Forward
By David Reiss
REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category. Please vote here if you like what you read.
As I had earlier noted, the Federal Housing Finance Agency has issued a request for comments on the National Survey of Mortgage Originations (NSMO). The NSMO is “a recurring quarterly survey of individuals who have recently obtained a loan secured by a first mortgage on single-family residential property.” (81 F.R. 62889) I submitted my comment, written in the context of the newly-elected Trump Administration. It reads, in part,
I write to support this proposed collection, but also to raise some concerns about its efficacy.
The NSMO is very important to the health of the mortgage market. We need only look at the Subprime Boom of the late 1990s and early 2000s to see why this is true: subprime mortgages went from “making up a tiny portion of new mortgage originations in the early 1990s” to “40 percent of newly originated securitized mortgages in 2006.” David Reiss, Regulation of Subprime and Predatory Lending, International Encyclopedia of Housing and Home (2010). During the Boom, subprime lenders like Countrywide changed mortgage characteristics so quickly that information about new originations became outdated within months.See generally Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report 105 (2011) (“Countrywide was not unique: Ameriquest, New Century, Washington Mutual, and others all pursued loans as aggressively. They competed by originating types of mortgages created years before as niche products, but now transformed into riskier, mass-market versions”) Policymakers and academics did not have good access to the newest data and thus were operating, to a large extent, in the dark. The information in the NSMO will therefore not only help regulators, but will also assist outside researchers to “more effectively monitor emerging trends in the mortgage origination process . . ..” (81 F.R. 62890)
* * *
there is no question that this “collection of information is necessary for the proper performance of FHFA functions . . ..” (81 F.R. 62890) Given the likely changes to the federal role in the mortgage markets over the next four years, the NSMO can provide critical insight into whether homeowners feel that that market serves their needs.
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November 11, 2016 | Permalink | No Comments