Tag Archives: Reiss

Troubles with TRID

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"The Trouble with Tribbles" Stark Trek Episode

Law360 quoted me in Rule-Driven Home Sale Slump Could Be Temporary. It reads, in part,

A slump in existing home sales in November can be traced to the implementation of a new Consumer Financial Protection Bureau mortgage closing regime, although experts say that most of the closing delays could ease as the industry and consumers get more comfortable with the new rules.

The National Association of Realtors released a report Tuesday saying that while a continued lack of inventory of existing homes for sale and other factors helped drive down the number of completed home sales in November, the number of signed contracts for home purchases remained relatively constant. With that in mind, the Realtors pointed to the CFPB’s TILA-RESPA Integrated Disclosure rule, which combined two key mortgage disclosure forms and went into effect in October, as the reason for the slowdown.

That slowdown was anticipated because real estate agents and lenders had reported difficulties in complying with the rule, which combined closing forms required by the Truth In Lending Act and the Real Estate Settlement Procedures Act, prior to it coming into effect. However, experts say that the closing delays are likely to decrease as the industry understands the rule better and technology to comply with it improves.

“It’s like a python swallowing a boar … the boar has to work its way through the python,” said David Reiss, a professor at Brooklyn Law School.

The National Association of Realtors reported that existing home sales slumped to 4.76 million nationwide in November from 5.32 million in October, a fall of 10.5 percent. That October figure was also revised down from an initial estimate of 5.36 million.

The November figure was also down from the 4.95 million existing sales figure from the same period last year, and put total existing home sales 3.8 percent behind the total from last year, the National Association of Realtors said.

While the real estate industry group cited the usual factors of tight supply and inflated prices in many regions of the country as a reason for the slowdown in existing home sales, it also cited the TRID rule’s implementation as a reason for the slump.

*     *     *

Most lenders, real estate agents and other market participants had already begun to factor in the new TRID requirements in the closing process, adding 15 days to the usual 30-day closing process, said Richard J. Andreano, a partner at Ballard Spahr LLP.

“When I saw the November drop, I thought that was a natural consequence of correct planning,” he said.

Despite the slowdown, Yun said in the NAR release that because contracts were signed and the problems came down to issues with closing.

“As long as closing time frames don’t rise even further, it’s likely more sales will register to this month’s total, and November’s large dip will be more of an outlier,” he said.

The CFPB, Reiss and Andreano all agreed that at least some of the delays will work out of the system as the industry gets more accustomed to TRID’s changes.

“The ones that have adjusted have done it by adding a lot of staff, either reallocating or hiring and assigning them to the closing process to get it done,” Andreano said.

And the delays that remain may not be a bad thing, Reiss said.

“It really keeps consumers from being surprised at the closing table. This gives a little bit more time to the consumer where they’re not getting waylaid,” he said.

Exotic Mortgage Increase

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DepositAccounts.com quoted me in 10 Things You Might See From Your Bank in 2016. It reads, in part,

It’s that time of year when experts pull out the crystal ball and start talking about “what they see”. Banking pros are no exception. When it comes to 2016, they expect plenty; change is on the horizon. Here’s a look at some of them.

*     *     *

4. Exotic mortgages increase

David Reiss, a professor at Brooklyn Law School, specializing in real estate believes that banks are going to get more comfortable with originating more exotic mortgages as they have more experience with the mortgage lending rules that were prescribed in Dodd-Frank. These rules, such as the Qualified Mortgage Rule and Ability To Repay Rule, encourages lenders to make “plain vanilla” mortgages. But there are opportunities to expand non-Qualified Mortgages, so “2016 may be the year where it really takes off,” says Reiss. The bottom line? “This means consumers who have been rejected for plain vanilla mortgages, may be able to get a non-traditional mortgage. This is a two-edge[d] sword. Access to credit is great, but consumers will need to ensure that the credit they get is sustainable credit that they can manage year in, year out.”

Rates up in ARMs

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Marriner S. Eccles Federal Reserve Board Building

TheStreet.com quoted me in Fed Hike Means Adjustable Rate Mortgages Will Rise and Increase Monthly Payments. It opens,

The first interest rate hike by the Federal Reserve in nearly a decade means consumers can no longer take advantage of a zero interest rate environment. Particularly challenged will be homeowners who have adjustable rates and stand to face higher mortgage payments.

Record low mortgage rates are set to be thing of the past as the Fed raised rates by 0.25%, which appears to be a nominal amount initially. Of course, consumers need to consider the cumulative effect of the central bank’s decision to increase rates periodically over a span of two to three years. The consecutive rate hikes will affect homeowners with adjustable rate mortgages when they reset, which typically happens once a year.

“The initial interest rate move is very modest and consumers will see a corresponding increase in their credit card and home equity line of credit rates within one to two statement cycles,” said Greg McBride, chief financial analyst for Bankrate, the North Palm Beach, Fla. based financial content company. “The significance is in the potential impact of whatever interest rate hikes are put into effect over the next 18 to 24 months.”

The Fed will continue to raise rates several times next year since yesterday’s move is not a “one and done” move, said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa. The Fed will likely follow with a series of three to four rate increases in 2016 if the economy continues to improve. The central bank could raise interest rates to a total of 1.0%, which will cause mortgage rates, auto loans and credit card rates to rise in tandem.

Adjustable rate mortgages, or ARMs, are popular among many younger homeowners, because they typically have lower interest rates than the more common 30-year fixed rate mortgage. Many ARMs are called a 5/1 or 7/1, which means that they are fixed at the introductory interest rate for five or seven years and then readjust every year after that, said David Reiss, a law professor at Brooklyn Law School in N.Y. The new rate is based on an index, such as the prime rate or the London Interbank Offered Rate (LIBOR), as well as a margin on top of that index. LIBOR is used by banks when they are lending money to each other.The prime rate is the interest rate set by individual banks and is usually pegged to the current rate of the federal funds rate, which the Fed increased to 0.25%.

The prime rate is typically used more for home equity lines of credit, said Reiss. LIBOR is typically used more for mortgages like ARMs. The LIBOR “seems to have had already incorporated the Fed’s rate increase as it has gone up 0.20% since early November,” Reiss said.

“The prime rate is influenced by the Fed’s actions,” Reiss said. “We already see that with Wednesday’s announcement that banks are increasing prime to match the Fed’s increase.”

The main disadvantage of an ARM is that the rate is only fixed for a period of five or seven years unlike a 30-year fixed rate mortgage, which means that monthly payments could rise quickly and affect homeowners on a tight budget.

Over the course of the next couple of years, the cumulative effect of a series of interest rate hikes could take an adjustable mortgage rate from 3% to 5%, a home equity line of credit rate from 4% to 6% and a credit card rate from 15% to 17%, said McBride.

“This is where the effect on household budgets becomes more pronounced,” he said.

Homeowners should start researching mortgage rates and refinance out of ARMs and lock into a fixed rate, said McBride. The 0.25% rate increase equals to a payment of $0.25 for every $100 of debt.

Since many factors impact the interest rates of mortgages, consumers need to examine the actual benchmark used by their lender since some existing interest rates already priced in some of the anticipated rise in the federal funds rate, said Reiss. While ARMs expose the borrower to rising interest rates, they typically come with some protection. Interest rates often cannot rise more than a certain amount from year to year, and there is also typically a cap in the increase of interest rates over the life of the loan.

An ARM might have a two point cap for one year increases if the introductory rate of 4% increased to 6% in the sixth year of a 5/1 ARM, he said. That ARM might have a six point cap over the life of the loan, which means a 4% introductory rate can go to no higher than 10% over the life of the loan.

 Based upon the current Fed increase of 0.25%, a homeowner with a $200,000 mortgage would pay an additional $40 a month or $500 a year when the rate resets.

“While this is not chump change, it is also not immensely burdensome to many homeowners,” Reiss said. “The bottom line is that it is worth figuring out just how your ARM works so you can understand what your worst case scenario is and then plan for it.”

Homebuyer’s Guide to Rate Hike

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Fed Chair Yellen

U.S. News & World Report quoted me in A Consumer’s Guide to the Fed Interest Rate Hike. It opens,

The era of cheap money isn’t exactly over, but on Wednesday, after seven years of having near zero interest rates, the Federal Reserve voted to raise the central bank’s benchmark interest rate from a range of 0 percent to 0.25 percent to a range of 0.25 percent to 0.5 percent. Economists have largely seen this as a positive development – it means the American economy is considered strong enough to handle higher interest rates – but, of course, the all-important question on everyone’s minds is likely: What does this mean for me?

It depends, of course, on where you’re putting your money these days.

Homebuying. While it’s expected that the minor interest rate hike will result in it being more costly to borrow money to buy a home, that isn’t necessarily the case. Numerous factors influence mortgage rates, from where in the country your home is located to the state of the global economy to whether inflation is believed to be around the corner. Still, there’s a pretty fair chance that the interest rate hike will lead to higher borrowing costs.

But it’s worth remembering that even if the rates go up, it’s still cheap to buy a house compared to the recent past. According to Freddie Mac’s website, the average 30-year fixed-rate mortgage currently stands at 3.94 percent. If you bought a house, say, 15 years ago, the annual average rate in 2000 was 8.05 percent.

David Reiss, a law professor at Brooklyn Law School who specializes in real estate, says he wouldn’t rush out to buy a home based on the Fed’s announcement.

“I would caution strongly against letting the Fed’s actions on the interest rate influence the home-buying decision all that much, no matter what market you live in,” Reiss says. “First of all, the mortgage market has taken the Fed’s likely actions into account already, so interest rates … incorporate some of the rise in rate already.”

Bottom line, he says: “Generally, people should be buying a home when it makes sense for their lifestyle. Expect to stay put for a while? Maybe you should buy a home. Expecting kids? Maybe you should buy a home. Retiring to a warmer clime?  Maybe you should buy a home.”

Again, the interest rate climbed 0.25​ percent, and while the Fed has indicated that rates may continue to rise, Federal Reserve Chair Janet Yellen has stressed that any future hikes will be gradual.

“Small changes in interest rates do not generally make that much of a dollars-and-cents difference in the decision to buy,” Reiss says.

Down Payment Help

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Shimer College

The Dallas Morning News quoted me in Asking for Help with Down Payment Can Often Be Difficult. It reads, in part,

How do you ask a question when no one wants to talk about the subject?

Often, it’s quite clumsily, without much effort at sparking an honest exchange.

*     *     *

Before asking, hopeful buyers should investigate options, said David Reiss, a real estate professor at The Brooklyn Law School.

“You would want to press your lenders to identify all first-time homebuyer programs you might be eligible for,” Reiss suggested.

The Federal Housing Administration offers loans with low down payments, and many state housing finance agencies offer low or no-down loans to eligible buyers, he noted.

In any case, said Reiss, “It would be helpful to know your options when speaking with family members about a gift.

“They might be willing to give a smaller gift for an FHA mortgage, or they might be willing to make a larger gift if they see that it would result in lower monthly payments for your,” Reiss said.

“And the mere fact you did this type of research is evidence that you are a financially responsible adult,” he concluded.

Using Homeowners Insurance

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Univision quoted me in When to Use Your Home Insurance Policy (Cuándo Usar la Póliza de Seguro del Hogar). It opens,

It is not advisable to use your homeowners insurance every time something breaks. Find out why and learn when it’s the best time to file a claim and when to avoid it.

As explained by David Reiss, Professor and Research Director at Brooklyn Law School’s Center for Urban Business Entrepreneurship, it is important to think carefully about the consequences of making a claim for a small loss.

We leave you with several issues you should consider when deciding whether to file a claim.

Is the payment worth the effort?

Generally, the homeowner will be responsible for the first part of the loss in an amount equal to the deductible of the policy. “So if the policy has a $1,000 deductible, and there was a $1,500 loss, only $500 at most would be paid by the insurance company,” said the expert.

Many claims, canceled policy!

After a homeowner files multiple claims, many insurance companies may cancel a policy.  Reiss recommends that you determine how this would work beforehand.

Thanks to Ana Puello for assistance with the translation.

A Different Approach to Homelessness

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Pacific Palisades Coast near Porto Marina

The Christian Science Monitor quoted me in In One California Community, a Different Approach to Homelessness. It reads, in part,

On a sunny morning in the beachfront community of Pacific Palisades, Steven “Boston” Michaud perches confidently on a large dock tie just above the sand. He waves vaguely at the hills above the Pacific Coast Highway, indicating where he sleeps. “It’s up there, but you’ll never see me,” he says, pointing to his own shadow on the ground, “because I’m a shadow and I don’t bother anyone.”

Mr. Michaud is one of about 170 homeless people in Pacific Palisades, an affluent waterfront neighborhood in Los Angeles. Pacific beaches have long been a magnet for the homeless from around the world.

Overall, California experienced the second-largest increase in the number of homeless people (1,786 individuals) among the 50 states this past year, according to the US Department of Housing and Urban Development. As their ranks have swelled, some homeless people have edged out of the shadows and have taken up in tidier areas in the Golden State. That, in turn, has attracted the attention of residents – especially when crimes have occurred.

Even Michaud isn’t as invisible as he says he is. A local supermarket took out a restraining order against him.

 By and large, California has been dealing with these issues from a legal standpoint. In general, cities in the state have more anti-homeless laws than cities in other states, with an average of almost nine such laws in each of 58 Golden State cities, according to a report by the Policy Advocacy Clinic at the University of California’s Berkeley School of Law.

But some communities in the state think that too much emphasis has been put on law enforcement to deal with homelessness – and not enough on other approaches that account for the needs of homeless people and try to address the root causes of the problem. These places are thus coming up with a new generation of creative ways to deal with the persistent problem of homelessness. Pacific Palisades, which is trying out a private, philanthropic approach, is one of these communities.

*      *      *

Private philanthropy in support of community needs is not new, says Mr. Berg of the National Alliance to End Homelessness. But what is new and less common in dealing with homelessness, he says, “is the organized approach to philanthropy at the local level.”

While she applauds the ambition of the effort, Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty, has concerns about the implications of a privatization approach. “The government’s role is to provide for public needs in critical times,” she says, adding, “This just serves as yet another example of the government stepping away from that role.”

Beyond that, there is the question of who can afford to duplicate the Palisades approach. Raising enough money to hire social services staff is beyond the reach of many communities, says Brooklyn Law School professor David Reiss, who specializes in housing policies. “So it is unlikely that Pacific Palisades is going to start a big trend, but a well-intentioned program could be effective locally, like many other community-based initiatives.”