Pending home sales rose in December for the third straight month, providing further evidence that 2017 was a positive year for housing, but the National Association of Realtors doesn’t expect the good times to keep rolling.
Now, new data from NAR shows that pending home sales rose in December to the highest level since March 2017, but NAR is concerned that Republican-led tax reform will dent home sales in 2018.
According to a new report from NAR, which was released Wednesday, the Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.5% to 110.1 in December from an upwardly revised 109.6 in November.
That marks the third straight month that the index has increased.
But combine continually low housing inventory and the Republican tax plan, which President Donald Trump signed into law late last year, and you have a recipe for a slowdown, according to NAR Chief Economist Lawrence Yun.
“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018. Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now,” Yun said.
“Sadly, these positive indicators may not lead to a stronger sales pace,” Yun added. “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices – especially at the lower end of the market.”
According to NAR, there’s an “imbalance” of supply and demand, which has led to price increases of 5% or more for each of the last six years, but Yun expects that to slow this year.
Yun said that while tight inventories are still expected to put upward pressure on prices in most areas this year, he expects overall price growth to shrink, with some states even experiencing a decline, due to the negative effect the changes to the mortgage interest deduction and state and local deductions under the new tax law.
“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” Yun said. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.”
Three of the states where the tax bill’s changes to property tax deductions are expected to have a significant impact are already threatening to sue the government over the tax bill.
Last week, the governors of New York, New Jersey, and Connecticut said they plan to sue the government due to the Tax Cuts and Jobs Act’s elimination of certain state and local tax deductions.
The tax bill installs a cap of $10,000 on state and local tax deductions, but several states (including New York, New Jersey, and Connecticut) have state and local tax burdens that far exceed $10,000.
Yun said that he anticipates the changes to the SALT deduction rules to disproportionally impact certain segments of the housing market.
“Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas,” Yun said. “This could in turn lead to both a decrease in sales and home values.”
INVESTMENT GOALS & EXPECTATIONS
Our February Note Investors Forum Meeting will followup
on Stan Harley’s presentation– Taking what he shared and incorporating that with with YOUR individual goals. What is most important to you? Cash Flow or Capital Accumulation.
We’ll consider Performing and Non-Performing notes
How note due diligence can expand your expectations.
Case studies with 2 special out of state note investors
Dobson Ranch Inn Fiesta Bar & Grill
1644 S. Dobson Rd
SW Corner of Dobson & RT 60 – Superstition Freeway
Most Financial Services Firms Maintain Optimistic Outlook for US Capital Markets in 2018, but Also Advising Note of Caution
property fundamentals in the markets and property sectors they invest in for 2018 as the U.S. economy continues its extended recovery now heading into its 10th year.
Despite record low unemployment, increased consumer confidence and a strong stock market, many in the industry see slower growth ahead for rent increases, property prices and overall demand for commercial space. As the capital market moves later into the current real estate cycle, financial services firms are maintaining an optimistic outlook for the U.S. economy, although many are also recommending a cautious approach.
S&P Global Ratings, for example, does not expect a steep correction in real estate prices in the New Year, but is forecasting modest price pressure given slowing fundamentals in light of lower economic growth than in previous years.
There are other risks that could develop, S&P added, that could potentially cause a steeper correction in real estate values, including capital market volatility from a steep equity market correction or sudden spike in interest rates. In addition, bank exposure to CRE is at peak levels and a significant reduction in loan originations could dampen valuations.
In its outlook for 2018, LaSalle Investment Management refers to a Goldilocks environment, in which investors should look for an investment that is neither too ‘hot’ nor too ‘cold’ driven by balanced fundamentals and steady pricing.
LaSalle is expecting debt for real estate to remain plentiful in 2018. At the same time, it expects lenders will continue to tighten their underwriting, especially for specific sectors that become “overheated.”
Over the course of the year, Morgan Stanley noted that larger banks of more than $20 billion in assets tightened their lending standard much more than smaller banks. Multifamily loans had the greatest increase in net tightening and loan demand declined more in that category more than others in 2017.
On the positive side, LaSalle expects less hurdles for the major lending sectors in 2018 after the market overcame several potential obstacles in 2017, including the maturity of 2007 vintage loans, CMBS risk retention and Fed oversight of bank real estate.
As 2017 progressed, it became clear that risk retention wasn’t going to be a major market impediment, and issuance increased as the year went on, according to Kroll Bond Ratings Agency (KBRA). Transaction sizes, however, largely remained under $1 billion, which was partially attributable to risk retention that forced a number of originators to exit the market, as well as the size of the CMBS investor base.
On the up side of peaking property this year, KBRA noted, is that single borrower refinancing deals should continue to thrive as borrowers look to lock-in gains from property value increases. Borrowers may also want to lock in rates the Federal Reserve sending signals that more rate increases are to come in 2018.
As always, job growth will be a critical driver of real estate demand. And to the extent that the recently passed tax legislation that slashed corporate rates spurs additional business investment and hiring works as intended, job growth could exceed expectations.
“We’re now confronting a wider range of possible outcomes for the economy, depending on how various initiatives such as federal policy changes play out,” said Spencer Levy, CBRE Americas head of research and senior economic advisor, who added that agility will be more important than ever for investors this year.
Investors should shift to focusing on income gains rather than appreciation as their primary source of returns as cap rates flatten out or, in some cases, start to rise, Levy noted.
Major U.S. office markets are on the verge of a cyclical tipping point, with new construction and softening demand mirroring the evolution of previous CRE cycles, Moody’s Investors Service reported.
And while the markets may be hoping the supply-and-demand cycle plays out differently this time, that isn’t likely, Moody’s noted.
“New office construction is ramping up in many major U.S. cities, so that by the end of next year new inventory will be coming online at roughly double the rate of the past three years, while at the same time the growth of office-using employment will be slowing,” said Kevin Fagan, a Moody’s vice president and senior analyst.
As we enter 2018, there is 154.5 million square feet of new office space under construction, according to CoStar data. That compares to 97.8 million square feet delivered in 2017.
While the amount of office construction is increasing, the 252 million square feet delivered last year or under construction is still one-third lower than the 381 million square feet delivered in 2006 and 2007 when CRE markets last peaked.
However, underwritten office property values today far surpass those of the pre-financial crisis peak, particularly for CBD offices, Moody’s Fagan said.
Similar to the office market, new supply is also running high in the industrial property sector going into 2018 with 318.1 million square feet under construction following 311.6 million square feet delivered last year.
The big difference compared to office is that demand remains very robust for both bulk warehouse and closer-in delivery hubs as e-commerce continues to reshape and boost demand for distribution space. This positions the industrial market to perform well in 2018, although risks would escalate should economic growth slow, according to LaSalle.
While E-commerce is boosting the industrial investment potential, the retail sector continues to bear the brunt from lower traffic and sales. Construction of new retail space continues to decline with just 86 million square feet under construction at the beginning of 2018, well down from the 103.6 million square feet of retail space delivered last year.
Investors see exceptions within the sector, however. Grocery-anchored retail space in well-located centers remains in demand as reflected in the strong capital market activity at these centers that we believe will continue, according to LaSalle.
CBRE sees retailers and investors gravitating to either the discount and off-price sectors or luxury. This may create weakness, and, in many cases, investment opportunities, in secondary and suburban markets.
Today an IRA administrator questioned -requested an explanation on the sale of a partial. He said he had never seen this type of transaction before. Neither had his compliance officer.
They were confused and requested a simple explanation which follows.
All of the following statements are true:
- Partials can be difficult to understand.
- Partials can be simple.
- Partials may be a safer note investment than selling a full note.
- Partials are a conservative tool which is perfect for a ROTH IRA
- Partials are a great tool to grow ones’ ROTH IRA if one is selling the front payments and keeping the tail, in affect an annuity for the future.
- When one is selling a Partial, you are recouping your initial investment and the tail is effect “free” future cash flow.
“Bob” is buying 3 partials–funding the last purchase of 125 payments(blue) for $18,900.
My entity is keeping the remaining payments –gold(the tail).My entity is assigning all the payments to him as evidenced by an allonge which keeps this transaction SEC compliant.
This is a great deal for Bob, because I will always be in the deal protecting the remaining payments(gold).
After Bob receives his payments, the remaining payments will be reconveyed to my entity as evidenced by a Reconveyance of Agreement for Deed which references the Purchase and Sale Agreement.
In the event of an early payoff, default or if Bob opts to exercise the 60 month buy back provision the following chart –the Entitlement Schedule –Schedule B illustrates how that scenario will be administered.
The IRA Administrator has executed the following docs:
- Purchase Agreement
- Reconveyance of Agreement for Deed which will be recorded and is subject to the Purchase and Sale Agreement. This doc puts everyone on notice and guarantees the return of the note to me after Tom has been fully paid for his investment subject to the entitlement schedule
Bob will record the Assignment of Contract for Deed to protect himself and will have the original note and the allonge(transfers the note) which will be archived by the Servicier and distribute the 125 payments to Bob. In the event of an early payoff or if the purchaser wants to exercise his 60 month option for an early buyback, his administrator as a road map for future reference.
The IRA company rep understood this transaction when explained in plain English. Additionally he received the following Partial from our NoteHolder’s Handbook–Note Holders Handbook_Partials.
A partial is one of the safest ways to invest in notes.
The IRA Administrator thanked me for providing a “Great explanation!”
Forbes Magazine published an article titled “How Do Homeowners Accumulate Wealth? ‘ October 14, 2015. The article was written by the chief economist for the National Association of Realtors, Lawrence Yun. He quoted the Federal Reserve…”The differences between buying and renting are massive. According to the Federal Reserve, a typical homeowner’s net worth was $195,400, while that of renter’s was $5,400. The data reflects 2013 and the next survey of household finances, which is conducted every three years..”…Based on what has happened since 2013 and projecting a conservative assumption of what could happen next year to home prices if we see only 3% price growth, the wealth gap between homeowners and renters will widen even further. The Fed is likely to show a figure of $225,000 to $230,000 in median net worth for homeowners in 2016 and around $5,000 for renters. That is, a typical homeowner will be ahead of a typical renter by a multiple of 45 on a lifetime financial achievement scale.”
To that Point, the Dodd-Frank Act is stunting this process. That is why the Seller Finance Enhancement Act — currently H.R. 1360 should be passed. This bill would make some minor focused and targeted changes to the rules governing the housing market to allow for more flexibility and greater consumer choice.
H.R. 1360 amends both the Safe Act and Dodd-Frank to allow up to twenty-four seller-financed transactions per year without the need for the seller to be licensed as a mortgage originator. It requires the Treasury Department to study the low-value home market over the next three years and report back to Congress with suggestions to improve the sales and financing of these homes.
What this bill does not do is remove any of the safeguards related to these transactions. Specifically, seller financers must still comply with the “ability-to-pay” portions of Dodd-Frank as well as the interest rate rules and the ban on balloon payments. Seller financers are currently limited to doing only three deals in a twelve-month period of time without obtaining licensing as a mortgage originator. This came as a result of the Safe Act taking us down to five and Dodd-Frank taking us down to three.
The key arguments in support of raising the number of seller financed deals to twenty-four per twelve-month period is that this number is a compromise reached after extensive negotiations in meetings between the National Association of Realtors and various mortgage and banking interests. Raising the number to twenty-four satisfies the needs of 85-90% of all those who do seller financing and allows the National Association of Realtors to remain neutral on the bill.
Some of the key proponents of H.R. 1360 are the original sponsor Roger Williams and original co-sponsor Henry Cuellar.
The Seller Finance Coalition is a lobbing group Capstone Capital USA supports and is a member of. It’s is to overcome the lack of knowledge as to how this problem is preventing people who, for various reasons, are not qualified by the banks to obtain capital needed to buy homes, or are looking to purchase a home in a market for which banks are either unwilling or unable to lend money.
A recent survey of consumers commissioned by the National Association of Realtors revealed that 80% believe that purchasing a home is a good financial decision (2015 National Housing Pulse Survey). Most consumers appear to already understand the simple math and the benefits of homeownership. Real Estate Market Place leaders all agree that home ownership steadily builds wealth. Seller financing is a way for more people to be able to accomplish this dream.
The Seller Finance Coalition http://www.sellerfinancecoalition.org/ is having a “FLY-IN” to lobby at Capital Hill July 18 – 19. Updates of that lobbying effort will be posted on this site. I will be a participant of that effort.
A recent unanimous Supreme Court decision on Monday could have vast implications for the mortgage and loan industry, particularly the secondary market, unless the Fair Debt Collection Practices Act (FDCPA) is amended by Congress.
In the case Henson et al. v. Santander Consumer USA Inc., the petitioners claimed that Santander, who had bought a number of defaulted car loans from CitiFinancial Auto, had to abide by the rules and regulations set out by the FDCPA as debt collectors, not loan originators who were trying to collect a debt for themselves. The petitioners brought their case in front of the Supreme Court in an appeal of the 4th Circuit Court ruling that, ultimately, the Act defines debt collectors as a person or entity that “regularly seek[s] to collect debts ‘owed … to another.’” The court found that, since Santander was seeking to collect the debt they themselves were owed, they were not collecting on behalf of another person or entity.
The petitioners continued this same line of semantic argument in front of the Supreme Court. The word “owed” they said, is a past participle of the verb “to owe,” which would encompass the attempted collection of any debt previously owed to another.
The Supreme Court, however, thought this to be too much a stretch. They are of the opinion that Congress has, in the past, been very specific as to their definitions, and that while they may not have envisioned a time when the secondary market would be such a large industry, that still did not change the fact it was not within the purview of the court to extend the reach of the a law.
In the report, Justice Neil Gorsuch writes, “And while it is of course our job to apply faithfully the law Congress has written, it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, one everyone’s account, it never faced.”
So what does this mean for the mortgage industry? Any entity, bank, or credit union that purchases a defaulted loan is not, under the letter of the law, considered a debt collector, and thereby not subject to the rules and regulations set in place by FDCPA.
It is worth noting, though, that the petitioners believed Congress excluded loan originators from the Act because Congress believed they already had legal and economic incentives for good behavior. Given that many organizations that participate in the secondary market also have business dealings in originations, there is reason to believe the good behavior could continue without congressional intervention, although it may be necessary.
“Many wondered what impact U.S. Supreme Court Justice Neil Gorsuch would have on the court, and now we know: author of a 9-0 decision “limiting” the definition of a debt collector, meaning someone buying debt to collect it for themselves does not fall under the FDCPA,” said Michelle Gilbert, Managing Partner of Gilbert Garcia Group P.A. “Given the expansion of the reach of the FDCPA by courts and judges since its enactment in 1977, this decision should propel our industry to work harder to lobby Congress for changes in the law.”
In recent months, real estate professionals have reported an upswing in a particularly insidious wire scam. A hacker will break into a licensee’s e-mail account to obtain information about upcoming real estate transactions. After monitoring the account to determine the likely timing of a close, the hacker will send an e-mail to the buyer, posing either as the title company representative or as the licensee. The fraudulent e-mail will contain new wiring instructions or routing information, and will request that the buyer send transaction-related funds accordingly. Unfortunately, some buyers have fallen for this scheme, and have lost money.
A possible red flag to be aware of, and to alert clients to, is any reference to a “SWIFT wire” transaction, a term that indicates an overseas destination for the funds. However, unlike many other e-mail-based “phishing” schemes, this particular manifestation appears to be more sophisticated and less recognizable as fraud. The communications do not contain the typical grammatical or stylistic oddities that are often present in scam e-mails. In addition, because the perpetrator has been monitoring the licensee’s e-mail account, the fraudulent communication may include detailed and accurate information pertaining to the real estate transaction, including existing wire and banking information, file numbers, and key dates, names, and addresses. Finally, the e-mails may come from what appears to be a legitimate e-mail address, either because the thief has successfully created a sham account containing a legitimate business’s name, or because he or she is sending the e-mail from a truly legitimate—albeit hacked––account.
Be aware, also, that this particular scheme is only one of many forms of online fraud being perpetrated against real estate licensees and their clients. In protecting all parties to a real estate transaction from cybercrime, real estate professionals should consider the following guidance:
The best line of defense against fraudsters is to make sure that all parties involved in a real estate transaction implement security measures before a cyberattack occurs. These measures include the following:
- Never send wire transfer information via e-mail. For that matter, never send any sensitive information via e-mail, including banking information, routing numbers, PINS, or any other financial information.
- Inform clients from day one about your email and communication practices, and alert them to the possibility of fraudulent activity. Explain that you will never send, or request that they send, sensitive information via email.
- Prior to wiring any funds, the wirer should contact the intended recipient via a verified telephone number and confirm that the wiring information is accurate. Do not rely on telephone numbers or website addresses provided within an unverified e-mail, as fraudsters often provide their own contact information and set up convincing fake websites in furtherance of their schemes.
- If a situation arises in which you have no choice but to send information about a transaction via email, make sure to use encrypted e-mail.
- Security experts often recommend “going with your gut.” Tell clients that if an e-mail or a telephone call ever seems suspicious or “off,” that they should refrain from taking any action until the communication has been independently verified as legitimate. When it comes to safety and cybersecurity, always err on the side of being overly cautious.
- If you receive a suspicious e-mail, do not open it. If you have already opened it, do not click on any links contained in the e-mail. Do not open any attachments. Do not call any numbers listed in the e-mail. Do not reply to the e-mail.
- Clean out your e-mail account on a regular basis. Your e-mails may establish patterns in your business practice over time that hackers can use against you. In addition, a longstanding backlog of e-mails may contain sensitive information from months or years past. You can always save important e-mails in a secure location on your internal system or hard drive.
- Change your usernames and passwords on a regular basis, and make sure your employees and licensees do the same.
- Never use usernames or passwords that are easy to guess. Never, ever use the password “password.”
- Make sure to implement the most up-to-date firewall and anti-virus technologies in your business.
2. Damage Control.
If you believe your e-mail or any other account has been hacked, you should take the following steps:
- Immediately change all usernames and passwords associated with any account that you believe may have been compromised or otherwise made vulnerable by the attack.
- Contact any clients or other parties who may have been exposed during the attack so that they take appropriate action. Remind them not to comply with any requests from an unverified source.
- Report any fraudulent activity to the Federal Bureau of Investigations via their Internet Crime Complaint Center. More information can be found here: http://www.fbi.gov/scams-safety/e-scams
- Brokers should report any fraudulent activity to their state or local REALTOR® association so that the associations can send out alerts or take other appropriate action, including contacting NAR.
This advice is not all-inclusive, and real estate practitioners should work with Information Technology and cybersecurity professionals to ensure that their e-mail accounts, online systems, and business practices are as secure and up-to-date as possible.
Last week, the U.S. House of Representatives voted to roll back a number of banking rules enacted in 2010 under the Dodd-Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act, known simply as “Dodd-Frank” for short, was passed in response to the housing crash and subsequent financial meltdown in 2007 and 2008. The legislation was arguably the most significant financial regulation adjustment since the reform bills that followed the Great Depression. Dodd-Frank has been hugely controversial since its inception because of the extremely heavy oversight it placed not just on the financial industry, but also due to the far-reaching effects of the federal entities it created, such as the Consumer Financial Protection Bureau (CFPB). Last week’s passage in the House of the “Financial CHOICE Act” could, if the bill also passes in the Senate, roll back many regulatory changes that have not necessarily protected consumers and that have made getting a mortgage far more difficult for the average homeowner.
How Dodd-Frank Affected Real Estate Investors
Individual real estate investors were caught in the crossfire, so to speak, when then-President Obama signed Dodd-Frank into law in 2010. One of the biggest ways in which it affected real estate investors revolved around new regulation of seller financing, which the law categorized (appropriately) as creating mortgage notes. When a property owner seller-finances the sale of their property, they allow the buyer to make payments to them on the property rather than requiring a traditional bank loan. Dodd-Frank placed stricter rules than had previously been in place on how sellers could finance properties that they were selling to owner-occupants and required that companies and individuals who made more than three home loans each year hire a mortgage loan originator (MLO) to complete transactions. Dodd-Frank also affected how private lenders made their loans and changed how a number of investors and real estate instructors who had previously offered students and colleagues valuable “proof of funds” letters for transactions did business.
On the whole, however, Dodd-Frank mainly affected conventional homebuyers who found themselves unable to finance their primary home purchases via traditional 30-year-fixed mortgages because lenders were wary of the regulations and legislation. Many analysts blame the act for the “credit crunch” that has existed since 2008 as lenders backed off lending practices that they felt might open them up to litigation or create another wave of foreclosures in the future, but smaller players were less affected than many had initially feared. By and large, real estate investors adjusted their practices and then continued with business as usual.
What the Dodd-Frank Repeal Could Mean for Your Real Estate Investing Business
If it was largely “business as usual” for investors once the initial furor over Dodd-Frank passed, what happens now that the current administration might succeed in repealing the act? According to House Financial Services Committee Chairman Jeb Hensarling (R-TX), the biggest effect of the CHOICE act will be to strip a great deal of power from the CFPB. The CFPB was originally intended mainly to protect borrowers from unscrupulous lending practices, but it has extended its reach far beyond that and into all aspects of the nation’s credit industry and into other “consumer protections” as well. Not surprisingly, such federal reach (or overreach, as many see it) has not been well-received in many business sectors where entrepreneurs, small-business owners, and investors feel unfairly targeted. “We will replace Dodd-Frank’s growth-strangling regulations…with reforms that expand access to capital,” Hensarling promised last week. He introduced the CHOICE Act to the House and has promoted it as an avenue to increase small businesses’ options for obtaining capital.
Most real estate investors and, indeed, most of the financial industry, have instinctively applauded the notion of a Dodd-Frank repeal because this population generally supports lower levels of federal oversight. President Trump, an astronomically successful real estate investor himself, has said repeatedly that “tight lending practices” and overzealous bank regulation in the wake of the financial meltdown have hindered a true economic recovery in the United States. Opponents to the repeal like Pamela Banks, senior policy counsel for Consumers Union, say that it could cause another financial crisis by “leaving Americans vulnerable to financial fraud and rip-offs” such as poorly-backed mortgage loans that precipitated the housing crash in 2007.
If the CHOICE Act passes the Senate, which is the next step for the bill if it is to become law, it will move to President Trump’s desk for his approval, which he would likely give. In that event, here are three things that could happen that would directly affect your real estate investing business:
More People Might Start Shopping for Homes
In 2016, first-time home buyers accounted for fewer than one-third of all home purchases for the previous year. That is historically low; the long-term average for this number is closer to 40 percent. Homeownership also was nearly the lowest since the federal government began tracking it, with fewer than two-thirds of the population owning rather than renting. If the Dodd-Frank repeal does loosen loan standards, there is likely to be a burst of buying activity as would-be owners try to make purchases before interest rates rise. The Federal Reserve has said it will raise rates a total of three times in 2017.
You’re Going to Start Hearing About Another Housing Crash
Opponents of the repeal say that loosening lending standards will precipitate another housing crash. In 2007, the housing market melted down in large part because homeowners had borrowed far more money than they could afford to pay back over the long-term due to easy access to subprime loans that required little to no money down and that had what housing advocates call “abusive” terms that required large balloon payments a few years into the loan or that allowed interest rates on those loans to rise abruptly and sharply after an introductory period of low interest. Homeowners took on these loans believing, in many cases, that they would be able to refinance their homes on better terms thanks to fast appreciation, but often failed to successfully do so, resulting in tsunami of foreclosures that culminated in the housing crash.
Most experts agree that another housing crash in the near future due to a Dodd-Frank repeal is unlikely because subprime lending is not incentivized as it was prior to the housing crash and lenders are unlikely to repeat those poor decisions without those incentives in place. Furthermore, tight inventory on the lower, starter-home end of the spectrum is likely to keep demand for real estate both for rentals and ownership strong. Finally, a stabilizing economy and improving employment numbers will probably counteract, at least in the short term, any instability that might result from easier access to mortgage loans.
Renting is Still Going to be Big Business
While the repeal of Dodd-Frank will likely send an immediate flurry of buyers into the market, over the long term it is likely that single-family rentals in particular will continue to be big business for real estate investors. With millennials comprising the largest number of would-be first-time buyers, the amount of existing debt that this population will bring to the table when attempting to buy will likely interfere with their ability to actually land a traditional mortgage. Furthermore, thanks in large part to astronomical student-loan debt, millennials as a population are less likely to find homeownership and the mortgage loan that goes with it as appealing as older generations. The nearly 70-percent homeownership numbers that the U.S. posted immediately prior to the housing crash are unlikely to be repeated even if Dodd-Frank is repealed in its entirety (unlikely in itself), and rentals will quite likely continue to be a strong, stable source of income for investors around the country.
Remember, It’s Not a Done Deal
Perhaps most important for real estate investors to remember as Dodd-Frank dominates the headlines is this: at present, not much has actually changed. President Trump signed an executive order on Dodd-Frank back in March of this year basically demanding a “review” of Dodd-Frank in preparation for the rollout of some type of legislation like the Financial CHOICE Act, but so far, little has happened to really change financial regulation. The CHOICE act has a great deal of support, but it is highly partisan in nature, which will make it difficult for the bill to pass the Senate without being adjusted in order to avoid a filibuster. The Senate announced last week that it would begin work on its own version of the CHOICE Act this summer, and it seems likely that the CHOICE Act will not survive a Senate vote unless the repeal is “toned down” fairly significantly.
For now, the best thing that real estate investors can do is keep their cool and monitor the situation. Dodd-Frank was not the end of the industry, as doomsday-sayers predicted when it passed, nor will its repeal (or the lack of a repeal) save or condemn the national housing market. As is always the case, the true strength of our national housing market and the real estate industry lies in the investors who are active in the sector and who work creatively within whatever confines the government and the market set to generate housing opportunities for the public and new opportunities for success for themselves and others in the process.
A revised version of the Financial CHOICE Act is in the works, according to House Financial Services Chairman and bill author Jeb Hensarling, R-Texas. Hensarling announced at the American Bankers Association Government Relations Summit on Wednesday that a revised version of the act would be released “soon,” but gave no further details on how soon.
Hensarling first introduced the Financial CHOICE act last summer, in response to the 2010 Dodd-Frank act. The president’s team has already indicated support of the Financial CHOICE Act, which, among other things, would modify aspects of Dodd-Frank. The CHOICE Act would help to reform the Consumer Financial Protection Bureau, which, according to author and investment banker Chris Whalen, “has been especially harmful to the mortgage industry and has caused the cost of servicing a mortgage to rise several fold since 2008.”
Hensarling is confident that his legislation will win a vote in the House, however, he fears that it will face a tougher road through the Senate. Republican Senate Banking Committee Chairman Mike Crapo, R-Idaho, faces the challenge of getting at least eight Democrats on boards for large portions of the legislation, according to Hensarling.
“Right now, I fear that a number of Democratic senators are intimidated by their base,” Hensarling said.
Hensarling has not given a specific timeline for when he will release the new timeline, although he did state that the presidential administration views bank deregulation efforts as a priority. It is difficult right now, however, to determine when Congress will be able to fit financial regulation into its schedule, as other acts, such as the Affordable Care Act and Senate confirmations currently dominate Congress.
Despite the opposition, Whalen notes that now is the right time for Financial CHOICE to pass. “There are a number of other issues that may catch the attention of the new President next year, but an amended version of the Financial CHOICE Act has the highest probability of success in 2017,” Whalen said. “Needless to say, the financial services industry including banks, insurers and nonbank financial institutions will be very supportive of passage of some form of the Financial CHOICE Act.”
Editors Comment-This revision, if passed will be a real positive for the consumer and the small note buyer/sellers who work in the seller financed area. It will revise the up to 3 limit per 12 month period looking forward or looking back to 24 seller finaced transactions. When changed it will booste the real estate market. Because of the way this act is written, many servicers are pulling out of several states due to potential liabilities.