It would be unfair to say that the Obama administration hasn’t been trying to restore the health of the housing market.  Unfortunately, it would be inaccurate to say that its programs are having much success.  The loan modification program is a worrisome case in point.

On February 18, 2009 the Treasury Department announced the Homeowner Affordability and Stability Plan.  The Loan Modification portion of that program had a goal “to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures.”

August 4, 2009 the administration released its first monthly Servicer Performance Report which claimed that the program was “on pace”.  It noted that by July more than 230,000 trial modifications had begun.  By November, however, the administration announced a campaign to pressure mortgage companies because, said assistant Treasury Secretary, Michael Barr, “The banks are not doing a good enough job.”

Recently, a detailed report of the program’s progress was made available on the website www.MakingHomeAffordable.gov.  The report showed results through December, 2009.  As of December, 66,465 permanent loan modifications had been granted.  Another 46,000 had been approved but had not yet been accepted by the borrowers.  Now, in many ways those are nice numbers; and many of us, not all, I know, would be happy for the borrowers.  But, in the context of the entire situation, those numbers are rather paltry.  Taken together they represent only 3% of the estimated eligible mortgages, and only 12% of the modification programs that have been started.  More than ½ million trial modifications had been started by August; yet, by December almost 800,000 were still in the trial stage.

The slow pace and the low ratio of trial modifications becoming permanent modifications does not bode well for the administration to meet its goal of keeping 3 - 4 million borrowers in their homes over the next three years.

The problem isn’t a lack of participation by lenders.  107 servicers have signed up so far in addition to approximately 2300 lenders who service Fannie Mae and Freddie Mac loans.  It is estimated that 89% of eligible mortgage debt outstanding is covered by participating servicers.  Admittedly, though, their performance is uneven.  Those who have the highest percentage of trial and permanent modifications are Citimortgage (47%), Saxon Mortgage Services (46%), and GMAC (44%).  Not quite so stellar is Wachovia at 3%.  Nine servicers have only offered modifications to fewer than 20% of their estimated eligible borrowers.

Nor do all borrowers find the modifications offered to be acceptable.  22% who were offered plans did not take them.  There are no data as to why this is so.  One can speculate though.  For one thing, it is quite possible that eligible borrowers facing seriously negative equity will decide that, even with lower payments, it just doesn’t make sense to try to hang on.

There is no clear reason why the ratio of permanent modifications to trial plans is so low.  Certainly bureaucratic inertia and interminably convoluted paperwork issues may have a lot to do with it.

Inasmuch as plans have been offered to only 35% of estimated eligible borrowers, it would appear that one reason the program isn’t receiving its desired results is simply that many potential beneficiaries are not applying.  There could be a number of reasons for this, many of them having to do both with ignorance of the program and with denial of the issues.

Many real estate agents do an exceptionally good job of communicating with the public.  They can provide a useful service by making people aware of the attempts to resolve issues related to delinquencies and foreclosure.  People should know that they can obtain a good deal of useful information by visiting the MakingHomeAffordable website.

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Bob Hunt is a director of the California Association of Realtors® and is the author of Real Estate the Ethical Way.

I have been in real estate a long time. How long? My California license number is 257862 (issued

December 9, 1961).  In all that time I have never seen anything as confusing as the new NMLS procedures concerning loan origination. What have I learned since my last email about this confusing topic? Lots.

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A recent memo from the legal department of the California Association of Realtors® has brought to our attention some changes in rules for advertising mortgage loans.  “The Federal Reserve Board has adopted, under TILA [Truth in Lending Act] Section 129(l)(2), 15 U.S.C. 1639(l)(2), rules to prohibit the following seven deceptive or misleading practices in advertisements for closed-end mortgages.”

 

1.  Advertisements that state “fixed” rates or payments for loans whose rates or payments can vary without adequately disclosing that the interest rate or payment amounts are “fixed” only for a limited period of time, rather than for the full term of the loan.

 How many times have you heard “2.9% fixed rate!” (or some such rate) when the 2.9%  was “fixed” only for the first 60 days? 

2.  Advertisements that compare an actual or hypothetical rate or payment obligation to the rates or payments that would apply if the consumer obtains the advertised product unless the advertisement states the rates or payments that will apply over the full term of the loan.

 “Are you paying 5.5% or more?  Refinance now with our 3% rate!”  Of course that 3% only lasts for the first three months. 

3.  Advertisements that characterize the products offered as “government loan programs,” “government-supported loans,” or otherwise endorsed or sponsored by a federal or state government entity even though the advertised products are not government supported or sponsored loans.

 You can’t call a Fannie Mae loan “government sponsored”.  (Even though the Treasury Department has pretty much written Fannie Mae a blank check…) 

4. Advertisements, such as solicitation letters, that display the name of the consumer’s current mortgage lender, unless the advertisement also prominently discloses that the advertisement is from a mortgage lender not affiliated with the consumer’s current lender.

 Anyone with a mortgage has received one of these letters, “Regarding your [name of bank] loan # ——:  You can now refinance, etc. etc.”  But the letter is from another lender. 

5. Advertisements that make claims of debt elimination if the product advertised would merely replace one debt obligation with another.

 Ah, yes: “Are you staggering under a mountain of credit card bills and mortgage loans?  Get rid of that debt!  Call ABC Financial.”  (And owe it all to them.) 

6.  Advertisements that create a false impression that the mortgage broker or lender is a “counselor” for the consumer.

 “Call today and speak to one of our counselors!”  (who will counsel you into a back-breaking loan) 

7. Foreign-language advertisements in which certain information, such as a low introductory “teaser” rate, is provided in a foreign language, while required disclosures are provided only in English.

 “sólo el tres por ciento!” (but it changes to seven percent in 90 days) The new rules take effect 4/1/2010.  Some of us will miss those outrageous ads, but it will be a good thing to have them gone. ### Bob Hunt is a director of the California Association of Realtors®.  He is the author of Real Estate the Ethical Way. 

At the recent annual governance meeting of the National Association of Realtors®, held in San Diego, the Board of Directors adopted a recommendation to expand its existing support of equal opportunity to include its application with respect to sexual orientation.  The exact wording of the motion was: “That existing NAR policy on equal housing opportunity be amended to include opposition to discrimination based on sexual orientation.”

 

The recommendation came to the Directors from the Equal Opportunity – Cultural Diversity Committee.  At the committee and at the Board of Directors the recommendation passed unanimously.  There was no spoken opposition.  Indeed, at the committee level a number of often-impassioned members spoke in its favor.  Additionally, as part of the rationale presented to the Directors, it was noted that “The Obama Administration has signaled its intent to announce proposals ensuring that HUD’s housing programs are open to all regardless of sexual orientation or gender identity.”

 For many years NAR has had within its Code of Ethics (at Article 10) a fair housing policy that pretty well mirrors the law under the federal Fair Housing Act.  “Realtors® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, or national origin.”  A similar policy, within the same Article, prohibits discrimination in “real estate employment practices.”  This doesn’t exactly match federal law, because the Realtor® code doesn’t address age discrimination. It is also true that there are state and local jurisdictions with more expansive anti-discrimination rules.  Some already have such laws regarding sexual orientation.  Moreover, it is not clear that the Realtor® code might treat the concept of “handicap” as broadly as has been done by some legislative and judicial bodies.  Still, for the most part, the Realtor® code is a close approximation of the law as far as discrimination is concerned. While not specified in the Board of Directors’ action, presumably the adoption of this recommendation will lead to a specific change in the Code of Ethics to include a prohibition against discrimination of the basis of sexual orientation.  Also, presumably, that prohibition will cover both the provision of professional services and also brokerage hiring practices.  This, in turn, will call for new training at both the local level and within individual companies. It would be naïve to think that all Realtor® members will be equally accepting of this new policy.  We know from the news and from national polling that across the country there are deep-seated divisions about such matters.  The fact that no opposition was voiced at the NAR meetings probably doesn’t tell the whole story. Adopting anti-discrimination policies with respect to race and religion was no cake walk either.  To do so was no doubt unsettling to many.  Change, we all know, can be painful.  But so can being the object of discrimination. ### Bob Hunt is a former director of the National Association of Realtors® and is author of the book Real Estate the Ethical Way.

It would be tacky to call it a cause for celebration, but California real estate agents can be gratified that the State Supreme Court has upheld the dismissal of Hughes v. Pair, a sexual harassment case.  Why should real estate professionals care about sexual harassment suits?  Because the laws involved apply to them. Most of those in the real estate business should know by now that both federal and state laws banning sexual harassment in the workplace apply to real estate brokerages.  Many real estate people in supervisory positions have received required training in this regard.  Brokers of both large and small offices know that they need to maintain anti-harassment rules governing interactions between agents and agents, agents and staff, and staff with staff. 

What is less known, but is fraught with potential liability, is that California law also prohibits sexual harassment in certain business relationships outside the workplace.  According to California Civil Code 51.9, among the persons to whom this prohibition applies are a “…real estate agent, real estate appraiser…loan officer…escrow officer…landlord or property manager,” if there is a “business, service, or professional relationship between the plaintiff and defendant.”

 It is because of this applicability of sexual harassment laws to business and professional relationships that California real estate brokers and the attorneys for California real estate brokerages have had an interest in Hughes v. Pair.  This was not a case involving real estate licensees; but it had elements that are easily seen to be analogous to situations and events that could occur in a brokerage or property management context. The facts of the case might evoke a certain fascination, but they were not pretty.  Suzan and Mark Hughes had divorced in 1998.  In 2001, Mr. Hughes died, leaving some $350 million in trust for the sole benefit of his son, for whom Suzan was guardian.  The trust was administered by three trustees, one of whom was Christopher Pair. 

In June of 2005, Ms. Hughes requested that, on behalf of the son, the trustees provide $160,000 rent for the two-month rental of a Malibu beach house.  The trustees rejected the request and agreed only to one month’s rent for $80,000.  A few days later, Ms. Hughes received a phone call from Mr. Pair.  During their conversation, he called her “sweetie” and “honey” and at one point told her he thought of her “in a special way, if you know what I mean.”  When Ms. Hughes queried him regarding the one-month payment allowed by the trustees, Mr. Pair “suggested that he could be persuaded to cast his vote for an additional month if [she] would be ‘nice’ to him.”  He told her to “call me when you’re ready to give me what I want.”

 Later, that evening at a social event, Mr. Pair said to Ms. Hughes “I’ll get you on your knees eventually.  I’m going to ____ you one way or the other.”  Subsequently Ms. Hughes filed a complaint alleging infliction of emotional distress as well as sexual harassment under Civil Code section 51.9. Pair’s behavior was clearly rude and boorish.  Moreover, we acknowledge that the plaintiff was a sympathetic character, like a mama bear protecting her cub.  What parent wouldn’t seek to keep their child from being deprived of a second $80,000 month at a Malibu beach house?  Nonetheless, setting manners and emotions aside, the Court had to decide whether or not Pair’s behavior constituted actionable sexual harassment under Civil Code 51.9.  Upholding an Appellate decision, the Supreme Court said, no, it wasn’t sexual harassment. The Court’s reasoning drew heavily from the extensive case law regarding sexual harassment within the workplace.  It noted that “the hostile work environment form of sexual harassment is actionable only when the harassing behavior is pervasive or severe.”  “There is no recovery for harassment that is occasional, isolated, sporadic, or trivial.”  (To be sure, it acknowledged that a single incident “involving physical violence or the threat thereof” could qualify as severe.) On a variety of grounds, including the legislative history of section 51.9, the Supreme Court held that the section should be understood in the same way as the prohibitions against sexual harassment within the workplace.  The harassing conduct “must consist of more than a few isolated incidents” and that standard had not been met in Hughes v. Pair.  Moreover, there had been no threat of violence.  Nor was there any evidence of retaliation for Ms. Hughes non-cooperation.  At most there were only “unfulfilled threats.”  Hence, the case was dismissed. It would be naïve to think that real estate agents and property managers never make unwanted and offensive sexually-tinged comments to clients and customers.  Shame on them.  And no one should take the Hughes v. Pair ruling as an entitlement to engage in such behavior.  On the other hand, it would seem good to know that, to be sustained, the serious charge of sexual harassment will have to rest on more than occasional or isolated misbehavior. ###  Bob Hunt is a director of the California Association of Realtors® and is the author of Real Estate the Ethical Way.

 

Two years ago the National Association of Realtors® formed a task force to address the vexing issue of short sales.  A multitude of members had complained of lengthy and often incomprehensible processes that – although they varied in detail from lender to lender – all seemed to share the characteristics of being inefficient and irrational.  Upon completing its studies the task force issued recommendations that the short sale process be standardized among lenders, that common forms be used, and that fixed time frames be adopted for various phases of the short sale process.

  

Fast forward to November 30, 2009 when the Treasury Department announced the Home Affordable Foreclosure Alternatives (HAFA), a program that features – you guessed it – standardized short sale procedures, common forms, and fixed time frames.  The program is directed to lenders and servicers participating in the Home Affordable Modification Program (HAMP).  It applies to non Freddie Mac or Fannie Mae loans.  It covers liens on a borrower’s principal residence up to an amount of $729,750 (higher if the property is 2 – 4 units).

  

HAFA is meant to help borrowers who either do not qualify for a HAMP loan modification or who have been unable to keep up their payments under such a plan.  A major time-saving feature of the HAFA program is that the financial information already gathered in the loan modification application will be used to determine eligibility for the short sale program.

 

Prior to approving a borrower to participate in a HAFA short sale the servicer must determine the minimum acceptable net proceeds that the investor will accept.  Each servicer must develop a written policy, consistent with investor guidelines, for making that determination.  Then, once a borrower has been approved for the short sale program, the net requirement may not be increased for at least 120 days.

  

A borrower’s approval is expressed in a standardized Short Sale Agreement (SSA).  The SSA must be good for at least 120 days.  No foreclosure may take place while the agreement is in effect.  The SSA requires that the property be listed and actively marketed with a “licensed real estate professional who is regularly doing business in the community where the property is located.”

  

Within three business days of an executed purchase agreement, the borrower is to submit a Request for Approval of Short Sale (RASS), which is also a standard form.  Within ten days of receipt of a completed RASS, the servicer must indicate approval or disapproval.  The approval cannot be contingent on a lowering of the real estate commission that had been agreed to.  Also, the approval cannot require a closing in less than 45 days.  Again, no foreclosure may take place during the period approved for closing.

  

One of the common hang-ups in short sales is the matter of junior liens.  HAFA takes this into account, although perhaps not to a degree than junior lien holders might wish.  The servicer may “authorize the settlement agent to allow up to an aggregate of $3,000 of the gross sale proceeds as payment(s) to subordinate mortgage/lien holder(s) in exchange for a lien release and full release of borrower liability.”  Each lien holder may be paid up to 3% of their unpaid balance, but the aggregate of such payments may not exceed $3,000.  They are paid up to 3% in order of their priority.

 

HAFA has financial incentives for all parties.  The borrower receives a $1,500 relocation allowance, paid at closing.  The servicer receives $1,000 for administrative costs.  The investor will be paid one dollar for every three that had been paid to junior lien holders.  If $3,000 had been paid to juniors, $1,000 would be paid to the investor.

 

The HAFA program will not apply to all loans, but it will cover a lot of them.  Hopefully, it will bring a little more order and sanity to the process.

  

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Bob Hunt is a director of the California Association of Realtors® and is the author of Real Estate the Ethical Way.

  

“Bad facts make bad law”, they say, and the recent case of Robbins v. Davi, heard by California’s Second Appellate District Court of Appeal, drives that point home for real estate licensees. Did I say the facts were bad?  Try this:  Real estate broker and attorney, Lance Robbins, both owned and managed numerous “slumlord” apartments in the city of Los Angeles.  This, as acknowledged by Robbins’s attorney, was an extremely lucrative business.  The record suggests, though, that Robbins took less than adequate care of the apartments under his control.  Between 1985 and 1995, Robbins had been convicted of some 50 municipal building code violations.  He was twice disciplined (1991 and 1994) by the State Bar for “facts and circumstances surrounding habitability violations in properties” that he owned.   In January of 2001, Robbins pleaded nolo contendere and was convicted of three misdemeanor violations of the fire protection and prevention provisions of the Los Angeles Municipal Code.  He was fined $100 and placed on summary probation for 18 months.  In March of 2003 the Department of Real Estate filed an accusation alleging that Robbins’s convictions constituted cause for the suspension or revocation of his license as a broker. The original charges involved issues of moral turpitude, but subsequent rulings have effectively removed that as a cause of action.  Nonetheless, charges remained based on the claim that Robbins’s crimes were “substantially related to the qualifications, functions or duties of a real estate licensee.” According to California law, if a crime is so related to a licensee’s qualifications, functions, or duties, the license may be revoked.  But, “licensing authorities do not have unfettered discretion to determine whether a given conviction is substantially related to the relevant professional qualifications.”  The authorities are required to develop criteria to aid them in making that determination. 

The Department of Real Estate has developed such criteria in a manner that many think is distressingly broad.  Namely, a crime shall be considered substantially related “…if it involves…doing of any unlawful act with the intent of conferring a financial or economic benefit upon the perpetrator…”  Presumably, then, for example, an attempt to fix a horse race, or a high school basketball game, might be considered “a crime substantially related to the qualifications, functions or duties of a real estate licensee.”

 Because Robbins’s violations were related to a profit motive, the court agreed that they fit the criteria for license revocation.  This is a result that many concerned licensees think is too broad.  Any illegal act aimed at making a profit will fit the definition.  It need not have anything to do with the profession in question.  Presumably, failing to pay a traffic fine might result in a license revocation.  That seems excessive. While many concerned real estate professionals were inclined to protest the court’s decision, those sentiments were overcome by the egregiousness of Robbins’s actions.  Who would want to appear to be on his side?  Regrettably, this is the way that bad law sometimes gets made. ###Bob Hunt is a director of the California Association of Realtors® and is the author of Real Estate the Ethical Way.        

There are no great surprises in the National Association of Realtors® 2009 Profile of Home Buyers and Sellers, but, as in the past, the annual survey contains information useful both for consumers and for brokers and agents.  The survey consisted of an eight-page questionnaire sent to 120,038 consumers who had purchased a home between July 2008 and June 2009.  Names and addresses were provided by Experian, a firm that maintains a data base derived from county records.  There was a 7.9% response rate. 

Sellers and agents can both profit from careful consideration of the information about how buyers search for and, more importantly, actually find the home that they ultimately purchase.  The data enable all parties to see how marketing time and dollars may be best expended.

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Move up, move down, move sideways; it just doesn’t matter.  Whichever direction you move, financially, you may still qualify for the new tax credit available to current homeowners.  It is unfortunate that the credit has too often been characterized as a credit for “move-up” homeowners.  The phrase carries the implication that the new home must cost more than the sale price of the former one.  Indeed, even the November 6 White House Press Release said that the credit would be available to qualified homeowners who “wish to step up to a new home”.  Same implication.

So, it is worth emphasizing that the credit is equally available to homeowners who are moving down, cost-wise.

The move-down homebuyer is not an unusual phenomenon.  For years retirees have been known to move from a larger home to one that is smaller and often less expensive.  Moreover, it is reasonable to think that current economic conditions may lead to even more move-down buyers.  Just as thousands of families have found it necessary or desirable to downsize with respect to their cars and their general lifestyle, so it may be when it comes to considering the costs of owning and maintaining a larger house than they really need.

The same requirements apply to both move-down and move-up buyers.

First of all, the previous home must have been occupied as the buyer’s principal residence for at least five consecutive years out of the past eight years.  Two examples:  (1)  Suppose that during the past eight years you occupied the property for three years, then rented it out for two years (perhaps because of a job transfer or temporary assignment), and then occupied it again for three years up until now.  Even though you had occupied the property as your principal residence for six of the past eight years, you would not be eligible because you had not occupied it for five consecutive years.  (I’m not saying this makes sense; I’m just reporting on the requirements.)  (2)  Suppose you bought a home eight (or more) years ago, you occupied it as a principal residence until two years ago when you sold it.  Would you qualify?  Yes, because you had occupied it as a principal residence for at least five consecutive years of the past eight.

There are important issues of timing as well.  You must have purchased (that is closed on) the replacement home sometime after 11/6/2009 and before 4/30/2010.  With one exception:  the new home will also qualify if you had entered into a binding contract no later than April 30, 2010 and you closed no later than June 30, 2010.

The time the previous home sold doesn’t matter.  Indeed, it doesn’t even have to be sold.  You might, for example, keep it as a rental.

The tax credit is for 10% of the purchase price up to a maximum credit of $6,500 for joint filers and $3,250 for those filing separately.  There is a full credit for singles whose income does not exceed $125,000 and for couples whose income is no more than $225,000.  A phase-out applies to higher incomes up to $145,000 and $245,000 respectively.

The cost of the new home may not exceed $800,000.

The new home must be used as a principal residence for a three year period subsequent to closing, or else the credit must be repaid.

This program won’t help everyone, of course; but it’s pretty nice for those to whom it applies.

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Bob Hunt is a director of the California Association of Realtors® and serves as a Trustee for its Legal Action Fund.

The world has not turned completely upside down, but, believe me, it is leaning precariously.  Remember all those programs that were designed to turn renters into homeowners?  Now we have a program to turn homeowners into renters!  I refer, of course, to the Deed For Lease program rolled out by Fannie Mae on November 5, 2009.

  

Don’t get me wrong.  I am convinced that the program is well-intentioned.  In the official announcement (#09-33) Fannie Mae described, “…the Deed-for-Lease Program (D4L) [isn’t that cute?], a program designed to minimize family displacement, deterioration of neighborhoods caused by vandalism and theft to vacant homes, and the effect these have on families, communities and home price stabilization.”   Surely these are worthy goals.  They are to be brought about as follows:  “D4L allows qualifying borrowers of properties transferred through deed-in-lieu of foreclosure (DIL) to remain in their home and community by executing a lease of up to 12 months in conjunction with a DIL.  Investment properties that are tenant-occupied may also be considered as long as the borrower is cooperative in providing information from the tenant to facilitate the D4L.”

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Everyone knows the market has been flooded by Real Estate Owned (“REO”) Properties.  The challenge for real estate professionals today is not just to get the REO business but also to provide a level of service to their clients that ensure the property will close on or before the close of escrow date.  One of the biggest issues we see from an escrow perspective that can delay a closing are city and county violations that are assessed against the property in the post-foreclosure or listing stages that do not show up on a preliminary title report.  These violations often turn into liens right before closing or even after the buyer takes possession.

 The following tips can help real estate professionals ensure this issue does not arise, the REO closes on time and their clients remain happy.  [Read more →]