What Happens to the Real Estate Market in the Event of a Default?


What Happens to the Real Estate Market in the Event of a Default?

The time is rapidly approaching when the United States may, for the first time in its history, face a default.  Whatever your political opinion, there are economic factors that will come in to play.

As the deadline of midnight, October 17th arrives, this does not mean that the government is automatically in default.  The question is what payments are made, and more importantly, what payments are not made.

According to Lawrence Yun, Chief Economist of the National Association of REALTORS®, the government could decide to pay the interest on its debt, which is about three per cent of the U.S. gross domestic product.  This would insure global investors of U.S Treasury bonds are made whole.  That would help protect the dollar as the world reserve currency.  But to do that, the government may have to curtail spending elsewhere.

If the government decides to pay other bills rather than the interest obligations, investors in Treasury bonds would most likely either look elsewhere for investments or expect a higher interest rate for the risk that will be associated with the Treasury Bonds.  If the interest on Treasury bonds increases, mortgage interest rates will also increase because mortgage rates follow Treasury rates.

In the event that mortgage rates increase by 1% in the coming months, it is estimated that home sales would drop between 350,000 to 450,000 units in the United States.  This decrease would wipe out any projected increase in the economy for at least a year at a time when the economy is beginning to make a robust rebound.

A 1% increase in mortgage rates for a $300,000 home would increase a monthly payment for principle and interest by 12.6%, an increase that may take many potential buyers out of the market.

The good news (if you want to call it that) is that most economists do not believe that investors in Treasury bonds will react overnight.  The belief – or hope – is that investors will gradually wait to see what unfolds in the near future.  That being said it is also believed that any degrading of the U.S. creditworthiness will have serious implications for many years to come.

If you are thinking of buying or selling, talk to a REALTOR who can give you the information you need to make an informed decision.

As always, if I can help with any of your real estate needs, please feel free to text or call me at 615 417-8182 or email me at RolandLow1@gmail.com.

Roland

source: Lawrence Yun, Chief Economist NAR

 

 

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Title Insurance: Who Needs It


Title Insurance: Who Needs It

For most of us, buying a home is one of the largest financial transactions we will incur.  Unfortunately, all too often it is also one of the most misunderstood transactions we will be involved in.  Title insurance is no exception and in my opinion one of the – if not the – most important items a home buyer can purchase.

Title insurance is an insurance policy that protects the holder of the policy from any loss sustained by reason of defects in the title.  It does not guarantee that the title is free and clear, it only protects any financial loss due to an unclear title.

Unfortunately there are many, many items that can come up years after you have purchased some real estate that may result in an unclear title.  When a title search is conducted prior to closing it only indicates that there did not appear to be any defects on the title at that point in time and that it is “the opinion” of the person doing the search that it is free and clear.

Some examples of situations that can occur that would result in an unclear title, and that may not be available to a title search company would be:

  • Undisclosed heirs
  • Improperly disclosed legal documents
  • Failure to include necessary parties to certain judicial proceedings
  • Inadequate legal descriptions
  • Deeds and wills by persons lacking legal capacity
  • Errors in tax records

There are a multitude of items that could result in an unclear title.  It is important to remember that a title search only searches public records.  Items that have not been recorded on public records at that point in time are not searched, but may be recorded later resulting in an unclear title.

To complicate matters home buyers may notice an entry on the HUD-1 closing statement indicating that title insurance is being bought.  The title insurance most likely is a policy for the lender and not the home owner.  Line 1103 of the HUD-1 statement will indicate title insurance for the home owner.

I always suggest that buyers purchase the home owners title insurance.  It is a one-time expense and it provides coverage for the owners until the property is sold.  In addition, buying the policy at the time of the sale is significantly less expensive that buying it later because the title company only needs to complete one title search that they are already doing for the lender’s policy.

If you are thinking of buying or selling, talk to a REALTOR who can give you the information you need to make an informed decision.

As always, if I can help with any of your real estate needs, please feel free to text or call me at 615 417-8182 or email me at RolandLow1@gmail.com.

Roland

 

What a Government Shutdown Means for Real Estate


What a Government Shutdown Means for Real Estate  

 Congress has failed to approve a Continuing Resolution (CR) providing funding for most government operations. Therefore, spending authority for most of the government expired at midnight on September 30, 2013. Until legislation providing for funding is signed into law, many offices and programs of the federal government are now shut down. This means many, but not all, government programs, including some that impact federal housing and mortgage programs, have been suspended or slowed due to the lapse in government funding. The Office of Management and Budget (OMB) requires each agency to have contingency plans in place. The information below is based on NAR staff review of agency agency contingency plans for the current shutdown and past experience with previous shutdowns and near-shutdowns.

 

Internal Revenue Service (IRS)

The IRS is closed and has suspended the processing of all forms, including requests for tax return transcripts (Form 4506T). While FHA and VA do not require these transcripts, they are required by many lenders for many kinds of loans, including FHA and VA, so delays can be expected if the shutdown is protracted. We have received indications that many loan originators are adopting revised policies during the shutdown, such as allowing for processing and closings with income verification to follow, as long as the borrower has signed a Form 4506T requesting IRS tax transcripts. On loans requiring a Form 4506T Fannie Mae and Freddie Mac have also adopted relaxed provisions allowing closings but subject to tax transcript verification before the GSE’s purchase the loans.

 

Social Security Administration (SSA)

The Social Security Administration is closed and has suspended most customer service functions. According to the SSA Contingency Plan, verifying Social Security numbers through the Consent Based SSN Verification Service will also be suspended during the shutdown, a further complication for mortgage processing. As with IRS income verification, policies vary among lenders, with many choosing to exercise forbearance during the shutdown period subject to subsequent verification. Fannie Mae and Freddie Mac have also adopted policies to allow for closing subject to subsequent verification and before GSE purchase of the loan.

 

Federal Housing Administration

HUD’s Contingency Plan states that FHA will endorse new loans in the Single Family Mortgage Loan Program, but it will not make new commitments in the Multi-family Program during the shutdown. FHA will maintain operational activities including paying claims and collecting premiums. Management & Marketing (M&M) Contractors managing the REO portfolio can continue to operate. You can expect some delays with FHA processing.

 

VA Loan Guaranty Program

Lenders will continue to process and guaranty mortgages through the Loan Guaranty program in the event of a government shutdown. Expect some delays during the shutdown.

 

Flood Insurance

The Federal Emergency Management Agency (FEMA) confirmed that the National Flood Insurance Program (NFIP) will not be impacted by a government shutdown, since NFIP is funded by premiums and not tax dollars. Changes to the flood insurance program scheduled to take effect on October 1 will be implemented as scheduled

Rural Housing Programs

For the U.S. Department of Agriculture programs, essential personnel working during a shutdown do not include field office staff who typically issue conditional commitments, loan note guarantees, and modification approvals. Thus, lenders will not receive approvals during the shutdown. If the lender has already received a conditional commitment from the Rural Development office, then the lender may proceed to close those loans during the shutdown. A conditional commitment, which is good for 90 days, is given to a lender once a USDA Underwriter approves the loan. If a commitment was already issued, the funds were already set aside and the lender may close the loan at its leisure. If Rural Development has not issued a conditional commitment, the lender must wait until funding legislation is enacted before closing a loan.

It is important to note that the traditional definition of “rural” for qualifying communities for assistance will be continued in effect during the shutdown. We expect that language to continue the current definition will be included in whatever funding measure is eventually enacted.

 

Government Sponsored Enterprises

Fannie Mae and Freddie Mac will continue operating normally, as will their regulator, the Federal Housing Finance Agency, since they are not reliant on appropriated funds.

 

Treasury

The Making Home Affordable program, including HAMP and HAFA, will not be affected as the program is funded through the Emergency Economic Stabilization Act which is mandatory spending not discretionary

If you are thinking of buying or selling, talk to a REALTOR who can give you the information you need to make an informed decision.

As always, if I can help with any of your real estate needs, please do not hesitate to call or text me at 615 417-8182 or email me at RolandLow1@gmail.com.

Roland