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How Might Biden’s Presidency Impact the Mortgage Industry?

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Now that the 2020 election has seemingly come to a close, many Americans are anticipating what the housing and mortgage industry may look like with Biden as president.  Throughout his presidential campaign, Biden pledged to make some changes so that Americans will have “access to housing that is affordable, stable, safe and healthy, accessible, energy efficient and resilient,” according to his campaign website.   In a Housing Wire article reporters James Kleinmann and Tim Glaze detail some of the possible changes that may be proposed by Biden.

To begin, Biden is looking to introduce a tax credit of close to $15,000 for first time home buyers.  The purpose of the tax credit would be to help first time home buyers, specifically younger Americans as well as Black and Hispanic Americans. Although, according to the article, “Industry observers … weren’t optimistic that Biden would have the legislative muscle to get the full initiative through, unless Democrats also take the Senate.”

Biden also promised to put more regulation in place for agencies such as Consumer Financial Protection Bureau, where it is anticipated he will select a new leader of the agency.  Its expected he would also look to continue the conservatorship of GSEs.  According to Tim Rood, head of government & industry relations for Situs AMC, “If Biden wins, he is going to look to use Fannie and Freddie as instruments of public policy to help close the homeownership gap, the wealth gap, cap people’s payments on both rental and occupied housing, support the construction of 1.5 million to 2 million affordable housing units.”

Nevertheless, the results of the 2020 general election seem to point toward a split government, with a Republic-led Senate and Biden, a Democrat, as President.  This balance is predicted to work in favor of the mortgage and real estate industry. The Republican led Senate may be able to push back on some of the tax policies, which could impact the investment and cost of owning a home, Biden has promised to introduce.

The undisputed belief among industry experts is that rates will continue to remain at the historically low rates for the next few years as the economy continues to stabilize.

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Photo Credit: Jon Tyson

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How Long Will the COVID-19 Real Estate Boom Last?

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The pandemic has impacted Americans in a variety of ways.  To say the real estate market, in many parts of the U.S., has changed in unexpected ways would be an understatement.  The demand for homes far outnumbers the supply in many areas of our country.   

According to an article published by CNBC.com,  reporter Kevin Stankiewicz finds, “Existing home sales increased 9.4% in September, surpassing expectations, and the median purchase price rose nearly 15% year over year, according to data released earlier Thursday by the National Association of Realtors.”

Consumers are enticed by low interest rates and, those who can afford and are able to, are moving out of major metropolitan areas to suburban areas or even to second homes in vacation areas, where they might be able to work remotely. 

Although buyers continue to search for homes and rush to put an offer in when they find the perfect home, the number of homes for sale has tightened up.  Nevertheless, it is anticipated that after the election, more sellers may decide to put their homes on the market.  One professional, Glen Kelman of Redfin, is quoted in the article, “I think the sellers are just looking long term at the economy and still feeling some anxiety. Many of them are going to put their homes on the market in January and February.”

While many realize the type of demand for homes that has been occurring since the summer of 2020 cannot last forever, its is expected to continue into the new year as more and more Americans find ways and reasons to relocate.    

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First Time Home Buyers Face Many Real Estate Challenges

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First time home buyers who decided that 2020 would be the year they would leap into home ownership were met with a variety of challenges, economically, personally and emotionally.  Obviously, the pandemic has had effects that are wide-reaching; the real estate market has not been immune.

In an article published in the Chicago Sun Times, the effects of COVID-19 on the real estate market are detailed.  To begin, as fears of becoming ill with the coronavirus spread, home inventory dropped as homeowners feared having strangers in their homes for showings.  In fact, the inventory dropped 20% in June in comparison to June 2019. 

Nevertheless, there were still many Americans searching for homes and with mortgage rates falling, many more prospective home buyers began to enter the home search as well.  With the influx of buyers searching the low inventory of homes, buyers found themselves in competition with other buyers; homes were purchased quickly and sometimes secured offers above their asking price.

This type of real estate market can be intimidating and frustrating for anyone trying to purchase a home.  However, the impact on first time home buyers has been significant.  The price of homes has risen faster than incomes, making more and more homes unaffordable for these prospective home owners.

To help prepare mentally and financially for the bumpy road that may lay ahead for these first time home buyers, article details some important tips and reminders for first time home buyers and their agents. 

These buyers should expect some disappointment in the home buying process and be aware that they might not be successful in purchasing a home immediately.  However, it they stay the course, most likely, the results will eventually be in their favor.

To avoid the emotional pitfalls of home buying, buyers should know up-front how much they are willing to spend on a specific home.  This will allow them to walk away before over paying or letting a deal fall through over a few hundred dollars.

An important step to take to prepare for the home purchasing process is to get pre-approved for the loan.  Knowing a buyer is pre-approved can help a seller feel more confident about the buyer’s ability to complete the purchase and can give the buyer a leg up on competition.

If the current state of the real estate market is too overwhelming and homes are beyond a buyer’s financial reach, the last bit of advice is to consider waiting.  Perhaps the market conditions will change in the next few months and a buyer can secure some additional funds for a down payment to put down on that perfect home.

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What Went Wrong with the CARES Act?

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In response to COVID-19 related economic struggles many Americans are facing, Congress passed the CARES Act.  One benefit to Americans that was to come from this $2 trillion act that was made law in March 2020, was a ban on evictions on many rental units in the United States.  Effective until the end of July, federally financed properties, such as rental units backed by Fannie Mae and Freddie Mac, landlords were restricted from evicting their tenants.

One glaring issue with the act, according to an article published by CNBC.com is, ” the law failed to protect many struggling tenants during the pandemic because there was little effort to ensure that landlords followed it.”  The act does not detail any penalty for violating it, so it, in some cases, has been treated as more of a “guideline”.   Landlords across the country have moved forward with evicting their tenants, many of which did not realize they were protected by the CAREs Act and did not hire legal representation to assist them with challenging the eviction. 

The effects are devastating.   As one example, in Iowa, he article indicates “Data provided to CNBC by Iowa Legal Aid shows that during one week in July in Polk County, where Des Moines is located, 40% of the families forced to leave their homes were through evictions that violated either the state or CARES Act moratorium. “

President Trump signed an executive order shortly have the CARES Act expired, yet many experts in the housing advocate field indicate that it provides protection to even fewer renters and still does not provide guidance to ensure its enforced.

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Photo Credit: Morning Brew

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Recent Reports Show U.S. Foreclosures Trending Downward from 2019

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Despite the fact that many Americans have struggled financially as a result of the pandemic and subsequent shut downs that led to layoffs and business closures, foreclosures in the first quarter of 2020 declined almost 10% from the previous year.  Specifically, home mortgages backed by Fannie Mae and Freddie Mac, who entered into a conservatorship and have been working to implement foreclosure prevention.

While third-party foreclosures as well as foreclosure starts both saw drops in numbers in comparison to the first quarter of 2019, the number of forbearance plans rose from less than 7,000 in the first quarter of 2019 to over 170,000 in the first quarter of 2020.  Additional efforts to keep Americans in their homes and avoid foreclosure include loan modifications where homeowners have received lower monthly payments, principal forgiveness or extended term modifications.

According to an article published by DSNews.com, reported by Krista F. Brock, Freddie Mac and Fannie Mae, “Since entering conservatorship, Fannie Mae and Freddie Mac have completed 4.4 million foreclosure prevention efforts, with 3.7 million homeowners able to retain their homes as a result.”   The efforts are resulting in positive numbers with regards to loan performance as well.  The number of loans, according to the FHFA’s Report, between 60 and 90 days delinquent are showing slight declines from the end of 2019.

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Positive Trends in Home Purchases are Encouraging to Real Estate Professionals

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Across the country, Americans have been sheltering in place and practicing social distancing in an effort to help slow the spread of COVID-19.  Many normal activities have been modified or even put on hold.  With the slow reopening of the country, many potential home buyers have emerged and seem to be ready to take the leap into home ownership.

Mortgage applications, according to an article published by CNBC.com, rose for the fourth consecutive week, up by an encouraging 11 percent.  Despite the fact that, overall, mortgage applications are still about 10 percent lower than they were this time in 2019, it appears the gap is closing.

The article, written by Ty Wright, quotes MBA economist Joel Kan, ‘”We expect this positive purchase trend to continue — at varying rates across the country — as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring home buying season.”’

Despite the fact that refinance applications have been on the decline, after a very busy early spring, it appears home purchases may fill that gap. In fact, according to the article, mortgage applications are up pretty significantly, “New York led the purchase demand with a 14% jump in those applications. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week.” It seems buyers, anxious to return to some normal life activities and move forward with purchasing their first or next home, are encouraged by mortgage rates that are still below 3.5% for a 30 year period.

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How is COVID-19 Impacting Real Estate Sales?

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The impacts of COVID-19 are far-reaching and include not just health concerns, but concerns about jobs and the economy.  An obvious result of the turbulent economy and the alarming rate Americans are losing their jobs is a down turn in the real estate market. 

According to an article published by Market Watch, “…the rapid rise in unemployment as a result of the coronavirus pandemic and its accompanying stay-at-home orders will curtail many Americans’ ability to afford a purchase as big as a home”, states reporter Jacob Passy.  Further, sellers are more hesitant to put their homes on the markets due to uncertainty about pricing and the desire to avoid strangers from entering their homes unnecessarily.As a result, Fannie Mae projects that home sales will fall by almost 15% in 2020. 

Yet, this doesn’t necessarily translate to bad news the prices of homes.  Fannie Mae still expects the median prices of homes to rise for both existing and new homes.  Further, the article states, “The mortgage giant currently expects the U.S. economy and home sales both to rebound in 2021. But that rebound is contingent on the pandemic’s trajectory.” 

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Why is Real Estate an Essential Business?

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As the nation, and most of the world, cope with the spread of COVID-19, many have been asked to stay at home, except to perform essential business.  As a result, many businesses have been required to close their doors for the time being, deemed “non-essential”.  However, a number of industries have been designated “essential businesses”, and, therefore, continue to operate.  One of these essential industries is real estate. 

Forbes published an article written by Dima Williams.  ““Life’s basic needs are food, water and a roof over your head, which makes real estate an essential service,” Florida Realtors, that state’s largest trade association, wrote late last month’, Williams writes. Many aspects of the real estate industry are deemed essential such as settlement services; staff that perform title search, notary and recording services for real estate transactions; leasing of residential properties; property management and maintenance; and construction. 

Despite the fact that life seems to be “on hold” for many people and businesses, the fact is that many life changes continue to occur during the pandemic.  This includes people needing to find housing due to homes being sold and landlords providing notices.  Nevertheless, the method in which these aspects of real estate continue to be executed may have changed a bit.  For example, appraisers may complete a “drive by” appraisal, home buyers view homes via virtual tours and when a home is sold, it may be completed via a “drive thru closing”.  

Its clear that important work continues to be done by these professionals, helping bring some glimpse of normalcy to the professionals as well as the clients that need them.

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How Would a Recession Affect the Housing Market?

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The stock market has taken some big hits over the past weeks as a result of the global pandemic of COVID-19.  Many Americans are wondering if the next recession is around the corner.  Some may be wondering if the housing market will also see declines that parallel stock market drops.

MarketWatch.com published an article, written by Jacob Passy, that may put real estate owners at ease when it comes to the value of their property. According to the article, experts don’t necessarily believe that a potential recession will significantly impact the housing market.  “While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” wrote Odeta Kushi, deputy chief economist at First American and the report’s author. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”

Nevertheless, homeowners should stay informed and aware of the climate of the economy because different economic factors can have an impact on the housing market.  As we see declines in the stock market, consumers may feel more hesitant to move forward with a home purchase, therefore impacting home sales.  Another economic change that could influence the real estate market are the loss of jobs.  Increased unemployment could, in turn, lead to foreclosures if the homeowner can’t keep up with their mortgage payments.  Foreclosures, according to the article, “can have a ripple effect through a local market, causing other homes to drop in value. “

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How Does the Shelter-in-Place Order Affect Your Real Estate Transaction?

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On Saturday, March 21, 2020 at 5:00 p.m., Governor, J.B. Pritzker issued a public order (“Order”) directing Illinois residents to shelter-in-place. The shelter-in-place is, for now, effective through April 7, 2020. During this time frame, how is your real estate transaction going to be affected?

The short answer is that real estate transactions will proceed as planned. Under the Order, there are several exceptions or permissible activities that may still be performed. These are called “Essential Businesses and Operations.” Under this category, Financial Institutions (i.e. banks, title companies) and Professional Services (i.e. legal services, accounting, appraisals) are allowed to continue operating. As such, real estate transactions can proceed as planned and deals can still close during this period.

However, as an added precaution and based on recommendations from the title companies in our area, the following procedures will be followed:

Cash Transactions

All cash transactions will be closed electronically via e-mail and/or DocuSign. Any funds to be provided at the closing will need to be sent via wire transfer to the title company. Documents required by the title company to be an original (i.e. Deed) should be dropped off or sent via overnight courier to the title company prior to closing. Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company. 

Transaction with a Lender

Seller(s): It is very common for sellers to sign their closing documents in advance, give their attorney a power of attorney for closing day and not attend the closing.  Our office has always offered this service and will continue to do so during this time period.  Moreover, title companies are encouraging sellers not attend closing and send their documentation prior to closing.  Therefore, for our seller clients, our office will coordinate with you to get your signature on the necessary documents in advance of closing.  The few documents requiring signing on the day of closing we will execute on your behalf under a power of attorney.

Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company.  

Buyer(s): Due to the fact that many loan documents are required to be wet signed and notarized, buyers must still attend the closing. Title companies are requesting that only the buyers required to sign the loan documents and their attorney attend the closing, so as to limit the number of people at the title company. The title companies have implemented some safety measures to ensure a safe and clean environment.  All closing rooms will be cleaned with disinfectant after every closing. The pens used will be new and disposed of after closing.  Also, they will limit the number of people allowed in the facility and practice social distancing recommendations when possible.  Some title companies are also offering drive by closings, where buyers can pull up, sign the documents in their car, and hand them back to the title representative. 

Once the transaction has concluded, copies of the pertinent documents will be sent via overnight delivery to all parties. Any proceeds due will either be wired or a check sent via overnight delivery. There is also the option to pick up your documents and check at the title company if you choose to wait after signing.

Conclusion

In short, your real estate transaction should proceed as planned with just some slight modifications for the closing. Lenders, attorneys and title companies are still working during the shelter-in-place period. Fournier Law Firm, Ltd. is committed to assisting our clients in making your closing as smooth as possible. As your closing nears, our office will be in contact with you to coordinate the necessary steps to get your deal closed.

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