Last week I participated in a webinar for professionals who deal with flood insurance. Lenders, insurance agents, real estate brokers and municipal floodplain administrators were the intended audience. The subject matter pertained to the recently passed Homeowner Flood Insurance Affordability Act 2014 (HFIAA). HFIAA was a Congressional response to the previous act that they had passed known as the Biggert – Waters Act, which had the unintended consequence of making flood insurance virtually unattainable for many Americans.
The goal Congress had in mind when they passed the Biggert – Waters Act was to make federally funded flood insurance self-supporting. Instead, they found that thousands of homeowners could not afford flood insurance and therefore were in default on their mortgages. Federally regulated mortgages require flood insurance if the structure is deemed to be in a 100-year flood zone. Most deeds of trusts state that if a property is in the 100-year flood zone, or remapped and determined to have been changed to that status, the borrower must buy flood insurance.
The federal flood insurance, known as National Flood Insurance Program (NFIP), has been heavily subsidized by the federal government ever since its inception. In recent years flood events such as Hurricane Andrew and Katrina have helped to bankrupt the system. Congress passed the Biggert – Waters Act as a vehicle to work toward a balanced budget for NFIP within a few years. The over-reach became obvious almost immediately and HFIAA was quickly passed in an effort to lessen the impact, but still move towards a solvent NFIP.
Here are some highlights as I understand them. Modifications are still coming so some things may vary.
This is decidedly an incomplete representation of what to expect. The only thing that is certain is that the federal government intends to wean property owners off of the subsidized flood insurance rates. The end result will be a substantial write-down in values of areas that are hard hit by the climbing rates. Areas like Lake Travis, where the 100-year flood plain has been elevated six feet (now 722′ above sea level), and the coastline will continue to see major price adjustments due to the affordability of flood insurance. The only reason the Lake Travis area has not been a hot topic is that the low lake level has all but halted demand. Once the lake is full again, the new insurance rates will demand more attention. I predict most sales below the 722′ level will have to be cash and will be discounted accordingly.
At the moment, the tax appraisal office is getting a free ride and the waterfront owners are getting soaked since the public has yet to figure all this out.
Jeff Stewart, CCIM
Stanberry & Associates, REALTORS
A Place for Your Stuff By Jeff Stewart, SRES, CCIM
No matter your age or stage in life, I find it most instructive to revisit George Carlin’s famous discussion about “A place for your stuff.” It is one of the most humorous routines in comedy for the simple reason that it is so very accurate. I am sure you remember it. “A house is only a place for us to put our stuff.” I especially like the line, “A house is just a pile of stuff with a cover on it.” Can you relate?
As a Realtor of the Boomer generation, it seems that I am having daily discussions with other Boomers about how to minimize their “stuff.” I am afraid many of us are drowning in stuff. Stuff to be maintained, stuff to be insured, stuff that is taxed, stuff to be stored, our grown children’s stuff, our parents’ and grandparents’ stuff (which our kids do not want), our ceramic owl collection (which our kids do not want), our collection of perfectly good answering machines and VCRs (which no one wants), decades of obsolete books and paperwork, and yard tools we would not use on a bet. I can feel you nodding in agreement! So what do we do about it?
First, we need to dispense with the counterproductive term “down-sizing.” In the business world, downsizing equates to layoffs . . . a bad thing. This is not the same. The new, suggested term is “right-sizing.” Right-sizing is a perfect description since it applies to every generation. A growing family requires more room, hence a need to right-size. A young couple moves downtown to a pricey condo and they have to condense their belongings to fit in a smaller space – again, right-sizing. Why should change be a bad thing when the ultimate goal is a more rewarding lifestyle? Wouldn’t we rather live the life we choose, rather than be held captive to “stuff?”
So Boomers, do you have a plan? What would you like to do next? Recently I have had friends and clients buy second homes near the grandchildren. Others have bought homes in the country or in a lake community for retirement. Others have taken the opposite approach and have chosen to have fewer properties and responsibilities and have sold their rent properties, lake house, or place in the country. It comes down to having a plan for finding the freedom to do what you most want. To be weighted down with “stuff” comes with a price. If you are seeking a freer lifestyle, here are some suggestions.
If you have been lamenting the fact that you are captive to your home maintenance, yard work, property taxes, or whatever, maybe now is time to take charge of your future! If you are ready to make some changes to simplify your life, I can help. Please feel free to give me a call and I will be glad to share my network of resources with you.
Jeff Stewart, CCIM, SRES
Senior Real Estate Specialist
Stanberry & Associates, Realtors
Major Changes in the Wind By Jeff Stewart, CCIM, SRES
CFPB . . . it is an acronym of which almost no one outside of lenders and title companies are familiar. That is about to change. The Consumer Finance Protection Bureau (CFPB) is about to make a big splash, and the ripples will reach most Americans eventually. Born of the Dodd -Frank Wall Street reforms, the CFPB was established to better protect homebuyers’ interests. The sweeping changes required by Dodd – Frank are the most comprehensive reforms since the Great Depression.
While stock brokers and banks have been dealing with the fallout of Dodd – Frank for the past several years, residential real estate has largely continued to do business as usual. For residential sales (with mortgages) of one to four units, that ends August 2015. No one is exactly sure what to expect. Like most tectonic shifts the industry will have to experience a shake-out period. I expect this will eventually drive a number of small lenders out of business. It may take longer, but there may also be casualties among title companies and real estate brokers. More on that in a minute. This is a ten-mile high look at just a few facets of what is to come.
It is a sad fact, but currently title companies almost never have the lenders’ instructions until the day of the scheduled closing. Invariably, we do not have a dollar amount for the buyers until a few hours before closing. In a busy market like Austin’s, the closing process is simply controlled chaos. By law, homebuyers have the right to see all the papers they will be required to sign twenty four hours before the closing. It almost never happens. Those of us in the business have grown used to it, but it is a complete disservice to the very homebuyers who are funding this entire circus. Congress has decided that it is time to do better . . . and I think we will with these new regulations . . . but it will not come easily.
As of August 1, 2015, the focus of the entire loan and closing process will be on keeping the borrower informed. Consumers (homebuyers) must be kept fully informed throughout the process with required disclosures and strict timelines. Failure of lenders to fully comply with the federal regulations will result in very expensive penalties. An example of the disclosures would be that the lender has only three days to furnish the borrower an accurate comprehensive loan estimate. If during the process the sales price, credit score, or a fee changes, the estimate must be corrected and the timeline begins again. For instance, if any change takes place at the closing table, then the disclosures must be corrected, copies furnished to the buyer, and the closing postponed for at least three working days. We have been warned that the new regulations may require 60-90 days to close.
Time frames are not the only change. For many years now, we have used a closing statement which was furnished by the Federal Housing and Urban Development Department, which we referred to as the HUD statement. On the traditional HUD form, both buyer and seller debits and credits are shown . . . with the new forms, the buyers and sellers will have separate statements. None of the new regs apply to reverse mortgages, cash ransaction, or commercial deals.
With the new rules come a few changes in vocabulary: Lenders will be referred to as “creditors”. Borrowers are now “consumers”, and the closing is now technically called a “consummation”. I am told that is because in other states the term “closing” does not actually mean the same as we think of it. What we have known as the HUD statement becomes the “Closing Disclosure”, and the buyer must receive it three days prior to the signing – or “consummation”.
The biggest changes on the horizon may not be apparent to the consumer. Lenders, title companies, and eventually even real estate brokers will have to utilize very sophisticated encryption software to safeguard our clients’ financial information. It is not unrealistic to expect the new regulations to drive small lenders, marginal title companies, and technically inept real estate firms out of business. As for our firm and the companies we depend upon, we are planning ahead in order to be well-prepared as the changes become mandatory.
Jeff Stewart, CCIM, SRES
Stanberry & Associates, REALTORS