Category Archives: Women’s Homeownership

Constance Freedman Talks to NAWRB about NAR’s REach Program

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Constance Freedman took some time out of her extraordinarily busy schedule to talk to us about Second City Ventures and REach. REach is NAR’s program to hand-pick technology startup companies that can provide value to the Real Estate Industry, and help them grow and integrate with the industry.

The Second Century Ventures Fund (SCV) is a fund set up by the National Association of Realtors (NAR) six years ago, after their 100th anniversary (hence the name Second Century). Constance Freedman manages all aspects of the fund, from cultivating investment opportunities to helping portfolio companies achieve their strategic goals. Constance is also Managing Director of REach™, Second Century Ventures’ technology accelerator program.

It is a known fact that Real Estate represents 15% of the U.S. economy, over $7 billion of ad spend and 2.5 million jobs. If you were a technology company that developed a hot product, how do you break into the Real Estate market? You apply for REach, and if selected, NAR partners with you to make your name synonymous with Real Estate. It’s literally a dream come true for tech startups that can benefit the industry.

“NAR is the nation’s largest trade organization, and they literally hold your hand and give you access to their 1 million plus members. It’s more than just acceleration,” says Constance.

To clarify and give some background, we are really talking about two different entities here, Second Century Ventures, and REach. SCV is the investment arm of NAR, providing capital and resources to companies that can benefit the Real Estate Industry. Some past SCV investments include such familiar brands as ePropertyData, ZipLogix, Sentrilock, ifbyphone, Move Inc., and DocuSign. SCV actually funds the tech startups, whereas REach mentors and fine tunes the tech startups, then introduces them to the Real Estate Industry as preferred partners, accelerating their growth without providing actual startup capitol.

Most companies that are considered for either SCV or REach have a product or service that can serve a number of different industries, including Real Estate. For example, DocuSign provides enormous value to any industry with tight deadlines and that requires authenticated signatures, but the revolutionary value and convenience if offered the Real Estate Industry was enough to make SCV give them financial backing and literally roll out the red carpet to present DocuSign to the Real Estate Industry.

“Some companies don’t meet SCV’s investment threshold, but still have great potential, so we created REach to help them accelerate into the Real Estate Industry with mentoring, exposure, access to investment opportunities, and guidance on how to target this crazy industry,” says Constance.

REach helps companies tailor their product or service specifically to the Real Estate Industry. REach mentors (some of the most highly regarded executives and entrepreneurs in the industry from companies with combined revenues of several billion dollars in real estate alone) guide them in optimizing both their marketing efforts and product offering to be real estate specific. REach also provides focus groups comprised of real estate professionals, to give real feedback on the product before it hits the market.

But by far, the greatest benefit of REach is being associated with, and introduced by, the National Association of Realtors. Having NAR introduce you as a preferred product and technology partner carries some serious weight; real estate professionals will not bother to stop and compare your product to your competitors’ after NAR has given their seal of approval.

For real estate professionals, both SCV and REach help them sort through the thousands of technology options, and immediately know which ones to choose, as they’ve been researched, tried and tested by NAR. The result is a true win-win situation for NAR, their chosen technology partners, and the Real Estate professionals who will come to rely on them.

Who is Afraid of the Big Reit?

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Let’s start with REITs.

REITs, or real estate investment trusts, are often referred to as “real estate stock.” REITs are corporate entities that own a portfolio of properties and/or mortgage loans. Anyone can buy shares in a publicly traded REIT, and they are an attractive option for investors, since they offer the benefits of property ownership without the hassles of being a landlord.

REIT shares can be sold quickly, providing the key advantage of liquidity. There is also higher yield and less risk, since the investment is in an entire portfolio of properties, not just one or two.

REITs came into being in 1960, when Congress decided to made it possible for smaller investors to invest in large-scale, income-producing real estate via the purchase of equity, the same way one can buy stock in corporations in any industry.

Types of REITs
REITs generally fall into three categories: equity REITs, mortgage REITs, and hybrid REITs, with equity REITs (a.k.a. eREITs) being the largest category. Equity REITs own and manage income-producing real estate, which are acquired through bulk sales at discount prices directly from banks. Mortgage REITs, on the other hand, earn money either in the form of interest on mortgage loans or through the acquisition of mortgage-backed securities. Hybrid REITs invest in both properties and mortgages.

Investment trust firms benefit from the discount prices obtained from bulk purchases, enabling them to yield higher and faster returns. Banks enjoy the clear and much-needed benefit of being able to dispose of large volumes of non-performing assets without having to pay administrative costs, maintenance costs and broker fees to list each one separately. However, what is good for banks and investors is seldom good for the average homeowner.

Concerns
Some argue that regulators should expand their oversight of the large REITs that use borrowed money to invest in mortgage-backed securities, as the rise in interest rates may lead the firms into asset sales that destabilize markets and potentially damage the broader U.S. economy. The reliance by the industry on short-term loans to invest in government-backed mortgage securities involve interrelated risks, and should be monitored closely to reduce the risk of a cascading failure of counterparties with systemic implications. Sizable disruptions in the secondary mortgage markets against the possibility of rising mortgage rates could also have macroeconomic implications, jeopardizing the already-fragile housing market recovery.

The New Landlord
Most of us thought the single family rental market was robust before the housing market crash, with sixteen million SFRs already designated as rentals in 2010. If we add to the mix approximately five million foreclosed homes, and consider that many of them will become investor-owned rental units, we begin to see the enormity of the impact of bulk SFR sales that are allocated as rentals. Thus, the REO-To-Rental market has emerged as an institutional asset class.

The bulk sale-to-rental model provides a long-term rental income stream as well as the opportunity for appreciation. Consider the fact that these bulk sales are contributing to an inventory shortage on the open market, which means the model itself is ensuring faster appreciation as home prices increase due to limited supply. Many argue that this win-win for investors is a no-win for prospective homeowners, especially those who are rapidly getting priced out of the market. And those who get priced out of the market most likely end up renting, further feeding into the bulk sale investor’s win-win scenario.

What do critics say?
Many housing industry professionals are objecting to bulk foreclosure sales, considering them a gift for investors at the expense of taxpayers and prospective home buyers, and calling for changes at the Federal Housing Finance Agency (FHFA), the agency that initiated the program. While the bulk sale-to-rent program was initiated by the FHFA to help Fannie and Freddie unload thousands of foreclosed assets weighing down their books, banks began to quickly follow suit to dispose of bulk assets. When you consider that Fannie and Freddie own approximately 200,000 homes, and the nation’s banks own close to 600,000 homes, it is a feasible argument that the shift toward bulk sales will inevitably slow or halt the recovery of the housing market.

Although economic indicators show that the housing market is improving, many believe that tightened lending restrictions, negative equity, the deleveraging of borrowers and lenders, and the overhang of delinquencies will continue to suppress owner-occupied home sales while increasing the percentage of renters. If a large chunk of purchases are by investors and REITs, only investors benefit, and individual buyers and real estate professionals are excluded from the marketplace. We are looking at an entirely different real estate market with rapid gains in momentum down this path.

Bulk Sales inhibit the social benefits of home ownership – our government has historically recognized the stability that home ownership brings to communities, particularly urban communities. Programs such as the Community Reinvestment Act of 1977 served to boost ownership amongst those who would otherwise be shut out of the home ownership opportunity. Transferring increasing numbers of properties to big fund investors may turn the U.S. into a nation of renters instead of a nation of owners.

In an industry already devastated by dramatic reductions in earnings and inventory, bulk sales are forcing more and more real estate professionals to abandon their careers. The ‘shadow inventory’ or 2nd wave, that was once a buzzword that held promise among real estate professionals, has not yet made it to the market, and it is hard to predict at this point how much (if any of it) will. Another looming concern is that bulk sales may lead lenders to move back into the practice of direct selling in competition with agents, a clear conflict of interest.

Conclusion
While bulk sale purchases may yield significant ROIs for investors, the housing market at the MLS level will suffer from the loss of properties, which feeds a rise in home prices bolstered by the massively disruptive speculator intrusion. Many housing industry professionals will leave the industry. Future home buyers are left to wrestle with the consequential inflated housing prices, as critics accuse the FHFA of choosing to support investors instead of Americans that want a home to own and live in.

Despite such concerns, there is reason to believe that bulk sales to REITs, under a watchful eye, can help lighten the burden of REO inventory, which remains heavy. RealtyTrac estimates that the industry still has some 600,000 bank-owned homes to sell, and they can’t all go to bulk sale. Will the industry adapt?

Tomorrow’s Housing Market

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The risk management landscape for real estate professionals seems to be transitioning to a new stage with changing economic trends including relaxed lending rules, lower unemployment and gas prices, all likely
resulting in an uptick in the housing market. The evolving valuation world will now be faced with the new
Collateral Underwriting (CU) procedures. Depending on one’s perspective, CU is either a blessing or a curse. How will these changes impact real estate professionals ability to successfully perform their duties while avoiding the pitfalls that lead to missed opportunity, malpractice insurance claims or licensing complaints?

Easy Money

While the factors that led to the “Great Recession” were numerous and complex, it would not be an overstatement to include the all-too-available mortgage dollars, relaxed borrowing standards and minimized industry oversight that allowed the unscrupulous to take advantage of the situation and further compromise the financial and housing markets. Many professionals and members of the public otherwise made decisions that contributed to the financial woes. The government and industry responses were numerous and a combination of helpful, confusing or painful, depending on one’s professional perspective. Dodd-Frank, UAD, HAMP, the AMC appraisal format and other regulatory intervention (often resulting in large fines and sanctions) did have some effect on calming the market. One ancillary consequence of the recession was a significant increase in professional liability insurance claims against real estate professionals which includes appraisers, agents, title agents, mortgage brokers and even real estate attorneys. Another was a purging of professionals from the licensing roles, most notably appraisers, whose licensed numbers are reduced up to 20 percent in some locations.

Nevertheless, the economy has improved as has the housing market, according to many sources. Trulia’s Q4 2014 Housing Barometer states that three of its five indicators—existing home sales excluding distressed sales, home price level and delinquency plus foreclosure rate—are all moving back towards “normal.” (Their other two indicators are new construction starts and employment amongst the millennial 25-34 year old age group which did not show significant improvements). CoreLogic’s November National Foreclosure Report states that there was a decrease of over 35 percent of homes in the United States in some stage of foreclosure between November 2013 and November 2014.
Further optimism results from factors including FHA lowering insurance premiums for low income and first time buyers, Fannie and Freddie lowering down payment requirements, and declining fuel prices. It is perhaps the lowering of down payment requirements that brings about the most hand-wringing. Many see this as a way to bring buyers back in the market to ease the credit crunch. Others see it, along with proposed bank deregulation in our new House and Senate, as déjà vu all over again inviting abuse and the return to the problems of the previous decade.
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Recap of IMN’s 3rd Annual Single Family Rental Investments Forum

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Hundreds of real estate professionals flocked to Scottsdale, Arizona for IMN’s 3rd Annual Single Family Rental Investments forum. The event highlighted private equity, REITs, note buyers, bond investors, and fix & flippers.

With a fluctuating market, it is important to reevaluate the relevancy of housing processes and how to approach them. The three-day forum tackled this sentiment with workshops that analyzed how lucrative current methods of gaining revenue are and provided a fresh new perspective on methods in need of updating.

The diverse workshops catered to many real estate backgrounds which made it a popular event choice for attendees. Hot topics included underwriting issues, flipping vs. holding, and different aspects of single family rentals. In addition to attracting attendees nationwide, NAWRB members Ivy Melton and Heidi Robinson were also in attendance.

In particular, the aspect of flipping vs. holding properties was one of the focal points of the forum. According to RealtyTrac, flipped homes in the third quarter of 2014 represented 4 percent of all U.S. single family home sales, equating to 26,947 properties. Although this may seem sizable, RealtyTrac reports that this is “down from 4.6 percent in the second quarter of 2014 and down from 5.6 percent in the third quarter of 2013 to the lowest level since the second quarter of 2009.”
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NAWRB’s Inaugural Conference Testimonials

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Dear Desirée,

I want to thank you for the invitation to participate in the 2014 National Association of Women in Real Estate Business (NAWRB) conference. You have an impressive organization that provides a powerful network not only for your membership but for organizations such as Freddie Mac. I probably gained more by attending than what I had to contribute. Three words come to mind when I think about my participation with the NAWRB October 2014 conference. They are: Communication, Relationships and Diversification.

Communication: There was an informative speech from Congresswoman Maxine Waters, who sits on the House Finance and Banking committee, regarding the impacts of the Dodd Frank Section 342, OMWI regulation on the real estate and finance industry. There were powerful panel discussions on how to do business with GSEs, Federal and State Government Agencies including the SBA, FDIC, CFPB. I also heard loud and clear some of the issues, concerns, recommendations and ideas from your membership related to doing business with GSEs and other agencies. This is valuable information that I am hoping to continue to relay back to our business units.
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2014 Florida Realtors Conference

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The focus of the 2014 Florida Realtors Conference was productivity, profitability, and professionalism for the more than 2,500 Realtors® that attended in Orlando. In addition to informative training sessions and countless networking opportunities, the conference included a lively Carnaval theme with a concert series that had bodies moving and hands clapping. Attendees had the opportunity to sit-in on more than 30 education sessions, some of which were attended by NAWRB Member Renee Marie Smith, Esq.

A Session Recap by NAWRB Member Renee Marie Smith, Esq.
When Dodd Frank passed, many of us were scratching our heads trying to understand its impact. The Education Session on Dodd-Frank—Why Washington Made Us Change, which included panelists Grant Simon, Dana R. Ward, Michael E. “Mickey” Godat, and Nashad Khan was very helpful. This law is over 1,500 pages of complex legalese. The panel selected isolated topics from those pages to summarize instead of trying to outline the entire law. I highlighted three of these topics.

One: Changes to Debt to Income Ratio in Lending
The crafters of the law saw it as the “answer” to the out of control lending problem; lowering the DTI limits the exposure for overleveraged primary lending. The law phases in the lowering of DTI for lending over the course of seven years so practitioners must revise their underwriting requirements each year to comply. At the end of the seven year phase, DTI will be limited to 43% of revolving debt and loans.

Two: The Power of the Consumer Financial Protection Bureau (CFPB)
This is now the most powerful agency in the U.S. It can investigate, enforce and initiate lawsuits with its own powers and eliminated the need to inter-bureau investigations. If the CFPB appears, you can have a civil and criminal case filed against you. It is funded by fines and imposes a fiduciary duty on all parties involved in consumer lending (including agents). There is no statute of limitations to prevent investigation either.

Three: Pitfalls of Affiliated Businesses
Marketing arrangements are subject to review and fines for failing to properly include disclosures. You can be held financially responsible for your partners’ actions even if you aren’t involved. If you have a joint venture and/or an appearance of an affiliated business, you must learn about the closing disclosure language. CFPB went to a company to investigate one report and stayed for years only to fine them for failure to properly include disclosures. Fines can range from $5,000 up to $1 million a day.

To summarize, when I walked out of the Dodd Frank education session, I agreed that lending in the U.S. was forever changed and not so sure for the better. However, it is the law and if you choose real estate as a profession, learning how to comply in your area is needed. When in doubt disclose, discuss, and decide on the most conservative method of handling consumer loans that come through your office.

Diversity in the Housing Market

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Diversity in the housing market is a broad topic, and one with many avenues to venture down. There is a range of buyers and sellers and there always will be. Further, there are an equal number of products for those same buyers/sellers as well. Over the last few years it went from homeowners to banks, investors, foreigners and it is beginning to circle back to homeowners.

Reflecting back on the most recent U.S.Census Bureau State and County Quick Facts data, one can immediately notice diversity, from the various ethnicities, age makeups, and types of homes being owned. This is by far the most widely assumed diversity today within the American melting pot. Most notably though is the homeownership rate. Why is this important? Homeownership has always been the driving force within the U.S. economy, but over the last few years the housing market has been impacted dramatically, as well as the households that participated during the run up to the housing crash. We saw many short sales, foreclosures, and REOs; the resulting effect was many displaced households forced to enter into the rental market.

Those forced households were in a state of credit repair for the last few years. We are now seeing those same homeowners re-entering the housing market. Their attitudes on financing are completely different, as well as their choice of home; people are now living within their means. Competing against these displaced persons are the younger generations in their twenties and thirties beginning their careers and looking to buy their first home. With scarce inventories of homes an increased demand for new housing has arisen and the new trend shows that first time buyers are from the younger generations. These demographics favor higher-end lofts, condos, and townhomes over the traditional single-family residences.

There are plenty of examples of these high-end properties in the Los Angeles area, and the model is slowly working its way out to the Inland Empire. In Los Angeles there are the Ritz-Carlton Residences, the Wilshire Coronado, and 432 Oakhurst set to open in the summer. Most of these communities offer gym facilities, pools, pet amenities, and social activities for residents to interact with one another. In the Inland Empire Lewis Development Corporation built Santa
Barbara in Rancho Cucamonga.

Within the Inland Empire we are seeing homebuilders build again, and this is a positive sign for the area. A unique finding came from The Urban Land Institute’s (ULI) report on Emerging Trends In Real Estate 2014, “…interest in development is up in 2014, and it isn’t the multifamily sector, that lands at the top of the list. Industrial development is where respondents feel the best opportunities exist for development in 2014.” The Inland Empire has long been a hub for industrial warehousing and this amplified emphasis on industrial could spell improved demand for housing starts. Well-known Inland Empire economist John Husing estimated an increase in housing starts of 6,442, up from 4,737.

The Inland Empire is comprised mainly of blue-collar workers, and a potential industrial spike will likely increase blue-collar jobs. In John Husing’s same presentation he highlighted that manufacturing could be a major growth source for the Inland Empire. This in turn will attract more workers, and as a result increase the demand for housing. With the median wage for manufacturing sectors between $40,000-$55,000, and using the industry standard that a mortgage payment should not represent more than 35 percent of monthly wages, the higher quartile of blue-collar workers qualify for a $225,000 dollar home, with a 3.5 percent down payment. What the above figure describes is a need for moderately priced housing.

Another facet to the home buying market is the entrance of the female consumer. In an Urban Land Institute (ULI) report titled, Resident Futures, the researchers noted young women in their twenties are buying houses at twice the rate of males. More women are entering the housing market, and their needs, wants, and desires are driving a fresh approach on new communities. An MSN story highlighted the following eleven demands of women buyers: big closets, jetted bathtubs, location, security, a great place for socializing, dedicated laundry room, low maintenance, separate shower and tub combination, two-car garage, great kitchen, and a smart layout. With no signs of slowing, the woman consumer is one that the housing industry will be heeding in their housing concepts.

Fostering more housing diversity is the Baby Boomers. The Baby Boom generation was born between 1946-1964, with roughly 4 million born every year from 1954-1964 making up 40 percent of the US population, and is one of the largest groups in the United States. At the date of this publishing the youngest Baby Boomer is 49 years old. As the enormous population of Boomers ages, their need for adequate housing will be stressed. Signs of these developments are already in place as more new homes include a downstairs suite complete with separate bedroom, bathroom, and entrance.

Real estate is extremely fragmented and no two geographic areas or communities are the same. Though some basics remain constant, the consumer in 2014 is very diverse and has a different outlook on what a home should be. Scared from the 2008 housing crash and subsequent recession, the consumer is very cautious and more financially aware. Moreover as the Baby Boomers continue to age their impact in the local markets will also drive change and product types in the housing market. The world will continue to shrink as well, and as people immigrate and emigrate to and from areas, the local real estate markets will evolve to reflect these changes. Diversity is inevitable, and the real estate industry is evolving to accommodate and embrace these changes.

—

Scott Kueny
Strategic Business Partner
Ticor Title Company
www.ticoroc.com

 

 

FHFA Decision: Path to Affordable Housing or Another Crash?

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Mel Watt, Director of the Federal Housing Finance Agency (FHFA), is facing mounting pressure regarding his decision to lift a temporary suspension on allocating funds to the national Housing Trust Fund (HTF) and Capital Magnet Fund (CMF). With the lifted suspension, 4.2 basis points of each dollar of the unpaid principal balance for new business purchases from Fannie Mae and Freddie Mac will be diverted towards the funds.

Enacted in the summer of 2008, the Housing and Economic Recovery Act of 2008 (HERA) created the HTF and CMF. According to Housing and Urban Development (HUD), HTF “is a new affordable housing production program that will complement existing Federal, state and local efforts to increase and preserve the supply of decent, safe, and sanitary affordable housing.” Extremely low- and very low-income households are eligible for the program. Updated income limits for extremely low- and very low-income households for each county in the U.S. can be found on HUD’s website.

The HTF works by providing funds to eligible state and state-designated entities for activities that include real property acquisition, relocation assistance, demolition, and site improvements. In regards to eligible households, assistance can appear in the form of deferred loan payments, grants, interest subsidies, and equity investments.

Similar to the HTF, the CMF promotes affordable housing but utilizes Community Development Financial Institutions (CDFIs) and non-profit housing developers as the vehicles for creating inexpensive housing options. The CMF can also use funds for community facilities and economic development projects that encourage affordable housing. As a competitive grant program, the CMF is unique in that it was created to increase investments and attract private capital.

Although HERA established the allocation of funds to the HTF and CMF, it was temporarily suspended when the Government-Sponsored Enterprises (GSEs) were placed into conservatorship under the FHFA. The steep financial woes generated by the subprime mortgage crisis led to the eventual conservatorship decision.

Fast-forward to December 2014, Watt wrote a separate letter to the respective CEOs of Freddie Mac and Fannie Mae that explicitly called for the termination of the suspension on allocating funds to the HTF and CMF in order to help bolster affordable housing.

According to 12 U.S.C. § 4567 (b), the suspension was due to allocations violating one or more of the following:

  • Contributing or would contribute to the financial instability of Fannie Mae/Freddie Mac.
  • Causing or would cause Fannie Mae/Freddie Mac to be classified as undercapitalized.
  • Preventing or would prevent Fannie Mae/Freddie Mac from successfully completing a capital restoration plan.

Watt’s decision and his reasoning is the epicenter for the arguments of both proponents and opponents. In his letters to Freddie Mac and Fannie Mae, Watt used four main reasons to support his decision which is summarized below:

  • The decision to temporarily suspend allocations was a product of the circumstances at the time. Currently, those circumstances have changed.
  • Financial operations have stabilized to a reasonable level. In addition, allocations and set aside would not be a contributing factor to financial instability of the GSEs in question.
  • 12 U.S.C. § 4567 (b)(2) and (3) are no longer applicable. These sections refer to the classification as undercapitalized and the successful completion of a capital restoration plan. Currently, the capital classifications are suspended under the FHFA and the GSEs in question are not seeking to complete a capital restoration plan. Both GSEs have entered into Senior Preferred Stock Purchase Agreements (SPSPA) to avoid receivership.
  • Since 2012, the GSEs have not endured profit levels that are anticipated to be sustainable. However, projections reveal that they will maintain profitability in the future. The decision to resume allocating funds can always be reversed or updated based upon the financial situation.

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