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February  24,  2011

Agents Urged to Use Caution When Marketing Home Warranties

In todayís housing market, home warranties are often introduced by homeowners and real estate agents as an added incentive to attract buyers to a property, but they can also prove costly to real estate professionals, especially if the sale of the home warranty results in excessive compensation to the agent or is otherwise viewed as an illegal kickback or unearned fee under the Real Estate Settlement Procedures Act (RESPA).  Although RESPA does not prohibit real estate practitioners from referring business to a home warranty company, it does prohibit brokers and agents from receiving a fee for merely referring or marketing to a buyer or seller who purchases a home warranty policy.

To help limit RESPA violations, the U.S. Department of Housing & Urban Development (HUD) issued an interpretative rule last summer to clarify the circumstances in which REALTORSģ may be compensated by home warranty companies without violating Section 8 of the RESPA rules which address illegal kickbacks and unearned fees.  This guidance makes clear that real estate brokers and agents can earn money for the sale of home warranties on a per transaction basis, however to do so real estate practitioners should be comfortable that the fee they are collecting is reasonable and they are providing compensable services, such as going to the property to take photos, inspect items covered under the warranty for pre-existing conditions, and/or to obtain serial numbers of appliances, the furnace and other systems in the home covered.  HUD officials have said that a home warranty company may compensate a real estate broker or sales associate for services when those services are actual, necessary and distinct from the primary services provided by the broker or agent and those additional services must not be nominal or duplicative.

Additionally, if you receive a flat fee for your marketing services through a contract with a home warranty company you should not be subject to a violation of the RESPA rules, according to NARís Legal Department.

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Higher Housing Costs Loom Under Plan to Reshape U.S. Housing Finance System

A report issued earlier this month by the Obama Administration proposes a substantially reduced role for the federal government in supporting home ownership and the nationís mortgage market in the years ahead.  The report outlines three options for overhauling the U.S. housing finance system each of which would put the mortgage market largely in the hands of the private sector, eliminate government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and limit the governmentís role in mortgage financing to programs like the Federal Housing Administration (FHA) and Veterans Administration (VA) loans or the purchase and/or securitization of home loans during periods of crisis in the financial markets.  The bottom-line under any of these scenarios is undoubtedly increased housing costs for consumers in the form of higher mortgage rates, the requirement of more money down at closing, and additional fees.

In the near term, the White House is looking to require larger down payments and higher fees for home loans insured by the FHA, Fannie and Freddie, and reduce the number of borrowers receiving government-backed loans.  In addition, the Obama Administration has expressed support for lowering the ceiling on maximum loan limits in high-cost markets such as Boston from $729,750 to $625,500 as scheduled on October 1, 2011, and has indicated it would move to increase minimum down payments to 10 percent on loans eligible for purchase by Fannie Mae and Freddie Mac. Insurance premiums on new FHA loans also could rise.

To help attract private capital into the mortgage market, the report proposes a series of short-term steps, including a reduction in the maximum loan sizes that Fannie and Freddie can purchase and gradual increases in the fees they charge lenders.  While the National Association of REALTORSģ supports changes and replacement of the existing GSEs, NAR officials assert that continued government participation in the secondary mortgage market is essential to ensure the flow of affordable and accessible home mortgages to qualified consumers when lenders withdraw from the market as happened during the recent financial crisis.  Any effort to institute GSE reform will require federal legislation to implement and a complete phase-out of both Fannie Mae and Freddie Mac is expected to take 5-7 years to complete.   To learn more, read NARís analysis on the Obama Administrationís plan to address the U.S. housing finance system and the GSEs.

   
 

Proposed FY 2012 Federal Budget Seeks Cuts to HUD Programs, Cap on Itemized Deductions

Higher-income households could see a reduction in the amount of tax deductions they can take each year, including the size of the mortgage interest deduction they claim, if the Obama Administrationís proposed FY Ď12 budget is approved as presented.  The White House budget also proposes a 25 basis-point increase in the annual mortgage insurance premium on FHA-insured loans, and seeks cuts to 200 domestic programs, including most administered by the U.S. Department of Housing & Urban Development (HUD)..

Notably, the Obama budget does not include a request to convert the mortgage interest deduction (MID) into a tax credit as recommended by the Administrationís federal budget deficit reduction commission in a report issued this past December.  However, to generate savings the Administration wants to cap the value of all tax deductions at 28 percent for individuals earning at least $200,000 per year and couples with incomes of $250,000 or more.  At present, these higher-income households can lower their taxes by an amount equal to 33-35 percent of their itemized deductions.  The proposed hike in the FHA mortgage insurance premium, which the Administration already has the authority to implement, would raise the premium from 0.9 percent to 1.15 percent and generate an estimate $2 billion in new funds.

If the White House gets its wish, HUDís budget would be cut by 3 percent or roughly $1 billion for the next fiscal year.  The housing programs that would suffer the most significant losses in funding are Community Development Block Grants which would be cut by 7.5 percent or $300 million, and new housing construction programs for seniors and the disabled which would receive $172 million less in FY 2012.  In addition, the Administrationís budget proposes trimming the Department of Agricultureís single-family housing direct loan program by 81 percent to $211 million.

   
 

Boston Area Housing Prices Remain Firm, Despite Slower Sales Pace

The median selling price for detached single-family homes in Greater Boston rose 3.1 percent in January from the prior month and increased 6.5 percent from the same month one year ago, even as sales activity declined in January to its second lowest level in the past 15 years.  The monthly median selling has now risen in 14 of the past 15 months on an annual basis and at $452,500 is up nearly 30 percent from the March 2009 median price of $350,000, which marks the low point in the most recent market correction.  Last monthís price gains came despite a 36 percent decline in sales from December and 1 percent drop in sales from the previous January..

In the condominium market, the median selling price increased 2 percent over the past 12 months to $350,000 in January 2011, but the Januaryís median price is down a modest 1.4 percent from the prior month ($355,000 in December 2010).  Still, itís notable that the condo median price remained firm in January even as sales fell 13 percent from the same month last year and slid 38 percent from December.

To view all of last monthís data and to get a more detailed analysis on the housing market in greater Boston, visit the Monthly Housing Reports page on gbar.org.  You can also access our fourth quarter and annual market reports for 2010 featuring data for all 54 cities and towns within the GBAR jurisdiction, as well as 10 adjacent communities, by going online to view GBARís Real Estate Rewind Reports.

   
 

FHA Extends Waiver of Anti-Flipping Rules thru 2011

The U.S. Department of Housing & Urban Development (HUD) has announced an extension of its temporary waiver of a regulation prohibiting the use of Federal Housing Administration (FHA) financing to purchase single-family properties that are being resold within 90 days of the previous acquisition.  The waiver, which originally was issued in January 2010 and applied to all sales contracts executed on or after February 1, 2010 - January 31, 2011, has now been extended through December 31, 2011.  The waiver is a response to the high rate of foreclosures in the U.S. and is intended to help speed the sale of properties in distressed communities.  FHA officials hope the wavier will encourage investors that specialize in acquiring and renovating properties to rehab foreclosed and abandoned homes with the objective of increasing the availability of affordable homes to first-time buyers and other purchasers and help to stabilize real estate prices, as well as neighborhoods and communities where foreclosure activity is high.

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Nominate a Local Housing or Homeless Assistance Group for a Charitable Grant

The Greater Boston Association of REALTORSģ (GBAR) is currently accepting applications from members and others who wish to nominate a local housing-related non-profit organization for a monetary grant.  Grants are restricted to 501 (c)(3) organizations which provide shelter, food and clothing, mortgage and/or rental assistance, home buyer counseling or other similar support to individual and households.  In addition, the organizations nominated or applying for a grant must be located in or operate within the GBAR jurisdiction or an adjacent community in which a GBAR member firm is located.  Grants of up to $2,500 are will be awarded through the GBREB Foundation this summer. The deadline to apply is March 15, 2011.  For more information or to obtain an application, visit gbar.org or contact John Dulczewski at 617-399-7854 or jdulczewski@gbreb.com.

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