Washington Post real estate columnist Kenneth Harney dies at 75

Washington Post real estate columnist Kenneth Harney dies at 75 Bart Barnes, The Washington Post May 24, 2019

Kenneth R. Harney, the author for four decades of the syndicated real estate column “The Nation’s Housing,” which explored issues faced by homeowners and home buyers, died May 23 at his home in Chevy Chase, Md. He was 75. The cause was acute myeloid leukemia, said his wife, Andrea “Andy” Harney. Distributed weekly to 90 newspapers around the country by The Washington Post Writers Group, Harney’s column was focused on unglamorous but vital issues concerning the intricacies of buying and selling property. He wrote about such topics as whether do-it-yourself home improvements were likely to increase the market value of a house, plus the perils of such undertakings where, he warned, it was easy for something to go expensively wrong. One homeowner, Harney reported in January, “inadvertently connected the plumbing from a new bathroom to the home’s sump pump discharge in the basement,” causing raw sewage to flow into the yard. “The message here isn’t that you should avoid DIY,” Harney wrote. “Rather you should take a sober look in advance at how your own technical and physical skills match up with what you have in mind. When the match doesn’t look all that favorable, call in a pro.” He weighed such questions as the cost of energy-efficient “green” improvements to a home and how they might affect the selling price. In the burgeoning “gig” economy, in which many potential buyers earn substantial portions of their incomes from part-time work – driving for Uber or Lyft, for example – Harney examined how lending institutions evaluate their loan risks and qualifications. He noted that the mortgage financiers Freddie Mac and Fannie Mae, aware that gig workers might not ordinarily qualify for loans based on traditional requirements, were starting to research how to accommodate people who pursued unconventional career paths. Two of Harney’s columns examining inappropriate charges imposed by a lender at real estate settlements resulted in a refund of thousands of dollars to a home buyer, The Post Writers Group said. Another column led to an increase in credit ratings for borrowers who made prompt payments on student loans. Over the years, Harney’s topics ranged from vacation getaway real estate scams to online hackers seizing control of real estate listings. He explored the impact of social trends on the real estate market, such as how housing sales have been depressed by the tendency among millennials to marry and have children later in life than previous generations. In a December 2018 column, Harney cast a revisionist light on one of the oldest real estate shibboleths: the commonly quoted guideline that buyers can afford homes that cost twice their gross annual income. Not true, he opined, citing a study. “There is no magic price-to-income rule of thumb for gauging affordability that fits everywhere,” he wrote, “although the median ratio nationwide was 3.3. As with everything in real estate, location plays a crucial role; ratios . . . ranged from an affordably modest 2.3 to a hyper-expensive 5.0.” Kenneth Robert Harney was born in Jersey City on March 25, 1944. He graduated from Princeton University in 1966, then worked as a newspaper reporter in Camden, N.J., before serving for more than two years in the Peace Corps in India. He came to Washington in 1970 as a program analyst with the Office of Economic Opportunity, then spent several years as the founding editor of Housing and Development Reporter, a publication of the Bureau of National Affairs. Harney also owned and managed business, financial, educational and investment organizations and freelanced for The Post and Washington Star before he began writing his syndicated column in 1979. He won several awards from the National Association of Real Estate Editors and the Consumer Federation of America. From 1995 to 1998, he served on the Federal Reserve Board’s Community Advisory Council. He also was the host of “Real Estate Magazine,” a television show on FNN, a forerunner of CNBC, and the author of two books. Harney wrote his final column last week. In 1967, he married Andrea Leon. In addition to his wife, of Chevy Chase, survivors include four children, Alexandra Harney of Shanghai, Brendan Harney of San Francisco, Timothy Harney of Brooklyn and Phurbu McAlister of Silver Spring, Md.; two brothers; a sister; and five grandchildren.

Zillow faces legal action over its co-marketing program

Zillow faces legal action over its co-marketing program Kenneth R. Harney on May 10, 2019 WASHINGTON – Zillow is back in hot water- A class-action suit against the online realty giant is moving forward after insider whistleblowers alleged that the company designed its controversial “co-marketing” program to violate federal anti-kickback laws. Zillow termed the charges “without merit” and says it intends to “vigorously defend” itself. Best known to the general public for its Zestimates property-valuation feature, Zillow is a multibillion dollar, publicly traded behemoth whose principal revenues come from advertising placed by realty agents. So-called “premier” agents and brokers, who receive prominent placement on Zillow-listed home sites, pay hundreds or thousands of dollars a month in advertising fees to the company. Premier agents need not be the highest volume or most successful agents in their area; they simply need to pay for the label. According to the company’s latest SEC filing, it earned nearly $900 million – two-thirds of its corporate revenue – in fees from agents paying for ads last year. In 2013, Zillow rolled out a program whereby realty agents could have large portions of their advertising fees paid for by lenders who share advertising costs with them. Buyers interested in a particular property could then contact not only an agent but a lender to shepherd them through the financing process. The idea proved wildly popular among agents and lenders. For paying part of an agent’s Zillow advertising fees – initially up to a maximum of 90 percent, later revised to 50 percent – a lender could get hot leads directly to active buyers. For realty agents, the attraction was obvious. Hey, why not? Lenders will subsidize my costs. However, a federal law known as RESPA – the Real Estate Settlement Procedures Act – prohibits payment of fees for business referrals among realty, mortgage and title industry providers that are not for services actually rendered. In April 2017, the Consumer Financial Protection Bureau informed Zillow that it was investigating whether its co-marketing program violated the law’s prohibition against kickbacks. Zillow negotiated with the CFPB, but last year, after the Trump administration appointed a new CFPB director, the agency abruptly dropped the case. Meanwhile, investors who said they purchased Zillow stock at inflated prices relying on company executives’ statements that its co-marketing concept did not violate federal law filed a class-action suit alleging securities fraud. A district court judge later dismissed portions of the suit but allowed the plaintiffs to file an amended complaint if they presented conclusive evidence that the co-marketing scheme violated RESPA. They appear to have done so successfully – at least enough to convince a federal district court judge to put the case back on track. Last November, the plaintiffs filed their amended complaint, bolstered by testimony from two unnamed Zillow insiders. The first- a regional sales manager for the company who alleged that lenders participated in the program because they “expected real estate agents to refer business.” The second- a sales and operations trainer who alleged that “every agent and lender knew that the co-marketing program was for the lender to get leads and referrals. … It was understood that lenders were paying for referrals.” Whenever the second insider “spoke to Zillow about potential concerns with the co-marketing program,” she was told “not to ask questions,” according to the court. She also alleged that she knew of a lender who had been paying 100 percent of a realty agent’s fees for 2 ½ years. Both whistleblowers provided “consistent testimony regarding how agents and lenders used the [program] to provide mortgage referrals in exchange for advertising payments,” according to the court. In his decision, which was handed down April 19, Judge John C. Coughenour of the U.S. district court in Seattle said “the court can draw a reasonable inference that Zillow designed the co-marketing program to allow agents to provide referrals to lenders in violation of RESPA.” Asked for his take on the case, Marx Sterbcow, a nationally known RESPA lawyer based in New Orleans, told me “the court certainly seems to suggest there is a lot of smoke involving the legality of Zillow’s” program. If the whistleblowers’ allegations are correct, he said, “it could cause [mortgage companies] and banks to pull completely out” of the program, for fear of violating RESPA themselves, and being exposed to major legal jeopardy. The significance for buyers, sellers and owners? The case is still out on the alleged federal law violations, but now when you see “premier” agents linked up in marketing efforts with lenders, you have a better idea about what’s really going on.

More Americans are choosing not to tap into their home equityMore Americans are choosing not to tap into their home equity

More Americans are choosing not to tap into their home equity Kenneth R. Harney on Apr 19, 2019 WASHINGTON – American homeowners are doing something surprising- Despite record amounts of home equity available to them – an estimated $1.5 trillion worth – they are tapping into it less via home-equity credit lines (HELOCs) and cash-out refinancings. The big question is why. Are people simply getting more frugal? Or are other forces at work? Economists who specialize in housing aren’t totally sure, but everyone agrees- Homeowner behavior has changed from previous years. Cash-out refinancings use the home’s increased equity as collateral to extract money. After the refinancing, the borrower has a new loan, but with a larger amount of debt on the house. HELOCs leave the owner’s existing mortgage intact but add a second mortgage that takes the form of a line of credit, allowing the owner to withdraw funds whenever desired. Both forms of equity extraction have been popular for decades and hit historic highs during the housing boom years a decade ago. Recently, however, activity has declined. Consider- – In the final quarter of last year, the lowest share of available equity was withdrawn since 2012, according to Black Knight Inc., a data and analytics company that tracks the mortgage industry. HELOC withdrawals were down 10% compared with the same period the year before, hitting the lowest level in nearly four years, while cash-out refinancings were down 21% year-over-year. Based on a benchmark in 2017, Black Knight estimates that more than 600,000 homeowners may have chosen not to tap their equity last year – 300,000 potential HELOC borrowers and 330,000 cash-out refinancers. – The volume of cash-out refinancings “remains much lower than in the previous decade,” according to mortgage investor Freddie Mac. Adjusted for inflation in 2018 dollars, an estimated $14.8 billion in net equity was cashed-out during the final quarter of last year, down from $20.4 billion a year earlier and dramatically below the $104.8 billion in the second quarter of 2006, near the peak of the boom. What’s contributing to these declines? Interest-rate movements for sure. Rate swings can discourage owners from tapping into their equity. For example, if you have a fixed-rate mortgage at 3.5%, you might think twice about giving it up for a cash-out refi that puts you into a new 30-year mortgage with a fixed rate of 4.5% or more. HELOC rates also increase when short-term rates rise, discouraging potential borrowers. economists argue that interest rates alone aren’t driving the recent downtrend in home-equity borrowings. Sam Khater, chief economist of Freddie Mac, believes that significant numbers of owners are shying away from loading on debt because of what they saw or experienced during the Great Recession. “I think it’s the legacy and the impacts” of the recession “that are still fresh in many people’s minds.” They have “fundamentally changed” attitudes about the debt loads on their homes, he told me. “It’s a scarring effect,” he said, and it’s making many Americans “much more conservative” about tapping into their equity. Millions of owners who had taken out HELOCs during the boom – leveraging their equity to the hilt – ultimately lost their homes in the crash that began in 2008. Many still have not recovered; others find themselves underwater with no or minimal equity as the result of piling on too much debt immediately before home values plunged. From both a societal and economic perspective, the downtrend in equity borrowings “is good news,” said Khater, “because we have a much bigger cushion” in the event of another financial crisis. Another factor- Since the crash, banks have become much pickier about who qualifies for equity products and who doesn’t. During the boom years, lenders allowed just about anybody to tap into their equity, even if they had poor credit histories. Today, by comparison, borrowers generally need high credit scores and significant equity to get HELOCs, and that excludes large numbers of potential applicants and lowers total volumes. “It’s a market mismatch,” says Tendayi Kapfidze, chief economist for Lending Tree, an online mortgage platform. People who might be eager to borrow against their equity – but don’t have the credit to qualify – are now essentially cut off from HELOCs. Still another force at work, according to Kapfidze- People who can’t qualify for HELOCs may be turning to the burgeoning market in personal loans, which are primarily marketed by non-bank lenders. A notable drawback- Personal loans are not secured by home equity so their rates can be high, ranging from 5% to more than 35%. Ouch!

Strong spring real estate season shaping up – but who’s got the advantage?

Strong spring real estate season shaping up – but who’s got the advantage? Kenneth R. Harney on Apr 12, 2019 WASHINGTON – Have we arrived at one of those rare Goldilocks moments in real estate, where the market works well for sellers and buyers, strongly favoring neither? Maybe. Based on the latest national consumer-sentiment survey by mortgage investor Fannie Mae, American consumers appear to think so. They’re more positive about the overall direction of the housing market than they’ve been in nearly a year. Growing numbers think it’s a good time to sell and a good time to buy. They expect their own personal financial situations will improve this year, and they believe that interest rates for home loans will continue to remain relatively affordable. Housing and mortgage economists tend to agree. As Michael Fratantoni, chief economist of the Mortgage Bankers Association, told me- Six months ago, “I was guardedly optimistic. Now I’m just plain optimistic.” Mark Fleming, chief economist of First American Title Insurance, says- “So far in 2019, we’ve seen mortgage rates decline and wages rise – both trends work to boost home-buying power and fuel greater market potential for home sales, setting the stage for a stronger than expected” season. Yet some economists warn that things are not necessarily as rosy as Fannie’s consumer survey would suggest. They point to troubling signs- Total home sales on a national basis continue to decline. That pattern historically has been a leading indicator that prices could actually fall during the year ahead, ending years of nonstop appreciation. Plus, houses are taking longer to sell – many owners are having to cut their asking prices. The days of widespread bidding wars are over. So what’s really going on, and how do you relate it to your own situation, either as a potential buyer or seller? Some hard facts- – Prices are still rising, but at a slower rate than in recent years past. The median home listing price hit $300,000 last month for the first time ever, a 7% jump over the previous year, according to Realtor.com. Fratantoni predicts price increases will moderate to an average of just 4% this year, 3% next year and 2.5% in 2021. – A notable percentage of sellers’ asking prices are being reduced. In the four weeks ending March 24, prices on nearly 21% of all listings nationwide were cut, according to Redfin, the real-estate brokerage. Just 16% of offers written by Redfin agents encountered bidding wars during the first three weeks of March, compared with 61% during the same weeks in 2018. – Interest rates have been a great stimulus and are key to a strong spring. Lower rates are good for buyers, good for sellers. Last fall, average rates for a fixed-rate 30-year mortgage hovered near 5%, according to data from investor Freddie Mac. In the first week of April they averaged 4.08%. Homeowners and would-be buyers have responded enthusiastically to the lower rates, sending applications soaring by 18.6% during the week ending March 29 compared with the week earlier, according to the Mortgage Bankers Association. – Inventories of available homes for sale continue to rise – meaning more choices for shoppers, according to National Association of Realtors researcher Michael Hyman. Listings nationwide were up by 3.2% year-over-year in February. That’s generally a good sign for buyers because it helps keep price pressures down. But homes for sale in the primary entry segment for first-time home buyers – houses priced under $200,000 – dropped by 9% year-over-year, according to Realtor.com, while they grew by 11% in the upper price brackets over $750,000. All this is well and good, says Issi Romem, chief economist for realty marketing and data site Trulia, but the reality is that the housing market is in cyclical slowdown mode. Inventories of available homes may be increasing, but part of the reason is that houses are staying on the market unsold for longer times in many areas. The price cuts and longer days-on-market times reveal that significant numbers of “sellers are facing greater difficulties in selling.” Romem and Trulia Senior Economist Cheryl Young issued a report last week that runs counter to the cheery outlook prevailing in the industry. “[It] is possible,” they say, that “by fall or next year prices might modestly decline.” What that means is that the Goldilocks theory and perceptions of balance between sellers and buyers may not be quite right. Advantage- buyers.

Homebuyers with heavy debt might find it tougher to get a mortgage

Homebuyers with heavy debt might find it tougher to get a mortgage Kenneth R. Harney on Mar 29, 2019 WASHINGTON – First-time and move-up homebuyers with heavy debt loads, low credit scores and small down payments face a daunting new mortgage hurdle- The Federal Housing Administration is toughening its underwriting standards. Large numbers of applications could be turned down in the coming months as a result. Industry estimates vary about the impact of the agency’s abrupt changes, but mortgage company executives told me last week that they are bracing for reductions in their FHA business by anywhere from 10 percent to 30 percent. Here’s what’s happening- For several years, FHA has insured loans to buyers who previously would have been considered too risky or marginal at best. Those applicants often carried crushing monthly personal debts – for credit cards, auto loans, student loans and other obligations – totaling more than half of their monthly incomes. Many also had histories of credit problems that lowered their credit scores. Combined with skimpy down payments of 3.5 percent and minimal bank reserves, these borrowers have a high statistical probability of defaulting on their loans. To prevent big losses to FHA’s insurance fund, the agency recently informed lenders nationwide that from March 18 onward, it would be applying more stringent standards to applications from high-risk homebuyers. In its letter, FHA documented its reasons for the crackdown. According to FHA Commissioner Brian Montgomery, the agency has been seeing disturbing trends in the quality of loans lenders have been delivering to it- – Nearly one of every four approved home purchasers had a debt-to-income (DTI) ratio exceeding 50 percent, the worst since 2000. In January, 28 percent of buyers were in that category. – FICO credit scores are tanking. They’ve fallen to the lowest level since 2008 – an industry-low average of 670. In the first quarter of fiscal 2019, more than 28 percent of all new purchase loans had FICOs below 640. In the same quarter, more than 13 percent of new loans had scores under 620 – 19 percent higher than the same period in the previous fiscal year. (FICO scores range from 300 to 850; low scores predict higher risks of nonpayment. Average scores for purchasers at giant mortgage investors Fannie Mae and Freddie Mac average around 750.) – Borrowers are siphoning equity from their homes at an alarming rate. In fiscal 2018, FHA saw a 60 percent increase in “cash-out” refinancing as a percentage of all refinancings. Cash-outs allow borrowers to convert equity into spendable money. – Growing numbers of loans have multiple indications of serious future risk of nonpayment – combinations of low credit scores of 640 or less and DTI ratios that exceed 50 percent. Given these omens, FHA clamped down by amending its automated underwriting system. Lenders must now conduct time-consuming “manual” analysis of every new loan application flagged as high risk. Compared with standard automated underwriting, manual processing is far more intensive and entails higher staffing costs and liabilities for lenders. Many balk at it. Some investors refuse to buy manually underwritten loans. As a result, fewer of them make it through the process. John Porter, vice president of Mortgage Master Service Corp. in Kent, Washington, predicts that FHA’s abrupt rule change will slash the number of FHA loans approved nationwide by anywhere from 20 percent to 30 percent in the coming months. Other lenders believe the decline will be smaller. Paul Skeens, president of Colonial Mortgage Group in Waldorf, Maryland, says a 10 percent dropoff is more likely. But most lenders agree that substantial numbers of borrowers hoping to qualify for FHA’s liberal down-payment and credit terms face rejections they wouldn’t have encountered under the old rules. “Absolutely they’re going to turn a lot of loans down,” said Skeens. Joe Metzler, a loan officer at Mortgages Unlimited in St. Paul, Minnesota, welcomes the stricter standards. “FHA has become the dumping ground for crappy [loan] files with ridiculous DTI allowances and bad scores,” he said. “A lot of it lately has been straight-up subprime. We should not be doing them.” According to FHA, nearly 83 percent of its home-purchase loans in January went to first-time buyers. Just under 40 percent went to minorities. Those who have the weakest financial profiles – FICO scores under 640 with debt ratios above 50 percent – could be shocked when they go to buy a house this spring. They may have to turn to subprime lenders who charge much higher interest rates, or they may have to simply postpone their purchase until they’re in better financial shape.