Energy savers due a break

Energy savers due a break

Mar 29, 2013 Kenneth R. Harney

WASHINGTON — If you buy or own an energy efficient house, does this make you less likely to default on your mortgage? Is there a connection between the monthly savings on utility costs and the probability that you’ll pay your loan on time?

A new study by the University of North Carolina suggests that the answer to both questions is a resounding yes. Using a massive sample of 71,000 home loans from across the country that were originated between 2002 and 2012, researchers found that mortgages on homes with Energy Star certifications were on average 32 percent less likely to default compared with loans on homes with no energy efficiency improvements. Energy Star homes, which can be renovated dwellings or newly built, provide documentable savings of 15 percent or higher on utility bills compared with houses containing minimal energy improvements.

Researchers took pains to statistically separate out factors other than energy efficiency savings that might account for the strikingly different performances by borrowers on their mortgages. They controlled for house size; age of the house; neighborhood income levels; house values relative to the area median; local unemployment rates; borrowers’ credit scores; loan-to-value ratios; electricity costs; and even local weather conditions.

The sample came from a giant mortgage data repository managed by CoreLogic, a California-based company that has access to millions of loan files and payment records supplied by major banks, lenders and servicers. The average sale price of both the energy-efficient homes and the others was approximately $220,000, removing the possibility that the energy efficient properties were high-end houses purchased by families who are less likely to default.

So why the big difference in payment performance among borrowers during the roller-coaster decade that saw the mortgage bubble, the housing price boom, the calamitous bust and the start of a recovery? To Cliff Majersik, executive director of the Institute for Market Transformation, a Washington, D.C., think tank that sponsored the research, there’s no question.

“It stands to reason,” he says, “that energy-efficient homes should have a lower default rate because the owners of these homes save money on their utility bills, and they can put that money toward their mortgage payments.”

In light of the superior performance of mortgages on certified energy-saving houses, what discounts or preferences can borrowers or owners of such houses expect at the bank when they go in for a loan? After all, a key component of the interest rate you pay on a mortgage is compensation for default risk — that is, the possibility that you’ll go belly up, walk away, end up in foreclosure and produce big losses for the lender or bond investor.

For example, if you have a low FICO credit score of 620, you present a high risk of nonpayment to the lender and are virtually guaranteed to be charged a higher rate. On the other hand, if you have a platinum 800-plus FICO score, you’re likely to be quoted the best rates and generous underwriting terms — all because your statistical risk to the lender is lower.

But here’s the problem with the way the mortgage system treats energy efficiency: Under current practices, you’d be hard pressed to find any lenders who’ll give you a better rate quote on your mortgage application, even if you showed them your Energy Star or HERS certifications along with documentation that your house saves buckets of money on utility bills.

The authors and sponsors of the study think lenders should start factoring energy efficiency into their underwriting. They’ve also begun meeting with officials from the mortgage industry, Congress and government to suggest how to do it: If not a lower interest rate, they argue, then at least give loan applicants who can demonstrate significant energy bill savings a break on upfront fees, debt-to-income ratios, or maybe some wiggle room on minimum down payments. It just makes sense.

Bob Sahadi, a mortgage industry veteran who now works for the Institute for Market Transformation, said in an interview that lenders “have wanted hard evidence” that energy savings reduce defaults.

Now they’ve got it.

Steve Baden, executive director of RESNET, a national nonprofit group that helps homeowners with energy efficiency improvements, takes the issue one step further. He argues that if mortgage lenders — confronted with statistical proof that borrowers who buy houses that save on energy outlays are at lower risk of default — decline to start recognizing this fact with more favorable pricing, they “are indeed overcharging consumers.”

Sounds right.

Victim of $440K wire fraud can’t blame bank for loss, judge rules

Victim of $440K wire fraud can’t blame bank for loss, judge rules

Jaikumar Vijayan March 26, 2013 (Computerworld)

A federal court in Missouri has rejected an escrow firm’s attempt to blame its bank for a $440,000 cyberheist in March 2010.

In a ruling last week, the U.S. District Court for the Western District of Missouri held that Choice Escrow and Title LLC had essentially failed to follow its bank’s recommended security procedures and therefore had only itself to blame for the loss.

Choice filed a lawsuit against BancorpSouth in November 2010 after unknown attackers stole the username and password to the company’s online bank account and used the credentials to transfer $440,000 to an account in Cyprus.

Choice alleged that the theft occurred only because the bank failed to implement commercially reasonable security measures as defined in the Funds Transfer Act provisions of the Uniform Commercial Code (UCC). Choice Escrow maintained that BancorpSouth should have known the wire transfer request was fraudulent because it was initiated from outside the U.S — something that had never happened before with its account.

In a countersuit, BancorpSouth noted that the wire transfer had been initiated by someone using Choice Escrow’s legitimate login in credentials and from an IP address associated with the escrow firm’s bank account.

Importantly, the bank said it had specifically asked Choice to adopt a dual-control process where two individuals would be needed to sign off on all wire transfer requests. Choice officials had declined the control, despite being warned about the risk of fraudulent wire transfers, the bank noted in a motion seeking a summary dismissal of the lawsuit.

U.S. District Court Judge John Maughmer held that BancorpSouth had indeed implemented commercially reasonable security measures and acted in good faith in handling the wire transfer request.

The judge noted that Choice had been informed about the importance of the dual-control process, but declined to use it. The escrow firm also declined to place a daily transfer limit on wire transfers, despite being informed about the risk of fraud.

“The court finds that the ‘Dual Control’ option offered by [Bancorpsouth] and refused by Choice did indeed meet the prevailing standards for good banking practices,” Maughmer wrote in a 16-page ruling.

This is the second time that BancorpSouth has tried to dismiss the case against it. Last year, the bank claimed that it should not have been sued over the incident because Choice Escrow had signed a contract that included an agreement not to hold BancorpSuth responsible for losses stemming from a failure to use the online services in a secure manner. Maughmer however < href=" defense_in_online_theft_suit”>threw out that motion.

The decision is the latest involving disputes between banks and commercial customers over losses stemming from fraudulent wire transfers. Over the past few years, cybercriminals have looted tens of millions of dollars from numerous small businesses, municipalities, school districts, and other entities using the same technique.

In almost all cases, the attackers first managed to steal their victims’ banking credentials, then used those credentials to gain access to their accounts to initiate the illegal wire transfers.

Banks have insisted that the thefts occurred only because the victims allowed attackers to gain access to their bank login credentials. Victims like Choice, meanwhile, have blamed the banks for failing to prevent the illegal wire transfers despite what they say should have been obvious red flags.

In a similar dispute last July between Ocean Bank and Patco Construction Company of Maine, a federal appeals court held that the bank had not implemented commercially viable measures to detect and protect against fraudulent wire transfers. A Michigan federal court ruled the same way in 2011 in a case involving Comerica Bank and Experi-Metal, a maker of automobiles parts that was robbed of $560,000 through fraudulent wire transfers.

Maughmer’s ruling in the case was first reported by security blogger Brian Krebs.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at @jaivijayan or subscribe to Jaikumar’s RSS feed . His e-mail address is


Hard to see ‘green’ on resale homes

Hard to see ‘green’ on resale homes

By KENNETH R. HARNEY Published Mar 22, 2013

When it comes to energy efficiency and “green” features in homes, there’s a chasmic disconnect in the marketplace among consumers, real estate appraisers and the nation’s realty sales system.

On the one hand, prospective buyers routinely tell researchers that they place high priority on energy-saving and environmentally friendly components in houses. The presence of high-efficiency systems in a home makes shoppers more interested in buying because they’ll save money in the long run.

On the other hand, the vast majority of multiple listing services (MLS) – the organizations that compile listings of local homes for sale – do not yet include so-called “green fields” in their data search forms to facilitate consumer shopping for homes with high-performance features. Plus most real estate appraisers do not yet have training in the valuation of green homes and often do not – or cannot – factor in the economic values of expensive but money-saving components such as solar photovoltaic panels.

Two new research studies document consumers’ strong appetites for energy efficiency and green features. A survey of 3,682 actual and prospective purchasers by the National Association of Home Builders found that 94 percent of respondents rated Energy Star appliances as among their top several “most wanted” items out of 120 they could choose from. Ninety-one percent said the same for new houses that came with Energy Star certifications on the total structure.

Energy Star is a federally backed set of energy-saving performance standards for a wide range of products including appliances, lighting, windows, doors, electronics, heating and cooling systems all the way up to and including newly built homes. The study also found that buyers would be willing to pay an additional average of $7,095 in the upfront cost of a house if that investment saved them $1,000 a year in utility expenses.

Meanwhile, a survey of buyers and sellers conducted by the National Association of Realtors found that 87 percent rated energy efficiency in heating and cooling as “very” or “somewhat” important to their choice of a home. Seventy one percent said the same for energy-efficient appliances. The newer the house, the more important were energy-saving and green components.

Now here’s the disconnect: While most new homes come with energy certifications and ratings, the overwhelming majority of resale homes do not. For shoppers and purchasers who prefer to save on energy outlays, there’s often little information in the formal listings search data on MLS systems to highlight houses with extensive green components.

Of the 860 multiple listing services nationwide, according to industry estimates, only about 210 have gone green – that is, included distinct sections of their standard listing formats for high-performance and sustainable features. Though there is an industry effort under way to “green the MLS” by including green fields as standard sections in MLS listings, adoption has been slow.

The lack of green fields, in turn, not only hampers buyers. Appraisers who search for “comps” – recently sold comparable houses – often are unable to readily distinguish those with significant energy efficiency investments from ordinary energy-guzzling homes. Worse yet, say industry critics such as Sandra K. Adomatis of Punta Gorda, Fla., most appraisers have no specific training in valuing high-performance or green features and tend to ignore them or undervalue them in their appraisal reports to lenders. This hurts sellers and buyers alike.

To help bridge the information gap, the country’s largest appraisal professional group, the Appraisal Institute, recently released an updated “green addendum” that realty agents and sellers can use to call attention to the energy saving features of homes, especially in areas where the local MLS provides no separate green fields. Appraisers can attach the addendum to their standard appraisal reports as a way to justify additional value assigned to the house because of the cost-saving improvements.

Of special note, given the fast-growing popularity of solar panels and arrays, is a special section within the addendum that provides the appraiser access to an online tool – a “PV value” calculator developed by Sandia Labs and Energy Sense Finance – that estimates the incremental value the photovoltaic installation adds to the property based on a discounted cash flow model.

Bottom line for sellers with significant energy conservation investments: Make sure your realty agent gets them highlighted in the MLS listing. And make sure that the appraiser who is sent to value your property uses the green addendum and has adequate training to do the job. Otherwise the money you spent may not get the fair treatment it deserves in the valuation.

The addendum is available at

Look what’s in your house now

Look what’s in your house now

Mar 15, 2013 Kenneth R. Harney

WASHINGTON — Home equity is back! And it’s growing fast: According to the latest data from the Federal Reserve, Americans’ net equity holdings in their houses jumped by nearly half a trillion dollars during the last three months of 2012, and have increased by $1.7 trillion since the spring of 2011.

What does this mean to you personally? Depending on where you own your home, it could mean that finally — after years of struggling with an underwater mortgage — the market value of your property has risen enough to put you into positive equity territory. Or closer to break-even equity than you assumed. Zillow Real Estate Research estimates that nearly 2 million American owners exited negative equity status during 2012 alone.

It could also mean that should you wish to sell your house, you’re now in a better position to do so. And if your home is located in one of dozens of local markets that are experiencing severe shortages of listings for sale combined with strong demand from buyers, this spring could bring you a higher price than at any time in the past seven years.

Here’s what the Fed found in its “flow of funds” study released March 7:

Now it’s a renters’ market

Now it’s a renters’ market

Mar 8, 2013 by Kenneth R. Harney

WASHINGTON — Could rental houses owned and managed by deep-pocketed hedge funds and big investors be the post-bust steppingstones to homeownership for huge numbers of renters?

Could they also provide a form of safe harbor or sanctuary for thousands of families who were displaced by financial difficulties from their previous homes through foreclosures or short sales?

A new national study suggests that the answer to both questions is yes.

Over the past five years, according to Wall Street analysts’ estimates, between $7 billion and $9 billion worth of distressed single-family homes have been purchased and converted to rentals by institutional investors — hedge funds, private partnerships of high net-worth individuals and even pools of capital raised among investors in foreign countries.

Unlike traditional “mom and pop” rental home investors, these funds have been scooping up dozens, sometimes hundreds, of properties at a time through all-cash purchases of foreclosures, short sales and bulk packages. Some of the bulk acquisitions have come from the troubled-asset portfolios of financing giants Fannie Mae and Freddie Mac, others from banks that have taken over homes left by strategic defaulters.

Though single-family rental homes have long been a part of the American housing scene, the involvement of large-scale institutional investors is causing the category to explode. According to a new study conducted by pollster ORC International for Premier Property Management Group, a company that works with investors, roughly 52 percent of all rental units in the country are now single-family homes and house 27 percent of all renters.

Recent Census Bureau data cited in the study indicate that the number of single-family rentals grew by 21 percent between 2005 and 2010 — from the top of the boom through the depths of the bust and foreclosure crisis — compared with a 4 percent increase in total housing units.

What’s the significance of this rapid conversion of ownership units to rental? For one thing, according to Mark Fleming, chief economist for CoreLogic, a mortgage and real estate research firm, mass conversions are contributing to the severe declines in homes-for-sale inventories in markets where foreclosure rates were most pronounced during the bust. Lack of inventory, in turn, is pushing up prices of entry-level homes in those areas.

But the ORC-Premier study suggests that the new waves of single-family rentals may also be providing important pathways to homeownership, not only for first-timers but for those displaced by the housing bust. Fully 60 percent of rental home tenants say they plan to buy a house sometime in the next five years By contrast, only 44 percent of multifamily apartment building renters have similar plans.

According to the study, the high interest in ownership “reflects the new roles single-family rentals are fulfilling as a steppingstone to homeownership [both] for first-time buyers and as a sanctuary for large numbers of families displaced by foreclosure but who plan to buy again when they can afford to do so.”

The study found that, compared with apartment tenants, single-family renters made more money ($75,000 to $100,000 versus $50,000 to $75,000), have more children in their homes and are more concerned about local school quality and community facilities such as parks and recreational areas.

Asked by interviewers what impediments to purchasing a house they anticipate within the coming five years, nearly a third said they may not be able to qualify for a mortgage. The time frame coincides with the number of years that individuals with seriously damaged credit files — a foreclosure, bankruptcy, short sale and multiple defaults on other debt obligations — need to fully rehabilitate their credit and build back their credit scores to a level that will qualify them for a home loan on favorable terms.

Bottom line from the study: Single-family rentals are likely to remain a growing factor in the housing market, as incubators and safe havens for future purchasers. At the same time, though, they may — at least temporarily — depress the national homeownership rate, which stands at around 65 percent, down from 69 percent during the boom.