Never mistake activity for achievement.” ~ John Wooden
In  the  real  estate  finance  business  there’s  still  a  disproportionate  amount  of  energy  being  expended relative to the number of loans being made. Of that I’m certain after looking at the first quarter numbers. Our historical barometer, mortgages with a stated amount between $50K  and $500K, was only marginally better than 2008’s dreary fourth quarter. In fact the totals are  the  smallest  first  quarter  in  the  last  ten  years.  Yet  due  to  new  compliance  and  regulatory  overhead, we all feel like we’re treading water.

As far as the federal homebuyer tax credits are concerned, there’s no evidence yet that they’re  actually bringing more buyers into our market. A closer look at the sales disclosures filed with  the  State  of  Indiana  Department  of  Local  Government  Finance  in  the  first  quarter  of  2010  is  enlightening. Surprisingly to me, the number of disclosures that designated the property as the buyer’s new residence is almost identical to the number filed as such in the first quarter of 2009.
(see chart)

Encouraging  though  is  that  the  trend  of  new  foreclosures  being  started  in  Monroe  County continues  to  decline.  Eventually  that  will  be  reflected  in  a  smaller  number  of  homes  lost  at sheriff’s sale. As the overall real estate market improves, more foreclosure victims will be able to sell out of their troubles.

The biggest drag on the market seems to be in the higher price ranges. I included a chart this month  of  mortgages  with  a  stated  amount  between  $417,001  (the  confirming  loan  limit)  and $1,500,000. Several years ago these “jumbo” loans were the darling of mortgage investors. Post financial crisis though, there’s been very little money available in this market segment. Although
not great in Monroe County’s overall numbers, this lack of availability is sitting like an anvil on the entire top half of the market. It prevents move up buyers from financing purchases and is significantly responsible for the current over abundance of home choices in upper price ranges.

The  homebuyer  tax  credits  are  expiring  and  the  Fed  is  no  longer  purchasing  mortgage  backed securities.  The  second  quarter  will  be  very  telling.  I’ll  be  watching  closely  to  see  the  effects
locally  on  the  number  of  transactions.  Hopefully  recent  optimism  will  be  fulfilled  and  the problem areas of the market may ease.

~John Bethell

“Bureaucracy defends the status quo long past the time when the quo has lost its status.”
~ Laurence J. Peter

Thank you regulators! This month’s commentary is dedicated to all the fine state and federal regulatory agencies whose actions kept me from worrying about a decline in the mortgage market the first two months of this year.

Comparing the first two months of 2010 to the same period of 2009 is surprising. Dollar volume of mortgages with a stated loan amount between $50,000 and $500,000 (mortgages that typically represent first mortgages) declined a whopping 46 percent from $123 million to $66 million. That’s significant. In fact,it’s the slowest first two months since the year 2000 when only $50 million in mortgages were originated.
(see charts)

Yes, the bureaucrats made sure that I was busy, even if the market was off.  If the mental energy expended on compliance issues could be harnessed, the U.S. Defense Advanced Research Projects Agency would not
need a LOTS of Energy program.

Had it not been for the regulators, I’d be sweating bullets worrying about silly little inconveniences like payroll and rent. So instead of begging my employees to bring back office supplies from home, I’m trying to
understand and explain new RESPA rules and learn the new software acquired to comply with them. Closing statements are being done twice—one way for RESPA and then another way for Truth‐In‐Lending.

The Title Insurance Division (that’s the TIEFF fee funded regulator) of the Indiana Department of Insurance is weighing in on a myriad of customary title industry practices. Clair Voyant, our vice‐president of things we don’t know, is busily staring into her crystal balls trying to predict what’s coming from that direction.

The names and license numbers of all the professionals that do work on each residential file that we close must now be entered into a temperamental online state licensing data base (INREAL). It’s supposed to
eliminate mortgage fraud. We’ll see.

Who’d have thought that I should be worried about the market! So here’s a big shout out to the regulators. Thanks so much for the distractions!

~John Bethell

“Any change, even a change for the better, is always accompanied by drawbacks and discomforts.” ~ Arnold Bennett

Many of us are directing an enormous amount of energy towards understanding and complying with the new RESPA rule changes. The new rule is over 100 pages long. The Department of Housing and Urban Development, the RESPA regulator, has issued about 60 additional pages of questions and answers in an attempt to help us. We understand the new rule better than we did six months ago. Even so a lot of uncertainty exists. Further clarification by HUD is needed.

I’ve followed RESPA implementation through on line resources and by attending seminars with a regional or national make up. I’ve talked with colleagues from around the country. The clamor from both sides of the closing table that the sky is falling is loud and often repeated in many markets. I guess when you do something one way since 1974 this reaction to change is not surprising.

In Bloomington, the lenders we deal with have taken a contrary and refreshing approach to RESPA. They’re not worrying about what they don’t like about the changes. They are successfully focused on serving their clients while balancing the competing interests of RESPA and Truth in Lending. My personal observation of the process with our closings is that lenders are striking a good balance. So congratulations to all our lender clients! Finding ways to work with the new rules will win you business and set you apart. We appreciate the opportunity to work closely with you to help develop procedures that allow us to meet the needs of parties in the transaction.

~ John Bethell

Indiana’s new Good Better Funds Law is effective July 1, 2009. Many of my clients are expressing concerns about back to back real estate closings and how to avoid long delays in funding while waiting for wire transfers to be received by the title company.  If a chain of two or more closings is happening with a single closing agent there won’t be nearly the problem with getting acceptable funds. Once the closing agent receives wire transferred funds on the first transaction the proceeds from each successive closing will already be in the closing agent’s escrow account and wire transfering will be unnecessary. If a chain of transactions is closing with more than one title company or closing agent then the first closing agent will need to wire transfer the seller’s proceeds to the next title company.

To minimize delays, I recommend that you try and schedule your closings on Tuesday or Wednesday mornings. A Tuesday or Wednesday closing will be among the first ones to be worked on by the lender each week. Friday closings only get worked on after the previous days closings are completed. We find that many scheduled Friday closings get bumped back to later in the day or rescheduled for the following Monday. Closing Tuesday or Wednesday puts your deal near the front of the line.

A closing that is completed by 10:00 a.m. or 11:00 a.m. will allow enough time for the closing agent to order the wire transfer to the next closing agent and for the wire transfer to be sent and received by the banks involved.  Successfully completing wire transfers involve a number of people and processes. The title company at either end has little or no control or influence over these people or processes. Some banks will process wire transfers immediately. Some banks do them in batches only two or three times a day. Over the years I’ve come to realize that no one I can talk with knows for sure when a wire transfer has actually been sent. When people tell me that they’ve sent the wire they almost always mean that they’ve just given it to the next person in the process.

I am confident that John Bethell Title Company, Inc. will handle the logistics of this new law fairly well. Our bank processes wire transfers as they receive the requests. We receive email confirmation of wires transfers sent and received. We have a later cut-off than at most other banks. Much of the process is within our own control. Still, wire transferring will take longer than cutting a check to someone. The irreversible nature of wire transfers requires that we employ careful accounting procedures to prevent data entry, transcription or other errors; more procedures than we need when cutting checks.

Scheduling your closings for earlier in the day and earlier in the week will allow for the money to get to where it needs to be when it needs to be there.

Beginning July 1, 2009 the logistics surrounding many Indiana real estate closings will become even more complicated. House Enrolled Act 1374effectively requires that most funds received by a title company or settlement agent for a closing be wire transferred. Cashier’s and certified checks will only be acceptable for amounts under $10,000. The Indiana Department of Insurance is the responsible agency for monitoring compliance with the law.Title agents that ignore this law risk licensing actions by the DOI.

The biggest concern my clients express is that complying with the new law will result in even more delayed closings. There are a lot of reasons why closings get delayed. Right now the most common reason is that the lender is unable to meet the scheduled closing date. Lately, about twenty-five percent of our closings are being rescheduled at the last minute due to loan approval issues. Until we have the lender’s closing instructions and their approval of the HUD-1, we are unable to provide a firm figure to the buyers. And without a firm figure, the buyer of course, cannot initiate a wire transfer of funds.

Here’s a suggestion for avoiding a wire transfer induced delay. It won’t work in all situations, but you may find it helpful.

If there are two or more buyers they can each provide a cashier’s check and avoid the wire transfer requirement if each of their respective shares of the funds needed for closing is less than $10,000. For example, if two buyers need $16,000 to close, each one can provide a cashier’s check for $8,000. (I don’t even think that it needs to be separate checks.)

Be sure to check with your title company or settlement agent and make sure that this suggestion is acceptable to them.

If the buyers each need more than $10,000 to close I strongly suggest that they wait to initiate their wire transfer until the exact amount is known. The law makes no provisions for providing some of the funds as wire transfers and some funds as cashier’s or certified checks if more than $10,000 per party is needed. In my opinion requiring buyers to make two wire transfers is worse than waiting until you have an exact number.

My next post will address how what time you schedule your closings for will help or hurt your chances for an on time closing

I hope that by now all Indiana Realtors®, mortgage lenders and other real estate professionals know about Indiana House Bill 1374. This new law, which is effective on July 1, 2009, prohibits title companies from disbursing real estate closings without funds over $10,000 having been wire transferred to the title company. I summarized the law in an earlier post here.

During the month of May I watched our business with an eye towards how this new law might disrupt or enhance closings. Reviewing our deposit records I see that about one-half of our purchase closings would have required the buyer to wire us funds had this law been in effect last month. We’ve also talked with a number of banks to get an idea of the process that will be involved for buyers needing to wire their funds.

The most important thing we can do is to prepare buyers and sellers.Managing expectations will go a long way towards keeping the closing a pleasant experience for all. Buyers should be made aware in advance that wiring their money may be required. Sellers must be cautioned that there’s a possibility that funds may not be available immediately at the closing.

The biggest change is for buyers, who often are going to be required to wire their closing funds. After talking with several banks it seems that three or four hours is the average time that (meaning some will take longer) it will take for a wire to be initiated by the buyer at their bank and received by the settlement agent’s bank. Many banks have early afternoon cut offs for processing both outgoing and incoming wire transfers. This will result in some wire transfers not being completed until the following day.

Instructions for wire transferring funds to our escrow account are now included with each title insurance commitment we issue. Give the buyer a copy of those instructions when you receive the commitment. We are distributing an information package to our customers that answer many of the questions that will no doubt come up. The package will help you explain the process to buyers and sellers.

Don’t lose sight of the fact that although this is a significant change for Hoosiers, over thirty other states have enacted some form of this type of law. Real estate transactions continue to take place in each of those states.  I’m certain that it won’t take long before wiring funds to the settlement agent will be just another routine aspect of the transaction.

Over the next few days I will be sharing my thoughts on likely scenarios. Please check back regularly.

Here’s an update on the situation with real estate taxes based upon actual knowledge and an informal telephone survey made yesterday.

The Monroe Country Treasurer mailed property tax bills Friday May 29^th. We are now using the 2008 pay in 2009 real estate tax amounts for all payments and prorations. The first installment of Monroe County taxes is due Friday June 26^th.

Greene County property tax bills are mailed and the first installment is also due June 26^th.

Owen County property tax bills were mailed in April and their due date was the statutory May 10^th.  Congratulations to Owen County-one of the few to be on time. Payments made after May 10th are subject to a ten percent penalty.

Lawrence County is awaiting approval of their tax rate. Once their rate is approved they will establish a due date for taxes. Until their rate is approved, we will continue to use 2007 pay 2008 tax amounts for all prorations.

Orange County is in the same situation as Lawrence County.

Brown County is still a year behind and holding.

I will continue to post updates as more information becomes available.

The amounts of Monroe County Property Taxes for the tax year 2008 payable in 2009 should be official this week. The county treasurer will mail the tax bills shortly thereafter and the first installment of property taxes will be due Friday June 26, 2009.

We currently have access to the uncertified tax amounts and are disclosing those amounts in our title commitments. Once the state certifies the amount we will be able to pay those taxes at closing and prorate the taxes for this year using these new amounts. (Last year an entire township’s taxes were incorrectly certified and it did lead to some problems for a few closings.)

If both the buyers and sellers wish to prorate on the uncertified amounts, we’re fine with that. We just need to have them sign our tax proration instructions reflecting that agreement.

I’ve reviewed a few files with uncertified taxes. It appears that there’s little change from last year in the amount of the taxes on properties with valid homestead exemptions. I suspect that on other property types the news won’t be quite so good.

Once the new taxes are certified, we will obtain the new amounts for all our files going back to early March that we holding tax escrows on. We then cut checks to pay the first installment of taxes. After we’re certain the payments have been applied correctly, which might not be for six to eight weeks, we will return any balances remaining in the escrow to the owner.

Even though tax bills are again late this year, it’s the earliest they’ve been out in quite a while. That’s good news for buyers and sellers since taxes can be paid and prorated on current information.

Under a new Indiana law title companies will no longer be allowed to accept cashiers, corporate, or personal checks for their real estate closings after July 1, 2009. Mortgage lenders and many real estate buyers will need to wire transfer their funds to the title company or closing agent in most situations.

The law (House Bill 1374) requires that any party to a closing that must deposit more than $10,000 must wire transfer those funds into the closing agent’s escrow account. Certified or cashier’s checks or cash may accepted from any single party that needs to deposit less than $10,000. Corporate checks under $10,000 from Realtor’s® trust accounts for earnest money will be acceptable in most situations.

I’ve been asked why such a law is necessary. One reason is that we live in a financial environment now where the previously unthinkable is happening all too often. Another reason is to ensure that funds from one closing are not used to cover checks written for another closing.

Title companies use the same bank account for many closings. If we accept a bad check–yes, lenders have gone out of business in the middle of our transactions–it may be a week or more before the bank knows and then notifies us.  The reversal of the deposit may not result in a shortage in our checking account until days or weeks later because we are constantly making deposits from other closings. When the float disappears and if we don’t immediately make up the shortage, checks from completely unrelated transactions will bounce. When checks from a closing bounce, the resulting carnage is not pretty. The law helps to protect all parties to the real estate closing from the effects of this happening.

The fact that cashier’s checks are no longer considered good enough has more to do with bank rules about collected funds rather than the risk that a cashier’s check will be dishonored. When you deposit a check in a bank–even a cashier’s check–the bank will not let you draw against that deposit until the bank considers that the check is collected funds (meaning that in the bank’s opinion the likelihood of the check bouncing is remote). Wire transfers are generally considered collected immediately upon receipt. Some banks treat cashier’s checks as collected funds the next day; other banks take longer. Personal and corporate checks may not be treated as collected for more than a week. If the collected funds balance in an account is not sufficient to cover all the checks presented for payment that day, the bank may withhold clearing those checks or may even bounce them. Every bank has some leeway in determining when funds can be considered collected. Characteristics of the check, the check maker and the bank that it is drawn on are part of the usual criteria.

Lenders who currently fund their loans with wire transfers should like the new law. Your competitors who insisted on providing corporate checks, drafts and forms of positive pay, held a competitive advantage over you. Their costs of funds were lower since they didn’t have to actually let go of the loan proceeds until their check was presented for payment several days after the closing.

The essence of the new law is that title companies are no longer allowed to disburse closings until they are certain that the specific funds associated with that closing are collected. Everyone should feel more comfortable about that.

There are some practical and logistical implications of the new law, especially with daisy chain closings. I’ll be posting about them in the coming week so check back.

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Yes, I’ve been a little absent lately with blog posts. Business is crazy busy and so is my non-business life. But I’ve restructured my time and will be posting again on a regular basis. Thanks to all my friends who’ve been asking where I was. Well, I’m back.