Lenders Generating Your Facebook Score

1-17

For about a year, there have been stories floating around that lenders are using social media to find out more about borrowers.

If you have a steady job and a good credit score, you don’t have anything to worry about. But if you’re young, have inadequate credit, work for yourself, or otherwise don’t meet conforming loan requirements, you might watch out for the “Facebook score.”

It’s a new trend called alternative data which is used to help determine what kind of a person you are – the kind who pays back loans or the kind who defaults.

Lenders are working with companies who create predictive modeling and algorithms. They use the data associated with your ties to friends, business associations and the community with the goal of understanding whether or not your interests and attitudes make you more or less of a credit risk.

For example, a Facebook user with lots of ties to the community and nice friends with good jobs who live in nice neighborhoods may be a more desirable applicant than credit scores alone may determine.

LinkedIn profiles tell lenders a lot, such as whether your stated employment is real because your profile is supported by many other people who know you.

Online customer satisfaction is important. If you’re self-employed with an Ebay business or you provide a service that’s rated on Angie’s List, and your customer comments are good, lenders will be more likely to loan you money because you care what the community thinks of you.

Alternative data also looks for other correlations that may not be so obvious – do you use the same slang and language as other borrowers who are in default?

Do you type in all caps or no caps? Either could indicate a character willing to take shortcuts. Do you use ugly or racist language? Your posts and tweets could correlate with creditworthiness.

Alternative data is in its infancy, but it’s getting stronger all the time. Lenders want to curb default rates and reward good customers with lower interest rates.

Currently, lenders are asking permission of consumers to study their online use. Consumer-focused agencies such as the Consumer Financial Protection Bureau are watching how lenders will use social media to inform their credit decisions, without violating privacy rights.


(Source: RealtyTimes)

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Riding the wave: Legal issues in the apartment development boom

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The boom in multifamily rental development rolled on unabated throughout 2013, and looks to continue into 2014 and beyond. The growth of this sector has resulted from a perfect storm of economic and demographic factors: continued high unemployment and tight mortgage policies have made home ownership inaccessible for many, while a growing number of baby boom retirees and echo boom young adults find the flexibility of renting to be an affirmative advantage. As a result, large numbers of developers – including many who previously would have focused on single-family residential, condominium or retail development – are looking at apartment development as “the answer” to jumpstart their stagnant project portfolios.

While the enthusiasm for this market is well founded, at least for now, development of multifamily residential property is a specialized area, with ever-evolving opportunities and pitfalls, which require significant equity, patience, and most of all, perseverance. Some legal issues faced in these developments are common to other types of commercial projects, but frequently have a unique twist in the residential rental context.  Some of the top-priority legal issues to consider include stringent and burdensome guidelines for government loans (i.e. Fannie Mae and Freddie Mac), evolving trends in zoning plans, local municipality resistance to multifamily development, and when permitted, often expensive design requirements.

Fannie Mae and Freddie Mac loans: The money and low rates are there but so are the headaches

Over the last several years, the growth of multifamily housing has been partially fueled by the availability of low cost loans from government agencies fondly referred to as Freddie Mac and Fannie Mae. However, the strict documentation requirements and the time it takes to move through the process is often challenging and time-consuming. In addition, the loan documents created and used by these agencies are virtually non-negotiable. The significant restrictions on the transferability of equity interests often pose the greatest problems. The inability to limit representations and warranties to one’s actual knowledge, and the never-ending environmental liability exposure are but a few of the pills we have to swallow if our clients want to take advantage of these low interest rate loans.

Also, whatever time is negotiated in a sale contract for a Freddie or Fannie loan to either be originated or assumed needs to be doubled. The system simply has too many loans to approve and not enough qualified people to process them in a reasonable amount of time. Regardless of the above-mentioned issues and restrictions, these loans are still the “best game in town” right now. If and when the CMBS market returns to strength, the popularity of these loans will dwindle because of the competing CMBS interest rates and less red tape.

Zoning: Major cities re-examine old models

Several cities have gone back to the drawing board with their zoning codes, looking for new models to reinvigorate neighborhoods and streamline the approval process. The primary complaint about the traditional single-use zoning model arises from the constant need to request exceptions from the rigid framework of commercial, industrial and residential zones. Miami, Denver and Washington, D.C. are among the cities to overhaul their zoning codes in recent years, with Los Angeles embarking on its own long-term revisions. The new models focus on context-based zoning with an emphasis on transit, mixed-use properties, green space and the strengthening of neighborhoods. This trend should be hailed by developers who will face simpler, more flexible processes so long as their projects fit the character and needs of the surrounding communities.

The other side of this coin are the limitations placed on density, impervious surfaces, significant additional amenity and landscape requirements, the architectural standards and construction materials often required, and the Fair Housing Act requirements for individuals with disabilities discussed below. To the extent the demographics can absorb higher rents to cover these additional costs, the acceptance of multifamily rental communities is no longer the “black sheep” of the residential development sector.

Accessibility: Design requirements that open doors

Under the Fair Housing Act, many new multifamily construction projects must meet minimum standards of accessibility for individuals with disabilities. Under HUD regulations, covered properties include all units in buildings with one or more elevators and four or more units, or all ground level units in buildings with four or more units but no elevator. The standards include seven general requirements:

  1. An accessible building entrance on an accessible route
  2. Accessible common and public use areas
  3. Usable doors (usable by a person in a wheelchair)
  4. Accessible route into and through the dwelling unit
  5. Light switches, electrical outlets, thermostats and other environmental controls in accessible locations
  6. Reinforced walls in bathrooms for later installation of grab bars
  7. Usable kitchens and bathrooms

Additional requirements apply to developments receiving federal assistance. In such properties, 5 percent of the units must be accessible to mobility-impaired individuals and 2 percent must be accessible to individuals with vision or hearing impairments. State and local restrictions may also apply. Proper advance planning is essential in this area to avoid costly plan revisions or worse, construction tear-outs.

Bottom line: Is it worth the plunge?

Compared to other real estate development sectors, multifamily rental properties certainly look like the healthiest area for investment. The population of renters – some by choice, some by necessity – will continue to grow at least until job growth takes a significant upturn. At the same time, local governments are excited to entertain proposals from developers who offer high-quality additions to the community’s housing stock. Of course, this appealing market is likely to become oversaturated in time with inexperienced investors jumping in, but a measured approach that takes into account community demographics, attractive financing, and conscientious planning will offer great returns in the long run.

(Source: RE Journals)

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Is the government hurting Chicago’s high-end home market?

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Had Shane Powell, a 32-year-old sales manager who works in Itasca, and his partner been buying a home in Brooklyn instead of Bucktown, they could have borrowed more government-guaranteed money, making it easier to finance their purchase.

In many of the country’s coastal markets and wealthy areas, the couple could have taken out a federally backed mortgage worth as much as $625,500, increasing their pricing power. But the Federal Housing Finance Agency, which sets the ceiling for such loans, doesn’t consider the Chicago area costly enough and caps guaranteed mortgages here at $417,000.

The disparity long has stuck in the craw of the local residential real estate industry, which argues that the lower level for government-secured mortgages here dampens home sales in expensive neighborhoods and suburbs, forces buyers to take out multiple loans and has slowed the housing recovery.

It also irks U.S. Rep. Mike Quigley. The North Side Democrat plans on Jan. 13 to send Mel Watt, the new director of the Federal Housing Finance Agency, a formal letter urging the agency to increase them to an unspecified level. In an interview, Mr. Quigley says homebuyers should be able to borrow $625,500 to buy in more expensive parts of the local market, the same rate as the highest-price areas around the country.

“All I’m saying is there are some markets in the Chicagoland area that can bear a higher level based on the same rationale they are using for the Bay Area,” Mr. Quigley says. “This isn’t just one market.”

Mr. Quigley has been down this road before, leading an unsuccessful effort in 2012 to persuade the agency’s former head to lift limits. This time, he’s persuaded fellow Illinois Reps. Tammy Duckworth, Brad Schneider, Bobby Rush, Dan Lipinski, Luis Gutierrez, Danny Davis and Jan Schakowsky to sign on and is keeping Chicago Mayor Rahm Emanuel aware of the efforts.

Mr. Watt’s agency lumps together the entire Chicago market—a sprawling area where homes can list for $10 million in Lake Forest and $20,000 in Englewood—when it calculates the limits. That ends up hurting buyers and sellers in high-priced markets who have the financial wherewithal and income to access guaranteed loans worth up to $625,500, the current maximum for a single-family home in expensive markets such as New York and San Francisco, Mr. Quigley argues.

‘WILD CARD’ LOAN

For Mr. Powell and his partner, a doctor, the lower limit forced them to take out two mortgages, exposing them to additional interest-rate risk, in order to close on a $730,000 home in Bucktown about 18 months ago. They put about $73,000 down, borrowed to the $417,000 limit in a first mortgage and took out a second loan for the balance, about $240,000. The latter loan’s rate is 5.5 percent, 1.5 points higher than the first, and the rate floats.

“It’s kind of a wild card,” Mr. Powell says of the second mortgage.

“The reality is it’s a fairness thing,” says Matt Farrell, president of the Chicago Association of Realtors and managing partner at Chicago-based Urban Real Estate Inc. “Why is it if I move to L.A. and I have my same income and my same credit score, I can get a loan that’s worth $200,000 more?”

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Historically, federally backed loans, which lenders sell to federal mortgage giants Fannie Mae and Freddie Mac, have carried interest rates that are lower than jumbo loans, the term for debt that exceeds the limits. That’s made them a no-brainer for homebuyers for years.

Though jumbo rates are on par with guaranteed-loan rates, according to the Mortgage Bankers Association in Washington, many borrowers—like Mr. Powell and his partner—can’t afford a 20 percent down payment to lock in a 30-year jumbo mortgage with the low rates.

Increasing loan limits probably would raise demand for more expensive homes and lead to higher prices at the high end. That could be a problem in frothy residential markets, according to Jed Kolko, chief economist at Trulia Inc., an online brokerage in San Francisco. But Mr. Kolko doesn’t think the Chicago market is in danger of going over its skis.

Mr. Quigley likely has a tough road ahead: Rather than boosting limits, the housing finance agency is considering lowering them across the board. Last month, the regulator asked for public comment on a proposal to make $400,000 the baseline, from $417,000 today, and $600,000 in high-cost areas.
(see the PDF)

(Source: Crain’s Chicago Business)

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What to Do With Frozen Pipes and How to Prevent Them

01-14

More than just a minor inconvenience, frozen pipes are destructive and disruptive. That’s because the frozen water doesn’t just stop flowing through pipes. More than just a minor inconvenience, frozen pipes are destructive and disruptive.  – it actually expands and can cause pipes to crack or burst.

An 8-inch crack in a pipe can leak up to 250 gallons of water per day. That unexpected, unwelcome flood can ruin floors, furnishings, appliances, photos and other valuables.

Each winter, more than 250,000 U.S. households have their homes destroyed and their lives disrupted by frozen pipes. Oftentimes pipes burst while the residents are away for a few days. Residents turn down the thermostat in an effort to save money, not considering the potential damage that could occur. If they’re gone for a long period of time, the water damage can quickly turn to mold.

Here are some tips to manage and prevent frozen pipes.

Resolve the problem quickly

If your water pipes freeze, immediately turn off the water at your home’s main shut-off valve and call a plumber.

You may be able to thaw a frozen pipe with warm air from a hairdryer. Start by aiming the air at the part of the pipe closest to the faucet and move toward the coldest span of pipe. Never use a torch or other open flame to attempt to thaw a pipe.

Protect your pipes

A few simple actions may protect your pipes the next time temperatures drop.

  1. Let a trickle of water run from indoor faucets located along exterior walls. This dripping water provides relief from the excessive pressure that builds between the faucet and the ice blockage when freezing occurs. If there is no excessive water pressure, the pipe won’t burst – even if the water inside the pipe freezes.
  2. Open cabinet doors to allow heat to get to pipes under sinks along exterior walls.

Weatherize your home before winter

Taking steps to winterize or weatherproof your home can also help prevent frozen pipes. Consider these tactics before next winter rolls around.

  1. Insulate the pipes in your crawl space and attic, which are especially susceptible to freezing. Pipe insulation cannot prevent water from freezing in pipes, but it can increase the time needed for freezing to occur.
  2. Heat tape or heat cables can be used to wrap pipes. Use these products only for their intended use (interior or exterior) and follow the manufacturer’s instructions for installation and use.
  3. Seal leaks that allow cold air inside, especially near pipes. Double-check around electrical wiring, dryer vents and pipes. Caulk or insulation can work wonders when it comes to keeping cold air out and warm air in.
  4. Disconnect garden hoses when garden season ends. If the faucet drips even a small amount, water will eventually fill the hose near the faucet, as well as the faucet and the span of hose just inside the house. When temperatures drop, that water will freeze and damage will likely result.

(Source: Zillow)

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How to Approach Real Estate in 2014 & Beyond

01-13

The current real estate recovery is like a marathon. Last year, buyers and sellers sprinted out of the gates at full speed, fueled by low interest rates and affordable home prices. The press and social media were full of stories about limited housing inventories, bidding wars and multiple offers. In 2013, real estate was sexy and headline-worthy.

As we move into 2014, it’s clear we’ve only run the first few miles of this marathon. Last year’s excitement will surely wear off, and there will be a lot less flashy magazine covers, posts, tweets or evening news stories about real estate. Most experts predict a slower, steadier, more even “pace” this year in most of the country, even as interest rates and home values inch up.

This doesn’t mean 2014 won’t be as good a time to buy real estate. It helps to look at the bigger picture and not get caught up in the micro stats or the latest headlines. Sure, we likely won’t see interest rates as low in 2014 as we did in 2013. But to put that into perspective, interest rates were as high as 18 percent in the 1980s, yet people still bought homes.

As you approach buying a home this year, it helps to focus on the long term by keeping the following five best practices in mind. These were best practices for home buying a generation ago. And they’ll most likely still be practical when the next generation of home buyers sprints out of the gate.

Buy when you’re ready

Just because you didn’t buy last year when the market was super hot doesn’t mean you’ve missed out. Could you have gotten in when the rates were at their lowest and values near the bottom? Sure. But were you ready to buy then? Probably not. The main thing to remember is that you should buy a home when you can afford it, you have your financing and you’ve found a home that meets your needs. That will always be the best time to buy.

Home buying is a journey

Despite how quickly the world works today, you can’t force a home purchase. It’s not like buying a television or a laptop. A home is a much more expensive and complicated purchase. It’s where you can feel safe and calm from the outside world, a place you can customize to your needs, and where you will make lasting memories. Because of this, buying a home comes with emotional and practical implications on top of the financial ones. Remember that a home is your place to live first and an investment second. Take the time you need to find the right home.

Don’t be driven by data

If you watch the nightly news or read news online, you’ll hear real estate market predictions and numbers on a national level. And at any given time, you’ll likely get conflicting real estate forecasts. A lot of information and data will come at you from many different angles — including social media. Don’t take anything to be an absolute. Keep your own goals and needs top of mind at all times.

Real estate is local

The national real estate news headlines may be about multiple offers and bidding wars. But that situation may only be relevant to one part of the country or even to just a handful of cities. Meanwhile, the neighborhood where you want to buy a home still has distressed sales and is more of a buyers’ market.

All that really matters in real estate is what’s happening in your own community. If you’re interested in getting into the market, follow the local economy and housing markets. Go to open houses and learn. Get connected to a real estate agent who has “feet on the street.”

Go with your gut

You know your financial situation better than anyone. You know your down payment amount, credit score, amount of savings and the upper limits of what you can afford to put toward homeownership every month. Apply what you know about your finances to your local real estate market. You know the neighborhoods, the commercial districts and the types of homes for sale. By merging these two, your gut will inform you on what’s a good buy, when it’s the right time to buy and how to approach a purchase.

In 2014, stay focused on what you know, stay local, take your time and don’t let outside forces sway your decision to buy a home. People have bought and sold homes for years, at higher prices and with higher interest rates. If you’re in it for the long haul, consider yourself at mile 3 of a 26-mile marathon.

(Source: Zillow)

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