REI INK

Changes to California HOBR

The “Big” Guys, “Little” Guys, and Those In Between by T. Robert Finlay, Esq. During the height of the Financial Crisis, California passed its landmark legislation intended to help homeowners facing foreclosure — the Home Owner Bill of Rights (HOBR). In short, HOBR required loan servicers to follow certain procedures when putting defaulted borrowers on notice of foreclosure prevention alternatives and prevented servicers from “dual tracking,” i.e., simultaneously proceeding with foreclosure while the homeowner is being reviewed for a loan modification. The law was limited to owner-occupied consumer loans in first position (In response to COVID’s impact on landlords, California’s Legislature amended HOBR in 2020, extending its application to certain tenant occupied properties. Those extensions have since expired). HOBR intended to put loan servicers into two buckets for compliance purposes — the “Big Guys” who annually handle 175 or more annual qualifying foreclosures and certain “Little Guys” who do not meet the 175 threshold. While servicers in both buckets are prohibited from dual tracking, the more detailed and onerous HOBR provisions only applied to the Big Guys, including, but, not limited to:  »         Civil Code § 2923.7, requiring a Single Point of Contact; and  »         Civil Code § 2923.6, mandating certain notices and procedures when the borrowersubmits a complete loan modification. The Little Guys “exception” to the more detailed requirements was limited in Civil Code § 2924.15 to: (A) A depository institution chartered under state or federal line law, a person licensed pursuant to Division 9 (commencing with 3 Section 22000) or Division 20 (commencing with Section 50000) of the Financial Code, or a person licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business 6 and Professions Code, that, during its immediately preceding annual reporting period, as established with its primary regulator, foreclosed on 175 or fewer residential real properties, containing no more than four dwelling units, that are located in California. But, what if you are a retired couple who occasionally invests in Trust Deeds, but are not a “depository institution” or someone “licensed” by the Financial or Business and Professions Codes? The answer — small investors must comply with the more detailed and onerous HOBR provisions intended by the Legislature to only apply to the Big Guys doing over 175 annual foreclosures! Hard to believe, but an investor who buys one loan a year, must comply with the same HOBR provisions as the largest loan servicers in the country. Since HOBR’s enactment in 2013, the private lending industry has looked for a solution to this obvious unintended oversight by the California Legislature. Unfortunately, for years, there was no appetite in Sacramento to re-open the heated discussions over HOBR. Fortunately, enough time has finally passed, which allowed the California Mortgage Association (“CMA”) to sponsor Senate Bill 1146, which, among other things, puts a small investor “that makes and services seven or fewer loans” a year in the same compliance bucket as loan servicers who conduct less than 175 annual foreclosures. SB 1146 recently passed both houses and is waiting for Governor Newsom’s signature. If signed, the “Really Little Guys” will still have to comply with HOBR; but, starting on January 1, 2025, only its less detailed provisions. Note — The anticipated changes to HOBR do not exempt investors who make and service seven or fewer loans a year. These investors must still comply with HOBR. The new law just reduces the HOBR provisions that need to be complied with. If you have any questions about what provisions must be complied with or need help complying with HOBR, please feel free to reach out to Robert Finlay at rfinlay@wrightlegal.net.

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Texas House Committee on Business & Industry

Testimony Provided by: David Howard, National Rental Home Council by David Howard On September 12, as chief executive officer of the National Rental Home Council, I testified at a hearing of the Texas state legislature examining the impact of “institutional owners” on housing affordability in the state. I testified, in part, “Fundamentally, the expanding role of large {SFR} owners in the housing market is a direct response to the growing demand for new and innovative housing types that meet the diverse needs of today’s housing consumers, a response that is market driven and supported with private capital and private investment.” Here are some key excerpts of my testimony: “To help emphasize the important role the single-family rental home market plays in today’s housing economy, I’d like to talk briefly today about three things: context, affordability, and supply. First, it’s important to understand the context regarding the composition of the single-family rental housing market. Single-family rental homes account for approximately 14% of all the housing in the United States and roughly 40% of all the rental housing. Of the single-family rental homes in the country, the vast majority, somewhere between 85% and 90%, are owned by individuals and small local businesses. Large providers of single-family rental homes, so called “institutional owners,” account for just 3% of the market. More broadly, of all the housing in the United States, large providers of single-family rental homes own just 0.4%. To put this in perspective, this means 99.6% of the housing in this country is owned by someone other than a large provider. Finally, in terms of context, single-family rental homes play a vital role in the new home construction market, where between 10% and 15% of all new homes nationally are built expressly for the purpose of renting. In Texas, there are currently about 27,500 single-family rental homes under construction, compared to approximately 18,000 at this time last year. This investment in new home construction is a win for residents, a win for communities, and a win in the critical effort to build more housing. Turning now to the issue of housing affordability and the impact of large providers of single-family rental homes on pricing: simply stated, it’s hard to make the case that large owners of single-family rental homes have any impact on the cost of housing. There is ample research and data showing the connection between “institutional activity” and home prices just doesn’t exist. First, large owners aren’t buying with the volume and velocity that would impact local home prices; and it’s important to realize, large owners are not just buyers of homes, they are sellers as well. Second, home prices increase for a number of different reasons, most of which have nothing to do with the activities of single-family rental homeowners, large or small. Third, a 2021 market study by the National Association of Realtors found there was zero difference in the price paid by “institutions” than any other home buyer. And in a 2022 report, Freddie Mac found, “institutions heavily target under-market-value homes that need more repair than what most first-time homebuyers are willing to invest. Lastly, the real challenge facing the housing market today is lack of supply, both here in Texas and across the country, a situation particularly dire at the “affordable” end of the market. As an indication: in the 1970s, the United States routinely built over 400,000 starter homes every year. In 2020, we built 65,000. A recent report by Realtor.com estimated the United States needs 7.1 million new units of housing. We’re simply not building enough or investing enough to keep pace with demand. And the imbalance between supply and demand encompasses housing of all types — owner-occupied, multifamily, and single-family rental. Thank you again for allowing me to participate in today’s hearing.”

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Home Flipping Activity Dips Slightly

Profits Inch Up Across U.S. in Second Quarter of 2024 by ATTOM Team ATTOM, a leading curator of land, property data, and real estate analytics, released its second-quarter 2024 U.S. Home Flipping Report showing that 79,540 single-family homes and condominiums in the United States were flipped in the second quarter. Those transactions represented 7.5%, or one of every 13 home sales, nationwide during the months running from April through June of 2024. The latest portion of flipped properties was down from 8.7% of all sales in the U.S. during the first quarter of 2024 — a common pattern during the busy annual Springtime buying season each year when other types of home sales spike. The flipping rate was also down slightly from 7.9% a year earlier. While the rate declined, fortunes kept ticking upward for investors who buy, renovate and quickly resell homes. The latest data showed that investors typically earned a 30.4% profit nationwide before expenses on homes sold during the second quarter of this year, marking the fourth time in five quarters that margins increased following a six-year period of nearly continuous drop-offs. The typical profit margin on homes flipped during the second quarter of 2024 — based on the difference between the median purchase and median resale price for home flips— remained about 25 percentage points below peaks hit in 2016. It also stayed within a range that could easily be wiped out by carrying costs that include renovation expenses, mortgage payments and property taxes, revealing anew the struggles home flippers are having in turning healthy profits. But the return on investment was up slightly from both the first quarter of 2024 and from a low point over the past decade of about 25% in the first quarter of last year. Gross profits on typical flips around the country, meanwhile, increased to about $73,500. That remained down from a high of almost $81,000 reached in 2022, but up from $70,000 in the first quarter of 2024 and more than $12,000 above last year’s low point. “The Spring home-buying season of 2024 brought another sign of hope for home flippers that the rebound in fortunes that began for them last year was more than just a temporary thing,” said Rob Barber, CEO for ATTOM. “It’s not as if profits have shot through the roof and investors are riding a new wave of good times. Far from it, as they continue to struggle to benefit from the broader market boom. But the second-quarter numbers did show another step in the right direction.” He added that “with the market rising amid tight supplies of homes for sale around the country and falling interest rates, conditions appear ripe for more improvement over the rest of the year as long as prices don’t shoot up past what most buyers can afford.” The small changes in flipping activity and profit margins during the second quarter came during yet another period of mixed patterns for the home-flipping industry compared to the U.S. housing market. Overall, home prices rebounded strongly during the second quarter from a varied period of gains and losses during the prior 12-month period. Median prices for all single-family homes and condos nationwide rose 9% quarterly and 6% annually. But home-flipping resale prices rose far less, with the median inching up only 2% quarterly and annually to $315,000. Nevertheless, that was enough to boost flipping profit margins as investors benefitted, in small increments, from shifts in prices going in their favor between the time of purchase to resale. Those gaps led to the quarterly and yearly improvement in investment returns. The latest gains for home flippers extended their recovery from an unusual pattern of timing the housing market poorly, which resulted in their profits dropping from 2016 through 2022 while returns for other sellers soared. Home-Flipping Rates Dip Downward Home flips as a portion of all home sales decreased from the first quarter of 2024 to the second quarter of 2024 in 159 of the 185 metropolitan statistical areas around the U.S. with enough data to analyze (85.9%). They went down annually in 115, or 62.2%, of those markets. Measured against the same peak buying period of 2023, most flipping rates declined less than one percentage point. (Metro areas were included if they had a population of 200,000 or more and at least 50 home flips in the second quarter of 2024). Among the metro areas analyzed, the largest flipping rates during the second quarter of 2024 were in:  »         Warner Robins, GA (flips comprised 20.7% of all home sales)  »         Macon, GA (15.4%)  »         Atlanta, GA (13.4%)  »         Columbus, GA (13.2%)  »         Memphis, TN (12.8%) Aside from Atlanta and Memphis, the highest second-quarter flipping rates among metro areas with a population of more than 1 million were in:  »         Birmingham, AL (11.7%)  »         Cleveland, OH (11%)  »         Columbus, OH (10.7%) The smallest home-flipping rates were in:  »         Hilo, HI (3.3%)  »         Honolulu, HI (3.5%)  »         Seattle, WA (4%)  »         San Jose, CA (4.1%)  »         Portland, OR (4.2%) Typical Home-Flipping Returns up Y-O-Y The median $315,000 resale price of homes flipped nationwide in the second quarter of 2024 generated a gross profit of $73,492 above the median investor purchase price of $241,508. That resulted in a typical 30.4% gross profit margin before expenses in the second quarter of 2024, up about one point from 29.2% in the first quarter of 2024 and up from 27.8% in the second quarter of last year. But the latest nationwide figure still remained far beneath the 56.3% level in mid-2016 and from a more recent peak of 48.8% in 2020. Profit margins increased from the first to the second quarter of this year in 93 of the 185 metro areas analyzed (50.3%) and were up annually in 107 of those markets (57.8%). Metro areas with the biggest year-over-year increases in typical profit margins during the second quarter were:  »         Akron, OH (ROI up from 30.9% in the second quarter of 2023 to 78.1% in the

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