2024 – Page 40

U.S. HOME-MORTGAGE LENDING DECLINES AGAIN IN FIRST QUARTER, NEARING LOW POINT

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Residential Loans Down Another 7 Percent, to Smallest Level Since 2000; Total Lending Activity Off Almost 70 Percent in Three Years; Purchase, Refinance and Home-Equity Lending All Decrease ATTOM, a leading curator of land, property, and real estate data, released its first-quarter 2024 U.S. Residential Property Mortgage Origination Report, which shows that 1.28 million mortgages secured by residential property (1 to 4 units) were issued in the United States during the first quarter, representing a 6.8 percent decline from the previous quarter. The drop-off marked the 11th in the last 12 quarters, to the lowest level since 2000. The latest decline left total residential lending activity down 4.8 percent from a year earlier and 69.3 percent from a high point hit in 2021. It came amid another period of rising mortgage interest rates and elevated home prices unaffordable to significant portions of American households, on top of low supplies of homes for sale. Ongoing decreases in lending activity during the first quarter resulted from losses in all major categories of residential lending. Purchase-loan activity went down another 9.9 percent quarterly, to about 565,000, while refinance deals dipped downward by 1.9 percent, to 491,000. Home-equity credit lines slipped 9 percent, to 222,000. Measured monetarily, lenders issued $405.6 billion worth of residential mortgages in the first quarter of 2024. That was down 4.8 percent from the fourth quarter of 2023 and 4.5 percent from the first quarter of last year. The varying paces of change among different loan types helped reduce the portion of all residential mortgages represented by purchase lending for the third straight quarter while pushing the refinance component upward. Still, purchase loans were the most common form of mortgages around the U.S. in early 2024, comprising more than 40 percent, followed by refinance packages and home-equity lending. “There is reason to hope that we will see something of a turnaround when second-quarter data comes in, given the jump in lending activity that happened during the peak home-buying season of 2023,” said Rob Barber, CEO at ATTOM. “But with little sign that interest rates are coming down, which could fire up refinance and HELOC lending, or that supplies of homes for sale are going up, any increase is likely to be limited.” Home-mortgage lending took another hit in the early months of 2024 as average interest rates for 30-year fixed loans rose close to 7 percent (it has since increased). That continued to push up home ownership costs at a time when near-record home prices in most of the country already were unaffordable, or a significant financial stretch, for average wage earners. Purchase lending was further eroded amid counts of homes for sale that were less than half the levels seen five years ago. Total lending activity down in two-thirds of nationBanks and other lenders issued a total of 1,277,899 residential mortgages in the first quarter of 2024, down from 1,371,344 in the fourth quarter of 2023. The fallback continued a three-year run of declines that was broken only by a spike in the second quarter of last year. The latest total also was down annually from 1,343,010 in the first quarter of 2023, and from a recent high point of 4,165,204 hit in the first quarter of 2021. A total of $405.6 billion was lent to homeowners and buyers in the first quarter of this year, which was down from $426.1 billion in the prior quarter and down from $424.6 billion in the first quarter of 2023. The latest figure stood at less than one-third of the recent peak of $1.29 trillion hit in 2021. Overall lending activity dipped lower from the fourth quarter of last year to the first quarter of this year in 125, or 69 percent, of the 182 metropolitan statistical areas around the U.S. that had a population of 200,000 or more and at least 1,000 total residential mortgages issued in the first quarter of 2024. Total lending also remained down from the first quarter of 2023 in 118, or 65 percent, of the metro areas analyzed. It was off by at least 5 percent annually in almost half of those markets. The largest quarterly decreases were in St. Louis, MO (total lending down 40.5 percent from the fourth quarter of 2023 to the first quarter of 2024); Buffalo, NY (down 29.9 percent); Albany, NY (down 28.6 percent); Syracuse, NY (down 27.4 percent) and Pensacola, FL (down 25.6 percent). Aside from St. Louis and Buffalo, metro areas with a population of least 1 million that had the biggest decreases in total loans from the fourth quarter of 2023 to the first quarter of 2024 were Minneapolis, MN (down 21.2 percent); Hartford, CT (down 18.2 percent) and Honolulu, HI (down 16.3 percent). The biggest quarterly increases among metro areas with a population of at least 1 million came in Tucson, AZ (total lending up 15.2 percent from the fourth quarter of 2023 to the first quarter of 2024); Phoenix, AZ (up 14.9 percent); Birmingham, AL (up 8.8 percent); Virginia Beach, VA (up 8.6 percent) and Memphis, TN (up 8.3 percent). Purchase mortgages slump throughout U.S. but remain top loan typeLoans issued to home buyers fell back in the first few months of 2024 for the third straight quarter after a surge of about 25 percent in the Spring of last year. The latest total of 564,598 dropped from 626,759 in the fourth quarter of 2023. It was also down 12.3 percent from 643,988 a year earlier and almost two-thirds from a high point of 1,516,377 hit in the Spring of 2021. The $214.8 billion dollar volume of purchase loans in the first quarter of 2024 was down 6.7 percent from $230.2 billion in the fourth quarter of 2023 and 7.8 percent from $233.1 billion in the first quarter of last year. Residential purchase-mortgage originations decreased quarterly in 132 of the 182 metro areas in the report (73 percent) and annually in 77 percent of those markets. The largest quarterly decreases were in Wichita, KS (purchase loans down 66.5 percent from the fourth quarter of 2023 to the first quarter of 2024); Mobile AL (down 54.2 percent); St. Louis, MO (down 45.3 percent); Manchester, NH (down 39 percent) and Buffalo, NY (down 38.3 percent). Aside from St. Louis and Buffalo, the biggest quarterly decreases in metro areas with a population of at least 1 million in the first

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Citing Unaffordability, 86% of Consumers Say It’s a Bad Time to Buy a Home The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 2.5 points in May to 69.4 as the component measuring consumer attitudes toward homebuying conditions fell markedly, reaching an all-time survey low. This month, only 14% of consumers indicated that it’s a good time to buy a home, down from 20% last month, while the share believing it’s a good time to sell fell from 67% to 64%. Meanwhile, consumers continue to believe affordability will remain tight for the foreseeable future, as respondents believe that, on net, home prices and mortgage rates will go up over the next year. Among the positives from the survey: A growing share of respondents, now 20%, indicated that their household income is significantly higher than it was a year ago. The full index is up 3.8 points year over year. “Consumer sentiment toward housing declined from its recent plateau, as an increasing share of consumers struggle to find the positives in the current housing market,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “While many respondents expressed optimism at the beginning of the year that mortgage rates would decline, that simply hasn’t happened, and current sentiment reflects pent-up frustration with the overall lack of purchase affordability. This is most clearly evidenced by our ‘good time to buy’ component falling to a new survey low this month. On the other hand, homeowners’ perception of home-selling conditions declined only slightly and remains largely positive after a steady increase over the last few months. This suggests to us that, despite the so-called ‘lock-in effect,’ some homeowners may increasingly want or need to sell their homes for a myriad of non-financial reasons, which may lead to an increase in listings in the near future. As our latest forecast notes, we expect improvements to housing inventory will lead to slightly increased sales activity through the end of the year.” Home Purchase Sentiment Index – Component Highlights Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased 2.5 points in May to 69.4. The HPSI is up 3.8 points compared to the same time last year. Read the full research report for additional information. Detailed HPSI & NHS FindingsFor detailed findings from the Home Purchase Sentiment Index and National Housing Survey, as well as a brief HPSI overview and detailed white paper, technical notes on the NHS methodology, and questions asked of respondents associated with each monthly indicator, please visit the Surveys page on fanniemae.com. Also available on the site are in-depth special topic studies, which provide a detailed assessment of combined data results from three monthly studies of NHS results. SOURCE Fannie Mae

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The merger gives real estate investors access to a robust technology platform Brown Gibbons Lang & Company (BGL) announced the merger of Mynd, the company transforming how investors find, finance, lease, manage, and sell SFR properties, with Roofstock, a leading real estate services and investment platform specializing in the single-family rental (SFR) sector. BGL’s Real Estate & Property Technology investment banking team served as the exclusive financial advisor to Mynd in the transaction. The specific terms of the transaction were not disclosed. Headquartered in Oakland, California, Mynd is a tech-enabled real estate company serving the $85+ billion property management and real estate investment market. Powered by a proprietary, all-in-one digital platform and local listing and property management experts, Mynd aims to simplify the entire investment journey for both first-time and veteran investors, allowing more Americans access to the single-family residential sector as a way to build intergenerational wealth. Founded in 2016, with operations in more than 25 markets across the U.S., Mynd is backed by top venture capitalists, including Lightspeed, Canaan, Jackson Square, and QED. This merger gives real estate investors access to a robust technology platform, deep data insights to inform their buying and selling decisions, and a property management system built specifically for SFR to ensure their units are leased, well maintained, and generating strong returns. Headquartered in Oakland, California, Roofstock is a provider of Real Estate Investment as a Service (REIaaS) for investors in the $5 trillion SFR sector across the entire investment lifecycle. Its proprietary data, technology, and integrated services help investors maximize opportunities across the U.S. and realize substantial returns. Founded in 2015, Roofstock is backed by a blue-chip roster of venture capital investors, including Khosla Ventures, Bain Capital Ventures, Lightspeed Venture Partners, Canvas Ventures, and SoftBank Vision Fund 2. SOURCE Brown Gibbons Lang & Company

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By T. Robert Finlay, Esq. and Kathy Shakibi, Esq. of Wright, Finlay & Zak, LLP INTRODUCTION On May 30, 2024, the Supreme Court of the United States (“SCOTUS”) issued its opinion on a matter of far-reaching consequence – whether the National Bank Act preempts a New York State consumer financial law requiring payment of interest on mortgage escrow accounts. Cantero v. Bank of Am., N.A., 2024 U.S. LEXIS 2367. The Cantero case arose from New York General Obligations Law §5-601, which requires a minimum two percent interest to be paid on mortgage escrow accounts, maintained for payment of property taxes and insurance. The Second Circuit had decided that the minimum interest requirement would exercise control over a banking power granted by the federal government, so it would impermissibly interfere with national banks’ exercise of that power and was thus preempted. SCOTUS vacated the Second Circuit’s ruling and remanded with instruction to analyze the preemption under the second prong of Dodd-Frank Act’s preemption standard, known as the Barnett Standard. THE DUAL BANKING SYSTEM AND THE INCONSISTENCY BETWEEN RESPA AND STATE LAWS REQUIRING INTEREST ON MORTGAGE ESCROW ACCOUNTS “Both federal and state governments are empowered to charter banks and to regulate the banks holding their respective charters.” Lacewell v. OCC, 999 F.3d 130, 135 (2d Cir. 2021). The National Bank Act of 1864, 12 U.S.C. §21 et seq., authorizes the federal government to issue bank charters and grants national banks enumerated powers as well as incidental powers necessary to carry on the business of banking. 12 U.S.C. §24. Among the enumerated powers is the power to “make, arrange, purchase or sell loans…secured by liens on interests in real estate.” 12 U.S.C. 371(a). National banks have incidental powers to provide escrow services in connection with home mortgage loans. Among Congress’s regulation of national banks, the Real Estate Settlement Procedures Act of 1974 (“RESPA”), 12 U.S.C. §2601 et seq., regulates how a bank may handle an escrow account in connection with a home mortgage. 12 U.S.C. §2609(a)(1). RESPA does not require that national banks pay interest on escrow accounts. At least thirteen states, however, have enacted laws which require payment of interest on mortgage escrow accounts. Thus, there exists an inconsistency or conflict between RESPA and state laws requiring interest on mortgage escrow accounts. DODD-FRANK’S STANDARD FOR PREEMPTION OF STATE CONSUMER FINANCIAL LAWS Further among Congress’s regulations of national banks, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, (“Dodd-Frank”), Pub. L. No. 111-203, defines a state consumer financial law as “…a State law that does not directly or indirectly discriminate against national banks and that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction (as may be authorized for national banks to engage in), or any account related thereto, with respect to a consumer.” 12 U.S.C. 25b (a)(2). Dodd-Frank Act also provides the preemption standard for state consumer financial laws as follows: “(1) In general, State consumer financial laws are preempted, only if – The preemption standard provided by Dodd-Frank has three prongs and any one prong is sufficient. The second prong in subsection (B) is codification of the 1996 SCOTUS ruling in the Barnett case and is known as the Barnett standard. The Barnett case involved a conflict between 12 U.S.C. §92, which empowers a national bank to sell insurance, if located in an area with a population less than five thousand, and a Florida state law, which restricted that power. In Barnett SCOTUS discussed and analyzed its prior decisions where SCOTUS had found preemption of a state law – Franklin Nat. Bank of Franklin Square v. New York, 347 U.S. 373 (1954), (a New York state law which prohibited banks from using the term saving in their advertising was preempted) and Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982), (Home Owner’s Loan Act authorizing due-on-sale clauses preempted a conflicting California law). SCOTUS also discussed and analyzed its prior decisions where SCOTUS had not found preemption of a state law – Anderson Nat. Bank v. Luckett, 321 U.S. 233, (1944); McClellan v. Chipman, 164 U.S. 347, 358 (1896); and National Bank v. Commonwealth, 76 U.S. 353 (1870). Barnett itself held that the Florida state statute was preempted. When Dodd-Frank codified the Barnett decision in the preemption standard, the language included is “in accordance with the legal standard for preemption in the Barnett decision …” SCOTUS REMANDED TO SECOND CIRCUIT TO APPLY THE DODD-FRANK AND BARNETT STANDARD In its decision to vacate and remand Cantero to the Second Circuit, SCOTUS stated that the Second Circuit had relied primarily on an unbroken line of case law since McCulloch v. Maryland, 4 Wheat. 316 (1819), and held that federal law preempts any state law that purports to exercise control over a federally granted banking power, regardless of the magnitude of its effects. Cantero v. Bank of Am. N.A., 2024 U.S. LEXIS 2367 at *12. SCOTUS reasoned that: “New York’s interest-on-escrow law does not discriminate against national banks. The question of whether New York’s interest-on-escrow law is preempted therefore must be analyzed under Dodd-Frank’s “prevents or significantly interferes” preemptions standard. To guide judicial application of that preemption standard, Dodd-Frank expressly incorporates this Court’s decision in Barnett Bank. The preemptions question here therefore must be decided “in accordance with” Barnett Bank, as Dodd-Frank directs.” Canero supra at * 13, 14. The Cantero case involved two putative class actions, which were decided together – one brought by Alex Cantero and another brought by Saul Hymes. Alex Cantero had obtained his mortgage loan before the effective date of Dodd-Frank and Saul Hymes had obtained his mortgage loan after the effective date of Dodd-Frank. The Second Circuit appears to have applied its analysis of the Barnett standard to Alex Cantero case and its analysis of Dodd-Frank to the Hymes case as can be seen on pages 126, 127, 130, 131, 132, 133, 135, 136 and 139 of the Second Circuit’s ruling. Cantero v. Bank of

Accessory Dwelling Units

by Carole VanSickle Ellis
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New Life & New Challenges in an American Tradition By Carole VanSickle Ellis If you have read the Little House on the Prairie books by American pioneer girl Laura Ingalls Wilder, then you may remember the book in which the family lives in a dugout underneath a hillside next to a creek while they build a farmhouse in which to live permanently. Wilder describes this time spent “on the banks of Plum Creek” (also the name of the fourth book in the Little House series) as a largely idyllic time in her childhood, but living underground in a home where a cow could put a hoof through the roof at any time could not have been entirely pleasant. However, it gave the Ingalls the home base they needed while they built a larger, more permanent home and, in the process, Laura participated in the long-practiced model of leveraging accessory dwelling units (ADUs) in order to improve housing affordability and access. “ADUs are an American tradition,” observed AARP “Livable Communities” authors in 2019 as part of an initiative to familiarize the Gen X and junior Boomer populations with the concept of possibly living in a “granny unit” once they hit retirement age. “[For centuries], people with wealth and acreage regularly populated their lands with secondary mansions and ancillary buildings independent of the main estate,” the report said. Today, ADUs are, once again, an indicator that a property owner is working on building wealth for the future, often by renting out the smaller property or even subdividing it off and selling it. However, these small housing units have become much more than just an outward sign of affluence and prosperity. Today’s ADUs and their associated local legislation can indicate the presence of huge potential returns for real estate investors or, conversely, enormous potential headaches for investors and their neighbors alike. Opportunities & Challenges “The ADU space provides both opportunities and challenges,” said Michelle R. Rodriguez, a partner with the California branch of legal firm Wright, Finlay & Zak who specializes in Compliance, Licensing, and Regulatory issues. Rodriguez is a licensed attorney, a licensed real estate broker, and a member of the board of directors for the California Mortgage Association. She continued, “For investors, when you are considering buying a property, you need to be aware of all the possibilities around ADUs. How many units are there? How many units could there be? How will the deal pencil out? Knowing what the rules are gives you a leg up and differentiates you from the hundreds of other people and entities in the space.” California, where Rodriguez is based, has one of the most proactive state policies on these little dwellings, which many researchers believe are the key to solving the affordable housing crisis without losing the attractive elements of single-family residential communities. In California, a property may have as many as three ADUs on the property, and those units may be built and sold as condominiums instead of remaining with the “parent” property. New construction must go through an approval process and may be taxed at a state or municipal level, may have as many as three bedrooms (but no more than 1,200 square feet and less in some circumstances), and may have a height of 18 feet, or 25 feet if they are attached to a larger structure. The goal of these “relaxed” regulations, Rodriguez said, is to ameliorate the affordable housing problem in the Golden State. “There are certainly communities out there that either do not want ADUs or want to greatly restrict the number and type of ADUs they permit, and often these are the communities where there is a great need for affordable housing,” Rodriguez explained. “The state of California has stepped in with its new legislation in an effort to force municipalities to allow ADUs to a certain extent, such as setting a minimum allowable number of units on a property (3).” This means, at least in theory, that communities will not be able to prohibit property owners from building three ADUs on their properties assuming other building and inspection codes are met; some cities in California have elected to raise that number to five. “Offering a mix of housing types and sizes will always be a boon to affordable housing,” observed Karen Patten, principal of Atlanta, Georgia-based YIMBY (Yes In My Backyard) Consultants. “Here, ADUs are still very much in an experimental stage,” she continued, “so the impact is still to be determined.” In Georgia, some cities, such as Atlanta, and counties (roughly 10% of the 159 counties in the state) permit some closely regulated ADU construction. However, even in a municipal area, communities may have restrictions on who can inhabit an ADU (renter vs. non-paying or related resident) and how many ADUs may be constructed in a given area. At the state level, ADUs may be attached or detached and are permitted to take up no more than just under one-third of the backyard of the house, the only place ADU construction is permitted. Furthermore, the owners of the property must occupy either the main residence or the ADU. “I think they are more accepted in metro-area historic communities where you see a mix of single-family, small multifamily, and commercial together and well-integrated,” Patten said. “I think it works best there [and] they are less likely to face ‘NIMBYs’ [Not In My Backyard].” “So many people are against adding units; you always will have the NIMBYs,” agreed Kristin Weekley, a Boston-based agent and investor who owns one ADU and several other small multifamily properties in the Boston area. Weekley said that for many people in the Boston area, owning a property with a legally rentable ADU can be a gamechanger as the cost of living skyrockets. “Having the rental income is huge for a lot of homeowners,” she said. “I have had clients who, if they had been able to legally convert part of their property to an ADU, could have stayed in their property

York, Pennsylvania

by Carole VanSickle Ellis
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Investors Prepare for Pivot in the “White Rose City” By Carole VanSickle Ellis York, Pennsylvania, is one of the oldest cities in the country. Also known as “The White Rose City” in a nod to the white heraldic rose of England’s House of York, the city was initially named Yorktown in 1741 for its namesake across the ocean. York, which also styles itself “the first Capital of the United States” (this is debatable since Philadelphia, Baltimore, and Lancaster all preceded it), is home to many historic sites and has emerged as a top retirement location in the past few years thanks to high quality healthcare, relatively affordable cost of living, and a vast array of attractive, seasonal events, including the York Fair, which opened in 1765 and is generally considered “America’s first fair.” Opportunities for real estate investments abound in the area, whether an investor prefers long-term investments or shorter-term fix-and-flip options. According to ATTOM Data, fix-and-flip deals are particularly attractive in York right now and showed profit margins of more than 107% as of Q3 2023. “Pennsylvania is home to…four of the 10 best markets for house flipping by ROI,” observed Motley Fool research lead Jack Caporal in March 2024. In addition to York, Caporal listed Scranton, Pittsburgh, and Harrisburgh/Carlisle. Caporal also used Q3 2023 numbers in his report, indicating York’s 2023 gross flipping profit was nearly $105,000. While York, like most areas of the country, is struggling with low housing inventory, local real estate investor Eric Brewer observed that the “frenzied activity” of 2021 and 2022 has eased off. “We are not seeing people putting in offers sight-unseen or waiving inspections very often anymore,” he said. Brewer, who is the owner and founder of Integrity First Home Buyers (IFHB) and helps train and coach other investors to be prepared for any market condition, called the current buyer approach to making a home purchase “more disciplined,” but noted that his company is still consistently listing homes and seeing them spend only about 10 days on the market after being listed. IFHB invests in rental properties and fix-and-flip deals, and Brewer reported most successful offers are coming in at or slightly above list price. He credited realistic listing prices and solid renovations for this, noting, “You must price according to location and condition or your property will sit.” Inventory is Falling, but Prices Remain Steady Traditionally, real estate analysts have been able to predict future market shifts based on the amount of inventory available and the current sales prices of homes in an area. When prices rise out of reach due to tight inventory and, in many cases, rising interest rates, analysts expect the market to hit a “tipping point” at which prices will begin to fall and, at around the same time, inventory will begin to increase because fewer home purchases are made at the peak price point. However, in York, while home purchase volumes have been declining steadily and prices have held more or less steady (rather than risen) in recent months, the market does not appear to be closing in on its tipping point just yet. Brewer noted that an investor with a strong off-market lead generation program will likely not experience the same strain the broader York market is experiencing when it comes to finding properties to purchase. “When it comes to off-market inventory, we have not seen a substantial change, but that is likely because we have a history of spending a significant amount of capital on marketing and keeping ourselves top-of-mind for people who are in a position that forces them to sell,” he said. For example, he said, IFHB does not deal with “discretionary buyers” who may be weighing their options, deciding whether to remain in their current home or sell and purchase a new one. Instead, they deal with homeowners who must sell, possibly due to an employment-related relocation, divorce, or job loss, and are in the process of deciding how to accomplish the sale. According to Realtor.com, there are currently just over 600 homes for sale in York, with 241 rentals also listed. Although sold and listed prices began to diverge in March 2024, York properties still are typically selling for “approximately the asking price,” Realtor.com analysts stated at that time. Rocket Homes analysts agreed and, the following April, reported the median sales price of York properties was up about 15% over the same month a year prior, and inventory was down nearly 1% compared to April 2023. Relatively flat inventory levels could have something to do with local population trends as well. Since the 2020 U.S. Census, the York population has increased by only a few thousand people. However, a growing interest in retiring in the York area could turn that particular trend around in the coming years. According to U.S. News & World Report’s “Best Places to Retire in the U.S. in 2024” report, York is the fifth-most-attractive location in the country in which to spend retirement years. The area’s relatively low cost of living also makes it attractive to professionals working in the Baltimore area. “This small metro is known for its rich history, museums, and numerous hiking trails,” raved USA Today reporter Amritpal Sandhu-Longoria. Multiple colleges and universities in the area attract a consistent population of students as well, and the York Historic District, a national historic district that encompasses more than 300 buildings, attracts thousands of tourists annually as well as retirees. New Legislation Could Eliminate Unprepared Investors At present, York is still a highly attractive market for investors, and competition for off-market deals remains fierce. Cash buyer activity remains high as well. However, at least some of that cash-buyer activity could fade away as more Pennsylvania cities adopt legislation requiring residential property wholesalers to apply for and receive a license before entering the business. A number of Pennsylvania cities have already passed legislation requiring residential wholesalers, who typically get properties under contract and then assign the contract to another investor for a fee, to