Opening Titles and Closing Remarks

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.

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Another post in my continuing series Ask the Title Guy.

We've prepared a Wire Transfer Information Kit for Realtors® that Tammy Walker is currently distributing. If you'd like one, please email me or leave a comment.

Beginning July 1, 2009 the logistics surrounding many Indiana real estate closings will become even more complicated. House Enrolled Act 1374 effectively 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.

My real estate closing and title insurance business remained challenging during the first quarter of 2009 but in a totally different way that the previous six months. Opened order counts were the best since the first three months of 2004.

The challenging part for us is not getting the preliminary title work finished-we're doing an excellent job with our turn times. Managing all those files waiting to close is getting tougher. While new orders are way up, the percentage of those orders closing is far less than at any time that I can remember. According to my clients, these orders aren't dead; the process to get to closing is just taking significantly longer due to a number of factors.

First and foremost, loan underwriting is taking a long time . . . a very long time.  Reluctant to add staff when this flurry of activity started in December, many lenders now find themselves chasing their workloads, unable to get control of the ever increasing volume. Adding to the drag is that every loan underwriter feels they'll be seconded guessed on any deal that goes bad so they're being really cautious; more worried about not making bad loans than losing good ones.

Our market also has its share of valuation and appraisal issues but not nearly to the extent as in other areas. Generally housing values in Bloomington and Monroe County are not really going up much lately, but they're not going down much either. I've heard of some deals where the lender required a second appraisal. Condominium appraisals are very tough right now. Especially in developments with non-owner occupied units.

Even if the industry learns to deal with the volume and tighter loan standards, there's another change on the way that will further retard the settlement process. During the second half of the year, lenders and the settlement services industry will begin to implement new procedures in order to comply with changes to the federal Real Estate Settlement and Procedures Act (RESPA) that become mandatory January 1, 2010.

A new form Good Faith Estimate and a new three page form HUD-1 Settlement Statement are major components of the changes. The RESPA changes mandate considerable accountability for lenders with regard to borrower's settlement costs. The accountability will surely result in a training curve for everyone in the settlement services business. That learning curve is not going to make things happen faster. I'll be posting more about these significant RESPA changes over the next few months, so be sure to check back.

In the current environment realtors®, lenders, buyers and sellers are well advised to anticipate that closings will be delayed. To minimize that possibility, buyers need to provide their lender with all requested information as soon as possible. Realtors, instead of writing a purchase agreement with the usual end of month closing date, consider a day in the middle of the month and earlier in the week. There'll be less competition for the loan underwriter's time and less chance that your deal will be delayed.

Federal credit market stimulus is clearly evident when examining mortgage recordings in Monroe County in the first two months of 2009. What is also apparent are those parts of the market that are not benefiting from any government action.

The 729 total mortgages securing loans between $50,000 and $500,000 are the most in this dollar range in the first two months of any of the last seven years. Mortgages in this range tend to be overwhelmingly residential first mortgages. I believe that this increased activity is indicative of the fact that Monroe County homeowners are taking advantage of the lower interest rates resulting from various government actions that began in early December 2008. Judging from new order counts in my company, this trend is still continuing.

On the flip side, mortgages outside that range are down significantly. Mortgages under $50,000 fell 46 percent from year ago levels (195 then, 104 now). These mortgages historically have been primarily home equity credit lines or piggy back purchase seconds. This segment has steadily declined during the last two years. Dollar value of loans over $500,000 (primarily jumbo and commercial) declined over 60 percent from year ago levels (after factoring out one $40 million mortgage securing school bonds). Are the declines in these two market segments reflective of tighter credit standards for loans deemed more risky than high equity first mortgages? I think so.

Monroe County benefits from the lowest unemployment rate in Indiana. The community's primary employers are Indiana University, the health care industry and medical supply industry. All three are not immediately affected by the state of the national economy.

The market is not flooded with vacant foreclosed homes and good values exist in all price ranges. Property values in Monroe County are also faring better than most other places. The worst that can be said in this regard is that values are not current increasing. The Office of Federal Housing Oversight ranks Bloomington for 2008 as the 72^nd best market out of 292 nationally with an appreciation rate of 0.64 percent during last year.

Next month I'll look at the first quarter numbers for a variety of measurements including recorded deeds and foreclosures. If you'd like to be added to our mailing list and receive a complimentary copy of our monthly statistical package, please contact me or Tammy Walker through the link to our company home page.

Tuesday I attend a presentation by representatives of Federal Home Loan Mortgage Corporation (Freddie) in which they discussed their new Relief Refi program. This is program is a big step in the right direction that will help the many families that are living responsibly within their means and making their mortgage payments.

I've posted here before lamenting the fact that many mortgage borrowers are prevented from taking advantage of the current low interest rates because they no longer qualify for the same loan someone made them two or three years ago. In the brave new world of tightened loan underwriting guidelines their credit scores are no longer good enough or their property value has declined to less than they owe on their mortgage.  The Relief Refi program will help in many of these situations.

The program is based upon the common sense principal that if people are making their payments at 6 ½ percent interest they probably will make them at 5 or 5 ½ percent interest as well. In most instances, the lender will not need to re-underwrite the loan. One of the few requirements of the program is that during the previous twelve months, the borrower must be current on all their mortgage payments.

The property value issue is addressed by Freddie's willingness to accept the loan up to 105% of the valuation indicated by their automated appraisal tool. Closing costs and pre-paids may be added on top of the loan up to $2500. Cash-out refinances are not part of this program and all subordinate liens must be re-subordinated.

The program is Freddie Mac's contribution to President Obama's Making Home Affordable plan announced a couple of weeks ago. It is for any loan that is owned by Freddie and is serviced (who the payments are made to) by the lender who sold it to Freddie. You can read the full press release here.

Federal National Mortgage Association (Fannie) also announced two programs of their own. One for existing lenders and one for lenders working to refinance loans made originally through another lender. George Suoto summarized their programs quite well here. Fannie's 18 page announcement can be found here.

Fannie and Freddie both require that eligible loans be closed on or before June 10, 2009 (see correction below) I encourage homeowners to contact their mortgage company to see if their loan qualifies.

By the way, Claire mentioned to me that you'll want to be at the front of this line. If these programs are as popular as we think they will be, the entire system is going to be swamped by the deadline. 

Because Freddie and Fannie are now essentially owned by the federal government, the Relief Refi program is in actuality the way for us average Joes to get a piece of the stimulus package. So be patriotic. Do your part to help the economy recover. Take advantage of the Relief Refi and then go out and spend your monthly savings. Seriously. We'll all benefit in the end. 

Correction March 14, 2009. I'm having one of those moments wondering what the heck I was looking at and I'm feeling kind of stupid. The sunset dates on these programs are June 10, 2010 - not 2009. I apologize for the misinformation. So I'm certain that there's enough time and capacity in the system to accommodate most borrowers. At least I can take comfort that anyone acting on my misinformation will only save money sooner, than later.

The mortgage mess is difficult to explain. There are lots of axes to grind. Many seeking to place blame. Many looking to absolve themselves of blame. No wonder it's hard to really understand what actually happened. The embed video here is the work of Jonathan Jarvis. Jonathan is a graduate student, not in finance, but in Media Design. He attends the Art Center College of Design in Pasadena, California.

It's most interesting to me that this video, the best explanation of market cause and effect that I've seen, is not the product of one of the many talking heads on CNN or CNBC or the Wall Street Journal or any well known financial media publication. It's the product of someone studying how to use new media to explain complex concepts. Jonathan, how Marshall McLuhan of you.

Jonathan gave me permission to pass this on in this post. He also asked that I mention the fine work done by John Levoff with the narration and Brandon Au who did the music. Thanks also to my friend Dave Wirshing who brought this to my attention over the weekend with a post on Twitter.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo. 

While looking at the video a second time, I remembered Alan Greenspan's famous "irrational exuberance" comment that preceded the dot com bust. The dot com bust pales in light of the current situation. So Alan maybe had it right after all - just wrong about the timing!

Jonathan took down the original web site to which he'd posted this video. It appears that it received so much traffic that Jonathon incurred several thousand dollars of expenses. Not easily assimilated into a graduate student's budget. You can show support for this excellent material by buying a t-shirt here.

I will certainly be showing this video to many questioning clients. Maybe you will to.