Opening Titles and Closing Remarks

We just distributed our 2008 year-end Monroe County Statistical Package to our clients. Monroe County, although not immune to the effects of national mortgage and home price ills, fared well in 2008 all things considered.

The total number of recorded deeds representing a sale transaction fell to 2178 - a drop of 22.5 percent from 2007, which may seem bad but is much better than most markets in Indiana and around the country. This is the fifth year in a row that sales transactions declined. (I'm hoping to live long enough to once again face the challenges of managing in an improving market.)

The leader in total mortgage consideration in 2008 was again Monroe Bank with over $139 million lent. Monroe Bank and Indiana University Federal Credit Union were neck and neck in total mortgages recorded with 663 and 631, respectively.

Not surprisingly, a number of previously active lenders disappeared completely from our report during 2008, either through merger or ceasing operations. ABN Amro, Fieldstone Mortgage, Washington Mutual all were sporting big fat zeros as the year moved along.

Most interesting to me is that the number of new foreclosures being started has not increased in Monroe County the last two years. 

A steady employment picture is one benefit of living here where many people work for either the Indiana University or in the health care profession. I don't see layoffs in the immediate future for either of them.

The statistics are compiled as a by-product of maintaining our property records data base, the most comprehensive and up to date index of all matters affecting title to real estate in Monroe County. This extensive data base allows us to perform most title searching and examining activities within our office at any time rather than at the courthouse only while it is open. As a result, we can meet the narrowest of time frames for getting your transaction completed.

Interested in more detail? We'd be happy to send you a copy of the 15 page report. Please use the contact option on this web page or leave me a comment.

If you're not from Indiana, you can't appreciate how involved we all get at this time of year. Watching it on TV. Reading about it in the paper. Passionately rehashing the strategy and decisions every day at the water cooler, in coffee shops and in bars all over the Hoosier State.

Of course I'm talking about Indiana Basketball Property Tax Reform. Yes, that now annual rite when our legislators take up a subject near and dear to the hearts and wallets of their constituency. The time when they feverishly attempt to right past injustices (perpetrated by previous legislatures) and find the holy grail of equity in our Property Tax system.

If you're writing or accepting Purchase Agreements this year, make sure you understand what's going on with the taxes. There are a dozen or more bills introduced that might change what you know.

Last year, taxes on homestead properties benefited from a $640 million dollar one-time state subsidy. This year that subsidy is only $140 million. Off-setting that subsidy reduction, caps on the amount of taxes that can be levied against different classes of property are being implemented. The caps are one and one-half percent of assessed value for residential, two and one-half percent for residential rental and three and one-half percent for commercial and other property. The legislature may vote this session to have the caps put on a ballot so that they can become part of the state constitution. Or they may change it all retroactively. Who knows?

A variety of other factors complicate the uncertainty. The property tax replacement and homestead credits from the state to local government are being eliminated. But the state is taking on much of the school funding responsibilities historically funded by property taxes. Many homes have radically different assessed values. Some counties haven't issued last year's tax bills yet.

I wish I could offer advice as to how this will affect your transactions. I'd just be guessing. And guessing is what I will begin doing. In March I am required to insure lenders that the first installment of taxes is paid even though no bill is available. Title companies all over Indiana will begin escrowing at closing an amount they feel will be adequate to pay the taxes when the bills come out. Two years ago 25 percent of our escrows were short. Last year only two short files. This year-GULP!

The advice I can offer is to be very careful about how you represent property tax issues with your clients. No one can say for sure what taxes will be in the future. Uncertainty is an inherent risk of property ownership that Buyers need to accept. Not their Realtor®. Not their Lender. And not their Title Company.

My post yesterday "I'm just asking . . ." elicited many thoughtful comments.  So many comments in fact, that I thought another post is the only way to do justice to the issues raised by my readers.

This new and largest yet mortgage refinance boom will help homeowners with a significant equity and great credit. People got that way because they are careful with their money and responsible with their obligations. Helping people of this character will certainly increase the odds that the economy benefits.

There are millions of homeowners, many of them young families and single parent households that are also careful with their money and responsible with their obligations. Unfortunately they live in any of a number of other places where housing values have declined and they now are upside down.  Most of these families cannot refinance and increase their disposable income; even though they are still responsibly meeting all their obligations.

I am not pleading on behalf of people who live beyond their means and must pay the price for that lifestyle choice. Nor am I advocating against the homeowners who can refinance now.

I'm just really bugged about the unfairness of it all. Responsible families, who would benefit the most and in turn benefit the economy most, are shut out. They're making their payments at higher rates; I'll think they'll make them at a lower rate as well. If taxpayers weren't spending half a trillion dollars to help someone anyone, I would not be particularly bothered by this. So is the government making the wrong choices? Helping the wrong people? I'm just asking.

Lenn Harley astutely noted "that negative equity is the elephant in the room." Could some of the taxpayer funded bailout be used for kind of credit insurance or incentive? Help responsible families? I'm just asking.

Readers mentioned streamlined FHA refinances. No appraisal needed. Regrettably, you need to already have an FHA mortgage. In the few years prior to the subprime collapse FHA's share of all mortgages made is under five percent. Almost all low down payment transactions used piggy back second mortgages or some PMI. Those transactions cannot be refinanced with an FHA loan unless an appraisal shows minimal equity in their property.

Do we help any of the other responsible borrowers without FHA mortgages? I'm just asking.

It's been widely reported that ten percent of borrowers are at least one month late making their mortgage payment. Do we help a portion of the other responsible 90 percent who might benefit from lower rates but can't? I'm just asking.

I'm just asking and you're just commenting. Thanks to Active|Rain for creating a place we can discuss this in such a thoughtful and civil manner!

Most everyone knows by now that there's a flood of refinancing going on. Refinancing is front page news in the mainstream media. The low rates are artificially induced by the government's intervention into the mortgage securities market. Many homeowners are going to benefit. A lot of the money saved will be spent. That's good for the economy.

I think the Washington policy wonks got it wrong. Big surprise there. The intervention is not helping many people who need and deserve help the most. This post is not to argue whether or not the government should intervene. That decision is made.

The people benefiting from this artificially induced largess are homeowners with exceptional credit and lots of equity. There are millions of homeowners out there, through no fault of their own, who no longer qualify for the mortgage someone made them two or three years ago. (Dan Green explained this quite well one year ago here.)

These families are making their payments. They are making difficult lifestyle choices in order to enjoy the benefits of homeownership. Maybe they're carrying too much debt now, but what young family trying to get started doesn't? A combination of their debt to income ratio and loan to value ratio and not their payment history is preventing them from refinancing. Preventing them from putting an extra few hundred bucks in their pocket every month.

These families are struggling but still getting by; still living up to the terms of legal contracts that they entered into with eyes wide open; still managing to pay Peter and Paul because they forego some of the other luxuries in life. Now if you could help these families, wouldn't that help move the country towards better economic times? I'm just asking.

I'm not smart enough to know exactly how to help these families, but if they're making their payments at six and one-half percent or more, I think they'll make them at five percent. Despite the fact that their equity may be low or non-existent and that their debt to income ratio is high. Instead we're shutting these people out because they don't meet the new lending guidelines arbitrary rules.

Someone needs to start asking how we can help families who make responsible life choices.

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I'll be back in a day or so with my continuing series on 2009 real estate closing title insurance changes that may impact you.

Hey folks! Money is on sale! Get it while it lasts! Money in the form of mortgage loans for credit worthy homeowners and home buyers with equity in the deal, that is. Rates are great. Really great! People are rushing to refinance. Your chosen title company (and everyone else in the mortgage loan finance process) is probably dealing with a welcome but unforeseen three to four hundred percent increase in new title orders the last five weeks.

Make no mistake. This sudden increase will result in more last minute craziness for some real estate closings. Not because anyone is incompetent, just because everyone is suddenly swamped. If you want to minimize the chances of your next deal ending up like a Chinese fire drill, here's a few suggestions.

What to do.

There are steps you can take to ensure that your next deal doesn't accidently end up in a panic the day before closing. First, once your deal is ready to go, get the title order in and let the title company know up front exactly when you hope to close it.  And if that time frame suddenly shortens, let everyone know ASAP. The more lead time afforded, the better the chance things will get done on time.

Second, do your usual follow ups with everyone in the transaction a few days earlier in your time-line. The entire system - loan underwriters, appraisers, title companies- are stressed managing through this sudden increase in business. Production times are bound to lengthen. You want to be in line early.

Third, encourage your clients to be timely. Don't wait to start the loan application process. It's going to take longer. They need to get their loan officers all their documentation as soon as possible. All through the process, incomplete deals will get moved to the bottom of the pile and inevitably incur delays. A deal without lose ends is more likely to be completed within everyone's expected time frame.

Fourth, avoid Friday closings -especially Friday afternoon. In this environment, everything that can be put off until tomorrow, will be. Tuesdays and Wednesday are good days. Those will be among the first deals worked on every Monday. You don't want your deal delayed because it took longer to get someone else's deal done.

Happy Endings

Follow this advice and you and your clients stand a much better chance of avoiding the referral killing last minute closing meltdowns. Most deals always close. To ensure a happy ending in this new environment though requires a little more active delegation than what you may have become accustomed to over the last couple of years.

I'm posting about 2009 changes to the Real Estate Closing and Title Insurance business. Monday, I'll be back with more about the Hoosier State's favorite pastime, and it's not basketball.

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In case you're wondering, the header picture on this page isn't sized correctly because the blogging platform changed, and I'm still at the low end of the learning curve. lol

For the next few days, I'll be posting about 2009 changes to the Real Estate Closing and Title Insurance business.

Have you seen your friendly neighborhood title guy lately? Possibly not. Many of us are buried under a sudden avalanche of refinance title insurance orders.

New Title Orders Explode

After October and November, two of the slowest months I've experienced since 1981, refinance title orders in many locations are off the charts. In 35 years I've never seen order counts turn around this quickly. I went home at Thanksgiving preoccupied with how I was going to get through the winter with my current staff. I did an interview the first week of December for WTIU-TV talking about how title companies cope with severe downturns in the real estate market. Today, that seems farther in the past than when Republicans were fiscally sound.

As a result of various governmental stimuli directed at lowering interest rates and improving liquidity in the mortgage market, refinance order counts are the best in four or five years. Many of my colleagues around the country are reporting similar trends. How long this will last is anyone's guess, but I'm thinking for a few months at the minimum.

Gulp!

The big question here is "Are we ready?" The title industry shed tens of thousands of jobs the last two years. Many companies, particularly those that chased sub-prime business, went away completely. During the last few years, some companies off shored significant parts of their process. These off shore groups didn't exist during the last boom. How will their service levels hold up now? The same concerns are there for other participants in the closing process as well. Appraisers. Underwriters. Will they hold up?

Be alert.

As a client of the title business, now is the time to pay closer attention until you're sure about your chosen company. My crew is already in "warp speed" mode. I'm confident we'll continue to meet and exceed our client's expectations. Many other companies will as well, some better than others. Recognition on your part that the environment is changing will help you and your client avoid the craziness that comes with last minute deals.

I'll be back later tomorrow with specific recommendations to help you avoid any unexpected craziness.

The holidays are over, the visiting relatives safely on their way and the Indianapolis Colts . . . well, let's just say I won't be distracted too much by football the next eight months. So, I am back at it.

Over the next few days, I'll be posting about recent and expected changes in the real estate closing and title insurance world. Today, let's wrap up the most significant industry consolidation in the history of title insurance.

Lawyers Title & Commonwealth Title sold to Fidelity

Just before Christmas, Fidelity completed their acquisition of Lawyers Title and Commonwealth Title from the bankrupt LandAmerica. Matt Carter at Inman Real Estate News wrote several great articles if you want gory details. I come away with two lasting impressions of this debacle.

The failure of LandAmerica underscores the importance of carefully managing OPM (other people's money). LandAmerica's 1031 Tax Deferred business invested client assets in high yielding auction rate securities. When that market collapsed early last year, LandAmerica lost access to their client's money and eventually lost control of their company. The desire to skim a little extra income off OPM, led to the near bankruptcy of two of the oldest title insurers in the country. The irony here is that title underwriters, and many state regulators, rightfully require title agents to apply a higher standard of care to OPM than to the agent's own money. LandAmerica stupidly refused to accept that same standard themselves and paid the ultimate price.

The resulting concentration of 75 percent of the national title distribution system in just two companies, Fidelity and First American, bears close scrutiny as the consolidation plays out. Will these two companies, both sharing the goal of improving profitability, be able to dictate pricing and service levels to their clients without fear of a competitive environment? How will these companies use this market position to leverage new regulatory rules to their advantage? If this business combination becomes abusive, I will not be surprised to see the FTC revisit the situation in a few years.

All in all, a sorry situation that did not need to happen.

Stop back in a couple of days to learn about how falling interest rates and the resulting dramatic increase in title orders may affect your next closing.

Happy New Year and best wishes for a successful 2009!