With Terry Story, 30-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
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Mortgage Fraud Up 12.4%
A recent report from CoreLogic shows a 12.4 percent year-over-year increase in mortgage fraud risk for the second quarter of 2018. The report notes that the fraud risk index has steadily climbed over the past seven quarters and that those states with heavy outside investment are at risk for significantly higher mortgage fraud.
New York, New Jersey, and Florida topped the list of fraudulent applications. Risk increased at each of the top 10 riskiest states, with the greatest increases in New Mexico, Mississippi, Illinois, Oklahoma, and Texas.
CoreLogic’s analysis showed that about one in 109 mortgage applications contained some type of fraud, up from one in 122 a year ago. Mortgage applicants incorrectly reported data on identity, income falsification, undisclosed real estate liabilities, credit repair issues, and questionable down-payment sources.
Terry notes that the recent upsurge in home prices has led to a situation where bona fide home buyers are “lying a little” on their mortgage applications to get approved for loans.
Lying on mortgage applications is fraud, and Steve strongly cautions listeners against doing so.
Condo Board Rule Changes
Changing subjects, Steve gets to a listener’s question on whether homeowners are obligated to comply with rule changes by a condo board. Here’s the actual question:
“I live in a homeowner’s association located next to a waterway. A few years ago, the board of director’s adopted rules for boat lifts to be installed on the waterway with a certain level or height of canopies on the boat docks. Under the new rule, boats have to be higher out of the water and their canopies lower. But I just spent money conforming to the old rules, so can they impose these new rules on me?”
Terry sides with the homeowner and says that under the “grandfather clause”, the HOA cannot impose its new rule on existing homeowners who complied with previous rules. It’s called “acquired rights”, notes Steve. So the revised rule only applies to new members of the HOA.
Mortgage Rates Rise For Third Straight Week
Next, with mortgage rates up for the third straight week, Steve wants Terry’s take on where they are headed from here. Terry notes that the 30-year mortgage averaged 4.6% as of August 2018, up from 3.75% a year ago. The 15-year mortgage recently hit 4.06% and the five-year adjustable rate mortgage was at 3.93%.
Rising rates are no surprise. They do, however, decrease affordability, even if home prices stay at current levels and do not rise. Moreover, notes Steve, even though 10-year Treasury rates have not gone over 3%, the Fed’s short-term rate increases have been driving up interest rates.
Hurricane Damaged Homes
In closing, Steve inquires about buyer’s rights on damages to a home from hurricanes or other natural disasters.
Terry says that under a contract handle called “risk of loss”, buyers are locked into the contract as long as the cost of restoration does not exceed one-and-a-half percent of the purchase price. If it’s more than that, buyers can cancel the contract. The 1.5% works out to $1,500 on every $100,000 of the home’s purchase price or about $4,500 for a $300,000 home.
In Terry’s 30 years selling real estate, she has never lost a deal because of a storm. Deals have been delayed because the appraiser wanted to check the integrity of the home’s structure, but her contracts have never been canceled. In the worst case, the seller gives the buyer credit for repairs, and the deal still goes through.
To hear more about mortgage fraud and why it’s not worth it, rising mortgage rates, and other current real estate topics, or to ask your own question, tune into Real Estate Round-Up every week.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week, we get together with noted real estate agent Terry Story, Terry’s a 30-year veteran with Keller Williams, located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: You know how we’re always saying that Florida is the leader in so many areas, that we wish we weren’t?
Terry Story: I know.
Steve Pomeranz: So, there’s a report that mortgage fraud-
Terry Story: Oh, yeah.
Steve Pomeranz: … Is up 12.4% and Florida is still a top state experiencing mortgage fraud. What kind of fraud are they talking about?
Terry Story: This is different, Steve. This is almost, I don’t want to say good fraud, but better than it was. These are real folks trying to get a mortgage, and they’re finding it frustrating, so they’re just lying a little.
Steve Pomeranz: A little?
Terry Story: Just a little fraud, versus big fraud.
Steve Pomeranz: Okay, so let’s talk about that. So, they are saying that their identity…
Terry Story: Yeah, a little misrepresentation, let’s just say, undisclosed real estate liabilities, credit repair issues, questionable down-payment sources, you know they kind of fudge on that.
Steve Pomeranz: Their income?
Terry Story: Yeah, I don’t know how you falsify your income, maybe you … I don’t know, I don’t know how you do any of it, anyway. But, this is what’s happening and I think it’s … Well, I know it’s happening because it’s harder to get a mortgage these days. I mean it’s certainly easier than it was once they got super strict, and it’s relaxed a little bit, but it’s a far cry from what it was in 2006, where all you needed was a pulse.
Steve Pomeranz: Well, we’re never going to see those days again, hopefully.
Terry Story: Right.
Steve Pomeranz: I mean, really, should someone of a modest income own three houses, a hundred percent financing-
Terry Story: No.
Steve Pomeranz: … And all that.
Terry Story: With not showing, having the ability to repay. That was the key to that whole demise.
Steve Pomeranz: I agree. I agree, but, the point here is that some people have other real estate, undisclosed real estate. I don’t want to tell you about that property, which is a drain on my income, so I’ll just kind of leave that-
Terry Story: I’ll leave that, yeah. You won’t know about it.
Steve Pomeranz: But, don’t lie on the applications.
Terry Story: No, no it’s fraud!
Steve Pomeranz: It’s fraud.
Terry Story: I wouldn’t want to go to jail.
Steve Pomeranz: No, exactly, okay. So, again, Florida’s one of the top states, all of the top ten riskiest states showed increases year over year. So, I guess if we’re prone to doing this sort of thing, as a people [crosstalk 00:02:24].
Terry Story: We’re not improving.
Steve Pomeranz: I guess you just can’t change behavior that easily.
Terry Story: No.
Steve Pomeranz: All right, let’s change the subject, that’s easier. Here’s a question that I really like: If a condo board changes rules, do the owners have to comply? And, here’s the setup. So the question is, “I live in a homeowner’s association located next to a waterway, and a few years ago, the board of director’s adopted rules for boat lifts to be installed on the waterway with a certain level or height of canopies on the boat docks.”
Terry Story: Right.
Steve Pomeranz: And, then they changed the rule, and they said that the boats have to be higher out of the water and the canopies lower, and this person is saying, “But, hey, I just spent all this money conforming to the old rules, can they impose these new rules, on me?”
Terry Story: No.
Steve Pomeranz: Oh.
Terry Story: It’s called the grandfather clause. If you fell into the category and you did what you were supposed to, it’s a classic grandfathering case. Now, for new people, that would be a different rule.
Steve Pomeranz: Yeah, they would have to do it.
Terry Story: But, anyone there that complied, they would be grandfathered in.
Steve Pomeranz: Yeah, and so you have a legal leg to stand on in this situation, so remember that.
Terry Story: Just think of your grandfather.
Steve Pomeranz: It’s also called acquired rights, is another way that they say that term. Okay, let’s move on. Mortgage rates rise for the third straight week, where are they? That’s the important thing I want to get to, where are mortgage rates today?
Terry Story: A whopping 4.6%.
Steve Pomeranz: Okay.
Terry Story: And you know, you got to look at the big picture.
Steve Pomeranz: Well, hold on, before you defend it, I mean-
Terry Story: I’d take out a loan for 4.6.
Steve Pomeranz: Yeah, well, this is the thing, so about a year ago, three and three-quarters-
Terry Story: Right.
Steve Pomeranz: … For 30-year, and now it’s up, not quite a point…
Terry Story: I mean it’s a bummer because it was down in the two range, so it’s doubled, ooh.
Steve Pomeranz: Yeah, but still I mean, I think most people who got a mortgage in the last five years are paying in the high threes.
Terry Story: Right, it depends on your age, if you’re an older person and you’ve seen 18% interest rate, and then you know, we thought it was great when it was at 8%, 4%, 4.6 is …
Steve Pomeranz: Okay. I get your argument, there, but here’s-
Terry Story: I’m not saying that I’m old, by the way.
Steve Pomeranz: … Here’s where I don’t buy it. The problem is exactly, it’s about affordability.
Terry Story: Correct.
Steve Pomeranz: Right?
Terry Story: At the end of the day it is,
Steve Pomeranz: Yeah, so you have home prices rising, and lower interest rates make them more affordable.
Terry Story: Correct.
Steve Pomeranz: Now, when the prices rise, even if they stay stable after rising, and now the mortgage costs go up, the affordability factor goes down.
Terry Story: Goes down, absolutely, it’s all about the affordability, there’s no question.
Steve Pomeranz: But, anyway, just so you guys know, the 30-year fix is at 4.6, the 15-year hit 4.06, and the five-one adjustable rate mortgage is a 3.93.
Terry Story: That’s right. And, they need to raise the interest rates to slow things down, too.
Steve Pomeranz: Well, it should be a natural-
Terry Story: When I say they, it should … Them.
Steve Pomeranz: The dark web.
Terry Story: The web people. Those people.
Steve Pomeranz: There is no they. And actually, we’ve been expecting higher interest rates, which are based on the 10-year Treasury, for quite a while.
Terry Story: That’s the them.
Steve Pomeranz: That’s the them, that’s right, and that is us because it’s the market.
Terry Story: Right.
Steve Pomeranz: Okay, the wisdom of the crowd, so to speak. But anyway, really, those 10-year Treasury rates have not gone over 3%. It’s been the short-term rates, which the Fed has control over, which is driving up higher interest rates.
Terry Story: Yeah, they’re them.
Steve Pomeranz: Yeah. I want to talk about hurricanes and other natural disasters. So if I was in a situation where I had a deal, and because of the hurricane, and it was damaged, the deal … I’m maybe not that interested. I’m worried about the house that I’m now buying.
Terry Story: Sure.
Steve Pomeranz: What are the rules with regards to that?
Terry Story: Contract handles this, it’s called risk of loss. You have to look at the contract, but, basically, in our contracts it states that as long as the cost of restoration does not exceed one-and-a-half percent of the purchase price, you’re locked into the contract.
Now, if it exceeds that, you can cancel. Now, what happens, typically, in all my years in 30 years selling real estate, I’ve never lost a deal because of a storm, which is amazing to me. What’s happened is they’ve been delayed; the appraiser will want to come back, take a look at the house, make sure there’s no damage, that the value and integrity of the house is still there, that the bank’s willing to lend on.
So, that’s understandable, and if there is something a little greater, like for example, I had a lot of pool enclosures go down a lot of times that would exceed the cost. But in these cases, the seller would give the buyer credit for it and move forward, if everybody wants to stay in the deal.
Steve Pomeranz: Yeah, I think that’s pretty reasonable, but it’s the one-and-a-half percent that really matters, here. So, 15 hundred dollars for every 100 thousand dollars…
Terry Story: Right. And it’s not much.
Steve Pomeranz: So, a 300 thousand dollar house is 45 hundred dollars.
Terry Story: Right.
Steve Pomeranz: If it’s over 45 hundred, what happens?
Terry Story: Either … You can cancel.
Steve Pomeranz: Oh, you can cancel. [crosstalk 00:07:35]
Terry Story: You can walk and get your money. Yeah, get your money back.
Steve Pomeranz: Alright, that’s good, that’s good to know. My guest as always, is Terry Story, a 30-year veteran with Keller Williams, and she can be found at TerryStory.com.
Thanks, Terry.
Terry Story: Thanks for having me, Steve.
