09 Oct 2017

What’s New:

1031 Exchange update:

While likely that there will be extensions for both Texas and Florida exchangors relative to the recent hurricanes, until there is a Federal Disaster extension announced, the extension of the identification and acquisition deadlines are not official.

For taxpayers affected by the disaster, the deadlines for the 45-day Identification Period and the 180-day Exchange Period would be extended 120 days or the due date listed in the IRS Notice (whichever is later), but no later than the due date for filing the tax return for the year of the transfer.  Affected taxpayers generally include parties effectuating a 1031 whose primary residence or principal place of business is located within the disaster zone, or who will have difficulty meeting the 45-day or 180-day deadlines for various reasons, including, but not limited to:

  • The Relinquished Property or the Replacement Property is located in the disaster zone or the principal place of business of any party to the transaction is located in the disaster zone
  • A party to the transaction is killed, injured or missing due to the disaster
  • A necessary document relevant to the land record is destroyed or lost due to the disaster
  • A lender won’t fund or a title insurance policy cannot be issued because of the disaster

To be eligible for relief, the Exchanger must have sold the Relinquished Property before the date of the Federally declared disaster. In the case of a reverse exchange, the Exchange Accommodation Titleholder (EAT) must have taken title to either the Relinquished or Replacement Property on or before the date of the Federally declared disaster.  Only the deadlines that fall on or after the date of the Federally declared disaster will be extended.

Market News:

Mortgage Activity. Total mortgage application volume increased 3.3% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted report. However, volume remains 23% lower than the same week one year ago, possibly due to lower rates.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $424,100 or less decreased to 4.06 percent, its lowest level since November. That’s down from 4.11 percent. Points decreased to 0.38 from 0.43, including the origination fee, for 80 percent loan-to-value ratio loans.

The effects of Hurricane Harvey also weighed on application volume, as banks shut down all mortgage activity for areas affected by the storm. They need to assess damage and reappraise some homes before either purchase or refinance applications can be approved. The White House estimates about 100,000 houses were affected by the storm. Many were destroyed or are too damaged to live in. More than 30,000 people are staying in emergency shelters and will soon be in need of permanent accommodations. The same issues will be occurring in Florida as Irma works her way through that state.

The 30-year fixed-rate mortgage dropped to 3.78% for the week ending September 7, 2017. This is down from last week’s 3.82% but up from 3.44% last year.

The 15-year FRM also decreased, dropping to 3.08%, down from 3.12% last week. This is still up from last year’s 2.76%.

However, the five-year Treasury-indexed hybrid adjustable-rate mortgage increased slightly from last week’s 3.14% to 3.15% this week. This is up from 2.81% last year.

Freddie Mac explained the 30-year fixed-rate mortgage followed in the steps of the 10-year Treasury yield, hitting yet another new low for 2017.

“The 30-year mortgage rate followed, dropping four basis points to a year-to- date low of 3.78%,” Becketti said.

Reverse Mortgages. One way to supplement your income in retirement is about to become tougher. The Trump administration just announced new policies taking effect Oct. 2, 2017 that will increase the upfront cost of reverse mortgages for many borrowers and reduce the size of the loans. Reverse mortgages apply to those individuals who are 62 and older and the loan is repaid when you move, sell the home, die or fail to pay property taxes or homeowners insurance to maintain the property. The maximum size of a reverse mortgage typically depends on your age, home value, interest rate and upfront costs.

Last year, the U.S. Department of Housing and Urban Development (HUD) said, the economic value of the government’s reverse mortgage program (part of HUD’s FHA) was a negative $7.7 billion.

Assuming the changes take effect as planned, profit margins for reverse mortgages may shrink and lenders won’t be able to offer borrowers some deals they now do, such as subsidizing or lowering their closing costs, which can sometimes hit $20,000. The reverse mortgage industry hopes to be able to work with HUD to prevent or scale back the upcoming changes and adopting other changes.

Here are the changes coming for loans made after Oct. 2:

  • There will be new limits on the total amount you can borrow through a reverse mortgage. Today, the average reverse mortgage borrower can draw 64% of home equity, but that will drop to about 58%, according to the Wall Street Journal.
  • The upfront mortgage insurance premium for most reverse mortgage borrowers will soar. Premiums for those taking less than 60% of the loan proceeds upfront will go from the current 0.5% to 2% of the “maximum claim amount.”
  • The upfront mortgage insurance premium will fall slightly for people taking more than 60% of the loan proceeds upfront. It will drop from 2.5% to 2.0%.
  • Annual mortgage insurance premiums will drop. The annual premium will fall from today’s 1.25% of the outstanding balance to 0.5%. This change “preserves more equity for borrowers over time by slowing the rate at which the loan balance grows,” the HUD press release said.

A reverse mortgage may not be appropriate for all homeowners. The amount borrowed plus interest and fees must be repaid. Other home equity options, such as home equity loans or home equity lines of credit, could be less expensive.

Know Before You Owe.  The CFPB’s Know Before You Owe (“KBYO”) mortgage disclosure rule took effect Oct. 3, 2015. This rule created new, streamlined forms that consumers receive when applying for and closing on a mortgage and further contained clarifications and technical corrections. The CFPB has now addressed and finalized some amendments to the rule, including:

  • Tolerances for the total of payments: Before the KBYO mortgage disclosure rule, the total of payments disclosure was determined using the finance charge as part of the calculation. The KBYO mortgage disclosure rule changed the total of payments calculation so that it did not make specific use of the finance charge. This rule changes that by adding an accuracy tolerance to the total of payments disclosure that mirrors the one that has been in place for the finance charge itself.
  • Housing assistance lending: The KBYO mortgage disclosure rule gave a partial exemption from disclosure requirements to certain housing assistance loans, which are originated primarily by housing finance agencies. The Bureau’s update, as finalized, promotes housing assistance lending by clarifying that recording fees and transfer taxes may be charged in connection with those transactions without losing eligibility for the partial exemption. The update also excludes recording fees and transfer taxes from the exemption’s limits on costs. Through the update, more housing assistance loans will qualify for the partial exemption, which should encourage these loans.
  • Cooperatives: The Bureau is finalizing updates to extend the rule’s coverage to include all cooperative units. Currently, the rule only covers transactions secured by real property, as defined under state law and cooperatives are sometimes treated as personal property under state law and sometimes as real property. By including all cooperatives in the rule, the Bureau is simplifying compliance and ensuring that more consumers benefit from the rule.
  • Privacy and sharing of information: The KBYO mortgage disclosure rule requires creditors to provide certain mortgage disclosures to the consumer. The Bureau has received many questions about sharing the disclosures provided to consumers with third parties to the transaction, including the seller and real estate brokers. The Bureau understands that it is usual, accepted, and appropriate for creditors and settlement agents to provide a Closing Disclosure to consumers, sellers, and their real estate brokers or other agents. The Bureau is finalizing additional commentary to clarify how a creditor may provide separate disclosure forms to the consumer and the seller.

Further amendments.: The House of Representatives could soon consider a bill that would bring several changes to KBYO, also known as TRID. The new bill is called the “TRID Improvement Act of 2017,” and has yet to be officially introduced into the House, but the bill was discussed on Capitol Hill recently during a meeting of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.

The TRID Improvement Act of 2017 would amend the Real Estate Settlement Procedures Act and the Truth in Lending Act to expand the time period granted to a creditor to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days.

The bill would also amend RESPA to “allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.”

The bill’s proposed changes come just over a month before the CFPB’s finalized updates (above) to the TRID rule officially take effect on Oct. 10, 2017.

Legal News and Case Law:

Termination of Homeowners Association Membership. On June 22, 2017, the Michigan Court of Appeals issued a unanimous per curiam decision affirming the ruling of the Oakland County Circuit Court that membership in a homeowners association became voluntary when the recorded restrictions requiring membership expired by their terms. The plaintiff homeowners in this case sought a declaratory judgment that they were not required to join the homeowners association when the recorded restrictions expired in 1986. The homeowners association contended that the restrictions were renewed in the context of various association corporate documents, including a Certificate of Amendment to the Articles of Incorporation of the association. The trial court rejected this argument and the Court of Appeals affirmed that decision. The Court of Appeals also rejected the association’s claim that the doctrine of reciprocal negative easements applies to enforce the covenants regarding membership and maintenance fee requirements. The Court noted that the recorded restrictions expired and were never renewed, and therefore none of the homeowners are subject to the covenant to be fees-paying members of the association after that time.

Corporate Settlement Solutions has many Michigan branch offices to serve you—Traverse City, Suttons Bay, Elk Rapids, Charlevoix, Bellaire,  and Mt. Pleasant, in addition to providing services throughout the eastern United States.

Maura A. Snabes, Esq., CES®, CLTP – Sr. Underwriting & Compliance Counsel

Phone: (231) 547-5220×102/802 Bridge St., Charlevoix, MI 49720

e-mail: msnabes@visitcss.com.

This Newsletter may be construed as an advertisement as defined in Public Law 108-187. A recipient of this Newsletter may decline to receive future messages by making such a request to the above e-mailed address.

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