South Florida Real Estate Blog by Michael Catino, Realtor

It's hard to buy a home with a low credit score and almost impossible for people who have used credit so seldom that a numerical credit score can't be generated.

VantageScore analyzed the population of consumers who are conventionally unscoreable – those that fail to meet the minimum scoring requirements of widely used conventional credit scoring models. Their number has grown from approximately 30-35 million in 2010 to approximately 40 million in 2018.

Overall, the proportion of the adult population that is conventionally unscoreable remains unchanged at close to 16 percent.

In Florida, 16.7 percent of the credit-age population has no credit score. Minnesota has the lowest percentage of non-scoreable residents at 11.4 percent; West Virginia has the most at 21.4 percent.

Through no fault of their own, these consumers wouldn't meet the basic requirements for automated underwriting for a mortgage or other loans. As a result, they could be turned down or face potentially unfair pricing and terms.

To perform the analysis, VantageScore used a random, anonymous sample of 15 million consumer credit files obtained from the three nationwide credit bureaus. It calculated the proportion of consumers who would satisfy conventional model scoring requirements or fall into one the four groups of conventionally unscoreable consumers:

• new to market
• infrequent credit user
• rare credit user
• no accounts

The proportions were then applied to the overall US adult population based on 2017 U.S. Census.

As the overall U.S. population has increased, so has the number of consumers who cannot be scored by conventional credit scoring models. According to the latest 2017 U.S. Census, the overall population grew to 326 million and the number of conventionally unscoreable consumers who can now be scored with the VantageScore 4.0 model increased to approximately 40 million.

Fixed mortgage rates have been inching lower in recent weeks, but the percentage of borrowers tempted by the even-lower rates of adjustable-rate mortgages (ARMs) is rising.

ARMs posted their highest share of total originations in December since Ellie Mae, a maker of software used to process mortgage applications, began tracking them in 2011.

The share of ARMs reached 9.2 percent in December 2018, up from a 5.6 percent share a year earlier, according to the Ellie Mae's December Origination Insight Report, according to Mortgage News Daily. With a fixed-rate mortgage, the interest rate does not change over the term of the loan; with an ARM, the interest rate is usually locked in for a set period, such as five to seven years, and then changes based on market conditions.

Last week, five-year ARMs averaged 3.90 percent, Freddie Mac reports.

"With the strong demand for housing and rapid increase in property value appreciation, more consumers are turning to adjustable-rate mortgages in order to gain additional flexibility when competing for a home," says Jonathan Corr, president and CEO of Ellie Mae. "This is another key indication of how demand has outpaced supply in the housing market as consumers pursue their dream of homeownership."

Overall, mortgages for home purchases comprised 70 percent of mortgage originations in December, according to Ellie Mae's report. Closings moved faster, too. The time to close on a purchase loan fell to 47 days in December.

U.S. News & World Report issued an extensive overview of programs in Florida that can help first-time homebuyers secure their first house – and in some cases, they don't even need to be first-timers. A few programs consider anyone who has not owned a home within the past three years a first-timer.

There are three broad categories of aid for first-time buyers: home loan programs, some type of financial help to allow them to take out a mortgage, and buyer education programs that can teach them the basics of homeownership and help them understand the other aid packages available.

Many buyers and industry experts understand the national programs that can help first-timers – Federal Housing Administration (FHA) loans, Veteran Affairs (VA) loans and other programs – but the state also has the Florida Housing Finance Corporation (Florida Housing) that the Florida Legislature created to help provide affordable housing options statewide.

"Florida Housing's programs provide assistance to eligible homebuyers by offering low-cost, 30-year, fixed-rate mortgages together with downpayment and closing cost assistance," according to Taylore Maxey, press secretary for Florida Housing.

To Realtors, homeowners and others who ask, "Are we in another house price bubble?" – the answer is "No," according to Dr. Len Kiefer, Freddie Mac deputy chief economist, who spoke to a crowd of more than 400 Realtors at the 2019 Florida Real Estate Trends summit Thursday during Florida Realtors Mid-Winter Business Meetings.

Kiefer said he and other analysts have been researching home price growth trends and other economic factors to answer the "bubble" question.

"Home prices are up, but that by itself is no indication of a bubble; you need an element of speculation or credit financing involved as well," he said. "We looked at credit, capacity and collateral. In the mortgage space, credit has not expanded in anything like we saw a decade ago. As a result, the default potential rate is pretty low. And we clearly don't see the types of financing products that pushed the dynamics then."

While incomes are up, they're not matching the pace of rising home prices, he noted.

Still, mortgage debt payments as a percentage of disposable income has declined significantly, largely due to lower mortgage interest rates.

"In the downturn, people were taking on a lot of debt, which in turn pushed up prices," Kiefer said. "Now, looking at total mortgage debt compared to equity, we're not seeing that kind of speculation or problem."

He added, "So, when I'm asked about a bubble, I do say no – but the way I pause before I say no has been extending a bit as home prices continue to rise more than incomes. However, in our view (Freddie Mac economists), house prices will moderate as mortgage rates rise."

So, what's ahead for the U.S. economy and housing market in 2019?

"Employment and a little bit of income growth will be key to supporting homebuyer demand," Kiefer said. "Inflation is going...

Late last week, the U.S. Treasury Department and Internal Revenue Service issued final regulations regarding the new 20 percent deduction on qualified business income.

Americans are now preparing for the 2018 tax filing season, and while real estate professionals understood that the new deduction offered benefits, the specific extent of those benefits was unclear pending the government's final regulations.

Friday's ruling from Treasury and the IRS, however, "signaled a significant victory for the real estate industry and for many of the National Association of Realtors®' (NAR) 1.3 million members," according to NAR.

"Friday's ruling is a result of several months of advocacy and collaboration between NAR, our members and the administration," says NAR President John Smaby. "These final guidelines will allow real estate professionals to benefit from the Section 199A 20 percent pass-through deduction, a move that will empower Realtors to expand their operations and provide improved services to consumers and potential homebuyers across the country."

Smaby says NAR is "grateful for the openness and transparency encouraged by Treasury and the IRS, and we thank them for their hard work to ensure the real estate community was heard throughout this rulemaking process."

A central component of the new tax law is a reduction of the corporate tax rate – from 35 to 21 percent. However, since nine out of 10 American businesses are structured as pass-through entities rather than corporations, the Section 199A provision provides critical tax deductions for small businesses and self-employed independent contractors, which includes many real estate professionals.

Within the 247-page rule issued last Friday, three major provisions for real estate professionals stood out as critical victories for members, according to NAR:

1. Impacted real estate professionals
Most importantly,...

Mamie Rose wanted her last years to be simple. She was already in her 80s. She bought her Northside home 40 years earlier. Her husband had died. Her children were grown, leading lives of their own.

She didn't want to worry about mortgage payments, repairs or insurance. Her daughter told her about a "reverse mortgage."

It sounded ideal – a lender gives her money and pays off the mortgage. She just needed to pay insurance and taxes, and she couldn't move. In exchange, when she died, the lender would take her home, unless her children decided it was worth it to pay back the mortgage.

Five years later, Mamie Rose is still alive at 90, and her sons are fighting to keep the lender from kicking her out of her home. Rose, like other elders before her, signed up for a reverse mortgage without knowing all the requirements. Now, she might lose her home.

Reverse mortgages allow people who are 62 and older to basically sell their homes to lenders, but remain living in and owning the home until they die. It's an attractive deal, and for plenty of people it gives them increased financial security near the end of their lives.

The mortgages become problematic when the older people miss insurance or tax payments and the lenders foreclose, leaving them homeless and in debt. If lenders find that the grass isn't mowed or no one answers the door, attorneys say, then the companies might foreclose, arguing the homeowner doesn't live there anymore.

Plenty of people who sign up for reverse mortgages end up in court fighting to hold on to the house.

In October, 101 reverse mortgage foreclosures were active in Duval County, said Maren Hayes, who manages cases in the foreclosure division at the Duval County Courthouse. Reverse mortgage foreclosures were handled just like normal foreclosures until recently, so the courts don't know how many cases existed before.

The attraction of reverse mortgages is easy to understand. They provide the...

A power of attorney is an agreement between the principal (the person who grants their attorney power to another party) and an agent (the person granted this power by the principal). In short, it gives the agent legal authority to act on the principal's behalf.

There are different types of POAs in Florida, and not all empower an agent to sell real estate on the behalf of someone else. In some cases, a power of attorney may be granted only for a single function, such as a one-time sale of a property. For background information on how a power of attorney designation operates in Florida, visit the Florida Bar's website.

If someone is using a power of attorney to buy or sell a Florida property, one way to complete and execute the sale and purchase contract is as follows: Where appropriate, insert the name of the principal followed by the name of the person who has agent power followed by "his/her agent."

For example, assume John Q. Buyer made Jane Doe his power of attorney and empowered her to buy and sell real estate on his behalf. In that capacity, Jane is now selling John's home. In this case, the sale and purchase contract would list the seller as "John Q. Buyer by Jane Doe, his agent."

When signing the contract, Jane Doe should use the exact same language.

A real estate licensee should never interpret a power of attorney for another licensee. If there's a question regarding the validity or interpretation of a power-of-attorney document, the parties should consult legal counsel.

Also: In a sale of real property, a copy of the power of attorney legal document should be provided to the closing agent early in the transaction. Should the closing agent have any concerns, this will give the parties time to resolve questions without potentially delaying the transaction.

National housing prices as a whole are slightly overheated and residential real estate markets are experiencing minimal downward pressure on the demand for homeownership, according to a new study from faculty at the Florida Atlantic University College of Business.

The study's author, Ken Johnson, Ph.D., a real estate economist with FAU's College of Business, said the U.S. is nearing the peak of the current housing cycle, evidenced by the fact that property prices around the country are increasing but at a decreasing rate, meaning property appreciation is slowing.

The study, "Where Are We Now with Housing: A Report," investigates and compares the current status of U.S. housing at a national level with that of housing at the peak of the last cycle in July 2006.

"All evidence is suggesting that the national housing market is peaking," Johnson says. "However, this time around, from a national perspective, things should turn out quite differently."

Based on scores from the Beracha, Hardin & Johnson Buy vs. Rent Index, which Johnson co-authors, and data from the S&P CoreLogic Case-Shiller 20 City Composite Home Price NSA Index, the study finds that housing prices are currently 7.3 percent above their long-term pricing trend, but with minimal downward pressure on the demand for homeownership.

For comparison, at the peak of the last housing cycle, prices were 31 percent above their long-term pricing trend. Johnson's BH&J Index was nearing a score of 1 (the highest possible score) in the summer of 2006, indicating extreme downward pressure on the demand for homeownership. Today, that score stands at .039.

"It looks like we're in for more of a very high tide, as opposed to a tsunami, as residential prices peak in this latest cycle," Johnson says. "At a minimum, we can...

TTOM Data Solutions released its Year-End 2018 U.S. Foreclosure Market Report, which shows foreclosure filings – default notices, scheduled auctions and bank repossessions – were down 8 percent from 2017 and down 78 percent from a peak of nearly 2.9 million in 2010.

Those properties with foreclosure filings in 2018 represented 0.47 percent of all U.S. housing units, down from 0.51 percent in 2017 and down from a peak of 2.23 percent in 2010. ATTOM reports that it's the lowest level for foreclosures since 2005.

However, 18 states saw foreclosure starts – first notices sent to owners newly delinquent in their mortgage payments – rise in 2018, including Florida, where starts rose 13 percent even though nationwide foreclosure starts hit a new record low. Minnesota led the list of 18 states with a 29 percent increase, followed by Texas (up 15 percent) and Michigan (up 15 percent). Florida ranked third, followed by Louisiana (up 5 percent) and Delaware (up 2 percent).

"Plummeting foreclosure completions combined with consistently falling foreclosure timelines in 2018 provide evidence that most of the distress from the last housing crisis has now been cleaned up," says Todd Teta, chief product officer. "But there was also some evidence of distress gradually returning to the housing market in 2018, with foreclosure starts increasing from the previous year in more than one-third of all state and local housing markets."

Teta says some of the 2018 distress came from natural disasters, such as a 61 percent increase in Houston foreclosure starts likely a result from flooding in 2017. "But natural disasters do not explain the increase in markets such as Detroit, Minneapolis-St. Paul, Milwaukee and Austin – all of which posted double-digit percentage increases in foreclosure starts in 2018," Teta says.

While completed foreclosures (REOs) are declining, California and Florida combined...