Legal/Legislative Update – August 15, 2015

Published on: August 15, 2015

EYES ON THE FED

When will the Federal Reserve raise interest rates? Economists, business executives and consumers have been asking that question with increasing intensity for the past two years. The July employment report may have brought the Fed closer to answering it.

Employers added 215,000 jobs for the month, a little short of the consensus forecast, but still above the 200,000-per-month level the market has averaged consistently this year.

The unemployment rate remained at a seven-year low (5.3 percent) and the strong job gains reported previously for May and June were both revised upward.

Wage gains remain anemic, however. Hourly earnings rose only five cents (0.2 percent) in July and are up only 2.1 percent for the year, barely keeping pace with inflation. Still most analysts agreed that the overall July employment report was strong enough, and underlying economic trends are positive enough, to deflect concerns that an interest rate move now would be premature, paving the way for the Fed to act this year.

The July report “doesn’t move the Fed any faster, but it doesn’t hurt their cause,” J. Kinahan, chief market strategist at TD Ameritrade,” told CBSNews.com.

“We view this report as easily clearing the hurdle needed to keep the Fed on track for a September rate hike,” Rob Martin, an economist at Barclays-New York, agreed. “The bar for not moving now is much higher,” he told Reuters.

POSITIVE SIGNS, MIXED REPORTS

Home owners seem to be feeling somewhat better about the housing market, based on responses to Fannie Mae’s June National Housing Survey. Although the number of prospective buyers who think this is a good time to buy declined, the number who see this as a good time to sell increased to 52 percent ― moving beyond the 50 percent mark for the first time since Fannie Mae introduced the survey, four years ago. The number predicting that rents will increase in the next 12 months increased by 4 percentage points to 59 percent.

These readings point to “a healthier housing market,” Doug Duncan, Fannie Mae’s chief economist, believes, “with more renters likely to find owning more cost-effective than renting and more sellers likely to put their homes on the market.”

The June housing reports provide some support for that upbeat assessment, and some reasons to doubt it.

Existing home sales jumped 3.2 percent compared with May and 9.6 percent year-over-year, leading one analyst to describe this segment of the market as “on fire.” Those flames haven’t spread to the new home sector, however, where sales in June fell to a 7-month low. Although sales were still 9.6 percent higher than the same month last year, some analysts found the decline disturbing.

“New home sales remain at early 1991 levels,” Anthony Sanders, a real estate finance professor at George Mason University, pointed out. “This is an awful economic recovery,” he told National Mortgage Professional.

Tom Wind, executive vice president in charge of home lending at EverBank, was also concerned, but less discouraged. “You never want to see a data regression,” he noted in the same arable. “But we remain optimistic that we are still on a long-term upward trajectory.”

SCARCE LISTINGS PUSHING PRICES

Home prices are still rising – just under 5 percent annually, according to the most recent Case-Shiller index reading. The pace is slower than earlier this year, but still “too fast” for Lawrence Yun, chief economist for the National Association of Realtors, who sees the low inventory of homes for sale as a primary driver of rising prices, and a major source of concern.

“The market is tighter compared to last year,” he noted in a recent report. “We need more supply to bring the price growth down consistent with income growth.”

Stan Humphries, formerly chief economist (now Chief Analytics Officer for Zillow) shares his concern. “Inventory is still very low and the housing market is still very much out of balance,” he notes in one of his recent reports, adding this caution: “Low inventory levels like those we’re seeing across the country can bring the home-buying process to a screeching halt.”

Trends in the rental market are also attracting Zillow’s attention – and concern. Another recent study estimates that skyrocketing rental costs nationally are now absorbing 30.2 percent of monthly income – a record high and on the cusp of what analysts define as an unacceptable cost burden. The historical average is around 24 percent. Mortgage payments, on the other hand, are absorbing about 15 percent of a buyer’s income for a median-priced home.

“Usually, a housing crisis is localized,” Svenja Gudell, Zillow’s newly named chief economist, noted. “But this one touches almost every city in the country. Incomes have been flat, and that’s driving a wedge between rents and incomes — it is what’s causing an ever-growing share of income to be allocated to rent payments.” It is also what is tipping the rent vs. buy equation strongly in favor of buying over renting.

BOSTON LEADS

The housing recovery has been both erratic and uneven, with some markets regaining their footing faster than others. Boston is winning that race, according to WalletHub, which says the city currently has the healthiest market in the country. The research firm ranked 25 large cities based on 10 key metrics, including: Equity levels, underwater mortgages, “precarious” mortgages, down payment sizes, mortgage costs, the availability of first-time homebuyer assistance programs, outstanding home equity lines of credit, and home equity loans. Oklahoma City, OK; San Antonio, TTX; Northern New Jersey, and Hartford, CT occupied the other four positions for the ‘top five” on the WalletHub list.

The report cited increasing signs of economic improvement nationally, primarily because of the strengthening housing market. Among other positive indictors: Only 225,000 consumers had bankruptcy notations in their credit report sin the second quarter – the lowest quarterly total in almost 10 years. Foreclosure rates have also fallen to their lowest level since 2006, and lenders are approving more borrowers with “average” credit scores, “another indicator of a growing housing market,” WalletHub notes.

BRACING FOR DISPARATE IMPACT SCRUTINY

The American Bankers Association is asking federal bank regulators and the Department of Justice to clarify the standards they will use to identify evidence of “disparate impact” in light of the recent Supreme Court decision (Texas Department of Housing and Community Affairs v. Inclusive Communities Project) holding that the this legal theory can be used to support discrimination claims under the Fair Housing Act.

Critics have long complained that disparate impact analysis, demonstrating that policies have a discriminatory effect even if there is no discriminatory intent, produces skewed findings and unwarranted discrimination charges. The Supreme Court disagreed in a narrow (5-4) decision that found disparate impact to be “cognizable” under the Fair Housing Act. But the decision also imposed some limitations on how the theory can be applied, specifying that courts “should avoid interpreting disparate impact liability to be so expansive as to inject racial considerations into every housing decision,” and cautioning against claims relying on “statistical disparit[ies] alone.” The ABA letter is asking regulators to explain how future enforcement actions will fit within that framework.

“There should be consensus and transparency regarding what constitutes a ‘pattern or practice’ of discrimination based on a theory of disparate impact liability, consistent with the [Supreme Court decision], that warrants a referral…to the DOJ,” the ABA letter states. “Moreover, the standards should require facts establishing a prima facie case as a predicate to referral,” the trade group adds.

The letter reflects the banking industry’s concern that regulators will use disparate impact more widely and more aggressively to combat housing discrimination. Some fair housing experts think that concern is justified.

The Supreme Court decision, combined with HUD’s recent announcement that it will increase funding for its Fair Housing Initiatives Program, will send “a flood of new [fair housing testers] into the market,” attorneys at Fisher & Phillips note in a recent blog. Property owners, managers, real estate brokers and developers as well as lenders should expect “an increase in class and collective actions asserting [fair housing] claims on behalf of large groups of individuals,” the blog predicts. The firm’s advice: These industry segments and others likely to be scrutinized for fair housing compliance should educate employees about the law’s requirements and “implement policies and practices ensuring that all housing applicants, tenants and prospective purchasers and mortgage applicants are treated consistently, fairly, and without regard to any protected class.”

IN CASE YOU MISSED THIS

The Inspector General for the Troubled Asset Relief Program (TARP) wants to know why loan servicers are rejecting so many modification requests under the Home Affordable Mortgage Program (HAMP). The IG found that the rejection rate is close to 70 percent and thinks an investigation is needed to find out why.

First-time home buyers are younger, less sophisticated and less affluent than repeat buyers— but they aren’t inherently riskier, a recent study by the Federal Housing Finance Agency has found.

cfpb-consumer-financial-protection-bureauA CFPB pilot project has concluded that e-closings make the closing process more efficient and less confusing for borrowers.

The CFPB’s continuing crackdown on Marketing Services Arrangements (MSAs) has led at least two lenders (Wells Fargo and Prospect Mortgage) to abandon them. In a series of enforcement actions, the CFPB has found that MSAs violate RESPA’s anti-kickback provisions.

Closing costs are declining. Bankrate.com estimates that costs related to close on a home loan have declined by 7.1 percent in the past year, falling from$1,989 in 2014 to $1,847 in this year’s survey.

During a time when housing industry executives are bemoaning the slim inventories of homes for sale, RealtyTrac estimates that nearly 4 million homes are vacant. That’s about double the number of homes currently available for sale, according to this report. Many are bank-owned properties abandoned by their owners before foreclosure actions were completed.

LEGAL BRIEFS

COMING SOON: ACCESSIBILITY REQUIREMENTS FOR WEB SITES

The Department of Justice (DOJ) is moving to apply the accessibility requirements of the Americans with Disabilities Act (ADA) to Web sites. The pace has been slow, but the direction is clear. In an advance notice of proposed rulemaking, the DOJ argued that because private entities are increasingly offering goods and services through web sites, those sites qualify as “places of public accommodation” as defined by the ADA, and should be subject to the same requirements that apply to brick and mortar establishments.

Disability_LogoThat notice was published in July, 2010. Since then, the department has delayed publication of the final rules several times, largely, industry observers say, because of their potentially widespread impact. DOJ officials indicated recently that the current target date for the final rules is April of next year.

In the meantime, underscoring its determination to treat Web sites as public accommodations, the DOJ has filed complaints against several entities and sought to intervene in some privately initiated law suits targeting the inaccessibility of web sites operated by educational institutions and retailers, among others.

In a “statement of interest” filed in a suit against Harvard and MIT, the DOJ states flatly that universities have an obligation “to provide effective communication to ensure equal access” to on-line courses. A statement filed in another suit against retailer Lucky Jeans, notes that the DOJ “has long considered websites to be covered by Title III [of the ADA] despite the fact that there are no specific technical requirements for websites currently in the regulation or ADA standards.”

The DOJ’s proposed rules would adopt voluntary compliance standard developed by the World Wide Web Consortium, requiring, among other accommodations, the use of “alternative text” that can be translated into other mediums for the hearing- or vision-impaired; closed-captioning that can work with screen-reader technology, and design features that make all website functions controllable through a keyboard. Most of the accommodations fall under the general heading of “universal design” that advocates say will improve accessibility for all web site users, not just those with physical limitations.

The rules will potentially cover “any entities providing products or services to the public through their websites,” Lynn Calkins, who heads Holland & Knight’s litigation group, told Forbes in a recent interview. But how widely the rules will be applied, and to what kinds of businesses, isn’t yet clear, she said, and court decisions to date “have been inconsistent,” Some cases have involved companies that had brick and mortar stores as well as websites, Calkins noted, but others have targeted companies with only a web presence. One recent example: A settlement agreement with Netflix resolving allegations that its web site was not accessible to individuals with visual and hearing disabilities.

Commenters anticipating the DOJ rules say they will bring needed clarity to an area that currently lacks it. The rules may also bring significant compliance costs to those covered by it.

WORTH QUOTING

“Don’t be fooled by averages…Though market reports give the impression that values are rising across the board, people don’t own the entire market, they own one house.” Allan Weiss, CEO of Weiss Residential Research, arguing that the housing market is weaker than home price appreciation reports suggest.