May 17, 2010 2:35 PM
A section in an early version of the Senate's financial services reform bill would have imposed a fiduciary duty on all financial advisers. It has been replaced by language that would require a study to determine if the current standards are adequate. We believe that anyone providing individualized investment advice should bear a fiduciary duty toward their clients. As a result of the recent practices that brought on the current recession, many consumers no longer trust or respect companies in that sector. Restoring that trust is essential to a stable economy.
A fiduciary duty requirement is not that onerous. Real estate brokers owe a fiduciary duty toward their toward their clients, as do attorneys and many other professionals. It's not that complicated or hard to do, nor have fiduciary duty obligations resulted in excessive numbers of lawsuits or other serious problems in other sectors.
If a fiduciary duty standard were created, we doubt than many investment advisers would have any difficulty in adhering to that standard. The few that didn't would deserve the punishment that they would receive, and the existence of the standard combined with an occasional enforcement when necessary would greatly improve the image of the profession.
It's time for investment advisors who care about their clients and financial services executives who care about their reputation to join consumers on this issue and help get rid of investment advisors who don't.
February 16, 2010 10:12 AM
The Obama administration has proposed a number of new tax increases. The President deserves credit for recognizing that the ballooning federal deficit, resulting both directly and indirectly from the subprime mortgage crisis that preceded his election, must be addressed. It cannot be addressed by the needed budget cuts alone, and unfortunately some tax increases will be necessary. However, reducing tax system support of home ownership by cutting home mortgage interest and real estate tax deductions for high-income individuals and couples for housing is the wrong way to raise taxes.
Allowing the Bush tax cuts for high income individuals (over $250,000 per couple) makes more sense. At that income level those couples currently pay about 20% of their income in federal income taxes after deductions. Not that taxing people is a desirable goal, but the average total federal income tax currently paid by U.S. couples in that bracket is among the lowest in developed countries. While the wealthy owe President Bush their thanks for cutting their taxes by much more than they were cut for an average taxpayer, the expiration of the Bush tax cuts will only raise the effective tax rate on the wealthy to 22%. This should not cause an undue hardship on individuals at that income level, and they will still pay among the lowest federal income taxes compared to their peers in other countries. The new tax rates will also help home values and encourage home ownership in one respect, because the mortgage interest deduction will be worth more to high income individuals and couples at the higher tax rates.
While the expiration of the Bush tax cuts will raise the value of mortgage interest and real estate tax deductions for high income individuals, the Administration's proposal to cap those deductions for those high income individuals and couples is not a smart idea timing wise in the current weak real estate market. It is also unfair to those who had bought their home with the reasonable historical expectation that the mortgage interest and tax deduction would remain sacrosanct. Better revenue generation alternatives are to raise the capital gains rate on high income individuals after first giving them a reasonable time to dispose of fairly liquid capital assets, such as stocks and bonds. However, such capital gain tax increases should not be applied to residential real estate investments, whose values have dropped substantially in the current market, for the aforementioned reasons.
Home equity has historically been the single largest form of savings for most homeowners. With home values down dramatically, their savings rates at near all time lows, and their stock market and retirement plan investments devastated by irresponsible financial services sector practices, this is not the time to adopt any tax policies that would discourage home ownership.
January 20, 2010 4:00 PM
The American Homeowners Grassroots Alliance hailed the repeal of New Jersey's state law prohibiting real estate brokers and agents from providing commission rebates to home buyers. State real estate associations have also managed to pass similar laws in other states in recent years, despite the opposition of the American Homeowners Grassroots Alliance, the U.S. Department of Justice, the Federal Trade Commission, and many other consumer advocacy organizations. The legislation became effective with Governor Jon Corzine's signature of the legislation (A-373 and S-139) on January 17, 2010.
The legislation will allow New Jersey real estate consumers to receive real estate commission rebates from real estate brokers and/or agents. As mortgage lending standards have tightened, leading to higher down payment requirements, those rebates have become increasingly important in facilitating home sales. Commission rebates, which can amount to as much as 2% of a home's selling price, may enable a home sale that would otherwise not be possible, especially for low and moderate income buyers. As a result, real estate commission rebates are becoming increasingly popular in states where real estate trade groups haven't passed similar protectionist legislation.
"We believe that the repeal of this bill will increase the pool of buyers and help to slow future declines in New Jersey home values, " said AHGA President Bruce Hahn. It's particularly helpful in states like New Jersey where the economy is tough and many buyers have difficulty scraping up a down payment. "We're delighted at this positive step, and hope it signals a trend towards removing similar barriers to competition in other states," Hahn added.
January 13, 2010 1:29 PM
The importance of an open Internet to economic opportunities and the wellbeing of homeowners and other consumers grows every day. It is important for commerce, education, healthcare, and provides many other opportunities, such as the ability to work from home. Homeowners are fortunate in that the Federal Communications Commission has done a very good job of assuring that the providers of the networks used by consumers to access the Internet continue to be open and neutral.
The way in which we access the Internet is also changing. The four principles of network neutrality, which guide the FCC's efforts to preserve an open Internet, were written at a time when most of us accessed the Internet from our homes or offices. Today mobile access is becoming much more important, and the FCC is modifying its rules to address this new environment. The American Homeowners Grassroots Alliance supports that exercise. In our January 14 FCC submission we thanked the commission for their commendable performance and urged a similar approach to the new environment and the issues that arise from it.
We also urged the FCC to collaborate with the U.S. Department of Justice and the Federal Trade Commission to address some serious antitrust challenges that are outside of the scope of the current inquiry. The nation's national online network of homes for sale has faced repeated efforts to deny home sellers the services of discount real estate brokers who provide sales assistance at a fraction of the typical 5-6% real estate commission. Currently about 90% of home buyers search for homes on that consumer-facing online network, so it's imperative for home sellers to get exposure on that network. If they are denied access to that network because they prefer to use a discount real estate broker, an owner of a $200,000 home might be forced to pay a $10,000 - 12,000 real estate commission instead of a few hundred dollars a discount broker would charge.
The Federal Trade Commission has taken the lead on addressing this challenge and has initiated efforts to stop the efforts of numerous local Multiple Listing Services (MLSs) across the country who have sought to limit home sellers access to their networks through discount brokerage services. The FTC has been successful in the ongoing series of cases, although one MLS is now appealing the initial FTC finding against it.
Federal competition laws or regulations must be strengthened in order to more effectively discourage dominant private Internet commerce networks and search firms from engaging in such actions. In our comments AHGA urged the FCC to support such changes.
December 31, 2009 1:46 PM
The new federal government home mortgage finance rules requiring better disclosures to consumers beginning 1/1/2010 are a step forward, but more improvement is needed. They were watered down over the many years it has taken to develop the current rules. At the end of the day HUD officials in both the Bush and Obama Administration deserve the thanks of consumers for stiffening their resolve in the face of intense lobbying pressure from mortgage brokers, lenders, title insurers, and real estate brokers to abandon the process. They were able to get nearly half of Congress to sponsor legislation that would have prevented the new rules from being implemented. Lead sponsors of that legislation, Reps. Judy Biggert, R-Ill., and Ruben Hinojosa, D-Texas, failed recently in their last ditch attempt to delay the implementation of the new RESPA rules. Last October they sought unsuccessfully to amend the bill that would create a Consumer Financial Protection Agency.
I learned of one of the remaining problem areas when I went to settlement on the refinancing of the mortgage on our home this past Wednesday. Our new monthly mortgage payments turned out to be about $200 per month more than the estimated amount in our Good Faith Estimate. The difference was that the estimated property tax and hazard insurance figures in our GFE were $200 less than the actual amount we have been paying. We provided our current real estate taxes and property insurance numbers to our mortgage broker before he gave us the GFE. We assumed he would use those numbers in his estimate and therefor didn't bother to check them. As a result the low GFE monthly payment estimate he gave us made us smile, and certainly reinforced our decision to go forward with the refi.
One thing the new rules do not address is problems like this. Curious as to whether there is a tendency for mortgage brokers to low ball taxes and insurance to make their GFE new mortgage payment numbers look better than they actually will be, I asked the settlement service executive what share of the refis that come to her with GFEs in which the mortgage brokers used very low and obviously incorrect real estate tax and insurance amounts rather than the homeowners current actual payments. "Most of them", she told me. This and a number of other RESPA problems need to be addressed, but at least we're making a start.
July 21, 2009 8:45 AM
House Financial Services Committee Chairman Barney Frank, (D-MA), has introduced a bill to create an independent agency to regulate financial services. The legislation, HR 3126, would consolidate many regulatory functions spread among other agencies and would give it the authority to make and enforce rules that would hopefully prevent another meltdown in the mortgage finance sector as well as address many other financial services practices that may be injuring consumers.
Consolidation of the oversight of financial products that is now split between the Fed, the Securities and Exchange Commission, the Federal Trade Commission, and others can potentially improve regulatory efficiency substantially. It can also reverse the process of "regulatory capture" by the regulated industries that appears to have undermined the independence some of these agencies did have. However assuring that the oversight organization is free from political influence and staffed with competent professionals dedicated to protecting consumers is more important than where the authority resides. In designing the new institution we need to study the reason for regulatory failures at the Fed, SEC, OFHEO, and other agencies, and build protections against politicization into the new organization.
The American Homeowners Grassroots Alliance believes that the legislation is badly needed and also creates an opportunity to create more rigorous examination of other financial services areas that are badly in need of more oversight. For example the anticompetitive practices of many real estate services organizations are forcing real estate consumers to pay much higher real estate commissions than they pay in other developed countries. The new Consumer Financial Protection Agency should be given additional oversight of real estate services and the power to roll back industry and state regulations and laws that are stifling competition in real estate services and costing home buyers and sellers vast amounts of money.
April 29, 2009 2:37 PM
The GDP (Gross Domestic Product) has now declined in the last three quarters, the latest decline (6.1%) was greater than expected by most economists. Housing accounted for much of the decline. Business investment and state and local government spending also declined. So when is all this going to end?
On the plus side home prices are showing some signs of stabilizing, and the number of homes sold are finally increasing in many areas. Business inventories have also been drawn down substantially in most sectors, which will lead to more manufacturing activity in the future. Another positive is that most of the stimulus spending has either not yet occurred or had the chance to impact the marketplace. When it does there's a good chance that it, combined with some of the other positive economic factors, will put an end to our economic decline. That end may not signal the beginning of an extremely robust recovery, but it will be nice to see the economy moving forward again, more job openings, and a further recovery of the housing market.
