While we’ve come a long way since housing bottomed, the memories of how we got there still don’t feel very distant.
A lot of things contributed to the complete breakdown of the real estate market, with exotic financing being one of them.
So it’s no surprise that the new hot trend of “1% down mortgages” is now coming under the microscope.
Update: UWM has re-launched the 1% down payment mortgage.
Freddie Mac Is Changing the Rules Pertaining to 1% Down Mortgages
While 1% down mortgages have been all the rage lately
Freddie Mac is cracking down on the higher-risk home loans
Requiring a minimum 3% borrower contribution
That can’t come via the transaction itself via lender credits, points, etc.
Over the past couple years, many large lenders have introduced home loan programs that require just 1% down from the borrower, including big names like Quicken, Guaranteed Rate, Guild Mortgage, and even wholesaler United Wholesale Mortgage.
In fact, just this week another lender joined the party, Garden State Home Loans, giving home buyers in Connecticut, Florida, New Jersey, and Pennsylvania the chance to achieve the American Dream with just a 1% down payment.
As far as I can tell, most if not all of these programs rely upon Freddie Mac’s Home Possible Mortgage program, which is its 97% LTV offering.
However, it turns out that some lenders may have taken it a little too far because Freddie Mac doesn’t seem comfortable with their interpretation of the program.
Last week, Freddie Mac released a bulletin pertaining to lender gifts and grants on Home Possible Mortgages (their 3% down program) that is effective November 1st, 2017.
Basically, they’re revising their guidelines for Home Possible Mortgages to require a 3% borrower contribution that isn’t funded through the mortgage transaction.
Specifically, Freddie notes that the down payment money can’t come from “differential pricing in rate, discount points, or fees.”
So it sounds like some of these programs offered the 1% down option in exchange for a higher mortgage rate, kind of like how a lender credit allows borrowers to pay nothing out of pocket in the way of closing costs.
A borrower may be able to put less down, but they could wind up with a higher mortgage rate as a result.
Some may say there’s nothing wrong with that – heck, you see it on mortgages where borrowers put less than 20% down too.
But Freddie seems to think this practice is skirting the rules, or perhaps taking advantage of a loophole, and thus they’re closing it in the coming months.
That could mean that some (or all) of these 1% down mortgage programs will fall by the wayside, but that remains to be seen.
In any case, Freddie will still allow gifts or grants from the seller as the originating lender, but only after a minimum contribution of 3% of the value (lesser of the appraised value or the purchase price) is made by the borrower.
What This Means for You
While 1% down home loans may still be available via other avenues
It does mean it’ll get more difficult to obtain one going forward
This means having down payment funds at the ready is imperative
Especially in today’s competitive housing market where multiple buyers bid for the same property
These 1% down programs may not be done entirely, but the lenders offering them could have to figure out a new way to offer such financing. Or do it without Freddie Mac.
In the meantime, it might be advisable to set aside enough money to cover a 3% down payment, which is still a pretty small amount to put down on a home.
It’s a slightly smaller requirement than what the FHA calls for (3.5%), making it one of the most flexible loan programs around, even without the gift/grant money.
Furthermore, you pay for the privilege of putting down so little, often in the form of a higher mortgage rate and/or mortgage insurance, so consider that when deciding on an appropriate down payment.
It could make financial sense to put down more on a home if you have the means, and it could also help you secure a winning bid with all the competition in today’s housing market.
Read more: 3 ways a low down payment raises your mortgage payment
New York Governor Andrew Cuomo on Monday signed into law new legislation that makes it possible for the state to revoke real estate licenses from agents and brokers who violate anti-discrimination laws.
Cuomo said New York has “zero tolerance” for discrimination of any kind and that the “sheer scope and breadth of the unscrupulous and discriminatory real estate practices uncovered on Long Island is repugnant to who we are.”
The Governor was referring to a November 2019 investigation conducted by Newsday that revealed how some real estate agents in the city were steering some clients towards certain neighborhoods and types of housing based on their race. Lawmakers in New York cited that investigation as the main reason for the new legislation.
Real Estate Board of New York President James Whelan said the law was important for the protection of clients. “All New Yorkers must have equal access and opportunity when searching for housing or commercial real estate,” he said in a statement.
“This law will provide teeth to the enforcement of New York’s Human Rights Law and ensure that real estate agents cannot engage in racist practices like “steering” that deny families the dignity of choosing their home and neighborhood,” said Senator James Gaughran. “I thank Governor Cuomo for his swift singing of this bill into law.”
But not everyone is happy with the Newsday investigation, with some brokerages questioning its findings. For example, Douglas Elliman reportedly said the report was “an unreliable, unethical and unscientific attempt to create a news story where there is none.”
Newsday’s report alleged that undercover testers found that Black home shoppers were treated differently almost half the time by real estate professionals in the state. Other minorities, such as Latinx and Asian shoppers, were also discriminated against, albeit less often, the report said.
New York authorities responded to the report by issuing subpoenas to 67 agents and firms cited in Newday’s investigation.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
‘Tis the season of cold weather, hot chocolate, carols and Christmas. The holidays are upon us, and it’s time to pick the best type of Christmas tree for you. Whether you’re a before-or-after-Thanksgiving holiday decorator, picking the right tree for your apartment can make the holiday season truly magical.
A few things to consider first: Do you have overactive cats? How often can you water it? Are you going out of town for the holidays? Do you like heavy ornaments or minimally decorated trees? How much will you spend on the perfect tree? How much space do you have?
Take this quiz to find out what Christmas tree you should pick up this holiday.
What’s your decorating style in your apartment?
What movie describes your holidays best?
What does your Christmas day look like?
What lifestyle best describes you right now?
When does the Christmas season really start?
What’s your favorite Christmas song?
What Is the Best Type of Christmas Tree for Me?
Artificial Christmas tree
Not everyone’s family is ready to take care of a real-life tree, and that’s OK! An artificial Christmas tree allows you to start earlier in the season without worrying about shedding or disposing of the tree. An artificial tree is excellent for those who travel out of state for the holidays and want to keep the house decorated. Splurge on one of the pre-lit ones: You won’t regret it.
Fraser fir tree
The ultimate Christmas tree! The fraser fir brings the fragrance and greenery we all connect back to the holidays. It’s bright and green yet soft enough for young kids and pets to be around it. The fraser fir is one of the sturdiest trees, perfect for the ornaments you hold so dearly. The shape is classic, a triangle with enough branch gaps for lights and big ornaments. If you follow many Christmas traditions but are looking for durability through the season, this quintessential tree is for you.
Colorado blue spruce
If you’re looking for the most stunning Christmas tree, look no further than the Colorado blue spruce. The tree’s foliage changes from a blueish-gray to a silver blue depending on the light. It’s almost as if they are covered in snow. Hang white and gold ornaments from its very strong branches to let the tree’s color sing. It’s also a favorite because of its light shedding. However, make sure the tree is out of reach of children, pets and clumsy folks. The needles are very sharp, so it’s best to wear gloves while decorating them.
Balsam fir
The balsam fir is another classic pick. You’ll often see this one as part of garlands, wreaths and other holiday decorations that incorporate greenery. That’s thanks to its soft, flat needles and branches that work great at staying flat. Balsam fir trees are native to the north of the U.S. Also, if tree fragrance is a must on your list, the balsam fir won’t disappoint.This one requires a bit more care than other varieties as it needs to be kept away from any heating source or drying environment (hard in the winter!), as it will dry out quickly and not make it to Christmas. They can retain their needles for up to four weeks if cared for correctly.
White fir
The gorgeous white fir tree is adorned with white and blue-green needles. Since you’re headed out into the travel craziness of the holidays, this Christmas tree is the best fit for you. White fir trees tolerate neglect, so don’t fret if you cannot water them. This tree has the prettiest pyramid shape, great needle retention and a strong fragrance. As opposed to other pines, this tree has a lovely lemon smell when you crush its needles in your hand — it would go great with a garland of dried oranges and light ornaments as its needles grow upwards on the branch. Get to the tree lot early in the season, as these are the first ones to go.
Eastern white pine
Eastern white pine trees are very tall, with long, thin needles that grow up to five inches in length. This is one of the largest pine trees in the market, so make sure you have space for it. Get a wreath or two to pair up with the tree. They aren’t the sturdiest trees, so keep your decor to a minimum or use garlands or felt ornaments. Let the beautiful, feathery branches take the stage! If you aim for a minimal yet captivating look with your Christmas tree, the eastern white pine is it.
Scotch pine
Whenever you see a Christmas tree farm, most likely it’s a field of bright green Scotch pine trees. These trees are often harvested by permit, so you can cut them down yourself. You’re a DIY-er, and what better feeling than cutting your own Christmas joy. Just make sure to wear gloves when handling it, as this tree’s needles are as sharp as actual needles. But the good news is that even when the Scotch pine is drying, it won’t drop any needles, so you can keep your space clean. They are very sturdy, so they will safely hold your heirloom ornaments in their branches. Make sure you pick the best ones, as you won’t have much room between branches.
Noble fir
The noble fir makes a statement. This is the tree for your tall ceilings — think cathedral, office lobby or foyer of your home. Noble firs come with blue-green needles, sturdy branches and even cones. Think a 12-foot, full-bodied Christmas tree for the season. In nature, these giants can reach almost 300 feet tall. Due to its stature, the noble fir doesn’t need many ornaments to stand out. Pair it with some fresh noble fir wreaths and simple twinkle lights.
The Department of Housing and Urban Development’s Office of Inspector General found that Mr. Cooper failed to provide proper retention options to more than 80% of borrowers with delinquent FHA-insured loans after their COVID-19 forbearance came to an end.
The Dallas-based servicer, which still in some cases uses the Nationstar name, incorrectly calculated loss mitigation options for some borrowers with delinquent loans, did not reinstate arrearages properly and declined loss mitigation in error between November 2021 and February 2022. The OIG report projects that this impacted close to 3,572 FHA-insured loans out of a statistical sample of 4,288 mortgages, totaling $767 million.
As such, Mr. Cooper’s practices and “inadequate policies and system” may have contributed to borrowers facing “additional hardships from improper loss mitigation,” the department’s watchdog claims.
The company, which is the largest nonbank servicer in the nation with an $853 billion portfolio as of March 31, was chosen for the audit because it had a notable number of delinquent loans and was also based on complaints made against it to the Consumer Financial Protection Bureau and the HUD OIG hotline.
During the four months that were audited, over 50% of borrowers in the statistical sample received improper loss mitigation options from Mr. Cooper, while for 35% of loans, the servicer did not follow HUD’s guidance regarding notifying borrowers about the Homeowner Assistance Fund and loss mitigation waterfall use.
A spokeswoman for the servicer acknowledged that “some limited, technical exceptions and differences in interpretation existed within the audit report sample population,” but said the company “satisfied the program’s objectives and took the necessary steps to help our customers remain in their homes.”
“Mr. Cooper helped thousands of FHA customers with timely solutions, and we are deeply disappointed that the HUD OIG Report did not accurately reflect our commitment to those customers,” the company’s spokeswoman said in a written statement. “None of the homes in the sample population were foreclosed upon, and there was no harm to any of the customers.”
However, HUD OIG claimed Mr. Cooper dropped the ball with the following: some borrowers received additional months of future payments in their partial claim, the servicer didn’t include all arrearages needed to bring the borrower current, incorrect interest rates were used in the calculation of loss mitigation options and late fees were included in the partial claim that should have been waived.
Mr. Cooper also did not inform a notable chunk of borrowers about HAF during loss mitigation and only started doing so when the audit began in March 2022, the watchdog said. Earlier last year, the CFPB made it a point to encourage servicer participation in the program, pointing out that it was one of the best ways to ensure borrowers stay in their homes.
Going forward, the OIG recommends for Mr. Cooper to implement controls and provide employee training to prevent noncompliance in loss mitigation, as well as identify loans that were affected by improper application and update said accounts.
In March, Mr. Cooper settled a COVID loss mitigation lawsuit from a pair of Ohio borrowers that alleged the servicer steered them away from a pandemic-related modification plan.
Concurrently, HUD’s OIG released a report which looked at overall servicer compliance during the pandemic. The same problems that were noted in Mr. Cooper’s audit were found across a large number of mortgage servicers.
Based on a sample of 231,362 FHA-insured forward loans totaling $41 billion, servicers did not meet HUD requirements for providing loss mitigation assistance to 155,297 borrowers, the report said.
Nearly half of the borrowers in the sample did not receive the correct loss mitigation assistance, while approximately one-quarter of the borrowers received the proper option, but servicers did not follow COVID-19 loss mitigation guidance to help borrowers with payments that were missed during forbearance, the report said.
“It goes without saying that the COVID-19 pandemic was unprecedented in the ways in which it impacted Americans, including those with FHA-insured loans,” said Inspector General Rae Oliver Davis, in a written statement. “HUD’s efforts to address the crisis necessarily evolved over time and mortgage servicers struggled to adapt to those changes.”
Servicers were “unprepared for the pace in which FHA changed loss mitigation requirements” and “confused with the new requirements,” which resulted in borrowers receiving conflicting information on eligibility requirements, the report said. The watchdog urged HUD to develop a plan for how to mitigate noncompliance.
A HUD spokeswoman said the department takes “very seriously” instances of non-compliance with servicing policies, particularly those that are designed to help borrowers retain their home.”
“We continue to work with individual servicers on the appropriate remedies for non-compliance with our policies, and with all FHA servicers on education and training that will facilitate effective implementation of our requirements now and in the future,” she added.
Bob Broeksmit, president of the Mortgage Bankers Association, dubbed the implementation of COVID-19 relief a major success story for servicers.
“A number of the technical faults that the report identifies were made by servicers in the spirit of helping COVID-affected borrowers exit forbearance and remain in their homes in the fastest, most efficient way possible,” he wrote. ” Others were the unfortunate outcome of confusing or conflicting program requirements and the inherent difficulties of quickly scaling such a massive borrower assistance effort.”
MIAC Analytics revealed it was the victim of a data breach in April, one of several mortgage players to report hacks in the past several months.
It’s unclear how many clients were impacted by the incident at MIAC, which occurred between April 5 and April 6. The analytics firm said it immediately secured its systems once the threat was discovered.
“MIAC determined that in connection with this incident there was unauthorized access to certain systems in its environment, and as a result, certain data stored on MIAC’s systems was subject to unauthorized acquisition,” the company said in a consumer notice filed with cybersecurity firm IDX.
But Freedom Mortgage was affected as it revealed in a disclosure to the Indiana state attorney general that 592 of its customers had undisclosed information compromised. A limited amount of the lender’s past data was in MIAC’s database and may have been compromised, a company spokesperson said on Friday, who emphasized Freedom’s systems hadn’t been breached, and that the company had used MIAC several years ago.
A representative for MIAC declined to comment Friday. The cyberattack was described in a letter to consumers shared with the Massachusetts Office of Consumer Affairs and Business Regulation, and in the IDX announcement.
There was no evidence of identity theft or fraud, MIAC said. The firms offered affected consumers 12 to 24 months of complimentary credit monitoring from IDX.
MIAC doesn’t appear to have been disrupted further, and has since regularly announced loan sales on behalf of its mortgage clients.
That revelation comes after another lender, the mortgage arm of Cornerstone Capital Bank, said its customers were affected by an attack in February at one of its service providers. Houston-based Cornerstone Home Lending said 15,042 of its clients had information compromised, according to a notice to the Indiana state attorney general in March.
“Our investigation determined that the service provider stored Cornerstone data that includes your name, address, loan number and bank account number,” wrote Toby Wells, president of the Loan Servicing Division, in a letter shared with the same Massachusetts office.
Representatives for Cornerstone didn’t return requests for comment this week.
The attack was perpetrated by Russian-linked ransomware gang Clop, according to reports by TechCrunch and other cybersecurity blogs. The hackers allegedly breached a file transfer service with a “zero-day” attack that hadn’t been seen before, and published a list on the dark web of 130 companies they allegedly breached. The wide range of alleged victims includes banking-as-a-service provider Hatch Bank, which said in a Maine notice 139,493 of its customers were affected.
Carrington Mortgage Services meanwhile faces accusations of negligence from consumer plaintiffs in three federal lawsuits over two data breaches at its workforce management vendor, Alvaria.
The hacks at Alvaria in November and March impacted at least 50,690 clients, the companies said in disclosures to state attorneys general. It’s unclear which customers were affected in each incident, but Social Security numbers were among compromised data.
The lawsuits include estimates of the number of customers impacted, ranging from over 685,000 to more than 3 million clients. Neither attorneys nor the companies in the cases didn’t respond to requests for comment Friday.
The complaints resemble class action cases against other large lenders and servicers who suffered significant hacks last year, which all remain pending.
Forward-looking housing data flipped in November, so HousingWire created the weekly Housing Market Tracker to provide real-time forward-looking housing data. I also recently joined Mike Simonsen’s Top of Mind podcast to talk about what’s happened in housing over the past year. Forward-looking housing data might not be sexy, but it works.
From FHFA: U.S. house prices rose 4.3 percent between the first quarters of 2022 and 2023, according to the Federal Housing Finance Agency House Price Index (FHFA HPI). House prices were up 0.5 percent compared to the fourth quarter of 2022. FHFA’s seasonally adjusted monthly index for March was up 0.6 percent from February.
How and why did the index reach this high, and what should we expect in the future?
Inventory is still near record lows
The easiest economic discussion right now is the housing inventory story in the U.S. and that it’s historically low. However, it’s also the most-lied-about topic in recent economic history. People claim inventory isn’t low because “shadow inventory” is on the verge of adding millions of homes into the marketplace any second now. Another myth is that we’ll have a silver tsunami where every Baby Boomer lists their home in one month, flooding the marketplace with inventory.
The NAR total active listings data is between 2 million and 2.5 million in a normal market between 1982-2023. Post COVID-19, we broke to all-time lows and it’s hard to get it back to those levels: we’re currently at 1,040,000 active listings. This is a fact that some people have a hard time believing because they believe the shadow inventory or vacant home thesis.
These are often middle-age male stock traders or anyone from the anti-central bank movement who has been part of a borderline crazy bearish American economic crash squad that only can be matched by the Russian troll movement spreading disinformation about the state of the U.S. economy. Economic cycles come and go, but the 24/7 doom porn people are a one-trick pony that will fall into the grave with all American bears who have failed since 1790.
NAR total inventory since 1982:
I prefer the Altos Research weekly single-family data to the NAR data because it gives us a fresh look at not only active listing data but new listing data. This way, nobody can be surprised when old stale data comes to the marketplace. This is also why we created the weekly Housing Market Tracker article. We want to connect the dots with supply and demand.
The Altos Research new listing data is essential in tracking the supply aspect of housing, which is why I include it as part of the Tracker. Even in 2022, when we had the most significant home sales collapse ever recorded, the new listing data never exploded higher; in fact, it was trending at all-time lows in 2021 and 2022, and now is at a new all-time low in 2023.
The data in the charts above should clear up any shadow inventory and vacant home nonsense we have heard for over 11 years. Let’s talk about the second significant factor: demand!
Last year was a whirlwind for housing economics. The first three months of 2022 were so bad that I deemed it the unhealthiest housing market post-2010. I coined the term savagely unhealthy because we had too many people chasing too few homes. More than 70% of the marketplace saw multiple bids on properties.
In February of 2021, I talked about how we needed higher rates to cool down the housing market because this wasn’t the housing bubble of 2005. However, by February 2022, it was too late; so much home-price growth in such a short time meant that demand would collapse when mortgage rates did rise.
Mortgage rates going from 3% to 5% had been the norm for the markets; mortgage rates going from 3% to 7.37% was another story altogether. As a result, home sales collapsed in 2022 in the most prominent fashion ever recorded in U.S. history.
So what has changed? Well, starting Nov. 9, 2022, mortgage rates fell and mortgage demand got better. We didn’t see a recovery in demand, it just stabilized.
Since Nov. 9, purchase application data has had 17 positive prints versus nine negative prints after making some holiday adjustments. Year to date, we have had 10 positive prints and nine negatives, and tomorrow purchase applications should be negative, which shows the stabilization in demand so far in 2023.
It is simple supply and demand economics. Last year, home sales crashed because mortgage rates exploded higher after the most significant short-term home-price gains ever in history. However, after Nov. 9, that reality changed from crashing home sales to stabilizing.
So the moral of the story is that the market dynamics were very historical last year; active inventory and monthly supply were low, but home sales were crashing, and the inventory that was on the market, especially in the seconnd half of 2022, required price cuts to sell.
In my 2023 forecast for prices, I stated that mortgage rates needed to stay higher, above 5.875%, for prices to have a mild decline, in contrast to the massive price gains we have seen in 2020 through 2022. I chose 5.875% because my affordability index model was shot, but I also saw that the housing market changed when rates moved from 7.37% to 5.99%.
Imagine what the housing data would look like if rates were in the low 5% for 2023. This is why tracking weekly housing data is critical. We don’t have a housing demand recovery as we saw with the COVID-19 recovery, we just have a stabilization in demand, and total active listings are still near all-time lows.
As you can see in the FHFA home price index below, the growth rate of prices cooled down a lot with higher mortgage rates, but those didn’t crash prices like in 2007 and 2008, a period in time with much higher active supply.
Also, to go along with the FHFA home price index, not only was housing inventory over 4 million in the NAR data in 2007, but we also had massive growth in forced sellers. As we can see in the chart below, we had massive credit stress in the system.
So, as we get ready for the second half of 2023, we will track the weekly housing data. We will focus on the actual data that matter, positive or negative. The most significant change this year is that home sales are not collapsing in the same fashion they were last year.
Continued mortgage rate fluctuations, trending cash-out opportunities, and more. Stay informed with this week’s look at recent industry news.
Rates Update
Last week, Freddie Mac reported a significant decrease in mortgage rates with numbers below three percent across the board. These are some of the lowest numbers we’ve seen from Freddie Mac since September – and they should (as with all average rate changes) be taken with a grain of salt. In fact, some experts claim that the exact opposite happened and that rates actually increased over the previous week. Freddie Mac typically gathers their mortgage rate data early in the week, leaving room for error in their subsequent weekly report.
With such a volatile market in this month of November, it’s important to stay in touch with your Total Mortgage loan officer to be sure the mortgage rate you’re getting is the right one.
Low Rates and High Prices Encourage Cash-Out Refinancing
Cash-out refinance numbers are up 33 percent since last November as a result of current market trends. Even with refinancing as a whole accounting for slightly less than half of the market, the cash-out variety is making a noticeable return. Here’s why:
Mortgage rates are still at historic lows. Cash-out refinancing often results in a larger loan with a lower rate, so it’s natural to see the long-term benefits of swapping out now.
Property values are holding high. With fewer (and more expensive) options on the market, homeowners are being forced to look inward at their own properties. Pursuing a cash-out refinance could create a useful source of income for home improvements that will only increase a property’s value for a future selling date.
For full information about cash-out refinancing, read our blog or contact your Total Mortgage loan officer.
Increased Loan Limits Bring More Spending Power to Buyers
Don’t forget earlier this month, the borrowing limits for conventional loan options increased. Buyers now have access to single-family home loans of up to $625,000 (a $75,000 increase), four-unit home loans of up to $1.2 million (nearly a $250,000 increase), and more. With average market prices increasing, this is generally great news for all homebuyers who are eligible. See the full details below:
In Closing
Despite last week’s fluctuations and the ongoing upward trend, mortgage rates are still at historic lows and should remain relatively low through the end of the year. Now is still a good time to lock in a rate if you haven’t already – to get started, reach out to your Total Mortgage loan officer. For now, we’ll continue to monitor the news and keep you updated. Have a great week!
In the days before Los Angeles’ “mansion tax” took effect, the luxury market moved at hyperspeed.
Prices were slashed, escrows were rushed and million-dollar deals were closed as panicked sellers offered exotic cars and lucrative bonuses to anyone willing to buy their properties by the end of March. It was a manic, desperate attempt at avoiding Measure ULA, a new transfer tax that levies a 4% charge on all residential and commercial real estate sales in the cityabove $5 million and a 5.5% charge on sales above $10 million.
On April 1, everything froze.
Sellers, now faced with paying the tax if they sold, yanked their properties off the market. Discounted prices, which were valid only if the deal was done by March, shot back up. The luxury goodies were off the table. Bye bye, Bentley.
A market slowdown was expected, but the night-and-day difference between March and April sales was unprecedented.
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In March, when the luxury market reached the peak of its frenzy, there were 126 home and condo sales above $5 million in the city of L.A., according to the Multiple Listing Service.
In April, once Measure ULA took effect, there were two.
One sold in Brentwood for $5.7 million, and the other traded hands in Venice for $7.5 million. Together, they raised $528,000 for the city to use for affordable housing and homelessness prevention programs. So far, that’s it.
The slowdown makes sense. Sellers were economically incentivized to close deals before they would have to pay the tax, so most of the sales that were going to close already closed. L.A.’s luxury market won’t remain frozen forever, and deals will eventually pick back up, especially once the courts rule on two lawsuits arguing that the tax is unconstitutional. Many sellers are holding off listing while they wait for a clear ruling one way or the other.
But for a city grappling with a housing crisis, funding is needed as quickly as possible, and early signs indicate that the once-lofty projections for how much Measure ULA would raise might be much, much lower — especially for the first few months.
When Measure ULA was on the ballot in November, proponents estimated it would generate roughly $900 million a year, based on real estate sales data from 2021 to 2022.
In March, a report from the City Administrative Office lowered that number significantly, projecting $672 million in revenue from July 2023 to June 2024. The projection was a response to a real estate market that slowed dramatically because of rising interest rates.
Then in April, Mayor Karen Bass unveiled her first budget proposal, a $13.1-billion plan that included $1.3 billion to address homelessness. However, the budget projected only $150 million in revenue from Measure ULA.
The city is walking a tightrope. It needs to spend as much as possible to address housing and homelessness, but if the courts decide the measure is unconstitutional, the city will have to pay back all the money it generated from the tax. An L.A. County judge recently consolidated the two lawsuits challenging the measure into a single case, but the timeline for a ruling is unclear.
In this legal limbo, the city had to choose a budget number big enough to make an impact but small enough to pay back if necessary. The planners landed on $150 million because they felt confident that the city could make that back through federal reimbursements from organizations.
“The $150-million number takes into account the risk of losing litigation, but it’s also reflective of the urgency of the housing and homelessness situation,” said Greg Good, a senior advisor on policy and external affairs for the Los Angeles Housing Department. “This is an amount we feel comfortable that we could refund, if necessary.”
The ULA money can be spent only as it comes in, meaning that the city won’t be able to use the $150 million until the tax generates $150 million, Good said.
If luxury sales stay at the pace they are right now, that may take awhile.
“We anticipated the market slowing down. It’s logical economic behavior,” Good said. “But it’s still real estate in L.A. Eventually, transactions will get back to normal.”
Sellers are sitting on the sidelines in hopes that the tax will be overturned. The Howard Jarvis Taxpayers Assn., one of the groups filing a lawsuit against the tax, published a page on its website with instructions on how to file for a refund if the suit is successful.
“Sellers are taking their properties off the market, and there are some developers who won’t buy anything in the city,” said Compass agent Sally Forster Jones. “There’s hope that it gets overturned.”
Jones handled one of the final sales before Measure ULA took effect, helping a client sell a 1930s mansion in Brentwood for $16.2 million. Because it sold before the deadline, the seller saved $891,000.
The commercial market has cooled as well, said Oron Maher of Maher Commercial Realty. He said that most sellers listing properties post-ULA will be the ones that have no choice.
“These are mom-and-pop owners of real estate. People going through death, divorce, partnership dissolutions or retirement who are forced to sell as soon as possible,” Maher said. “If you don’t need to sell in ULA, you won’t. This will be a tax on people already experiencing difficult situations.”
In the last days of March, Maher closed the sale of a 16,000-square-foot apartment building on behalf of an elderly client who chose taking a lesser price over paying the tax. At $11 million, the sale price was $1.5 million less than the asking price, but it avoided a tax bill of $605,000.
Maher said that over the last month negotiations have become a game of hot potato, with sellers and buyers both asking the other to cover the tax.
“Buyers are saying it’s a seller’s tax, but sellers are saying they can’t sell unless the buyer can raise the price,” he said. “It’s all leading to less transactions.”
Even if the measure is upheld in court, there’s a chance sellers will find ways to skirt the tax. Shortly after the measure passed, The Times reported that wealthy sellers were already eyeing ways to avoid paying, such as breaking properties into pieces and selling them separately.
Legal resource outlet JD Supra recently published an article headlined “Nine Ideas to Avoid the Effect of Measure ULA.” Its suggestions include selling stakes in the entity that owns a property rather than the property itself, selling a house and the land it occupies separately, or taking the broker’s fee out of the sale price to get it under the tax thresholds.
City officials, meanwhile, are beefing up staff to help manage and administer the tax. The Los Angeles Housing Department is requesting six new hires to help launch ULA spending effectively, and the City Council confirmed 15 people to sit on the Citizens Oversight Committee, a volunteer group that will supervise spending and make program recommendations.
Among those named to the committee were Steve Diaz, deputy director of the L.A. Community Action Network; Deepika Sharma, a professor at USC‘s Gould School of Law; and Alan Greenlee, executive director of the Southern California Assn. of Nonprofit Housing, who worked on the United to House L.A. coalition that drafted the measure.
The group will convene for the first time in early May.
“I’m excited about the prospect of ULA,” Greenlee said. “It creates considerable and ongoing resources that the city can use not only to protect low-income residents so they can stay in their homes, but also creates certainty that there will be resources available for developers to build affordable housing.”
Good said both groups will play a crucial role — should the measure survive litigation.
“We’re in an extraordinary dual crisis with housing security and homelessness, and this measure was passed by nearly 60% of voters,” Good said. “This is a genuine opportunity to move the needle, and we’re hopeful and committed to seeing it through.”
According to the FTC, Americans have lost $610 million to “income illusions” since 2016 – and $150 million of that was in the first nine months of 2020 alone.
Predatory get-rich-quick schemes have become so audacious, so prevalent that the federal government has launched a full-scale operation targeting them: Operation Income Illusion.
So what are all the modern scams and schemes that young people should look out for? How can you spot the especially sneaky ones? What are the early warning signs of a bad online business course or a phony job listing?
And how can you convince that one relative of yours that they’re in an MLM?
Let’s cover this and more as we explore modern get-rich-quick schemes (and how to spot them).
What’s Ahead:
Common signs of a get-rich-quick scheme
Before we get into specifics, it’s worth pointing out some of the most common signs of any get-rich-quick scheme:
A promise or guarantee of income.
Payment requested upfront to cover supplies/training/application fees.
Sketchy websites or email addresses.
Zero online reviews or ratings.
Hyperbolic marketing language (achieve your dreams, become your own boss, etc.).
The perfect opportunity somehow found you (instead of the other way around).
A request for sensitive info: credit card info, SSN, or a photo of your passport/ID.
They give you a bad gut feeling. When you have a bad gut feeling about a person in real life, you walk away. Do the same online.
1. Cryptocurrency
Ah, crypto.
Perhaps no other investment in history has produced as much FOMO as Bitcoin. After all, everybody knows of somebody who got rich off of it, or alternatively, some rare altcoin (read: any crypto that isn’t Bitcoin) that exploded overnight.
It would be an overreach to call cryptocurrency a scam, but it’s certainly not the investor gravy train it’s made out to be.
Read more: The Top 10 Things You Need To Know About Bitcoin
What they promise
A $10,000 investment in Bitcoin in 2017 became $640,000 just four years later. Invest your money and buckle up, because you’re about to get rich.
Or, alternatively, keep your eyes on the crypto forums. If you get in on the ground floor of a new crypto before it explodes, that’s another easy way to 100x your investment overnight.
What really happens
A $10,000 investment in Bitcoin in November, 2021 would be worth $6,175.36 in February 2022.
Cryptocurrency values are 100% speculation, upheld by investor demand alone. There’s simply no guarantee (or even near-guarantee) that your investment will grow in value in the short- or long-term.
That’s especially true of new or obscure “altcoins” that trade for pennies a pop. Sure, a small percentage of them may blow up – but many more are simply scams or pump-and-dump schemes – and it’s extremely difficult to detect which is which.
Read more: From High Risk To High Cost: Why You Shouldn’t Buy Bitcoin
How to spot a crypto scam
Any crypto that promises to multiply in value is a scam. Again, the only thing propping up crypto values is investor interest, which is fickle, fleeting, and unpredictable.
Bitcoin, Ethereum, and other bonafide cryptos aren’t scams, but they’re ultra-risky investments nonetheless. For more on why, check out Crypto Crash Course – Everything You Need To Know About Bitcoin, Blockchain, And More.
2. Multi-level marketing schemes
MLMs are notorious for using psychology and manipulation to lure unsuspecting income-seekers into their midst. Then, they squeeze capital out of them on the dangling promise of eventually multiplying their returns.
Now that John Oliver and others have shone a light on the industry, the MLMs have had to get even sneakier.
What they promise
Join [Herbalife, Amway, Infinitus] and you’ll become your own boss, get free training, and earn six figures in your first year!
Who doesn’t want to become their own CEO for a small initial investment of just $150, especially when you can make 1000x within 10 months!
What really happens
99% of MLM participants lose money, according to the Consumer Awareness Institute. Anyone appearing like they’re making money from an MLM on social media is simply trying to dupe others into distributing for them.
How to spot an MLM scheme
If you’re wondering whether the sales opportunity you’re considering is part of an MLM, or you’re trying to convince someone that they’re in an MLM, here are a few steps that you can take:
See if it’s already a known MLM. TitleMax (of all places) published a helpful list of the top 25 MLMs by revenue. If your future “employer” is on the list, take a hard pass.
Search for complaints about the company. Reddit, The Better Business Bureau, and your state Attorney General’s office website are all helpful places to find consumer ratings, reviews, and official complaints.
Vet the products. MLMs tend to sell sketchy products with dubious or unsubstantiated research proving their efficacy. If you wouldn’t buy the product, you definitely shouldn’t sell it.
ID the “startup fee”. If a company has a flat fee for upfront training or especially your first round of inventory, it’s most likely an MLM.
Get a second opinion. Ask the company to provide all of its contracts and legal documents, and have a friend, mentor, or your attorney look over everything with a skeptical eye. Don’t try to convince them it’s legit; ask them to convince you that it’s an MLM.
3. The lottery
There’s no more open and honest get-rich-quick scheme than the lottery!
Playing the lotto in tiny doses can be fun when you expect to lose. My better half and I buy a ticket or two per year and fantasize about how we’ll fill our 20-car garage.
Then we lose and laugh.
But playing the lottery with even the faintest expectation that your investment will eventually pay off is a slippery slope – both financially and psychologically.
Read more: Why You Should Never Play The Lottery – And How To Better Spend Your Money
What they promise
Whether it’s $10,000 or $10,000,000, you’re just a scratch away from winning life-changing money.
What really happens
It’s better to gamble your money in Vegas than to play the lottery.
I say that because generally speaking, you have a 5% to 30% chance of beating the house in a Vegas casino (WSJ). Your chances of winning the lottery are 1 in 300 million (CNBC).
But what about a non-jackpot? Can you profit from buying scratch-offs?
“Scratchies” typically list their odds of winning on the back of a card, usually between 5% and 20%. Your chances of winning something are better – but your chances of profiting are still extremely low.
Lotteries are also inherently problematic and controversial. Supporters say they benefit society by generating tax revenue – but it’s worth considering where that revenue is originating.
A mass study on the lottery’s net impact on society found that “the percentage of income spent on the lottery is significantly higher for players with low family incomes and low education,” hence the lottery’s ignominious nickname: “a tax on the poor.”
While it may be more transparent, make no mistake – the lottery is just as bad of a get-rich-quick scheme as an MLM (just with much worse odds).
4. Phony job listings
This one’s more of a straight-up scam than a scheme – and even as far as scams go, it’s pretty nefarious. FBI Special Agent, Jeanette Harper writes:
“Fake Job Scams have existed for a long time but technology has made this scam easier and more lucrative.”
What they promise
A supposed rep from a legit-looking company – or even one pretending to be from a company you’ve heard of – will reach out and say they’re hiring for a high-salary role.
They either say “no experience necessary” or that you’d be perfect for it, and since they want to fill the role right away, they’ll just do the interview via a chat window.
Before your start date for your high-salary role, they’ll need to add you to payroll and benefits – so you’ll need to pass along your W-9, 1099, and/or a scan of your ID.
What really happens
The scammer uses this sensitive information to steal your money and/or identity.
How to spot a phony job listing
Fake job opportunities are pretty insidious, but at least they’re pretty easy to spot. Here are some of the telltale signs:
The job listing appeared on social media (nearly all legit companies recruit via job boards, LinkedIn, or by referral only).
The rep’s email address doesn’t match the company name.
The company has no website/social media/LinkedIn presence (or a sketchy one).
The rep won’t reveal themselves – they won’t share their own personal data nor will they get on a video call with you – they insist on communicating via chat.
Everything they’re telling you seems oddly vague.
The interview process is moving oddly quickly – you’re accepted in minutes or hours, when the real-world process takes days or weeks.
The rep wants money – such as a $25 fee to submit your application.
5. COVID-era robocall scams
At the risk of sounding indelicate, the COVID-19 pandemic has created a target-rich environment for robocallers who peddle MLMs, phony jobs, or shady website building services.
To give an example, the FTC is going after scam company National Web Design for sending out millions of illegal robocalls specifically targeting people who’d just lost their jobs, guaranteeing them passive income if they just paid a little upfront.
I try not to use the term evil lightly…
What they promise
Here’s what National Web Design told its victims: you could earn up to $400 a day as an Amazon affiliate. Just let us build your site for $2,000 and your passive income awaits.
What really happens
The scammers may actually deliver a product, but it never works as advertised. You’re out $2,000 and they never pick up the phone.
How to spot a robocall scam
If someone calls you offering a job or passive income opportunity, it’s a scam. But don’t just hang up – report their call as spam on your phone and report the company to the FTC using this form.
BONUS: how to prevent robocalls in the first place
You can help stem the flow of robocalls to your own phone by adding your number to the official Do Not Call Registry. Don’t worry, it’s free and 100% legit.
The second thing you can do is to never, ever, ever give your phone to a business unless it’s essential to your wellbeing. Even companies that claim to “protect your privacy” will still sell your data to their partners (since it’s not a violation of their own privacy policy).
6. Bad online business courses
Here’s one that I fell for.
To my credit, it wasn’t named so blatantly – and I can tell that the instructor was being sincere in his advice – but it was still bad advice that I paid an embarrassing amount of money for.
Bad online courses always seem like good investments upfront. They’re taught by people who’ve “made it” in the industry and who promise to tell you all of their “best money-making secrets.”
They’re also sold to you at a weirdly high discount (e.g. 97% off) and sometimes, you even have to apply to be in the course.
But crappy online courses aren’t just dangerous due to high cost and missed expectations – they can teach you the wrong things that actually hinder your progress and take months to unlearn.
What they promise
Sellers of “How To Get Rich In XYZ Industry” courses promise exactly that – that you can make millions in a certain industry by simply following in the instructor’s footsteps.
What really happens
The advice you learn in an unaccredited online course can range from good to bad to downright toxic. And if you’re new to an industry, it can be hard to distinguish which is which.
You could be paying for advice that could win new clients – or immediately turn them off.
That’s why you’ll want to be extremely careful who you learn from. Some instructors truly are at the top of their industry and their tips are worth their weight in gold.
But others are on their way out – their way of doing things in their industry no longer works, so they’re packaging and selling bad and outdated advice to make up for lost income.
How to spot a bad online course
Part of the challenge to spotting bad online business courses is that they’re often marketed exceedingly well – so well, in fact, that if it’s a course in How To Make Millions Selling Bad Online Courses, maybe it’s worth it!
Facetiousness aside, here are some of the signs that the course you’re considering isn’t worth it:
The instructor has limited, outdated, or vague experience – e.g. they’ve “worked with dozens of Fortune 500 companies” but won’t say who, in what capacity, or how much they actually earned.
The course promises or downright guarantees income. No course can guarantee income, so that’s a huge red flag.
High-pressure sales tactics. If the vendor of an online business course gives you a short time window to decide, or says the price will increase in 13 hours, just shrug and hang up the phone.
No reviews or ratings. If the instructor can’t point to a single successful past student, that’s probably a sign that one doesn’t exist – and you won’t be the first.
A high price tag. Finally, if a 3-day “Mastermind” costs thousands of dollars, that could be a sign that the instructor values his or her advice. It could also mean that they need the money because their clients dried up.
7. Mystery shopper scams
Mystery shopping is when a restaurant, retailer, or third-party data company will hire you to go into a store or restaurant and report back on your experience. Mystery shoppers are often paid a flat fee per assignment, and sometimes even get the product/meal reimbursed, too.
From what I’ve heard, it’s a fun gig if you can get it. But since lots of folks are interested, the scammers are taking advantage.
What they promise
Mystery shopping scams often start with a text stating that you can earn $200 to $500 per assignment by becoming a secret/mystery shopper or “filling out a survey.”
All you have to do is visit a retail store, purchase a product or a gift card, send it to a specific address, and report on your experience. You’ll be compensated upon completion. Easy $500.
This may sound like an obvious scam, but in the victims’ defense, this isn’t too far removed from how legit mystery shopping works.
What really happens
In the case of the scam, you send the product or gift card and are never compensated. To rub salt on the wound, the scammer may sell or abuse the personal data you gave them.
How to spot a mystery shopping scam
Luckily, the Mystery Shopping Professional Association (MSPA) publishes a running list of all the mystery shopping scams they’ve seen.
If you don’t see the potential scam listed there, cross-reference it with their free online directory of legitimate mystery shopping companies.
Summary
To a pandemic-stricken society, get-rich-quick schemes are becoming harder to spot and more seductive all at once.
But by helping yourself and your loved ones avoid them, you can protect your money and ride out the storm.
Other indexes also show rates trading on the sidelines. The 30-year fixed rate for conventional loans was 6.97% at Mortgage News Daily on Thursday morning, down one basis point from the previous day. HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.71% on Wednesday, compared to 6.70% the previous day.
“Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Officials at the Fed decided in their June’s meeting to maintain rates in the 5% to 5.25% range, following 10 consecutive hikes. Policymakers want to assess how much banks reduced lending levels due to the recent tumult in the sector and evaluate the impact of their rate hikes so far – including in the housing sector.
Fed Chairman Jerome Powell told journalists that housing, a very interest-sensitive sector, it’s the first place that’s “either held by low rates or is held back by higher rates.”
“We now see housing putting in a bottom and maybe even moving up a little bit. You know, we are watching that situation carefully. I do think we will see rents and house prices filtering into housing services inflation. And I don’t see them coming up quickly. I do see them coming kind of wandering around at a relatively low level now.”
The Fed indicated the federal funds rate will end the year at the 5.6% level, which opens the door for two rate hikes in 2023. The reason for more rate increases is the disappointingly slow decline in core inflation so far this year.
According to Powell, “Not a single person on the Committee wrote down a rate cut this year, nor do I think it’s at all likely to be appropriate.”
Analysts at Goldman Sachs said they had not changed their forecast of one additional hike in July to a peak rate of 5.25-5.5%.
“The combination of the hawkish surprise in the dots and the hint at an every-other-meeting pace strengthens our confidence that the FOMC will hike in July and makes a possible second hike more likely in November than September, though neither is in our baseline forecast,” the analysts wrote.
Higher borrowing costs – for a while
In the housing market, the Fed’s actions mean borrowing is likely to remain expensive for the remainder of the year, according to the Realtor.com economic data analyst Hannah Jones.
“Both housing supply and demand remain stifled by affordability constraints. Mortgage rates have been on the high end of the 6-7% range since the beginning of June and home prices have made their typical seasonal ascent, though less aggressively than in summers past,” Jones said in a statement.
According to Jones, the national median listing price fell year-over-year for the first time in the data’s history last week as sellers adjusted their asking prices to attract buyer demand.
“Despite this annual price decline, homes in many areas are out of the feasible price range for many buyers and still-high interest rates are discouraging homeowners from giving up their current mortgage rate and listing their homes for sale.”
Industry economists believe mortgage rates will trend down only at the end of the year.
“As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next,” Khater said.
Higher rates are impacting mortgage lenders’ production. Analysts at Keefe, Bruyette & Woods wrote in a report, “Mortgage volumes are likely to remain under pressure throughout the rest of 2023, given rates remain in the neighborhood of 7%.”
“Additionally, it is unclear how much more capacity needs to be removed from the system, although the exit of Wells Fargo from the correspondent channel has been a meaningful positive,” the analyst wrote. “So, while we remain somewhat cautious on the originators, we would acknowledge that the backdrop has improved.”