5 to Watch: February 2011

News and trends that we're keeping an eye on this month.

February 1, 2011

1. Freddie Mac Cuts REO Commissions

Freddie Mac is trimming expenses by reducing commissions practitioners can earn selling its REO properties. In 13 states, the commission is dropping from 7 percent to 6 percent, split 50–50 between the listing broker and the selling agent. Those states are Georgia, Indiana, Iowa, Kentucky, Michigan, Nebraska, New Hampshire, New York, North Carolina, Ohio, Oklahoma, Vermont, and West Virginia. For large-volume REO brokerages—those with 100 or more properties—the company is reducing commissions from 6 percent to 5.5 percent (split 3 percent to the selling broker and 2.5 percent to the listing broker). The reduction for larger capacity brokers applies in 37 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands but does not apply in the 13 states where the commission was reduced to 6 percent across the board. The new commission levels took effect Jan. 1.

2. Ownership to Shrink if Minority Gap Remains

With minority households driving U.S. population growth, the key to maintaining the home ownership rate (66.9 percent, according to the latest U.S. Census Bureau data) will be boosting the rate among ­African Americans, Hispanics, and other non-white households. Fannie Mae’s latest Own-Rent Analysis shows the U.S. population is projected to grow by 130 million people by 2050, at which time white households will comprise about 46 percent of the population, down from 65 percent today. Yet the home ownership rate among minorities is significantly lower than that of whites, so the population shift must coincide with a shift in home ­ownership rates as well if the U.S. ownership rate is to remain steady.

3. Buyers Don’t Mortgage Shop

Forty percent of home buyers obtain only one mortgage loan quote before choosing which mortgage offer to apply for, and only 28 percent of buyers say they’re confident they got the best mortgage deal, a poll by Harris Interactive and LendingTree finds. LendingTree says the 1,317 respondents comprise a nationally representative sample of home owners. Seventy percent say they find mortgage shopping to be a frustrating experience, with more than 20 percent citing the complexity of the terms and 20 percent the amount of time it takes.

4. Tax Law Maintains Real Estate Status Quo

The massive tax-extension law that President Obama signed at the end of 2010 keeps tax brackets and the capital gains rate at existing levels for two more years and maintains other key real estate provisions such as the 15-year cost recovery period for leasehold improvements, 25 percent depreciation recapture rate, and the deductibility of expenses related to brownfields remediation. The law also extends some energy efficiency tax benefits for up to two years and holds onto the deductibility of mortgage insurance premiums. NAR and other industry groups were concerned the law would increase the tax on carried interest in real estate and other investment partnerships by treating it as ordinary income rather than as capital gains, but that provision was left out. One lingering concern is the law’s cost, which is expected to add almost $900 billion to the federal deficit. The upward-spiraling deficit has the potential to increase the likelihood of interest rate hikes in the future.

5. Net Neutrality in Effect

The Federal Communications Commission late last year issued rules prohibiting Internet service providers like Verizon and Comcast from filtering or otherwise determining what consumers see on their computer screens. These “network neutrality” rules, which have been five years in the making, require ISPs to provide the same level of service to all sites that provide similar types of content, such as video. That will help ensure that real estate practitioners who heavily use the Internet for business won’t face disruption or changes in their services by ISPs based on the type of content they provide online.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.