MARCH 2022
APPRAISAL DISCRIMINATION. Twenty percent of American consumers think the appraisal they received on a home they were purchasing or refinancing was lower than it should have been, and the same percentage suspect that the difference resulted from discrimination based on race, gender or sexual orientation. Redfin reported those results based on a recent survey, which also found that by a significant margin (31 and 32 percent, respectively vs. 22 percent) African American and LGBTQ homeowners were more likely to perceive discrimination than white, heterosexual homeowners. Another Redfin report released last year found that homes in Black neighborhoods are consistently valued at $46,000 less than homes in majority white neighborhoods.
The Redfin reports and others reaching similar conclusions underscore growing concern about appraisal discrimination, which is beginning to attract the attentions of lawmakers and housing industry regulators. In recent developments:
· The Consumer Financial Protection Board (CFPB) criticized The Appraisal Foundation (TAF), which sets professional standards for appraisers, for failing to emphasize sufficiently the federal laws and regulations prohibiting bias in the appraisal process. In a recent blog post, the FPB explained that the agency continues to receive reports that appraisers are “basing their value judgments on unfounded assumptions about borrowers and the neighborhoods in which they live.”
· The Department of Justice (DOJ) has filed a “statement of interest” in a law suit filed by a black couple accusing a white appraiser of undervaluing the California home they had renovated and were planning to sell. The suit alleges that when a white friend presented the home as his own, the appraisal increased by $500,000. DOJ officials said this case attracted the agency’s attention because it was one of the few appraisal discrimination suits to be based on the Federal Housing Act, which specifically prohibits housing discrimination. “Although a number of similar situations have been reported by the media, there are few filed cases that include these types of claims under the FHA," a DOJ spokesman told CNN. In a separate press statement the DOJ’s Civil Rights Division noted that “combating housing discrimination, including bias in appraisals, is a high priority across the federal government."
LABOR PAINS. Labor economists are warning that the pandemic-related worker shortage with which employers have been struggling may become endemic, persisting even after the pandemic’s impacts on the economy have receded. The Census Bureau estimates that the worker population – consisting of those between the ages of 16 and 64 ─ declined for the first time ever last year. The decline wasn’t large - -only about 1 percent – but it was significant, an article in the Insurance Journal notes, because it resulted from factors other than the pandemic – retirements, a slowing birth rate, and a steep decline in immigration among them.
“It’s not entirely clear how population patterns will unfold once the pandemic fully fades. But even if the working age population resumes growing, it will almost certainly do so at an anemic pace,” the article notes. “A continuing drop in that population, or even a tepid increase, would pose a problem for the economy. A healthy economic expansion has always depended on robust population growth to fuel consumer spending, justify business expansion and drive corporate earnings. Without a sizable influx of new workers, growth could stagnate.”
The combination of Baby Boom retirements and a declining birthrate is particularly problematic, William Frey, a demographer at the Brookings Institution, told the Journal. “We’ve never really been in this type of situation before,” he said. “There just [aren’t] enough (young adults) to replace people who are leaving.”
AN ERODING DREAM. As home prices continue to surge, the dream of home ownership is eroding for younger buyers, who are beginning to question whether they will ever be able to afford a home. Their pessimism is reflected in Fannie Mae’s Home Purchase Sentiment Index, which fell to 71.8 in January, almost 6 percent below the year-ago reading. Only 25 percent of the respondents said it’s a good time to buy – a record low – while 70 percent said the time is not right, four points above the December survey.
“Younger consumers – more so than other groups – expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” Douglas Duncan, Fannie Mae’s chief economist, noted. “All of this points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed,” he added.
Younger buyers aren’t the only ones feeling the pinch crated by rising home prices rising mortgage rates, and shrinking housing inventories. A recent analysis by the National Association of Realtors (NAR) found that housing affordability has become more problematic for all but the most affluent households, while the dearth of listings has made home buying more difficult for buyers across the income spectrum.
The affordability impact has been particularly severe for households earning less than $150,000. The NAR study found that buyers with incomes between $75,000 and $100,000 could afford to purchase only 51 percent of active listings in December of 2021, down from 58 percent two years ago. The affordability picture for buyers earning between $100,000 and $125,000 declined by eight percentage points to 63 percent of listed homes during this two-year period.
“At the end of the day, there are fewer homes that [buyers] can afford,” said Nadia Evangelou, senior economist and director of forecasting at NAR, told the Wall Street Journal. “[Buyers just] have fewer options.”
AFFORDABLE HOUSING GAP. Humorists have wryly advised investors to buy land “because they aren’t making land anymore.” The same might also be said (almost) of housing: Builders are still building it, but not quickly enough to keep up with growing demand. Targeting that problem, the Department of Housing and Urban Development(HUD) has identified several “innovative strategies” state and local governments are using to increase the supply of affordable housing in their markets.
The HUD report, the first step toward implementing the Biden Administration’s plan to create 100,000 affordable homes nationwide over the next three years, focuses on the major impediments blocking affordable housing development. Zoning laws that restrict cost-effective multi-family housing top that list.
“Many communities limit residential development to primarily single-family detached houses,” the report notes, allowing large (mainly luxury) apartment buildings as the only alternative, but precluding smaller-scale, more affordable options, such as duplexes and fourplexes, courtyard apartments, bungalow courts and townhouses. A solution, whicih a few states have implemented, is “gentle density” policies, which permit the construction of low-density housing in single-family neighborhoods without changing their residential character.
“Regulatory changes that allow gentle density to be built by-right provide developers with certainty about the product and process, which reduces the risks, development time, and costs,” the report explains. Gentle density and other policy changes (such as easing design requirements to permit the use of lower-cost materials and reducing setbacks to permit construction of larger units on existing lots) “could increase the number of homes available and bring down average housing prices in high-cost locations, while retaining the physical scale of the neighborhood,” the report says.
These ideas will be incorporated in HUD’s “Regulatory Barriers Clearinghouse,” which identifies more than, 4,800 affordable housing barriers and potential solutions to them.
ASSESSING INSURANCE CLIMATE RISKS. The Federal Insurance Office (FIO), a division of the U.S. Treasury Department, is assessing climate-related risks for the insurance industry. The wide-ranging review will also consider growing concerns about the availability of affordable insurance for consumers as climate risks mount. In the request for comments, which were due in November of last year, the FIO highlighted three priorities:
Assessing climate-related issues or gaps in the supervision and regulation of insurers, including their potential impacts on U.S. financial stability;
Assessing the potential for major disruptions of private insurance coverage in U.S. markets that are particularly vulnerable to climate change impacts, as well as facilitating mitigation and resilience for disasters; and
Increasing FIO’s engagement on climate-related issues and leveraging the insurance sector’s ability to help achieve climate-related goals.
The FIO’s information-gathering initiative responds to initiative is in response to President Joe Biden’s May 2021 executive order instructing the Treasury Department “to assess climate-related issues or gaps in the supervision and regulation of insurers….and to further assess, in consultation with States, the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.”
In a press statement accompanying the posting of the request for comments, Treasury Secretary Janet Yellen noted that climate-related natural disasters represent “an existential risk to our future and way of life.” The FIO initiative “is an important step towards assessing climate-related financial risk in the insurance sector. Ensuring that consumers have adequate information, and that the insurance industry is appropriately assessing climate-related financial risk is essential as we work to address the climate crisis,” she added.
IN CASE YOU MISSED THIS
Despite growing concern about climate change, and property damage related to it, homeowners continue to gravitate toward high-risk, disaster-prone metropolitan areas.
More than 37 million residents of disadvantaged communities - -about one in three – don’t qualify for a traditional credit score some of the required credit history information.
The City of Boston has appealed a decision by the Massachusetts Housing Court rejecting Boston’s eviction moratorium. The court found that the city lacked the authority to regulate evictions. That authority rests with the state, the court ruled.
The value of the housing market has doubled over the past ten years, increasing from $10 trillion in 1994 to $43.4 trillion last year.
Increasing material costs and supply chain glitches have begun to erode builder confidence. The National Association of Home Builders’ confidence index declined in January for the first time in four months.
LEGAL BRIEF
SPECIAL RELATIONSHIP. For insurance agents in New Hampshire, the Christmas-season lyric, “making a list, checking it twice,” may have special meaning. The New Hampshire Supreme Court ruled that an agent’s failure to use a checklist to verify the adequacy of insurance coverage constituted negligence, making the agent partially responsible for a client’s uninsured losses. The court’s finding that the agent had a “special relationship with the client was a key factor in this 2020 decision (101 Ocean Blvd., LLC. v. Foy insurance Group, Inc.).
The insurer, Foy, had brokered insurance for Albert Bellemore Jr., for more than twenty years. In 2013, on the advice of Foy agent, Heidi SansSouci, Bellemore increased the insurance on the Ocean Blvd. Hotel he had purchased two years before from $1 million to $2 million. Also acting on advice, Bellemore added flood and liquor liability coverage as well. SansSouci did not suggest an increase in the law and ordinance coverage, which remained set at $10,000.
When the hotel was damaged severely by a fire in 2015, an engineer estimated that it would cost approximately $1.1 million to reconstruct the building, and an additional $905,070 to meet current building codes. The insurer (AIX) paid about $910,000 to cover the loss and Bellemore sued Foy for the difference.
A trial court found that Foy was negligent and responsible for 75 percent of the loss. When the court rejected Foy’s motion either to set aside the jury verdict of to issue a judgment notwithstanding the verdict, Foy appealed.
A base line question for the court was whether Foy and Bellemore had a “special relationship” that required Foy’s agent to affirmatively advise Bellemore that the law and ordinance coverage for the hotel was insufficient.
Foy argued that Bellemore had failed to demonstrate the conditions required to establish a special relationship, which the New Hampshire Supreme Court had articulated in an earlier decision (Sintros). In that decision, the court ruled that a plaintiff could demonstrate a special relationship by showing that it involved “something more than the standard insurer-insured relationship.” The decision added several examples to illustrate what a special relationship might entail, including: “An express agreement” between the agent and the client; “a long-established relationship or entrustment” where the agent clearly recognizes the duty to provide advice; payment of additional compensation to the agent; and evidence that the agent ‘holds himself or herself our as a highly-skilled expert, coupled with reliance by the insured.” The decision also noted that a special relationship may exist “when the insured relies upon the agent’s offered expert [advice]…or when there is a course of dealings over time putting the agent on notice that his or her advice is being sought and relied upon.”
Foy argued that had the judge detailed the Sintros factors in instructions to the jury, the jury would have found there was no evidence of a special relationship. The court disagreed, noting that in fact, the instructions “repeated nearly verbatim what we said in Sintros.” Moreover the court noted, the examples cited in that decision were just that – examples – “not a mandated or exhaustive list of factors.” Equally important, the court said, the decision did not suggest that a plaintiff must demonstrate that the relationship with an insurance agent “fit one of our examples.” And even if the trial judge had articulated the Sintros factors as Foy suggested, the court said, the jury could have found that Foy and Bellemore “had a relationship, spanning more than a decade, in which Foy’s agent [SansSouci]…gave insurance coverage advice to…Bellemore, upon which Bellemore reasonably relied because of [the agent’s] greater expertise, and in which SansSouci appreciated her duty to give such advice.”
Based on this analysis, three justices rejected Foy’s argument that the instructions to the jury had misstated the law and the decision in Bellemore’s favor should be overturned as a result. Two justices dissented, arguing that Bellemore had failed to demonstrate that the agent’s inadequate insurance advice was responsible for the loss. The missing link, the dissenters said, was specific evidence that the additional law and ordinance coverage was available and that Bellemore would have been able to obtain it had the agent recommended it.
“In order to satisfy its burden, “ the dissenters wrote, “[the plaintiff] must show both that Foy’s negligent conduct was a substantial factor in causing the uninsured loss, and that the loss would not have occurred without Foy’s negligent conduct. Here, if additional law and ordinance coverage for the hotel had not been available in the surplus lines market, or if [Bellemore] would not have purchased the coverage even if it had been available, then [Bellemore’s] injury — the uninsured loss — would have occurred regardless of Foy’s conduct. Accordingly, because it cannot be said ‘with reasonable certainty’ that [the plaintiff’s] injury ‘resulted from’ Foy’s conduct,” the dissenters said, they would have reversed the trial court’s decision and set aside the jury’s verdict.
WORTH QUOTING: "The facts are undeniable. This abdication of leadership is criminal The world's biggest polluters are guilty of arson of our only home." ─ UN Secretary-General Antonio Guterres, responding to a UN-backed report warning that the world is nearing the point at which it will no longer be possible to adapt to the impacts of climate change. – March 2022