The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) on Feb. 7 to expand its efforts on a permanent basis to combat and deter money laundering through the residential real estate sector.
According to the FinCEN announcement, the proposed rule would require professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities and trusts.
“Illicit actors are exploiting the U.S. residential real estate market to launder and hide the proceeds of serious crimes with anonymity, while law-abiding Americans bear the cost of inflated housing prices,” said FinCEN Director Andrea Gacki. “Today marks an important step toward not only curbing abuse of the U.S. residential real estate sector but safeguarding our economic and national security.”
Expansion of GTO efforts
Since 2016, FinCEN has issued multiple Geographic Targeting Orders (GTOs) requiring title insurance companies to file reports on all-cash purchases having specific dollar thresholds in designated geographic areas. These GTOs last for six months at a time. The most recent GTO was issued in October 2023 and expanded the list of affected venues.
According to FinCEN’s proposed rule, expanded reporting requirements would apply on a permanent basis across the entire country, without limit to specific geographic locations or a dollar threshold. The agency will accept comments on the new proposed rule for a 60-day period following its publication in the Federal Register, scheduled for Feb. 16. According to the American Land Title Association’s (ALTA) blog of Feb. 8, FinCEN has proposed that the final rule become effective one year after it is issued.
“We are still reviewing the proposed rule and will work to ensure that FinCEN considers the information they are collecting under the new Beneficial Ownership rule, among other things, so as not to be unnecessarily duplicative and also provide clarity regarding the obligations of all real estate parties under the rule,” said Diane Tomb, ALTA’s chief executive officer. “We also appreciate, and intend to continue, the ongoing dialogue with FinCEN to craft a tailored approach limiting the transactions that must be reported to those of the greatest concern and providing avenues to help reduce the compliance burden on title and settlement companies.”
Proposed reporting structure
The proposed rule would require reporting on transfers of single-family houses, townhouses, condominiums, and cooperatives, as well as buildings designed for occupancy by one to four families. Going a step beyond the GTOs, it would also require reporting on transfers of vacant or unimproved land that is zoned, or for which a permit has been issued, for occupancy by one to four families. Furthermore, both purchasing entities and transferee trusts are reportable unless a specific exception is applicable.
ALTA’s Feb. 8 blog summarizes reportable information under the proposed rule to include (but is not limited to) the following:
- Name, address and taxpayer identification number (TIN) for the transferee and transferor.
- Beneficial owner information for the transferee and anyone signing the transfer documents. (names, date of birth, addresses and TINs for those individuals).
- Name, DOB, address and TIN for all transferors on title or the beneficial owners if the seller is an entity.
- Address and legal description of the property.
- information about the payments made by or on behalf of the transferee.
- Information about any hard money or other lender not subject to anti-money laundering rules. That participated in the deal.
- Individuals representing the transferee entity or transferee trust.
- The business filing the report.
For a more detailed summary of requirements and exceptions under the proposed rule, please see the Fact Sheet published by FinCEN. At Alliant National, we are committed to keeping you updated on legislation and regulations that affect your business. Stay tuned for more, as the comment period progresses.
The rapid rise of AI in business sometimes evokes memories of the 1984 sci-fi classic The Terminator, and particularly its description of a technology that “can’t be reasoned with,” “can’t be bargained with,” and which “will not stop, ever” until it completes its mission.
We’re obviously a long way off from cyborgs, but all signs indicate that AI’s march forward will inevitably disrupt the way people work in our industry. This disruption will come − ready or not. Fostering a culture of adaptability will be important as we position our teams to capitalize on tomorrow’s opportunities. The good news is that, with appropriate safeguards in place, people can work in parallel with AI to radically increase productivity. Let’s discuss some steps you can take to keep people, processes and data safe as you consider AI use in your business.
AI: Amazing promise with potential pitfalls
You have likely already dipped your toe into applications like Chat GPT and Google Bard, and you’ve probably been amazed by the results. Leveraging sophisticated language models, these applications have an uncanny ability to understand user input and to generate responses that mimic human communication. End users have put these tools to work generating content, conducting research, designing graphics and even producing full application and website code.
The ChatGPTs of the world are undoubtedly marvels of engineering, but using these programs without restraint may imperil sensitive consumer and company data. Moreover, AI models are not an exact science, with research pointing to how outputs are often marred by programmer bias and inaccurate information. Finally, relying on AI-generated code without additional review can cause problems with your website or other digital real estate. Safe to say, it is wise to proceed with caution.
Cover your bases
So how then can you unleash AI’s power while maintaining your security posture? I wish I could say there was a silver bullet, but in reality, it requires a multi-prong security approach. Here are some areas to consider when developing a plan your business:
- Information classification and hierarchy: A great place for title agencies to begin is to build a classification hierarchy for the data held within your corporate ecosystem. Apart from our consideration of AI, a classification system like can be deeply important for risk management and creating customized data controls. Once you have this in place, it is much easier to instruct your team regarding the types of data that can be used within an AI system and what must be kept sequestered.
- End user education: Unless you have extensive experience with language models, it can be difficult to understand how AI applications work and how to use them safely. Seeking out resources and training can be an important step toward making the most of specific AI tools while still adhering to corporate policies and procedures.
- Incident response: This is a standard part of your typical cybersecurity plan. Designed to encompass all actions your organization will take in the event of data breach or other security problem, it is advisable to expand your incident response plan to also include AI. That way, you will be able to execute efficiently in the event of an issue and mitigate potential negative impacts.
- Compliance and regulations: Given the rapid rise of AI, it’s not surprising that lawmakers and regulators have lagged in their attempts to address the potential negative consequences of these new technologies. But you can bet regulation is coming.Considering the large volume of personal data title professionals deal with every day, it is enormously important to stay apprised of regulatory developments so you can respond appropriately and remain compliant.
AI will be back, but we can be ready
Easily one of the most memorable quotes from The Terminator comes when Arnold Schwarzenegger remarks in a complete deadpan, “I’ll be back.” This iconic line also describes where we currently are with the AI revolution. When ChatGPT was released on November 30, 2022, it was lauded as a revolution in the modern workforce. While some of that early hoopla has now died down, there is no doubt that the AI will come roaring back as it continues to integrate into our workflows. The only real question is whether we will be ready to deploy future iterations of this technology to maximize efficiency without sacrificing safety. By updating your security plan now, you will be better positioned to embrace AI advancements, ensuring a balance between technological progress and cybersecurity.
The overall economy is expected to fare well in 2024 according to experts from across the spectrum, but the dramatic drop seen in real estate sales, coupled with a virtually non-existent refinance market, will likely keep title orders depressed.
The macro-economic picture has certainly brightened in recent months as an anticipated recession failed to materialize in 2023. Now forecasters are increasingly calling for a “soft landing” in 2024. Goldman Sachs is especially optimistic, projecting U.S. GDP growth to hit 2.1% in 2024 compared to other economists who see growth in the 1-1.8% range for the year.
“It was fair to wonder last year whether labor market overheating and an at times unsettling high inflation mindset could be reversed painlessly,” said David Mericle, Goldman Sachs Research chief US economist, in a recent economic report. “But these problems now look largely solved, the conditions for inflation to return to target are in place, and the heaviest blows from monetary and fiscal tightening are well behind us.”
Joe Brusuelas, chief economist for RSM, a global network of independent assurance, tax and consulting firms, sees a slow first quarter for GDP, followed by an uptick to 1.8% in the second half of 2024 and accelerating into 2025.
“We expect that policy tailwinds from both the fiscal and monetary authorities will set the stage for strong productivity and growth in the years ahead as inflation eases back to a much more tolerable range,” Brusuelas said in his 2024 outlook report in the December edition of The Real Economy.
While all indications point to economic fundamentals being strong enough to keep the overall U.S. economy on stable ground in 2024, real estate sales are likely to remain stagnant due to low consumer confidence, high interest rates and lack of inventory. The refinance market will be in the same boat, as current mortgage holders will likely be unwilling to relinquish their low interest rates.
Viewed through a consumer lens, The Conference Board remains pessimistic, noting in its November forecast that the economy is likely to buckle early in the year, leading to a short and shallow recession.
“This outlook is associated with numerous factors, including elevated inflation, high interest rates, dissipating pandemic savings, rising consumer debt, and the resumption of mandatory student loan repayments,” they noted. “We forecast that real GDP will grow by 2.4% in 2023, and then fall to 0.8% in 2024.”
On the upside, consumer confidence was up 2.9% in November after three months of decline. The Conference Board Measure of CEO Confidence, however, fell to 46 in Q4 2023, down from 48 in the third quarter, as most business leaders are also anticipating a mild recession in early 2024.
Interest rates keep real estate in deep freeze
With interest rates hovering near 7% as we begin the New Year, prospective homebuyers will continue to face a double conundrum in 2024:
- High interest rates have put many listed properties in the unaffordable range; and
- Fewer homes are coming on the market as homeowners with low rates are staying put.
Some relief is on the horizon as homebuilders remain cautiously in the market to fill the supply gap. Many regions of the country are reporting strong new home sales, as homebuyers ready and willing to invest drift away from the paltry supply of existing homes to the new home market.
Freddie Mac statistics support this idea, with the GSE reporting that existing home sales were at their lowest level in 13 years in the month of September, but new home sales were showing remarkable resilience.
“New home sales have taken on increased importance for the housing market as the share of total home sales that are new increased to 16.1%, the highest share since 2005,” Freddie Mac reported. “The U.S. Census Bureau and U.S. Department of Housing and Urban Development reported that new home sales in September 2023 were at an annualized rate of 759,000, up 12.3% from August and 33.9% from September 2022. Overall, the inventory of new homes for sale has decreased 5.4% from last year.”
One nugget of encouragement came following the December FOMC meeting when the Federal Reserve signaled the possibility of interest rate cuts in 2024. However, any cuts are likely to have only a marginal impact on home sales in 2024, as these cuts will come in small increments through the course of the year. Moreover, rate cuts are far from assured, as Federal Reserve Chairman Jerome Powell said in his remarks in December that interest rate increases are unlikely, but not off the table.
“If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024, 3.6% at the end of 2025, and 2.9% at the end of 2026, still above the median longer-term rate,” Powell said. “These projections are not a Committee decision or plan; if the economy does not evolve as projected, the path for policy will adjust as appropriate to foster our maximum employment and price stability goals.”
Navigating the market
Interest rates, while high, are not in uncharted territory and homebuyers in the past have learned how to navigate higher interest rates through a plethora of tactics.
Real estate agents and loan officers who are knowledgeable and consultative with their customers may find a way forward by assisting their prospective homebuyers with a range of options, such as:
- Moderating expectations towards more affordable homes
- Encouraging buyers to increase downpayments to lower their monthly payments
- Educating borrowers about alternative products such as adjustable-rate mortgages
- Negotiating seller concessions
- Working with homebuilders to moderate costs in new home construction
Of course, none of these approaches mitigates supply constraints. Luring home sellers who are locked into mortgages in the 3-4% range back into the market is going to continue to be a challenge until overall rates begin to moderate.
Keeping an eye on fundamentals
As we enter 2024, mortgage, real estate and title professionals will have their eyes on some additional key economic fundamentals − both nationally and locally − as they navigate the slow market.
Although the job market has slowed in recent months, the outlook remains strong for stable employment in 2024, with some anticipation of a modest increase in unemployment. Regional variations are likely to have some impact on the real estate outlook in specific markets.
According to Goldman Sachs, real disposable income is forecast to grow nearly 3% in 2024. Solid job growth, real wage growth and an increase in interest income could keep consumer spending strong. However, forecasters with the US Chamber of Commerce report that consumers are increasingly depleting their pandemic savings and increasing credit card debt to support a faster pace of spending.
High interest rates that are hampering the real estate market are also likely to weigh on business investment in 2024. However, if recessionary fears continue to abate, this may increasingly become a non-issue in 2024.
If interest rates begin to moderate in the latter part of 2024, real estate sales could improve. In fact, there’s evidence that Millennials who have delayed household formations and homeownership could, at some point, represent a source of pent−up market demand. However, the specter of even a mild recession coupled with diminished consumer savings so necessary for a downpayment, growing credit card debt, lack of affordable housing, and high interest rates could delay a real estate market comeback well into 2025, especially for first-time homebuyers.
Maximize face-to-face opportunities to build new partnerships and close more business.
In a third season episode of the great mockumentary sitcom “The Office,” hapless middle manager Michael Scott rails against the ever-increasing encroachment of technology at Dunder Mifflin by exclaiming: “People will never be replaced by machines. In the end, life and business are about human connections. Computers are about trying to murder you in a lake. And to me the choice is easy.”
Although right before this we had seen Michael actually drive into a lake after misinterpreting his GPS’s instructions, you can’t entirely dismiss his point. Technology is fundamentally intertwined with business, but at the end of the day, people want to connect, collaborate and work with other people – not machines. This means you must seize opportunities for personal, face-to-face marketing whenever they arise. Let’s look at some ways of doing so successfully.
Choose the right events
Before you can share information about your agency and engage in face-to-face marketing, you first must identify events that will put you in front of the right people. Thankfully, for those in the title insurance and real estate industries, there is no shortage of possibilities:
- Conferences and meetings: Consult your state’s land title association for opportunities. Trade press publications will also frequently advertise professional meetings to their readers.
- Real estate association meetings: Realtor associations and boards represent a fantastic opportunity to market yourself to integral players in the real estate space.Finding out about meetings you may want to attend is also relatively easy by searching online.
- Online webinars: Both educational and social, digital webinars can expand your professional knowledge and industry circle in one fell swoop.
- Chamber of commerce events: Local chambers of commerce provide a supportive environment for businesses and offer resources and tools to help them connect and collaborate.
Know your company’s story
When acting as a personal representative of your agency in a face-to-face setting, you must have your company’s story down pat. More specifically, you must be able to convey your value proposition quickly and clearly.
One way to successfully deliver in these moments is to develop an “elevator pitch” beforehand. Creating easy-to-remember talking points allows you to effortlessly speak to potential customers about how your products and services can improve their lives.
Pulling off successful face-to-face marketing is challenging, but bringing along well-designed marketing materials can make it easier. Let’s look at the following best practices:
- Avoid clutter: While you want to include complete and accurate information, avoid overloading your materials. Remember: when participating in an event, people often don’t have time to digest large amounts of textual information.
- Include the right info: Highlight your communication information in any materials you bring. You are trying to equip contacts with the means to continue the relationship. Include your email, phone, company name, job title and potentially your social media accounts.
- Stay on brand: All marketing materials should be seen as a natural extension of your brand, which means they need to use the right colors, fonts and logos.
Follow up, follow up, follow up
Meeting and pitching someone on your business is not a one-and-done activity. You must also follow up with them. What’s the best way? As we know, some people are hesitant to talk on the phone these days and email is hit or miss. Social media platforms like LinkedIn can be an effective way to follow up. Reaching out on social media can have a personal and real feel, and sites like LinkedIn lend themselves to building organic, long-term connections.
Keep the following in mind:
- Be specific and personal: Even if you have a lot of connections to write, take the time to personalize each message.
- Brevity is best: People are busy and generally overwhelmed with information. If you want someone to read your LinkedIn note, keep it short and sweet.
- Emphasize value: Avoid coming across as overly “salesy,” but be sure to include a value proposition for your message recipient. Give them a reason to want to take the relationship to the next step.
Make meaningful, lasting connections
Personal, face-to-face marketing can yield a high rate of return. Even in our highly digital world, many customers still find connecting person-to-person one of the most impactful forms of communication. By taking these tips to heart, you can grab such opportunities and run with them.
From global economic trends to local housing affordability, numerous factors promise to shape the real estate market heading into the final quarter of the year. In general, the economic outlook both globally and within the U.S. remains subdued as we approach 2024, with many forecasters highlighting inflation and monetary policy as the drivers.
The Conference Board has predicted global GDP to grow by 2.9 percent in 2023, slowing to 2.5 percent in 2024. Emerging economies are expected to fare better than the U.S. and Europe, which are both anticipating lackluster performances once all is said and done this year. Although the U.S. economy has been surprisingly resilient in the aftermath of the pandemic, boasting strong employment numbers and healthy consumer spending, the Conference Board is anticipating a short and shallow recession in 2024, largely due to high interest rates, ongoing inflation, mounting consumer debt and dissipated consumer savings.
All of these factors are likely to prey on the housing market as well, and may serve to keep new homebuyers out of a market that has become increasingly unaffordable due to escalating interest rates and stubbornly limited inventory, which has kept prices elevated.
Chilly Q4 housing market
The housing market typically slows in the fourth quarter as buyers step away amid the approaching holidays. However, many industry pundits are predicting housing sales to slow faster than in years past due to the plethora of economic challenges homebuyers are facing.
In its September outlook report, Fannie Mae noted that mortgage origination activity had slowed to levels not seen since 2011.
“The new home market, which showed surprising strength over the first half of 2023, due in part to a limited inventory of existing homes for sale, may now be taking a breather,” Fannie Mae reported. “We forecast total home sales to be around 4.8 million in 2023, which would be the slowest annual pace since 2011 and 4.9 million in 2024. Similarly, our expectation for 2023 mortgage originations was downgraded from $1.60 trillion to $1.56 trillion in 2023 and from $1.92 trillion to $1.88 trillion in 2024.”
Further exacerbating the situation, some buyers are sitting out due to fears that housing has become overvalued and are hesitant to buy a home that may lose its value, if the market should take a sudden downturn. This is a regional reality, however. While the run-up in prices over the past few years in several western cities is ripe for a correction, many markets across much of the country increased at a moderate and sustainable pace, boding well for price stability.
New home sales decline
Despite builder concessions to offset high interest rates, new home sales continued to drop as the summer waned.
Sales of newly built, single-family homes in August fell 8.7% to a 675,000 seasonally adjusted annual rate, according to data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
“Builders continue to grapple with supply-side concerns in a market with poor levels of housing affordability,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “Higher interest rates price out demand, as seen in August, but also increase the cost of financing for builder and developer loans, adding another hurdle for building.”
As a result of all of these factors, builder confidence in the market for newly built single-family homes in September fell five points to 40, according to NAHB.
Consumer confidence mixed
With employment numbers on solid ground to date, consumers generally express optimism not only about their own jobs, but about available prospects in the larger market.
On the downside, the Conference Board noted in September that overall consumer confidence fell for the second month in a row in September with consumers expressing concern about rising prices, the volatile political situation and rising interest rates.
Interest rates: The wrench in the gears
Recognizing that the ongoing interest rate hikes are paralyzing the market, NAHB, the Mortgage Bankers Association (MBA) and National Association of REALTORS (NAR) joined forces in October to ask the Federal Reserve to refrain from further rate hikes.
In their October 10 letter to the Fed, the organizations pointed out that a primary source of inflation has been housing, highlighting that in July alone, shelter inflation was responsible for 90% of the gain for consumer prices.
Rather than exacerbating the problem with higher interest rates, the organizations suggested the federal government should be focused on facilitating the construction of affordable housing.
“Sustained, widespread or further increases in interest rates make this economic goal more challenging by limiting lot development and home construction, exacerbating housing supply, and pricing out millions of households from the goal of homeownership,” the letter said.
In September, MBA SVP and Chief Economist Mike Fratantoni acknowledged that the FOMC is still considering further rate hikes and in addition signaled that much-anticipated rate cuts would come later and slower than anticipated in 2024. But he remained optimistic that 2024 would see a turnaround.
“We expect that inflation will continue to drop closer to the Fed’s target, the job market will continue to slow, and that mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases,” Fratantoni said in his commentary. “This should provide some relief in terms of better affordability for potential homebuyers.”
Limited affordable housing continues to plague the market overall. In part, homebuilders have begun to scale back the size and scope of amenities in their new builds to try to address the immediate issue of rising interest rates, but those efforts do not address the wider issue that can only be resolved by a concerted effort to address the problem on both the national and community level.
Affordable housing advocates offer several pathways to improved inventory, including incentivizing builders to build more affordable housing, increasing production of manufactured housing, addressing zoning and other restrictions that are preventing the creation of affordable housing where it is most needed, expanding the National Housing Trust Fund, and increasing resources for Federal affordable housing programs. The continued strength of the economy overall bodes well for a brighter 2024 for the housing market. However, the pace of recovery hinges on the FOMC effectively meeting its target to curb inflation, allowing interest rates to retreat. Concurrently, industry groups, local communities, and the federal government must tackle the pressing issue of housing affordability.