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4 Major Cities That Are In Trouble (Housing Market Mini-Bubble)

Home price gains are accelerating again, and in some cities those values are overheating. Four of the nation’s largest cities are now considered overvalued, according to CoreLogic. Home prices in Denver, Houston, Miami and the Washington, D.C., metropolitan area now exceed sustainable levels.

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To determine if a market is overvalued, CoreLogic compares current prices to their long-run, sustainable levels, which are supported by local economic fundamentals like disposable income. An overvalued market is one in which home prices are at least 10 percent higher than that level. The rest of the top 10 markets are considered “at value,” but none are undervalued, as prices are higher in all of them compared with a year ago.

“With no end to the escalation in sight, affordability is rapidly deteriorating nationally,” said Frank Martell, president and CEO of CoreLogic. “While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”

Home prices rose 6.7 percent nationally in June compared with June 2016. That is a slightly higher annual gain than May. Prices are now up nearly 50 percent from the trough of the housing crash in March 2011.

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The soaring gains now are due to a historically short supply of affordable homes for sale. The number of homes for sale in June was 11 percent lower than a year ago, according to Realtor.com.

“As of Q2 2017, the unsold inventory as a share of all households is 1.9 percent, which is the lowest Q2 reading in over 30 years,” said Frank Nothaft, chief economist at CoreLogic.

While the price gains are widespread, all real estate is still local, and some previously hot markets are actually cooling off. San Francisco is considered at value, with prices up just 5.3 percent, compared with an 8.7 percent annual gain in Denver. The New York City metropolitan area is seeing values up just over 3 percent annually and is considered at a sustainable level, but Houston, while seeing the same price gain is overvalued based on its economy.

Home prices in Denver, Houston, Miami and the Washington, D.C., metropolitan area now exceed sustainable levels.

Originally published here.

 

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Top 5 Zip Codes for Home Flipping and Rental Returns (See the full list)

Buying an investment property in a good neighborhood doesn’t have to mean sacrificing high investment returns — if you know where to look and are willing to look outside your backyard.

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Among more than 1,000 U.S. zip codes with an A rating in the first-ever ATTOM Data Solutions Neighborhood Housing Index, the median home sales price in Q1 2017 was $410,684 on average, but the median sales price in 382 of those zip codes was under $250,000, with 27 zips below $100,000. This low-priced housing inventory in quality neighborhoods translates into stellar returns with lower risk for home flippers and rental investors.

The info graphic below shows the top 5 A-rated zip codes in terms of highest home flipping returns in 2016 and highest potential annual rental gross yields in 2017.

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Originally published here.

 

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Invitation Homes and Starwood merge to create nation’s largest single-family landlord

Three years ago, the nation’s four largest operators of single-family rental homes joined together to form the National Rental Home Council, a trade group that focused on increasing education about the professionally managed single-family rental industry and advocating for the benefits of the rental market.

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The founding members of the group were Colony American Homes, Invitation Homes, American Homes 4 Rent, and Starwood Waypoint Residential Trust.

Now, thanks to a series of consolidations, that big four is about to be a big two.

Since 2014, the single-family rental industry went through a period of transition.

Most notable during that time was when Starwood Waypoint Residential Trust merged with Colony American Homes two years ago to form Colony Starwood Homes and created a single-family rental giant.

Now, just 41 months later, the industry is about to see its largest consolidation yet, as two of the remaining big three are about to merge to form a company that will be the nation’s largest single-family rental landlord, by a wide margin.

On Thursday, Invitation Homes and Starwood Waypoint Homes, which is the new name for Colony Starwood Homes, announced plans to merge.

Invitation Homes owns and operates nearly 50,000 rental homes in 13 major markets: Atlanta, Charlotte, Chicago, Jacksonville, Las Vegas, Minneapolis, Northern California, Orlando, Phoenix, Seattle, Southern California, South Florida, Tampa, while Starwood Waypoint Homes’ portfolio of rental homes is roughly 32,000.

That means the combined company will own and operate approximately 82,000 single-family rental homes, with an average of 4,800 homes per market.

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In a joint release, the companies said that the deal is a 100% stock-for-stock merger-of-equals transaction. Upon completion of the deal, the combined company will operate as Invitation Homes.

In the release, the companies say that merging will allow them to “bring together the best practices, technology, and personnel from both firms to create the premier single-family rental company” in the country.

Additionally, the companies said that the merger “will produce a company with an unparalleled ability to deliver enhanced service offerings to residents more efficiently, continue investing in local communities, and generate substantial value for stockholders.”

The stockholder portion of the deal is significant, as Invitation Homes went public earlier this year, raising more than $1.5 billion in its initial public offering.

Prior to going public, Invitation Homes functioned as Blackstone Group’s single-family rental operator, and Blackstone is still Invitation Homes’ majority shareholder.

Under the terms of the deal, each Starwood Waypoint Homes share will be converted into 1.614 Invitation Homes’ shares, based on a fixed exchange ratio, the companies said.

shutterstock_65802829Upon the closing of the transaction, Invitation Homes’ current shareholders will own approximately 59% of the combined company’s stock, while Starwood Waypoint Homes’ stockholders will own approximately 41% of the company’s stock.

Based on the closing prices of Starwood Waypoint Homes’ common shares and Invitation Homes’ common stock on Aug. 9, 2017, the companies say that the equity market capitalization of the combined company would be approximately $11 billion and the total enterprise value (including debt) would be approximately $20 billion.

Upon completion of the deal, the combined company’s shares are expected to continue trading on the New York Stock Exchange under the ticker symbol for Invitation Homes (INVH). Starwood Waypoint currently trades under the symbol “SFR.”

The deal is the latest development in an industry that’s seen some big shakeups in the last few years.

As stated above, Starwood Waypoint Homes was previously known as Colony Starwood Homes.

Just last month, the company announced that it was rebranding as Starwood Waypoint Homes, which reflected the sale in March by Colony NorthStar, Inc. and affiliates of Colony Capital, LLC of their entire remaining ownership stake in the company.

That company was formed by combining Colony American Homes, which was founded in 2012 to serve as Colony Capital’s single-family rental arm, with Starwood Waypoint Residential Trust.

Last year, Colony Starwood Homes exited the non-performing loans business, selling off 1,675 non-performing loans for $265 million, and stating that it planned to focus on single-family rental homes instead.

The company grew its portfolio earlier this year by agreeing to buy 3,106 single-family rental homes from GI Partners, a private investment firm based in San Francisco, for $815 million.

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Now, the newly combined company will have more than 80,000 rental homes in its portfolio.

In its release, the combined company notes that while its portfolio will make it the largest single-family rental company in the country, its portfolio still represents “less than 0.1% of the more than 90 million single-family homes in the United States, and just 0.5% of the nearly 16 million single-family homes for rent in the United States.”

According to the two companies’ executives, the new Invitation Homes has plans to grow even more.

“This merger creates the leading single-family rental company in the United States, which will be uniquely positioned to deliver exceptional service to residents, while also improving operating efficiency. That is a win-win for both residents and stockholders,” Fred Tuomi, chief executive officer of Starwood Waypoint Home, said.

“We will have an irreplaceable portfolio of homes focused in select high-growth markets, offering unrivaled service and high-quality housing options for families choosing to rent,” Tuomi added. “We have great admiration for Invitation Homes and its talented team, and look forward to embarking on an exciting new chapter together.”

John Bartling, president and CEO of Invitation Homes, shared in Tuomi’s enthusiasm.

“By joining forces, the combined company will be in an even stronger position to serve residents and investors,” Bartling said. “By bringing together these two world-class organizations, Invitation Homes will continue building on its industry-leading operational capabilities and resident-centric approach – while also providing enhanced liquidity to stockholders.”

The companies note that the deal is not completed yet, but has been unanimously approved by the boards of both Starwood Waypoint Homes and Invitation Homes.

 

The companies note that they have “very similar” portfolios of homes focused on “overlapping, strategically selected, high-growth markets.”

The companies have nearly identical average monthly rents and nearly 70% of the companies’ revenues come from the Western part of the U.S. and Florida.

“The combined portfolio would also have an average of 4,800 homes per market, allowing it to leverage economies of scale and improve operating efficiency, while also enhancing customer service,” the companies said.

 

Originally published here.

 

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Canada’s Real Estate Bubble Is About To Burst

Canadian home sales fell the most in five years last month. That didn’t stop an increase in prices, which were up 18 percent nationwide from a year earlier. When you consider that most houses are leveraged assets, this represents huge gains for homeowners.

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While leverage can help boost performance on the way up, it becomes very dangerous on the way down. Leverage can turn even the best investments into poor ones when things go wrong, as losses are amplified. Equity can get wiped out pretty quickly on an overleveraged asset.

Canadian real estate has been on fire for years. The housing price data there has made the U.S. real estate market during the boom of the mid-2000s look mild.

The Federal Reserve Bank of Dallas puts out a global housing price index for more than 20 countries every quarter. Using this data, I looked at the real house price index data for Canada and compared it with the same data in the U.S. going back to 1975.

Here’s this relationship from 1975 through the end of 2005:

 

Although there were some divergences in the early and late 1980s, both housing markets essentially ended up in the same place after 30 years. Now let’s add in the most recent data to see how things have unfolded since:

 

An enormous divergence occurred in 2006, when U.S. housing prices really began to soften, while Canadian price barely skipped a beat. This makes any differences in the past look like blips. The rise in Canadian real estate prices has been relentless.

The U.S. housing market peaked in late 2006. Since then, based on this index, U.S. housing prices are still down almost 13 percent from their peak through the end of 2016. In that same time frame, Canadian housing prices are up 56 percent.

To recap: On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.

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The reason homeowners in Canada should be worried is because housing is typically not a great long-term investment. Housing expert and historian Robert Shiller explains:

Here is a harsh truth about homeownership: Over the long haul, it’s hard for homes to compete with the stock market in real appreciation. That’s because companies whose shares are traded on a stock exchange retain a good share of their earnings to plow back into the business. The business should grow and its real stock price should also grow through time — unless the company makes poor decisions, as some certainly do.

By contrast, real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.

The problem is that the home-buying experience is fraught with emotion. People rarely think about the characteristics of real estate as an investment when putting down roots and making the biggest purchase of their life. Once the herd mentality sets in these things take on a life of their own. In downtown Toronto, the average sale price of a detached home this spring was $1.2 million.

No one knows when insanity like this will come to an end. Bubbles are like an avalanche. The longer they build up, the worse they will be when they eventually destabilize.

The same is true of financial markets. No one really knows when or why bubbles come to an end, but eventually people come to their senses and the music stops. U.S. homeowners understand all too well what can happen to the economy when the housing market destabilizes. The timing is impossible to predict, but Canadians should be on avalanche alert.

To contact the author of this story: Ben Carlson at [email protected] 

Originally published here.

 

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Altisource Now Owns Over 10,000 Homes

Two years ago, Altisource Residential’s portfolio of single-family rental homes checked in at 777 homes. Now, thanks to a new deal with Amherst Holdings, Altisource’s SFR portfolio is more than 10,000 homes.

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The growth started back in November 2015 when Altisource nearly tripled its portfolio in a deal with Invitation Homes, acquiring 1,314 single-family rental homes for $111.4 million. That acquisition pushed Altisource’s portfolio to more than 2,500.

At the time, the company said that it planned to continue growing its single-family rental portfolio, establishing a target of 25,000 homes.

The company continued on that path last year, pushing its portfolio to more than 8,000 homes in a massive deal with Amherst Holdings.

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On Thursday, Altisource announced a new deal with Amherst, and thanks to that deal Altisource’s portfolio of single-family rentals now checks in at more than 10,000 properties.

Earlier this year, Altisource and Amherst reached a deal that would allow the company to acquire up to 3,500 single-family rental properties from “entities sponsored by Amherst Holdings.”

The first phase of that deal included Altisource acquiring 757 “stabilized rental properties” from Amherst for an aggregate purchase price of $106.5 million.

In this next phase of the deal, Altisource acquired an additional 751 single-family rental properties Amherst for an aggregate purchase price of $117 million.

That purchase increases Altisource’s portfolio to more than 10,000 homes.

According to Altisource, the company received seller financing of 75% of the purchase price pursuant to a loan agreement with a term of up to five years and a floating interest rate of one-month LIBOR plus a fixed spread of 2.3%.

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Additionally, Altisource retained the current property manager for the portfolio, Main Street Renewal.

“We are excited to continue our partnership with Altisource Residential to deliver portfolios of professionally managed single family rental properties with strong cash flow,” Drew Flahive, president of the Amherst single family residential platform, said in a release. “Amherst is committed to investing significant capital in this asset class as single-family rental properties continue to demonstrate strong performance momentum and institutional investor interest in this asset class continues to rise.”

In a separate release, Altisource also noted that in the month of May, it completed its anticipated sale of 2,104 non-performing loans with an unpaid principal balance of $517 million.

That sale leaves approximately 450 non-performing loans in its portfolio, which are expected to be sold in the third quarter.

Of the deals, Altisource CEO George Ellison said: “The completion of these important acquisition and disposition transactions mark the continued successful achievement of targeted milestones in our strategic growth plan.”

Originally published here.

 

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HUD Secretary Carson Says We Need To Build More Homes

Ben Carson, the U.S. Department of Housing and Urban Development secretary, hosted a question and answer session on the meaning of homeownership in America, which he broadcasted through Facebook live.

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Carson explained that, while homeownership is still part of the American dream due to the stability and security it brings, it must be done in a responsible manner. Carson cautioned against falling into a cycle like the 2006 and 2007 era, where Americans were ushered into a home they couldn’t afford.

The HUD secretary pointed out that one of the greatest obstacles to homeownership today is saving up for a down payment as home prices increase at a faster pace due to low inventory levels than the median income.

And in order to slow the rapidly rising home prices, Carson agreed more newly built homes are needed on the market. He explained that in order to allow homebuilders to thrive, the government needs to scale back on regulation.

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In fact, when speaking on regulation, and what it does to entrepreneurs and the economy, Carson commented, “what a bunch of garbage.”

One question pointed out the difficulty Millennials face when entering the housing market due to little cash reserve, low wages and high student debt, asking if perhaps homeownership isn’t for everyone. Carson agreed homeownership is not for everyone, however he insisted that the obstacles mentioned should not be the cause preventing homeownership.

Fannie Mae recently lowered its debt-to-income ratio, which Carson should attract many Millennials. He also pointed out new programs in the loan market which allow homebuyers to roll their student debt into their mortgage.

And in order to help overcome these barriers, the HUD secretary said the Federal Housing Finance Agency is currently in the process of lowering the condominium from a 50% homeownership requirement to 30%, providing the first step into homeownership.

HUD Secretary Carson explained homeownership is for the long-haul, it takes time to achieve and potential homeowners need to get rid of the idea of immediate gratification.

Originally published here.

 

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Zillow And Redfin Prepare To Do Battle (Redfin to raise $100 mil)

Online real estate broker Redfin is preparing to sell shares to the public, filing on Friday to raise up to $100 million. Goldman Sachs is leading the IPO for Seattle-based Redfin, which specializes in buying and selling homes and uses a mobile app to do tasks like schedule home tours and suggest listings.

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Revenue in 2016 jumped 43 percent to $267.2 million from $187.3 million a year earlier. The company’s net loss narrowed to $22.5 million from $30.2 million. Redfin calls itself a “technology-powered real estate broker.” It’s the human element that leads to a gross margin of 31 percent, much lower than most big internet companies.

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“In an age when the technology economy is increasingly divided from the rest of the world,” the filing says, “we have hired our own real estate agents, not as a disposable labor force, but as partners in this business, with a salary, health-care benefits and the opportunity to earn stock options.”

Technology investors like Madrona Ventures, Greylock Partners, Draper Fisher Jurvetson and T. Rowe Price backed Redfin, which was created in 2004.

Redfin CEO Glenn Kelman, who joined in 2006, told CNBC in May that the company’s sales were being limited by historically low inventories of homes.

“We’re going to be fine in terms of market share, but I think the overall industry for the first time is seeing sales volume really limited by the inventory crunch,” Kelman said.

Zillow, another major player in online real estate, is located just up the road in Seattle. Zillow is more than three times the size of Redfin by revenue and is valued at about $9 billion.

— CNBC’s Diana Olick contributed to this report. Originally published here.

 

 

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Millennials Crash Real Estate Investing Party (moving away from stocks and into tangible assets)

Americans have stashed the majority of their investment dollars in the stock market over the years. But there may be a new trend on the horizon. In 2007, nearly two-thirds of Americans were investing in the stock market; last year, just over half did. A new generation of investors may be turning to real estate instead.

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RealtyShares recently teamed up with Harris Interactive to put out the Real Estate Investing Report, surveying Americans on their investment preferences. And according to the survey results, 55 percent of millennials are interested in investing in real estate, the highest percentage of all demographics questioned. Research from Fannie Maesupports these findings, reporting that 85 percent of millennials think real estate is a good investment. With such a strong preference for real estate, it is important to understand why millennials are interested and how they may invest in the future.

Why is it important?

Well, last year, millennials became the largest generation of Americans. According to a recent Pew report, there are 75.4 million millennials compared with 74.9 million baby boomers. As the largest age group in America, millennials will have the greatest ability to shift the market as their net worth builds, rendering it key to take note of millennials’ views on real estate and investment opportunities overall.

Millennials are skeptical of the stock market

Survey respondents were asked to choose between stocks, real estate, commodities, bonds, and cash equivalents such as oil, gold and cotton as the best-performing investment since 2000. Overall, 40 percent reported uncertainty around which asset class performed best, and 25 percent believed the stock market was the best investment.

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In reality, real estate outperformed the stock market during that time frame. Millennials got it right: over the 16-year period from 2000 to 2016, the S&P 500 yielded a 5.43 percent annual total return compared to 10.71 percent in real estate. And while the S&P has had a slight advantage more recently, both markets have recovered well since the Great Recession, with the S&P and real estate at 12.65 and 11.37 percent, respectively (range from Dec. 31, 2010 – Dec 30, 2016).

In the RealtyShares survey results, 20 percent of millennials indicated they believe real estate has performed the best since 2000. In fact, millennials were the age group with the largest percentage with that belief. The next highest group to believe real estate outperformed the stock market since 2000 is comprised primarily of Generation X (ages 35–44), 16 percent of whom chose real estate as the top performer.

Why are millennials the generation most likely to value real estate over the stock market? Many millennials graduated from college and entered the job market during the Great Recession. This major economic downturn made it difficult for millennials to find jobs. Simultaneously, they watched the stock market undergo the worst crash since the Great Depression. Although the housing bubble burst contributed to the stocks’ crashing, the stocks may have lingered in people’s minds longer than the housing market did.

Millennials have watched real estate bounce back

 

In 2007 and 2008, the subprime mortgage crisis caused a panic to unfold in real estate. Across the country, many Americans took home loans they couldn’t afford, which artificially increased property prices. The resulting bubble led to a major market adjustment — housing prices fell 18 percent in 2008. CNN Money reported that at the end of 2008, home prices had fallen 27 months in a row.

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It has taken eight years for the real estate market to recover, but in some markets, real estate is red-hot. Housing prices in popular millennial destinations like Portland, Denver and Austin have been steeply rising. And while millennials may have waited a bit longer than prior generations to marry and buy a home, Zillow reports that half of first-time home buyers in the United States are under 36 (compared with the median age of around 33 from 1995–2009), and first-time buyers make up 47 percent of all property sales.

Morgan Stanley believes we are still in the midst of a real estate recovery, but there is still more good news ahead in the coming years. According to a study by the American Modern Insurance Group, 86 percent of millennial renters plan on owning a home someday. This equates to roughly 50 million future homebuyers entering the future housing market.

Millennials see advantages in owning a tangible asset

 

Millennials, ever-vigilant on the internet, are paying heed to online financial experts. One of these experts especially popular among millennials is personal finance blogger Financial Samurai, who recently shared his preference for investing in real estate over the stock market.

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Also, stocks, as an intangible asset, are difficult for many to quantify. However, with real estate you can physically see and occupy the investment. This makes for an intriguing investment choice for the more visually minded/image-oriented millennial generation.

While the large down payment needed to invest in real estate is the biggest reason millennials aren’t buying real estate, thanks to online real estate investing platforms, millennials can now invest in real estate without saving tens of thousands of dollars for a down payment.

Real estate may flourish with millennials leading the charge

 

While older generations may be more interested in downsizing, millennials are having children and growing in their careers. Buying a home is the next logical step. With positive returns potentially on the horizon, millennials are on the right track. The data says real estate has the capacity to be the best investment, and millennials are on board.

ORIGINALLY PUBLISHED HERE

 

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2017 is a Landmark Year for E-Notarization (Here are the holdout states)

The prevalence of digital technology, the trend to reduce paperwork, the goal to save time and money and the need to increase security have converged in the growth in e-notarizations. And the momentum is growing. National organizations are increasingly endorsing e-notarizations and remote notarizations, and their uses are spreading.

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The prevalence of digital technology, the trend to reduce paperwork, the goal to save time and money and the need to increase security have converged in the growth in e-notarizations. And the momentum is growing. National organizations are increasingly endorsing e-notarizations and remote notarizations, and their uses are spreading.

All states are authorized to accept some form of e-notarization in conformance with the Uniform Electronic Transactions Act (UETA) which was approved in 1999 by the National Conference of Commissioners on Uniform State Law (NCCUSL) as an overlay statute to help reconcile conflicting state laws. The Electronic Signatures in Global and National Commerce (ESIGN) Act was passed in 2000 by the federal government and grants legal recognition to electronic signatures and records if all parties to a contract choose to use electronic documents and to sign them electronically, and it also supports e-notarization.

E-notarization adoption, particularly remote notarization, is poised to gain even more traction in 2017. Remote notarization takes e-notarization a step further by using modern technology to expand the definition of “in the presence of” the notary, which is a foundational requirement of notarization in all state laws.

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Last summer, Fannie Mae, Freddie Mac and Quicken Loans endorsed remote notarization for their mortgage closings. This was quickly followed by the Uniform Law Commission (ULC) approving an amendment to the Revised Law on Notarial Acts (RULONA), which allows notaries in an enacting state or jurisdiction to perform remote notarizations for signers outside the U.S. for certain documents. The ULC also approved a drafting committee for an amendment that would allow remote notarizations for signers in the U.S.

While “in the presence of” had been traditionally interpreted as meaning “physically in the same place,” some forward-thinking states and organizations have recognized that technology allows people to be virtually in the presence of each other without requiring physical proximity.

shutterstock_325899806A remote notarization includes all the formalities of a traditional paper transaction, except that the notary and the signer are linked together by real-time, audio-video communications. That means signers and notaries have the freedom and convenience to complete transactions from wherever they happen to be, and the capability is revolutionizing many industries.

Plus, the process is actually more secure and legally defensible than wet ink signatures, thanks to authentication methods and audio-video recordings.

Knowledge of this digital process expands and widespread acceptance of e-notarization grows across industries, we can expect to see e-notarization and remote notarization become more prevalent, especially in the mortgage industry.

ORIGINALLY PUBLISHED HERE

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Why we do what we do (Matt Andrews & Antonio Edwards in Haiti)

Making money is great, but this is the real reason why we do what we do.

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