A condo in this building sold for close to the asking price of $599,000 before it was officially on the market.

Forget about March Madness. The real action last month did not take place on college basketball courts, but came from home buyers snapping up houses in the Denver area.

The number of previously owned homes placed under contract in March jumped by 49.2 percent compared with March 2011, while they rose 28.4 percent from February. Closings were up 39.3 percent from March and 8.3 percent from a year earlier, according to reports released on Thursday.  Single-family home prices rose by 5 percent from February, with an average price of $284,035 in March, were up 5 percent and 4 percent on a month-to-month and year-over-year basis, respectively.

While the inventory of unsold homes is still extremely low with only 10,325 unsold homes on the market – 47.7 percent fewer than the 17,707 in March 2011 – levels have risen by 2.4 percent from February, according to the report by independent broker Gary Bauer. The report is based on Metrolist data.

“It’s a very good market,” Bauer said. “There is pent-up demand in the market and brokers are increasingly seeing multiple offers on homes.”

By the numbers:

• Buyers placed 5,328 homes under contract in March, compared with 4,150 in February and 3,571 in March 2011.
• Year-to-date, 12,964 homes have been placed under contract, compared with 10,411 in the first quarter of last year.
• There were 3,475 home closings last month, compared with 2,495 in February and 3,209 in March 2011.
• In the first quarter, there were 8,440 closings, compared with 7,954 during the same period last year.

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David Stevens, president and CEO of the Mortgage Bankers Association and the former FHA Commissioner, was the keynote speaker at a Boulder conference.

BOULDER – Watch a video of David Stevens at the end of this blog

When David H. Stevens graduated from the University of Colorado in Boulder and took his first job as a loan officer in downtown Denver in 1980, the prime rate was at an all-time high of 21 percent, veterans were leaving the lending and real estate industries in droves, and many wrote off the American Dream of owning a home as nothing but a nightmare.

Yet, Stevens couldn’t have been more excited.

“Why? Because I knew that real estate is cyclical and it would come back,” Stevens said today, as the keynote speaker at the Boulder County Business Report’s annual Boulder Valley Real Estate Conference & Forecast.

Today, Stevens, the president and chief executive officer of the Mortgage Bankers Association, is more excited about the residential real estate market than he was 30 years ago, when he started in the business. He took the MBA job after resigning as the Federal Housing Administration commissioner last April.

“This is the greatest opportunity in U.S. history to buy a home,” Stevens said. “You can lock-in a mortgage rate at lower than what our parents paid for a home. Remember when everyone was excited about 6 percent rates? Now they are at 4 percent. But believe me, those rates can be gone tomorrow. People are going to look back and wish they had taken advantage of these conditions.”

Rates beat price

Rates are so low, he said, that  if you bought a $250,000 home with a 4 percent loan, and it fell by 10 percent in value, 10 years later you would still be better off than buying the same home with a 6 percent loan that did not drop in value. And because the value of buying a home includes financing as well as the sales price, it often is a superior investment to renting, he said. Because apartment rental rates are rising faster than the supply is increasing, the demand for them is creating the equivalent of an “option-ARM,”he said.

An option ARM was a  type of subprime mortgage that helped create the worst housing crisis since the Great Depression. “We were great at creating the ultimate neutron-bomb products,” Stevens said. “It killed the families but left the buildings standing,” although many ended up as foreclosures. While at the FHA, he shut down or penalized more than 2,000 firms, more than anyone else in FHA’s history, he noted. He said the industry still must weed-out all of the bad apples, such as real estate brokers who create LLC’s to do sham short-sale transactions where they quickly flip properties and defraud banks.

“I deal in facts, real facts, based on data and research,” Stevens said.

News fuels low consumer confidence

One of the big problems that has kept consumer confidence low, is that the media is constantly preaching the end of homeownership, he said, using a Power Point display to show doom-and-gloom headlines from the New York Times, Washington Post, Wall Street Journal and USA Today.

Dave Stevens plans to debate Suze Orman on strategically walking away from a mortgage.

But probably no one grates his nerves more than financial guru Suze Orman. Orman, who has a show on CBNC, has preached walking away from your mortgage, if your home is deeply underwater, even if you can afford to pay your mortgage.

“I’m going to appear on Suze Orman’s show in about two weeks,” Stevens said. “I’m not going to pull any punches. That is totally irresponsible.” He said that the Occupy Wall Street members who say that student loans shouldn’t be paid back is equally as irresponsible, although he joked that with a son attending CU and another child about to enter college, a free higher-education wouldn’t be so bad for his pocketbook.

One reason that he is optimistic about real estate, long-term, is because  research shows that the so-called Echo generation – bigger than the Baby Boom generation – is every bit as interested in ultimately buying a home as the Baby Boom generation, he said. However, the Echo Boom is going to have far more Hispanic, Asian and African-American buyers than the Baby Boomers did, he said.

Indeed, foreigners already are seeing value in depressed home prices in the U.S.

When he was visiting China last February, when he was still with the FHA, his group stopped off in Hong Kong, where he read an English newspaper.

“They had ads showing prices of homes in Buffalo, New York,” he said. “Asians are buying homes in places like Buffalo, Detroit and Florida. What do they know that we don’t know? They see the long-term value in homes at these beat-up prices.”

Challenges abound

Still, the real estate and lending industries are facing unprecedented  challenges, which will make for tough-sledding in the short-term,  he said.

“If you are visiting Washington, D.C., drop the phrase, “silly season,” and everyone will know what you are talking about,” Stevens said. “By silly season, we mean it is election time, when Republicans will do what ever it takes to keep Obama from being re-elected, and Democrats will do whatever it takes to keep a Republican from being elected President.”

That means the lending and real estate industries have big targets on their backs.

“It’s coming from both the Republicans and Democrats,” Stevens said. “They want to make sure the financial meltdown does not happen again, so they are looking at more and more regulations. The Dodd-Frank act has about 300 regulations, the vast majority of them you have never heard about.” He said a half dozen or more different agencies typically are looking at the same regulations. “And each agency has its own perspective and agenda, and often the are in conflict with each other.”

Still, he said if you question why you have chosen real estate as a career, if you can hang on for the next couple of years, you will be rewarded, he predicted.

“Long-term, the future of real estate is bright,” Stevens said.

Video: David Stevens in his own words

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This HUD home in Denver is listed at $73,800. Homes like this can now be purchased for only $100 down.

Take a poll at the bottom of this blog.

It only takes a $100 downpayment for an owner-occupant to buy a HUD foreclosure in the Denver area.

Previously, it required a 3.5 percent downpayment. The $100 downpayment policy kicked off last Friday.

The new rule should boost the sale of homes owned by the U.S. Department of Housing and Urban Development, local experts said.

“I think it is going to have a huge impact,” said Jason Peck, of Coldwell Banker. He said the $100 downpayment had been previously offered, but HUD took it away about a year ago in the Denver area. The new program is in effect for the next 12 months, according to Denver’s HUD Homeownership Center.

Peck said he suspects one reason the $100 down payment is back is because nationally, HUD is bracing for another 40,000 homes to come on the market. A portion of those homes are distressed properties that were taken over by Bank of America when it purchased Countrywide Mortgage, he said. While he didn’t know how many more HUD homes will be available in the Denver area, one rule of thumb is that the Denver area has about 2 percent of the overall housing market. In that case, it could mean another 800 HUD homes could hit the market locally.

Not only will the new program be good for buyers who are cash-strapped, or don’t want to spend the money, but it also will help HUD liquidate its portfolio quicker, he said.

The program is available to owner-occupants only, not investors. Buyers using this program must get FHA-insured loans and must pay the full asking price for the home.

Peck said he also suspects that HUD felt it was selling too many of its foreclosures to investors, and this will help it return to its core mission of selling to owner-occupants.

“I think this is going to be a win-win for HUD and for buyers,” said Steve Scheer of Denver Realty Partners. “It’s going to help people who are short on cash and it is going to be good for HUD.This is really going to help first-time home buyers. I’ve been in a lot of HUD homes, while they often need some work, a lot of them are pretty nice.”

Katherine Jolliffe, a broker with 8z Real Estate, said most of the HUD foreclosures she sell are priced from about $60,000 to about $240,000.

“I’ve been doing HUD homes forever,” Jolliffe said. “I love selling HUD homes. I do a lot of them. It’s funny, we’ve been hearing for the past couple of years that we are going to see this huge increase in inventory. But our biggest problem right now is the lack of inventory.”

Lender Jocelyn Predovich believes $100 downpayments for HUD homes will open the door for a lot of buyers.

Janet Frederick, of Aspen Real Estate, also sells a lot of HUD homes. She typically is working on 15 to 20 HUD deals each months.  The $100 downpayment already is sparking more interest from buyers, she said.

“I’ve had about 10 phone calls today,” Frederick said. “I suspect this is going to help quite a bit.”

Jocelyn Predovich, president and CEO of Limetree Lending Group, also said that she is seeing interest in the program, and it will only grow as more people become aware of it.

“Already today, I’ve had a number of Realtors call me and send me emails about the program,” she said. “I’ve also had another five or six consumers contact me today. I think people are going to start to look at their data bases and contact people who might have had problems coming up with a 3.5 percent downpayment. I do think it is going to stimulate activity with buyers. Who can’t come up with $100, right?”

Contact John Rebchook at JRCHOOK@gmail.com

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Peter Lansing says today's mortgage lending environment is like driving a car with no posted speed limit, but the police are ready to give you a ticket around any turn.

Global financial turbulence this week drove mortgage interest rates to record lows, yet a relatively few consumers are willing – or able – to take advantage of them.

“I can’t tell you how discouraging it is to be able to offer a 4.25 percent, 30-year fixed loans and having almost no one able to take advantage of them,” said Tom Kennedy, president of America’s Mortgage in Wheat Ridge.

Rates, already low, fell even more as in the wake of this week’s stock market crash sent investors to the perceived safer haven of Treasuries.

Often, super-low rates are the result of fear in the stock market and economy – and the fear factor does not encourage people to make what often is the biggest purchase of their lives.

And even for those comfortable and willing to buy a home and take advantage of the rates, it is difficult, unless they have an impeccable credit and work history. Kennedy said one blemish on a prospective borrower’s record – such as a late payment – almost always precludes someone who otherwise would be a prime candidate to buy a home from locking in a loan. He estimated he can’t help two out of three people seeking a loan.

Kennedy said the government has gone too far in trying to prevent past abuses by lenders, when they offered such things as option ARMS, the so-called “liar loans,” that provided mortgages to anyone who could fog a mirror, no matter their ability to pay the loan.

“I think if they pushed back a lot of the Dodd-Frank requirements, that would go a long way to restoring the housing market,” he said.

Peter Lansing, chairman of the Colorado Mortgage Lenders Association,  said no one in the industry has a road map on how to navigate new regulations as well as those that are on the drawing board.

No road map for lending

“The best analogy is if we are driving a car on a highway, and we know there are policemen waiting to give us a ticket, but no one knows what the speed limit is,” said Lansing, who also is president of Universal Lending. “There are no signs posted. We try to use our common sense and do what we think is right, but we do not know when we are going to exceed the speed limit or go out of bounds. We don’t know where the lines are drawn.”

There’s also a feeling that the government is setting the equivalent of speed traps for lenders.

“Everyone knows places in their neighborhood where it just feels right and safe to drive 45 mph, but the speed limit is 30 mph,” Lansing said. “That is where the police hang out, because they know they can catch people exceeding the speed limit and bring in additional revenues.” He said lenders are facing the equivalent of speed traps.

Lansing was speaking this week from the CMLA’s annual convention in Vail this week, where some of the biggest names in lending were giving presentations, talks and workshops.

“There are people like Dave Stevens,” who recently left as the head of the Federal Housing Authority to lead the Mortgage Bankers Association, “and when we sit down and ask them specific questions, they say, “We just don’t know the answer.”Other factors hammering a housing recovery, he said, include:

• A lack of consumer confidence.
• Roughly a third of homes being sold are distressed properties, making it hard for homes to appraise for a new loan.
• Still high unemployment and a weak job market.

FHA defaults at historic lows

Meanwhile, Brian Chappelle, principal of Potomac Partners, a Washington, D.C.-based real estate consulting firm and think tank, analyzed the performance of FHA-insured loans made in 2009 and 2010.

“Recent FHA loan originations made are performing at record low levels of serious delinquency,” Chappelle said.

For example, only 041 percent of the loans made from April through June in 2010 are in an early period of delinquency, compared with 2.54 percent during the same period in 2007, his research shows.

One main reason for the historic low defaults is because FHA is increasingly making loans to the most credit worthy of borrowers, who in the past tended to get loans from the private sector.

Consider these credit score comparisons from the first quarter of 2011 to the fourth quarter of 2007:

• In the first quarter of 2011, 38 percent of FHA borrowers had credit scores over 720, while only 9 percent did in the fourth quarter of 2007.
• 62 percent of FHA borrowers had credit scores of over 680 in 2011, compared with 18 percent in 2007.
• 3 percent had credit scores in 2011, compared with 50 percent in 2007.

However, only about half as many loans are now being made than in 2000, when the U.S. population was much lower, he said.

“This is good news and bad news for the FHA,” Chappelle said. “The good news is that the FHA is doing very well. The bad news is that the FHA is not taking enough risk. It is providing loans to the highest quality of borrowers in its history. That is not good for the recovery of the housing market and the economic recovery.”

Lenders and investors, he said, are strictly underwriting FHA loans, even though the government is insuring the loan.

“Lenders feel like if a loan does go bad, the government is going to put the risk of the default back on them, even though the government is supposed to be insuring 100 percent of the loan,” Chappelle said.

“I think the are justified in worrying about that,” he said. “Lenders do deserve some of the responsibility for the housing crash and irresponsible lending. There is a feeling that the pendulum has swung too far. The government should not be the judge, jury and executioner.”

Contact John Rebchook at JRCHOOK@gmail.com

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FHA Commissioner David Stevens at the Realtor Rally in Denver last week.

Watch a video at the end of this blog of  David Stevens speaking at the Realtor Rally in Denver

David H. Stevens, the head of the Federal Housing Administration, who was a keynote speaker in Denver last week, will be leaving his government job to serve as the president of the Mortgage Bankers Association.

Last week, Stevens, speaking on a wide-variety of issues at the Realtor Rally, which drew about 1,500 people to the Colorado Convention Center,  noted that he was a “temporary” government worker and would be returning to the private sector at some point. However, he did not say the change would come quite that quickly. Two days after the rally, his office announced he would be leaving the FHA shortly. Stevens began his career in 1983 as a loan officer at World Savings Bank in Denver.  During the rally, he joked about how he used to take real estate brokers on the ski train to the mountains with  hopes of getting mortgage business from them, which he added was in full compliance of rules and regulations at the time.  Steven currently has a son attending the University of Colorado in Boulder, which is his alma mater.

At the Mortgage Banker Association, Stevens will replace John A. Courson as president and CEO on June 1. Stevens will leave the U.S. Department of Housing and Urban Development on March 31. The FHA is part of HUD.

Delay in HUD guidelines?

Peter Lansing, chairman of the Colorado Mortgage Lenders Association, wondered if Stevens’ departure from the FHA will delay the implementation of new rules and guidelines expected from HUD. “One of which is the dual-employee guideline, which would allow real estate agents also to work as mortgage brokers at mortgage banking companies,” said Lansing, who also is president and CEO of Universal Lending, one of the largest privately held mortgage banking companies in Colorado, as well as a sponsor of InsideRealEstateNews.

“I do think Dave will be really good at the MBA,” added Lansing. However, he noted that much of his career path had been spent with big organizations. “FHA and HUD are big organizations on the public side,” Lansing said. Before joining FHA, Stevens had been president and chief operating officer of Virginia-based Long and Foster Cos., which bills itself as the nation’s largest, privately-held real estate firm. After 16 years with World Savings Bank in Denver, he briefly served as an executive vice president at Wells Fargo, and spent seven years as a Senior Vice President at Freddie Mac, where he created and ran the small lender channel.

Smaller lenders important, too

Lansing said one thing he and others will be following is at the MBA if Stevens directs his attention primarily to the benefit and welfare of big banks, or whether he also is an advocate of issues facing smaller and mid-sized mortgage banking firms. Independent mortgage companies account for about a third of all mortgages originated in the country.

Stevens is joining the MBA after almost two years leading FHA through  tumultuous times. During his tenure, Stevens implemented a myriad of changes to improve FHA’s risk management to ensure the programs future viability and to help FHA weather the storm of increased losses, the MBA said in a statement. At FHA, Stevens has direct responsibility for oversight and administration of the FHA insurance portfolio, which includes multifamily housing, insured health care facilities and well over 20 percent of mortgages in the domestic single family market.

“Uniquely qualified”

“David Stevens is uniquely qualified to lead the association in its next chapter,” said MBA’s Chairman Michael D.Berman. “Most recently he has had a tremendous impact at FHA, as that program faced its own unprecedented challenges. He also brings a wealth of industry experience in mortgage lending that will help him further build MBA’s position as the industry’s leading voice in advocacy, communications, education and research.”

Courson came to MBA as chief operating officer in August,2008 and became the association’s president and CEO in January, 2009. Prior to MBA, Courson  spent more than 40 years in the mortgage banking industry during which time he was an active MBA member and served as the association’s chairman in 2003.

“John Courson has led MBA through the most turbulent times that this industry, and the association, has ever seen,” said . Berman. “John inherited an association facing serious financial challenges precipitated by the meltdown in the mortgage market and MBA’s decision to purchase its own headquarters building in the year leading up to the Great Recession. He was compelled from the outset to make difficult financial decisions, both to bring MBA’s budget under control and to extricate MBA from the building, but he leaves MBA with a budget in the black and having executed the sale of the building while maintaining MBA’s commitment to it members.

“John has done a superb job, and the entire residential, multifamily and commercial real estate community owes John an enormous debt of gratitude, and we are pleased that John intends to remain active in the real estate finance industry and thank him for his willingness to stay at MBA to help facilitate a smooth transition.”

Watch a video of David Stevens speaking at the Realtor Rally in Denver.

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FHA Commissioner David H. Stevens today announced a new premium structure for FHA-insured mortgage loans increasing its annual mortgage insurance premium, or MIP, by a quarter of a percentage point on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent.  This premium change was detailed in President Obama’s fiscal year 2012 budget, also released today, and will impact new loans insured by FHA on or after April 18, 2011.

The increase is part of the FHA’s ongoing efforts to strengthen its capital reserves.

Increase to bolster capital reserves

“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said Stevens, who go this start in the mortgage business in Denver.  “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated 2 percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”

The proposed change was announced last week as part of the Obama Administration’s report to Congress, which outlined the administration’s plan to reform the nation’s housing finance system. The administration’s housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011.

Increase to add $3 billion to reserves

This premium change enables FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance , or MMI fund, which had capital reserves of approximately $3.6 billion at the end of fiscal year 2010. The change is estimated to contribute nearly $3 billion annually to the fund, based on current volume projections. It is vital that HUD take action to ensure that FHA will continue to serve its dual mission of providing affordable home ownership options to under-served American families and first-time home buyers while helping to stabilize the housing market during these tough times.

On average, new FHA borrowers will pay approximately $30 more per month. This increase is affordable for almost all home buyers who would qualify for a new loan, according to the agency. Existing and HECM loans insured by FHA are not impacted by the pricing change.

FHA will continue to play an important role in the nation’s mortgage market in 2011. President Obama’s fiscal year  2012 budget projects the FHA will insure $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that significantly reduce borrower payments.

Contact John Rebchook at JRCHOOK@gmail.com.

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Denver-area homeowners could potentially save almost $600 million a year by refinancing their mortgages into the record-low rates available, according to an analysis by InsideRealEstateNews.com.

While there does appear to be an uptick in refinancing, phones are not ringing off the hook in lender offices. Meanwhile, even the trifecta of good news for home buyers – super-low rates, housing prices well off their peaks, and an increased of supply of unsold homes on the market to choose from – have not been driving people to buy homes. In June, the number of homes placed under contract plunged by 31 percent from June 2009.

InsideRealEstateNews used Census Bureau data and national reports to estimate the number of homeowners who could shave 2 percentage points or more off their mortgages. If they all did, it would save them an estimated $597.3 million annually, excluding the costs of refinancing. And the estimate is likely conservative, as some lenders say it makes sense for some homeowners to refinance, even if they could cut their mortgage rate by a half of a percent or less.

Crazy low rates

Zillow.com reported today that the average 30-year, fixed-rate at 4.49 percent, a 15-year, fixed-rate at 3.98 percent and a 5-year ARM at 3.98 percent. “It is absolutely crazy,” said Kay Cleland, president of the Colorado Association of Mortgage Brokers. “Everybody should be taking advantage of these unbelievably low mortgage interest rates.”

One way to look at it, is that refinancing would be the equivalent of the metro area homeowners getting a $600 million, tax-free raise.

“That would have a huge impact on the economy,” said independent real estate broker and consultant Gary Bauer. “And those savings would have a three or four times trickle rate, so if you take that $600 million, it could have a $2.4 billion impact on the economy. To put that into perspective, in the first six months of this year we sold $5.3 billion in homes, so the savings would be the equivalent of about 45 percent of the homes sold.”

He said he has one client who refinanced his mortgage and is now saving about $600 per month.

Fixed rates and ARMs attractive

Pete McGlynn recently refinanced his mortgage, cutting about two points from his mortgage.

Although he didn’t want to discuss exact numbers, he said he is saving so much he will recoup his closing costs in only two months, and the rest of the savings will be gravy.

“When you can save a third, it’s not really a tough one to think about,” McGlynn said.

Unlike many people he went from a 30-year-fixed-rate loan, which had about 27 years remaining on it, to a 7-year, adjustable rate mortgage.

“I had enough equity in my home to qualify for an interest-only ARM,” McGlynn said. McGlynn, a sophisticated purchaser who works in the financial arena, thought it was unlikely that he would spend 30 years in his 3,175-square-foot house, so he didn’t want to pay for 30-year money.

“I probably will be in my house for just about the length of my mortgage, and probably no more than 10 years,” he said.

Another person, so prominent that he has a spokesman, recently traded his $1.1 million, 5-year, interest-only loan with a 6-percent interest rate, for a $1.057 million, 30-year fixed-rate loan with a 5 percent interest rate, according to documents obtained by InsideRealEstateNews. That would save him about $920 a month in principal and interest payments.

The spokesman, who talked about the refinance on the condition that his employer’s name not be used, said that his boss is like thousands of other homeowners who wanted to save money. He also wanted the security of fixed-rate loan, he said. He didn’t take any money out of the home with the refinancing, even though the home is worth $1.508 million, according to public records. “He’s like thousands of other homeowners who wants to take advantage of the low rates,” the spokesman said.

Tough economy hurts refinancing

Yet, a surprisingly small number of homeowners are taking advantage of the lowest rates in their lifetime. During past periods of falling rates, consumers typically were beating down the doors of lenders. Many of them had to hire additional staff to meet the demand.

A big part of it could be the economy, said Mike Rinner, of the Genesis Group, which tracks housing along the Front Range.

“If you had a 50 percent drop in your income, no matter how low interest rates go, it might not help you,” Rinner said. “I don’t think people are dumb. They know interest rates are down. But I think the key is you also have to have jobs. Even though we might be slightly better in the Denver area and in Colorado than in the nation as a whole, there are fewer people working today than a year ago, and that is not encouraging. If people had jobs and were confident they would keep them, everything else would fall into place.”

Still, Rinner said if you can qualify for a lower rate and increase your cash flow, it is easy enough to estimate how long it will take to pay back the cost of refinancing, he said.

And increasingly homeowners are taking a advantage of the low rates, although not as many as many experts would expect.

Refinance surge is tame

“I think everyone’s business is up,” said Peter Lansing, president of Universal Lending, a sponsor of InsideRealEstateNews and one of the largest locally owned mortgage banking companies in the Denver area. “But I wouldn’t call it off the hook. I’d say we’re up 10 to 15 percent. In the past, when we saw big drops, we were up 40 percent or 50 percent.”

There are likely several reasons why more consumers aren’t cashing in on refinancing, Lansing said.

“No. 1, many people may have already financed to a level not as low as today’s rates, but still one they are happy with,” Lansing said. “No. 2, people are concerned about the appraised value of their homes. In some cases, they might have to bring cash to the closing to get the full value of the lower rates. And others might have job issues that are keeping them from refinancing.”

Part of it might be psychological, he said. Even if the numbers pencil out, some people may simply be numb to the super-low rates.

“I suspect for some people going from a 8 percent to a 6 percent loan may seem like a bigger deal than going from a 6 percent to a 4 percent loan,” Lansing said. “I don’t know why that is, but I suspect that could be part of it.”

Tom Clark, Executive Vice President of the Metro Denver Economic Development Corp., agreed that more people should be taking advantage of the low rates.

“I cannot tell you how many people I have been talking with who have $200,000, $300,000 mortgages, and they know they should be refinancing, but just aren’t,” Clark said. “I think the reason people are hesitating, when it it is in their best interests, is all relative to how freaked out they are by the economy. With everything going on, it just leads to this kind of paralysis. It’s amazing what inertia can do. It really is giving yourself a pay raise without having to argue with your boss. It’s free money.”

Lansing said that rates this low are astounding.

“We put my sister into a 6.125 percent loan last year, and I thought we were giving her the lowest rate she would ever have,” Lansing said. “I thought that was going to be her last mortgage. And we just did a refinance for her for a 20-year loan. It has a rate of 4.125 percent, I think.”

Underwater homes don’t sink refinancing

Anita Padilla-Fitzgerald, president and CEO of MegaStar Financial, said she thinks media reports of falling home values may have convinced consumers that their homes won’t appraise at high enough values to refinance. However, she noted that the Federal Housing Administration, Fannie Mae and Freddie Mac all have programs that allow refinances without appraisals.

Still, reports that homeowners can’t take advantage of the low rates might be one reason that MegaStar’s business is currently 70 percent for purchases and 30 percent for refinances. Often, when rates were falling, many lenders experienced the opposite – 70 percent refinances and 30 percent purchases.

Depending on the situation, it could make sense for some people to refinance for a half-percent or less, Padilla-Fitzgerald said.

“It might make some sense for some people to go from a 5 percent to a 4.5 percent loan,” she said.

One road-block for some people refinancing is that they can’t roll their closing costs into the new loan, because their homes are so deeply under water – that is, their mortgages are worth far more than their homes, even when using various programs that don’t require appraisals, said Tom Gross, a mortgage broker with Crestline Mortgage, which is part of Universal Lending. Those programs include Freddie Mac Streamline and Fannie Mae RefiPlus and DU RefiPlus, as well as some FHA and VA programs.

“I just haven’t had any clients who want to do that,” Gross said.

But Dan Brown, principal of Spire Financial, said that is not a huge problem. If a homeowner has no equity in their home, he said a lender can often structure a loan that is higher than the rates available to the most qualified borrowers with great credit scores and lots of equity, but still lower than the existing.

Few loans for self-employed

A bigger problem is that while loans are relatively easy to get for people with standard paychecks and W-2 income, there are few options available for the self-employed. For example, a business owner might take a lot of write-offs, which under-estimates how much the owner actually earns.

Brown has one client who makes $80,000 a month, has an 800-credit score, and a a great deal of equity in his home, but it still took four months to find a lender willing to refinance his loan.

“I know a lady who wanted to buy a home in Boulder for $400,000,” Brown said.”She does not currently have a job, but she is receiving a settlement from her brother’s death, which will mean $1.6 million in her bank over the next two years and nine month. He said she was planning to make a large down payment, but didn’t want to pay cash and use up a quarter of her assets. But when she couldn’t get a loan, she walked away.

“Think of that poor home seller,” Brown said. “He thought he had a buyer of his home at a reasonable price. Now, he has to put it back on the market.”

Get help help from a pro

Brown said because every case is different,  the old rule of thumb that you need to lower your rate by a full percentage point, is not true for everyone.

“If you have a $417,000 mortgage, it might make sense to refinance if you can drop your rate by a half percent, because the savings are so great,” Brown said. “But if you have a $100,000 loan, it might only make sense if you can lower it by a full percentage point or a point and a half. Anyone who tells you there are rules of thumb is just full of it. This is not a business where one size fits all.”

And for some people, it doesn’t make sense to refinance, no matter how low rates fall.

One homeowner in Evergreen, for example, has only 6.5 years left before his loan is paid off, and so has been ignoring the siren call of low rates.

“He is absolutely right,” Brown said. “When you’re that close to paying it off, you are paying mostly principal, anyway. There is no point of amortizing a loan over 15 or 30 years, when you can see the light at the end of the tunnel.”

The only exception might be if a sophisticated borrower was looking at the home as just  another asset that could generate cheap money, which could be used to invest that could provide a much greater return than the negligible after-tax cost of the mortgage.

But if Brown could leave consumers with only one piece of advice, it would be to encourage them not to do it alone. He suggests that they use a trusted mortgage broker or mortgage banker that they have used in the past, or has been referred to them by someone they trust.

“I tell people I don’t care if it is me; I honestly don’t,” Brown said. “I don’t think it is a good idea to get a loan through the Internet or by calling a 800 number. If you try to navigate this process yourself, you are taking a big risk. Discuss your particular situation with someone who you trust. Tell them exactly what your goal and he can help you achieve those goals.”

Related Posts:

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Mortgage bankers and brokers in Colorado are among the most vocal opponents of the “risk-retention” requirement proposed in the Restoring American Financial Stability Act.

The idea is to require lenders to have some “skin in the game,” in an attempt to curtail lenders from making inappropriate, risky loans, a leading cause of the foreclosure crisis that swept the country starting in 2007.

Proposal goes too far

But the proposal goes too far by requiring lenders to retain up to 10 percent of the loan value for every mortgage they make that is sold into the secondary market, for as long as the loan in outstanding, according to a broad-range of critics. That would mean mortgage bankers and brokers – among other lenders – would need to have billions of dollars on hand, something they are not set up to do, opponents contend. (See chart below for an example of the impact to mortgage lenders.)

“To require a 5 percent or 10 percent risk retention, really penalizes  independent mortgage bankers,” said Mike Rosser, who started in the Denver mortgage business since 1965.

“Most of the FHA loans that are being done, and have been done, are by the independent mortgage bankers,” added Rosser, now principal of an Aurora-based consulting firm, the Mortgage Investment Co. Inc. “This will be very bad for homeowners who want to get an FHA loan because they will have far fewer choices of where to go.”

HUD already polices lenders

Rosser said many in Congress do not realize that the U.S. Department of Housing and Urban Development, which owns FHA, “already has a very strong auditing program, a mortgagee review board, they do quality audits all of the time, and have a certain amount of capital requirements to get into the FHA business. So this is really redundant.”

Some lenders point out that the so-called toxic-loans of the past – such as options ARMs and other subprime loans- no longer are being made, while the plain vanilla 30-year mortgages have been packaged and sold as securities for decades, without causing the problems of the discontinued loans that were made without strict underwriting guidelines.

Skin in the game

Peter Lansing, head of Universal Lending, one of the largest privately held mortgage banking companies in Denver (and a sponsor of InsideRealEstateNews), said that Congress “wants us to have some financial skin in the game,” which is why it is considering the risk retention requirements.

But despite the recent financial calamity involving so-called toxic loans, the lending industry has done very well when it properly underwrites conservative loans based on a borrower’s assets, appraisal, income, credit scores and work history, and debt to income ratios. In fact, a report completed this week, shows that borrowers of risky loans are more than three times likely to default than traditional loans.  (For a separate story on that report, please go to this link.)

Congress may be unaware of consequences

Lansing said he does not see this as a Democratic or Republican issues.

“I honestly think that Congress has not thought this through,” Lansing said. “What Congress is proposing is ‘over-medicating.’  Congress does need to guard against future abuses which happened in the past. I don’t want to carry this too far, but just like building codes are stricter in the U.S., so if we have an earthquake, it doesn’t have the same devastation as we have seen in some other countries, with less stringent building standards. But we don’t need is over-medication, which will actually be devastating to consumers and mortgage lenders.”

Public in the dark

Lansing said that while people in his industry are aware of it, he believes most of the public doesn’t have a clue it is being proposed or its impact.

“This would be very bad for the consumer,” Lansing said. “No mortgage lender has the type of capital needed to put in an escrow account or something like that. The only way to raise the money is to charge the consumer. On a $200,000 loan, if they only required another 5 percent, that would be an extra $10,000.  That’s obviously not going to work.”

Peter Mills, which last September helped found the Community Mortgage Banking Project, a Washington, D.C.-based coalition created to represent the interests of independent mortgage companies, agreed with Lansing.

“The problem is it does not distinguish between high-risk loans and well-underwritten loans,” Mills said. “It is a very blunt instrument, which would affect everyone across the board.”

Mills said the Senate version would require a 10 percent risk retention amount and the House version a 5 percent retention.  But he said even a 1 percent retention would be too much.  For a lender making about $1 billion a year in loans, in three years it would need to put aside more than $50 million in funds at even a 1% risk retention rate, by his group’s calculations.

Lenders protest proposal

The Community Mortgage Banking Project and the Community Mortgage Lenders of America, last November sent a letter signed by 87 mortgage lenders across the country to the Senate Banking Committee. Eight of them were from Colorado. Only Michigan had as many lenders sign the letter.

“We are very active on this issue in Colorado,” Lansing said. In addition to Universal Lending, the letter was signed by executives from America’s Mortgage in Wheat Ridge; Cherry Creek Mortgage in Greenwood Village;  Clarion Mortgage Capital in Greenwood Village; First National Bank Mortgage in Fort Collins; Ideal Homes Loan, Englewood; Pinnacle Mortgage Group, Lakewood; and Unifirst Mortgage, Grand Junction.

“Under the risk retention requirement in the draft bill, independent mortgage bankers- which accounted for almost one-third of all home mortgages in 2008 – would be forced out of business,” according to the letter to Christopher J. Dodd and Richard C. Shelby, the chairman and ranking member of the Senate Banking Committee, respectively.

Community banks, credit unions impacted

But it wouldn’t stop there.

Community banks and credit unions also would “face liquidity and balance sheet constraints that would limit their lending capabilities,” according to the letter.

The impact of a “poorly designed” risk retention requirement would consolidate the market into the hands of a few major lenders, according to the mortgage bankers.

“This is an ironic result in a bill that is trying to mitigate systemic risk and too-big-to-fail concerns,” the mortgage lenders contend.

Bank Monopolies Feared

Mortgage bankers are facing off on the issue with traditional banks, which have money on hand from short-term investments such as checking and saving accounts and CDs. In a statement, the American Bankers Association said that lenders with secured deposits already have enough capital on hand and should be excluded from the risk retention requirement, although it oppose some other parts of the proposed legislation.

“The big banks could certainly live with this,” said consultant Rosser.

But Lansing, of Universal Lending, isn’t so sure.

“Yes, large financial institutions could be better able to handle these requirements,” Lansing said. “But last year, something like $2.75 trillion in mortgage loans were made in the U.S. Is any bank in the country big enough to absorb those kind of costs and handle that kind of volume?”

Also, Lansing said that consumers would lose if only a few banks were making home loans.

“What Congress, unintentionally would be doing is creating a situation where maybe only three or four lenders in the country would make all of the home loans,” Lansing said. “What Congress would be doing is creating monopolies. I’m not against regulation. I think our industry needs, good, sound regulations that make sense. For example, I think some kind of risk retention probably is appropriate when making high-risk loans. But I am against monopolies.”

The Mortgage Bankers Association, which represents about 280,000 people nationwide, strongly opposes the measure, saying it would have “dire consequences” for mortgage markets.

The provision would “unnecessarily stem competition, reducing choices and increasing the costs of credit for consumers,” according to the group. “At the same time, smaller community banks and even larger depositories would be constrained from lending – and available funds for home financing would be reduced by countless billions of dollars – to meet reserve requirements,” according to the MBA.

Grassroots group shares concerns

And the American Homeowners Grassroots Alliance, which in the past has butted heads with lenders on many issues, worries that while the risk-retention requirement will require more more responsible lending, “it may also somewhat limit the availability of mortgage loans for qualified borrowers and thereby slow the housing market’s economic recovery.”

It urged the banking committee to avoid this unintended consequence.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

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Video Link: FHA Commissioner David Stevens Hopeful on Housing Recovery

David Stevens, Commissioner of the  Federal Housing Administration and Assistant Secretary for HUD, told about 200 lenders and other housing officials in Denver that the current  real estate environment is very similar to what it was like in 1934,  when the FHA was born to help Americans get home loans during the Great Depression.

Stevens, a University of Colorado graduate, who is considered the first FHA commissioner with real-life mortgage lending experience, noted that “private capital has evaporated today,” just like it did during the Great Depression.

“It’s A Wonderful Life” is not so wonderful,” Stevens said, alluding to the 1946 Jimmy Stewart movie about a local mortgage lender, whose community depended on him for their home loans.

“You may not like everything I do,” he told the crowd at one point during the Town Hall-style meeting, largely underwritten by American Southwest Mortgage Corp. The meeting also included industry panels, where a number of people called for loosening tight underwriting limits, saying that things such as stated-income loans are not inherently evil, and must be returned to the market to allow qualified, higher-income people to get loans for homes.

Hard data key

But Stevens assured the group that everything he does is not based on whimsy, but is the product of the analysis of thousands of  points of data. He noted he has hired five Phd’s to analyze economic and housing data and run computer-simulation models on various scenarios. He said steps he is taking, as well as those by the Obama Administration, are helping to get the housing market back on track.

For example, he announced last month that new borrowers would need a minimum FICO score of 580 to qualify for FHA’s 3.5 percent down payment program. Those with lower scores need to pony up  at least 10 percent. But before settling on 580, he ran the impact of raising it to 620, but he said that would have knocked too many people out of the market. And he said some industry executives wanted him to raise the down payment to 5 percent or even 10 percent, but he rejected those changes as too severe.

Core FHA market not the rich

“But the purpose of FHA is not so some business executive can buy a $729,000 home in Vail with only 3 percent down,” he said. “Our primary job is to help the under-served buyer in Atlanta, Georgia, or Detroit, Michigan, or New Orleans, Louisiana,” and other communities nationwide.

During this crisis, he said, the government has become too big of a player in the mortgage markets, which has been necessary until the private market returns. Indeed, he received his biggest applause when he said that not everyone should be a homeowner.

“It is a sick system,” Stevens said. “There is no private-market demand. It’s all being picked up by the government…There is no demand for mortgage money on the private side.  Private capital is opportunistic -it goes where it can make money.” He predicted that will change. He said several initiatives by the Obama administration to make the housing market healthy and vibrant again, are showing signs of momentum.

Stevens also announced last month that the FHA is raising  the mortgage insurance premium to 2.25 percent from 1.75 percent, to shore up FHA’s reserves, but first considered other alternatives, but decided that 50 basis point was enough to boost FHA’s reserves. Some feared that would knock too many people out of the market, while others thought it should be raised more. But he said the agency’s comprehensive analysis assured them that was the optimal number and it will assure that FHA will meets its statutory required reserve numbers.

Shadow inventory may be myth

What may surprise some observers, is that following his keynote presentation, he said the data does not support the widely held notion that there is a huge “shadow inventory” of homes of foreclosed home being held by banks that it has not yet been put on the market. “We have heard that, too, but we have found no evidence that it the case,” after reviewing data from the FHA and Freddie Mac and Fannie Mae loan portfolios.

Instead, he said there is more demand for REOs (real estate owned) properties held by banks than the supply of foreclosed homes is growing. Indeed, he said one concern in some markets is that owner-occupants are being crowded out of the market by investors armed with letters of credits. He said he would rather encourage owner-occupant buyers than investors looking to flip properties.

He did say that there are concerns that homeowners who are delinquent on their mortgage payments may become part of the “shadow inventory” of foreclosed homes yet to hit the market. And in some areas, especially Florida, where it can take a year or more to work is way through the foreclousre process, there may be many more foreclosed homes ready to hit the market.

Mortgage brokers not “whipping boys”

During his talk, one audience member asked Stevens if mortgage brokers have become the “whipping boy,” for the nation’s housing crisis.

Stevens assured him that the head of every imaginable real estate organization, including banks, mortgage bankers, appraisers, Realtors, new home builders and appraisers, all have complained to him that they are the “whipping boys” that have been unfairly singled out.

But he said that following the years of things such as no-doc loans, improper underwriting, and other things that led to the housing bubble’s collapse, “you guys are perceived to be the centerpiece of the collapse.” Not that there isn’t plenty of blame to go around. He said he recently met with a group of Chinese bankers, and “they don’t know if they can trust us. They have no faith in us. And guess who they blame? They blame all of us.”

Steven has been heralded of having more real-life experience in the mortgage industry than any other FHA Commissioner, said he and the Obama Administration are making headway in dealing with a wide variety of problems, from record foreclosures to issues of trust. For example, he said there more than a million people nationally, who are in the process of receiving permanent loan modifications. So far, in Colorado, fewer than 2,000 people have received permanent loan modifications. (Please go to this link for a separate blog on permanent loan modifications.)

Stevens bought first home in Denver with a FHA loan

Stevens, who bought his first home in Denver almost 25 years ago with a FHA-insured loan, said he would not have been able to do so at the time, despite having a good job and great credit history, without the FHA, because it only required a 3 percent down payment, and he did not have the money for a larger down payment.

Today, he is re-making the industry and is taking heat from all sides. Before being named FHA Commissioner,  he was  president and COO of the Long & Foster Companies, which includes Long & Foster Real Estate and its affiliated businesses, including mortgage, title, insurance and home service connections. “If you don’t know Long & Foster, it is a monstrous-sized company,” DU’s Levine said.

When Stevens was first approached by the Obama administration, he assumed they wanted to pick his brain about what he saw with as the shortcomings in the system. He noted that he has always been a Democrat in a largely Republican industry, but wasn’t happy with what was happening on the housing front.

“It was like there were no grown-ups in the room,” during the days of easy credit, he said. “People were buying homes with no skin the game with Option ARMS and slapping on a HELOC (lined of credit) on it. People were betting on homes as an investment, vs a place for shelter.”

Stevens background is vast

Stevens’ background also includes serving as Executive Vice President, National Wholesale Manager at Wells Fargo Home Mortgage’s wholesale channel; Vice President of single family business at Freddie Mac; and, a 16-year tenure at the World Savings Bank, where he began his career. He is also the founding executive sponsor of the Women’s’ Mortgage Industry Network and while at Freddie Mac, he coordinated the first Latino joint venture initiative with Freddie Mac and Latino mortgage industry leaders.

Veteran mortgage official Michael Rosser said that Stevens hit all the right notes during his wide-ranging speech.

“He was right on the money,” said Rosser, who served on a state foreclosure task force and is managing director of Aurora-based  Mortgage Investment Co.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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Yet, as of today, HUD has 300 homes listed for sale in Colorado. And some of them are not on the open market. Some of the homes are first offered to non-profit groups, as well as teachers and others before investors or owner-occupants can bid on them. Weld has the most foreclosures listed at 41, while Adams and Arapahoe counties each have 38. El Paso County had 37 and Denver 30. A number of counties only had one foreclosure listing, including Archuletta, Chaffee, Huerfano, Kit Carson, Montrose, Otero and Rio Blanco.

Backlog?

And while it has sold 2,542 homes to other buyers so far this year – some of them acquired last year – it appears that HUD must have a backlog of homes that it owns, but they are not actively marketing.

“That is the insanity of it,” said Bobby Burnett, owner of Keller Williams Realty – DTC.  “I don’t think they want to put all of this stuff on the market at once and just saturate it. I think they are just sitting on it. That is my opinion.”

If that is the case, he has mixed feeling about it.

“It’s not a bad thing,” Burnett said. “If you dropped another 2,300 homes on the market at once, it would have a very negative impact on prices and the market. The only bad part of is that the longer the property sits there, it deteriorates more, and hurts the value of that property and the surrounding neighborhood.”

Shadow Market

Also, the homes that HUD appears to be sitting on, are part of a “shadow market,” that next year could swamp the market, driving down prices, he warns. Banks, by some estimates, likely own thousands of more homes that they have yet to offer to buyers. (For more on the shadow market, please visit my previous blog on the subject.)

It’s a far cry from the late 1980s, when HUD used to buy thick weekly special sections in the Rocky Mountain News and Denver Post, listing all of its homes for sale, noted Nickolas Terry, a broker with RE/MAX Leader.

During that foreclosure crisis, caused by an exodus of jobs from Colorado when the energy market collapsed and over-building in anticipation of a boom that went bust, HUD became the largest single landlord in the Denver area.  The foreclosure crisis was known as the “death spiral” and in some cases HUD would pay buyers $500 to take houses off its hands.

Steve Cramer, principal of Exit One Realty, said from the time HUD acquires the homes until the time it hits the market, is not a speedy process.

Cramer said that HUD gets the title of a home with an FHA-insured mortgage from the lender, after it has been sold at a public trustee auction.  Then, a company called Michaelson, Connor & Boul, (better known as mcb Colorado), which has a contractual relationship with HUD, inspects the property. A FHA appraisal is needed to determine the asking price, and the home is winterized. Then, mcb doles out the homes to 16 designated brokerages (including his) by ZIP Code, he said. The listing broker only receives $100 per home, he said, but the broker who brings a buyer can typically expect to make $1,300 to $1,400 on each home sale, Cramer said.

“From the time HUD takes possession until it is put on the market can sometimes take four to six months.”

Related blogs:

HUD foreclosures drop by 15%

Drop in HUD prices probably a quirk

FHA loans soar

County	HUD foreclosure listings
Adams	38
Arapahoe	38
Boulder	4
Broomfield	2
Denver	30
Douglas	6
Eagle	2
El Paso	37
Elbert	3
Jefferson	18
Kit Carson	2
Mesa	16
Pueblo	25
Rio Blanco	1
Weld	41

.

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