Brian Chappelle addresses about 200 people at Universal Land's annual meeting on Tuesday, March 9, at the Cable Center.

It was not your typical annual meeting.

Before the lights came on in the auditorium of the Cable Center on the University of Denver campus, voices rang out to tune of the Black Eyed Peas hit “I Gotta Feelin,” but with sly references to the mortgage industry and nods to host Universal Lending, which is celebrating its 29th year in business, and held its annual meeting on Tuesday. (Universal Lending also is a sponsor of InsideRealEstateNews.com.)

Lotta Change

The lone woman singer of the trio, performed with the stage name “Lotta Change;” Brian Chappelle, the keynote speaker, noted several times that “lotta change” nails exactly what is happening in the mortgage and real estate industries.

“Washington thinks the mortgage system is broken,” Chappelle, a partner of Potomac Partners in Washington, D.C., told about 200 people in the audience at one point. And Congress, he said, “Wants its pound of flesh,” from the industry.

Draconian measures unlikely

Yet, overall, Chappelle said that he is much more optimistic about new regulations and changes that Congress is likely going to enact. For the most part, he does not feel Congress is going to implement “Draconian” measures feared by many industry observers.

For example, he does not think that Congress will pass new “risk-retention” legislation, which would require lenders to put aside 5 percent to 10 percent of the amount of loans sold into secondary markets. (For an earlier blog on this subject, please visit this link.)

“This is probably the most critical issue facing the mortgage industry,” Chappelle told InsideRealEstateNews, before he gave his keynote speech. “It sounds good. Have lenders have some “skin-in-the-game” so they won’t give the consumers the horrible products that started the housing collapse.”

Risk Retention

While risk retention might be a good idea for the so-called toxic loans of a few years ago – option ARMs, stated-income loans, the piggyback 80-20 loans that combined first and second mortgages – those products are not offered anymore, he said. Indeed, a national report released last week, showed that consumers were almost three times likely to face default if they have risky loans than if they have safer, more traditional loans. (For more on that report, please visit this link.) Chappelle later told the audience that the greatest percentage increase in loan defaults is occurring in the “prime” loans, which are supposed to have been offered to the best clients.

Six months ago, Chappelle said, he thought there was a strong likelihood that Congress would adopt the new rule, but he said now they increasingly realize that no company, big or small, has the ability to put aside tens of millions – or even hundreds of millions or even billions – in dollars. But he said the political winds seem to have shifted, as legislators have been schooled on the unintended consequences of the rule, which opponents believe could pose a threat to the entire industry.

Mortgage rates to remain low

On another important topic, he said he does not see mortgage rates spiraling out-of-control, as some observers had worried as little as a month ago. There was a feeling earlier this year that Uncle Sam would stop buying securitized mortgages by April 1, which could have caused mortgage rates to rise by 150 basis points or more almost immediately.

“I’m not an economist, but when I listen to people like Treasury Secretary (Timothy) Geithner and Fed Chairman Ben Bernanke, for the foreseeable future they plan to keep their foot on the accelerator to help drive the economy,” Chappelle said. “What that means is that they have to keep interest rates low. They know that the overall economy will not recover, unless the housing market recovers. And the housing market won’t recover unless interest rates remain low.”

He said one economist he has been following since he was with the Mortgage Bankers Association in the 1990s, is Laurence Meyer, a former Federal Reserve Governor and the head of Macroeconomic Advisers in St. Louis. “Laurence says, “Wait until you see the Fed changes its forecast,” before rates start to rise. But Chappelle said with inflation remaining tame, there is no indication that the Fed will be under any pressure to raise rates anytime soon. Also, he said there appears to be little chance that Congress will extend the federal tax credits for qualified first-time home buyers and some existing homeowners. In order to keep the housing market rolling, one of the few tools in its kit will be to keep interest rates at low levels, he said.

Simplicity goal

One thing is certain, is that there will continue to be more disclosures, transparency and responsibility expected from lenders in the future, Chappelle said. The idea will be to simplify all of the charges and expenses to consumers, he said. On one hand, the government wants more disclosure, but on the other hand, there is a feeling by the government that getting a loan is so complicated, that disclosures don’t really work, he said. Ultimately, he said, the government would like all of the information boiled down to one rate, so consumers could more easily compare competing offers from different companies.

And without a doubt, this will mean more forms to fill out, under the guise of simplification, he said. The good news, is that the added complexity will benefit companies, such as Universal Lending and others, he said, that “know how to follow rules.” Some companies, for example, will not want to make FHA-insured loans, which could account for 50 percent of the loans made this year nationwide, because they don’t want to or find it to difficult to follow the maze of rules that exist and will emerge. Companies that can explain what is going on to consumers and Realtors, he said, will prosper.

The government also would eventually like to have mortgage brokers paid the same for any loan, no matter what the size. For example, they might get paid $1,500 for a $100,000 loan and $1,500 for a $400,000 loan. The idea is that there would be no financial incentive for a broker to convince someone to take out a mortgage that they can’t afford. Mortgage companies would still set the amount paid to brokers and it could be adjusted. But Chappelle said there is no chance of that happening this year. And even if it does happen in the next few years, he said that there will be no cap put on what brokers can make, “so you will still be able to make a good living as a mortgage broker.”

And more regulations and proposals are surely going to be floated, discussed and dissected by the industry and Congress.

“There’s going to be a lotta changes, but change makes for opportunities,” Chappelle said.

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

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Year-to-date median prices of Denver-area homes sold each February from 1999 to 2010. Source: Gary Bauer

The Denver-area housing market showed signs of a continued recovery in February, according to reports released today.

“First time home buyers are back in the market, as well as investors,” said Gary Bauer, an independent broker who releases a monthly report based on Metrolist data, which reflects homes sold by Denver-area Realtors.

He added that the “inventory is up, pricing (is) up, mortgage rates (are) steady,” and, perhaps most important, “it’s Denver.”

Home prices are up well into the double digits from a year earlier – led by a 20% increase in the average price of a condo at $166,206, compared with $138,239 in February 2009. And the median price of a single-family home that closed last month, compared with February 2009, rose almost 15 percent to $220,750 from $192,000. The increase largely reflects  competition from investors and first-time home buyers bidding up low-priced homes, Bauer and others said.

Bidding Wars

David Simonson, a broker with RE/MAX Professionals, experienced that today.

He had a client looking at a home along the southeast suburban corridor priced at about $230,000.

“The home had been on the market for all of four days, and it already had four offers above the listing price,” Simonson said. “It’s completely a bidding war.”

And for homes priced at $150,000 or less, the bidding is even fiercer.

“For those homes, investors can’t pull out their checkbooks fast enough,” Simonson said. “If you look on the HUD Web site for foreclosures, as soon as people can make open bids on them, they disappear.”

Meanwhile, there were 4,414 homes placed under contract in February, up 5.5 percent from the 4,183 in February 2009, reversing the trend of most of 2009, in which under contracts lagged the same month a year earlier. Under contracts jumped 19.6 percent from the 3,690 home contacts in January, but a large month-to-month increase often is seen for seasonal reasons early in a year.

High-end housing picking up

Chris Mygatt, president of Coldwell Banker Residential Brokerage Colorado, said that savvy, well-heeled buyers are snapping up seven-figure bargains.

“I thought it was just great news all the way around, but especially at the high-end,” Mygatt said. “We super out-performed where we were a year ago. I think we had 32 home sales in the $1 million-plus range compared to 14 in February 2009. I’m cautiously optimistic. February is now the sixth consecutive month we have seen average prices increase.”

As far as the ultra-expensive markets, he said that some lenders are loosening their purse strings.

“Sometimes people are buying the loans down to $417,000 so they can get conventional loans, but we also are seeing some jumbo loans in the high 5 (percent) and low 6 (percent), which are really great rates when you’re talking about an $800,000 or more loan,” Mygatt said.

Not that they are easy to get.

“The lenders are looking for super-high FICO scores, big down payments, and other assets,” Mygatt said. “But I do think that the people who have the ability and the courage to buy at these prices, are getting super-extraordinary deals. We see it every day. And I think those people are going to look back a few years ago and be very glad they purchased in today’s market.”

But those homes still make up a small percentage of the overall market. In the first two months of the year, 51 homes and condos priced at $1 million or more have sold, accounting for 1.5 percent of the overall market.

“While we’re still not seeing a lot of activity in the high-end this year, it is much more than the previous year,” Bauer said. “We are starting to see a few more foreclosures and short sales in the high-end market. And while there are not a lot of jumbo loans out there, there is more money available for high-end purchases than before. And there is some pent-up demand growing for luxury homes. I think that is another example where Denver is a couple of steps ahead of the rest of the nation.”

Brian Chappelle, a founding partner of the Washington, D.C.-based Potomac Partners consulting firm, who was the keynote speaker at Universal Lending’s annual meeting today, said that from a national perspective, “all the news coming out of Denver sounds very encouraging.” About 200 people heard Chappelle speak on a wide variety of housing and mortgage industry topics at the Cable Center on the University of Denver’s campus. (Universal Lending is a sponsor of InsideRealEstateNews.)

Tax Credits Expiring

Bauer said that Denver-area buyers increasingly are taking advantage of the $8,000 federal tax credit available for first-time home buyers. There also is a $6,500-tax credit for qualified homeowners, planning to move up or down.

Chappelle said buyers who want to take advantage of the credits better do so quickly, because Congress is very unlikely to extend them. The credits require that a house be placed under contract by April 30 and closed by June 30. The credits initially were going to expire last November.

“I think there is a feeling in Congress that they are not getting much bang for the buck with the tax credits,” Chappelle said in an interview with InsideRealEstateNews, before his presentation. “They were very helpful at six months ago, but there is a feeling now that most of the people who will use the tax credit, would have bought a house anyway.”

Simonson, of RE/MAX, agreed.

“I think the March numbers will reflect some of the tax-credit activity, like February did,” Simonson said. “And I think when they are over, we will see a little drop off. But it will be a blip. I think most people who really wanted to take advantage of it, did so last year. Now, people will take advantage of it if they can, but I don’t think it is the driving force it was last year.”

Chappelle said the odds of Congress extending the tax credits were at 10 or 20 percent, at the most, especially if the housing recovery shows signs of recovering without them.

“Now, if housing were to fall off a cliff when they go away, Congress might do something, although I don’t know if it would be to extend the federal tax credits,” Chappelle said.

Rates to remain low

And that means interest rates will remain at their near-record lows, he said.

“There had been some fears that the Fed would stop mortgage securities a the end of March, and interest rates would shoot up,” Chappelle said. “I don’t see that happening. Congress realizes the only way the economy is going to recover, is if the housing market recovers. And the only way the housing market can recover, is if interest rates remain low.” He said the Fed can keep rates low, because there are no signs that inflation is an imminent threat.

Larry McGee, a broker with the Berkshire Group, noted that February’s statistics reflect “positive news” in year-0ver-year and month-over-month increases in average and median prices.

Inventory remains low

He does show some concern, however, on the small number of homes on the market. Bauer puts the unsold inventory at 19,359, down 3.5 percent from a year earlier, while McGee puts it at 18,669. The slight difference is because Bauer added a new category for homes created by Metrolist, called “pending” sales, back into the unsold inventory.

Either way, “this  is an extraordinarily small amount of homes available for the Denver market, especially considering the low number of new built homes being constructed at this time,” McGee said. Bauer said he was surprised there are not more homes on the market.

McGee said reasons for the low inventory include  ”high unemployment making it difficult to sell, a lack of financing available for home loans in the $400,000 to $1 million  market, a lack of equity for many home owners that must remain in place until a rise in market prices creates enough usable equity to allow a sale of the present home and a purchase of a more desirable one.”

A snapshot of sales activity by price, county

Source: Gary Bauer

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

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