March 26, 2010 by Mimi Miller.

Existing-home sales fell 0.6 percent in February to a rate of 5.02 million units from 5.05 million in January, but they were 7.0 percent higher than the 4.69 million sold a year ago, NAR reported this morning.

The national median sale price of existing homes was $165,100 in February, a 1.8 percent decline from a year ago. Housing inventory rose 9.5 percent to 3.59 million homes, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January.

First-time homebuyers accounted for 42 percent of all home transactions in February, NAR reports. Distressed homes — typically short sales and foreclosures that sell for a discount — accounted for 35 percent of all sales last month, while investors accounted for 19 percent of transactions.

NAR chief economist Lawrence Yun says stormy winter weather in February had a negative impact on the market. “Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas, and that should negatively impact near-term contract activity.”

Yun notes that year-over-year sales have been higher for eight straight months, and prices are more stable than they have been over the past few years. But, he says, “the housing recovery is fragile at the moment.”

Regionally, existing-home sales data was mixed. Sales in the Northeast rose 2.4 percent to an annual pace of 840,000 in February and were 12.0 percent above a year ago. The median price rose 7.5 percent from February 2009.

In the Midwest, sales increased 2.8 percent in February to a level of 1.11 million and were 8.8 percent higher than February 2009. But the median price fell 2.0 percent below a year ago.

In the South, existing-home sales fell 1.1 percent to an annual pace of 1.85 million in February but were 6.9 percent above a year ago. The median price declined 4.2 percent from February 2009.

Existing-home sales in the West fell 4.7 percent to an annual rate of 1.22 million in February but were 3.4 percent higher than February 2009. The median price declined 9.8 percent from a year ago. Tue, Mar 23, 2010

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March 4, 2010 by Mimi Miller.

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Six economic indicators move in a positive annual direction in Metro Denver, up from one last month
Economic indicators for Metro Denver showed promising signs of improvement in March, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for March 2010.

Nine indicators – including the indicator for foreclosures – moved positively for the month, compared to seven indicators in the prior report. Six indicators moved in a positive annual direction, compared to one indicator in the prior month’s report.

Recent residential real estate data suggest housing markets are shifting due to a variety of influences. The extension of the homebuyers’ tax credits in late 2009 removed a sense of urgency for buyers, therefore, existing home sales nationwide and in Metro Denver have slowed.

“Many buyers still hoping to receive the credits are now returning to the market, though, and brokers say the pace of home sales should accelerate in the coming months,” stated Patty Silverstein, chief economist for the Metro Denver EDC and president of Development Research Partners.

Increased sales volume should help home prices, which are stabilizing – and even rising – in some markets. The Denver-Aurora-Broomfield MSA, for example, was one of 24 metro areas to report an increase in median home price between 2008 and 2009.

As home prices continue to stabilize, mortgage delinquency rates should gradually subside. Data from the Mortgage Bankers Association show the nationwide delinquency rate declined in the fourth quarter of 2009, and Colorado’s rate ranked ninth-lowest in the nation. Significant delinquency challenges remain, though, as roughly one in 17 Colorado home loans was at least 90 days past due or in foreclosure in the fourth quarter.

Foreclosures are an even greater concern in California, Nevada, Arizona, Illinois, Michigan, and Texas – all key economic development competitors with Colorado.

“These six states alone represented 60 percent of U.S. properties with foreclosure filings in January,” said Silverstein.

The nationwide median home cost for 2009 ($173,200) was down nearly 12 percent over-the-year, while the median in the Boulder MSA ($346,000) fell by just 3.8 percent. Price trends were stronger in the Denver-Aurora-Broomfield MSA, where the 2009 median price of $219,900 represented a slight, 0.3 percent increase from the 2008 median. The Denver-Aurora MSA was one of 24 metropolitan areas to report an increase in median home price between 2008 and 2009, and the region’s median price ranked 26th-highest in the nation. The Boulder MSA’s 2009 median home price ranked 11th-highest overall.

Data from the Mortgage Bankers Association’s National Delinquency Survey for the fourth quarter of 2009 show Colorado’s rate of mortgage delinquency – 6.91 percent – ranked ninth-lowest in the nation.

Clearly, residential markets are facing a combination of early momentum and continued challenges. High unemployment and policy changes in the months ahead – including an end of the Federal Reserve’s financial support for mortgage-backed securities and the expiration of the homebuyers’ tax credits – will bring additional hurdles. Ideally, residential markets will build momentum in the coming months that can sustain a recovery as the policy environment changes.

The benchmark revision for national-level employment data shows the nation’s total employment loss from the start of the recession through December 2009 was nearly one million jobs higher than the data initially suggested.

The Colorado Department of Labor and Employment is currently conducting its annual benchmark review of the state’s employment and unemployment data. Statistics for the month of January and revised data for prior years will be released on March 10. A supplement to the March Monthly Economic Summary will be issued following the data release.

The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends. Key highlights include:

Consumer Sector
•The Conference Board’s U.S. Consumer Confidence Index fell abruptly between January and February as consumers’ assessment of present conditions – specifically, business conditions and the labor market – fell to the lowest level reported since 1983. Consumer confidence in the Mountain Region was little better, although consumer outlooks have improved from lows reported at the same time last year.

•Metro Denver retail sales followed a typical seasonal trend and declined between October and November. The November sales total, however, represented a significant slowdown in an over-the-year sales decline that had persisted for the past twelve months.

•The January average occupancy rate for Metro Denver hotels (51.1 percent) was slightly above last year’s rate. January’s average room rate was nearly six percent below the average from January 2009.

•December 2009 passenger traffic at Denver International Airport was 1.7 percent lower than the year-ago traffic level. Airport traffic for all 12 months of 2009 declined 2.1 percent over-the-year as businesses and households limited their travel.

•The three major national stock indexes ended February with gains from the prior month, but all three indexes still showed a negative year-to-date return. By contrast, the Bloomberg Colorado Index rose 2.2 percent year-to-date in February. The state’s energy and media companies reported some of the largest market gains.

Residential Real Estate
•A decline in Metro Denver home sales between December and January was roughly consistent with seasonal trends, but total January sales were 4.7 percent lower than the sales total reported one year earlier. Despite the slower sales activity – which was partly expected given the late-year surge in tax credit-driven home purchases – average sale prices showed signs of improvement.

•Metro Denver foreclosure filings in January fell more than five percent from filings reported in January 2009. Filings declined over-the-year in four of the region’s seven counties but increased in Boulder County, Jefferson County, and the City and County of Broomfield.

•The pace of Metro Denver building permit activity changed little between December and January, although January permits for all property types rose 21 percent from the number reported one year earlier. The gain was due to a year-over-year increase in single-family detached home permits, as January permits for the remaining property types fell below year-ago levels.

Commercial Real Estate
•According to CB Richard Ellis’ fourth quarter MarketView report for Metro Denver, large corporations drove what little office market activity occurred in 2009. Brokers expect a similar trend in 2010 because large corporations – as opposed to small or local businesses – are more likely to have access to capital and credit in a still-difficult lending environment. With the overall demand for space still limited, however, brokers say the wide gap between asking rates and signing rates will persist this year. As a result, office market development will remain stalled. Despite these challenges, CB Richard Ellis brokers expect Metro Denver’s dynamic economy and favorable balance of supply and demand for office space will help the region’s market recover ahead of markets elsewhere.

•A fourth quarter report by Grubb & Ellis expects large tenant transactions to dictate Metro Denver’s office market conditions in 2010. Grubb & Ellis brokers say 2010 should mark the bottom of the market, however, and lease rate spreads should begin to normalize by the end of the year. Notably, the Grubb & Ellis report shows negative office market absorption in 2009 represented the smallest recession-related loss reported in Metro Denver over the past two decades.

•A fourth quarter report by Grubb & Ellis shows Metro Denver industrial market vacancy rates – while low compared to rates for other property types – have risen thanks to two recession-driven trends. The collapse of the housing market put pressure on construction-related tenants early in 2009, and a pronounced decline in consumer activity strained retail warehouse tenants later in the year. The report notes, however, that the absence of industrial construction should help the market rebalance comparatively quickly. Grubb & Ellis brokers expect flex space leasing trends will remain weak in 2010, although properties near the National Renewable Energy Laboratory, Lowry, and Fitzsimons could move more quickly.

•A recent report by CB Richard Ellis notes that Metro Denver’s industrial market – while still facing considerable challenges – has less of a debt burden than other property types and industrial markets nationwide. As a result, CB Richard Ellis brokers expect the region’s market may not experience the same increase in distressed transactions that brokers expect to see in other markets this year. Because lease rates are significantly below levels that would promote development, though, brokers expect industrial market construction activity will remain subdued in 2010.

•A fourth quarter report by CB Richard Ellis suggests the downturn in Metro Denver’s retail market slowed as 2009 ended. Vacancy rates remained high and average lease rates continued to decline, but the somewhat slower erosion of market fundamentals that occurred in the fourth quarter suggests the retail market may at least stabilize in the coming months. Brokers note, however, that the retail market tends to lag other property markets and the rest of the economy, so a retail recovery is likely to take time. The report also suggests that retail construction and investment activity will be slow to rebound.

*A full report is available to Metro Denver EDC investors.

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March 3, 2010 by Mimi Miller.

Mortgage Banking Industry Threatened
By John Rebchook, on March 3rd, 2010
A portion of mortgage reform working its way through Congress that has received little publicity in the mainstream press, could have the unintended consequence of driving up the cost of 30-year mortgages, and driving out of business almost a third of the companies that make home loans.

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.

“It’s if the industry took a loan, threw it over their shoulder, and took no responsibility actions was a good loan for their borrower,” Lansing said.

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

He said that while people in his industry are aware of it, he said 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%, 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 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.

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