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Geneva Financial Market Update April 2013

  • LACK OF SKILLED LABOR SLOWS NEW HOME CONSTRUCTION

The number of new home construction permits issued in February was the highest recorded since June of 2008, up almost 5% from January. Rising construction costs and a lack of skilled construction workers may pose a small threat to the new home construction recovery. A report from CNNMoney stated that builders are struggling to find enough workers to fill all of the construction jobs which is slowing construction. CNNMoney reports that “some of the laborers during the boom were immigrant who went back to their home countries and haven’t returned.” Johnny Yates, vice president of Rampart Construction stated that “if the work force was out there and available, there definitely would be more hiring.” In January, 51% of the National Association of Home Builders members were concerned about the supply of labor. (cnnmoney.com<http://cnnmoney.com/>)

  • NO END IN SIGHT AS HOME PRICES CONTINUE TO RISE

Home prices nationally jumped another 8.1% in January; the largest gain since June 2006. The Phoenix market continued to lead the recovery, followed closely by Las Vegas.

  • THE FED KEEPS PRESSURE ON INTEREST RATES

Interest rates are on the rise, but the Federal Reserve is committed, at least short term, to keeping rates low.

“The Federal Open Market Committee said the central bank plans to continue purchasing additional agency mortgage-backed securities to foster a continuing housing recovery while trying to keep unemployment rates down. The FOMC made that conclusion after members met this week and decided that the Fed would continue purchasing agency MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion a month.” (housingwire.com<http://housingwire.com/>)

Despite the FED’s bond buying spree, David Stevens, President and CEO of Mortgage Bankers Association, said the purchase market could easily withstand a 4% mortgage rate, which is expected to hit by the end of the year.

  • STILL UNDERWATER? ARE YOU SURE?

In the fourth quarter of 2012, 200,000 home owners who started the year owing more than their home was worth, now have some equity (CoreLogic). Housing markets that got hit the hardest (i.e. Phoenix and Las Vegas) are experiencing rapid appreciation. Home owners may still believe they are upside down when they actually now have equity. Having equity will allow more home owners to sell or refinance. Websites like Zillow.com<http://zillow.com/> can give you an idea of what your home is currently worth, although it is often trailing real market values.

In the Phoenix metropolitan market, home prices are up as much as 40 percent in the last year. The increase in property values has led to a surge in mortgage refinances. There are more than 10,000 refinances being completed every month in the Phoenix market alone. (azcentral.com<http://azcentral.com/>)

  • FORECLOSURES ON THE RISE IN 2013

“In its first-ever U.S. Foreclosure Inventory Analysis, RealtyTrac revealed that 1.5 million U.S. properties were actively in the foreclosure process or bank-owned in the first quarter of 2013. This number was up 9% from the first quarter of 2012, but still down 32% from 2.2 million in December 2010, which represents the peak.” (housingwire.com<http://housingwire.com/>)

  • CONSUMER MORTGAGE CHOICE ACT

The Feds are at it is again, and this time the regulation will not only hurt small business, it will further limit consumer choice.

The “Qualified Mortgage” or QM regulation goes into effect January 14th, 2014. The QM outlines what mortgages are considered “low risk” and provides “safe harbor” for the lenders originating such loans. One aspect of the QM is a 3% cap on lender fees; which, as with most regulation, on the surface sounds reasonable; and ever high by some.

Problem #1: The 3% cap effects small mortgage companies differently than it effects banks. Small mortgage companies currently have to disclose all compensation earned on a loan; whether the compensation is generated from the investor, customer, or a combination of both. Fees paid to the small mortgage company by the consumer and/or the investor purchasing the loan is included in the 3% cap. Banks, which do not currently have to disclose compensation generated by selling the loan, do not include that compensation in the 3% cap. Banks only have to include fees charged to the consumer in the 3% cap. The rule will force small mortgage companies who are more transparent, to earn less originating the same transaction.

Problem #2: The 3% cap will limit consumer choice for lower income borrowers. On smaller loan amounts, for example $50,000, 3% does not go a long way. For a small mortgage company, $1,500 would have to pay the loan officer, processor, underwriter, and still make the company a profit. Not possible. Those loans will no longer be originated by small mortgage companies, and force anyone seeking a smaller loan amount to go to a less competitive, less transparent bank.

H.R. 1077 (Consumer Mortgage Choice Act) is a bi-partisan Bill recently introduced to protect consumer choice and small business. H.R. 1077 mandates a cap of 3% that the consumer can pay directly, but does not include compensation paid to the small mortgage company by the investor in the 3% cap.; thus leveling the playing field for small business and big banks. The bill protects the consumer, protects small business, and protects consumer choice. Both Parties should get behind this Bill. Please help implement “make sense” and fair regulation and tell your Representatives to get behind this Bill.

  • FANNIE MAE REPORTS RECORD PROFITS

Fannie Mae posted record profits with a net income of $17.2 billion for 2012. That is an amazing contrast to the nearly $17 billion dollar loss reported for 2011.

“For 2012, the GSE paid $11.6 billion in dividends to the Department of Treasury under the stock agreement between the Enterprise and the agency.” (housingwire.com<http://housingwire.com/>)

Interest rates as of 04/05/2013. Conforming interest rates. Interest rates and APR based on loan amounts not to exceed $417,000. Loan to value not to exceed 80%. 720+ credit score. Owner occupied only. Purchase and rate in term refinances. Not all applicants will qualify. Call today for your individual scenario rate quote. Published rates do not apply to HARP loans.

This post was written by Michael Storey, Regional Manager, Geneva Financial

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