Your Closing Costs Could Skyrocket in 2010

Last Friday the House of Representatives passed H.R. 4173 the Wall Street Reform and Consumer Protection Act of 2009. One of the facets of this bill that will be incredibly damaging is this--for every mortgage closed the lender or bank who closes the loan must set aside 5% of the loan amount into a Loss Reserve Account in hopes of reducing the amount of bad loans that are written by requiring each lender to have "skin in the game" as they say. The House is thinking that by doing this far fewer people will receive a bad loan and thus far fewer people will face foreclosure.

Sounds like a good idea, doesn't it?

Here is the problem--we as a mortgage lender or mortgage bank don't make anywhere near 5% on any loan. On average a mortage lender has gross revenue before expenses of about 2% of the loan amount; after expenses a mortgage lender is lucky to earn .50% of the loan amount as net income after expenses.

Here are the numbers on a $200,000 loan--

* Net income to the company is about $1,000 ($200,000 x .50%)

* With this bill we must set aside $10,000 ($200,000 x 5%)

How can we possibly set aside $10,000 for every loan we make IF we only truly earn $1,000 on that loan? The answer is: it's not possible! We would go bankrupt very quickly as we would run out of money. You can't spend $10,000 if you are only making $1,000. Unless you are the government.

Thus, I have calculated how much a borrower's origination fee would have to be for us to comply with this new rule if the Senate approves it as well and it is signed into law by the President.

* Not including taxes we would have to earn 7% on every loan that we close; which would typically mean you must pay a 6% origination fee or an additional $10,000 out of your pocket beyond what is today with a 1% origination fee.

* Including taxes (corporate tax rate is 35% plus state tax of 4.65%) means we must earn 11.60% on every loan we close to comply with this rule. This means you are now paying a whopping origination fee of 10.6%!!! On a $200,000 loan this is another $21,320 out of your pocket.

If you would like to pay this extra large sum of money to obtain a mortgage please write your House Representative and thank them. If not, please call and "curse" them. Or even better call our two Senators and tell them to not less this portion of the bill pass when this bill goes to the Senate in 2010.

3rd Highest Appreciation Rate in the Country

Zillow.com reported yesterday that Denver home prices have risen 5.2% this year through November which is good for third best in the country.

You might be thinking to yourself how? This is what I think is happening. Before 2006 very very few homes sold in Denver for under $100,000 in the previous 5 years. It was almost unheard of. Then, by 2007 and 2008 thousands of homes sold in Denver for under $100,000 and this dragged down our average and median prices of homes.

This year far fewer homes are selling for under $100,000, especially since March. Looking back it appears that February or March was the bottom of our real estate market in Denver. Demand for these homes far exceeds the supply of homes available and this causing prices to rise.

Now there are still hundreds of homes listed for sale for under $100,000; but a large majority of them are selling for over $100,000 as nearly every home priced this low will receive multiple offers. The home might be listed for sale at $90,000; but, don't be surprised if the winning offer or bid is $110,00 or even $120,000 or higher.

Both first time home buyers and investors are swarming to these properties. For example, I have a first time home buyer under contract on a HUD owned home appraised and listed for sale at $80,000 in NE Denver. In 2006 this home sold for $180,000 and she is buying it for $83,000. Since this house did not qualify for a traditional FHA loan due to it's inferior condition she was able to buy it for not too much more than the list price. I am helping her with a FHA Streamline Renovation loan to remodel the home into far better condition.

The FHA Streamline Renovation loan allows you to finance up to approximately $31,000 in improvements to the home. But, these loans are a lot of work for me and for you. Next, your out of pocket costs for these loans will dramatically increase January 1st 2010 as HUD believes it is better for you to pay more money at closing and to have a lower monthly payment than to have less money out of pocket at closing and a larger monthly payment. Unfortunately, you will no longer have that choice.

Denver Home Sales Surge 23%

It was reported today that Denver home sales increased an amazing 23% in November compared to November 2008 as nearly 3,600 homes sold last month.

Second, the median price also increased 11.8% year over year up to $218,000. This is a sign of more move up buyers buying new homes as the mix of homes that sold in November changed from being predominantly first time home buyers who typically buy homes priced under $200,000.

In fact, sales of homes priced over $1 million increased a whopping 30%, its first increase in almost 3 years as reported by the Denver Post.

Jeff Thredgold, an economist for Vectra Bank of Colorado said, "An increase of 23% versus a year ago suggests that confidence levels of potential buyers are higher."

Consumer Confidence is shaped by 3 primary factors: job stability and growth, real estate, and the stock market. Colorado does have one of the lowest unemployment rates in the country at under 7%. The stock market has increased over 40% since mid-March as well and maybe people are starting to feel a little more confident about our economy. Are you?