Monday, December 28, 2009

Monday, December 28, 2009

RESPA Changes
Real Estate Settlement and Procedures Act

Kessler’s Take:
The Department of Housing and Urban Development (HUD) announced their upcoming changes effective January 1, 2010.  In an attempt to make things easier and more transparent to consumers changes have been made to how a mortgage application is to be disclosed.  Here are the coming changes:

1) Mortgage brokers will need to calculate their commissions from their lenders (known as yield-spread premiums) as part of the loan origination fee.
2) Lenders will have to complete a new good faith estimate form, which will be three pages long as opposed to the current two-page form.
3) Origination fees and transfer taxes on the HUD-1 at closing must be exactly as stated on the lender’s good faith estimate at application.
4) Some costs from entities unaffiliated with the lender (ie. certain title company and inspection fees) can change between the good faith estimate and the HUD-1, but the change cannot be greater than 10%. Note that deals may still close if the discrepancy is greater than 10%, but all discrepancies will have to be reconciled and corrected within 30 days.

Here is the long and short of the matter.  HUD hopes that the good faith estimates being issued are more accurate and brokers and lenders are held more accountable for their actions.  Currently if a broker/lender issues a good faith estimate with numbers considerably low and the borrower gets surprised at closing, there are no consequences.  Under the HUD changes if the numbers disclosed are over 10% of the estimation the broker/lender is responsable for the difference.  While I support the updated procedure 100 percent the new forms that come with the changes have to be explained properly because if they are not they become more cumbersome than the ones currently being used.

Kessler’s Forecast:
Until lenders, loan officers, bank attorneys and all parties involved in the mortgage application fully understand what is going on borrowers can see delays in the processing and closing times associated with their transactions.  The other issue is brokers and lenders will over inflate their good faith estimates to insure they are not responsible for any difference in cost.  While that does not sound like such a bad thing it does affect an applicants ability to be approved.  An applicant must have the money needed to close plus a couple of months reserves.  If the closing numbers are inflated and an applicant is on the border of having enough funds they could be declined.  As with any changes it will take some time for the kinks to be worked out, but in the end it should help matters not hurt.

Housing Confidence

Kessler’s Take:
I believe is the last hurdle to housing stabilization is housing confidence.  The biggest question on most homeowner’s or potential buyers mind is what is the property worth.  While over the past couple fo years the thought of declining values was very realistic, the tide seems to be turning.  More and more people believe the worst is behind us and stabilization is around the corner.  Most housing economists look for a 6 month housing supply to acknowledge a market is stable.  After last weeks announcement by the National Association of Realtors there is now a 6.5 month supply down from a 7 month supply at the end of October.  While buyers continue to time the market right the days of waiting a couple of months for higher decreases are over.  Buyers now realize today is the day.
According to a third-quarter survey of homeowners by the mortgage market website Zillow, 41 percent of respondents said they expected the value of their home to increase over the next six months, while 43 percent felt the value of their home would stay the same, and only 17 percent thought it would decline.

Kessler’s Forecast:
March is the month!  I believe that we will be at a 6 month supply in March, with the perfect storm around us potential buyers will get off the fence and buy.  The overall thought about housing will be positive.  Homeowner’s will not think the value of their homes will drop rather stay stable with possible small gains.  The government has been the one pushing the housing market and will continue to do so until it is stable.

Rates

Kessler’s Take:
The 30 year fixed moved up to 5.05% nationally from 4.94% according to Freddie Mac’s Weekly Survey .  Last week I forecasted it would be up to 4.95%.  The upward movement is going to happen although I believe this is a little blip, rates should come down below 5% in the next 15 days and then start moving back up.

Kessler’s Forecast:
1 week (12/31/2009) – 5.15%
 1 month (1/28/2010) – 5.20%;
3 months (3/25/2010) – 5.65%;
 6 months (7/1/2010) – 6.25%;
12 months (12/30/2010) – 6.50%

Reports

Previous Week:

Tuesday, December 22

November Existing Home Sales
National Association of Realtors

Wednesday, December 23

November New Home Sales
U.S. Census Bureau

Upcoming Week:

Tuesday, December 29

S&P Case-Shiller HPI
Standard & Poor’s