Studies take pulse of local real estate industry

This year has ushered in a new pastime for business people across nearly every industry – the real estate watch.

Monthly reports on foreclosures, delinquencies, sales, and similar metrics are dissected for a glimmer of hope or continued despair. It’s only natural, since the real estate industry, especially in an area like Northern Colorado, is directly tied to the waxing and waning of the local economy.

A couple of local entities recently released their take on the coming year, showing general optimism for the residential market, and uncertainty and fear for the unrelenting deluge of new rules and regulations.

The Everitt Real Estate Center presented the findings of two inaugural surveys gauging the trials and tribulations of the residential and mortgage sectors.

“We need to be able to identify when the mood of the market is changing and why,´ said Center Director Steve Laposa. EREC launched a similar survey in the fall focusing on commercial real estate and plans to continue with all three assessments on an annual basis.

The survey of residential brokers garnered almost 250 responses from the Denver metro area to Northern Colorado. Of the respondents, 46 percent expect 2010 transactions to exceed those in 2009, with 36 percent anticipating them to remain the same.

Those results seem to mesh with the Group Inc. Real Estate’s 2010 forecast, which is bullish on Northern Colorado. For all markets in the region, the firm predicted a slight increase in the number of homes sold compared to 2009. Overall, the region is anticipated to see a 2.2 percent increase in home sales. Of course, 2009 was the fourth consecutive year of decline.

“We’re cautiously optimistic,´ said Group President Eric Thompson. “So far in 2010, we’re ahead of last year by 10 percent.”

Thompson attributes much of that activity to the federal homebuyer tax credits, which are set to expire at the end of April. However, he feels that with the region’s relatively healthy employment market and a growing confidence in the economy, residential sales won’t see a big post-credit drop.

Confidence stuck out as a major concern in the EREC survey. Residential brokers ranked buyer confidence as the biggest barrier to sales, followed by borrower qualifications. The latter falls into the territory of the mortgage originators.

Regulatory risk

In all, 126 mortgage brokers and bankers responded to the EREC survey. The biggest risk they identified, by a rather large margin, was federal regulations.

Fort Collins mortgage broker Doug Braden, who heads the government affairs committee for the Colorado Association of Mortgage Brokers, knows about the risk of federal regulations all too well. He made a late-February trip to Washington D.C. to speak out about a number of issues that he sees as detrimental to the industry.

Braden’s concern is that most, if not all, of the recent regulation and rulemaking leans toward a big-business model, to the detriment of small businesses. For example, the U.S. Department of Housing and Urban Development is considering increasing the net worth of brokers and lenders from $250,000 to $2.5 million within three years.

Braden explained that in the first year alone about 12,100 of the 13,800 HUD mortgagees will have to drop out of the program. He believes the total number of participating firms will drop to 700 when all is said and done. While the decline in the number of mortgagees will streamline HUD, it will also take choice and competition out of the market.

According to the EREC surveys, both real estate and mortgage brokers see the new Home Valuation Code of Conduct rules as a hindrance. It aims to set up a firewall between the appraiser and the borrower and originator by requiring the use of an appraisal management company. The rule was set up to prevent appraisal bullying, but might be having the opposite affect.

Braden points out that the HVCC is not a law but rather a rule that sprung from New York Attorney General Andrew Cuomo’s investigation into Fannie Mae and Freddie Mac. Fannie and Freddie agreed to the terms of HVCC in order to have the investigation dropped.

Braden said that the consequences have been plentiful. The management companies are collecting about half the fee that used to go directly to an appraiser, and they are often requiring a 24-hour turnaround for appraisals.

Braden said that there have been reports that the management companies are pushing for lower appraisals so that no red flags are raised. He has recent personal experience with a couple of major mistakes in appraisals that the management companies refused to have fixed.

“Now, the pendulum is swinging the other way,” he said.

Braden said that one of the biggest frustrations is the mixed signals coming out of Washington. There is a push to get more loans out but an increasing number of barriers making it harder to do so for a majority of the industry.

State not so worrisome

Laposa was surprised by the juxtaposition of federal versus state regulatory concerns in the mortgage broker survey. The state regulatory climate, which has been a hotbed of activity in the past four years, was ranked next to last as a risk to the industry, followed only by interest rates.

Erin Toll, director of the Colorado Division of Real Estate, was slated to speak at the EREC event in which the survey results were presented on March 25, but was placed on leave a week before.

Toll became executive director in 2006 and heralded sweeping regulatory changes for the state’s mortgage brokers, appraisers and real estate brokers. The division has aggressively pursued investigations into alleged fraud and general misconduct.

Most recently, the division addressed media accounts of an investigation into American Home Funding. Reports stated that state Sen. Ted Harvey – who works for the company – was the subject of the investigation, an allegation that the Division of Real Estate denied in a March 5 media release.

Braden said that the regulatory changes at the state level right now are relatively mild. A provision is being considered that would require appraisal management companies to register with the state. Braden pointed out that it contains no provisions to “protect appraisers from abuses.”

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