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Posted: May 01, 2009

Q2 real estate report: The audacity of home

While refinancing booms, federal housing stimulus programs have been slow to reach the market

David Lewis

President Barack Obama’s stimulus package included funding for the federal Child Care and Development Fund. Colorado’s share works out to $24 million for child-care services for working families, plus another $3.3 million for vaccinations, according to the U.S. Health and Human Services Department.

Well, enough about families and little kids. Now let’s talk real money.

We don’t mean “real federal stimulus money” like, say, Citigroup or Goldman Sachs, but “real” as in $75 billion. That’s $50 billion allocated under the Emergency Economic Stabilization Act/TARP and administered through Fannie Mae; and $25 billion allocated under the Housing and Economic Recovery Act, administered by Fannie Mae and Freddie Mac.

Real enough for you?

We’re talking about the Obama housing stimulus plans, and if you’re confused no one will blame you. For about 18 months now so many federal programs have rolled out westward from Washington, D.C., and surely some of them must have reached us here in flyover country by now, don’t you think?

For instance, how about the Bush Administration’s Housing and Economic Recovery Act of 2008, which became law less than a year ago, and which the Congressional Budget Office and the Joint Committee on Taxation estimated would increase budget deficits by $26.3 billion through 2018?

You don’t remember the housing recovery? No? Perhaps that’s because the Housing and Economic Recovery Act of 2008 bombed. HERA spawned HOPE, the Home Ownership Preservation Entity for Homeowners Program. HOPE was supposed to insure up to $300 billion for 30-year refinanced loans for distressed borrowers. (Now called Hope for Homeowner, you can find the program here.)

“The HOPE program was not real popular with lenders,” said Rod Cameron, president of the Colorado Association of Mortgage Brokers and principal of Golden-based Cameron Financial Services Inc.

OK, so that Bush Administration $26 billion trial balloon didn’t cut it. Nor, before the Obama housing plan announcement, did the announcement in January of the Federal Housing Finance Agency (FHFA) streamlined modification program (SMP).

So how about $75 billion for loan modification and foreclosure prevention? Sound good?

“We’re just starting to get notifications on some of these programs. Lenders will be underwriting some now,” Cameron said in mid-April. “How many they’ll underwrite we don’t know. It’s always a question of how lenders wrap their arms around this.”

No one knows how much housing stimulus money Coloradans stand to glean from this groaning grab-bag of government goodies. For Colorado, the housing stimulus outlook comes mixed. The bad news is we won’t receive the kind of bennies they’re liable to get in Phoenix, Florida, Las Vegas or the L.A. area. That is also the good news. Real estate people here like our chances.

“Luckily, in Denver, I would say we’re at the bottom,” said Kevin Risen, executive vice president of Denver-based Coldwell Banker Residential Brokerage. “I would say that because we never did have the big double-digit appreciation” (that other cities did), “we were cruising along at 3.5 percent, 4 percent, 4.5 percent  while other places like Las Vegas were getting 50 percent in one year.”

By the close of the first quarter, about 19,800 Denver-area homes sat on the market, down from about 30,500 at the inventory’s peak in 2007. Front Range home prices are right about where they were in 2001. Maybe we have hit bottom, a thought not possible in Miami or Vegas.

And in the for-what-that’s-worth department, maybe we are better off than Florida and California. RealtyTrac ranks Colorado fifth among the states in the number of foreclosure filings per household between No. 6 Georgia and No. 4 Arizona. Yet in March the state reported 6,180 foreclosure filings, compared with California’s 64,711 or Florida’s 30,254.

Anyhow, the federal government has not embarked on a state-by-state breakdown of housing stimulus funds, a source deep within the federal government told ColoradoBiz. The other good news for Colorado is, “There are no limits for any one state under the program,” the source said.

The bad news for Colorado, the rest of the U.S. and probably the rest of the world economy from Banff to Bangladesh is that this is now a recession deep in the job-shedding phase, so real estate perhaps has moved from the No. 1 to the No.  2 root economic problem today.

“Through the summer of 2008, housing was at the center of the economic trouble; now at the center of housing is economic trouble, and still a widespread shortage of mortgage credit,” said Lou Barnes, co-owner of Boulder West Financial Services.

So let’s forget for the moment about families, children and Bangladesh. The housing plan is touted to help 7 million to 9 million American homeowners refinance their mortgages or avert foreclosure; the plan includes a $75 billion loan modification program designed to keep people in their homes. Some portion of it ought to stick to the Centennial State. Dare Coloradans hope the Obama program will work better than HOPE?

“Government intervention can make a difference, and it will make a difference,” Coldwell Banker’s Risen said. “The stock market people are starting to see that with the stabilization of securities. Real estate roughly is 20 percent of the economy, and realistically you’ve got to fix that first to get things going again.”

Liz Benson, a broker associate with Colorado Landmark Realtors in Boulder, believes that, with some modifications, the programs have much promise. (For that matter she’s refinancing her own mortgage, saving $200 per month.)

The Obama program “seems like it’s going in the right direction at the very least,” Benson said. “It isn’t just about keeping homeowners out of foreclosure. For the banks to keep having so many foreclosures isn’t working for them either — it’s really what both sides need.”

Lots of lenders have their own loan-mod programs, Benson noted, “But it seems like they all have their requirements.”

Benson sees overall numbers of refinancing applications exploding, an observation that tallied with her colleagues’ observations. The Washington, D.C.-based Mortgage Bankers Association weekly survey showed re-fi applications up 15 percent since the beginning of the year, and up a startling 88 percent since February, after President Obama announced the two-pronged mortgage program (as he himself noted in a televised forum).

As for government outreach, the programs have President Obama in the bully pulpit. That is, President Obama periodically goes on television and mentions www.makinghomeaffordable.gov, and hordes of people go online and find out about the program. By “hordes,” we mean almost 900,000 site visits in its first weeks, and 6.5 million page views in the same period, according to an official who asked not to be named.

Despite encouragements, naysayers claim the programs will turn out to be expensive disappointments that serve many fewer homeowners than promised.

One reason is the spike in refinancing mentioned above. This is taking place in a mortgage brokering business that laid off perhaps half its work force. Therefore, the tricky triage among mortgage brokers, mortgage bankers and appraisers will never happen, the naysayers say.

Mike Rinner, vice president of the Englewood-based Genesis Group, said he recently asked a pal at Wells Fargo Home Mortgage how his office could handle more re-fis. “We’re not sure. We’re already just swamped,” Rinner was told.

Still, five weeks after the Treasury Department released program guidelines, servicers including Bank of America, Citibank, GMAC, JPMorgan, Chase and Wells Fargo agreed to participate in the Home Affordable Modification program while Fannie Mae and Freddie Mac completed hundreds of refinancings for families via the Making Home Affordable program, “with the numbers expected to increase dramatically each week going forward,” said our source.

Boulder West Financial Services’ Barnes says he for one believes problems of staffing, rule-making, coordinating and all the rest of it will slow the progress of the two plans.

So far, in reality, “These two programs don’t exist. They’re not operating,” Barnes noted, so speculation is just that.

But Barnes’ skepticism goes beyond operational or startup woes to what he sees as flaws at the programs’ root, such as too-low 105 percent loan-to-value-limit.

“They’re going to help far fewer people than imagined,” he said. “As we look back on this 18 months hence, if these programs are not heavily modified, they will be lucky to help 1 million households.”

Too bad. Barnes foresees a painful correction that could last five years or longer in areas such as Phoenix, Vegas and California’s Inland Empire.

“The long-term corrective is, we don’t build anything for a long time, rents finally rise, rents give people an incentive to stay put, and as housing becomes scarce prices start to go up again,” he said. “That’s a long cycle. That’s what the country has ahead.”

But now for the good news: “The Front Range housing cycle is at least five years ahead of the national cycle,” Barnes said.

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