Thursday, December 6, 2007

“National Mortgage Realities and Colorado’s Proposed Solutions”

As Realtors, we know the importance of mortgages. It is the avenue through which most of our clients are able to purchase real estate. If you have watched the news lately, you know that the mortgage industry is having its challenges. These challenges have and will continue to translate into challenges for our industry.

According to a national study released September 13, 2007, and reported in the National Realty News, about 33% of home purchase closings of loans originated by mortgage brokers were canceled during August 2007. This study also found that 57% of brokers’ customers could not refinance adjustable rate mortgages (ARMs) that had resetting interest rates.
The survey of 1,744 brokers, conducted August 23-31, provides one of the first quantitative measures of the major disruptions in the mortgage originations market which started in early August. The survey was conducted by Campbell Communications of Washington.
The survey found that home purchase closings were more often canceled for homebuyers with subprime credit. Fifty-six percent of subprime homebuyers in August had canceled closings while 21% of homebuyers seeking prime conforming mortgages had canceled closings. In another survey of real estate agents taken by Campbell Communications back in 2004, respondents indicated that only 4% of home purchase closings failed in that timeframe for mortgage-related reasons.

The Colorado Legislature has its own solutions to mortgage woes and has squarely blamed the mortgage brokers of this state. Their solution: more regulations of mortgage brokers. Effective January 1, 2008, most mortgage brokers making loans in Colorado will be required to be licensed, have fingerprints on file and complete criminal background checks, carry E&O insurance, and complete continuing education. (SB 07-203).

Mortgage brokers will also be required to provide clients with closing documents at least one day prior to closing. (Read that sentence again please!) Clients will have a chance to review all loan documents at least the day before they have to sign them. It will be interesting to see how this requirement plays out in practice. Will lenders really have documents ready a day before closing? Without this delivery, will closings need to be delayed, thus putting the earnest money of the buyer at risk? As you might expect from a new law, it raises more questions than provides answers.

If you are a mortgage broker and unaware of these new rules, go to http://www.dora.state.co.us/real-estate/mortgagebrokerregistration.htm to learn more.

Signing out from Frisco – see you next month.
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