5 to Watch: October 2010

News and trends that we're keeping an eye on this month.

October 1, 2010

1. Closing Costs on the Rise?

Closing costs are up an average of 36.6 percent over last year, according to the 2010 mortgage fee survey from Bankrate.com. For a $200,000 purchase mortgage, average origination and third-party fees totaled $3,741 this year, compared with $2,739 in 2009. But the size of the increase may be deceiving. Bankrate, which gets its survey data from online Good Faith Estimate forms, says that part of the increase may be due to the new GFE form and changes to the Real Estate Settlement Procedures Act. Because lenders are now penalized for lowballing fees, this year’s numbers may simply be more accurate than those reported in the past. On the other hand, lenders have more regulatory compliance costs, and some of those costs are passed on to consumers. The three most expensive states for closing costs, according to Bankrate, are New York, with an average of $5,623; Texas, with $4,708; and Utah, with $4,605.

2. Don’t Skip the Vacant-Home Insurance

Are you working with sellers who are moving out before they find a buyer? If the home will be vacant or unoccupied, special homeowners insurance may be needed, warns the National Association of Insurance Commissioners. Many homeowners policies have a "vacancy clause" that’s triggered if the home owner is gone for an extended period of time. That’s because empty homes are more likely to have break-ins and there’s a greater risk of small problems growing into big problems. "While an extra policy might cost more, it could save you money down the road," says Jane L. Cline, NAIC president. The cost of coverage depends on the company and state, but is usually higher than that of a typical homeowners policy.

3. Rural Housing Funding Restored

The federal government has authorized the U.S. Rural Housing Service to resume making mortgage guarantees on rural home loans under the Section 502 single-family housing program. The program ran out of commitment authority earlier in the year and needed approval from Congress to resume its loan guarantees. Congress also has allowed the agency to change its fee structure, charging an upfront premium (which can be financed) of up to 3.5 percent of the loan amount, and an annual fee of up to 0.5 percent of the balance, in order to make the program self-sufficient. The agency guaranteed 116,000 loans in fiscal year 2009.

4. More States Say Goodbye to Private Transfer Fees

A dozen states this year have banned private transfer fees, which are liens imposed by developers to generate revenue each time their properties are resold. Sixteen states now either ban the fees entirely or impose restrictions, and legislation is in the works in several other states. NAR says the fees, which in many cases are not disclosed until the closing, saddle home buyers with charges that can be as high as 1 percent of the purchase amount. But developers say they need the revenue to help make their developments profitable. The Federal Housing Finance Agency has drafted a rule to ban Fannie Mae and Freddie Mac from accepting mortgages with the fees, and the FHA is looking at a possible ban, too.

5. What Will Become of Fannie, Freddie?

Housing industry experts from the business and academic worlds joined U.S. Treasury Secretary Timothy Geithner and Housing Secretary Shaun Donovan in August for the Conference on the Future of Housing Finance in Washington, D.C. The discussion focused on what role, if any, the secondary mortgage market companies Fannie Mae and Freddie Mac should have in the future. Most participants said the realistic course of action is to keep some type of government-backed entity behind the conventional mortgage market for 30-year fixed-rate and other plain vanilla loans. But the predominant view was that the backing should look more like catastrophic insurance, with the federal government acting as a backstop only after private insurers took the first hit. The FHA would be maintained in its role as lender of last resort for creditworthy moderate-income households who are having trouble getting conventional financing at an affordable rate. The federal government is under a congressional mandate to release initial recommendations for reforming Fannie and Freddie, which are under federal conservatorship, by January 2011.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.