Category: Housing & Real Estate

Recourse or Non-Recourse Mortgages

Posted on by Evan in Credit Crisis

NPR’s Planet Money did a podcast on March 1st which compared mortgage delinquency rates in the US & Spain.  In the US mortgage delinquency rates are currently around 10%.  Despite the fact that the unemployment rate is currently higher in Spain the mortgage delinquency rate is down around 3%.  So why the big difference?

In Spain, if a borrower is foreclosed on and the lender suffers losses on the loan they can seek the deficiency by going other assets.  This is known as a “recourse” loan.  Because Spanish banks can go after personal assets Spanish citizens scrape and crawl to make their mortgage payments.

In the US each state has different laws which dictate whether or not a lender can make recourse or non-recourse loans.  I’m not sure how reliable this information is but according to Answers.com Oregon & Washington are on the list of non-recourse states.  See the entire list HERE.

What I think would be interesting based on this comparison is to see if delinquency rates are higher in non-recourse states versus recourse states.  If anyone has a link to this information please leave it in the comment section below.

AN UPDATE TO THIS POST:

I emailed my friend Brent Hunsberger, the author of “It’s only money” blog on oregonlive.com who contacted a real estate attorney.  The response is super convoluted.  It turns out there are many instances where a mortgage in Oregon can be considered a “recourse” loan.  If you are seeking information regarding your personal situation then my advice is to find a competent attorney.

A closer look at MERS….

Posted on by Evan in Credit Crisis

Ever heard of “MERS”? ” MERS” stands for Mortgage Electronic Registration Systems, Inc. and is a private company at the center of scrutiny for it’s involvement in the current foreclosure mess.  According to Wikipedia MERS is a “privately held company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States.”

Essentially, MERS acts an “agent” and as an exchange for mortgage servicers and mortgagors.  The founding objective of MERS was to privatize the recording of mortgage notes and offer an exchange of sorts so that loan servicers could buy and sell securitized mortgages.  In principal, it should provide greater efficiency to the secondary mortgage market and decrease the cost of loans to consumers.  However, as this housing crisis has shown theoretical models don’t always pan out as expected.

The NY Times published THIS PIECE last week and offers a great summary of the formation of MERS and why it is complicating the foreclosure and loan modification process for many homeowners.  I would recommend it to anyone looking for some good weekend reading.

A sober look at real property

Posted on by Evan in Housing & Real Estate

If you’re seeking proof that hindsight is 20/20 The Economist Magazine has a great section this week featuring real property.  HERE IS A LINK.  Here are a couple interesting quotes from the Leaders section:

  • “Property is more than just a place to live and work. For many people, it is the biggest financial bet they will ever make… Over a quarter of mortgage-holders in America owe more on their loans than their homes are worth.”
  • “It is no coincidence that the housing bubble started in the aftermath of the dotcom bust. Out went fantasy business plans; in came a real asset with a proven record.”
  • “…property is a magnet for debt. Lenders have to set aside less capital for loans against property because of its security as collateral. Individuals have no other opportunity to take on so much leverage.”
  • “Property is also an inefficient asset class. It is lumpy: you can offload parts of your share portfolio, but you cannot sell off the kitchen. It is illiquid, which can strand people in their homes even if they are not in negative equity. And it is inefficiently priced, not least because as an asset class it is hard to short: you can’t hedge your exposure.”

Mortgage Principal Reductions on the horizon?

Posted on by Evan in Credit Crisis, General Mortgage Info.

The WSJ published THIS ARTICLE late yesterday which caught my eye.  Apparently the Obama Administration is working on a plan to force a settlement on the part of lenders who have been guilty of questionable loan servicing practices to write down the principal on mortgages in distressed circumstances.

To this point mortgage relief for troubled homeowners has come in the form of reducing mortgage payments to make the monthly burden more affordable.  However, many homeowner’s are frustrated that even with lower payments they owe much more than their home is worth.

It’s important to emphasize that at this point this proposed program is just that: proposed.  There are a lot of parties involved with the rolling out of a such a program and I wouldn’t be surprised to see the banking industry attempt to hold up the implementation of such a program in court.

Here are a few interesting excerpts:

  • “The cost of those writedowns won’t be borne by investors who purchased mortgage-backed securities…”
  • “If a unified settlement can be reached, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers…”
  • “The settlement terms remain fluid, people familiar with the matter cautioned, and haven’t been presented to banks.”
  • “Bank executives say principal cuts don’t necessarily improve payment patterns…”

Investors jump into housing market

Posted on by Evan in Housing & Real Estate, Investing

One interesting note in this morning’s Existing-Home Sales report from the National Association of Realtors is that the investors purchasing homes comprised of 23% of January’s total.  This is up from December’s figures.  Given that most of the low down payment investment property mortgage programs have been unavailable for a couple years I speculate that many of these investors are experienced players in the real estate market.  Therefore, many of these folks may have been waiting on the sidelines for prices to drop to a certain level and are now entering.  Could this be a sign that home prices have bottomed?  Or are near bottom?  It’s tough to know for sure.

If you are an investor or are a realtor who works with investors I have created a spreadsheet to use in analyzing the financial impact of of owning investment real estate.  After inputting the basics of the purchase, financing package, and rental income & expenses this spreadsheet will produce a detailed breakdown of the annual cash flow, net operating income, taxable income (loss), home equity, and wealth impact on an annual basis for 30 years.  Click THIS LINK to view a sample report.

Email directly if you’d like me to conduct a no obligation review of an investment property purchase on your behalf.

Did the 30year fixed mortgage create the credit crisis?

Posted on by Evan in Credit Crisis

Planet Money had an interesting podcast last Friday about Fannie Mae, Freddie Mac, and how the creation of the 30 year fixed mortgage led to the subprime mortgage crisis.  In the piece Bethany McLean & Joe Nocera are interviewed about their book entitled “All the Devils are Here“.  In a nutshell, the creation of Fannie Mae and the implicit guarantee of the Federal government ultimately led to the creation of a 30yr fixed mortgage, which morphed into more exotic loan options in the recent decade.  We all know how that story ends.  Anyways, it’s worth a listen if you have a few minutes.

What will the 2011 housing market look like?

Posted on by Evan in Housing & Real Estate

The WSJ published an article today (which you can see HERE) speculating on the housing market in 2011.  Here are some interesting tidbits…..

*(2011) could very well be a peak year for foreclosures, says Rick Sharga, a senior vice president at RealtyTrac, an online marketplace for foreclosure properties…That’s partially due to issues the industry has faced with foreclosure processing that began in the fall and delayed a portion of foreclosures from being completed this year, he says.

*For the longer term, however, the outlook for the foreclosure market is better since fewer homeowners are becoming delinquent on their mortgage payments. Thirty-day delinquencies are down 11% since the height of the recession in the first part of 2009…

*High housing inventory, along with high unemployment, will likely add up to continued depressed home prices in the year ahead in many markets…

*(Analysts) are looking to 2012 for anything resembling a recovery in housing.

Need a weekend pick-me-up?

Posted on by Evan in Housing & Real Estate

If you want to start your weekend off with a relatively upbeat view of the housing recovery I would encourage you to listen to Tuesday’s Planet Money podcast in which Moody’s economist Mark Zandi predicts that the housing market will stabilize in approximately 12 months.  Here is a brief summary from the Planet Money website:

If you want to know when the bust will end, Zandi says, look at foreclosures and short sales. Those typically occur at a big discount to prevailing prices, so they push overall prices down.

At the moment, almost a third of all houses being sold are foreclosures and short sales. The housing bust won’t really be over until that percentage falls sharply. Zandi says that’s likely to happen by the end of next year.

I’m going to put an event in my calendar to check back one year from now and see how Zandi’s prediction is playing out.

WSJ provides 10 reasons to buy a home

Posted on by Evan in Housing & Real Estate

Brett Arends wrote THIS PIECE in the WSJ today in which he provided 10 reasons why buying a home makes sense.  It’s worth of checking out, here’s a summary:

1) It’s a buyer’s market so buyer’s can get a great deal

2) Mortgage rates are cheap

3) Tax benefits of homeownership

4) When you own a home you can do whatever you want to it

5) It’s typically hard to rent in the best locations

6) Owning real estate offers inflation protection

7) Home Equity is traditionally not as volatile as stocks

8) Having a mortgage offers forced savings

9) There are a lot of different homes on the market so you should be able to find something that works

10) Sooner or later the housing market will return

Canadian Mortgage & Real Estate Markets

Posted on by Evan in Housing & Real Estate

NPR did a feature on the Canadian mortgage & real estate markets today which you can listen to HERE.  My uncle manages a real estate company in Vancouver, BC and I recall a conversation I had with him a few years ago during the sub-prime boom.  He asked me about the underwriting standards at that time and I remember he was blown away by the relaxed approach.  I also remember him telling me that the sub-prime craze had not imported into Canada.  Fast forward to today and overall the Canadian real estate market remains healthy.  I got to see my uncle last weekend and he said his business remains healthy.  Maybe we could learn a thing or two…