My uncle forwarded me a newsletter from a wealth management firm up in Vancouver, Canada which measured the affordability of housing in the US based on the number of hours a household must work in order to qualify for home-ownership.  I thought it was an interesting follow up so though I would post the graph.  If you want to read the entire newsletter you can do it HERE.

Here are some excerpts from the article:

*”According to Moody’s Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average.”

*”While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn’t battered by foreclosures, you may be close to a bottom already.”

*”Moody’s Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then.”

 

*”House-ownership is beginning to look more affordable by many measures. Adjusted for inflation, prices are close to their long-term trend after the bubble years of the 1990s and the first years of the 2000s. And the ratio of house prices to rents has returned to its pre-bubble level (see chart).”

*”Vacancies for apartments tumbled in the first quarter of the year and are now at a three-year low. Rents have been rising, and analysts expect them to increase by over 4% this year and next. Rent rises typically support house prices by making home-ownership more attractive.”

*”The credit markets are healing. Mortgage borrowing actually rose in the first quarter, according to the Federal Reserve Bank of New York. New foreclosures were 17.7% lower in the first quarter than they had been at the end of 2010, and household delinquency improved for a fifth consecutive quarter. Mortgage rates have fallen back to historic lows, tracking declines in yields on American government bonds.”

*”Perhaps the best news for housing has come from the labour market. The economy added over 200,000 jobs in each of the past three months and over 1.3m jobs in the past year. A better job market enables struggling households to make mortgage payments, reducing foreclosures. For most of the bust, borrowers that fell behind on their loans were likely to end up in serious difficulties. In the first quarter of this year, for the first time since 2007, more mortgage borrowers caught up with their payments than fell further behind.”

Who is MERS? MERS stands for Mortgage Electronic Registration Systems, Inc. MERS is a member-based association of nearly all (about 3,000) mortgage lenders in the U.S. The members, through MERS, maintain a publicly accessible database for identifying the servicers and owners of around 31,000,000 active residential mortgage loans, 50% or more of all residential mortgage loans.

How is MERS connected to mortgage loans? The mortgage instrument used almost exclusively in Oregon is the trust deed (also called a deed of trust). Under a trust deed, a lender may elect to foreclose using a non-judicial process known as a trustee’s sale in accordance with ORS 86.705 to 86.795 (“the Trust Deed Act”) http://www.leg.state.or.us/ors/086.html. A trust deed is recorded in the county records and secures a particular obligation, usually a promissory note, by which the borrower agrees to repay the lender. In a trust deed, the borrower is the grantor, and the lender is the beneficiary.

 
Why do lenders use MERS? Around 1997, lenders began designating MERS as the trust deed beneficiary as nominee (agent) for the original lender and the lender’s successors and assigns. As the designated beneficiary in the trust deed, MERS stands as a placeholder for the owner of the loan, while the promissory note is sold, endorsed and assigned in the stream of commerce. Many loans end up, after intervening transfers, in a securitized pool of mortgage loans for whom a national bank or financial institution is trustee. MERS remains in place as the record beneficiary under the trust deed, and the MERS database provides an interested party with information to identify and contact the institution for whom MERS is nominee. https://www.mers-servicerid.org/sis/

 
What is the role of MERS when a loan goes into foreclosure? When a borrower stops paying, the lender’s usual remedy is foreclosure through the trustee’s sale process. When a lender decides to foreclose, MERS usually assigns its beneficiary position to the then owner of the note, who thereafter instructs the trust deed trustee to proceed with foreclosure by trustee’s sale. In the past, MERS sometimes remained in place as the beneficiary of record and authorized a foreclosure based on instructions from the owner of the note; however, MERS recently discontinued that practice in favor of assigning the beneficiary interest to the owner of the note.

Why is MERS getting attention in Oregon? A promissory note may change hands with minimal paperwork. The note transfers occur in accordance with the law of negotiable instruments. For example, a note may be endorsed in blank, and ownership passes by physical possession. As a result, the chain of ownership of the note is established by the endorsements and by possession. The endorsements will not necessarily reveal a complete history of ownership. The Trust Deed Act, by contrast, requires that all assignments of a trust deed be recorded before a non-judicial foreclosure may occur. If the various transferees of a particular note do not receive and record assignments of the companion trust deed, there will be a gap in the recorded chain of the trust deed’s beneficiaries. MERS has been thought to provide a solution to this difference between the law of negotiable instruments and the law of trust deeds. MERS holds the beneficiary position constant throughout the various note transfers. Some recent court cases question whether this MERS solution is compatible with the Trust Deed Act, if the Act requires that the complete chain of note ownership be mirrored by a chain of recorded assignments of the trust deed. This provision of the Trust Deed Act became law long before MERS existed. As a result, the courts are confronted with applying the law to circumstances not envisioned when the statute was written.

How do the MERS court cases affect Oregon foreclosures? So far, Oregon court cases have involved borrowers’ challenges to trustee’s sales where the trustee’s sales have not yet occurred, or where the lender has completed the trustee’s sale and has not resold the property to a new homeowner. So far, Oregon court cases do not find MERS trust deeds unenforceable; rather, the attention is on whether the lender must seek a judicial foreclosure, rather than a foreclosure by trustee’s sale. These cases resulted in rulings for the parties to the case, based on facts that are unique, and any particular ruling may or may not be a good guide for another case.

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.

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.

• “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.”