Archive for December, 2011

Ten things to watch for, says the paper:

  1. 2011 saw record low interest rates and high affordability, but sales will likely remain weak
  2. Price drops seen through 2011 will continue
  3. Rentals rebounded in 2011 and will drive development in 2012
  4. Market disparity between, and within, regions will continue
  5. Foreclosure rates rising again, expected to jump in 2012
  6. Signs of life seen in housing construction but no true recovery yet
  7. Lawsuits, lawsuits and more lawsuits to come
  8. Government attempts to wind down Fannie and Freddie, but no concrete plan likely until
  9. Bailout possible for FHA if housing prices continue slide
  10. Global economic uncertainty prompts potential homebuyers to wait

MERS, title, and real estate

[Update: Edited to remove references to Harper's.]

MERS and home ownership is becoming a significant issue for the housing issue — specifically, and how the potential “clouded title” caused by the company is going to continue to hang over the market, and how homeowners are beginning to use that to fight back.

MERS (Mortgage Electronic Registration Systems) manages the database that tracks the sale of mortgages between lenders. That way lenders can buy and sell loans (or pieces of them) without the pesky problem of local paperwork. The loans are placed under MERS’s name. But in that process, the deed for the house gets separated from the mortgage for the house. And that can lead to problems.

Picture it this way

You loan me $25,000 to buy a car. I sign a paper that says “I promise to pay you back this loan or you can take the car” — a promissory note — and I staple the car’s title to it. We put it in a file.

When I pay off the loan, you give me that title so I can hang it on my wall. But if I stop paying, you take the title yourself and repossess the car; if a cop stops you, you can show that title as proof you own it.

But MERS clouds the issue.

Imaging that you take the car’s title and my promissory (“I promise to pay you back…”) note and give it to your friend, Joe Mers. “You are now the owner of this car,” you tell Joe. But you never file any paperwork with DMV.

Joe Mers then unstaples the papers. He keeps the title, but he sells my promissory note to whatever financial institution wants it (or a piece of it). Joe ends up holding a lot of those titles for a lot of people, but he never once tells DMV about the arrangement.

I really liked this movie Then I stop making payments to you. So you tell Joe, “Andrew stopped paying. Go get the car.” Joe puts on his Repo Man outfit and tries to take the car back. A cop stops him as he’s trying to hot wire it, so Joe shows the title as proof of ownership.

But then the cop checks with DMV which says, “Joe Mers? Never heard of him. He’s not the owner.”

“Sure I am,” says Joe, waving the title. “I have the title. I don’t have to tell DMV.”

“In this state,” says the cop, “you do.”

And then we’re headed to court. You gave the title to Joe Mers, sure, but did you do it legally? If you didn’t file with DMV, doesn’t that cloud the title? Shouldn’t you have to repo the car, not Joe?

And so, to MERS

That’s a rough look at the issue with MERS, but instead of car titles and loans, we’re talking about homes and mortgages. Does MERS have the right to foreclose if the local paperwork wasn’t filed? Different courts have ruled differently.

You might think that challenging MERS’s right to foreclose is simply a way of stalling things — after all, if someone didn’t pay his mortgage he really can’t expect to stay in the home, right?

But the Harper’s article brings up a different potential issue. The paperwork shuffle can cloud the title when MERS tries to foreclose, but it can also cloud it when someone pays off his mortgage. Quoth:

If there was no legal record of which bank owned their debt, and the MERS-mortgaged homeowner nonetheless had been making payments, then who exactly was the homeowner paying? The checks, clearly, were going out each month, cashed by a bank that claimed to own the note. But without the legal record to certify the ownership of the note, it followed that the bank could not legally issue the homeowner a clear title to the home.

In effect, a homeowner with MERS on his mortgage could spend thirty years paying
a lender that wasn’t the owner of the note. After those thirty years, said Trotter, when the note was paid off, the homeowner would come to an awful discovery: without a clear title issued to stipulate that the home had no claim of debt against it, the homeowner could assert ownership of exactly nothing.

“Because you’d always be looking over your shoulder,” said Trotter. “Some other lender could come and say, ‘No, we owned that note. You paid the wrong guy.’ ”

 

 

According to NAR, more than a quarter of first-time home buyers used a gift (from a friend or relative) as their down payment last year. That’s fine and dandy, but, this being America and all, there are rules that must be followed.

For example, buyers probably need to come up with at least some of the down payment themselves. And they should document the gift — have a letter explaining that it’s not a loan.

Read more on Realtor.org. (Note: The article mentions that it comes from Newsday, but I couldn’t find the original. So the source is currently unknown.)

Rebenchmarking: What’s the deal?

Here’s everything you need to know about the revised — “rebenchmarked” — figures NAR released for existing-home sales .

(Quick recap: In early 2011, it came to light that NAR’s national home sales data was inaccurate — it seemed to overestimate the number of existing homes sold from 2007 through 2010 by as much as 10-20 percent. Why?

Because exact national data is impossible to get thanks to MLS overlap, lack of data in some places, and a lot more. So NAR’s figures have always been based on estimates. But when the housing bubble burst, it threw those estimates out of whack as FSBO numbers plummeted… but NAR’s estimates of FSBO sales didn’t.

Hence, the rebenchmarking. Of course, national data is only meant to give a general feel for the housing economy. It’s great for economists and planners, but for Realtors in the trenches, local data is where it’s at.

So.

There isn’t much of a surprise with the revised NAR data ; we’ve known for most of a year that there was going to be a significant drop. Remember: These are only national figures. Local numbers haven’t changed, as those are based on MLS figures and aren’t estimates.

Less talking! More numbers!

The actual revised numbers show that existing-home sales were 14.6 percent lower in 2010 than originally reported. Looking at all of 2007 through 2010, the new figures are 14.3 percent lower. Obviously, national inventory estimates over the same period are affected equally.

What isn’t affected at all:

  • Changes reported during the last five years (“up XYZ percent in April,” “down PDQ percent in 2010,” etc.)
  • Pricing data
  • Local sales and pricing figures (because, as noted above, they’re not estimates)
  • “Months supply” figures

And… that’s it. Calculated Risk has a great chart:

EHSRevisions

So for all the talk on various economics blogs about what a big deal NAR’s new numbers were going to be, the end result is rather anticlimactic.

Of course there are plenty of conspiracy theorists out there claiming that it was all a plot by NAR to make the housing market sound better than it was so that… um, well, there isn’t any good explanation.

They’re missing the point, of course. NAR’s numbers are only meant as a guideline — a barometer for the overall housing economy. And because the month-to-month and year-to-year changes weren’t affected, the guideline still works. We can still say that sales in Month A were 12 percent higher than in Month B, and so on. And no one is making buying decisions based on national estimates.

Anyway, sarcasm aside, there’s plenty to read about the revised figures if you have the urge:

Here’s the official NAR press release.

NAR has a bunch of information on Realtor®.org.

Click here for the Housing Wire story.

Or just do a Google search.

(And you can click here for the latest housing figures.)

Good news! If your friends have strong credit and are solid, upstanding citizens, it might be easier for you to get a loan. That’s because banks and other lenders are increasingly turning to Facebook to get a handle on potential borrowers.

No, they’re not just looking at what you post or share; they’re looking at who your friends are. If you’re hanging around with the right people (read: those with a high credit score), it looks good for you.

And, of course, if a bank knows that you’re a good customer, well, your “friends” might be as well.

From the New York Observer’s Beta Beat:

“There is this concept of ‘birds of a feather flock together,’” said Ken Lin, CEO of the San Francisco-based credit scoring startup Credit Karma. “If you are a profitable customer for a bank, it suggests that a lot of your friends are going to be the same credit profile. So they’ll look through the social network and see if they can identify your friends online and then maybe they send more marketing to them. That definitely exists today.”

So you know how everyone is telling teenagers and 20-somethings to watch what they post to Facebook (because it could cost them a job)? Well, now that applies to seasoned pros as well: Watch what you post to Facebook — and who your friends are — because it could cost you a loan (or get your friends’ mailboxes full of marketing).

But there’s a nightmare scenario: if banks learn how to use social media, they could gather information they aren’t allowed to ask for on a credit application—including race, marital status and receipt of public assistance—or worse, to redline segments of the social graph.

Read the whole story at the Observer, “As Banks Start Nosing Around Facebook and Twitter, the Wrong Friends Might Just Sink Your Credit“.

Housing starts in November were up 24.3% over last year, according to the new residential construction report from the Census Bureau and HUD. (Unfortunately, that number could be plus or minus 20.1%, meaning starts could actually be up anywhere from 4.2% to 44.4%.)

But economists had predicted (FWIW) a much smaller rise, so the news is good for the housing construction industry.

The latest figures show an annual pace (that is, if November’s numbers were expanded to a full year) of 685,000 homes. At the height of the housing bubble that pace was closer to 2 million homes per year.

Many of this new construction was in multi-family homes, leading analyst David Ader at CRT Capital to suggest, “It’s possible this reflects an increase in rental demand … [so it's] not good news for single family home prices.”

B of A closes under $5 per share

Bank of America’s stock closed under $5 yesterday, the lowest point since early 2009. Why is that five-dollar mark important, besides being a convenient round number? (Well, honorary round number?)

As the Wall Street Journal explained it, “The importance of the $5 mark is that some money managers have to sell stocks priced below $5.”

The price rose this morning — it’s at $5.09 as I write this — but it’s not good news. Again, the Journal: “In any event, it’s terrible optics, as this bank, once the biggest in America, now fits some definitions of a ‘penny stock’.”

Forbes: Young Americans not interested in homeownership

The headline pretty much says it, but the details are the interesting part. Read “Attitudes of Young Americans Bode Ill for Housing Recovery“.

The lack of assets isn’t the only encumbrance to housing: Echo Boomers value education, people and leisure more than other American generations.  Of the Echo Boomers I spoke with, 13% were homeowners, yet less than a third reported interest in owning a home someday (with female Echo Boomers wanting homes more than male Echo Boomers).  They preferred graduate degrees, living in social areas (not suburbs) and freedom instead of homeownership.  A few of these Echo Boomers will need a decade to pay off their student loans after which another large loan, like a mortgage, might lack appeal.  And while suburbs seem to offer community and safety, they also add transportation costs with a lack of social diversity.

Read all about it at Realtor.org:

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, SEC enforcement chief, said in a statement. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.”

NAR touts commercial victories in 2011

As the end-of-year wrapups continue, NAR has one celebrating its major victories for the commercial market.

Here’s the short version:

The National Flood Insurance Program didn’t lapse, and NAR is continuing to press for a long-term (five-year) extension.

FHA loan limits were extended, and remain at 125% of median local home prices. “While that doesn’t impact commercial real estate directly, our industry depends on a thriving workforce and housing market, so this is an issue that all commercial practitioners will benefit from,” said NAR treasurer Bill Armstrong.

The House began hearings on the NAR-supported Credit Union Member Business Lending Bill. It would raise the cap on what credit unions could lend to their business members from 12.15% to 27.5% of total assets (for well-capitalized credit unions). Result: More capital for small businesses in commercial buildings.

The Small Business Administration, with NAR’s support, created a new commercial refinance program that allows small businesses to refinance certain owner-occupied commercial real estate loans. Originally it would only cover CRE mortgages maturing by end of 2012, but NAR pushed for — and won — an extension for at least some of those loans.

You can read more at The Source, or listen to Bill Armstrong’s audio on the issues.