The study, “Assessing High Housing Prices: Bubbles, Fundamentals and Misperceptions,” assessed 46 single-family housing markets from 1980 to 2004 and confronted four misperceptions about the underlying drivers behind the decade-old real estate boom.

The researchers, Charles Himmelberg, senior economist with the Federal Reserve Bank of New York; Christopher Mayer, professor and director of the Paul Milstein Center for Real Estate at Columbia Business School; and Todd Sinai, associate professor of real estate at the Wharton School of the University of Pennsylvania, said that recent growth rates of house prices do not reflect a bubble. The researchers found that it could be explained by basic economic fundamentals such as low interest rates, strong income growth among high- income Americans, and unusually low housing prices in the mid-1990s.

The study also found no evidence that buyers are bidding up the price of houses based on unrealistic expectations of future price increases. The study said that conventional metrics for assessing the housing market such as price-to-rent ratios or price-to-income ratios ignore the effects of lower real, long-term interest rates, and fail to reflect the state of housing costs.

Amongst the common misperceptions that the study aims to dispel are:

Misperception No. 1: The rising price of housing necessarily means that ownership is becoming more expensive.

According to the study, the price of a house is not the same as the annual cost of owning a house. The study calculates the actual cost of owning a house relative to rents and incomes, and finds that these ratios were well within historical norms at the end of 2004. Previously, during the mid-1990s, housing prices were actually somewhat undervalued, and at least part of the increase in house prices over the past ten years reflects a return of these valuation ratios to long-run historical norms, the study said.

Misperception No. 2: High house price growth implies a bubble.

When the real cost of long-term borrowing is low. The study shows that changes in long-term interest rates have a disproportionately large effect on house prices, the study said. Given the decline in real, long-term interest rates since 2000, it is not surprising that house prices have risen as much as they have, the researchers said. However, the other side is that the housing market may be especially vulnerable to unexpected future rises in real, long- term interest rates or negative shocks to local economies.

According to the Mortgage Bankers Association , home price appreciation is expected to remain strong this year, with median existing home prices increasing by 10 percent during 2005 and 3.8 percent for new homes, compared with 9.3 percent and 13.3 percent in 2004, respectively. Price gains in 2006 and 2007 are expected to slow further to a more sustainable pace of 4 to 5 percent. Residential mortgage originations for purchase loans will increase to $1.64 trillion in 2005, edging up to $1.68 trillion in 2006.  Residential refinance loans will decline to $1.12 trillion in 2005 and $891 billion in 2006. Total residential mortgage production in 2005 will be $2.83trillion, the second-highest level ever.

“Local housing price declines have always been the result of a trigger such as significant job loss or an out-migration of population, as seen in oil patch states in the mid-1980s and Southern California in the early 1990s with significant defense expenditure cutbacks,” said MBA Chief Economist Doug Duncan. “With roughly $9.6 trillion in equity in homes in the United States, the average homeowner has a healthy cushion if housing prices decline. Thus, while we may see bubbles in some local markets, we don't expect a national bubble.”

As of the end of 2004, analysis reveals little evidence of a housing bubble. In appreciation markets such as San Francisco, Boston and New York , current housing prices are not cheap, but our calculations do not reveal large price increases in excess of fundamentals, the study said.

Misperception No. 3: The cities with the highest price increases (or the highest price-to-rent ratios) are the most overvalued.

In some local housing markets such as San Francisco, Los Angeles, San Diego, New York and Boston , house price growth has exceeded the national average rate of appreciation for at least 60 years, according to the study. In cities with higher long-term rates of price appreciation, the annual cost of owning is lower, as a result house prices should be higher (relative to rents or incomes). At the same time, house prices in high-priced cities are more sensitive to real, long-term interest rates because interest expense is a higher fraction of annual ownership costs, the study said.
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MERS, Vienna, Va., was created by the mortgage banking industry to streamline the mortgage process by using electronic commerce to eliminate paper. Its mission is to register every mortgage loan in the U.S. on the MERS® System.

Beneficiaries of MERS include mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders and consumers.

MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS System is inoculated against future assignments because MERS remains the nominal mortgagee no matter how many times servicing is traded.

MERS as original mortgagee (MOM) is approved by Fannie Mae, Freddie Mac, Ginnie Mae, FHA and VA, California and Utah Housing Finance Agencies, as well as all of the major Wall Street rating agencies.

R.K. Arnold serves as president & CEO of MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems Inc. He joined MERS at its inception in 1996, and served as senior vice president and general counsel until his promotion to president in 1998. He is a member of the MERS Board of Directors. His team has built MERS into the central electronic registry for the mortgage finance industry.

Q: What trends are your company positioning for in the next few years?

ARNOLD: MERS is positioning for the coming of the all-electronic, paperless mortgage.  The launch of the MERS eRegistry makes us perfectly aligned with this trend.  Because of the MERS eRegistry, electronic notes are now fully liquid and are ready to be traded in the secondary market.  MERS is currently working with partners that have made the all-electronic mortgage fully realized, and we are confident that the trend will become common practice in the next few years.

Q:  Where do you see your company in five years?

ARNOLD:  In five years, we anticipate that 90 percent of all residential loans in the United States will be registered on MERS.  We also anticipate robust traffic of registrations in the MERS eRegistry because of the ubiquity of eNotes.

Q:  What is the single most important issue facing your company right now?

ARNOLD:  MERS is continuously in the process of educating and communicating to the mortgage industry on our value, our mission, and how we work.

Q:  Why did your company join MBA?

ARNOLD:  The MBA does a great job of watching for our interests, and was a critical partner in the creation of MERS.

Q:  What advantages does your company’s MBA membership give you?

ARNOLD:  Our membership to the MBA is invaluable.  It is the vehicle that gives us access to the most important players in the mortgage banking industry.
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The properties financed include Merrill Gardens at Carrollton (69 units), Merrill Gardens at Chateau Whittier (149 units), and Merrill Gardens at Wichita Falls (69 units). All the properties are owned and operated by Merrill Gardens LLC or subsidiaries.

Red Mortgage Capital structured the financing as three separate Fannie Mae DUS mortgage loans, all cross-collateralized and cross-defaulted. All three loans have 10-year terms with 25-year amortization schedules.

“With Fannie Mae’s Extended Rate Lock product, we were able to quickly capitalize on the still-favorable interest rate environment," said William Pettit , chairman of Merrill Gardens LLC.

Merrill Gardens was formed in 1993 to provide an alternative to traditional retirement housing. It owns and operates, or manages, 66 communities in 14 states. All properties offer independent and assisted living care units with common amenities that include weekly housekeeping service, restaurant style dining, social activities and an emergency call system.
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The Seismic Working Group developed two questionnaires – one questionnaire for lenders/investors (users) and one questionnaire for consultants (producers) on the current methods of assessing seismic risk.  The information gathered from each respondent will be aggregated into a final report without identifying specific firm responses.

The final report will only be available to companies who participate in responding to the questionnaire.  Survey responses are due back to MBA on Thursday, September 29.

Background
Currently in the industry, there are various methods for determining the impact of a seismic event on commercial property. Some companies commission a report called a Probable Maximum Loss (PML) which may or may not specify the evaluation criteria being used to assess the loss. Others require the report to conform to the American Society for Testing and Materials (ASTM) E2026-99 Standard Guide for Estimation of Damageability in Earthquakes and therefore receive reports based on one or more specific analytical criteria. The different definitions of PML and the variety of choices within the ASTM Guide for assessing loss have lead to much confusion and inconsistency in the industry.

MBA Project
The goal of the Seismic Working Group is to create a clear and precise description of the analytical methods available for seismic analysis so that those who assess the financial risks will be able to evaluate the property or portfolio against well-defined benchmarks.

To that end, the Seismic Working Group intends to create a handbook specifically for lenders, investors and consultants. The handbook will serve as a primer for understanding the technical background of seismic calculations, factors in seismic risk assessment and offer suggestions on how to make business decisions on the selection of due diligence levels and the evaluation of seismic reports that are consistent with underwriting requirements. The working group is also coordinating with ASTM to review their current ASTM standard to ensure it accurately reflects current market practices.

The input from the questionnaires will also be helpful in developing the MBA handbook and working with ASTM.

If you are interested in participating in the Seismic Questionnaire process or joining the Seismic Working Group, please contact MBA staff Katie Schwarting at kschwarting@mortgagebankers.org.
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Bring a new vision to your team and attend MBA's Management Track sessions.

The Disney Approach to Leadership Excellence
October 24, 2:00-3:15 p.m.
Take the fundamental leadership philosophies guiding the success of the Walt Disney World Resort and adapt them to your organization. Combining classroom sessions, application exercises, field experiences and interaction with Disney leaders, this session guides you in discovering the leadership principles that are at the core of Disney's organizational strength.

The Art and Science of High Performance
October 24, 3:30-4:30 p.m.
Andrew Bennett, founder of Bennett Performance Group, weaves together a compelling case about the need for inspiration in our work, and how it is closely linked to financial success. He discusses how inspiration builds enduring, positive energy into your organization's culture, connects the hearts and minds of customers, employees, suppliers and communities, and creates compelling reasons for staff members to work with their organizations. Walk away from this session with six tools for building inspiration-driven, high performance into your organization.

Four Generations in the Workplace: Searching for Common Ground
October 25, 11:00 a.m.-12:15 p.m.
For the first time in history, four distinct generations-Matures, Boomers, Xers and Millennials-are employed side by side in the workplace. In this session, retention and generations expert Cam Marston discusses common generational characteristics, specific leadership needs of each generation, the new definition of company loyalty and fresh guidelines for team building. And, he provides valuable advice about the common ground employees share-the intensity with which each generation holds fast to its value systems.

Organizational Change and Performance
October 25, 2:45-4:00 p.m.
Corporations often struggle in creating a common vision and in communicating that vision throughout their companies. In this session, executive coach, John Parker Stewart provides senior managers with guidance on organizational structure, personnel placement and identifying company needs. He specializes in melding together corporate cultures and uniting people with differing backgrounds and heritages.

Register Today
Join the largest gathering of residential real estate finance professionals at MBA's 92nd Annual Convention & Expo. The convention offers strategies so you can adapt and adjust your business to thrive in a constantly changing marketplace. While providing opportunities to network with your peers, the convention also offers the opportunity to gather valuable information on innovative business practices, learn about winning products and services, get updates on the latest technology, and to meet and exchange ideas with industry leaders.

For more information, visit the Convention Web site at http://events.mortgagebankers.org/92nd_Annual/default.html.
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While TRIA moves forward, Frank told NHEMA members that the House would not be able to look at a national uniform predatory lending act. “We’re not going to get to it this year,” Frank said. “Our committee has as much jurisdiction over the whole Katrina [incident] as anybody else.”

Wright Andrews, head of the Coalition for Fair and Affordable Lending (CFAL), said that as much as he would like to see a national uniform predatory lending bill pass in the House this year, Katrina ruined the timetable on Capitol Hill. Andrews, however, found positives from Frank’s speech.  “I still think we can make progress,” Andrews said. “It is critically important that we push as hard as ever on reaching some agreements as much as we can.”

Frank said he was not in favor of banning prepayment penalties entirely, based on legislative restrictions, and showed room for compromise. “The idea would be good national legislation with a regional level of regulation, starting on a national basis,” Frank said. “That is what we have to work out.”

As for Katrina, Congress continues to work on the flood insurance issue. Availability of flood insurance coverage is far less than property and casualty coverage and insurance companies said most property damage will likely be due to flood rather than windstorm damage.
 
Frank said, in helping Katrina victims, people who did not purchase flood insurance should not be better off than those who did. “You want to encourage people to have flood insurance,” Frank said, noting that Congress reformed flood insurance last year into a better program. “We want people to go into it...I am for finding some way to help people who did not have flood insurance, with fewer than 80 percent or 90 percent [than] what they would have gotten with flood insurance because you don’t want to deter [purchasing flood insurance]."
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