Rochester Annual Overview 2011 - (Page 19)
Some Bright Spots in a Harsh Housing Market
If the experts can be believed, the troubling statistics that emerged about the U.S. housing market in 2011 may actually represent the start of something good. With a tone they may have lifted from the self-help shelf, these experts tell us that the market must confront its difficulties—delinquent mortgage payments, foreclosures, “underwater” mortgages and so forth—before a real recovery can begin. They would thus have us believe that the following trends should be recognized not just as current hardships but as precursors to the housing market’s future health: About 6 percent of the mortgages established between 2004 and 2008—that’s about 2.7 million loans—have already ended in foreclosure, according to a November 2011 report from the Center for Responsible lending. Another 4 million of loans from that period remain a serious risk, according to the Center’s report. The organization concludes that “the nation is not even halfway through the foreclosure crisis.” Home prices in late November 2011 were at the same levels as they had been in the first quarter of 2003, according to Forbes.com, and nowhere near their 2007 peaks. In 2011, we continued to look for ways to improve our positions in high-yielding, tax-exempt land development bonds, which are sometimes known as “dirt bonds.” As our long-time investors may recall, “dirt bonds” are Special Tax and Special Assessment bonds that finance the infrastructure needs of new real estate developments; they are backed by taxes and assessments payable by whoever owns the property. Many states do not permit the issuance of these types of bonds, but our holdings from states that do permit them (primarily in Oppenheimer Rochester National Municipals, Oppenheimer AMT-Free Municipals and Oppenheimer California Municipal Fund) represent a diversity of projects, developers and locations as well as projects at different stages of completion. Before any investments are made, our in-house credit research team analyzes myriad details, including the bond’s structure, its issuer’s track record, and the viability of the project being financed. An important consideration for our team is a dirt bond’s value-tolien ratio, which compares the land’s value to the amount being borrowed. (The State of California actually stipulates the minimum value-to-lien ratio allowed.)
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