REFinBlog

Editor: David Reiss
Brooklyn Law School

June 27, 2017

Tuesday’s Regulatory & Legislative Roundup

By Jamila Moore

  • Ben Carson’s fellow Republicans are pleading with him to revisit HUD’s 2017-2018 budget. 23 Republican Congressmen claim there is not enough funding for homeless citizens across the country. Additionally, they urge Carson to revisit the Obama’s “Housing First” program because it eliminated a great deal of homelessness issues.
  • The Federal Housing and Finance Agency released its foreclosure prevention report for the first quarter of 2017. So far, Fannie Mae and Freddie Mac participated in approximately 50,000 foreclosure prevention actions with homeowners across the U.S. Additionally, over 2 million homeowners in the U.S. have successfully had their loans modified.

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June 27, 2017 | Permalink | No Comments

June 26, 2017

FHFA’s Asks from Congress

By David Reiss

photo by Jehmsei

The Federal Housing Finance Agency released its 2016 report to Congress. Of particular note are its legislative recommendations. The first is one that I and every other housing policy analyst has been saying for years. The second two are very technical, but also very important to the long term health of the mortgage market.

Housing Finance Reform

The Enterprises have been in conservatorships since September 2008. These conservatorships are unprecedented in duration and scope. While a number of important reforms have been made to the Enterprises during conservatorship, FHFA continues to believe that conservatorship is not sustainable and that Congress needs to undertake the important work of housing finance reform.

Barriers to Investor Participation in Credit Risk Transfer Transactions

Under FHFA’s annual conservatorship scorecards, the Enterprises are working to transfer to the private sector a substantial amount of the credit risk they assume in targeted loan acquisitions. This credit risk transfer market is relatively new and evolving and relies on ongoing investor interest and ability to purchase the credit risk. FHFA has previously identified several statutory impediments which, if addressed, could avoid unintended consequences for some types of investors and thus help to expand investor participation in Enterprise credit risk transfer transactions. FHFA continues to believe that these statutory impediments should be removed.

Examination of Regulated Entity

Counterparties FHFA’s regulated entities contract with third parties to provide critical services supporting the secondary mortgage market, including nonbank mortgage servicers for the Enterprises. While oversight of these counterparties is important to safety and soundness of FHFA’s regulated entities, it is currently exercised only through contractual provisions where possible. In contrast, other federal safety and soundness regulators have statutory authority to examine companies that provide services to depository institutions through the Bank Service Company Act. The Government Accountability Office has recommended granting FHFA the authority to examine third parties that do business with the Enterprises.37 The Financial Stability Oversight Council also made a similar recommendation in its 2016 Annual Report. FHFA concurs with these recommendations.  (63)

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June 26, 2017 | Permalink | No Comments

Monday’s Adjudication Roundup

By Jamila Moore

  • The United States Supreme Court recently clarified a rule within the issue of eminent domain. In a 5-3 decision, the court determined two adjacent properties were considered one in order to properly calculate loss cost. States are using the decision as strong guidance.
  • Genworth Financial Inc. agreed to pay a 20 million dollar settlement in a suit for their alleged misguided advice during a public offering of a company. The class of plaintiffs include investors whom believed the Austrian financial market to be sound; however, the state of the market was poor at the time of Genworth Austrian subsidiary’s IPO.
  • A California judge decertified a class of residents in Los Angeles. The class alleges they received unwanted, faxed solicitation ads from SoCal Better Homes. This decision makes further litigation unlikely, as the case will have disproportionate costs and needs for a person filing suit on their own.

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June 26, 2017 | Permalink | No Comments

June 23, 2017

Mortgage Pre-Qualification vs. Pre-Approval

By David Reiss

photo by Steve Spinks

Realtor.com quoted me in Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference? It opens,

When buying a home, cash is king, but most folks don’t have hundreds of thousands of dollars lying in the bank. Of course, that’s why obtaining a mortgage is such a crucial part of the process. And securing mortgage pre-qualification and pre-approval are important steps, assuring lenders that you’ll be able to afford payments.
However, pre-qualification and pre-approval are vastly different. How different? Some mortgage professionals believe one is virtually useless.

“I tell most people they can take that pre-qualification letter and throw it in the trash,” says Patty Arvielo, a mortgage banker and president and founder of New American Funding, in Tustin, CA. “It doesn’t mean much.”

What is mortgage pre-qualification?

Pre-qualification means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount.

But here’s the rub: Most often, the pre-qualification letter is an approximation—not a promise—based solely on the information you give the lender and its evaluation of your financial prospects.

“The analysis is based on the information that you have provided,” says David Reiss, a professor at the Brooklyn Law School and a real estate law expert. “It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.”

A pre-qualification is merely a financial snapshot that gives you an idea of the mortgage you might qualify for.

“It can be helpful if you are completely unaware what your current financial position will support regarding a mortgage amount,” says Kyle Winkfield, managing partner of O’Dell, Winkfield, Roseman, and Shipp, in Washington, DC. “It certainly helps if you are just beginning the process of looking to buy a house.”

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June 23, 2017 | Permalink | No Comments

Friday’s Government Reports Roundup

By Jamila Moore

  • Orrin Hatch, the Committee Chairman of the U.S. Senate Finance Committee, asked the nation for its input regarding tax reforms. It seems as if Hatch would like for tax stakeholders to share innovative thoughts, suggestions and feedback. Both Democrats and Republicans agree that the current tax system, as is, has many drawbacks. Furthermore, it lacks methods to alleviate burdens on taxpayers and grow the economy. If one is interested in providing their thoughts, they may do so at taxreform207@finance.senate.gov.

  • The Federal Housing Finance Agency (FHFA) released a report detailing the increase in housing prices over the past year and month. The report explains how prices increased .07% in April which marked a 6.8% increase for the year. Since 2012, the prices of homes are in a steady upward trend.

  • The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency recently determined which banks were eligible for the Community Reinvestment Act for designated activities. Banks in “distressed or underserved non-metropolitan areas” were chosen based upon factors including economic conditions, employment status, socio-economic status, and shifts within the population.

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June 23, 2017 | Permalink | No Comments

June 22, 2017

State of the Nation’s Housing 2017

By David Reiss

photo by woodleywonderworks

Harvard’s Joint Center for Housing Studies has released its excellent State of the Nation’s Housing for 2017, with many important insights. The executive summary reads, in part,

A decade after the onset of the Great Recession, the national housing market is finally returning to normal. With incomes rising and household growth strengthening, the housing sector is poised to become an important engine of economic growth. But not all households and not all markets are thriving, and affordability pressures remain near record levels. Addressing the scale and complexity of need requires a renewed national commitment to expand the range of housing options available for an increasingly diverse society.

National Home Prices Regain Previous Peak

US house prices rose 5.6 percent in 2016, finally surpassing the high reached nearly a decade earlier. Achieving this milestone reduced the number of homeowners underwater on their mortgages to 3.2 million by year’s end, a remarkable drop from the 12.1 million peak in 2011. In inflation-adjusted terms, however, national home prices remained nearly 15 percent below their previous high. As a result, the typical homeowner has yet to fully regain the housing wealth lost during the downturn.

*     *     *

Pickup In Household Growth

The sluggish rebound in construction also reflects the striking slowdown in household growth after the housing bust. Depending on the government survey, household formations averaged just 540,000 to 720,000 annually in 2007–2012 before reviving to 960,000 to 1.2 million in 2013–2015.

Much of the falloff in household growth can be explained by low household formation rates among the millennial generation (born between 1985 and 2004). Indeed, the share of adults aged 18–34 still living with parents or grandparents was at an all-time high of 35.6 percent in 2015. But through the simple fact of aging, the oldest members of this generation have now reached their early 30s, when most adults live independently. As a result, members of the millennial generation formed 7.6 million new households between 2010 and 2015.

*     *     *

Homeownership Declines Moderating, While Rental Demand Still Strong

After 12 years of decline, there are signs that the national homeownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by 280,000 in 2016, the strongest showing since 2006. Early indications in 2017 suggest that the upturn is continuing. Still, growth in renters continued to outpace that in owners, with their numbers up by 600,000 last year.

*     *     *

Affordability Pressures Remain Widespread

Based on the 30-percent-of-income affordability standard, the number of cost-burdened households fell from 39.8 million in 2014 to 38.9 million in 2015. As a result, the share of households with cost burdens fell 1.0 percentage point, to 32.9 percent. This was the fifth straight year of declines, led by a considerable drop in the owner share from 30.4 percent in 2010 to 23.9 percent in 2015. The renter share, however, only edged down from 50.2 percent to 48.3 percent over this period.

With such large shares of households exceeding the traditional affordability standard, policymakers have increasingly focused their attention on the severely burdened (paying more than 50 percent of their incomes for housing). Although the total number of households with severe burdens also fell somewhat from 19.3 million in 2014 to 18.8 million in 2015, the improvement was again on the owner side. Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001.

*     *     *

Segregation By Income on The Rise

A growing body of social science research has documented the long-term damage to the health and well-being of individuals living in high-poverty neighborhoods. Recent increases in segregation by income in the United States are therefore highly troubling. Between 2000 and 2015, the share of the poor population living in high-poverty neighborhoods rose from 43 percent to 54 percent. Meanwhile, the number of high-poverty neighborhoods rose from 13,400 to more than 21,300. Although most high-poverty neighborhoods are still concentrated in high-density urban cores, their recent growth has been fastest in low-density areas at the metropolitan fringe and in rural communities.

At the same time, the growing demand for urban living has led to an influx of high-income households into city neighborhoods. While this revival of urban areas creates the opportunity for more economically and racially diverse communities, it also drives up housing costs for low-income and minority residents. (1-6, references omitted)

One comment, a repetition from my past discussions of Joint Center reports. The State of the Nation’s Housing acknowledges sources of funding for the report but does not directly identify the members of its Policy Advisory Board, which provides “principal funding” for it, along with the Ford Foundation. (front matter) The Board includes companies such as Fannie Mae, Freddie Mac and Zillow which are directly discussed in the report. In the spirit of transparency, the Joint Center should identify all of its funders in the State of the Nation’s Housing report itself. Other academic centers and think tanks would undoubtedly do this. The Joint Center for Housing Studies should follow suit.

 

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June 22, 2017 | Permalink | No Comments

Thursday’s Advocacy & Think Tank Roundup

By Jamila Moore

  • Buyers are hungry for a home. Their hunger have caused sellers to control pricing and possess high demands on the buyers. In fact, the sale of existing homes increased in May. Despite seller control, buyers have not given up and have found ways to “cut a deal” given the low inventory of existing homes.
  • This time last year the median price for an existing home was 5.8% lower than the price of a home now. On the surface, it seems like many more Americans are purchasing homes at a reasonable price. However, a closer look at the average shows that many homes were sold at a much higher price. When the lower priced homes sold and the higher price sold homes are averaged together, the median price of homes sold is $252,800. This seems great; however, it shows a lack of sell of reasonably price homes.
  • Beginning July 1, 2017, the Big 3 Credit Reporting Agencies (CRAs) are changing their reporting practices. When the shift occurs, many consumers may experience an increase in their credit score. This increase will likely affect consumers with pending or current tax liens and/or civil judgments.

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June 22, 2017 | Permalink | No Comments