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Editor: David Reiss
Brooklyn Law School

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July 1, 2015

The Road to Rent-To-Own

By David Reiss

Rent To Own Sign

TheStreet.com quoted me in Rent-to-Own Homes Can Be a Risky Option for Buyers. It opens,

Instead of shelling out thousands of dollars to rent a home each month, some landlords give their tenants the option to buy the home while they are leasing it — using the rent they’ve paid as a credit toward their mortgage downpayment.

But while rent-to-own options appear like a winning proposition for potential homeowners who have not been able to save up enough money for a down payment or lack a good credit score, these deals can be fraught with many setbacks.

Each state is governed by different laws, and some of them protect homeowners in case they fall behind on payments, said David Reiss, a law professor at Brooklyn Law School. This is a crucial point that needs to be addressed with a lawyer before the contract is signed, because a consumer could end up “losing everything” that he had paid toward the house if he loses his job, Reiss added.

“Rent-to-own transactions can be very complicated and there are fewer consumer protections available, so interested buyers should beware,” he said. “There are a lot of shady operators out there.”

July 1, 2015 | Permalink | No Comments

Wednesday’s Academic Roundup

By Shea Cunningham

July 1, 2015 | Permalink | No Comments

June 30, 2015

The Silent Housing Crisis

By David Reiss

J. Ronald Terwilliger

J. Ronald Terwilliger

The J. Ronald Terwilliger Foundation for Housing America’s Families, a new entity, has issued its first white paper on the Silent Housing Crisis: A Snapshot of Current and Future Conditions. The paper covers some of the same ground as another recent Urban Institute report that I had recently blogged about (and, indeed, it is informed by the work of those UI researchers, as can be seen in the endnotes), but it raises some interesting issues of its own.

The white paper opens with a quotation from President Truman’s Statement upon signing the Housing Act of 1949, which

establishes as a national objective the achievement as soon as feasible of a decent home and a suitable living environment for every American family, and sets forth the policies to be followed in advancing toward that goal. These policies are thoroughly consistent with American ideals and traditions. They recognize and preserve local responsibility, and the primary role of private enterprise, in meeting the Nation’s housing needs. But they also recognize clearly the necessity for appropriate Federal aid to supplement the resources of communities and private enterprise. (3)

The white paper argues that the United States

is unprepared for the tremendous challenges that a rapidly expanding renter population will pose to the already strained housing system. Absent a comprehensive and sustained policy response, it is likely that rental cost burdens will only grow in intensity and scope, undermining the stability and dampening the hopes of millions of American families. These conditions, in turn, will exacerbate income inequality, diminish the prospects of social mobility for countless individuals, make us less competitive in the global marketplace, and ultimately hinder America’s economic growth. (6)

While the white paper has a lot to offer in diagnosing problems in the American housing sector, I was surprised to find that it failed to discuss the role of restrictive zoning in increasing the cost of housing, particularly in the vibrant communities that are the main engines of job creation. Any serious effort to address the lack of decent and affordable housing has to tackle the problem of restrictive zoning.

The Terwilliger Foundation was founded in 2014 and “seeks to recalibrate federal housing policy so that it more effectively addresses our nation’s critical affordable housing challenges and meets the housing needs of future generations. The Foundation will offer a set of practical suggestions for tax, spending, and mortgage finance reform that is responsive to the ongoing crisis in housing and the profound demographic changes now transforming America. ” (2) It is good to have another voice in the mix on these important issues. The foundation’s namesake is the Chairman of Terwilliger Pappas Multifamily Properties and is the Chairman Emeritus of Trammell Crow Residential Company, the largest multifamily developer in the U.S. for many years.

June 30, 2015 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Round-Up

By Serenna McCloud

  • U.S. Department of Housing and Urban Development Issues a Revised Rental Assistance Demonstration (RAD) notice, RAD which is the program by which Public Housing Authorities obtain funding for project based rental assistance.  The revised notice, among other things, increases the maximum number of units per project, provides additional rights and protections for tenants and provides greater incentives for green initiatives.

 

June 30, 2015 | Permalink | No Comments

June 29, 2015

CFPB Mortgage Highlights

By David Reiss

Richard Cordray 2010

The Consumer Financial Protection Bureau issued its most recent Supervisory Highlights. The CFPB is “committed to transparency in its supervisory program by sharing key findings in order to help industry limit risks to consumers and comply with Federal consumer financial law.” (3)

There were a lot of interesting highlights relating to mortgage origination and servicing, including,

  • one or more instances of failure to ensure that the HUD-1 settlement statement accurately reflects the actual settlement charges paid by the borrower.
  • at least one servicer sent borrowers loss mitigation acknowledgment notices requesting documents, sometimes dozens in number, inapplicable to their circumstances and which it did not need to evaluate the borrower for loss mitigation.
  • one or more servicers failed to send any loss mitigation acknowledgment notices. At least one servicer did not send notices after a loss mitigation processing platform malfunctioned repeatedly over a significant period of time. . . . the breakdown caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers, and may have caused other harm.
  • At least one other servicer did not send loss mitigation acknowledgment notices to borrowers who had requested payment relief on their mortgage payments. One or more servicers treated certain requests as requests for short-term payment relief instead of requests for loss mitigation under Regulation X.
  • At least one servicer sent notices of intent to foreclose to borrowers already approved for a trial modification and before the trial modification’s first payment was due without verifying whether borrowers had a pending loss mitigation plan before sending its notice. As the notice could deter borrowers from carrying out trial modifications, it likely causes substantial injury . . .
  • at least one servicer sent notices warning borrowers who were current on their loans that foreclosure would be imminent. (14-18, emphasis added)

All of these highlights are interesting because they reflect the types of problems the CFPB is finding and it thus helps the industry comply with federal law. But from a public policy perspective, the CFPB’s approach is lacking. By repeating that each failure was found at “one or more” company, a reader of these Highlights cannot determine how widespread these problems are throughout the industry. And because the Highlights do not say how many borrowers were affected by each company’s failure, it is hard to say whether these problems are isolated and technical or endemic and intentional.

Future Supervisory Highlights should include more information about the number of institutions and the number of consumers who were affected by these violations.

June 29, 2015 | Permalink | No Comments

Monday’s Adjudication Roundup

By Shea Cunningham

June 29, 2015 | Permalink | No Comments

June 26, 2015

Homeowners Heading to Pottersville?

By David Reiss

Lionel_Barrymore_as_Mr._Potter

Mr. Potter from It’s A Wonderful Life

The Urban Institute has issued a report, Headship and Homeownership: What Does The Future Hold? The report opens,

Homeownership rates averaged around 64 percent until about 1990, when they began to climb dramatically, reaching 67.3 percent in 2006. The housing crisis that began in 2007 and the ensuing recession, from which the US economy is recovering slowly, resulted in a fall in the homeownership rate to 63.6 percent, according to the latest ACS numbers. Such a trajectory has generated important questions about the future of homeownership at all ages. The issues with young adults seem particularly acute. Will young adults want to own houses? Even if they do, will they be able to afford homeownership? The answers to these questions are still unclear, especially because millennials are not just slower to start their own households and purchase homes: they also are more likely to live in their parents’ homes than any generation in recent history. The rapidly changing racial and ethnic composition of the population also has profound implications for household formation and homeownership.

In this report, we dive deeply into the pace of household formation and homeownership attainment—nationally and by age groups and race/ethnicity over the past quarter-century—and project future trends. Considering the great uncertainty about household formation and homeownership, single-point forecasts of homeownership rates and housing demand could seriously mislead policymakers and obscure the potential implications of their decisions. Instead, we offer plausible competing scenarios for household formation and homeownership that generate a range of future national housing demand projections. (1)

I am not in a position to evaluate how well the report projects future trends, but some of its conclusions are worth considering together:

  • the homeownership rate will decline from 65.1 percent in 2010 to 61.3 percent in 2030; (46)
  • the rapid growth of the renter population will create significant demand for new rental housing construction and encourage shifting of owner-occupied dwellings to rentals; (47)
  • very tight credit availability standards will retard homeownership attainment and may exacerbate the growing shortage in rental housing; (48) and
  • the erosion of black homeownership needs to be addressed by more than mortgage policy. (48)

Taken together, these conclusions all point to a backsliding in the housing market: the American Dream disappearing for millions of Americans, particularly African Americans, who will end up living in overcrowded Pottersvilles straight out of It’s A Wonderful Life. Just like George Bailey, we have choices to make before that nightmare becomes a reality. But before we decide anything too hastily, we should consider the fundamental goals of housing policy.

I have argued that a “fundamental goal of housing policy is to assist Americans to live in a safe, well-maintained and affordable housing unit.” I am less convinced than most housing scholars that homeownership, given the state of today’s economy, is such a sure road to stable housing and financial well-being. So, instead of blindly focusing on increasing the homeownership rate, I would focus on increasing opportunities for sustainable homeownership. I believe the report’s authors would agree with this, but I think that housing scholars in general need to focus on policies that keep households in their housing, given how much income instability they now face.

June 26, 2015 | Permalink | No Comments