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Editor: David Reiss
Brooklyn Law School

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July 3, 2015

JFK on Independence Day

By David Reiss

JFK profile

Here is an excerpt from Some Elements of the American Character, Independence Day Oration by John Fitzgerald Kennedy, Candidate for Congress from the 11th Congressional District, July 4, 1946:

The American character has been not only religious, idealistic, and patriotic, but because of these it has been essentially individual.

The right of the individual against the State has ever been one of our most cherished political principles.

The American Constitution has set down for all men to see the essentially Christian and American principle that there are certain rights held by every man which no government and no majority, however powerful, can deny.

Conceived in Grecian thought, strengthened by Christian morality, and stamped indelibly into American political philosophy, the right of the individual against the State is the keystone of our Constitution. Each man is free.

He is free in thought.

He is free in expression.

He is free in worship.

To us, who have been reared in the American tradition, these rights have become part of our very being. They have become so much a part of our being that most of us are prone to feel that they are rights universally recognized and universally exercised. But the sad fact is that this is not true. They were dearly won for us only a few short centuries ago and they were dearly preserved for us in the days just past. And there are large sections of the world today where these rights are denied as a matter of philosophy and as a matter of government.

We cannot assume that the struggle is ended. It is never-ending.

Eternal vigilance is the price of liberty. It was the price yesterday. It is the price today, and it will ever be the price.

The characteristics of the American people have ever been a deep sense of religion, a deep sense of idealism, a deep sense of patriotism, and a deep sense of individualism.

Let us not blink the fact that the days which lie ahead of us are bitter ones.

May God grant that, at some distant date, on this day, and on this platform, the orator may be able to say that these are still the great qualities of the American character and that they have prevailed.

July 3, 2015 | Permalink | No Comments

Happy Fourth of July!

By Shea Cunningham

“Where liberty dwells, there is my country.” — Benjamin Franklin

July 3, 2015 | Permalink | No Comments

July 2, 2015

The Importance of Understanding G-Fees

By David Reiss

United_States_Capitol_west_front_edit2

The Federal Housing Finance Agency has released Fannie Mae and Freddie Mac Single-Family Guarantee Fees in 2014. Ok, ok, this is some really technical stuff. But it gives us a lot of important information about what goes into the cost of a home mortgage.

The executive summary opens, “The Housing and Economic Recovery Act of 2008 (HERA) requires the Federal Housing Finance Agency (FHFA) to submit reports to Congress annually on the guarantee fees charged by Fannie Mae and Freddie Mac (the Enterprises).” (2, footnotes omitted) The report finds that “the average level of guarantee fees charged has increased since 2009. The guarantee fees are currently two-and-a-half times their previous level; from 2009 to 2014, average fees increased from 22 basis points to 58 basis points. From 2013 to 2014, average fees increased from 51 basis points to 58 basis points.” (2, footnote omitted)

For all of you non-experts out there, a basis point is 1/100th of a percentage point. So a guarantee fee (or g-fee in the lingo) of 58 basis points increases the interest rate paid by more than half a percentage point (for instance, from 4.5% to 5.08%).  So homeowners should want to understand why g-fees have more than doubled since 2009.

The report breaks down how g-fees gradually increased in response to Congressional and FHFA requirements, some of which are not tied to housing finance goals at all. For instance, Congress added ten basis points to fund an extension of a tax cut.

Many have argued that g-fees should be kept as low as possible in order to help out the housing market. I do not take that position, in large part because cheap credit does not necessarily lower the cost of housing; sellers may just be able to raise the price of their homes in a cheap credit environment. I also believe that the housing market and the mortgage market need to achieve some sort of equilibrium and unnaturally low g-fees will distort such an equilibrium.

The price of the g-fee should reflect the real costs of the g-fee. For instance, it should cover the cost of losses that result from borrower default. It should not be used to fund programs unrelated to housing. G-fees that are unnaturally high distort the housing finance market and make homeowners subsidize other constituencies. Federal housing finance policy tends to get screwed up if it veers too much from its fundamentals, so we should not ask too much of the g-fee.

Fannie and Freddie have been in limbo ever since they entered conservatorship in 2008. The longer they are in that limbo, the more likely it is that Congress will use them to do all sorts of things that do not relate to maintaining a liquid housing finance market. This study outlines how the g-fee has morphed over time and is a wake-up call to homeowners and policy makers alike to set Fannie and Freddie on a healthy course for the long term, starting with that obscure and technical g-fee.

July 2, 2015 | Permalink | No Comments

Thursday’s Advocacy & Think Tank Round-up

By Serenna McCloud

  • Enterprise Community Partners, in response to New York State Attorney General’s announcement that $75 million of the moneys received by New York in settlement with Bank of America (BOA) and and Citi will be used to fund affordable housing efforts, has released reports analyzing the consumer relief obligations of Citi ($2.5 billion) and BOA ($7 billion)
  • Harvard’s Joint Center for Housing Studies, State of the Nation’s Housing Webcast moderated by NPR reporter Jim Zarroli.
  • New analysis, Inequality isn’t just about money; it’s also about where you live from the Urban Institute reveals how inequality manifests on the neighborhood level within metro areas, such as Dallas which the study found had a high degree of neighborhood inequality.

July 2, 2015 | Permalink | No Comments

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