December 11, 2017
I will be speaking in a free American Bar Association webinar tomorrow, Challenges for Modern Housing Markets:
Our current housing system is not sustainable in terms of the market, residential tenure, cost stability, and neighborhood inequality. Our panelists will discuss some key areas in which housing must be stabilized in order to strengthen our economy and society. Our panelists will address ways to lessen the volatility of housing prices and home mortgage lending, the importance of and ways to improve stability of residency, ways to improve the sustainability of affordable housing, and recent lawsuits that have reframed the problem of distressed and inequitable communities.
The other speakers are
- Professor Kristen Barnes, University of Akron School of Law
- Professor Andrea J. Boyack, Washburn University School of Law
The program will be moderated by Professor Wilson R. Freyermuth, University of Missouri School of Law.
My remarks will be drawn in part from my work on the Federal Housing Administration.
The webinar is free and open to all. It will take place Tuesday, December 12, 2017 at 12:30 p.m. Eastern/11:30 a.m. Central/9:30 a.m. Pacific.
Register for the webinar at http://ambar.org/ProfessorsCorner.
The webinar is sponsored by the ABA Real Property, Trust and Estate Law Section Legal Education and Uniform Laws Group. It is part of a series of webinars that features a panel of law professors who address topics of interest to practitioners of real estate and trusts/estates.
- The United States Department of Housing and Urban Development released its 2017 Annual Homeless Assessment Report. The report noted more than half a million individuals were displaced on one single night in 2017. Though the half a million is a large sum, the number of families displaced from homes decreased by over 5%. While this decline is great, the number of homeless veterans increased. Further large cities on the West Coast account for the increase in individual homelessness.
- The U.S. Government Accountability Office released a report entitled, Financial Audit: Federal Housing Finance Agency’s (FHFA) Fiscal Years 2017 and 2016 Financial Statements. The report noted the FHFA complied with the nation’s acceptable accounting principles. Further, for the 2017 fiscal year, there were no reports of non-compliance with applicable laws.
December 7, 2017
Greg Kaplan et al. posted The Housing Boom and Bust: Model Meets Evidence to SSRN. The abstract reads,
We build a model of the U.S. economy with multiple aggregate shocks (income, housing ﬁnance conditions, and beliefs about future housing demand) that generate ﬂuctuations in equilibrium house prices. Through a series of counterfactual experiments, we study the housing boom and bust around the Great Recession and obtain three main results. First, we ﬁnd that the main driver of movements in house prices and rents was a shift in beliefs. Shifts in credit conditions do not move house prices but are important for the dynamics of home ownership, leverage, and foreclosures. The role of housing rental markets and long-term mortgages in alleviating credit constraints is central to these ﬁndings. Second, our model suggests that the boom-bust in house prices explains half of the corresponding swings in non-durable expenditures and that the transmission mechanism is a wealth eﬀect through household balance sheets. Third, we ﬁnd that a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures, but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery.
I think the last sentence is worth pondering a bit: “a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures, but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery.” During the Great Depression, the federal government took steps that relieved the debt burden of over a million households by extending the terms of their mortgages and lowering the interest rates on them.
While this was no panacea, it did let millions stay in their homes during a period of great financial stress. The steps taken to help struggling homeowners during the recent Great Recession were much more timid than those taken during the Great Depression. This paper adds to a body of literature that suggests we should not be so timid the next time we are hit by an economic tsunami.
- A banking institution joined the battle over the Consumer Financial Protection Bureau’s new leadership. Lower East Side People’s Federal Credit Union alleges Trump’s appointment of Mulvaney is an “illegal hostile takeover,” of the agency. Lower East Side People’s Federal Credit Union is a New York based credit union that believes Cordray’s appointment following his resignation is the sole legitimate leader of the federal agency. As a result, the credit union sued President Trump and Mulvaney.
- The Senate is hard at work attempting to revise and restructure the financial legislation in place during the Obama administration. The Senate’s newest effort is to repeal the Dodd-Frank Act. The Senate’s Banking Committee began a markup of a bill which will restructure the current rules and regulations of the financial industry. The bill is entitled, the Economic Growth, Regulatory Relief and Consumer Protection Act. According to critics, the bill eliminates imperative Wall Street and consumer protections.
December 6, 2017
Laurie Goodman and her colleagues at the Urban Institute’s Housing Finance Policy Center have released a report, Barriers to Accessing Homeownership Down Payment, Credit, and Affordability. The Executive Summary states that
Saving for a down payment is a considerable barrier to homeownership. With rising home prices, rising interest rates, and tight lending standards, the path to homeownership has become more challenging, especially for low-to-median-income borrowers and first-time homebuyers. Yet most potential homebuyers are largely unaware that there are low–down payment and no–down payment assistance programs available at the local, state, and federal levels to help eligible borrowers secure an appropriate down payment. This report provides charts and commentary to articulate the challenges families face saving for down payments as well as the options available to help them. This report is accompanied by an interactive map.
Barrier 1. Down Payments
• Consumers often think they need to put more down than lenders actually require. Survey results show that 53 percent of renters cite saving for a down payment as an obstacle to homeownership. Eighty percent of consumers either are unaware of how much lenders require for a down payment or believe all lenders require a down payment above 5 percent. Fifteen percent believe lenders require a 20 percent down payment, and 30 percent believe lenders expect a 20 percent down payment.
• Contrary to consumer perceptions, borrowers are not actually putting down 20 percent. The national median loan-to-value (LTV) ratio is 93 percent. The Federal Housing Administration (FHA) and US Department of Veterans Affairs (VA) typically offer lower down payment options than the government-sponsored enterprises (GSEs), from 0 to 3.5 percent. As the share of FHA and VA lending has increased considerably in the post-crisis period (since 2008), the median LTV ratio has increased as well.
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Barrier 2. The Credit Box
• Access to homeownership is not limited by down payments alone. Credit access is tight by historical standards. Accordingly, the median credit score of new purchase mortgage originations has increased considerably in the post-crisis period. The median credit score for purchase mortgages is 779, compared with the pre-crisis median of 692. Credit scores of FHA borrowers have historically been lower; the current median credit score is 671.
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Barrier 3. Affordability
• Because of home price appreciation in the past five years, national home price affordability has declined. Low interest rates have aided affordability. If interest rates reach 4.75 percent, national affordability will return to historical average affordability.
* * *
Access to Down Payment Assistance
• Low–down payment mortgages and other down payment assistance programs provide grants or loans to potential homeowners all over the country. There are 2,144 active programs across the country, and 1,295 agencies and housing finance agencies offering them at the local, state, and national levels. One of the major challenges of the offerings in each state is that they are not standard, eligibility requirements vary, and not all lenders offer the programs. Pricing for the programs also vary, so counseling and consumer education about the programs is necessary to ensure consumers understand how the program works and any additional costs that may be incurred.
* * *
• Eligibility for down payment assistance programs is determined by such factors as loan amount, homebuyer status, borrower income, and family size. Assistance is available for many loan types including conventional, FHA, VA, and US Department of Agriculture (USDA) loans. The share of people eligible for assistance in select MSAs ranges from 30 to 52 percent, and the eligible borrowers could qualify for 3 to 12 programs with down payment assistance ranging from $2,000 to more than $30,000.
Because of the tight credit environment, many borrowers have been shut out of the market and have not been able to take advantage of low interest rates and affordable home prices. As the credit box opens, educating consumers about low–down payment mortgages and down payment assistance is critical to ensuring homeownership is available to more families. (V-VI, emphasis removed)