REFinBlog

Editor: David Reiss
Brooklyn Law School

May 1, 2018

Light Blogging This Summer

By David Reiss

I am trying to do a final push on my forthcoming book, Paying For The American Dream: How To Reform The Market For Mortgages (Oxford University Press), this summer, so I will not be keeping to my regular blogging schedule.

May 1, 2018 | Permalink | No Comments

April 25, 2018

Noise Pollution and Property Values

By David Reiss

photo by Luis Miguel Bugallo Sánchez

Realtor.com quoted me in What Is Noise Pollution and How Does It Affect Property Values? It opens,

When it comes to a home’s value (and your sanity), noise pollution can be a major downer. But what is noise pollution exactly? Most people have different definitions of what noise pollution actually is—anything from sirens to a barking dog, or the noise of traffic on the street outside.

While outside noise isn’t totally escapable (even the prairie has ambient noise), home buyers will want to be on the lookout for excessive noise pollution, because it could affect a property’s value. After all, you don’t want to live in (or have to eventually unload) a place that requires a lifetime supply of earplugs.

First, let’s define what noise pollution actually means.Re

What is noise pollution?

In defining noise pollution, there are several variables in the mix.

“Noise pollution is basically any noise that you don’t like, but I guess we would define it as noise that most people generally don’t like,” says Brooklyn Law School Professor David Reiss, research director for the Center for Urban Business Entrepreneurship. “When governments regulate noise, however, it is usually based on how loud a noise is.”

For example, Reiss explains that according to A Guide to New York City’s Noise Code, in that city, “Noise that exceeds the ambient sound level by more than 10 decibels (dB) as measured from 15 feet from the source as measured from inside any property or on a public street is prohibited.”

Of course, the ambient sound level in NYC is considerably louder than in a rural area.

How to measure noise pollution near a home

Although decibels are used to measure the intensity of a sound, there are more accurate ways to identify noise pollution around a particular house. When it comes to getting ballpark figures for typical noise levels, Tom Davies, Co-Founder and Manager of the property buying company Accelerate Homes, suggests that most buyers figure out the day-night average sound level (Ldn) or the day-evening-night average sound level (Lden), which are measurements that can help assess the impact that road, rail, air, and general industry has on the local population. Either of these measurements give a potential buyer a much more accurate assessment of overall noise pollution near their home. To measure these levels, get a regular decibel meter, take hourly readings, and plug those numbers into this online noise calculator.

You can also check this interactive national transportation map created by the U.S. Bureau of Transportation Statistics to get a general idea of noise pollution levels created primarily by interstate highways and airports in your area. Just type in your address (or the address of any home you’re considering) and get a general reading. Red means loud—think vacuum cleaner (like 60dB-80 dB), and purple means even louder, like the constant sound of a garbage disposal (80 dB and up).

Identifying noise pollution culprits

It’s not always easy to figure out what’s making all the noise, but it is possible.

“While some of the main factors could be easily spotted—like the proximity of highways, stadiums, airports, train, and bus stations—other factors like specialized traffic (regular truck deliveries or rubbish removal), or the presence of neighbors with loud dogs, are far less likely to be spotted at first sight,” says Davies. The only way to get to the bottom of it is to talk to the neighbors.

Reiss also suggests taking it a step further.

“Visit at different times of the day. For example, if there is a bar across the street, drive by on a Saturday night,” he says. “Also, ask local government officials, like community board district managers, about noise complaints.” Basically, it’s up to you to do your due diligence on sound.

How noise pollution affects property prices

High noise levels don’t automatically correlate with lower prices, Reiss says. Some of the most expensive homes in New York City are located in midtown Manhattan, a busy area that’s home to the theater district, the tourist magnet Times Square, and many major corporate offices.

“But within a certain market, there will be those who value quietness and those who value being in the middle of the action,” he says.

To get a true reading on how noise pollution will affect the value of a property, “you would need to distinguish short-term noise—like a neighboring construction site—from permanent noise—like from a neighboring firehouse,” says Reiss.

April 25, 2018 | Permalink | No Comments

April 24, 2018

An Inquest into the Subprime Crisis

By David Reiss

, image by Paul Townsend

Coroners Inquests in Gloucestershire from The Gloucester Journal 1814

Juan Ospina and Harald Uhlig have posted Mortgage-Backed Securities and the Financial Crisis of 2008: A Post-Mortem to SSRN. Given that the market for private-label MBS pretty much died by 2008, the title is apt. The paper presents a challenge to many of the standard narratives that have developed to explain the causes of the subprime crisis and the broader financial crisis that followed. Other researchers in this area will surely take up the gauntlet thrown down by this paper. Hopefully, we will collectively come up with the right narrative to explain the whole mess. The paper opens,

Gradually, the deep financial crisis of 2008 is in the rearview mirror. With that, standard narratives have emerged, which will inform and influence policy choices and public perception in the future for a long time to come. For that reason, it is all the more important to examine these narratives with the distance of time and available data, as many of these narratives were created in the heat of the moment.

One such standard narrative has it that the financial meltdown of 2008 was caused by an overextension of mortgages to weak borrowers, repackaged and then sold to willing lenders drawn in by faulty risk ratings for these mortgage back securities. To many, mortgage backed securities and rating agencies became the key villains of that financial crisis. In particular, rating agencies were blamed for assigning the coveted AAA rating to many securities, which did not deserve it, particularly in the subprime segment of the market, and that these ratings then lead to substantial losses for institutional investors, who needed to invest in safe assets and who mistakenly put their trust in these misguided ratings.

In this paper, we re-examine this narrative. We seek to address two questions in particular. First, were these mortgage backed securities bad investments? Second, were the ratings wrong? We answer these questions, using a new and detailed data set on the universe of non-agency residential mortgage backed securities (RMBS), obtained by devoting considerable work to carefully assembling data from Bloomberg and other sources. This data set allows us to examine the actual repayment stream and losses on principal on these securities up to 2014, and thus with a considerable distance since the crisis events. In essence, we provide a post-mortem on a market that many believe to have died in 2008. We find that the conventional narrative needs substantial rewriting: the ratings and the losses were not nearly as bad as this narrative would lead one to believe.

Specifically, we calculate the ex-post realized losses as well as ex-post realized return on investing on par in these mortgage backed securities, under various assumptions of the losses for the remaining life time of the securities. We compare these realized returns to their ratings in 2008 and their promised loss distributions, according to tables available from the rating agencies. We shall investigate, whether ratings were a sufficient statistic (to the degree that a discretized rating can be) or whether they were, essentially, just “noise”, given information already available to market participants at the time of investing such as ratings of borrowers.

We establish seven facts. First, the bulk of these securities was rated AAA. Second, AAA securities did ok: on average, their total cumulated losses up to 2013 are 2.3 percent. Third, the subprime AAA-rated segment did particularly well. Fourth, later vintages did worse than earlier vintages, except for subprime AAA securities. Fifth, the bulk of the losses were concentrated on a small share of all securities. Sixth, the misrating for AAA securities was modest. Seventh, controlling for a home price bust, a home price boom was good for the repayment on these securities. (1-2)

April 24, 2018 | Permalink | 1 Comment

April 23, 2018

Promoting Equitable Transit-Oriented Development

By David Reiss

graphic by USGAO

Enteprise has released a report, Promoting Opportunity through Equitable Transit-Oriented Development (eTOD): Navigating Federal Transportation Policy. It opens,

Transportation, housing and land use decisions that form the foundation of our development patterns are made at every level of government. While the local regulatory environment significantly impacts the amount and type of development that occurs, the federal government plays a major role in local development in both overt and hidden ways. Federal funding is the most obvious source of influence. However, this funding comes with a catch, as the incentives and regulations that govern funding programs can have a significant impact – both positive and negative – on the type of housing and transportation infrastructure that is built and how it is maintained over time.

The federal ability to influence development patterns gives it both direct and indirect influence on a community’s strength and composition. Individual families, the local economy, municipal governments and the environment all benefit when well-located housing, jobs and other necessary resources are connected by efficient transportation and infrastructure networks. Equitable transit-oriented development (eTOD, see sidebar for definition) is an important approach to facilitating these connections. eTOD supports the achievement of multiple cross-sector goals, including regional economic growth, enhanced mobility and access, efficient municipal and transportation network operations, improved public health and decreased cost of living. For a full discussion of the benefits of eTOD, read Promoting Opportunity through eTOD: Making the Case.

In recent years, the federal government has taken several actions that are more conducive to fostering eTOD. Notable examples include the adoption of incentives for creating and preserving affordable housing near transit, the provision of planning and technical assistance resources to support eTOD, and the reduction of barriers to producing affordable housing on federally-funded property. However, a wide range of policies and incentives that do not explicitly address eTOD can also support or detract from the conditions that make such development possible.

Navigating Federal Transportation Policy is the third report in our Promoting Opportunity through eTOD research series. This report seeks to assist stakeholders involved in achieving eTOD, such as public entities, developers and practitioners, as they work to navigate the federal policy landscape, with a focus onFederal Transit Administration (FTA) policies and programs. These policies and programs generally offer several funding and technical assistance opportunities that can address eTOD (among a range of other uses), but housing practitioners may be less familiar with these resources and how to access them. (2, footnote omitted)

While the report explicitly acknowledges the changed environment since President Trump’s election, it does not seem to fully integrate those changes into its recommendations. While there are a lot of good ideas in the report, I am afraid that it will take a few years, or longer, for them to find a sympathetic ear in the Executive Branch.

April 23, 2018 | Permalink | No Comments

April 20, 2018

Rate-Lock Lock Out

By David Reiss

photo by Ildar Sagdejev

Mick Mulvaney plays against type by signing off on a Consent Order with a billion dollar penalty for Wells Fargo. The Order stated that Wells, among other things, charged “fees for rate-lock extensions in connection with residential-mortgage lending” and violated the law when it “unfairly failed to follow the mortgage-interest-rate-lock process it explained to some prospective borrowers…” (1)  Reading the details of what happened gives a sense of what happens when a large financial institutions runs amok, making consumers feel like they are in some absurd movie where a malevolent force is out to get them and they don’t know why.  The Order states that Wells “inappropriately charged borrowers rate-lock-extension fees that should have been absorbed by Respondent.” (5-6) Here are some highlights of how such a practice develops in a large financial institution:

13. In May 2012, in response to processing delays, Respondent stopped charging any Extension Fees to borrowers. Instead, Respondent extended rate-lock periods without charging borrowers a fee.

14. In September 2013, Respondent enacted a new nationwide policy under which borrowers would pay the Extension Fee in certain circumstances.

15. Respondent’s September 2013 policy change provided that if a rate-lock extension was made necessary by borrower-caused delays, or by certain delays related to the property itself, the borrower could be charged an Extension Fee; if there were lender-caused delays, however, Respondent would extend the rate-lock period without charging borrowers a fee, as it had done since May 2012.

16. Rate-lock choices may materially affect how much it costs consumers to get a loan. Respondent expected its loan officers to explain to prospective borrowers all of the available rate-lock options, to help borrowers select the option best suited to their needs, and to clearly explain its rate-lock process to prospective borrowers.

17. During the Rate-Lock Relevant Period, Respondent trained its loan officers to inform prospective borrowers that they would be responsible for paying Extension Fees under circumstances where the delay was caused by the borrower or related to the property itself, including when the borrower does not timely return necessary documentation, the borrower disputes a low appraisal, previously undisclosed liens are uncovered, sellers or builders delay the process, the sale is not timely approved by a condo project or co-op board, or the borrower’s credit score changes.

18. Within days of rolling out the new policy, Respondent acknowledged in internal communications that its guidelines for its loan officers were inadequate. Respondent instructed employees that Extension Fees would be charged based on the factor primarily responsible for the delay, without further guidance as to what that meant.

19. Almost three years after a 2013 internal audit first identified the risks for consumer harm relating to improperly assessed Extension Fees, an October 2016 internal audit found that Respondent inconsistently applied its policy and charged borrowers Extension Fees in situations where Respondent was responsible for the delay in the loan’s closing. (6-8)

Some think that large corporations are not prone to the same sort of byzantine policies and procedures that a large government agency is. The subprime crisis, the foreclosure crisis and even now, post-crisis, it has been clearly demonstrated time and again that they are. If that does not prove the value of the CFPB to the American consumer, I don’t know what does.

April 20, 2018 | Permalink | No Comments

April 18, 2018

Expanding Access to Homeownership

By David Reiss

New homeowners Lateshia, Sylvia, and Tyrell Walton stand in front of their new home.  U.S. Navy photograph by Mass Communication Specialist Seaman Shamus O’Neill

Christopher Herbert et al. has posted Expanding Access to Homeownership as a Means of Fostering Residential Integration and Inclusion. It opens,

Efforts to enable greater integration of communities by socioeconomic status and race/ethnicity have to confront the issue of housing affordability. Cities, towns and neighborhoods that offer access to better public services, transportation networks, shopping, recreational opportunities, parks and other natural amenities have higher housing costs. Expanding access to these communities for those with lower incomes and wealth necessarily entails some means of bringing housing in these areas within their financial reach. While households’ financial means are central to this issue, affordability intersects with race/ethnicity in part because minorities are more likely to be financially constrained. But to the extent that these areas are also disproportionately home to majority-white populations, discrimination and other barriers to racial/ethnic integration must also be confronted along with affordability barriers.

Enabling greater integration also entails some means of fostering residential stability by maintaining affordability in the face of changing neighborhood conditions. This issue is perhaps most salient in the context of neighborhoods that are experiencing gentrification, where historically low-income communities are experiencing rising rents and house values, increasing the risk of displacement of existing residents and blocking access to newcomers with less means. More generally, increases in housing costs in middle- and upper-income communities may also contribute to increasing segregation by putting these areas further out of reach of households with more modest means.

It is common to think of subsidized rental housing as the principal means of using public resources to expand access to higher-cost neighborhoods and to maintain affordability in areas of increasing demand. But for a host of reasons, policies that help to make homeownership more affordable and accessible should be included as part of a portfolio of approaches designed to achieve these goals.

For example, survey research consistently finds that homeownership remains an important aspiration of most renters, including large majorities of low- and moderate-income households and racial/ethnic minorities. Moreover, because owner-occupied homes account for substantial majorities of the existing housing stock in low-poverty and majority-white neighborhoods, expanding access to homeownership offers the potential to foster integration and to increase access to opportunity for low- income households and households of color. There is also solid evidence that homeownership remains an important means of accruing wealth, which in turn can help expand access to higher-cost communities. Owning a home is associated with greater residential stability, in part because it provides protection from rent inflation, which can help maintain integration in the face of rising housing costs. Finally, in communities where owner-occupied housing predominates, there may be less opposition to expanding affordable housing options for homeowners.

The goal of this paper is to identify means of structuring subsidies and other public interventions intended to expand access to homeownership with an eye towards fostering greater socioeconomic and racial/ethnic integration. (1-2, footnotes omitted)

The paper gives an overview of the barriers to increasing the homeownership rate, including affordability, access to credit and information deficits and then outlines policy options to increase homeownership. The paper provides a good overview for those who want to know more about this topic.

 

April 18, 2018 | Permalink | No Comments

April 17, 2018

Big Eviction Data

By David Reiss

photo by Tim Patterson

The Eviction Lab, run by Princeton University Professor Matthew Desmond (of Evicted fame) has recently released its Methodology Report and related resources. The introduction to the report opens,

In recent years, renters’ housing costs have far outpaced their incomes, driving a nationwide affordability crisis. Current data from the American Housing Survey show that most poor renting families spend at least 50 percent of their income on housing costs. Under these conditions, 1 millions of Americans today are at risk of losing their homes through eviction.

An eviction occurs when a landlord forcibly expels a tenant from a residence. While the majority of evictions are attributed to nonpayment of rent, landlords may evict tenants for a variety of other reasons, including property damage, nuisance complaints, or lease violations. A formal eviction occurs when a landlord carries out an eviction through the court system. Conversely, an informal eviction occurs when a landlord executes an eviction without initiating a legal process. For example, a landlord may offer a buyout or perform an illegal lock-out. Until recently, little was known about the prevalence, causes, and consequences of eviction.

The Eviction Lab at Princeton University has collected, cleaned, geocoded, aggregated, and publicized all recorded court-ordered evictions that occurred between 2000 and 2016 in the United States. This data set consists of 82,935,981 million court records related to eviction cases in the United States between 2000 and 2016, gleaned from multiple sources. It is the most comprehensive data set of evictions in America to date.

These data allow us to estimate the national prevalence of court-ordered eviction, and to compare eviction rates among states, counties, cities, and neighborhoods. We can observe eviction trends over time and across geography, and researchers can link these data to other sources of information. (2)

In sum, the Eviction Lab has created “the most comprehensive data set of evictions in America.” (41) This data set is obviously of great importance and will lead to important research about what it means to be poor in the United States. The Eviction Lab website has a user-friendly mapping function among other resources for researchers and policymakers.

April 17, 2018 | Permalink | No Comments