July 23, 2015
- The Federal Reserve Bank of New York’s Staff Report, Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays, examines the interconnectedness of debt repayment decisions – specifically finding that mortgage default is negatively correlated with credit card and car loan defaults, unless foreclosure is delayed, in which case default rates increase across the board.
- Harvard’s Joint Center for Housing Studies’ Remodeling Futures Program recently released its Leading Indicator of Remodeling Activity (LIRA) index which predicts annual spending growth for home improvements will accelerate to 4.0% by the first quarter of 2016.
- According to the National Association of Realtor’s recently released June Existing Home Sales data, sales are now at their highest pace since February 2007 (5.79 million), have increased year-over-year for nine consecutive months and are 9.6 percent above a year ago (5.01 million).
- The National Low Income Housing Coalition has compiled a helpful overview of the new Affirmatively Furthering Fair Housing (AFFH) Rule, which was released by the U.S. Department of Housing and Urban Development on July 8th. This document compares the old AFFH rule to the new AFFH rule and finds it makes modest yet positive steps toward encouraging more integrated communities.
- The Urban Institute’s Are You Rent Burdened? Is an interactive calculator the allows one to imput address, income and rental amount to determine whether one is rent burdened.
- Valuing Control, Peter C. DiCola, 113 Michigan Law Review 663 (2015).
- A Framework for Understanding Property Regulation and Land Use Control from a Dynamic Perspective, Donald J. Kochan, 4 Michigan Journal of Environmental & Administrative Law 303 (2015).
- The Use of Listed Real Estate Securities in Asset Management, Alex Moss & Andrew Baum.
- Financial Literacy, Broker-Borrower Interaction, and Mortgage Default, James Neil Conklin.
- Mortgage Default, Juan Carlos Hatchondo, Leonardo Martinez & Juan M. Sanchez.
July 21, 2015
Jeremy Cohen, a partner with Wolf Haldenstein Adler Freeman & Herz, and I discussed a lawsuit brought by a New York City co-op owner who says he’s been unable to move into his apartment at the famed Dakota coop for 16 years.
Robert Siegel, chief executive officer of Metropole Realty Advisors Inc., said in his lawsuit that he paid $2.23 million in 1999 for an apartment at the Dakota and has never spent a night there because the board refused to approve his renovation plans and took part of his unit as storage space for the building. He’s seeking $55 million in damages and a court order allowing him to make the renovations.
“These bad-faith acts foreclosed the possibility of Mr. Siegel constructing bedrooms there and thus ensured that the apartment could not be used by Mr. Siegel and his family,” according to the June 29 complaint, filed in New York State Supreme Court.
Before buying the street-level duplex at the building on 72nd Street and Central Park West — once home to celebrities such as John Lennon and Lauren Bacall — Siegel got permission from the co-op board to convert the lower level into four bedrooms with air conditioning for his children, according to the lawsuit. Once the sale was complete, the board said it would only approve Siegel’s plans if he agreed to buy additional shares of Dakota co-operative stock for $1.8 million, which would about double his monthly maintenance charges, according to the complaint.
After Siegel refused to make the additional payments, the board voted to reclassify half of Siegel’s apartment as “non-habitable storage space,” according to the lawsuit. The board also barred him from adding air conditioning or ventilation to the lower level, thereby making it unsuitable for bedrooms, according to the complaint.
- Today, July 21st The U.S. Senate Finance Committee is holding a mark up of several expired tax provisions. This Tax Extenders Legislation would, among other provisions, extend the popular New Market Tax Credit and the Low Income Housing Tax Credit which help developers finance affordable housing construction.
July 20, 2015
Fernando Ferreira and Joseph Gyourko, both at Penn’s Wharton School, have posted A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012 to SSRN. Unfortunately it is behind a National Bureau of Economic Research paywall. The paper makes the case for “a reinterpretation of the U.S. foreclosure crisis as more of a prime, rather than a subprime, borrower issue.” (1) The authors conclude,
The housing bust and its consequences are among the defining economic events of the past quarter century. Constructing and analyzing new and very large micro data spanning the cycle and all sectors of the mortgage market leads us to reinterpret the ensuing foreclosure crisis as something much more than a subprime sector issue. Many more homes were lost by prime mortgage borrowers, and their loss rates not only increased relatively early in the crisis, but stayed high through 2012. This new characterization of the crisis motivates a very different empirical strategy from previous research on this topic. Rather than focus solely on the subprime sector and subprime traits, we turn to the traditional home mortgage default literature that explains outcomes in terms of common factors such as negative equity and borrower illiquidity.
The key empirical finding is that negative equity conditions can explain virtually all of the difference in foreclosure and short sale outcomes of Prime borrowers compared to all Cash owners. This is true on average, over time (including the spike in their foreclosure rate beginning in 2009), and across metropolitan areas. Given the predominance of this group in terms of foreclosures and short sales, this is tantamount to explaining the crisis itself. We can explain much, but not all, of the variation in Subprime borrower outcomes in terms of negative equity or borrower illiquidity conditions, so something potentially ‘special’ about the subprime sector still is unaccounted for. That said, it also could be that a less noisy measure of borrower illiquidity would be able to account for this residual variation. That remains for future research.
None of the other ‘usual suspects’ raised by previous research or public commentators change this conclusion. Housing quality traits, household demographics (race or gender), buyer income, and speculator status do not have a material influence on outcomes across borrower types. Certain loan-related attributes such as initial LTV, whether a refinancing occurred or a second mortgage was taken on, and loan cohort origination quarter do have some independent influence, but they are much weaker than that of current LTV. (27)
I will have to leave it to other empiricists to evaluate whether this sure-to-be-controversial study is methodologically sound, but I sure did find their policy conclusion to be interesting:
We are not able to provide a definitive recommendation one way or another, but we can rule out one noteworthy reason offered for not aiding homeowners—namely, that the crisis was mostly about irresponsible subprime sector actors (both lenders and borrowers) who were undeserving of transfers. Of course, this is not to say that there was no such behavior. The evidence from other research and serious journalists is that there was. However, it is clear from the passage of time (and the accumulation and analysis of new data that provides) that the problem was much more widespread and systemic. (28)
Hopefully, this is a lesson that we can take with us into the next (inevitable) housing crisis so we lay the foundation for policy solutions based on facts and not rely on moral judgments about borrowers that are built on shaky ground.
- Primary Capital Advisors LLC will face suit for selling bad loans to a Residential Capital LLC subsidiary, putting the parent company into bankruptcy, because the contract language was ambiguous.
- California federal court approved Diversified Lending Group’s $163 million settlement with the SEC in a Ponzi scheme suit over returns on rental properties.
- JPMorgan Chase & Co. settles for $388 million to end investor class action for misrepresenting underwriting standards for $10 billion in mortgage-backed securities.