April 18, 2017
- The Federal Reserve Board is making changes to its current practices. This shift potentially could change America’s housing road to recovery. In recent months, reducing the number of bond holdings have been discussed by federal officials. Currently, the U.S. has a 1.75 trillion “stash of mortgage-backed securities.”
- The Consumer Financial Protection Bureau (CFPB) asked for thoughts on its potential changes to the Home Mortgage Disclosure Act (HMDA). The Bureau seeks to clarify some of the mortgage lending procedures such as the the reporting and information collection processes of financial institutions.
April 17, 2017
The Federal Housing Finance Agency’s Division of Conservatorship release an Update on Implementation of the Single Security and the Common Securitization Platform. As I had discussed last week, housing finance reform is proceeding apace from within the FHFA notwithstanding assertions by members of Congress that they will take the lead on this. The Update provides some background for the uninitiated:
The Federal Housing Finance Agency’s (FHFA) 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac includes the strategic goal of developing a new securitization infrastructure for Fannie Mae and Freddie Mac (the Enterprises) for mortgage loans backed by 1- to 4-unit (single-family) properties. To achieve that strategic goal, the Enterprises, under FHFA’s direction and guidance, have formed a joint venture, Common Securitization Solutions (CSS). CSS’s mandate is to develop and operate a Common Securitization Platform (CSP or platform) that will support the Enterprises’ single-family mortgage securitization activities, including the issuance by both Enterprises of a common single mortgage-backed security (to be called the Uniform Mortgage-Backed Security or UMBS). These securities will finance the same types of fixed-rate mortgages that currently back Enterprise-guaranteed securities eligible for delivery into the “To-Be-Announced” (TBA) market. CSS is also mandated to develop the platform in a way that will allow for the integration of additional market participants in the future.
The development of and transition to the new UMBS constitute the Single Security Initiative. FHFA has two principal objectives in undertaking this initiative. The first objective is to establish a single, liquid market for the mortgage-backed securities issued by both Enterprises that are backed by fixed-rate loans. The second objective is to maintain the liquidity of this market over time. Achievement of these objectives would further FHFA’s statutory obligation and the Enterprises’ charter obligations to ensure the liquidity of the nation’s housing finance markets. The Single Security Initiative should also reduce the cost to Freddie Mac and taxpayers that has resulted from the historical difference in the liquidity of Fannie Mae’s Mortgage-Backed Securities (MBS) and Freddie Mac’s Participation Certificates (PCs). (1, footnote omitted)
This administratively-led reform of Fannie and Freddie is not necessarily a bad thing, particularly because the executive and legislative branches have not taken up reform in any serious way since the two companies entered conservatorship in 2008. While Congress could certainly step up to the plate now, it is worth understanding just how far along the FHFA is in its transformation of the two companies:
Upon the implementation of Release 2, CSS will be responsible for bond administration of approximately 900,000 securities, which are backed by almost 26 million home loans having a principal balance of over $4 trillion. CSS’S responsibilities related to security issuance, security settlement, bond administration and disclosures were described in the September 2015 Update on the Common Securitization Platform. The Enterprises and investors, along with home owners and taxpayers, will rely on the operational integrity and resiliency of the CSP to ensure the smooth functioning of the U.S. housing mortgage market. (8)
That is, upon the implementation of Release 2, the merger of Fannie and Freddie into Frannie will be complete.
- A Florida judge just awarded two million to the local government in a fraud scheme with Florida developers and contractors. Lloyd Boggio plead guilty to fraud charges for his role in a scheme to inflate the prices of affordable homes. Lloyd and five others conspired to keep the additional funds collected through their inflated prices.
- An island owner off the coast of Florida argued a taking by the state of Florida; however, the Florida Supreme Court refused to hear the case on appeal. The owner argues the state’s “increasingly restrictive development regulations” constitutes a taking of the land without just compensation. Furthermore, the plaintiff asserts the “city points” given by the government are not compensation for the land.
- The city of Miami is not thrilled with the use of Airbnbs. On March 23, 2017, residents of Miami held a community board meeting to discuss the implications of the use of Airbnbs. The meeting resulted in 3-2 vote in favor of enforcing Miami Mayor, Tomas Regalado, zoning and vacation rental ordinances. Tomas’ ordinances may lead to fines and violations by the Miami residents choosing to rent their homes out to Miami tourists.
April 14, 2017
Realtor.com quoted me in 5 Major Mistakes That Retirees Make With Real Estate. It opens,
You’ve worked hard year after grueling year and, finally, retirement is on the horizon. There’s nothing ahead for you but lazy days of relaxation and idle time to pursue those back-burner hobbies. Hey, you’ve earned it!
But if you haven’t planned ahead, those golden years could be full of stress—fraught with unknowns and major decisions to be made. And one of the biggest, most stressful aspects of retirement is, you guessed it, real estate.
Do you downsize? Buy a second property so you can make like snowbirds and fly south for the winter? Keep the home where all your family’s memories were made? While there’s no one-size-fits-all solution, there are some general pitfalls to avoid.
Here are five of the biggest real estate mistakes experts see retirees make.
1. Failing to ‘audit’ the situation
It might come as a surprise, but many retirees forget to assess their current real estate situation to make sure it meets their future needs, according to David Reiss, professor of law at Brooklyn Law School.
“Most people are on autopilot when it comes to their home: ‘It has worked for me up to now, so I assume that it will work for me going forward,’” Reiss says. “The mistake they make is that they do not realize that their future selves are very different from their current selves.
“As we age, our ability to do all sorts of physical things worsen—shoveling, climbing ladders—decreases,” he adds. “So it makes sense to assess your housing situation at regular intervals.”
Even if you plan on keeping your home, there are questions you should ask yourself: Should you make adjustments to your home so you can age in place? Does it make sense to refinance into a 15-year mortgage in order to pay off what you owe more quickly while paying a lower interest rate? Should you access some of the equity that’s built up in the house in order to supplement your retirement income?
“All of these options have pros and cons,” Reiss says. “It’s worth talking them through with someone whose financial judgment you trust.”
- HUD has published its third annual report on demographic and economic data for people living in Low-Income Housing Tax Credit (Housing Credit) properties. As of December 31, 2014, the median annual income of residents was $17,152 and approximately 47 percent of tenants earned 30 percent or less of the area median income.
- An article, titled No Shopping in the US Mortgage Market: Direct and Strategic Effects of Providing Information, documents and analyzes price dispersion in the U.S. mortgage market. The authors find significant price dispersion in posted prices in the retail channel: for example, a consumer with a prime credit score and with a 20% down payment might see a spread in interest rates of 50 basis points, controlling for all relevant consumer/property characteristics, including discount points.
- Using information on mortgages insured by the Federal Housing Administration, this article, titled Reverse Mortgage Collateral: Undermaintenance or Overappraisal, examines the disproportionate decline in collateral values associated with reverse mortgages.
April 13, 2017
The Federal Housing Finance Agency released its 2016 Scorecard Progress Report. It contains some interesting information about the FHFA’s ongoing efforts to reshape Fannie and Freddie notwithstanding the inaction of Congress. These efforts are not broadcast very clearly, but they are documented nonetheless:
Maintaining a high degree of uniformity in the prepayment speeds of the Enterprises’ mortgage-backed securities is important to the success of the Single Security Initiative. Accordingly, the 2016 Scorecard called for the Enterprises to assess new or revised Enterprise programs, policies, and practices for their effect on the cash flows of mortgage-backed securities eligible for financing through TBA market.
In July 2016, FHFA published An Update on Implementation of the Single Security and the Common Securitization Platform (July 2016 Update), which included a description of specific steps FHFA would take and steps FHFA would require the Enterprises to take to ensure the continued convergence of prepayment speeds across the Enterprises’ mortgage-backed securities. The July 2016 Update indicated that each Enterprise would be required to submit for FHFA review any proposed changes the Enterprise believed could have a measureable effect on the prepayment rates and performance of TBA-eligible securities, including its analysis of any effects on prepayment speeds and/or removals of delinquent mortgage loans from securities under a range of scenarios. In addition, FHFA monitors Enterprise programs, policies, and practices that are initially determined to have no significant effect on prepayment rates or security performance and works with the Enterprises to address any unexpected effects as they arise. (25)
While this is all very technical stuff, it boils down to the effort of the FHFA to make Fannie and Freddie’s securities indistinguishable from each other so they can be treated as a Single Security. Once this process is completed, we will enter a new phase for the GSEs. The two companies wont really be competitors, they will be like identical twins.
Senators Corker and Warner are trying to resuscitate a housing finance reform bill, but this administrative reform is proceeding apace through ten years of Congressional inaction. The FHFA’s actions will likely limit the choices that Congress will have in very real ways, assuming Congress can ever get itself to act.
This is not necessarily a bad thing, it is just good to name it for what it is: housing finance reform implemented by an independent agency, not by a democratically elected Congress.
- In an article by Enterprise, titled How Local Governments Can Raise Much-Needed Resources for Affordable Housing, discusses the importance of state and federal funds for housing, specifically for low income families.
- In an article by the Brookings Institute, titled The Federal Housing Administration Can Do More with More, discusses how the FHA has been an anchor to the US economy and could be an even greater positive influence with more funds.
- Last week, the finalists for Atlanta’s Affordable Housing Preservation Challenge (ATL Challenge) discussed their innovative proposals to strengthen the region’s ability to preserve affordable housing on the ATL Challenge blog. In January, submissions from Tapestry Development, TriStar, and Stryant Investments were chosen from a larger pool of proposals to compete for up to $70,000 to implement proposals related to expanding sources of capital, connecting preservation efforts with schools to expand community impact, and increasing affordability through zoning flexibility, respectively.