October 9, 2014

A Framework For Housing Finance

By David Reiss

The Government Accountability Office has released Housing Finance System: A Framework for Assessing Potential Changes. The GAO writes,

To help policymakers assess various proposals for changing the single-family housing finance system and consider ways in which the system could be made more effective and efficient, we prepared this report under the authority of the Comptroller General. Specifically, this report (1) describes market developments since 2000 that have led to changes in the federal government’s role in single-family housing finance; (2) analyzes whether and how these market developments have challenged the housing finance system; and (3) presents an evaluation framework for assessing potential changes to the housing finance system. (2)
It is useful to have a framework to figure out what kind of housing finance system we want for the 21st century. The GAO’s has 9 elements:
  1. Clearly defined and prioritized housing finance system goals
  2. Policies and mechanisms that are aligned with goals and other economic policies
  3. Adherence to an appropriate financial regulatory framework
  4. Government entities that have capacity to manage risks
  5. Mortgage borrowers are protected and barriers to mortgage market access are addressed
  6. Protection for mortgage securities investors
  7. Consideration of cyclical nature of housing finance and impact of housing finance on financial stability
  8. Recognition and control of fiscal exposure and mitigation of moral hazard
  9. Emphasis on implications of the transition (54-55)
This all sounds very Yoda-like, but the report itself goes into great detail as to what each of these 9 elements means. Given that Congress has left the housing finance system to its own devices, it is helpful that other branches of government like the GAO, Treasury and the FHFA are trying to move us beyond our current state of limbo. We need a housing finance system that is designed to last longer than the Band Aids and duct tape that were applied to it during the financial crisis.

October 9, 2014 | Permalink | No Comments

October 8, 2014

Reiss on C-Span on Evolving Cities

By David Reiss

C-Span has posted the footage from the Brooklyn Book Festival panel that I moderated:

Planning and Protesting: Cities Evolve!
With the city constantly evolving, each major project has its supporters and protesters. Authors Gregory Smithsimon and Benjamin Shepard (The Beach Beneath The Streets – Contesting New York City’s Public Spaces) and Daniel Campo (The Accidental Playground: Brooklyn Waterfront Narratives of the Undesigned and Unplanned) and Peter Linebaugh (Stop, Thief! The Commons, Enclosures, and Resistance) discuss how public space is shaped through policy, perspective and protests, how to agree to disagree, and the dynamics of shaping a city’s growth and change. Moderator David Reiss, Professor, Brooklyn Law School.

BLS Dean Nick Allard makes a cameo appearance at the beginning . . ..

October 8, 2014 | Permalink | No Comments

October 7, 2014

NYC, Note 12 Trends in Affordable Housing Design

By David Reiss

This story on The 12 Latest Trends in Affordable Housing is a bit different from those I usually post on the blog, but I like the pictures! The story opens,

It is no secret that the world’s urban population is picking up, and, in many cases, urban rent prices are rising with it. Architects are continually inventing new solutions to confront the challenges of maximum unit count paired with minimum budget, all the while incorporating architecture’s latest technologies and trends into the designs. Design, of course, can’t solve it all. Katharine Bristol argued in her 1991 essay “The Pruitt-Igoe Myth” that architects must evaluate the social and political structures that define public housing instead of simply agreeing to think inside the box. The following projects exemplify twelve trends architects are using to combat conventional public housing limitations.

It is worth clicking through for the pictures which of projects from all around the world.  The trends include

  1. Sustainable Design
  2. Green Roofs
  3. Atomized Grid
  4. Projecting Facade
  5. Splash of Color
  6. Accessibility for All
  7. Adaptive Reuse
  8. All Wood, All the Time
  9. New Takes on Traditional Materials
  10. Gardens in the Sky
  11. Window Treatments
  12. Low-Rise, High-Density

The difference between a wonderful affordable housing project and a soul-crushing one is often the little details that give character to a building, so that it can feel like a home.  As NYC embarks on an affordable housing building spree over the next ten years, this is something that should be kept at the forefront of the minds of those implementing the City’s housing plan.

HT NYU Furman Center

October 7, 2014 | Permalink | No Comments

October 6, 2014

Are the FHA’s Losses Heartbreaking?

By David Reiss

The Inspector General of the Department of of Housing and Urban Development issued an audit of FHA’s Loss Mitigation Program (2014-KC-0004).  The Office of the Inspector General (the OIG) did the audit because of its “concern that FHA might have incurred costs while allowing lenders to make large amounts of money by modifying defaulted FHA-insured loans. Our audit objective was to determine the extent to which loans modified under the FHA program generated gains for the lenders.” (1)

The OIG found that

Lenders generated an estimated $428 million in gains from the sale of Government National Mortgage Association securities when modifying defaulted FHA loans in fiscal year 2013. These loan modifications were completed as part of FHA’s loss mitigation program. None of these lender generated gains were used to offset FHA’s insurance fund costs. As a result, FHA missed opportunities to strengthen its insurance fund. (1)

Given that the FHA had to be bailed out for the first time in its 80 year history, the findings of this audit are a bit heartbreaking, at least for a housing finance nerd like me.  $428 million would cover more than a quarter of the amount that Treasury had to advance to the FHA, no small potatoes.

The OIG found that the FHA “may have missed opportunities to strengthen its insurance fund. Lenders could be required to offset gains they obtained from the sale of securities for incentive fees and claims for modified loans that redefault.” (5)

The Auditee Comments and the OIG’s Evaluation of Auditee Comments make it clear that the extent of the gains had by lenders is very contested because the OIG did not “know the costs of the lenders.” (17) This seems like a pretty important missing piece of the story. Nonetheless, I hope that HUD, as the parent of both the FHA and Ginnie Mae, takes questions raised by this audit seriously to ensure that public monies are being put to their best use.

October 6, 2014 | Permalink | No Comments

October 3, 2014

Reiss on NYC Development Rules

By David Reiss

Law 360 quoted me in Looser Rules Pave Way For NYC Affordable Housing Projects (behind a paywall). It opens,

The commissioner of New York City’s Department of Housing Preservation and Development detailed Wednesday how the agency will streamline the development process for affordable housing projects, allowing developers faced with new mandatory inclusionary zoning rules to breathe easier.

Since Mayor Bill de Blasio announced his ambitious plan to create or preserve 200,000 units of affordable housing in the city over the next 10 years, developers and their attorneys have been cautiously optimistic.

Many have seen the positive side of residential projects being allowed in places where they would not have been previously, thanks to planned zoning changes. But with those zoning changes comes a mandate to build an affordable component with any new development, and the administration has been adamant that there will be few — if any — new monetary incentives.

So when HPD Commissioner Vicki Been told attendees at a Citizens Budget Commission event Wednesday that sweeping changes are coming to the way the agency does business that will cut a lot of red tape and speed up the process, many developers and their attorneys were pleased.

“It was great to hear,” said John Kelly, an affordable housing expert and partner at Nixon Peabody LLP. “I think it’s the right first step, and it’s necessary if they’re really going to carry out the plan they want to do.”

Included in that first step will be significant changes to the two elements of the development process that experts say create the biggest bottlenecks: design review and clearance.

The design and architecture review will likely be completely overhauled, Been told the attendants at Wednesday’s meeting, and the HPD will shift to the self-certification system backed up by random audits that has seen success elsewhere in city government, including at the Department of Buildings.

These changes are expected to cut down on the waiting time that many developers often suffer through as they try to get a project off the ground, adding unnecessary costs and — perhaps most importantly for Been’s purposes — dissuading some from seeking out affordable housing opportunities.

HPD staff will still have a hand in reviewing projects, but the changes — which Been said will be explained in more detail soon — are expected to be significant.

“It’s exciting to start to see specifics of the plan, we’ve all been kind of waiting for that,” said Jennifer Dickson, senior planning and development specialist at Herrick Feinstein LLP.

But she noted that the process, even with the proposed tweaks, is extremely complex. As the city attempts to make affordable housing development more attractive and expand inclusionary zoning districts, a growing number of architects and developers with little experience in this arena will be joining the fray.

“I think they will be looking to the city agencies to continue to guide them,” Dickson said.

The specific extent to which HPD officials will remain involved in the process is one of many questions that remain unanswered. Another is exactly how the agency will ensure compliance with a new self-certification process, outside of random audits.

“The risk of self-certification is: What if people don’t certify well? There’s always a balance of government regulation between reducing red tape on one hand, and assuring people live up to the appropriate standards on the other,” said David Reiss, a real estate professor at Brooklyn Law School.

October 3, 2014 | Permalink | No Comments

October 2, 2014

The Divided City — New York Edition

By David Reiss

Richard Florida and colleagues at the Martin Prosperity Institute have posted a report, The Divided City:  And the Shape of the New Metropolis. The executive summary explains that

To better understand the relationship between class and geography, this report charts the residential locations of the three major workforce classes: the knowledge-based creative class which makes up roughly a third of the U.S. workforce; the fast-growing service class of lower-skill, lower-wage occupations in food preparation, retail sales, personal services, and clerical and administrative work that makes up slightly more than 45 percent of the workforce; and the once-dominant but now dwindling blue-collar working class of factory, construction, and transportation workers who make up roughly 20 percent of the workforce.

 The study tracks their residential locations by Census tract, areas that are smaller than many neighborhoods, based on data from the 2010 American Community Survey. The study covers 12 of America’s largest metro areas and their center cities: New York, Los Angeles, Chicago, Washington, DC, Atlanta, Miami, Dallas, Houston, Philadelphia, Boston, San Francisco, and Detroit. It examines these patterns of class division in light of the classic models of urban form developed in the first half of the 20th century. These models suggest an outward-oriented model of urban growth and development with industry and commerce at the center of the city surrounded by lower-income working class housing, with more affluent groups located in less dense areas further out at the periphery. It also considers these patterns in light of more recent theories of a back-to-the-city movement and of a so-called “Great Inversion,” in which an increasingly advantaged core is surrounded by less advantaged suburbs.

 The study finds a clear and striking pattern of class division across each and every city and metro area with the affluent creative class occupying the most economically functional and desirable locations. Although the pattern is expressed differently, each city and metro area in our analysis has evident clusters of the creative class in and around the urban core. While this pattern is most pronounced in post-industrial metros like San Francisco, Boston, Washington, DC, and New York, a similar but less developed pattern can be discerned in every metro area we covered, including older industrial metros like Detroit, sprawling Sunbelt metros like Atlanta, Houston, and Dallas, and service-driven economies like Miami. In some metros, these class-based clusters embrace large spans of territory. In others, the pattern is more fractured, fragmented, or tessellated.

 The locations of the other two classes are structured and shaped by the locational prerogatives of the creative class. The service class either surrounds the creative class, being concentrated in areas of urban disadvantage, or pushed far off into the suburban fringe. There are strikingly few working class concentrations left in America’s major cities and metros. (iv)

As a New Yorker, I was particularly struck by the map of New York City on page 12. It is striking to see how few blue-collar communities are left in the City and how starkly divided the rest of the City is between the “creative” and “service” classes. This is not particularly surprising, but striking nonetheless.

October 2, 2014 | Permalink | No Comments

October 1, 2014

Big Decision in GSE Litigation

By David Reiss

Regular readers of this blog know that I have written a lot about the shareholder suits arising from the conservatorships of Fannie and Freddie. One of the main cases is being presided over by Judge Lamberth in the District Court for the District of Columbia. This case raises a range of challenges to the government’s action: violations of the Administrative Procedures Act, violations of the Housing and Economic Recovery Act of 2008 and more. Judge Lamberth has issued an opinion that dismissed all of the plaintiffs’ claims, dealing a severe (but not fatal) blow to their cause. His conclusion captures the tenor of the whole opinion:

It is understandable for the Third Amendment, which sweeps nearly all GSE profits to Treasury, to raise eyebrows, or even engender a feeling of discomfort. But any sense of unease over the defendants’ conduct is not enough to overcome the plain meaning of HERA’s text. Here, the plaintiffs’ true gripe is with the language of a statute that enabled FHFA and, consequently, Treasury, to take unprecedented steps to salvage the largest players in the mortgage finance industry before their looming collapse triggered a systemic panic. Indeed, the plaintiffs’ grievance is really with Congress itself. It was Congress, after all, that parted the legal seas so that FHFA and Treasury could effectively do whatever they thought was needed to stabilize and, if necessary, liquidate, the GSEs. Recognizing its role in the constitutional system, this Court does not seek to evaluate the merits of whether the Third Amendment is sound financial — or even moral — policy. The Court does, however, find that HERA’s unambiguous statutory provisions, coupled with the unequivocal language of the plaintiffs’ original GSE stock certificates, compels the dismissal of all of the plaintiffs’ claims. (52)
Not one to typically say “I told you so” (or at least not on the blog), I will say that I had predicted that deference to the Executive during a time of national crisis was going to be hard for the plaintiffs to overcome. That being said, this is an extraordinarily complex cases both legally and factually so we can expect appeals up to the Supreme Court (and perhaps a return to the District Court), so it is premature to say that the plaintiffs’ claims are DOA just yet.

October 1, 2014 | Permalink | No Comments