March 15, 2017
- This paper, ‘Monopoly’ in Real Life – The Housing Market and Inequality, uses a simple model based on the board game Monopoly to simulate the drivers of house prices and inequality. The starting capital, income per round (wage), rental income, rental costs and the timing of home ownership all matter for the evolution of house prices and inequality.
- This paper, Market Thickness and the Impact of Unemployment on Housing Market Outcomes, develops a search-matching model to study the impact of the unemployment rate on the housing market in the presence of the thick market effect. We estimate the structural model using Texas city-level data that covers three years, 1990, 2000 and 2010.
- This study, Nowhere to Go but Up: A Study of Listed Real Estate Sensitivity to Changes in Interest Rates, re-examines the sensitivity of global listed real estate markets to changes in market and Central Bank interest rates with respect to both their returns and volatility. Specifically the paper considers the recent period of relaxing monetary policies in the countries with the largest global listed real estate markets.
- In the wake of the financial crisis, mortgage lending to lower-income and minority borrowers overcorrected and has not recovered. This paper, Has the Mortgage Pendulum Swung Too Far? Reviving Access to Mortgage Credit, while homeownership is a riskier investment than previously realized, still it remains a proven path to increased wealth on balance for lower-income households.
March 14, 2017
I was interviewed by Harold O’Grady on his podcast for the BLS Library Blog about Supreme Court nominee Judge Gorsuch:
This conversation with Brooklyn Law School Professor David Reiss focuses on his recent article Gorsuch, CFPB and Future of the Administrative State. Prof. Reiss talks about the impact that U.S. Supreme Court nominee Judge Neil Gorsuch would have on the future of administrative law and, in particular, on federal consumer protection enforcement if he is confirmed. Prof. Reiss reviews the case PHH v. Consumer Financial Protection Bureau which the United States Court of Appeals, District of Columbia Circuit decided last year. It is likely the case will be appealed to the Supreme Court. If so, Justice Gorsuch may vote to curtail the independence of the Consumer Financial Protection Bureau and limit its enforcement powers. More generally, Prof. Reiss believes that, given previous rulings by Judge Gorsuch in cases dealing with administrative law, a Justice Gorsuch will be a skeptic of agency action and will support greater judicial review of agency actions.
You can find the link to our conversation here.
- The Federal Reserve Bank of Atlanta announced Monday that it selected Raphael Bostic to serve as its new president and chief executive officer, replacing Dennis Lockhart, who retired from the Atlanta Fed at the end of February. Bostic’s appointment at the Atlanta Fed takes effect on June 5, 2017.
- The Vice Chairman of the Federal Deposit Insurance Corp. just unveiled a proposal to regulate banks in a way he feels will be superior to current Dodd-Frank financial reform. Speaking at the Institute of International Bankers Annual Washington Conference, Thomas Hoenig said that while Dodd-Frank is well intended, the regulations are too burdensome for all banks, “especially smaller banks.”
- President Donald Trump held a listening session Thursday to talk to leaders of community banks. In the session, also attended by Treasury Secretary Steven Mnuchin and Gary Cohn, head of the National Economics Council, Trump promised lenders that soon they would be safe to loan and create jobs, according to an article by Renae Merle for The Washington Post.
- The three credit rating agencies will soon exclude tax liens and civil judgments from credit reports for many people, according to the The Wall Street Journal. Equifax, Experian and TransUnion will remove the tax-lien and civil-judgment data starting around July 1, helping omit negative information from the financial scorecards, the article noted.
- A Florida title agent and an investment group president pled guilty Monday to charges that they participated in a $10 million mortgage fraud scheme that targeted Washington Mutual Bank.
- he JPMorgan Chase & Co. portfolio manager for a pair of complex investment vehicles faced tough questions Monday over why he and his team kept investors in residential mortgage-backed securities during the financial crisis to ultimately lose more than $1.4 billion.
March 10, 2017
Carlos Garriga et al. have posted The Homeownership Experience of Minorities During the Great Recession to SSRN. The paper concludes,
The Great Recession wiped out much of the homeownership gains attained during the housing boom. However, the homeownership experience was very different across racial and ethnic groups. Black and Hispanic borrowers experienced substantial repayment difficulties that ultimately led to a greater share of homes in foreclosure.
Given that home equity often represents a substantial share of household wealth, these foreclosure events severely damaged the balance sheets of minority families. The dynamics of delinquency and foreclosure functioned differently across the income distribution within racial and ethnic groups.
For the majority, higher income was associated with lower delinquency rates and fewer foreclosures as a group. However, for Hispanic families this relationship was surprisingly reversed. Hispanics with the highest incomes fared worse than those with the lowest incomes. This counterintuitive finding suggests how college-educated Hispanic families may have had worse wealth outcomes than their non-college-educated peers: Hispanic families with high income (potentially the result of high educational attainment) had a greater share of home equity lost in foreclosure than lower-income Hispanic families.
Logit regressions suggest that underwriting standards and loan structure explain a significant amount of the greater likelihood of foreclosure among Black and Hispanic borrowers. However, underwriting standards explained more of the gap for Black borrowers, while loan structure was a stronger factor among Hispanic borrowers. Regional concentration and variation in housing markets explained more of the Hispanic-White foreclosure gap than any other group. This is understandable given that Hispanic borrowers in our sample were heavily concentrated in housing markets that experienced some of the largest volatility. Despite accounting for these important factors, sizable gaps remain in foreclosures among Blacks and Hispanics relative to Whites. Incorporating measures of labor market outcomes into the analysis may offer further insights.
In sum, the homeownership experience during the Great Recession proved to be inimical for many families, but far more so for Black and Hispanic families. For these families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership. (164-65)
I am not sure what this all means for housing finance policy other than the obvious: consumer protection in the mortgage market is a good thing as it ensures that underwriting standards evaluate ability-to-repay and loan structures exclude abusive terms like teaser rates (thanks to the ATR and QM rules and the Consumer Financial Protection Bureau). There are probably other policies that we should consider to reduce the depths of our busts, but they do not seem likely to gain traction in the current political environment.
- HSBC is no longer a leader in residential mortgage loans. The company partnered with the Securities and Exchange Commission (SEC) to ensure the their “U.S. consumer mortgage loans” were significantly reduced. Today, the company holds consumer mortgage loans equal to the amount owned in 2008.
- On March 8, 2017, Trump’s Department of Housing and Urban Development (H.U.D.) budget for the 2018 year leaked. The documents displayed a potential 6 billion dollar cut to the federal agency. Ben Carson, the new director of the agency, believes the agency fosters dependency and would like to see funds used elsewhere.
- Governor Cuomo announced an elaborate 1.5 billion dollar plan to revitalize Brooklyn, NY. Cuomo’s plan will focus on housing, urban development, health, and family. Furthermore, the New York governor wants to prioritize resiliency and affordable housing.