March 13, 2015
- US Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) released two reports discussing the difference in risk between conventional lenders and CDFIs.
- CFPB releases Arbitration Study required by the Dodd-Frank Act, which states that CFPB may prohibit or impose conditions or limitations on the use of” pre-dispute arbitration agreements concerning consumer financial products or services if it finds doing so “is in the public interest and for the protection of consumers.”
March 12, 2015
US News & World Report quoted me in 5 Signs You’re Financially Overextended. It reads in part,
Are you managing your debt? Or is it managing you? If you’re stuck in a money quicksand trap, you may not even realize at first that you’re in a financial predicament, especially if you’re sinking slowly and have been poorly managing your cash for a long time.
But if you suspect your debt is a disaster in the making, there’s no need to wait and see if your financial life will someday implode. If you’re pushing your finances to the limit, the signs are already there that you’re overextended. Just look for them. And if you spot one, don’t ignore it. Here are five of the biggest clues that trouble is coming.
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5. You’ve created opportunities that could make you overextended. If you have a lot credit cards or lines of credit you rarely use, you could, in theory, end up spending a lot of money and getting yourself into trouble that way, but having those lines open isn’t itself a bad sign. It’s a sign that you have good credit, and your creditors trust you. Still, it’s good to remember that if you aren’t monitoring yourself, you could ultimately max out and find yourself buried in credit card debt.
At least in that scenario, you have control over what may or may not happen. Some homeowners, however, put themselves at risk for becoming overextended when they get an adjustable rate mortgage or a home equity line of credit in which the interest rate “may float with some kind of index like the prime rate or [London Interbank Offered Rate],” says David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School in Brooklyn, New York.
“So if interest rates rise dramatically, the home equity line of credit can become unaffordable,” he says. “Interest rates have been very low for some time, so homeowners are not focusing on this risk, but if they were to rise – and they can rise suddenly – homeowners may face a rude awakening.”
In which case, you may want to refinance and position yourself to avoid becoming financially overextended if the interest rates someday jump. Because what happens to anything when it’s stretched beyond its limits? It – or you – will snap.
- National Affordable Housing Coalition Releases it’s 2015 Advocates Guide an Educational Primer on Federal Resources Related to Affordable Housing and Community Development; and its March Housing Spotlight Issue entitled: Affordable Housing is Nowhere to be Found for Millions
- National Association Of Realtors released: The Home Buyer and Seller Generational Trends Report finding that Millennials represent the largest share of new home buyers
March 11, 2015
The 11th Annual Demographia International Housing Affordability Survey: 2015 has been released. The survey provides ratings for metropolitan markets in Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the U.K. and the U.S. There are some interesting global trends:
- Countercyclical Regulation and Its Challenges, by Patricia A. McCoy, Boston College Law School Legal Research Paper No. 351.
- Low-Income Housing Tax Credit Developments and Neighborhood Property Conditions, Kelly D. Edmiston, February 20, 2015.
- First Principles for Regulating the Sharing Economy, by Stephen R. Miller, February 20, 2015 (focusing on the short-term rental market, for instance, Airbnb).
- The Future of Foreclosure Law in the Wake of the Great Housing Crisis of 2007-2014, by Judith L. Fox, Washburn Law Journal, 2015, Forthcoming.
- Regional Redistribution Through the U.S. Mortgage Market, by Erik Hurst, Benjamin J. Keys, Amit Seru, & Joseph Vavra, February 25, 2015.
March 10, 2015
Pat McCoy has posted Countercyclical Regulation and Its Challenges to SSRN. The abstract reads,
Following the 2008 financial crisis, countercyclical regulation emerged as one of the most promising breakthroughs in years to halting destructive cycles of booms and busts. This new approach to systemic risk posits that financial regulation should clamp down during economic expansions and ease during economic slumps in order to make financial firms more resilient and to prick asset bubbles before they burst. If countercyclical regulation is to succeed, however, then policymakers must confront the institutional and legal challenges to that success. This Article examines five major challenges to robust countercyclical regulation – data gaps, early response systems, regulatory inertia, industry capture, and arbitrage – and discusses a variety of techniques to defuse those challenges.
Readers of this blog will be particularly interested in the section titled “Sectoral Regulatory Tools.” (34 et seq.) This section gives an overview of countercyclical tools that can be employed in the housing finance sector: loan-to value limits; debt-to-income limits; and ability-to-repay rules. McCoy ends this section by noting,
The importance of the ability-to-repay rule and the CFPB’s exclusive role in promulgating that rule has another, very different ramification. It is a mistake to ignore the role of market conduct supervisors such as the CFPB in countercyclical regulation. The centrality of consumer financial protection in ensuring sensible loan underwriting standards – particularly for home mortgages – underscores the vital role that market conduct regulators such as the CFPB will play in the federal government’s efforts to prevent future, catastrophic real estate bubbles. (44)
While this seems like an obvious point to me — sensible consumer protection acts as a brake on financial speculation — many, many academics who study financial regulation disagree. If this article gets some of those academics to reconsider their position, it will make a real contribution to the post-crisis financial literature.