October 6, 2017
- 2018 fiscal year budget is forging forward. Recently the House of Representatives passed the 2018 fiscal year budget. Their budget is designed not to increase the national deficit; however, the Senate’s competing fiscal year 2018 budget will increase the national deficit by $1.5 trillion over the course of the next ten years. The Senate’s budget causes such a deficit because it promotes the proposed tax reform efforts as well as reduces the corporate tax rate. While the House beat the Senate to moving forward with 2018 budget plans, the Senate will introduce the bill the week of October 16.
- Today Americans are better suited to lead financially sound lives; however, there are roughly 26 million Americans that are “credit invisible.” The Consumer Financial Protection Bureau (CFPB), recently released a report that studied the effects of this fact. Through the study they found that many minorities are likely not to have a credit score or fail to have a sufficient credit history, thereby making them “credit invisible.” This may seem like a small issue to mitigate, but without such credit scores, their lives as consumers are limited.
- The federal government wants to lower the number of sexual harassment occurrences in the nation’s housing sector. As a result, the United States Department of Justice (DOJ), recently launched an initiative to decrease the amount of sexual harassment in housing practices. The DOJ’s initiative seeks to protect women from unruly landlords, property managers, security guards, and other housing employees. The Department of Justice, Civil Rights division will lead the initiative through the enforcement of the Fair Housing Act.
- In 2012, 44% of middle class families could afford the inventory of homes being sold. Four short years later, the percentage of middle class families able to afford the inventory of homes decreased by 12% in 2016. In order to aid in the decline, Trump’s Administration must support middle class mortgages. In doing so, the administration will encourage economic growth because middle class families will have the mobility to move to areas that offer better jobs and housing options. Further, many of the nation’s largest metropolitans will become more diverse.
- New Construction and the Mortgage Crisis, Mayock and Tzioumis
- Regulating Household Leverage, DeFusco, Johnson, and Mondragon
- Systemic Operational Risk: People Risk in the Global Financial Crisis, McConnell and Blacker
- Payday-Loan Bans: Evidence of Indirect Effects on Supply, Ramirez
- Ancillary Agreements in Real Estate Transactions, Berman, Hines, and Ward
October 3, 2017
Federal Housing Finance Agency Director Watt testified before the House Committee on Financial Services today and gave a good overview of the decade-long conservatorship of Fannie and Freddie. He also gave some sense of the urgency of coming up with at least a stopgap measure before the two companies’ capital buffer drops to zero at the end of the year pursuant to the terms of the Senior Preferred Stock Purchase Agreements (PSPAs) that govern the two companies’ relationship with the Treasury. He stated that it would
be a serious misconception for members of this Committee, or for anyone else, to consider any actions FHFA may take as conservator to avoid additional draws of taxpayer support either as interference with the prerogatives of Congress, as an effort to influence the outcome of housing finance reform, or as a step toward recap and release. FHFA’s actions would be taken solely to avoid a draw during conservatorship.
This signifies to me that he is planning on doing something other than reducing the capital buffer to $0. As far as I can tell, Watt is playing a game of chicken with Congress — if you do not act, I will.
It is not clear to me clear how much authority Watt has or thinks he has to change the rules relating to the capital buffer. Does he think that he could act inconsistent with the PSPAa and withhold capital? I have not seen a legal argument that says he could. Is he willing to do it and be sued by Treasury? These are speculative questions, but I do think that he has laid the groundwork for taking action if Congress and Treasury do not.
It does not seem to me that he was much wiggle room according to the terms of the PSPAs themselves, except perhaps to delay making the net worth sweep at the end of this year by converting it to an annual sweep or by some other mechanism. That will be a short-term fix.
Given his strong language — “FHFA’s actions would be taken solely to avoid a draw during conservatorship” — I think he might be prepared to take an action that is inconsistent with the plain language of the PSPAs in order to act in a way that he thinks is consistent with his duty as the conservator. This is less risky than it sounds because the only party that would seem to have standing to sue would be the Treasury, the counter-party to the PSPAs. One could imagine that the Treasury would prefer to negotiate a response with the FHFA or await Watt’s departure rather than to have a judge decide the issue. One could also imagine that Treasury would go along with the FHFA without explicitly condoning its actions, particularly if its actions soothed a turbulent market for Fannie and Freddie mortgage-backed securities.
Watt has consistently signaled that he will act if no other responsible party does and he emphasized that again today.
- Years after the nation’s last recession, lower socio-economic workers are now reaping the benefits of a stronger economy.Though this is great, wealthier Americans still are gaining the most benefits from an upward flowing economy. A study found in 2016, 38.6% of America’s total wealth was controlled by 1% of households. However, within three years, the net worth of the average American family increased 16% to, $97,300.
- The Consumer Financial Protection Bureau is under judicial scrutiny again. A number of financial groups came together to file a lawsuit against the agency’s arbitration rule. Groups supporting the lawsuit include the U.S. Chamber of Commerce, American Bankers Association, Texas Association of Business, and nine chambers of commerce in Texas. Further, the group asserts the rule is invalid for four varying reasons.