April 3, 2015
- Fannie Mae’s Housing Forecast for March Predicts Steady Growth for 2nd Quarter of 2015 Through Year End
- Office of the Comptroller of the Currency’s Mortgage Metrics Report Shows a Decline in Foreclosure Rates for the 4th Quarter of 2014
- U.S. Department of Housing and Urban Development and Census Bureau Release New Home Sales Data For February 2015 Which Were Significantly Above Projected Estimates
April 2, 2015
The Center for Housing Policy’s most recent issue of Housing Landscape gives its Annual Look at The Housing Affordability Challenges of America’s Working Households. The Center finds that
Overall, 15.2 percent of all U.S. households (17.6 million households) were severely housing cost burdened in 2013. Renters face the biggest affordability challenges. In 2013, 24.3 percent of all renter households were severely burdened compared to 10.0 percent of all owner households. (1, footnote omitted)
The Center summarizes “the severe housing cost burdens of low- and moderate-income working households.” (1) Unsurprisingly. these households face
significantly greater affordability challenges than the overall population. In 2013,21.2 percent of working households were severely cost burdened (9.6 million households).Twenty-five percent of working renters and 17.1 percent of working homeowners paid more than half of their incomes for housing that year. (1)
The report notes some modest good news:
Since 2010,the overall share of working households with a severe housing cost burden has fallen.This modest decline is the result of a complex combination of factors, including the shift of some higher-income households from homeownership into rental housing. An insufficient supply of rental housing and sustained increases in rents have led to millions of working households having to pay too much for housing or live far from their jobs, in substandard housing,or in poor-quality neighborhoods. (1)
Federal and local housing policy has not yet come to grips with the fact low- and moderate-income households have been paying a significant portion of their income in housing costs year after year. Household have to make difficult trade-offs among cost, distance from employment, housing quality and neighborhood quality.
The Center notes that more can be done to support affordable housing at the federal and state levels, but it is not clear to me that there are any politically feasible policy responses that can make a serious dent in the affordability of housing for working households.
- Federal Reserve Bank of Boston’s Study, The Color of Wealth in Boston Finds, Disparities In Wealth Across Asset Classes and that Non-Whites Are Significantly Less Likely to Own a Home and Hold Mortgage More Debt When they Do
- The NYU Furman Center Recently Released a White Paper, Responding to Changing Households: Regulatory Challenges for Micro Units and Accessory Dwelling Units and a Research Brief, Compact Units: Demand and Challenges Which Assess the Demand for and Affordable Housing Implications in Addition to the Regulatory Challenges of Such Developments
April 1, 2015
The Federal Reserve Bank of San Francisco’s most recent Economic Letter is titled Mortgaging the Future? In it, Òscar Jordà, Moritz Schularick, and Alan M. Taylor evaluate the “Great Mortgaging” of the American economy:
In the six decades following World War II, bank lending measured as a ratio to GDP has quadrupled in advanced economies. To a great extent, this unprecedented expansion of credit was driven by a dramatic growth in mortgage loans. Lending backed by real estate has allowed households to leverage up and has changed the traditional business of banking in fundamental ways. This “Great Mortgaging” has had a profound influence on the dynamics of business cycles. (1)
I was particularly interested by the Letter’s Figure 2, which charted the ratio of mortgage debt to value of the U.S. housing stock over the last hundred years or so. The authors write,
The rise of mortgage lending exceeds what would be expected considering the increase in real estate values over the same time. Rather, it appears to also reflect an increase in household leverage. Although we cannot measure historical loan-to-value ratios directly, household mortgage debt appears to have risen faster than total real estate asset values in many countries including the United States. The resulting record-high leverage ratios can damage household balance sheets and therefore endanger the overall financial system. Figure 2 displays the ratio of household mortgage lending to the value of the total U.S. housing stock over the past 100 years. As the figure shows, that ratio has nearly quadrupled from about 0.15 in 1910 to about 0.5 today. (2)
An increase in leverage for households is not necessarily a bad thing. it allows households to make investments and to smooth their consumption over longer periods. But it can, of course, get to be too high. High leverage makes households less able to handle shocks such as unemployment, divorce and death. it would be helpful for economists to better model a socially optimal level of household leverage in order to guide regulators. The CFPB has taken a stab at this with its relatively new Ability-to-Repay regulation but we do not yet know if they got it right.
- Lottery Allocations and Games for Public Rental Apartments, by Zhan Wang, Jinpeng Ma, & Hongwei Zhang, March 1, 2015.
- Wages, Housing Prices and Commutes, by Tom Mayock, Real Estate Economics, Forthcoming.
- Financial Literacy, Broker-Borrower Interaction, and Mortgage Default, by James Neil Conklin, Real Estate Economics, Forthcoming.
- Is Timing Everything? Race, Homeownership, and Net Worth in the Tumultuous 2000s, by Sandra J. Newman, Real Estate Economics, Forthcoming.
- Option Market-Based Predictors of REIT Leverage Changes, by Paul Borochin, John L. Glascock, Ran Lu-Andrews, & Jie Yang, Georgetown McDonough School of Business Research Paper No. 2577414.
- Rent-to-Own Housing Contracts Under Financial Constraints, by Sanjiv Jaggia & Pratish Patel, March 10, 2015.
March 31, 2015
Federal Reserve researchers, W. Scott Frame, Andreas Fuster, Joseph Tracy and James Vickery, have posted a staff report, The Rescue of Fannie Mae and Freddie Mac. The abstract reads,
We describe and evaluate the measures taken by the U.S. government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that the firms experienced and the events that ultimately led the government to take action in an effort to stabilize housing and financial markets. We describe the various resolution options available to policymakers at the time and evaluate the success of the choice of conservatorship, and other actions taken, in terms of five objectives that we argue an optimal intervention would have fulfilled. We conclude that the decision to take the firms into conservatorship and invest public funds achieved its short-run goals of stabilizing mortgage markets and promoting financial stability during a period of extreme stress. However, conservatorship led to tensions between maximizing the firms’ value and achieving broader macroeconomic objectives, and, most importantly, it has so far failed to produce reform of the U.S. housing finance system.
This staff report provides a nice overview of the two companies since the financial crisis. I was particularly interested by a couple of sections. First, I found the discussion of receivership versus conservatorship helpful. Second, I liked how it outlined the five objectives for an optimal intervention:
(i) Fannie Mae and Freddie Mac would be enabled to continue their core securitization and guarantee functions as going concerns, thereby maintaining conforming mortgage credit supply.
(ii) The two firms would continue to honor their agency debt and mortgage-backed securities obligations, given the amount and widely held nature of these securities, especially in leveraged financial institutions, and the potential for financial instability in case of default on these obligations.
(iii) The value of the common and preferred equity in the two firms would be extinguished, reflecting their insolvent financial position.
(iv) The two firms would be managed in a way that would provide flexibility to take into account macroeconomic objectives, rather than just maximizing the private value of their assets.
(v) The structure of the rescue would prompt long-term reform and set in motion the transition to a better system within a reasonable period of time. (14-15)
You’ll have to read the paper to see how they evaluate the five objectives in greater detail.
- On March 26th the The House Financial Services Committee approved 11 bipartisan bills designed to help strengthen the economy and consumer choice by “relieving community banks and credit unions from some of the harmful regulatory burden imposed by Washington,” these include:
- Capital Access for Small Community Financial Institutions Act – which allows privately insured state chartered credit unions to apply for membership in the Federal Home Loan Bank System.
- Community Institution Mortgage Relief Act – which mitigates the high cost of regulatory compliance by amending the Real Estate Settlement Procedures Act to direct the CFPB to provide exemptions from the mortgage escrow account requirements of Dodd-Frank and for small servicers that annually service 20,000 or fewer mortgage loans.
- Helping Expand Lending Practices in Rural Communities Act – which provides an appeals process for areas to be designated as rural for the purpose of exempting certain loans from the CFPB’s Qualified Mortgage rule.
- Mortgage Choice Act – which rovides clarity to the calculation of points and fees, allowing more loans to qualify as Qualified Mortgages and increasing options for borrowers.
- Mortgage Servicing Capital Asset Capital Requirements Act – Directs federal banking agencies to conduct a study to determine the appropriate capital requirements for mortgage servicing assets for community financial institutions.