June 9, 2017
- The Consumer Financial Protection Bureau recently released a report regarding a study of lower income areas and their credit visibility. The report found that many residents in lower income communities become credit visible when they are lowering their credit score versus residents in higher income communities who become credit visible when they establish a credit line.
- The House of Representatives passed a bill to roll back a few of the rules the Obama administration put in place to aid the country in recovery after the early 2000’s financial crisis. The Republican dominated House believes that the rules and regulations put in place by the prior administration impede economic growth. The bill proposed by Republicans, the Financial Choice Act, attempts to loosen regulation; however, it is unlikely that the bill will pass the Senate.
- The United States joined a lawsuit against city of Los Angeles for the misappropriation of funds provided by the U.S. Department of Housing and Urban Development. The city allegedly misused millions of dollars due to their lack of adequate affordable housing and oversight practices.
June 8, 2017
Laurie Goodman and Karan Kaul of the Urban Institute’ Housing Finance Policy Center have issued a a paper on GSE Financing of Single-Family Rentals. They write,
Fannie Mae recently completed the first government-sponsored enterprise (GSE) securitization of single-family rental (SFR) properties owned by an institutional investor. This securitization, Fannie Mae Grantor Trust 2017-T1, was for Invitation Homes, one of the largest institutional players in the SFR business. When this transaction was first publicly disclosed in January as part of Invitation Homes’ initial public offering, we wrote an article describing the transaction and detailing some questions it raises. Now that the deal has been completed and more details have been released, we wanted to look closely at some of its structural aspects, examine the need for this type of financing, and discuss SFR affordability. (1, citations omitted)
By way of background, the paper notes that
The 2015 American Housing Survey indicates that approximately 40 percent of the US rental housing stock is in one-unit, single-family structures, with another 17 percent in two- to four-unit structures, which are also classified as single-family. Thus, 57 percent of the US rental stock falls under the single-family classification. Although this share increased from 51 percent in 2005 to 57 percent in 2015, this increase was preceded by an almost identical decline from 56.6 percent in 1989 to 51 percent in 2005.
Most SFR properties are owned by mom and pop investors. These purchases were typically financed through the GSEs’ single-family business. Fannie Mae allowed up to 10 properties in the name of a single borrower, and Freddie Mac allowed up to six properties. Rent Range estimates that 45 percent of all single-family rentals are owned by small investors with only one property and 85 percent are owned by those who own 10 or fewer properties. So the GSEs cover 85 percent of the single-family rental market by extending loans to small investors through single-family financing. Of the remaining 15 percent, 5 percent is estimated to be owned by players with over 50 units, and just 1 percent is owned by institutional SFR investors with more than 1,000 properties.
Institutional investors, such as Invitation Homes, entered the SFR market in 2011. Entities raised funds and purchased thousands of foreclosed homes at rock-bottom prices and rented them out to meet the growing demand for rental housing. Then, they built the expertise, platforms, and infrastructure to manage scattered-site rentals. Changes in the business model have required these entities to search for financing alternatives.(1-2, citations omitted)
The paper concludes that “Invitation Homes was an important first transaction—it allowed Fannie Mae to learn about the institutional single-family rental market by partnering with an established player.” (9) It also notes a number of open questions for this growing segment of the rental market: should there be affordability requirements that apply to GSE financing of SFRs and should SFRs count toward meeting GSEs’ affordable housing goals?
That there would be an institutional SFR market sector was inconceivable before the financial crisis. The fire sale in houses during the Great Recession created an opening for institutional investors to enter the single-family rental market. It is now a small but growing part of the overall rental market. It is important that policy makers get ahead of the curve on this issue because it is likely to effect big changes on the entire housing market.
- Lawmakers see a need to adjust the country’s current flood insurance practice. Currently, the nation’s flood insurance program runs a 25 billion deficit from “storm-damage payouts in recent years.” To date, insurance companies provide approximately 5 million insurance policies to specific regions usually affected by hurricanes and other severe storms. Lawmakers are hoping to decrease the debt while providing reasonable support to those affected.
- Real estate developers in New York have corrupted the election process in order to ensure their success in various development projects. Lamm and his co-conspirator planned to earn hundreds of millions on their Bloomingburg development which they began in 2006. In 2013 local residents opposed the development, so the duo began determining “other means” to move the project forward.
- Mortgage rates are their lowest in seven months. On average, lenders are offering mortgages at the high 3% range. The shift in the mortgage rates stem from investor activity in bond markets. For instance, “When investors shed risks, bonds tend to benefit.“
June 7, 2017
The Bipartisan Policy Center has issued A Framework for Improving Access and Affordability in a Reformed Housing Finance System. The brief was written by Michael Stegman who had served as the Obama Administration’s top advisor on housing policy. It opens,
With policymakers gearing up to reform the housing finance system, it is worth revisiting one of the issues that stymied negotiators in the reform effort of 2014: how to ensure adequate access to credit in the new system. The political landscape has changed substantially since 2014. For those who are focused on financing affordable housing and promoting access to mortgage credit, the status quo—the continued conservatorship of Fannie Mae and Freddie Mac—may no longer be as appealing as it was during those negotiations. This brief draws upon the lessons learned from that experience to outline a framework for bipartisan consensus in this transformed political environment.
The “middle-way” approach described here is not dependent upon any one structure or future role for the government-sponsored enterprises (GSEs), though it does assume the continuation of a government guarantee of qualified mortgage-backed securities (MBS). It is this guarantee that forms the basis of the obligation to ensure that the benefits flowing from the government backstop are as broadly available as possible, consistent with safety and soundness and taxpayer protection.
In recent months, at least three such proposals have been developed that preserve a federal backstop (see Mortgage Bankers Association, Bright and DeMarco, and Parrott et al. proposals). Should the administration and Congress pursue a strict privatization approach to reform, lacking a guarantee, it’s unlikely that any affordable housing obligations would be imposed in the reformed system. (cover page, footnotes omitted)
Stegman goes on to describe “The Affordable Housing Triad:”
Over the years, Congress has made it clear that the GSEs’ public purpose includes supporting the financing of affordable housing and promoting access to mortgage credit “throughout the nation, including central cities, rural areas, and underserved areas,” even if doing so involves earning “a reasonable economic return that may be less than the return earned on other activities.” As part of this mandate, policymakers have created a triad of affordable housing and credit access requirements:
- Meeting annual affordable-mortgage purchase goals set by the regulator;
- Paying an assessment on each dollar of new business to help capitalize two different affordable housing funds; and
- Developing and executing targeted duty-to-serve strategies, the purpose of which is to increase liquidity in market segments underserved by primary lenders and the GSEs, defined by both geography and housing types. (1, footnote omitted)
The paper outlines three bipartisan options that would not
compromise the obligation to provide liquidity to all corners of the market at the least possible cost, consistent with taxpayer protection and safety and soundness. Each option attempts to ensure that the system as a whole provides access and affordability at least as much as the existing system; includes an explicit and transparent fee on the outstanding balance of guaranteed MBS; and includes a duty to serve the broadest possible market. (3)
The paper is intended to spark further conversation about housing finance reform while advocating for the needs of low- and moderate-income households. I hope it succeeds in pushing Congress to focus on the details of what could be a bipartisan exit strategy from the endless GSE conservatorships.
- Unexpected Inflation, Capital Structure, and Real Risk-Adjusted Firm Performance, Alcock and Steiner.
- Is the Rent Too High? Aggregate Implications of Local Land Use Regulations, Bunten.
- Land Share, Mortgage Default, and Loan-to-Value Ratio As a Macro-Prudential Policy Tool, Li and Yavas.
- Protecting the Benefit of a Seller’s Bargain in Real Estate Contracts, Ingber.
- The Securities and Exchange Commission (SEC) attempted to extend the statute of limitations. The SEC unsuccessfully asked the Supreme Court of the United States to allow the regulatory agency to file disgorgement suits at any time because disgorgement is not a part of the 28 U.S.C carve-outs code 2462.
- The Public and Affordable Housing Research Corporation (PAHRC), released a report examining the impact of federal housing on “poverty, economic mobility for low-income families, save money for communities, and stimulate economic growth.” Additionally, the report details various methods community leaders may use to provide low-income agencies with the agency realize their full potential.