REFinBlog

Editor: David Reiss
Brooklyn Law School

March 9, 2017

The Gap in Affordable Homes

By David Reiss

photo by Kenneth Frantz

The National Low Income Housing Coalition posted a report, The Gap: A Shortage of Affordable Homes. The report opens,

For the first time since the recession, U.S. household income increased significantly during 2015. Gains were seen even among the lowest income households, with the poverty rate declining from 14.8% to 13.5%. Millions of people, however, continue to struggle economically. Household income for the poorest 10% of households remains 6% lower today than in 2006, and more than 43 million Americans remain in poverty, many of whom struggle to afford their homes.

Each year, the National Low Income Housing Coalition (NLIHC) measures the availability of rental housing affordable to extremely low income (ELI) households and other income groups. This year’s analysis is slightly different from previous years in that NLIHC adopted the federal government’s new statutory definition for ELI, which are households whose income is at or below either the poverty guideline or 30% of their area median income (AMI), whichever is higher. Based on 2015 American Community Survey (ACS) data, this report provides information on the affordable housing supply and housing cost burdens at the national, state, and metropolitan levels. This year’s analysis continues to show that ELI households face the largest shortage of affordable and available rental housing and have more severe housing cost burdens than any other group. (2, citations omitted)

The report’s key findings include:

• 11.4 million ELI renter households accounted for 26% of all U.S. renter households and nearly 10% of all households.

• The U.S. has a shortage of 7.4 million affordable and available rental homes for ELI renter households, resulting in 35 affordable and available units for every 100 ELI renter households.

• Seventy-one percent of ELI renter households are severely cost-burdened, spending more than half of their income on rent and utilities. These 8.1 million severely cost-burdened households account for 72.6% of all severely cost-burdened renter households in the U.S.

• Thirty-three percent of very low income (VLI) renter households; 8.2% of low income (LI) renter households, and 2.4% of middle income (MI) renter households are severely cost-burdened.

• ELI renter households face a shortage of affordable and available rental homes in every state. The shortage ranges from just 15 affordable and available homes for every 100 ELI renter households in Nevada to 61 in Alabama.

• The housing shortage for ELI renters ranges from 8,700 rental homes in Wyoming to 1.1 million in California. (2)

It is of course important to talk about this gap as an affordable housing issue, but as I have written before, it is as much an income problem as a housing problem. It’s not just that the rent is too damn high, but that the paycheck is just too damn low.

I don’t see anything on the political horizon that will address this fundamental set of problems, but we should at least identify it properly so we can work toward a solution when the time is right.

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March 9, 2017 | Permalink | No Comments

Thursday’s Advocacy & Think Tank Roundup

By Jamila Moore

  • Goldman Sachs held its 5th annual housing and finance conference in New York, NY. Conference goers analyzed three major issues facing the U.S. housing market such as housing reform, housing market deregulation, and potential new leaders of housing regulatory agencies.
  • The Affordable Housing Credit Improvement Act was reintroduced in the Senate by Senator Cantwell and Hatch. The act seeks to increase the housing credit by 50%; thereby, improving the nation’s affordable housing issues. A similar bill was introduced in 2016 by the Senators but did not achieve success. Maybe a second introduction of the bill will prove worthwhile.
  • Mayor Martin Walsh of Boston Massachusetts, made incredible housing progress in the city regarding housing needs due to a recent increase in population. To date, he has created a “state of the art homeless shelter” and approved a plan to create an additional 20,000 housing units.

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March 9, 2017 | Permalink | No Comments

March 8, 2017

What’s the CFPB Ever Done for Housing?

By David Reiss

TheStreet.com quoted me in What’s the CFPB Ever Done For Housing? Quite A Lot. It reads, in part,

The Consumer Financial Protection Bureau grew out of the housing market crash of 2008 and subsequent Dodd-Frank legislation. As a watchdog with teeth, the CFPB’s job is to protect homebuyers from the predatory mortgages that helped sink the economy nine years ago. And it worked.

In theory.

Problem is, for some would-be homeowners, the CFPB is an inconvenient middle-man, adding more red tape to an already impossible situation. In short, it isn’t perfect. But with the Trump administration threatening to tear the whole damn thing down, you’ve got to wonder, is the CFPB really doing more harm to the housing market than good?

How we got here

Pre-housing market crash, the mortgage lending world was a vastly different, Wild West sort of landscape. Dodd-Frank and the CFPB entered the scene, in part, for lending oversight in that uncontrolled housing market. For example, once not-uncommon ‘liar loans,’ which were largely based on the borrower’s word and not much else-for instance, someone saying they made $100,000 a year to qualify for a huge home even though they made $30,000-are now illegal thanks to Dodd-Frank and the CFPB. Mortgage companies cashing in at the expensive of uneducated buyers happened, and it happened a lot.

“Just about everybody I talked to prior to 2008 thought the lending climate was out of control,” says Chandler Crouch, broker and owner of Chandler Crouch Realtors in Dallas-Fort Worth. “People were saying it couldn’t last. It just didn’t make sense. Lending requirements were too loose. Everybody, from Wall Street to the banks to the loan officers to the consumers, was being rewarded for making bad decisions. Lending needed to tighten.”

*     *     *

“The CFPB has been criticized for restricting mortgage credit too much with its Qualified Mortgage and ability to repay rules,” says David Reiss, a law professor at Brooklyn Law School who has practiced real estate law since 1998.

This was all done to ensure buyers could afford their home and not end up in foreclosure or short sale (and also avoid another economic collapse). These rules also bar lenders from predatory loans like massive balloon loans and shady adjustable rate mortgages.

*     *     *

Will no CFPB = housing hellscape?

Let’s say the Republicans get their way and the CFPB goes poof. What happens?

“You’d see an expansion of the credit box-more people would be approved for credit,” says Reiss. “To the extent that credit is offered on good terms, that would be a good development. I think you would see more potential homebuyers being approved for mortgages which would drive up home prices in the short term as there would be more competition.”

But then there’s the opportunity for those really bad loans to come swinging back, which harm homeowners would have in the past and also trigger fears of another housing collapse.

“Liar loans would definitely have a comeback if the CFPB and Dodd-Frank were dismantled,” says Reiss. “The Qualified Mortgage and ability to repay rules were implemented as part of the broader Dodd-Frank rulemaking agenda; without those rules, credit would quickly return to its extreme boom and bust cycle, with liar loans a product that would pick up steam just as the boom reaches its heights…We would bemoan them once again as soon as the bust hits its depths.”

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March 8, 2017 | Permalink | No Comments

March 7, 2017

Is $321 Billion The Right Amount?

By David Reiss

Whipping Post and Stocks

The Boston Consulting Group has released its Global Risk 2017 report, Staying the Course in Banking. Buried in the report is Boston Consulting’s calculation of the amount of penalties paid by banks since the financial crisis:  $321,000,000,000. The report states,

Strict regulatory enforcement has now been place for several years, with cumulative financial penalties of about $321 billion assessed since the 2007-2008 financial crisis through the end of 2016.

About $42 billion in fines were assessed in 2016 alone, levied on the basis of past behavior. While postcrisis regulatory fines and penalties appear to have stabilized a lower level in 2105, with US regulators remaining the most active, we expect fines and penalties by regulators in Europe and Asia to rise in coming years.

As conduct-based regulations evolve, fines and penalties, along with related legal and litigation expenses, will remain a cost of doing business.  Managing these costs will continue to e a major task for banks. They will have to create a strong non-financial framework around the first, second, and third lines of defense — business units, independent risk function, and internal audit — to avoid continued fallout from past behavior.

*     *     *

[C]onduct risk and the prevention of financial crime remain high on regulators’ agendas. (16-17, references omitted)

Readers of this blog know that I have called for aggressive enforcement of wrongdoing in the consumer financial services sector. But I have also have trouble figuring out if the penalties assessed were properly scaled to the wrongdoing. Now that ten and eleven figure settlements have become routine, we may have forgotten that they were unheard of before the financial crisis. Many of these settlements were negotiated by federal prosecutors who were constrained only by their own judgment and the possibility that a defendant would call the government’s bluff and go to trial.  Now that post-crisis litigation is winding down, it makes sense to study how to make sure that the financial penalty fits the financial crime.

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March 7, 2017 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Roundup

By Jamila Moore

  • President Donald Trump may be the leader of the U.S.; however, he is experiencing a slump in market demands like other luxury apartment developers. Although New York’s Trump Tower has state of the art security, the U.S. Secret Service, rental rates of some units have dropped nearly 30%.
  • A recent executive order lessening the impact of the Dodd-Frank Wall Street Reform Act made critics believe the country was headed into another recession. However, the executive order promotes more oversight of the agencies that oversee the implementation of the act. Due to its implementation, home ownership is at a historic low because of fees lenders must now pay in order to comply with the act. The result has been less mortgages available for the American people. While many may believe the repeal as financial misstep for Americans, it may actually prove to be helpful.
  • A Washington contractor is disappointed. The U.S. Government Accountability Office recently upheld a decision to allow NASA to deny the contract to build a 30 million dollar safety center at the their Glenn Research Center.

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March 7, 2017 | Permalink | No Comments

March 6, 2017

Common Mortgage Myths

By David Reiss

image by Nevit Dilmen

Newsday quoted me in Don’t Fall For These 4 Common Mortgage Myths. It reads,

With the spring home buying season just around the corner, it’s a good time to separate fiction from fact.

Here are four common mortgage myths.

MythHome buyers must put down 20 percent.

Fact“While that may have been true a long time ago, there are a number of alternatives. Federal Housing Administration-insured loans can have 3.5 percent down payments. Fannie Mae and Freddie Mac both have programs with 3 percent down payments. One major lender has come up with a program with a 1 percent-down mortgage, but there are some significant restrictions on who qualifies for that program,” says David Reiss, a law professor specializing in real estate at Brooklyn Law School.

MythMy bank knows me, loves me and will give me a deal.

Fact“Mortgage lending is regulated by nationwide underwriting standards that all lenders must follow. Since virtually all lenders obtain money to lend from the secondary mortgage markets, the mortgage rate one can obtain will be virtually the same regardless of the lender chosen,” says Warren Goldberg, president of Mortgage Wealth Advisors in Plainview.

MythPrequalification means you’re approved and will get the loan.

Fact“Pre-qualification is not a binding agreement. Lenders may require additional information before issuing the loan. Pre-qualification gives you an idea of how much you can borrow before you start looking at homes and shows sellers that you’re committed and can afford the home,” says Bob Donovan, Bank of America’s divisional sales executive for the metropolitan region in Manhattan.

MythI’ll close in 30 days.

Fact: “That’s rare now. The turnaround from application to closing is about 50 days,” says Sam Heskel, CEO of Nadlan Valuation in Brooklyn.

 

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March 6, 2017 | Permalink | No Comments