August 3, 2016
- Mortgage Default Risk: New Evidence from Internet Search Queries Stuart A. Gabriel & Chandler Lutz
- Speculative Bubble or Market Fundamentals? An Investigation of US Regional Housing Markets, Shu-Ping Shi, CAMA Working Paper No. 46/2016
- Housing Prices, Mortgage Interest Rates and the Rising Share of Capital Income in the United States, Gianni D La Cava, BIS Working Paper No. 572
- Discontinuity in Relative Credit Losses: Evidence from Defaults on Government-Insured Residential Mortgages, Agata Lozinskaia & Evgeniy M. Ozhegov & Alexander Kaminsky, Higher School of Economics Research Paper No. WP BRP 55/FE/2016
August 2, 2016
NYU’s Furman Center has released a Data Brief, Selling the Debt: Properties Affected by the Sale of New York City Tax Liens. It opens,
When properties in New York City accrue taxes or assessments, those debts become liens against the property. If the debt remains unpaid for long enough, the city is authorized to sell the lien to a third party. In practice, the city retains some liens (because it is legally required to do so in some cases and for strategic reasons in other cases), but it sells many of the liens that are eligible for sale. In this fact brief, we explore the types of properties subject to tax lien sales but exclude Staten Island due to data limitations and exclude condominium units. Between 2010 and 2015, we find that 15,038 individual properties with 43,616 residential units were impacted by the tax lien sale. We answer three questions: (i) what kinds of properties have had a municipal lien sold in recent years? (ii) where are those properties located in the city? (iii) what happens to a property following a lien sale?
We present this information to shine a light on a somewhat obscure process that affects a significant number of properties in the city. Also, the lien sale has a number of policy implications. Tax delinquency can be an indicator of distress; property owners who have not paid their taxes may also cut back on building maintenance and investment. This could have ramifications for owners, tenants, and neighborhoods. The city, social service providers, and practitioners in the community development and housing fields may find this descriptive information helpful as they think about interventions related to the health of housing and neighborhoods.
In addition, the choice of whether to retain a tax lien or to sell the lien also presents a policy choice for the city—selling the lien allows the city to collect needed revenue it is owed; but, with the sale, the city gives up the leverage that it holds over delinquent property owners, which can be used in some cases to move properties into affordable housing programs or meet other strategic goals. The city could retain that leverage by selling fewer liens; but, then it would not only lose the revenue generated by the sale, it would also incur the cost of foreclosing or alternative interventions. The lien sale is part of the city’s municipal debt collection program, and the city must be careful that policy changes do not undermine the city’s debt collection efforts.
With this fact brief, we aim to shed some light on the real world consequences and opportunities triggered by the city’s current treatment of municipal liens. (1-2, footnotes omitted)
New York City has sure come a long way from the 1970s when the City was authorized to foreclose on properties with tax liens. The issue then was that the owners of thousands of buildings did not think it was worth it to pay their taxes. Their preferred strategy was to stop paying their bills and collect rents until the City took their properties away from them. After the City took possession of these buildings, it repurposed many of them into affordable housing projects owned by a range of not-for-profit and for-profit entities.
The Furman brief does not report on why building owners are failing to pay their taxes today. It is reasonable to think that, at least as to multifamily buildings, it is because of operational issues more than because of fundamental problems relating to the profitability of real estate investments in New York City. This is supported by the fact that, when it comes to tax liens, “many if not most debts would be repaid before foreclosure.” (11) Thus, while this brief sheds light on this shadowy corner of the NYC real estate market, it does not seem (as the authors agree) that tax liens will open a path to increasing the stock of affordable housing in the City as it had in the 1980s and 1990s.
- In a rare moment of bipartisanship before heading home for the summer, the Senate unanimously passed legislation that will require the FHA to lighten up on its condo financing regulations and make low down payment FHA loans more available to the people they are supposed to serve — moderate-income buyers, many of them minorities and first-time purchasers, who turn to condominiums as their most affordable option.
- In a comprehensive report published Monday, the Treasury, HUD, and the FHFA say that while HAMP and HARP are set to end this year, the government plans to continue working with the mortgage industry on various loss-mitigation programs moving forward, but caution that the industry needs to be prepared to do more moving forward.
- Barclays PLC urged the Second Circuit Court of Appeals on Monday to reverse class certification in a shareholder suit alleging misrepresentations related to the bank’s dark pool, arguing that the district court judge who granted cert. improperly refused to hear Barclays’ evidence.
- Mortgage borrowers who say Wells Fargo failed to disclose property insurance proceeds that might’ve been available to pay off their loans told a California federal court Wednesday that the bank is employing a “scorched-earth” litigation strategy and is seeking to delay the class action at every turn.
- A New York state judge has tossed a suit alleging that Barclays Bank PLC and a defunct unit lied about the quality of the loans made up of $619 million in residential mortgage-backed securities, saying the claims were filed too late.
July 28, 2016
For a number of years, I have warned of the increased operational risk that results from leaving Fannie Mae and Freddie Mac in the limbo of their conservatorships. “Operational risk” refers to risks that a company faces from things like poor procedures, systems, policies and employee supervision.
The Inspector General of the Federal Housing Finance Agency has released three reports that address aspects of Fannie and Freddie’s operational risk (along with that of the Federal Home Loan Bank System). The three reports are:
- FHFA Failed to Consistently Deliver Timely Reports of Examination to the Enterprise Boards and Obtain Written Responses from the Boards Regarding Remediation of Supervisory Concerns Identified in those Reports
- FHFA’s Failure to Consistently Identify Specific Deficiencies and Their Root Causes in Its Reports of Examination Constrains the Ability of the Enterprise Boards to Exercise Effective Oversight of Management’s Remediation of Supervisory Concerns
- FHFA’s Inconsistent Practices in Assessing Enterprise Remediation of Serious Deficiencies and Weaknesses in its Tracking Systems Limit the Effectiveness of FHFA’s Supervision of the Enterprises
The last of the three reports notes,
As the regulator of Fannie Mae and Freddie Mac (collectively, the Enterprises) and of the Federal Home Loan Banks (FHLBanks), the Federal Housing Finance Agency (FHFA) is tasked by statute to ensure that these entities operate safely and soundly so that they serve as a reliable source of liquidity and funding for housing finance and community investment. Examinations of its regulated entities are fundamental to FHFA’s supervisory mission.
FHFA has directed its Division of Enterprise Regulation (DER) to conduct supervisory activities of the Enterprises and its Division of Federal Home Loan Bank Regulation (DBR) to conduct these activities for the FHLBanks. When DER or DBR identifies a deficiency, it will classify the deficiency as a Matter Requiring Attention (MRA), a violation, or a recommendation. According to FHFA, MRAs are “the most serious supervisory matters.” FHFA requires the regulated entities to promptly remediate MRAs. Examiners are required to “check and document” the progress of MRA remediation.
In FHFA Office of Inspector General’s (OIG) 2016 Audit and Evaluation Plan, we explained our intent to focus our resources on programs and operations that pose the greatest financial, governance, and reputational risk to FHFA, the Enterprises, and the FHLBanks. One of the four areas we identified was FHFA’s rigor in its supervision of the Enterprises and the FHLBanks. According to FHFA, a key component of effective supervision is close oversight of efforts by an entity it regulates to correct identified supervisory concerns. This evaluation is one in a series of OIG reports that assess the robustness of FHFA’s policies, procedures, and practices governing its oversight of remediation of supervisory concerns by a regulated entity.
In this evaluation, we compared the MRA tracking systems used by two federal financial regulators and DBR to those used by the DER Fannie Mae and Freddie Mac examination teams. We found substantial weaknesses in DER’s tracking systems that limit significantly the utility of those systems as a tool to monitor the Enterprises’ efforts to remediate deficiencies giving rise to MRAs. We also reviewed a sample of open and closed MRAs issued to each Enterprise by DER to assess whether DER examiners performed independent assessments of the timeliness and adequacy of each Enterprise’s efforts to remediate the MRA. Our review found a lack of consistent independent analysis by DER examiners of the timeliness and adequacy of each Enterprise’s remedial efforts. (2)
My nightmare scenario is that Fannie and Freddie operations have slowly degraded as they have been left to linger in the limbo of conservatorship. This kind of degradation is not really observable from the outside and its effects are not known until something really bad happens. Maybe their hedging strategy is poorly designed, maybe their underwriting is allowed to become outdated, maybe too many employees lose their drive.
Eight years of conservatorship can do that to a company. When it happens, you can be sure that members of Congress will blame a whole host of people for this failure. But the blame will sit with Congress. Because Democrats and Republicans cannot come up with a reasonable compromise, we are left with two zombie organizations dominating our housing finance system.
Hopefully, I am wrong about this. Or maybe I am right about it but we dodge the bullet by some stroke of luck. But the longer we leave the two companies in this state, the more likely it is that things go bad and the taxpayer is left holding the bag once again.