October 14, 2014

Reiss on The FHFA’s Common Securitization Platform

By David Reiss

I have submitted my response to the FHFA’s Request for Input on the Proposed Single Security Structure.  The abstract for my response, The FHFA’s Proposed Single Security Structure, reads,

The Federal Housing Finance Agency (FHFA) has posted a Request for Input on “the proposed structure for a Single Security that would be issued and guaranteed by Fannie Mae or Freddie Mac.”  The FHFA states it is most concerned with achieving “maximum secondary market liquidity” (Request for Input, at 8)

I am skeptical about the reasons for this move to a Single Security and whether it will achieve maximum liquidity. Moreover, it is unclear to me that this move reflects an urgent need for the FHFA, the two companies, originating lenders or borrowers. While I have no doubt that it could slightly increase liquidity and slightly decrease the cost of credit, I do not see this move as having a meaningful effect on either.

This move is consistent, however, with a move toward a new model of government-supported housing finance, one that could contemplate an end to Fannie and Freddie as we know them and the beginning of a more utility-like securitizer.  If, indeed, the FHFA is taking this step, it should be more explicit as to its reasons for doing so.

October 14, 2014 | Permalink | No Comments

October 13, 2014

Commemorating Columbus Day

By David Reiss

Adieu, Adieu! My Native Shore

  from Byron’s Childe Harold, Canto i, Verse 13


   ‘ADIEU, adieu! my native shore

       Fades o’er the waters blue;

   The Night-winds sigh, the breakers roar,

       And shrieks the wild sea-mew.

   Yon Sun that sets upon the sea

       We follow in his flight;

   Farewell awhile to him and thee,

       My native Land — Good Night!


   ‘A few short hours and He will rise

       To give the Morrow birth;

   And I shall hail the main and skies,

       But not my mother Earth.

   Deserted is my own good hall,

       Its hearth is desolate;

   Wild weeds are gathering on the wall;

       My dog howls at the gate.


   ‘Come hither, hither, my little page!

       Why dost thou weep and wail?

   Or dost thou dread the billows’ rage,

       Or tremble at the gale?

   But dash the tear-drop from thine eye;

       Our ship is swift and strong,

   Our fleetest falcon scarce can fly

       More merrily along.’ –


   ‘Let winds be shrill, let waves roll high,

       I fear not wave nor wind;

   Yet marvel not, Sir Childe, that I

       Am sorrowful in mind;

   For I have from my father gone,

       A mother whom I love,

   And have no friend, save these alone,

       But thee — and one above.


   ‘My father bless’d be fervently,

      Yet did not much complain;

   But sorely will my mother sigh

       Till I come back again.’ –

   ‘Enough, enough, my little lad!

       Such tears become thine eye;

   If I thy guileless bosom had,

       Mine own would not be dry. –


   ‘Come hither, hither, my staunch yeoman,

       Why dost thou look so pale?

   Or dost thou dread a French foeman?

       Or shiver at the gale?’–

   ‘Deem’st thou I tremble for my life?

       Sir Childe, I’m not so weak;

   But thinking on an absent wife

       Will blanch a faithful cheek.


   ‘My spouse and boys dwell near thy hall,

       Along the bordering lake,

   And when they on their father call,

       What answer shall she make?’–

   ‘Enough, enough, my yeoman good,

       Thy grief let none gainsay;

   But I, who am of lighter mood,

       Will laugh to flee away.


   ‘For who would trust the seeming sighs

       Of wife or paramour?

   Fresh feres will dry the bright blue eyes

       We late saw streaming o’er.

   For pleasures past I do not grieve,

       Nor perils gathering near;

   My greatest grief is that I leave

       No thing that claims a tear.


   ‘And now I’m in the world alone,

       Upon the wide, wide sea;

   But why should I for others groan,

       When none will sigh for me?

   Perchance my dog will whine in vain,

       Till fed by stranger hands;

   But long ere I come back again

       He’d tear me where he stands.


   ‘With thee, my bark, I’ll swiftly go

       Athwart the foaming brine;

   Nor care what land thou bear’st me to,

       So not again to mine.

   Welcome, welcome, ye dark blue waves!

       And when you fail my sight,

   Welcome ye deserts, and ye caves!

       My native land — Good Night!’

October 13, 2014 | Permalink | No Comments

October 10, 2014

Dodd-Frank Mortgage Rules Readiness Guide

By David Reiss

The CFPB issued Version 3.0 of its 2014 CFPB Dodd-Frank Mortgage Rules Readiness Guide “to help financial institutions come into and maintain compliance with the new mortgage rules outlined in Part I of this Guide. . . .. This Guide summarizes the mortgage rules finalized by the CFPB as of August 1, 2014, but it is not a substitute for the rules.” (2)

The Guide provides a helpful overview of the Dodd-Frank rules that relate to the mortgage market, noting that they “amend several existing regulations, including Regulations Z, X, and B.” (3) The guide provides summaries of “rules required under Title XIV of the Dodd-Frank Act” and “the Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA).” (3) These summaries include:

  • Ability to Repay
  • Qualified Mortgage
  • TILA Escrow Requirements
  • High-Cost Mortgage and Homeownership Counseling
  • Mortgage Servicing
  • ECOA Valuations for Loans Secured by a First Lien on a Dwelling
  • TILA Appraisals for Higher-Priced Mortgage Loans
  • Loan Originator Compensation Requirements
  • TILA-RESPA Integrated Disclosure

While this Guide is directed at financial institutions to help them “come into and maintain compliance” with these rules, it also provides a useful overview for everyone else who is trying to understand what the current regulatory environment for the mortgage market looks like. (2)

October 10, 2014 | Permalink | No Comments

October 9, 2014

A Framework For Housing Finance

By David Reiss

The Government Accountability Office has released Housing Finance System: A Framework for Assessing Potential Changes. The GAO writes,

To help policymakers assess various proposals for changing the single-family housing finance system and consider ways in which the system could be made more effective and efficient, we prepared this report under the authority of the Comptroller General. Specifically, this report (1) describes market developments since 2000 that have led to changes in the federal government’s role in single-family housing finance; (2) analyzes whether and how these market developments have challenged the housing finance system; and (3) presents an evaluation framework for assessing potential changes to the housing finance system. (2)
It is useful to have a framework to figure out what kind of housing finance system we want for the 21st century. The GAO’s has 9 elements:
  1. Clearly defined and prioritized housing finance system goals
  2. Policies and mechanisms that are aligned with goals and other economic policies
  3. Adherence to an appropriate financial regulatory framework
  4. Government entities that have capacity to manage risks
  5. Mortgage borrowers are protected and barriers to mortgage market access are addressed
  6. Protection for mortgage securities investors
  7. Consideration of cyclical nature of housing finance and impact of housing finance on financial stability
  8. Recognition and control of fiscal exposure and mitigation of moral hazard
  9. Emphasis on implications of the transition (54-55)
This all sounds very Yoda-like, but the report itself goes into great detail as to what each of these 9 elements means. Given that Congress has left the housing finance system to its own devices, it is helpful that other branches of government like the GAO, Treasury and the FHFA are trying to move us beyond our current state of limbo. We need a housing finance system that is designed to last longer than the Band Aids and duct tape that were applied to it during the financial crisis.

October 9, 2014 | Permalink | No Comments

October 8, 2014

Reiss on C-Span on Evolving Cities

By David Reiss

C-Span has posted the footage from the Brooklyn Book Festival panel that I moderated:

Planning and Protesting: Cities Evolve!
With the city constantly evolving, each major project has its supporters and protesters. Authors Gregory Smithsimon and Benjamin Shepard (The Beach Beneath The Streets – Contesting New York City’s Public Spaces) and Daniel Campo (The Accidental Playground: Brooklyn Waterfront Narratives of the Undesigned and Unplanned) and Peter Linebaugh (Stop, Thief! The Commons, Enclosures, and Resistance) discuss how public space is shaped through policy, perspective and protests, how to agree to disagree, and the dynamics of shaping a city’s growth and change. Moderator David Reiss, Professor, Brooklyn Law School.

BLS Dean Nick Allard makes a cameo appearance at the beginning . . ..

October 8, 2014 | Permalink | No Comments

October 7, 2014

NYC, Note 12 Trends in Affordable Housing Design

By David Reiss

This story on The 12 Latest Trends in Affordable Housing is a bit different from those I usually post on the blog, but I like the pictures! The story opens,

It is no secret that the world’s urban population is picking up, and, in many cases, urban rent prices are rising with it. Architects are continually inventing new solutions to confront the challenges of maximum unit count paired with minimum budget, all the while incorporating architecture’s latest technologies and trends into the designs. Design, of course, can’t solve it all. Katharine Bristol argued in her 1991 essay “The Pruitt-Igoe Myth” that architects must evaluate the social and political structures that define public housing instead of simply agreeing to think inside the box. The following projects exemplify twelve trends architects are using to combat conventional public housing limitations.

It is worth clicking through for the pictures which of projects from all around the world.  The trends include

  1. Sustainable Design
  2. Green Roofs
  3. Atomized Grid
  4. Projecting Facade
  5. Splash of Color
  6. Accessibility for All
  7. Adaptive Reuse
  8. All Wood, All the Time
  9. New Takes on Traditional Materials
  10. Gardens in the Sky
  11. Window Treatments
  12. Low-Rise, High-Density

The difference between a wonderful affordable housing project and a soul-crushing one is often the little details that give character to a building, so that it can feel like a home.  As NYC embarks on an affordable housing building spree over the next ten years, this is something that should be kept at the forefront of the minds of those implementing the City’s housing plan.

HT NYU Furman Center

October 7, 2014 | Permalink | No Comments

October 6, 2014

Are the FHA’s Losses Heartbreaking?

By David Reiss

The Inspector General of the Department of of Housing and Urban Development issued an audit of FHA’s Loss Mitigation Program (2014-KC-0004).  The Office of the Inspector General (the OIG) did the audit because of its “concern that FHA might have incurred costs while allowing lenders to make large amounts of money by modifying defaulted FHA-insured loans. Our audit objective was to determine the extent to which loans modified under the FHA program generated gains for the lenders.” (1)

The OIG found that

Lenders generated an estimated $428 million in gains from the sale of Government National Mortgage Association securities when modifying defaulted FHA loans in fiscal year 2013. These loan modifications were completed as part of FHA’s loss mitigation program. None of these lender generated gains were used to offset FHA’s insurance fund costs. As a result, FHA missed opportunities to strengthen its insurance fund. (1)

Given that the FHA had to be bailed out for the first time in its 80 year history, the findings of this audit are a bit heartbreaking, at least for a housing finance nerd like me.  $428 million would cover more than a quarter of the amount that Treasury had to advance to the FHA, no small potatoes.

The OIG found that the FHA “may have missed opportunities to strengthen its insurance fund. Lenders could be required to offset gains they obtained from the sale of securities for incentive fees and claims for modified loans that redefault.” (5)

The Auditee Comments and the OIG’s Evaluation of Auditee Comments make it clear that the extent of the gains had by lenders is very contested because the OIG did not “know the costs of the lenders.” (17) This seems like a pretty important missing piece of the story. Nonetheless, I hope that HUD, as the parent of both the FHA and Ginnie Mae, takes questions raised by this audit seriously to ensure that public monies are being put to their best use.

October 6, 2014 | Permalink | No Comments