January 30, 2015
I attended an interesting research seminar led by Anthony Townsend yesterday at NYU’s Center for Urban Science and Progress (conveniently located in downtown Brooklyn). Professor Townsend is affiliated to NYU’s Rudin Center for Transportation Policy & Management. He discussed his recent book, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia. Townsend argued that the 21st century will be defined by two global trends – urbanization of the world’s population, and ubiquitous computing. He traced the origins of the “smart cities” movement, its goals and the problems it faces.
As noted on Amazon, the book argues that
cities worldwide are deploying technology to address both the timeless challenges of government and the mounting problems posed by human settlements of previously unimaginable size and complexity. In Chicago, GPS sensors on snow plows feed a real-time “plow tracker” map that everyone can access. In Zaragoza, Spain, a “citizen card” can get you on the free city-wide Wi-Fi network, unlock a bike share, check a book out of the library, and pay for your bus ride home. In New York, a guerrilla group of citizen-scientists installed sensors in local sewers to alert you when stormwater runoff overwhelms the system, dumping waste into local waterways.
While Townsend’s talk did not apply his thesis to urban housing and his book only touches on it, it is certainly worth thinking through how Big Data can help provide more housing and better housing in big cities.
Housing is as “unvirtual,” or perhaps as “real,” a good as a good can be. But businesses such as Airbnb show how the virtual and the real can combine into something quite new. Obviously Airbnb does not solve many housing problems for residents of cities, but it does demonstrate that there is a brave new world ahead. Housing policymakers should try to discern what it is going to look like and how it can be harnessed as a force of civic good.
January 29, 2015
- Describe the historical precedent and resolution practice on which Congress based FHFA’s and Treasury’s statutory responsibilities over Fannie Mae and Freddie Mac;
- Explain the statutory requirements, as well as the procedural and substantive protections, in place so that all stakeholders are treated fairly during the conservatorship;
- Detail the important policy reasons that underlie these statutory provisions and the established practice in their application, and the role these policies play in a sound market economy; and
Demonstrate that the conservatorships of Fannie Mae and Freddie Mac ignore that precedent and resolution practice, and do not comply with HERA. Among the Treasury and FHFA departures from HERA and established precedents are the following:
continuing the conservatorships for more than 6 years without any effort to comply with HERA’s requirementsto “preserve and conserve” the assets and property of the Companies and return them to a “sound and solvent” condition or place them into receiverships;
rejecting any attempt to rebuild the capital of Fannie Mae or Freddie Mac so that they can return to “sound and solvent” condition by meeting regulatory capital and other requirements, and thereby placing all risk of future losses on taxpayers;
stripping all net value from Fannie Mae and Freddie Mac long after Treasury has been repaid when HERA, and precedent, limit this recovery to the funding actually provided;
ignoring HERA’s conservatorship requirements and transforming the purpose of the conservatorships from restoring or resolving the Companies into instruments of government housing policy and sources of revenue forTreasury;
repeatedly restructuring the terms of the initial assistance to further impair the financial interests of stakeholders contrary to HERA, fundamental principles of insolvency, and initial commitments by FHFA; and
disregarding HERA’s requirement to “maintain the corporation’s status as a private shareholder-owned company” and FHFA’s commitment to allow private investors to continue to benefit from the financial value of the company’s stock as determined by the market. (1-3, footnotes omitted)
I am intrigued by the recollections of these two former government officials who were involved in the drafting of HERA (much as I was by those contained in a related paper by Calabria). But I am not convinced that their version of events amounts to a legislative history of HERA, let alone one that should be given any kind of deference by decision-makers. The firmness of their opinions about the meaning of HERA is also in tension with the ambiguity of the text of the statute itself. The plaintiffs in the GSE conservatorship litigation will see this paper as a confirmation of their position. I do not think, however, that the judges hearing the cases will pay it much heed.
January 28, 2015
HUD’s Office of Policy Development and Research has released a report, Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012. By way of background,
The Low-Income Housing Tax Credit (LIHTC) Program provides tax credits to developers of affordable rental housing. The tax credits are provided during the first 10 years of a minimum 30-year compliance period during which rent and income restrictions apply. The LIHTC Program, although established in the U.S. Internal Revenue Code (IRC), is structured such that state-allocating agencies administer most aspects of the program, including income and rent compliance, with the Internal Revenue Service (IRS) providing oversight and guidance. Local administration allows states to address affordable housing needs specific to their populations. (1)
Here are some findings of note:
- Approximately three-fourths of reported households include disability status for at least one household member.
- 36.4 percent of reported LIHTC households had a least one member under 18 years old.
- Nearly 33 percent of reported LIHTC households have an elderly member, and 28.6 percent of reported LIHTC households have a head of household at least 62 years old.
- The overall median annual income of households living in LIHTC units was $17,066, ranging from $8,769 in Kentucky to $22,241 in Florida. By comparison, the median income of HUD-assisted tenants was $10,272 in 2012.
- Approximately 60 percent of reported households nationwide had incomes below $20,000.
- The study found that approximately 39 percent of all LIHTC households paid more than 30 percent of their income for rent, thus making them housing cost burdened. Ten percent of all LIHTC households faced a severe housing cost burden, paying more than 50 percent of their income towards rent.
- In 23 states, HUD was able to collect some data on the use of rental assistance in LIHTC units, which can eliminate cost burden for households who have it. Approximately half of reported households receive some form of rental assistance, with the greatest use in Vermont (64 percent) and least use in Nevada (23 percent).
The Housing and Economic Recovery Act of 2008 requires that this information be collected on an ongoing basis. It should be of great value as policymakers formulate federal housing policy for low-income households going forward.
January 26, 2015
Jenner & Block has issued the Citi Monitorship First Report. By way of background,
The Settlement Agreement resolved potential federal and state legal claims for violations of law in connection with the packaging, marketing, sale, structuring, arrangement, and issuance of residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) between 2006 and 2007. As explained below, in the Settlement Agreement, Citi agreed to pay $4.5 billion to the settling governmental entities, acknowledged a statement of facts attached as Annex 1, and agreed to provide consumer relief that would be valued at $2.5 billion under the valuation principles set forth in Annex 2.2 As part of the Settlement Agreement, [Jenner partner] Thomas J. Perrelli was appointed as independent monitor (Monitor) to determine Citi’s compliance with the consumer relief and corresponding requirements of the Settlement Agreement. This is the first report assessing Citi’s progress toward completion of those obligations. (3, footnote omitted)
Because this is the first report, much of it sets the stage for what is to come. I was, however, struck by the section titled “Impact of Relief Provided:”
To evaluate fully the impact of the relief that is the subject of this report and authorized under the Settlement Agreement would require a variety of activities not contemplated by the settlement and not easily achievable (e.g., interviews with individual homeowners). Isolating the effect of this settlement, the National Mortgage Settlement, and other RMBS settlements from the broader housing market is also difficult.
One question frequently asked is whether the relief provided to borrowers and for which Citi has received credit would have been provided in any event (e.g., is this really additional?) On this question, the answer is mixed. Given ordinary accounting practices, loans for which foreclosure does not make economic sense are frequently written-off by financial institutions. In that circumstance, however, the banks may not release liens as a matter of routine, leaving borrowers with an ongoing burden and impeding potential efforts to redevelop the property. To get credit under the Settlement Agreement, Citi was required to release the lien, thus giving an additional benefit to the homeowner to allow him or her to make a fresh start and to remove any legal obstacles from the transfer of the property. (17, footnote omitted)
As I have noted before, it is hard to truly assess the restorative and retributive impacts of the ten and eleven digit settlements of litigation arising from the financial crisis. Are individuals appropriately helped? Are wrongdoers appropriately punished? Are current actors appropriately deterred? I find it bizarre that it is so hard to tell even when settlements are measured in the billions of dollars.
January 23, 2015
The Federal Housing Finance Agency (FHFA) released its 2015 Scorecard for Fannie Mae, Freddie Mac and Common Securitization Solutions. The scorecard identifies priorities for the two companies and their joint venture, Common Securitization Solutions (CSC). The scorecard builds on the FHFA’s Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac. These priorities include maintaining credit availability for residential mortgages; reducing taxpayer risk by increasing private capital in the residential mortgage market; and building a new single-family securitization platform for the secondary mortgage market, the CSC.
There is nothing particularly notable in the scorecard, other than the sense that the FHFA is continuing to move in the direction that it has publicly charted for some time. I was happy to see that the FHFA is still focusing on increasing the role of private capital in the mortgage market:
- Fannie Mae will transact credit risk transfers on reference pools of single-family mortgages with an unpaid principal balance (UPB) of at least $150 billion. This UPB requirement will be reviewed periodically and adjusted as necessary to reflect market conditions.
- Freddie Mac will transact credit risk transfers on reference pools of single-family mortgages with a UPB of at least $120 billion. This UPB requirement will be reviewed periodically and adjusted as necessary to reflect market conditions.
- In meeting the above targets, the Enterprises must each utilize at least two types of risk transfer structures. (3)
The FHFA is clearly trying to get Fannie and Freddie to experiment with risk transfer structures in order to identify approaches that minimize risks for the taxpayers who ultimately backstop the two companies. The FHFA is also trying to keep the cost of doing so to reasonable levels. These steps should be applauded by both Democrats and Republicans who are seeking to reform Fannie and Freddie and change how they operate within the secondary mortgage market.