REFinBlog

Editor: David Reiss
Brooklyn Law School

June 28, 2017

Addressing NYC’s Affordable Housing Crisis

By David Reiss

photo by Hromoslav

The NYC Rent Guidelines Board (of which I am a member) held a public hearing as part of its final vote on rent adjustments for the approximately one million dwelling units subject to the Rent Stabilization Law in New York City. My fellow board member, Hilary Botein, and I submitted the following joint statement at the hearing (also available on SSRN and BePress):

The Rent Guidelines Board determines rent increases for New York City’s 1 million rent-stabilized apartments. We must weigh the economic conditions of the residential real estate industry; current and projected cost of living; and other data made available to us. To make our decision, we reviewed reams of data and multiple analyses of those data. We also held five public hearings at which we heard hundreds of tenants speak, sing, chant, cry, and demonstrate. These hearings are among the only opportunities that tenants have to speak publicly about their housing situations, and they made clear the extremity of the housing crisis in the City, and that it will get worse without significant intervention.

Tenants who came to the RGB hearings are not a representative sample of rent-stabilized tenants in New York City. But they told us a lot about the state of housing in the City.  We felt that it was incumbent on us to respond to what we heard, even where it did not relate directly to the jurisdiction of the Board.

New York City cannot expect any meaningful housing assistance from the federal government in the near term. Our observations therefore focus on state and municipal actions that could address some of the issues that regularly cropped up at our hearings.

There is a desperate need for affordable housing that is pegged to residents’ incomes. Housing is deemed “affordable” when housing costs are 30 percent of a household’s income. There is no guarantee that rent stabilized housing remain affordable to a particular household, and there is no income eligibility for rent stabilized housing.  This aspect of rent regulation explains its durable political appeal, but makes it an imperfect vehicle for meeting the needs of low-income tenants.

Mayor de Blasio is protecting and developing hundreds of thousands of units of affordable housing through the Housing New York plan announced at the beginning of his term. More recently, his Administration announced a program to create 10,000 deeply affordable apartments and a new Elder Rent Assistance program.  But more can be done to help low-income tenants.

The Senior Citizen Rent Increase Exemption (SCRIE) and Disability Rent Increase Exemption (DRIE) programs have proven their effectiveness in “freezing” the rents of more than 60,000 low and moderate income rent-stabilized households. The state should create and fund a similar program for low-income rent stabilized tenants who pay more than 30 percent of their incomes towards housing costs.

State laws governing rent stabilization must be amended. Three elements of the law particularly penalize low-income tenants in gentrifying neighborhoods, and were behind the most distressing tenant testimonies that we heard. They are not within the RGB’s purview, but change is critical if the law is to operate as it was intended to do. The state legislature has considered bills that would make the necessary changes. First, owners can charge tenants a “preferential” rent, which is lower than the legal registered rent for the apartment. Preferential rents are granted most often in neighborhoods where the rent that the market can bear is less than the legal rent. This sounds like a good option for both tenants and owners, and perhaps that was its original intention. But now, as neighborhoods gentrify and market rates increase, the prospect of increasing a preferential rent with little notice has become a threat to tenants’ abilities to stay in their apartments. Preferential rents should be restricted to the tenancy of a particular tenant, as was the law before a 2003 amendment. Owners would then be able to increase rents for those tenants no more than the percentages approved by the Board.

Second, owners can tack on a 20 percent “vacancy increase” every time an apartment turns over. This increase incentivizes harassment, and should be limited to situations of very long tenancies, to keep owners from actively seeking to keep tenancies short.

Third, owners making what is termed a Major Capital Improvement (MCI) – a new roof, windows, or a boiler, for example – can pass this expense on to tenants via a rent increase that continues in perpetuity, after the owner has recouped her or his expenses. We also heard allegations of sketchy capital improvement applications that were intended to increase rents without improving the conditions in the building. The state legislature should review how MCIs work in order to ensure that they are properly incentivizing landlords to invest in their buildings to the benefit of both owners and tenants.

New York City needs a repair program for broken gas lines. We heard from tenants who had not had gas in their apartments for more than a year. We understand that fixing gas lines is particularly complicated and expensive, and that gas leaks raise serious safety concerns, but it is unacceptable for families to go for more than a year without gas, and we are concerned about fire safety issues resulting from people using hot plates. The city needs to step in and make the repairs.

We have a housing crisis. Low income tenants, who live disproportionately in communities of color, experience this crisis most acutely. We will not find systemic solutions within the housing market. All solutions require a lot of money, and we cannot count on anything from the federal government. But it is imperative that our state and local governments act, or New York City’s already burgeoning shelter system will be forced to take in even more people. Since the 1970s, New York City has been a leader in committing public resources to housing its low income residents, and that legacy must continue.  The Rent Guidelines Board cannot solve the housing crisis, but other arms of the New York State and City government can work together to reduce its impacts on low-income households.

June 28, 2017 | Permalink | No Comments

June 27, 2017

Painful Lessons from Roommates

By David Reiss

photo by Bill Strain

Realtor.com quoted me in Painful Lessons Learned From Living With Roommates. It reads,

With rental prices surpassing nosebleed levels in many parts of the country, more and more legit grown-ups are cutting costs by sharing their home with roommates. But here’s the unavoidable reality: Sharing expenses and living arrangements with roommates can lead to some painful situations. There’s a strong possibility you’ll learn about personality clashes, crazy quirks, and the financial habits of your cohabitant the very hard way. Sometimes, renting with a roommate can end in tears—or in court!

We asked our readers to air their roommate horror stories in the hope they’ll serve as cautionary tales for you. Here’s hoping your own living situation stays drama-free and way less sticky than the following ordeals.

Pets come in all shapes and sizes

One day Karin Ranta Curran’s college roommate brought home an aquarium and said she was getting a small pet. Curran, who lives in Denver, was leaving town and didn’t want to pry—but she assumed it was probably a hamster or a cat. After the weekend she came home and was greeted by a massive cockroach chilling out in the living room.

“I killed it and later showed my roommate, who burst into tears,” she says. It was a pet Madagascar hissing cockroach she had just gotten (her dad was an entomologist), and it was named Henry.

“I still feel bad to this day because the other cockroaches were pretty cute once you got used to them. Kind of like hermit crabs,” says Curran. “My roommate moved out a few months later. I don’t know if Henry’s death was a factor.”

Lesson learned: Communicate with your roommate about any big changes to your living situation like pets, no matter the size or species.

“What is perhaps obvious to the offspring of an entomologist is not obvious to the rest of us,” says David Reiss, academic program director for Brooklyn Law School’s Center for Urban Business Entrepreneurship.

Beware of double-dipping leaseholder

Peter Ponce was sharing a large three-bedroom apartment in New York City. He was not on the lease but had agreed with the leaseholder to pay $1,000 a month to rent his room. After living in the apartment for nine months, he booked a job where he had to be away for three months.

“I found and vetted someone to sublet my room, but at the 11th hour the leaseholder said he didn’t want another person in my room while I was away,” says Ponce. He had no choice. If he wanted a place to come home to, he had to just eat the rent for those three months.

When he returned home from the gig, he discovered that someone had been living in his room—and paying. The leaseholder had collected double rent.

“I couldn’t sue because I wasn’t on the lease; there was basically nothing I could do,” says Ponce.

Lesson learned: Get everything in writing.

“If you have a real estate agreement and you want to be able to enforce it in a court, get it in writing,” says Reiss. “You do not need to be the main leaseholder to enforce a sublease agreement.”

Know when it’s time to get out

Kensie Smith had only recently moved into her downtown New York City apartment when things began to get weird with her roommate. Upon returning home from work one day she noticed that her room looked different from the way she left it.

“Someone was obviously coming in my room,” she says. “I confronted my roommate, and he confessed that he was going into my room to ‘inhale my aura.’ I point-blank asked him if he’d been going through my clothes and underwear drawers, and he said, ‘I may have done that a few times.'” Yikes!

Luckily for Smith, she had an opportunity to rent another place in the West Village. “As quickly as I could, I moved in there.”

Lesson learned: Know when it’s time to move out.

“When you find out that you live with someone who is undesirable—whether they’re a crank, a criminal, or a creep—it’s best to cut your losses and move on as quickly as you are able,” says Reiss. “In the meantime, put a lock on your door or call the police if your roommate’s behavior rises to the level of a crime.”

Nickels, dimes, and security deposits

A few years ago Jewel Elizabeth rented a room in a two-bedroom apartment with a woman who had the lease in her name. It turned out the woman was rather crazy in a “Single White Female” way. She would tally up the “expenses” and charge Elizabeth ridiculously minuscule amounts like $2.47 for floor cleaner or $1.27 if you drank a Coca-Cola from the fridge.

“She left Post-it notes everywhere to tell you how to close the doors or put away dishes or what time you should go to bed,” says Elizabeth, who currently lives in New York City.

When she moved out a month later, her roommate kept $692 of her $900 security deposit as a cleaning fee. Elizabeth took her to small-claims court. But the judge said she couldn’t rule in Elizabeth’s favor because they didn’t have a contract that said Elizabeth would get the deposit back.

“There was nothing the judge could do. But I’m still glad I took her to court anyway,” she says.

Lesson learned: Spell out the terms of your rental agreement on paper.

“Whenever you hand over a security deposit, you should always have something in writing—signed by them—that spells out how you are supposed to get it back,” says Reiss.

June 27, 2017 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Roundup

By Jamila Moore

  • Ben Carson’s fellow Republicans are pleading with him to revisit HUD’s 2017-2018 budget. 23 Republican Congressmen claim there is not enough funding for homeless citizens across the country. Additionally, they urge Carson to revisit the Obama’s “Housing First” program because it eliminated a great deal of homelessness issues.
  • The Federal Housing and Finance Agency released its foreclosure prevention report for the first quarter of 2017. So far, Fannie Mae and Freddie Mac participated in approximately 50,000 foreclosure prevention actions with homeowners across the U.S. Additionally, over 2 million homeowners in the U.S. have successfully had their loans modified.

June 27, 2017 | Permalink | No Comments

June 26, 2017

FHFA’s Asks from Congress

By David Reiss

photo by Jehmsei

The Federal Housing Finance Agency released its 2016 report to Congress. Of particular note are its legislative recommendations. The first is one that I and every other housing policy analyst has been saying for years. The second two are very technical, but also very important to the long term health of the mortgage market.

Housing Finance Reform

The Enterprises have been in conservatorships since September 2008. These conservatorships are unprecedented in duration and scope. While a number of important reforms have been made to the Enterprises during conservatorship, FHFA continues to believe that conservatorship is not sustainable and that Congress needs to undertake the important work of housing finance reform.

Barriers to Investor Participation in Credit Risk Transfer Transactions

Under FHFA’s annual conservatorship scorecards, the Enterprises are working to transfer to the private sector a substantial amount of the credit risk they assume in targeted loan acquisitions. This credit risk transfer market is relatively new and evolving and relies on ongoing investor interest and ability to purchase the credit risk. FHFA has previously identified several statutory impediments which, if addressed, could avoid unintended consequences for some types of investors and thus help to expand investor participation in Enterprise credit risk transfer transactions. FHFA continues to believe that these statutory impediments should be removed.

Examination of Regulated Entity

Counterparties FHFA’s regulated entities contract with third parties to provide critical services supporting the secondary mortgage market, including nonbank mortgage servicers for the Enterprises. While oversight of these counterparties is important to safety and soundness of FHFA’s regulated entities, it is currently exercised only through contractual provisions where possible. In contrast, other federal safety and soundness regulators have statutory authority to examine companies that provide services to depository institutions through the Bank Service Company Act. The Government Accountability Office has recommended granting FHFA the authority to examine third parties that do business with the Enterprises.37 The Financial Stability Oversight Council also made a similar recommendation in its 2016 Annual Report. FHFA concurs with these recommendations.  (63)

June 26, 2017 | Permalink | No Comments

Monday’s Adjudication Roundup

By Jamila Moore

  • The United States Supreme Court recently clarified a rule within the issue of eminent domain. In a 5-3 decision, the court determined two adjacent properties were considered one in order to properly calculate loss cost. States are using the decision as strong guidance.
  • Genworth Financial Inc. agreed to pay a 20 million dollar settlement in a suit for their alleged misguided advice during a public offering of a company. The class of plaintiffs include investors whom believed the Austrian financial market to be sound; however, the state of the market was poor at the time of Genworth Austrian subsidiary’s IPO.
  • A California judge decertified a class of residents in Los Angeles. The class alleges they received unwanted, faxed solicitation ads from SoCal Better Homes. This decision makes further litigation unlikely, as the case will have disproportionate costs and needs for a person filing suit on their own.

June 26, 2017 | Permalink | No Comments

June 23, 2017

Mortgage Pre-Qualification vs. Pre-Approval

By David Reiss

photo by Steve Spinks

Realtor.com quoted me in Mortgage Pre-Qualification vs. Pre-Approval: What’s the Difference? It opens,

When buying a home, cash is king, but most folks don’t have hundreds of thousands of dollars lying in the bank. Of course, that’s why obtaining a mortgage is such a crucial part of the process. And securing mortgage pre-qualification and pre-approval are important steps, assuring lenders that you’ll be able to afford payments.
However, pre-qualification and pre-approval are vastly different. How different? Some mortgage professionals believe one is virtually useless.

“I tell most people they can take that pre-qualification letter and throw it in the trash,” says Patty Arvielo, a mortgage banker and president and founder of New American Funding, in Tustin, CA. “It doesn’t mean much.”

What is mortgage pre-qualification?

Pre-qualification means that a lender has evaluated your creditworthiness and has decided that you probably will be eligible for a loan up to a certain amount.

But here’s the rub: Most often, the pre-qualification letter is an approximation—not a promise—based solely on the information you give the lender and its evaluation of your financial prospects.

“The analysis is based on the information that you have provided,” says David Reiss, a professor at the Brooklyn Law School and a real estate law expert. “It may not take into account your current credit report, and it does not look past the statements you have made about your income, assets, and liabilities.”

A pre-qualification is merely a financial snapshot that gives you an idea of the mortgage you might qualify for.

“It can be helpful if you are completely unaware what your current financial position will support regarding a mortgage amount,” says Kyle Winkfield, managing partner of O’Dell, Winkfield, Roseman, and Shipp, in Washington, DC. “It certainly helps if you are just beginning the process of looking to buy a house.”

June 23, 2017 | Permalink | No Comments