October 31, 2022
I participated in a very interesting event at the Chicago Fed last week: Risk and Racial bias: Workshop improving Minority and Low-Income Homeownership Experiences. The Community Development and Policy Studies (CDPS) team at the Chicago Fed sponsored the workshop. CDPS is specifically focused on the risks of homeownership, bias in housing and financial markets, how risk and bias interact to affect homeownership experiences for minority or low-income families, and how risks are shared among market participants.
The workshop featured papers from “researchers in the social sciences and law using a range of methodological approaches on questions related to homeownership as a means of wealth accumulation and the experiences of minority and low-income families.”
I was a discussant for an interesting paper, Strategically Staying Small: Regulatory Avoidance and the CRA by Jacelly Cespedes et al. (she presented the paper). The abstract reads
Using the introduction of an asset based two-tiered evaluation scheme in the 1995 CRA reform, we examine the consequences of regulatory avoidance. Banks exploit the attribute-based regulation by strategically slowing asset growth, bunching below the $250M threshold. The regulatory avoidance also produces real effects. Banks near the threshold experience an increase in the rejection rate of LMI loans, while areas they serve experience a decline in county-level small establishment shares and independent innovation. These results highlight a bank’s willingness to take costly actions to avoid regulatory oversight and subsequent credit reduction for individuals whom the CRA is designed to benefit.
The most recent version of the paper does not seem to be publicly available, but an earlier draft can be found here.
October 3, 2022
The Wall Street Journal quoted me in Helping Your Kids Qualify for a Mortgage? What to Know Before Cosigning on the Dotted Line. It reads, in part,
With rising interest rates and slowing real-estate sales, homeownership remains out of reach for many would-be buyers. According to the National Association of Home Builders, in the second quarter of 2022, housing affordability fell to its lowest point since the 2007-09 recession.
The NAHB/Wells Fargo Housing Opportunity Index found that just 42.8% of new and existing homes sold between the beginning of April and the end of June were affordable to families earning the U.S. median income of $90,000. This is a sharp drop from the 56.9% of homes sold in the first quarter that were affordable to median-income earners.One option to improve affordability, especially for those who lack good credit: Have mom and dad cosign the mortgage. Many parents are willing to do so, according to data prepared for The Wall Street Journal by LendingTree Inc., an online loan marketplace, which reported that 57% of parents would be willing to cosign their child’s mortgage and 7% have done so in the past.
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There is a difference between cosigning and guaranteeing. According to David Reiss, a professor at Brooklyn Law School who specializes in real estate, a parent acting as a co-borrower has the same responsibilities under the loan as their child. They are liable for the payments as they come due and can be sued by the lender for nonpayment if the loan becomes delinquent. But a parent acting as a guarantor has a different legal relationship with both the lender and the child. A parent guarantor would be responsible for the loan only if the child first defaults.
September 30, 2022
Law360 published my column, Time To Rethink The Federal Home Loan Bank System. It opens,
The Federal Housing Finance Agency is commencing a comprehensive review of an esoteric but important part of our financial infrastructure this month. The review is called “Federal Home Loan Bank System at 100: Focusing on the Future.”
It is a bit of misnomer, as the system is only 90 years old. Congress brought it into existence in 1932 as one of the first major legislative responses to the Great Depression. But the name of the review also signals that the next 10 years should be a period of reflection regarding the proper role of the system in our broader financial infrastructure.
Just as the name of the review process is a bit misleading, so is the name of the Federal Home Loan Bank system itself. While it was originally designed to support homeownership, it has morphed into a provider of liquidity for large financial institutions.
Banks like JPMorgan Chase & Co., Bank of America Corp., Citibank NA and Wells Fargo & Co. are among its biggest beneficiaries and homeownership is only incidentally supported by their involvement with it.
As part of the comprehensive review of the system, we should give thought to at least changing the name of the system so that it cannot trade on its history as a supporter of affordable homeownership. But we should go even farther and give some thought to spinning off its functions into other parts of the federal financial infrastructure as its functions are redundant with theirs.
September 26, 2022
I published How Fintech Cos. May Transform Real Estate Investment along with Joseph Bizub and Justin Peralta in Law360. It opens,
Until relatively recently, real estate with a small footprint — one-to-four-family homes as well as small retail, office and industrial buildings — were generally within the sole purview of small investors who invested locally.
Today, because of technological advances, these owner-occupants and investors face significant competition from institutional investors and an emerging class of decentralized finance investors.
These fintech companies are bringing new approaches to the challenges that real estate investing traditionally poses: illiquidity, lack of capital, lack of diversification and uneven access to market information.
This article focuses on how decentralized finance investors in particular are meeting those challenges and suggests that while much of their vaunted innovation is simply old wine in new bottles, there is good reason to think that they will be driving a lot of investment in small real estate transactions in the future, in no small part because people like shiny new bottles.
September 23, 2022
I was interviewed by Reuters in Explainer: What New York’s lawsuit means for Trump regarding the lawsuit that New York Attorney General James filed against former President Trump and others in his circle. The video is here. The transcript reads in part,
The lawsuit seeks to have Trump and the other defendants give up $250 million in what she says were false financial gains.
James is also seeking to bar Trump and three of his children – Donald Trump Jr, Eric Trump and Ivanka Trump – from serving as directors of companies registered in New York…
and prevent them and their company from buying commercial real estate or getting bank loans in New York state for five years.
She is also seeking to appoint an independent monitor at the Trump Organization to oversee various aspects of its business for five years.
Trump, who is considering running again for president in 2024, is expected to contest the litigation. But David Reiss, a professor at Brooklyn Law School, sees another possibility…
“…He’s been very effective at pushing final outcomes in his legal battles years down the road, and maybe that’s a good enough strategy for him. That’s possible. The other possibility, even though he doesn’t say this on Twitter, is he may settle.”
May 2, 2022
David Reiss CC BY-NC-SA
Linda Fisher recently posted a pdf of The Foreclosure Echo: How the Hardest Hit Have Been Left out of the Economic Recovery, a book she co-authored with Judith Fox. It came out before the pandemic, so you might have missed it. The abstract reads,
This book tells the story of the foreclosure crisis from a new perspective – that of ordinary people who experienced it. This angle has not been thoroughly communicated before now. The authors are legal academics who have worked for decades defending low- to moderate-income people from foreclosure and challenging predatory lending practices. They have a wealth of experience representing people whose American Dream was shattered when they were threatened with losing their homes. Using actual experiences – often examined through a legal lens – supplemented by economic, social science and legal research, The Foreclosure Echo explains how people experienced the crisis and how their lenders and public institutions let them down. The book also details the lingering effects of the crisis – such as vacant and abandoned buildings – and how these effects have magnified inequality. Finally, the book suggests reforms that could help avoid another crisis.
It is a timely read, and it resonates with some of the challenges homeowners will face as the consequences of the pandemic work themselves out in the housing market with the expiration of the various foreclosure moratoria that were in effect during the earlier stages of the pandemic.