Author Archives: David Reiss

Housing, Out of Reach

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House_at_309_Railroad,_Las_Vegas_NM

The National Low Income Housing Coalition has released Out of Reach 2015: Low Wages & HIgh Rents Lock Renters Out. The Introduction reads,

Since its founding in 1974 by federal housing policy expert, Cushing Dolbeare, NLIHC has used data to document America’s housing affordability crisis. As part of her original analysis, Cushing observed a fundamental mismatch between the wages people earn and the price of decent housing, what we now call Out of Reach. Today, housing is still out of reach for far too many, and the gap between what people earn and the price of decent housing continues to grow.

The 2015 Housing Wage is $19.35 for a two-bedroom unit, and $15.50 for a one-bedroom unit. The Housing Wage for a two-bedroom unit is more than 2.5 times the federal minimum wage, and $4 more than the estimated average wage of $15.16 earned by renters nationwide. The Housing Wage is an estimate of the full time hourly wage that a household must earn to afford a decent apartment at HUD’s estimated Fair Market Rent (FMR), while spending no more than 30% of income on housing costs. The data in Out of Reach illustrate the gap between wages and rents across the country. In 13 states and D.C. the 2015 Housing Wage is more than $20 per hour.

Many renters earn far less than the Housing Wage in their community and struggle to find an affordable place to live. This edition of Out of Reach highlights some of the economic challenges facing low income renters, including lagging wages, inconsistent job growth, and the rising cost of living. Undoubtedly, the lack of affordable housing remains the overarching problem for low income households, a problem made worse by these economic challenges.

Expanding and preserving the supply of quality, affordable housing is essential to any strategy to end homelessness, poverty, and economic inequality. As our nation’s policymakers seek ways of overcoming these societal ills, access to affordable housing must be a cornerstone of any proposal. (1, emphasis removed)

Some of the particular findings are disturbing. For instance, “There is no state  in the U.S. where a minimum wage worker working full time can afford a one-bedroom apartment at the fair market rent.” (1) This state of affairs reflects many trends, including the fact that the minimum wage has not kept pace with inflation and is worth less today than it was a few decades ago. It is worth unpacking this finding a bit.

The report defines “affordability” as costing “no more than 30% of a household’s gross income” for rent and utilities. (2) It defines “Fair Market Rent” as “the 40th percentile of gross rents for typical, non-substandard rental units.” (2) In some ways, this report overstates the affordability crisis because minimum wage workers may be able to afford housing that falls below the 40th percentile of gross rents. Perhaps a better measure would have been to determine how many units are available to the minimum wage workers in that jurisdiction. That being said, the report does document how “rents remain out of reach for many renters.” (2) For instance, 75% of extremely low income renters spend more than 50% of their income on housing costs . . ..” (5)

Income and wealth inequality have reached extreme proportions in America today. This report highlights how this is playing out in the context of the housing market. (I would also note, however, that the report does not account for how restrictive land use policies keep the supply of new housing from growing many communities, but that may just be a subject for another report.)

Dealing with Debt Collectors

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V0015846 Portrait of a debt collector (?) thumbing through his papers Credit: Wellcome Library, London. Wellcome Images images@wellcome.ac.uk https://wellcomeimages.org Portrait of a debt collector (?) thumbing through his papers outside a front door. Mezzotint by W. Bonnar after T. Bonnar the elder. By: Thomas the elder Bonnarafter: William BonnarPublished: - Copyrighted work available under Creative Commons Attribution only licence CC BY 4.0 https://creativecommons.org/licenses/by/4.0/

I was quoted by CreditCardGuide.com in Know Your Rights with Debt Collectors. It reads, in part,

Regardless of how deep your financial troubles go, you are protected by state and federal law when it comes to how debt collectors can treat you.

First off, you should understand who the people are behind the debt collection notices and phone calls. “A debt collector is defined as someone who is not the original creditor,” explains David Reiss, professor of law and research director of the Center for Urban Business Entrepreneurship at Brooklyn Law School, who also writes the REFinBlog. And, he says, what might start out as a legitimate debt collector contacting you on behalf of a creditor, can change over time since debt collection companies often sell their lists to other companies. Unfortunately, your contact information might end up with a fly-by-night operation that resorts to shady practices, such as trying to frighten you with threats and bullying.

*     *     *

Consider this your peek into the debt collection rulebook so that you can arm yourself against abusive tactics:

What debt collectors cannot do

  • Call you under a false identity. “That means they cannot say they are an attorney if they are not, or say they are from the sheriff’s office if they are not,” says Reiss.
  • Discuss your debt with your employer, family members (other than your spouse), neighbors or publish your name on a list of people who owe money. “They can call a third party and leave a message for you, but they can’t disclose the details of your debt,” says Tayne. Generally, they can only discuss your debt with you, your spouse and your attorney.
  • Call you at ridiculous hours, such as before 8 a.m. or past 9 p.m. They also cannot call you repeatedly in a single day.
  • Be abusive, threatening or vulgar. In other words, says Tayne, they cannot bully you by calling you a deadbeat or loser for not making payments, and they should never curse at you.
  • Make false threats that they will seize your property, drain your bank accounts or arrest you, says Reiss.

What debt collectors can do

  • Contact you in person, by mail, by phone or by fax between the hours of 8 a.m. and 9 p.m. However, they can’t contact you at work if they are told you can’t get calls there. Also, if you write to them to stop calling you, they must comply, although they might respond by suing you, so think carefully before sending that letter.
  • Sue you in court. If they do, you’ll have to appear, and it’s in your best interest to hire an attorney. Ideally, you want to work something out before getting to this stage, says Reiss, because court and attorney costs can pile up.
  • Report you to the credit agencies. “Debt collectors can report your default to the credit bureaus,” says Reiss. This negative item will remain on your report for seven years, and your credit score will take a hit.

What you can do

If you think debt collectors are crossing the line, you do have options for recourse, says Reiss. “First, build up a paper record as this can help you later on.” That includes taking notes on every conversation you have, with dates, times and who you spoke to.

You could also try sending a cease-and-desist letter, or asking a lawyer to do so on your behalf, says Reiss. “They may be afraid and back off if a lawyer is involved,” he says.

Tayne finds that such letters aren’t always effective for more hostile debt collectors. “If they’re really out of line, file a lawsuit in small claims court,” she says.

You should also report shady collectors to your state attorney general’s office as well as the Consumer Financial Protection Bureau, say Reiss and Tayne.

If you do end up making a payment to a debt collector, request documentation that states your debt is paid, and then be sure that the payment is reflected on your credit reports within 90 days. You can get your credit reports for free at AnnualCreditReport.com.

Ideally, you don’t ever want to be in a situation in which debt collectors are tasked with contacting you, and incentivized to do whatever it takes to get you to pay them. But if you do end up in that situation, knowing your rights is your best defense. Says Reiss, “Debt collectors do not want consumers to invoke their rights under the FDCPA because the act can severely limit what they can do.”

Be Careful What You Wish For GSEs

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Genie Lamp

Jim Parrott and Mark Zandi have released a report, Privatizing Fannie and Freddie: Be Careful What You Ask For. The authors go through a very useful exercise in which they break down the cost of reprivatizing. The report opens,

Few are happy with the current housing finance system that has Fannie Mae and Freddie Mac in conservatorship and taxpayers backing most of the nation’s residential mortgage loans. Yet legislative efforts to replace the system have largely faltered, raising concern that we may not have the political will or competence to replace it any time soon.

This has created an opening for those who contend that we should not replace the system at all, but simply recapitalize the government-sponsored enterprises and release them from conservatorship. Fannie and Freddie were remarkably profitable prior to the financial crisis, after all, and have been consistently in the black recently. Why embark on the laborious, risky and now stalled process of fundamental reform when we can simply return to a model that we know can provide steady access to affordable, long-term fixed-rate lending?

While we both have serious concerns with the wisdom of releasing the duopoly back into the market, we thought it useful to set those concerns aside for the moment to explore the economics of the move. The discussion often takes for granted that this path would take us back to the world precrisis, but economic conditions and the regulatory environment have changed in ways that would significantly affect how Fannie and Freddie would function as reprivatized institutions. (2)

Parrott and Zandi conclude that

The debate over whether to recapitalize and release the GSEs into the private market is often framed as a choice of whether or not to return to a prior period in lending. For all its shortcomings, the argument goes, at least we know what to expect in the cost and availability of mortgage credit. But this is a misconception. In releasing the GSEs into the private market again, we would release them into a very different regulatory and economic environment, and they would respond, not surprisingly, by charging very different mortgage rates. (4)

I really have no argument with Parrott and Zandi’s paper, but I would note that their conclusions don’t differ so much from the pre-crisis academic papers that attempted to quantify the increase in mortgage rates that would result from privatizing the two companies — fifty basis points, give or take (see, for example, The GSE Implicit Subsidy and Value of Government Ambiguity).

I value Parrott and Zandi’s paper because it reminds us to keep pushing forward with real housing finance reform even though Congress has not yet made any progress on that front.

Reiss on SCOTUS Junior Lien Decision

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Bloomberg BNA quoted me in Nagging Economic and Credit Questions Dampen Bankruptcy Victory for Bankers (behind paywall). It reads, in part:

The U.S. Supreme Court delivered an important bankruptcy ruling for bankers that doesn’t, however, do anything about still-struggling homeowners (Bank of Am. N.A. v. Caulkett, 2015 BL 171240, U.S., No. 13-cv-01421, 6/1/15); (Bank of Am. N.A. v. Toledo-Cardona, 2015 BL 171240, U.S., No. 14-cv-00163, 6/1/15).

In a June 1 decision, the court said Chapter 7 debtors cannot void junior liens on their homes when first-lien debt exceeds the value of the property, as long as the senior debt is secured and allowed under the Bankruptcy Code.

The decision is a victory for Bank of America, which held both junior liens in the two related cases, and for banking groups that said a different result could have destabilized more than $40 billion in commercial loans secured by similar liens.

But Brooklyn Law School Professor David Reiss June 2 said the case highlights the need for a broad remedy for homeowners who have continued to struggle to make payments since the financial crisis.

“The bank’s position as a legal matter is a very reasonable one, but from a policy perspective we needed and still need a bigger and more systemic solution to the problems that households face,” Reiss told Bloomberg BNA.

*     *     *

[S]ome said the ruling highlights economic questions on several levels.

Reiss, who coedits a financial blog, June 2 said the case shows the federal government’s inability to deal head-on with the impact of financial turmoil in 2008 and 2009.

“Not enough is being done to move households beyond the crisis, and it’s bad for households and it’s bad for the financial sector,” Reiss said. “Here we are seven or eight years later and we’re sitting here with these valueless second mortgages. We’re just slogging through the muck and we’re not coming up with any good solutions to get past it.”

Saving on Utility Bills (en Español y Ingles)

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Univision quoted me in  Estrategias para Ahorrar Dinero Cada Mes (Strategies to Save Money Each Month). It reads, in part (in English),

Save water and energy. You can monitor your heat/air conditioning services in simple ways, for example, by acquiring a programmable thermostat, which will allow you to maintain your home at a comfortable temperature while you are home and turn in it “energy efficient” when you go out, suggests David Reiss, Research Director, Center for Urban Business Entrepreneurship (NY).

Has your water bill gone up in the last few years? Check your toilet and make sure it’s not running or that your sink is not leaking.

Repairing your bathroom fixtures and keeping them in good working order will help you save money, added the expert.

 

Reiss on Lawsky Legacy

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Benjamin_Lawsky_picture

Law360 quoted me in Lawsky’s Aggressive Tactics Provided Model For Regulators (behind a paywall). It reads, in part,

New York Superintendent of Financial Services Benjamin Lawsky’s frequent, aggressive and often creative enforcement actions generated billions of dollars for the state and put his agency at the forefront in financial services regulation, and observers expect a similar approach from Lawsky’s successor when he leaves his post next month.

Confirmed to lead the New York Department of Financial Services in May 2011, few expected the new agency, which combined the state’s banking and insurance regulators, to make much of a mark. But after collecting $3.3 billion in penalties and forcing several traders and top executives out of their positions, Lawsky’s agency has proven to be a powerful enforcer.

“His biggest legacy is simply that he stood up a brand new regulator in one of the global financial centers and made it matter almost immediately,” said Matthew L. Schwartz, a partner at Boies Schiller & Flexner LLP and a former federal prosecutor. Lawsky, who announced his departure from the agency on May 20, established a name for himself and for the Department of Financial Services when he jumped ahead of federal banking regulators and prosecutors in announcing a $340 million settlement with British bank Standard Chartered PLC over its alleged violation of U.S. sanctions against Iran and other countries in August 2012.

That a newly formed state regulatory agency would move ahead with a stiff penalty and threaten to wield the most powerful of weapons — the pulling of Standard Chartered’s license to operate in New York state — reportedly rankled his federal counterparts

*     *      *

“He made clear that consumer protection is integral to the mission of the agency,” Brooklyn Law School professor David Reiss said.

Despite Lawsky’s frequent reminders that he works for New York Gov. Andrew Cuomo — for whom he has also served as chief of staff — and the superintendent’s constant praise for his staff, there is fear among some reformers that the DFS won’t be the same without Lawsky at the helm.

“Lawsky proves that the character of individual regulators can make a crucial difference more than the letter of the law itself,” said Bartlett Naylor of Public Citizen.

“Ideally, he’ll inspire his successor and other regulators that honor awaits the vigilant and opprobrium will fall upon the indolent. More practically, however, the problems of regulatory capture by an enormously influential industry reliant on government favor can prove overwhelming,” Naylor added.

Others are more confident that the agency Lawsky set up will continue its work even after his move to the private sector.

In part, that’s because the penalties the DFS has wracked up have been a boon to New York’s budget.

Cuomo, the state’s former attorney general, has an interest in many of the issues Lawsky acted on, as well.

“I have every reason to expect that Cuomo would want to have a very vigorous enforcer to replace Lawsky,” Reiss said.

Facts and Myths About Rent Regulation

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Polonius

Few topics are more fraught in NYC than rent regulation and stances about it are typically set by where people are financially and ideologically. It is always useful when someone tries to add some good old-fashioned facts to the debate in order to help craft good policies. That is particularly true now, given that NYC’s rent laws are supposed to expire on June 15th.

The Citizens Budget Commission has issued a report, 5 Myths About Rent Regulation in New York City. The CBC is hoping that that this report will inform the New York State legislature’s debates over the renewal of New York City’s rent laws (for those who don’t follow this carefully, NYS has jurisdiction over NYC’s rent regulation). Unfortunately, the report is ideologically skewed, which limits its usefulness for those trying to get their hands around this topic.

Here are the CBC’s five “Myths” and “Facts:”

Myth 1: A majority of tenant households in New York City are rent burdened.

Fact 1: 38 percent of tenant households in New York City are rent burdened.

Myth 2: Market-rate units in New York City are not affordable to most tenants.

Fact 2: In market-rate units, 54 percent of tenants have affordable rent.

Myth 3: A rent-regulated housing unit is an affordable unit.

Fact 3: Among tenants in rent-regulated units, 44 percent are rent-burdened.

Myth 4: Middle-income households cannot find affordable housing in New York City.

Fact 4: Outside of Manhattan, 96 percent of middle-income tenant households are not rent burdened.

Myth 5: The number of rent-regulated units is rapidly declining.

Fact 5: The number of rent-regulations is stabilizing.

The CBC claims that public officials and housing advocates are using “problematic” figures and characterizations. That is most certainly true in many cases, and par for the course for advocates. But the CBC does much the same, which should not be par for the course for a nonpartisan civic organization.

The second “Fact” is particularly laughable because CBC is doing exactly what it accuses advocates of doing — some form of rhetorical bait and switch. The second “Myth” is about tenants overall, while the second “Fact” is just about tenants who are currently in market-rate apartments. This is an apples to oranges comparison. Once you see the bait and switch, you see that CBC’s figures actually support the truth of this supposed second “Myth.” There are more problems contained in this document, but I leave it to you to find them for yourself.

I have no problem with CBC trying to make the debate over rent regulation more fact-based. But CBC should follow the wise advice of Polonius: “This above all: to thine own self be true.”

Picture: "Polonius" by https://www.oregonlink.com/elsinore/poveyglass/polonius.html.