March 16, 2016
Wednesday’s Academic Roundup
- Consumer Risk Appetite, the Credit Cycle, and the Housing Bubble, Joseph L. Breeden & José J. Canals-Cerda, FRB of Philadelphia Working Paper No. 16-5.
- The Pricing Effects of Open Space Amenities, Qin Fan, J. Andrew Hansz & Xiaoming Yang, Journal of Real Estate Finance and Economics, Vol. 52, No. 3, 2016.
- Real Estate Risk and Hedge Fund Returns, Brent W. Ambrose, Charles Cao & Walter D’Lima, Journal of Real Estate Finance and Economics, Vol. 52, No. 3, 2016.
- Pricing Mortgages: Endogenous Interest Rate and Leverage, Liang Peng.
- Climate Resilient Urban Development: Why Responsible Land Governance is Important, David P. Mitchell, Stig Enemark & Paul Van der Molen, Land Use Policy, 49 (2015) 190-198.
- Buying Happiness: Property, Acquisition, & Subjective Well-Being, David Fagundes.
- Property, Intellectual Property, and Social Justice: Mapping the Next Frontier, Peter S. Menell, Brigham-Kanner Property Rights Conference Journal 2015, UC Berkeley Public Law Research Paper No. 2736517.
March 16, 2016 | Permalink | No Comments
March 15, 2016
Did Dodd-Frank Make Getting a Mortgage Harder?
Christopher Dodd
Barney Frank
____________________________________________________________
The short answer is — No. The longer answer is — No, but . . .
Bing Bai, Laurie Goodman and Ellen Seidman of the Urban Institute’s Housing Finance Policy Center have posted Has the QM Rule Made it Harder to Get a Mortgage? The QM rule was originally authorized by Dodd-Frank and was implemented in January of 2014, more than two years ago. The paper opens,
the qualified mortgage (QM) rule was designed to prevent borrowers from acquiring loans they cannot afford and to protect lenders from potential borrower litigation. Many worry that the rule has contributed to the well-documented reduction in mortgage credit availability, which has hit low-income and minority borrowers the hardest. To explore this concern, we recently updated our August 2014 analysis of the impact of the QM rule. Our analysis of the rule at the two-year mark again finds it has had little impact on the availability of mortgage credit. Though the share of mortgages under $100,000 has decreased, this change can be largely attributed to the sharp rise in home prices. (1, footnotes omitted)
The paper looks at “four potential indicators of the QM rule’s impact:”
- Fewer interest-only and prepayment penalty loans: The QM rule disqualifies loans that are interest-only (IO) or have a prepayment penalty (PP), so a reduction in these loans might show QM impact.
- Fewer loans with debt-to-income ratios above 43 percent: The QM rule disqualifies loans with a debt-to-income (DTI) ratio above 43 percent, so a reduction in loans with DTIs above 43 percent might show QM impact.
- Reduced adjustable-rate mortgage share: The QM rule requires that an adjustable-rate mortgage (ARM) be underwritten to the maximum interest rate that could be charged during the loan’s first five years. Generally, this restriction should deter lenders, so a reduction in the ARM share might show QM impact.
- Fewer small loans: The QM rule’s 3 percent limit on points and fees could discourage lenders from making smaller loans, so a reduction in smaller loans might show QM impact. (1-2)
The authors find no impact on on interest only loans or prepayment penalty loans; loans with debt-to-income ratios greater than 43 percent; or adjustable rate mortgages.
While these findings seem to make sense, it is important to note that the report uses 2013 as its baseline for mortgage market conditions. The report does acknowledge that credit availability was tight in 2013, but it implies that 2013 is the appropriate baseline from which to evaluate the QM rule. I am not so sure that this right — I would love to see some modeling that shows the impact of the QM rule under various credit availability scenarios, not just the particularly tight credit box of 2013.
To be clear, I agree with the paper’s policy takeaway — the QM rule can help prevent “risky lending practices that could cause another downturn.” (8) But we should be making these policy decisions with the best possible information.
March 15, 2016 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- HUD released list of grants for 6,400 homeless housing and service programs worth $1.6 billion to address housing and support services for homeless individuals and families.
- HUD is considering new rule that would address over-income tenants in public housing, where individuals’ incomes have increased over the threshold for public housing since their initial admission.
March 15, 2016 | Permalink | No Comments
March 14, 2016
Final Accounting for National Mortgage Settlement
Luca Pacioli, A Founding Father of Accounting
Joseph Smith, the Monitor of the National Mortgage Settlement, has issued his Final Compliance Update. He writes,
I have filed a set of five compliance reports with the United States District Court for the District of Columbia as Monitor of the National Mortgage Settlement (NMS or Settlement). The following report summarizes these reports, which detail my review of each servicer’s performance on the Settlement’s servicing reforms. This report includes:
• An overview of the process through which my team and I have reviewed the servicers’ work.
• Summaries of each servicer’s performance for the third quarter 2015.
Pursuant to the Settlement, the requirement to comply with the servicing standards ended for Bank of America, Chase, Citi, Ditech and Wells Fargo as of the end of the third quarter 2015. Accordingly, this is my last report under the NMS for these servicers. Like all mortgage servicers, they are still required to follow servicing-related rules issued by the Consumer Financial Protection Bureau (CFPB). (2)
Smith concludes,
The Settlement has improved the way these servicers treat distressed borrowers, and, under its consumer relief requirements, the banks provided more than 640,000 borrowers with $51 billion in debt forgiveness, loan modifications, short sale assistance and refinancing at a time when families and the market were subject to distress and uncertainty.
I believe the Settlement has contributed towards the rebuilding of public trust and confidence in the mortgage market and hope that it will inform future regulation of financial institutions and markets. I look forward to further discussions on these topics among policymakers, consumer advocates and mortgage servicers. (13)
I have blogged about the Monitor’s earlier reports and have been somewhat unhappy with them. Of course, his primary audience is the District Court to which he is submitting these reports. But I do not believe that the the reports have “contributed towards the rebuilding of public trust and confidence in the mortgage market” all that much. The final accounting should be accurate, but it should also be understandable to more than a select few.
The reports have been opaque and have not give the public (even the pretty well-informed members of the public, like me) much information with which to contextualize their findings. I hope that future settlements like this take into account the need to explain the findings of decision makers and court-appointed monitors so that the public can have a better sense of whether justice was truly done.
March 14, 2016 | Permalink | No Comments
Monday’s Adjudication Roundup
- The Second Circuit threw out the district court’s ruling that an insurer did not improperly deny coverage to a couple whose house collapsed because it claimed that the district court judge misconstrued a clause in the policy.
- Quicken Loans filed a motion to dismiss in False Claims Act suit for improperly underwriting mortgages.
- Mission Peak Capital filed a complaint claiming that American Capital Ltd. cannot back out of $52 million mortgage-backed securities deal.
March 14, 2016 | Permalink | No Comments
March 11, 2016
Silicon Valley’s Housing Crisis
Drop in the Bucket?
Realtor.com quoted me in Could There Really Be Relief Ahead for Silicon Valley’s Housing Crisis? It opens,
Finally! A glimmer of hope has appeared in Silicon Valley’s housing crisis. Amid gloomy and downright terrifying stories about astronomical home prices and tighter-than-tight inventories forcing well-paid tech workers to live in vans, pay $2 million for a tear-down shack, or ponder commuting to work from Las Vegas, there seems to be some good news for a change: City Council members in Mountain View, CA, approved plans to build 10,250 new homes in the area.
Given that Mountain View has only about 32,000 homes total, this will increase its housing inventory by a whopping 32%—all purportedly within “walking distance” (possibly a bit of a long walk) of tech giant Google, which has long been lobbying on this front and will no doubt break out the Champagne once developers break ground. Sure, it may be years before these homes become a reality, but even the idea of them may have many locals (or those moving there) daring to dream. Might this new influx of housing cause home prices to drop within reasonable reach?
As logical as this renewed optimism about Silicon Valley’s housing market might seem, experts aren’t so sure home prices will budge all that much.
“This news in itself will not drive down prices much,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “While a 10,000-unit commitment is significant, Silicon Valley as a whole has about 3 million people living there.”
So if you consider the population of the entire area—many of whom would likely kill to move to Mountain View—10,000 new houses would house only 0.3% of these people. For you math-challenged, that’s less than a measly half-percent!
And even though the number of homes may be edging upward, so are the number of people moving there.
“Silicon Valley remains a booming economy, so it’s likely that the population will continue to grow, further driving up prices,” Reiss continues.
As further evidence that more homes doesn’t necessarily lead to cheaper home prices, Florida Realtor® Cara Ameer points to another historically hot market: New York City.
“In New York, more new buildings has had no impact on housing prices or rents,” she says. If anything, the only change New Yorkers noticed is their neighborhood got a lot more cramped. The same will likely be true for picture-perfect Mountain View.
“The biggest thing people will see is increased congestion,” says Amer, “with many more residents, cars, and the need for schools and additional services.”
In fact, fears of overcrowding might even galvanize current homeowners in the area to show up en force at future City Council meetings to fight the greenlighting of additional developments—that is, unless they’re out-muscled by employee-hungry firms such as Google.
“As key businesses realize that the lack of housing is hurting their ability to recruit and retain good employees, it is possible that Mountain View’s decision is a harbinger for more pro-development decisions throughout Silicon Valley,” Reiss explains. “Current homeowners, called ‘homevoters,’ tend to make their anti-growth views known to local officials, but once the interests of local businesses focus on the lack of workforce housing, it can change the dynamics.
“These are powerful companies. The result is that those decisions can become more pro-growth than is typical for suburban communities.”
March 11, 2016 | Permalink | No Comments
Friday’s Government Reports Roundup
- The U.S. Department of Housing and Urban Development released its Family Options Study, which looked at permanent housing subsidies, project-based transitional housing, and community-based rapid rehousing for their impacts on housing interventions.
- The U.S. Labor Department found that in February 2016, the United States added 242,000 jobs and the employment rate remained at 4.9 percent.
March 11, 2016 | Permalink | No Comments
