Monday’s Adjudication Roundup
- Goldman Sachs Group Inc. settles for $27.5 million in an investor class action over toxic collateralized debt obligations. A New York federal judge has preliminarily approved the settlement.
- In Chapter 13 Bankruptcy, the plans must prioritize condominium liens, which the district court determined addresses not only payment, but also security, “and therefore doesn’t elevate the collateral of the lien.”
- NY Attorney General, Eric Schneiderman, states that Morgan Stanley will pay $3.2 billion to settle claims of misleading investors about the quality of the mortgage-backed securities it packaged prior to the financial crisis.
- Borrowers have filed suit against Bank of America NA for intentionally and systematically failing to release mortgage liens on their property when they repaid everything, creating affected property titles.
February 22, 2016 | Permalink | No Comments
February 19, 2016
Borrowing Constraints and The Homeownership Rate
Arthur Acolin, Jess Bricker, Paul Calem and Susan Wachter have posted a short paper on Borrowing Constraints and Homeownership to SSRN. The abstract reads,
This paper identifies the impact of borrowing constraints on home ownership in the U.S. in the aftermath of the 2008 financial crisis. The existence of credit rationing in the U.S. mortgage market means that some households for whom it would be optimal to choose to be homeowners may not be able to do so. Borrowers with certain wealth, income and credit characteristics are unable to obtain a loan even if they are willing to pay a higher cost of credit (Linneman and Wachter 1989). The Stiglitz and Weiss (1981) canonical model sets up the rationale for this credit rationing. Using data from the 2001, 2004-2007 and 2010-2013 Surveys of Consumer Finance (SCF), this paper measures the impact of changes in the income, wealth and credit constraints on the probability of home ownership. Credit supply eased and then became considerably more restricted in the wake of the Great Recession. The loosening of borrowing constraints was accompanied by an increase in home ownership from the late 1990s until the start of the housing crisis. In this paper we estimate the role the tightening of credit has had on the probability of individual households to become homeowners and the decline in the aggregate home ownership rate following the crisis. The home ownership rate in 2010-2013 is predicted to be 5.2 percentage points lower than it would be if the constraints were at the 2004-2007 level and 2.3 percentage points lower than if the constraints were set at the 2001 level.
This paper builds on some of the other work of the authors (see here for instance) on the homeownership rate. The paper makes a valuable contribution by estimating the impact of credit rationing on the homeownership rate. To the extent we can identify an optimal amount of credit supply, it should help us to determine a target homeownership rate to guide policymakers.
February 19, 2016 | Permalink | No Comments
Friday’s Government Reports Roundup
- Last week, President Obama released the Fiscal Year (FY) 2017 Budget to Congress and HUD released its FY17 Budget Fact Sheet for its proposed budget prioritizing ending family homelessness and increasing opportunity.
- The Center on Budget and Policy Priorities released a paper on Supplemental Nutrition Assistance Program (SNAP) benefits for unemployed childless adults.
- The US Department of Housing and Urban Development released a report on its federal Choice Neighborhoods Initiative through which it aims to strengthen low-income neighborhoods. It has awarded 56 planning grants and 13 implementation grants for $500,000 and $30.5 million, respectively.
February 19, 2016 | Permalink | No Comments
February 18, 2016
Economic Factors That Affect Housing Prices
S&P has posted a paper on Economic Factors That Affect Housing Prices. This is, of course, an important topic, albeit one that is an art as well as a science. While S&P undertook this analysis more for mortgage-backed securities investors than for anyone else, it certainly is of use to the rest of us. The paper opens,
The U.S. domestic housing market has experienced a 23% price increase since the beginning of the housing recovery in 2011. Many local housing markets are now close to or above their peak levels of 2006, which leads us to investigate whether the pace of home price appreciation (HPA) can continue at its current pace. In this paper, we (1) examine the economic factors that influence HPA and (2) forecast HPA for numerous geographic regions assuming various economic conditions over the next five years. While the aggregate national pattern in housing prices is an important reference, we need to examine housing prices at a more granular geographic level in order to understand regional housing market dynamics and learn how these are affected by local macroeconomic factors. This paper demonstrates that several economic variables are needed to predict average home price movements for each of 48 different U.S. metropolitan statistical areas (MSAs).
* * *
Factors that influence HPA can be difficult to predict. Therefore, residential mortgage backed securities (RMBS) investors frequently use a range of HPA projections to estimate their potential bond returns. With that in mind, for each MSA, we considered five separate hypothetical economic scenarios, ranging from an “Upside” forecast to an extreme “Stress 3” case. Interestingly, our Stress 3 case forecasts a 28% decline in HPI at the national level over the next five years, which corresponds roughly to the decline experienced in the last recession. Our “base case” scenario leads to forecasts at the national level of a 26% increase in HPI over five years. This represents what we believe to be the most likely economic forecast. (1-2)
S&P’s key findings include:
- Movement in HPA is primarily influenced by up to five variables, depending on the MSA: housing affordability, changes in shadow inventory, the unemployment rate, the TED spread [a measure of distress in the credit markets], and population growth.
- HPA in many MSAs has momentum, meaning that it depends on its level in the previous quarter of observation.
- The mortgage rate generally appears to have little predictive power in connection with home prices.
- Chicago, Houston, Boston, and San Francisco are projected to appreciate at a greater pace (45%, 40%, 27%, and 36%, respectively) than the 26% forecast for the nation as a whole over the next five years, and New York at a slower pace (21%). Columbus led all MSAs with a projected five-year HPA of 50%.
- Under our most pessimistic (Stress 3) scenario, Chicago is forecast to experience a greater decline in HPI (34%) over the next five years than the nation as a whole (29%), while New York, Boston, Houston, and San Francisco are projected to experience declines that are less severe than that of the nation (19%, 3%, 17%, and 16%, respectively). Markets that have been vulnerable in the past (Las Vegas, Phoenix, and Riverside) are projected to experience the greatest five-year declines under our Stress 3 scenario (66%, 68%, and 68%). The markets that show the greatest movements are the most sensitive to the five factors and frequently show the greatest upside and downside. (2-3, emphasis in the original)
I found the first and third bullet points to be the most interesting, as many pundits weigh in on the factors that affect housing prices. It will be interesting to see if further research confirms S&P’s findings.
February 18, 2016 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- Urban Institute released another brief on Choice Neighborhoods finding that a majority of children live in single-parent homes, in many of which the parent had not completed high school. In addition, families with children are more likely to use adult services, rather than child services.
- Trulia released data finding that certain demographic groups have seen a very large shift from homeowners to renters in the 50 largest U.S. metros.
February 18, 2016 | Permalink | No Comments
February 17, 2016
Best Time to Sign a Lease
The Allstate Blog quoted me in What’s the Best Time of Year to Sign a Lease? It opens,
There is no way around it — apartment hunting can be stressful. And the cost of rent can be quite expensive — even outpacing average U.S. salary increases. According to the National Association of Realtors, the cost of rent rose an average of 15 percent while renters’ income only rose 11 percent from 2009 to 2014. However with some planning and negotiating, you may be able to have some more money in your pocket at the end of each month.
Similar to how you can pay more for a winter jacket in October than May, rental rates often vary throughout the year. By planning your move and signing lease terms to help position your next move during the lower rental rate season, you may end up saving some money.
Research the Demand in Your Area
Just like most things, supply and demand determines prices in the rental market. Not surprisingly, you may get a better deal on renting when demand for condos or apartments are at their lowest. However, if you live in a tight rental market, your choices could be very limited. “In most areas the slow rental season is typically late fall through winter since less people move during this time,” says Scot J. Haislip, vice president, national lease program at the National Apartment Association (NAA).
It is important to understand the rental market you’re looking to move into since rental patterns can vary based on where you live. David Reiss, director of Community Development Clinic in New York City and professor at Brooklyn Law School, specializing in real estate and community development recommends contacting several local brokers to get their perspective on the slower rental periods in your area of interest. He also cautions that some high demand areas, such as New York City or Chicago, currently do not have a slower period for rentals.
Smart Negotiation
Even during the winter months, most landlords are not going to simply hand over a discount — you have to work for it by negotiating with your prospective landlord. Before you broach the subject of price, do your homework by picking up the phone or researching online to compare similar units at the current time. Reiss suggests that you consider asking for a decrease in your monthly rent or a period of free rent.
February 17, 2016 | Permalink | No Comments
February 22, 2016
Consumer-Friendly Financial Innovation
By David Reiss
Under the Policy, Bureau staff would, in its discretion, issue no-action letters (NALs) to specific applicants in instances involving innovative financial products or services that promise substantial consumer benefit where there is substantial uncertainty whether or how specific provisions of statutes implemented or regulations issued by the Bureau would be applied (for example if, because of intervening technological developments, the application of statutes and regulations to a new product is novel and complicated). The Policy is also designed to enhance compliance with applicable federal consumer financial laws. A NAL would advise the recipient that, subject to its stated limitations, the staff has no present intention to recommend initiation of an enforcement or supervisory action against the requester with respect to a specified matter. NALs would be subject to modification or revocation at any time at the discretion of the staff, and may be conditioned on particular undertakings by the applicant with respect to product or service usage and data-sharing with the Bureau. Issued NALs generally would be publicly disclosed. NALs would be nonbinding on the Bureau, and would not bind courts or other actors who might challenge a NAL recipient’s product or service, such as other regulators or parties in litigation. The Bureau believes that there may be significant opportunities to facilitate innovation and access, and otherwise substantially enhance consumer benefits, through the Policy. (1-2)
Colleagues and I had commented on this policy when it was first proposed, arguing that it should incorporate metrics to ensure that it is achieving its stated goals. It does not seem that the CFPB agreed with our comments. So, while I think the final policy is a step in the right direction, I am not sure if we can really measure how good of a step it is.
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February 22, 2016 | Permalink | No Comments