January 22, 2016
Tough Edge for Financial Services
Maria Vullo
Law360 quoted me in Cuomo’s DFS Nominee Likely To Keep Tough Edge (behind a paywall). It reads, in part,
Although New York Gov. Andrew Cuomo turned to a longtime BigLaw attorney to lead the New York State Department of Financial Services, observers say the agency is likely to continue taking the aggressive regulatory and enforcement stance that has become its calling card.
The governor tapped Paul Weiss Rifkind Wharton & Garrison LLP’s Maria T. Vullo to lead the DFS, completing a monthslong search to replace former New York Superintendent of Financial Services Benjamin M. Lawsky. In turning to Vullo, Cuomo brings on a litigator and former prosecutor with 25 years of experience in the law, including two decades of representing banks.
But given the reputation that the DFS has built up since it burst onto the scene with its $340 million sanctions violation settlement with the U.K.’s Standard Chartered PLC in 2012, advocates and observers believe that if confirmed, Vullo will continue to push for tough enforcement and big penalties against the banks, insurers and other financial firms that the DFS oversees.
However, because Vullo comes from a BigLaw background with extensive experience representing financial firms, some have raised concerns that the agency will become less aggressive in enforcing New York state’s financial regulations.But observers who spoke to Law360 said her noncorporate experience gives a clearer picture of how she might run the DFS.
Vullo has been an advocate for women in the legal profession and represented women who sued for damages after being raped during the war in Bosnia between 1992 and 1995, helping secure a $745 million verdict in that case.
And in her work for Cuomo during his tenure as New York’s attorney general, Vullo oversaw a staff of around 200 that worked in the office’s investor protection, antitrust, real estate finance, consumer fraud and Internet bureaus.
In that position, she took action against Ezra Merkin and Ivy Asset Management for their roles in defrauding investors in Bernard L. Madoff’s $65 billion Ponzi scheme, as well as launching an investigation and action against Ernst & Young for investor losses in Lehman Brothers Holdings Inc.’s 2008 bankruptcy.
Those past experiences should allay any fears that Wall Street’s critics might have, said David Reiss, a professor at Brooklyn Law School.
“I thought that Governor Cuomo would seek an aggressive replacement for Lawsky,” Reiss said. “Vullo fits the bill.”
To that point, financial reform and other advocates said in interviews that they knew little about her, but were encouraged by what they did know.
“What we’re hoping is that the reputation that the department has established will continue through the new leadership,” said Andy Morrison of the New Economy Project, a New York-based advocacy group.
Indeed, Cuomo has an interest in maintaining an aggressive DFS.
The billions of dollars in fines it collected from banks have gone to fund state infrastructure projects, including the construction of a new Tappan Zee Bridge across the Hudson River north of New York City.
And that get-tough approach has also been a way to attract voters.
“My sense is he benefits from the halo effects of an aggressive DFS,” Reiss said.
January 22, 2016 | Permalink | No Comments
Friday’s Government Reports Roundup
- The U.S. Government Accountability Office released “Troubled Asset Relief Program (TARP) Report,” showing the Treasury’s participation for TARP housing programs.
- The Center on Budget and Policy Priorities released a report on SNAP Benefits, or what used to be known as food stamps, finding that between 500,000 and one million people will no longer received these benefits in 2016.
- A report from Joseph A. Smith found that JPMorgan Chase has fulfilled its obligations under the required $4 billion 2013 Residential Mortgage-Backed Securities Settlement.
January 22, 2016 | Permalink | No Comments
January 21, 2016
Dollar Homes
Realtor.com quoted me in Buy a House for a Buck? The Real Story Behind $1 Listings. The story reads, in part,
Hidden deep within the bowels of real estate listings are a few head-scratchers that would no doubt catch any bargain hunter’s eye. They’re homes for sale for the grand total of one crisp American dollar. So what’s the deal? Are they for real?
I decided to find out by actually clicking, and calling, and learning the stories behind these tempting facades. And it turns out, $1 listings can mean many things. Here’s what this lowball price is actually all about.
* * *
Possibility No. 3: It truly is for sale for $1, but…
The next four places for $1 that I check out are all rundown properties in Detroit. They range in description from “fire damage sold as is” (translation: a charred pile of lumber—pic below) to “bungalow with three bedrooms, one bathroom, basement and much more” (translation: “more” means plywood for windows and doors).
Still, some houses sit on decent lot sizes of 3,000+ square feet in neighborhoods that seem habitable at first glance. The listing agent won’t return my call, but I track down an agent willing to show me the various rundown homes. Though back taxes or liens on the property may jack up the price, I ask whether the house will really sell for $1. “Sure,” he says. “This is Detroit.”
Now that I’ve found a true $1 listing, should I hand over a George Washington for one of these fixer-uppers?
“When a house is being sold for a dollar, it means that the local real estate market has cratered,” says David Reiss, professor of law at Brooklyn Law School who focuses on real estate issues and community development. “Land has no value. Or even worse, it has negative value and buyers of $1 homes will end up getting snookered. Owning land comes with various mandatory expenses like real property taxes. It’s possible the true value is even lower than a dollar. In that case, you will see a lot of $1 houses staying on the market, as hard as that is to believe.”
Reiss further explains how the Motor City’s market cratered so deeply: “Real estate’s value typically comes down to location. If jobs have disappeared, if residents have disappeared, if services have disappeared—then value disappears.”
Beyond having zero worth, a $1 home is likely a gaping money pit. When the New York Times ran a piece on the subject in 2007, it found that “the houses often require hundreds of thousands of dollars in renovations.”
Though my search for $1 properties was a bust in the end, there once were $1 homes worth buying. “Think of New York City,” says Reiss. “Homes that were abandoned in the 1970s are now selling for seven figures.”
Bottom line? One-dollar listings may be a risky gamble, but, hey, you never know.
January 21, 2016 | Permalink | No Comments
January 20, 2016
The Founding & Evolution of HUD
I had previously blogged about HUD at 50, a hefty tome filled with a lot of interesting chapters. Today, I focus on Chapter 1, written byJill Khadduri, The Founding and Evolution of HUD: 50 Years, 1965-2015 (starting at page 5). The abstract for the chapter reads,
This is an institutional history of the U.S. Department of Housing and Urban Development (HUD), focused on the development of HUD’s major policies and programs over the 50 years from its founding in 1965 to 2015. The chapter emphasizes how the successive secretaries of HUD and the political administrations they operated within shaped the agency and its programmatic responses to housing and urban issues. It attempts to place the evolution of HUD within the contexts of the housing, housing finance, and community development industries; other governmental institutions, including the U.S. Congress and other levels of government; and the most urgent housing and urban problems perceived during each secretary’s tenure. This chapter benefits from hindsight on which policies and programs appear to have had lasting importance. However, it does not focus on the outcomes of HUD policies and is not an assessment of HUD’s effectiveness in dealing with the issues of poverty, urban distress, housing quality and affordability, and fair housing over the past 50 years. (5)
There will be a lot that is familiar to housing nerds in this chapter, but its real value lies in putting all of the pieces together in a coherent narrative, charting the big changes in federal housing policy. How was federal housing policy related to urban policy? How was housing policy related to housing finance policy? Where do Community Development Block Grants fit in? How about housing vouchers? Fair housing policy? Enterprise Zones and Empowerment Zones? How important was homeownership vis-à-vis rental housing policy? When did special needs populations and the homeless get more resources? How did large-scale disaster relief fit into HUD’s mission? These issues, and more, are addressed and placed in broader context. Bottom line for housing nerds and aspiring housing nerds: read it, or at least skim it.
January 20, 2016 | Permalink | No Comments
Wednesday’s Academic Roundup
- Towards a New Eviction Jurisprudence, Gerald S. Dickinson, Georgetown Journal on Poverty Law Policy, Vol. 23, No. 1, 2015.
- Managing Retirement Risks with Reverse Mortgage Loans and Long-Term Care Insurance, Adam Wenqiang Shao, Hua Chen & Michael Sherris, 7th Australasian Actuarial Education and Research Symposium.
- Real Estate Holdings of Public Firms and Collateral Discount, Irem Demirci, Umit G. Gurun & Erkan Yönder.
- Decomposition of Debt and the Road to REIT Returns, Linda Allen & Mariya Letdin.
- Mortgaged to the Hilt: Risks from the Distribution of Household Mortgage Debt, Craig R. Alexander & Paul Jacobson, C.D. Howe Institute Commentary 441.
- Clustered Housing Cycles, Ruben Hernandez-Murillo, Michael Owyang & Margarita Rubio, FRB of Cleveland Working Paper No. 1524.
- The Consumer Financial Protection Bureau: A Five Year Retrospective, Robert E. Krainer.
- Unemployment as an Adverse Trigger Event for Mortgage Default, Chao Yue Tian, Roberto Quercia & Sarah F. Riley, Journal of Real Estate Finance and Economics, Vol. 52, No. 1, 2016.
- Intermediation in Markets with Buyer and Seller Selection: Theory and an Application to Real Estate Brokerage, Bert Willekens, Roel Helgers, Maarten Goos & Erik Buyst.
January 20, 2016 | Permalink | No Comments
January 19, 2016
Know How to Get a Mortgage?
Fannie Mae’s Economic & Strategy Research Group posted research findings titled What Do Consumers Know About The Mortgage Qualification Criteria. The findings are sobering:
When asked to identify accurate key mortgage qualification criteria (down payment, credit score, and DTI ratio), about one half of consumers were unable to provide an answer.
o The lack of understanding is more pronounced among those with less education and lower income as well as among renters (as opposed to homeowners with mortgages), African-Americans, and Hispanics.
o Regression analysis shows that education, income, and age are most highly associated with mortgage qualification understanding. Lower-income consumers, less-educated consumers, and seniors are more likely to say “don’t know.” Ethnicity accounts for 2 to 9 percent of model explanation.
o Only 23 percent are aware of the 3 percent and 5 percent down payment programs.
o Although more than eight in 10 consumers (81 percent) indicate that they have seen their credit score, when asked what their score is, nearly half consumers (49 percent) say “don’t know” or provide a number outside of the score range (300-850).
And, among those who did provide an answer, only 5 to 16 percent of them chose an answer with the correct range.
o The “over-estimate” is more pronounced among less-educated and lower-income consumers, African-Americans, and Hispanics. When asked about the maximum DTI ratio, these consumer groups are more likely to “under-estimate” the ratio.
o Their mean responses about the minimum down payment and credit score requirements are higher than Fannie Mae requirements.
Lenders are cited as the most influential source of information for getting mortgage advice (33 percent most influential; 64 percent top three most influential), followed by family and friends (20 percent most influential; 47 percent top three most influential).
Regression analysis shows that ethnicity and age are most highly associated with differences in the influence of various information sources. For example:
o Older and Caucasian consumers are more likely to cite lenders as the most influential source of information.
o African-Americans and Hispanics are more likely to cite real estate agents, government agencies, and non-profit housing counselors.
o Younger consumers and Asian-Americans are more likely to cite family and friends as the most influential source of information. (5, emphasis in the original)
The authors identify a lot of important implications that arise from this study, the main one being — “Do not take consumer confidence at face value — there is a need and opening for educational efforts surrounding primary underwriting principles (credit score, down payment/LTV, DTI ratos, and low down payment mortgage programs.” (6)
The big open question is, however, does financial education really work?
January 19, 2016 | Permalink | No Comments
January 18, 2016
The Golden Rule of Conduct
In honor of the Reverend Martin Luther King, Jr., a quotation from Mahatma Gandhi, one of his heroes:
The golden rule of conduct…is mutual toleration, seeing that we will never all think alike and we shall see Truth in fragments and from different angles of vision. Conscience is not the same thing for all. Whilst, therefore, it is a good guide for individual conduct, imposition of that conduct upon all will be an insufferable interference with everybody’s freedom of conscience.
Democracy is not a state in which people act like sheep.
Truth resides in every human heart, and one has to search for it there, and to be guided by truth as one see it. But no one has a right to coerce others to act according to his own truth.
January 18, 2016 | Permalink | No Comments
