January 29, 2016
Outrage
A federal judge has held that a mortgage servicer committed “the tort of outrage when it charged attorney’s fees and costs to plaintiff’s mortgage account and refused to explain the charges upon request.” (1) Lucero v. Cenlar FSB, No. C13-0602RSL (W.D. Wash. Jan. 28, 2016) (Lasnik, J.) The case has an all-too-typical story of servicer misbehavior — the repeated phone calls that went nowhere, the absence of any servicer representative with actual knowledge of why the servicer was acting the way that it was, the unjustified fees that just kept compounding into five-figure nightmares.
The Court found that under Washington law,
The elements of the tort of outrage are “(1) extreme and outrageous conduct, (2) intentional or reckless infliction of emotional distress, and (3) severe emotional distress on the part of plaintiff.” Rice v. Janovich, 109 Wn.2d 48, 61 (1987). Based on the evidence submitted at trial, plaintiff has raised a reasonable inference and the Court finds that Cenlar, annoyed that plaintiff had sued it after obtaining a loan modification and looking for leverage to force her to abandon this litigation, adopted a strained and unprincipled analysis of the to justify the imposition of unpredictable and enormous charges directly onto plaintiff’s mortgage statements as “Amounts Due.” Cenlar, having reviewed plaintiff’s financial situation less than a year before and being fully aware that plaintiff was paying late charges every month, had no reason to believe that she could cope with these charges. Cenlar reasonably should have known (and was likely counting on the fact) that these charges would cause immense emotional distress, which they did. Cenlar compounded the distress by denying plaintiff information about these charges or the justification therefore. The first notice of the charges stated that they were charged “in keeping with Washington law.” This assertion is wholly unsupported: Cenlar’s witness acknowledges that the letter was a form into which the reference to “Washington law” was inserted simply because the loan originated in Washington. No Washington case law, statute, or regulation has been identified that authorize the charges levied against plaintiff’s mortgage account. When plaintiff requested information regarding the charges, she was ignored for months. Eventually various contract provisions were identified, and Cenlar asserted that it was simply keeping track of charges it might eventually seek to recover from plaintiff. Regardless of whether Cenlar was demanding immediate payment or was simply threatening to collect them in the future, the message was clear: continue this litigation and we will take your home. Such conduct is beyond the bounds of decency and is utterly intolerable. (14-15, footnotes omitted)
Decisions like this tend to give us a warm feeling in our stomach — justice has been done! But the truth is that for every case like this, there are thousands of homeowners who were severely mistreated and had to just take it on the chin. Federal regulation of the housing finance system should get to the point where these situations are the rare, rare exception. We have a long way to go.
HT Steve Morberg
January 29, 2016 | Permalink | No Comments
Friday’s Government Reports Roundup
- The U.S. Conference of Mayors released its “Hunger and Homelessness Survey” in 22 cities. Even though the economy is improving, these is still many issues with hunger and homelessness.
- The Federal Housing Finance Agency (FHFA) released its “Foreclosure Prevention Report” finding that Fannie Mae and Freddie Mac have prevented approximately 3.61 million foreclosures from September 2008 until October 2015.
- The National Housing Conference (NHC) released report “How Investing in Housing Can Save on Health Care.” The report states that providing housing to the homeless would significantly reduce public healthcare expenditures.
January 29, 2016 | Permalink | No Comments
January 28, 2016
Race, Poverty and Housing Policy
Signing of the Housing and Urban Development Act of 1965
Ingrid Gould Ellen and Jessica Yager of NYU’s Furman Center contributed a chapter on Race, Poverty, and Federal Rental Housing Policy to the HUD at 50 volume I have been blogging about. It opens,
For the last 50 years, HUD has been tasked with the complex, at times contradictory, goals of creating and preserving high-quality affordable rental housing, spurring community development, facilitating access to opportunity, combating racial discrimination, and furthering integration through federal housing and urban development policy. This chapter shows that, over HUD’s first 5 decades, statutes and rules related to rental housing (for example, rules governing which tenants get priority to live in assisted housing and where assisted housing should be developed) have vacillated, reflecting shifting views about the relative benefits of these sometimes-competing objectives and the best approach to addressing racial and economic disparities. Also, HUD’s mixed success in fair housing enforcement—another core part of its mission—likely reflects a range of challenges including the limits of the legal tools available to the agency, resource limitations, and the difficulty of balancing the agency’s multiple roles in the housing market. This exploration of HUD’s history in these areas uncovers five key tensions that run through HUD’s work.
The first tension emerges from the fact that housing markets are local in nature. HUD has to balance this variation, and the need for local jurisdictions to tailor programs and policies to address their particular market conditions, with the need to establish and enforce consistent rules with respect to fair housing and the use of federal subsidy dollars.
The second tension is between serving the neediest households and achieving economic integration. In the case of place-based housing, if local housing authorities choose to serve the very poorest households in their developments, then those developments risk becoming islands of concentrated poverty. Further, by serving only the poorest households, HUD likely narrows political support for its programs.
The third tension is between serving as many households as possible and supporting housing in high-opportunity neighborhoods. Unfortunately, in many metropolitan areas, land—and consequently housing construction—is significantly more expensive in the higher-income neighborhoods that typically offer safer streets, more extensive job networks and opportunities, and higher-performing schools. As a result, a given level of resources can typically house fewer families in higher-income areas than in lower-income ones.
The fourth tension is between revitalizing communities and facilitating access to high-opportunity neighborhoods. Research shows that, in some circumstances, investments in subsidized housing can help revitalize distressed communities and attract private investment. Yet, in other circumstances, such investments do not trigger broader revitalization and instead may simply constrain families and children in subsidized housing to live in areas that offer limited opportunities.
The final apparent tension is between facilitating integration and combating racial discrimination. Despite the Fair Housing Act’s (FHA’s) integration goal, legal decisions, which are discussed further in this chapter, have determined that the act’s prohibition on discrimination limits the use of some race-conscious approaches to maintaining integrated neighborhoods.
To be sure, these tensions are not always insurmountable. But addressing all of them at once requires a careful balancing act. The bulk of this chapter reviews how HUD programs and policies have struck this balance in the area of rental housing during the agency’s first 50 years. The chapter ends with a look to the challenges HUD is likely to face in its next 50 years. (103-104, citation omitted)
The chapter does a great job of outlining the tensions inherent in HUD’s broad mandate. It made me wonder, though, whether HUD would benefit from narrowing its mission for the next 50 years. If it focused on assisting more low-income households with their housing expenses (for example, by dramatically expanding the Section 8 housing voucher program and scaling back other programs), it might do that one thing well rather than doing many things less well.
January 28, 2016 | Permalink | No Comments
Thursday’s Advocacy and Think Tank Roundup
- Harvard’s Joint Center for Housing Perspectives found that the “surge in new rental construction fails to meet need for low-cost housing” in its recent report, “America’s Rental Housing report.”
January 28, 2016 | Permalink | No Comments
January 27, 2016
Failure to Refinance
Benjamin Keys, Devin Pope and Jaren Pope have recently had their Failure to Refinance paper accepted in the Journal of Financial Economics. A version of the paper can be found on SSRN. This academic paper has a lot of relevance to many a homeowner. The abstract reads,
Households that fail to refinance their mortgage when interest rates decline can lose out on substantial savings. Based on a large random sample of outstanding U.S. mortgages in December of 2010, we estimate that approximately 20% of households for whom refinancing would be optimal and who appeared unconstrained to do so, had not taken advantage of the lower rates. We estimate the present-discounted cost to the median household who fails to refinance to be approximately $11,500, making this a particularly large consumer financial mistake. To shed light on possible mechanisms and corroborate our main findings, we also provide results from a mail campaign targeted at a sample of homeowners that could benefit from refinancing.
The authors conclude,
Our results suggest the presence of information barriers regarding the potential benefits and costs of refinancing. Expanding and developing partnerships with certified housing counseling agencies to offer more targeted and in-depth workshops and counseling surrounding the refinancing decision is a potential direction for policy to alleviate these barriers for the population most in need of financial education.
In addition, the magnitude of the financial mistakes that households make suggest that psychological factors such as procrastination, trust, and the inability to understand complex decisions are likely barriers to refinancing. One policy that has been suggested to overcome the need for active household participation would require mortgages to have fixed interest rates that adjust downward automatically when rates decline To the extent that it is undesirable to reward only those households that are able to overcome the computational and behavioral barriers of the refinance process, policies such as an automatically-refinancing mortgage may be beneficial. Although an automatically-refinancing mortgage contract would be more expensive up-front for all borrowers in equilibrium, it would remove the cross-subsidization in the current mortgage finance system, where savvier homeowners who use their refinancing option when rates decline are subsidized by those households who fail to do so. (20, citation omitted)
I have heard a number of proposals that call for automatically refinancing mortgages. Such a mortgage product would shake up the mortgage market in its current form and require a transition period to figure out how it should be priced. But the net result would certainly benefit homeowners in the aggregate.
January 27, 2016 | Permalink | No Comments
Wednesday’s Academic Roundup
- Owner Occupancy Fraud and Mortgage Performance, Ronel Elul & Sebastian G. Tilson, FRB of Philadelphia Working Paper No. 15-45.
- A Tale of Two Worlds: Wealth and Wastage, and Scarcity and Sustainability, Masudur Rahman, OIDA International Journal of Sustainable Development, Vol. 08, No. 11, pp. 11-24, 2015.
- How Genetics Might Affect Real Property Rights, Mark A. Rothstein & Laura Rothstein, Journal of Law, Medicine and Ethics, Vol. 44, No. 1, 2016.
- Bank Capital and Lending Relationships, Michael Schwert.
- The Effect of Relational Capabilities and Managerial Capabilities on Performance Outcome: A Comparison between Architecture Firms and Real Estate Development Companies, Marijana Sreckovic.
- Environmental Performance and the Cost of Capital: Evidence from Commerical Mortgages and REIT Bonds, Piet M.A. Eichholtz, Rogier Holtermans, Nils Kok & Erkan Yönder.
- Income Equality Across Cities, Jung Hyun Choi & Richard K. Green.
- Estimating a Dynamic Discrete Choice Model with Partial Observability for Household Mortgage Default and Prepayment Behaviors, Chao Ma.
January 27, 2016 | Permalink | No Comments
January 26, 2016
Airbnbigbusiness
Researchers at Penn State have posted a report, From Air Mattresses to Unregulated Business: An Analysis of the Other Side of Airbnb. The Executive Summary reads,
As the popularity—and controversy—over short-term rental platforms grows in the public arena, this report takes a closer look at the hosts dominating one of the most trafficked platforms, Airbnb. The company, valued at some $24 billion dollars, has a reported 2 million listings worldwide. In media interviews and public materials, Airbnb suggests that its hosts are largely using the platform to make some additional money on the side. It states that “a typical listing earns $5,110 a year, and is typically shared less than 4 nights per month.”
But that does not represent the full picture.
This report represents the first comprehensive look at the commercial activity being conducted on Airbnb. By analyzing hundreds of thousands of data points, the report reveals an alarming trend with respect to two overlapping groups of hosts, multiple-unit operators who are renting out two or more units, and full-time operators who are renting their unit(s) 360 or more days per year. These two subsets of operators are generating a substantial amount of Airbnb’s revenue. Hosts who rent fewer than 360 days, but still far more than occasionally (for instance, more than 180 days), also contribute greatly to Airbnb’s bottom line. (2, footnote omitted)
The authors clearly have an ax to grind with Airbnb, but their findings are interesting nonetheless. One of my takeaways from the report is how differently Airbnb operates in different markets.
In Miami, for instance, 61% of Airbnb’s revenues was derived from full-time hosts who made up 7% of its operators there. That is more than twice as much revenue (in percentage terms) from full-time hosts as Airbnb’s national average. Nationally, full-time hosts represented 3% of all hosts, less than half (in percentage terms) of the number in Miami. Clearly local conditions will drive local governments to regulate Airbnb differently. It will be interesting to watch it all unfold.
January 26, 2016 | Permalink | No Comments
