December 9, 2015
Paid off Mortgage in Three Years
Sean Cooper
Realtor.com quoted me in Why the Guy Who Paid Off His Mortgage in 3 Years Isn’t as Smart as You Think. You’ll want to read about this guy:
You’ve gotta hand it to Sean Cooper: In a mere three years, this Toronto homeowner made epic sacrifices to pay off a $255,000 mortgage on his $425,000 house. His reason: “For a lot of people, their mortgage is like a life sentence,” the 30-year-old explained to the press. “I just wanted to not have a mortgage hanging over my head.”
After his story broke in publications such as the Toronto Star and The Hamilton Spectator, thousands applauded this as a feat of frugality.
But some experts say the opposite—that Cooper made a colossal mistake.
Forget the fact that to pay off his mortgage this pension analyst took on two extra jobs (including in the meat section of a supermarket even though he’s a vegetarian) and worked over 100 hours per week. Let’s also set aside the fact that he stopped using his car and claims Kraft dinners were his “best friend” (because clearly his real friends stopped hanging out with him). No, experts argue that Cooper’s extreme mortgage-paying regimen may have actually damaged his financial health.
* * *
“Having a mortgage is not really such a bad thing,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “When you think about what a mortgage is, it makes sense to pay it off over a long period of time. You use a mortgage to buy something that will last a long time—a home—so you would probably want to spread the payments for that expensive thing over the whole period you’re using it, just as you would with a car. [Cooper’s paying off his mortgage quickly] may work for him, but not for the typical person.”
So if you’re inspired to follow in Cooper’s footsteps, think twice and consider less drastic measures.
“There are less extreme ways of doing this,” Reiss says. “Some people make payments every four weeks instead of every month. This results in one extra payment every year and does not seem so painful. Others will put extra payments into their mortgage—a tax refund, a bonus, money from a consulting gig. This is also less painful because you were probably paying your regular expenses without that money already.”
Bottom line: Don’t beat yourself up for having a mortgage. Embrace the benefits, relax, and live a little. Cooper, for one, is now playing catch-up. Now that he’s debt-free, he’s moved on to his next goal: He’s looking for love. Because let’s face it, most bachelorettes aren’t into eating mac ‘n’ cheese on a date.
December 9, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- President Obama recently signed the Fixing America’s Surface Transportation Act into law. The legislation contains numerous provisions related to housing including, “pay for success” housing demonstration in which private contractors will enter into contracts to upgrade the efficacy of federal housing, and be compensated based on the effectiveness of their work.
- The U.S. Department of Housing and Urban Development has proposed a new rule aimed at combating gender discrimination in the provision of housing services. Among other things, Equal Access to Housing in HUD Programs, Regardless of Sexual Orientation or Gender Identity prohibits inquiries into the gender and sexual status of tenants by housing providers.
December 8, 2015 | Permalink | No Comments
December 7, 2015
Equitable Subrogation in Mortgage Refinancing
Professor Freyermuth
I am speaking on Equitable Subrogation in Mortgage Refinancing and Land Purchase Transactions in an ABA Professor’s Corner webinar on Wednesday with Professor Wilson Freyermuth of the University of Missouri School of Law. If this sounds like an esoteric topic, it is!
Subrogation refers to the substitution of one party for another and equitable subrogation refers to the doctrine where a court may use its equitable powers to find an implied assignment of a mortgage in order to avoid the unjust enrichment of a party. Since the commencement of the foreclosure crisis, this doctrine has been put to the test. Wilson and I will take a look at some of the recent cases that do the testing. More info about the webinar is below:
Professors’ Corner
A FREE monthly webinar featuring a panel of law professors, addressing topics of interest to practitioners of real estate and trusts/estates. All are welcome and encouraged to register and participate.
Wednesday, December 9, 2015
12:30 p.m. Eastern/11:30 a.m. Central/9:30 a.m. Pacific
Equitable Subrogation in Mortgage Refinancing and Land Purchase Transactions
Speakers:
David Reiss, Brooklyn Law School
Wilson Freyermuth, University of Missouri School of Law
When a lender makes a mortgage loan to refinance an existing first mortgage, the lender typically expects its refinancing loan to have first priority. If there is an intervening lien on the mortgaged property, however, a priority dispute may result in which the intervening lienholder argues that the recording statutes give it priority over the refinancing lender’s mortgage lien.
In this situation, the principle of equitable subrogation may apply to allow the refinancing lender to be subrogated to the priority of the paid-off mortgage so as to obtain priority over the intervening lien. The Restatement (Third) of Property: Mortgages (1997) embraced the liberal application of equitable subrogation in this context. While many courts have embraced the Restatement approach, not all courts have embraced the Restatement approach (including a recent Delaware Supreme Court decision rejecting the application of equitable subrogation in the refinancing context).
Our speakers will discuss a series of recent decisions (all decided in the 2015 calendar year) addressing the extent to which equitable subrogation is (or should be) available in the mortgage refinancing and land purchase context.
Register for this FREE webinar at https://ambar.org/ProfessorsCorner.
Sponsored by the ABA Real Property, Trust and Estate Law Section, Legal Education and Uniform Laws Group.
December 7, 2015 | Permalink | No Comments
Monday’s Adjudication Roundup
- Ninth Circuit upholds Section 8, which provides low income housing, recipients’ right to one-year notice that their benefits will be cut after failing to receive any notice in 2007.
- Franklin American Mortgage Co. settled with the U.S. Department of Justice for $70 million for allegedly violating the False Claims Act in originating and underwriting loans insured by the Federal Housing Administration that it knew were not eligible for insurance.
December 7, 2015 | Permalink | No Comments
December 4, 2015
Preserving Workforce Housing
The Urban Land Institute has issued Preserving Multifamily Workforce and Affordable Housing: New Approaches for Investing in a Vital National Asset. Stockton Williams, the Executive Director of the ULI Terwilliger Center for Housing, opens the report with a Letter from the Author,
Real estate investors seeking competitive returns increasingly view lower- and middle-income apartments as an attractive target for repositioning to serve higher-income households. In response, creative approaches are emerging for preserving the affordability of this critical asset class for its current residents and those of similar means—while still delivering financial returns to investors.
This report from the ULI Terwilliger Center for Housing provides a broad-based overview of this rapidly evolving landscape. It profiles 16 leading efforts to preserve multifamily workforce and affordable housing, including below-market debt funds, private equity vehicles, and real estate investment trusts.
Collectively, the entities leading these efforts have raised or plan to raise more than $3 billion and have acquired, rehabilitated, and developed nearly 60,000 housing units for lower- and middle-income renters, with thousands of additional units in the pipeline. Several are actively raising more capital to expand their activities. They are meeting a pressing social need while delivering cash-on-cash returns to equity investors ranging from 6 to 12 percent.
The report is written with the following primary audiences in mind:
■ Developers and owners looking for new sources of capital to acquire, rehabilitate, and develop multifamily workforce and affordable properties;
■ Local officials and community leaders seeking options for attracting or creating new sources of financing to meet their rising rental housing needs for lower- and middle-income families; and
■ Real estate investors and lenders interested in more fully understanding their range of options for a product type that offers financial as well as social returns.
As the country continues to grapple with the worst housing crisis for lower- and middle-income renters it has ever known, the private sector and community-based institutions must play an ever-greater role in ensuring that existing affordable properties remain available to the many who need them, while doing what they can to produce new units where possible. The financing vehicles profiled here show what is possible and suggest opportunities for further progress. (iv)
I found Part II particularly useful, with its overview of financing vehicles. Many readers of this blog will benefit from a description of below-market debt funds, private equity vehicles and real estate investment trusts, particularly as they are illustrated with real world examples like the Bay Area Transit-Oriented Affordable Housing Fund, Avanath Capital Management and the Community Development Trust.
December 4, 2015 | Permalink | No Comments
December 8, 2015
Reviewing the Big Short
By David Reiss
Wax Statue of Ryan Gosling at Madame Tussauds
Realtor.com quoted me in Explaining the Housing Crash With Jenga—Did ‘The Big Short’ Get It Right? The story reads in part,
One of the more hyped movie releases this Oscar season stars the housing crisis itself: “The Big Short,” in which four financial wheelers and dealers (Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt) join forces to figure out what caused the housing bubble of 2003-2005 to burst (and how they could profit from it, of course). It’s based on the best-selling, intensively reported book by journalist Michael Lewis.
Granted, the subprime mortgage meltdown is a complicated subject… but this movie purports to illuminate all with a simple visual aid: a tower of Jenga blocks. As Gosling explains in [this video clip], mortgage bonds at that time were made up of layers called tranches, with the highest-rated and most secure loans stacked on top of the lower-rated “subprime” ones. And once holders of those subprime mortgages defaulted in droves, as they did starting in 2006, the whole structure collapsed. Jenga!
Which seems simple enough. Only is this depiction accurate, or just a Hollywood set piece?
Well, according to David Reiss, Research Director at the Center for Urban Business Entrepreneurship at Brooklyn Law School, this movie’s high-concept depiction of the mortgage crisis is largely on the money.
“There is a lot that is accurate in the clip: the history of mortgage-backed securities, the degradation of mortgage quality during the subprime boom, the loss of value of lower grade tranches,” he says.
* * *
Yet there is one thing that the movie did fudge, according to Reiss.
“I would argue that there is one big inaccuracy that exists, I am sure, for dramatic effect,” he says. “I would have put the AAA [tranches] at the bottom of the Jenga stack. In fact, the failure of the Bs and BBs did not cause the failure of AAAs, and many AAAs survived just fine or with modest losses.”
In other words, only the top half of the Jenga tower should have crumbled … but that wouldn’t have looked quite as flashy, would it?
“It would not sound as cool if only the top part of the stack crashed,” Reiss concedes. “But the bigger point, that the failures of the secondary mortgage market led to the crash of the housing market, is spot on.”
And hopefully one that won’t play out again in real life.
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December 8, 2015 | Permalink | No Comments