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
Friday’s Government Reports Roundup
- S. Department of Housing and Urban Development released its 2015 Annual Homeless Assessment Report to Congress, estimating the latest national one-night of homelessness.
- The National Low Income Housing Coalition (NLIHC) released its report, “A Rare Occurrence: The Geography and Race of Mortgages over $500,000”, finding that only 5% of the 20 million mortgages that originated between 2012 and 2014 were in an amount over $500,000.
December 4, 2015 | Permalink | No Comments
December 3, 2015
Reps and Warranties Mean What They Say
The New York Appellate Division, 1st Department, issued a ruling in Bank of New York Mellon v. WMC Mortgage, 654464/12 (Dec. 1, 2015) that stands for the proposition that representations and warranties regarding mortgage-backed securities mean what they say and say what they mean. The opinion opens,
This breach of warranty action arises from a residential mortgage backed securitization called the J.P. Morgan Mortgage Acquisition Trust 2006-WMC4 (the Trust). The Trust was arranged and sponsored by defendant J.P. Morgan Mortgage Acquisition Corporation (JPMMAC), which made certain representations and warranties as to the quality of the mortgage loans in the Trust. We find that plaintiff’s interpretation of the language of the representations and warranty at issue is the only reasonable interpretation . . ..
The Pooling and Servicing Agreement represented and warranted that
“With respect to the period from [the] Whole Loan Sale Date to and including the Closing Date, [JPMMAC] hereby makes the representations and warranties contained in paragraph (a) . . . of Schedule 4 attached hereto . . . . [that] [t]he information set forth in the Mortgage Loan Schedule and the tape delivered by [WMC] to [JPMMAC] is true, correct and complete in all material respects.”
It also stated that if “JPMMAC breached a representation or warranty it made . . . it was to cure the breach within 90 days after notification; if it failed to do so, it was to repurchase the defective mortgage loan or substitute a qualifying loan for the defective one.” This is pretty standard stuff so far.
By 2012, it appeared that more than 40% of the mortgages remaining in the pool were delinquent and that the R&Ws had been violated. The certificate holders therefor demanded that JPMMAC repurchase the mortgages that were in breach of the R&Ws, which JPMMAC refused to do.
JPMorgan argued, against the plain language of the R&Ws, that it only covered defects that arose during a short period prior to the closing date of the securitization. The Court gave short shrift to this implausible reading of the R&Ws.
This opinion does not make new law, but one wonders what effect it will have on securitization business practices. R&Ws are driven by many things — concerns about credit risk, but also tax compliance with the REMIC rules, to name a couple. I am curious as to how MBS R&Ws have changed since the early 2000s — and whether the parties to these transactions understand how R&Ws allocate risk among them.
December 3, 2015 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Round-Up
- The Federal Reserve Bank of NY’s Center for Microeconomic Data has released its 3rd quarter Household Debt and Credit Report which shows that Mortgage debt, the largest component of household debt, increased in by $144 billion since the 2nd quarter of 2015. Balances on Home Equity Lines of Credit decreased by $7 billion.
- The Mortgage Bankers Association (MBA) sent a letter to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, proposing that advocating upfront risk sharing targets be set for 2016. This proposal is prompted by FHFA’s near doubling of insurance fees, which are necessary to reduce the risks borne by the taxpayer when debtors default. The MBA is advocating for private opportunity to compete in the insurance of these loans – which they say will lead to lower fees for borrowers as well.
- The National Association of Realtors (NAR) has released its Pending Home Sales Index for October which inches up .2% to sustain 14 consecutive months of increase. NAR also is predicting another housing boom for 2016.
December 3, 2015 | Permalink | No Comments
December 2, 2015
A Different Approach to Homelessness
Pacific Palisades Coast near Porto Marina
The Christian Science Monitor quoted me in In One California Community, a Different Approach to Homelessness. It reads, in part,
On a sunny morning in the beachfront community of Pacific Palisades, Steven “Boston” Michaud perches confidently on a large dock tie just above the sand. He waves vaguely at the hills above the Pacific Coast Highway, indicating where he sleeps. “It’s up there, but you’ll never see me,” he says, pointing to his own shadow on the ground, “because I’m a shadow and I don’t bother anyone.”
Mr. Michaud is one of about 170 homeless people in Pacific Palisades, an affluent waterfront neighborhood in Los Angeles. Pacific beaches have long been a magnet for the homeless from around the world.
Overall, California experienced the second-largest increase in the number of homeless people (1,786 individuals) among the 50 states this past year, according to the US Department of Housing and Urban Development. As their ranks have swelled, some homeless people have edged out of the shadows and have taken up in tidier areas in the Golden State. That, in turn, has attracted the attention of residents – especially when crimes have occurred.
Even Michaud isn’t as invisible as he says he is. A local supermarket took out a restraining order against him.
But some communities in the state think that too much emphasis has been put on law enforcement to deal with homelessness – and not enough on other approaches that account for the needs of homeless people and try to address the root causes of the problem. These places are thus coming up with a new generation of creative ways to deal with the persistent problem of homelessness. Pacific Palisades, which is trying out a private, philanthropic approach, is one of these communities.
* * *
Private philanthropy in support of community needs is not new, says Mr. Berg of the National Alliance to End Homelessness. But what is new and less common in dealing with homelessness, he says, “is the organized approach to philanthropy at the local level.”
While she applauds the ambition of the effort, Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty, has concerns about the implications of a privatization approach. “The government’s role is to provide for public needs in critical times,” she says, adding, “This just serves as yet another example of the government stepping away from that role.”
Beyond that, there is the question of who can afford to duplicate the Palisades approach. Raising enough money to hire social services staff is beyond the reach of many communities, says Brooklyn Law School professor David Reiss, who specializes in housing policies. “So it is unlikely that Pacific Palisades is going to start a big trend, but a well-intentioned program could be effective locally, like many other community-based initiatives.”
December 2, 2015 | Permalink | No Comments
December 7, 2015
Equitable Subrogation in Mortgage Refinancing
By David Reiss
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.
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December 7, 2015 | Permalink | No Comments