October 19, 2015
Monday’s Adjudication Roundup
- The U.S. Securities and Exchange Commission were granted its request to freeze Luca International Group LLC’s CEO’s assets. He allegedly engaged in a “Ponzi-like” scheme with EB-5 investors.
- New York appeals court revived claims against Nomura Holdings Inc. brought by investors finding that HSBC can seek damages for misrepresentation in mortgage-backed securities transactions, which ended up being defective loans.
- In case brought by U.S. Bank against Credit Suisse, a New York judge refused dismissal for failing to buy back bad loans worth $1 billion, finding that the servicing agreement with U.S. Bank required it to do so.
- The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide.
- JPMorgan and MassMutual have settled in case where JPMorgan had allegedly cause MassMutual to lose $2.3 billion in mortgage-backed securities.
October 19, 2015 | Permalink | No Comments
October 16, 2015
Enhancing Mortgage Data and Litigation Risk
Law360 quoted me in CFPB Data Collection Boost May Bring More Lending Cases (behind a paywall). It reads, in part,
The Consumer Financial Protection Bureau has given lenders more time to prepare for its new mortgage data reporting rule and streamlined some of the information lenders will have to provide to regulators, but worries persist that the new data will be used to bring more fair-lending enforcement actions.
The federal consumer finance watchdog on Thursday released a final version of its update to the Home Mortgage Disclosure Act — a key tool that regulators for decades have used to determine which populations were receiving home loans and which were being shut out — that more than doubles the amount of information that lenders will have to provide about the mortgages they issue.
That alone will make for a major technical overhaul of lenders’ operations, an overhaul that is likely to be expensive both in purchasing and developing new technology but also in the number of hours lenders will have to spend to get up to speed. But a second concern revolves around the vast new amount of information that the CFPB will have, and how it could use that information to review lenders’ compliance with fair-lending laws, said Donald C. Lampe, a partner with Morrison & Foerster LLP.
“I don’t think the full cost has yet been established, and I think what you’re seeing here are that there are concerns that this level of granular data can be misinterpreted,” he said. “There’s enough information here from a practical standpoint to re-underwrite the loan.”
* * *
“My position is that collecting more data about the mortgage market is a very good thing for consumers,” said David Reiss, a professor at Brooklyn Law School. “The more data [lenders] provide, the more likely it is that academics or the feds could find patterns of discriminatory lending.”
The added litigation risks do not come solely from the CFPB. The HMDA data is released publicly each year, meaning that activist groups, state regulators and plaintiffs attorneys will be able to comb through the vastly more comprehensive information, said Warren Traiger, counsel at BuckleySandler LLP.
“This is public data, so in addition to bank examiners and the [U.S. Department of Justice utilizing the data, there’s nothing preventing state attorneys general from using it as well,” he said.
And when state regulators, private plaintiffs or other parties come along with new complaints, the expanded data set will allow them to make far more specific discrimination claims than the current HMDA data makes possible.
“There will be a number of additional fields that will be out there that will allow regulators and the public to make more specific allegations regarding discrimination in mortgage lending than the current HMDA data allows,” Traiger said.
October 16, 2015 | Permalink | No Comments
Friday’s Government Reports
- The Federal Reserve Bank of Philadelphia has released a Discussion paper Gentrification and Residential Mobility in Philadelphia the study uses consumer credit data to study the economic effects of gentrification on existing lower income residents. The study finds the following: “[R]esidents in gentrifying neighborhoods have slightly higher mobility rates than those in nongentrifying neighborhoods, but they do not have a higher risk of moving to a lower-income neighborhood. Moreover, gentrification is associated with some positive changes in the financial health of residents as measured by individuals’ credit scores. However, when more vulnerable residents (low-score, longer-term residents, or residents without mortgages) move from gentrifying neighborhoods, they are more likely to move to lower-income neighborhoods and neighborhoods with lower values on quality-of-life indicators. The results reveal the nuances of mobility in gentrifying neighborhoods and demonstrate how the positive and negative consequences of gentrification are unevenly distributed.”
October 16, 2015 | Permalink | No Comments
October 15, 2015
Millennials, Paycheck to Paycheck
The National Housing Conference and the Center for Housing Policy issued a report, Paycheck to Paycheck: A Snapshot of Housing Affordability for Millennial Workers. The report opens,
Public perception of millennials tends to paint a picture of highly educated hipsters living in city micro-units, or perpetual youth living in their parents’ basements. However, those stereotypes do not adequately portray the diversity of race, education, income, family types, living arrangements and employment among millennials.
In fact, most millennials do not live in micro-units or with their parents. Many are getting married and starting families. Even though millennials are more highly educated than previous generations, many face limited job prospects. And many millennial workers are in relatively low-paying jobs and have difficulty finding housing they can afford. As a result, they spend a burdensome share of their paycheck on housing, leaving little for other expenses, including student debt payments, savings for a mortgage down payment and childcare. (1)
The report makes a variety of conservative assumptions. For instance, it assumes that a loan to value ratio of 28% of income and it assumes that households have only one worker. It proposes a variety of policies to expand mortgage credit, affordable housing subsidies and zoning reforms to increase the supply of housing.
Given that the report comes from two affordable housing advocacy groups, its policy proposals to increase the supply of affordable housing for millenials are not surprising. But I do think it is worth thinking about household formation a bit more in this context.
Many of us do not give much thought to how households form. When we think about our own experience, we might conclude that when we had enough money to get our own place we did just that. But, in fact, the rate of household formation is significantly affected by broader economic forces, namely the state of the job market. If an individual does not believe that her income is stable, she will delay creating her own household. Thus, she might live with her parents or share an apartment with others. Reports like this one assume that there is a natural rate of household formation just as many people assume that there is a natural rate of homeownership. As a general rule, those people generally assume that higher is better.
It might be worth considering that household formation and homeownership rates are driven by the interplay of much larger forces. Instead of trying to move those rates for their own sake, it might be more important to look at fundamentals in the economy, like the unemployment rate and wage growth, and let household formation and homeownership rates take care of themselves.
October 15, 2015 | Permalink | No Comments
Thursday’s Advocacy & Think-Tank Round-Up
- Corelogic’s National Foreclosure Report shows a total of 36,000 foreclosures in August, nationwide. This represents a decline of over 20% when compared to August of 2014.
- The Make Room Campaign has completed an analysis of the affordable housing crisis in Florida, where they find that 30% of renters spend more than 50% of their income on rent per month.
- In an effort to decrease costs for affordable housing developers NYC proposes to eliminate off-street parking mandates for developments with good transit access.
October 15, 2015 | Permalink | No Comments
October 14, 2015
Neighborhood Change and Public Housing
The Effects of Neighborhood Change on NYCHA Residents, a report released to little notice in May, has received a lot of attention after the NY Daily News wrote a disparaging article about it. I will leave it to others to decide if this report was worth its six figure price tag, but I do think that there are some interesting findings. The report was prepared by Abt Associates and NYU’s Furman Center, two leading housing research entities. The Findings at a Glance state that
In this study, Abt finds statistically significant differences in earnings for NYCHA residents living in different neighborhood types. Annual household earnings average $4,500 higher for public housing residents in persistently high‐income neighborhoods as compared to persistently low‐income neighborhoods. Earnings are $3,000 higher for those in increasing income neighborhoods. Moreover, these findings are not attributable to any selection bias of residents choosing to live in either persistently high or low income neighborhoods. (1)
This is a pretty big deal, given that the average family income for NYCHA residents is $23,311. If this increased income is attributable to neighborhood characteristics, we would want to take that into account when formulating housing policy.
There were some other interesting findings that were also not highlighted by the Daily News:
- Developments surrounded by persistently high‐income neighborhoods have lower violent crime rates (5.7 violent crimes per 1,000 residents) than those surrounded by persistently low‐income neighborhoods (8.3 violent crimes per 1,000 residents).
- Developments in persistently high‐income neighborhoods are zoned for public elementary schools with higher standardized test scores than developments in persistently low‐income neighborhoods; 72% of NYCHA households in low‐income neighborhoods are zoned for schools in the bottom quartile for math proficiency (cf. 41% for those in high‐income neighborhoods).
- Among public elementary and middle school students living in NYCHA housing, those living in developments surrounded by persistently high—and increasing—income neighborhoods score higher on standardized math and reading tests. (Findings at a Glance, 2)
Before this report is dismissed as a boondoggle, we should try to understand its implications for developing a housing policy that promotes socioeconomic diversity. This is a city of extremes of wealth and poverty and there has been a very negative reaction to policies, such as poor doors, that seem to reinforce that state of affairs. But it may turn out that public housing is a useful tool for creating the more equitable city that so many New Yorkers strive for. Let’s not shoot the messengers before we hear what they have to say.
October 14, 2015 | Permalink | No Comments
Wednesday’s Academic Roundup
- Pricing Residential Real Estate Derivatives, Mark Michael Richter.
- Local House Prices and Mental Health, Nayan Krishna Joshi, International Journal of Health Care Finance and Economics, 2015.
- Why Did So Many Subprime Borrowers Default During the Crisis: Loose Credit or Plummeting Prices?, Christopher Palmer.
- Large-Scale Buy-to-Rent Investors in the Single-Family Housing Market: The Emergence of a New Asset Class?, James Mills, Raven Molloy & Rebecca Zarutskie, FEDS Working Paper No. 2015-084.
- Measuring Total Mortgage Market Credit Risk, Douglas A. McManus.
- What Affects Children’s Outcomes: House Characteristics or Homeownership?, Steven C. Bourassa, Donald R. Haurin & Martin Hoesli, Swiss Finance Institute Research Paper No. 15-42.
- Housing Booms and Busts, Labor Market Opportunities, and College Attendance, Kerwin Kofi Charles, Erik Hurst & Matthew Notowidigdo, NBER Working Paper No. w21587 (Paid Access).
October 14, 2015 | Permalink | No Comments
