August 5, 2015
Mortgage Credit Conditions Easing
The Urban Institute’s Housing Finance Policy Center has released its July Housing Finance at a Glance. It opens,
Our latest update to HFPC’s Credit Availability Index (HCAI) shows early signs that the overly tight mortgage lending standards of the post-crisis period may finally be starting to ease. This HCAI update shows improvements for both GSE and FHA/VA channels. Between Q3 2013 and Q1 2015, the expected mortgage default rate increased from 1.8 to 2.1 percent (17 percent increase) for GSE originations, and from 9.6 to 10.8 percent (a 13 percent increase) for FHA/VA originations. The expected default rate for portfolio loans and PLS channels has remained largely flat at 2.6 percent over this period.
Long overdue, these improvements are largely a result of efforts to clarify put-back standards and conduct early due diligence. While the FHA has lagged the GSEs in these efforts, it has made some progress. Still, more needs to be done, especially to mitigate uncertain lender litigation risk arising out of FHA’s False Claims Act.
These improvements notwithstanding, there is still significant room to safely expand the credit box. Even if the mortgage market had taken twice the default risk it took in Q1 2015, that level would have still been below the level of default risk of the early 2000s. (3)
This excellent chartbook contains many very interesting graphs. I recommend that you look at the National Housing Affordability Over Time graph in particular. It shows that housing “prices are still very affordable by historical standards, despite increases over the last three years.” (16)
August 5, 2015 | Permalink | No Comments
Wednesday’s Academic Roundup
- The Impact of the Home Valuation Code of Conduct on Appraisal and Mortgage Outcomes, Lei Ding & Leonard I. Nakamura, FRB of Philadelphia Working Paper No. 15-28.
- Financial Literacy and Mortgage Credit: Evidence from the Recent Mortgage Market Crisis, Xudong An, Raphael W. Bostic & Vincent W. Yao.
- Distance, Asymmetric Information, and Mortgage Securitization, Matthew J. Botsch.
- How High-Income Neighborhoods Receive More Service from Municipal Government: Evidence from City Administrative Data, James J. Feigenbaum & Andrew B. Hall.
- Setting the Stage for Ferguson: Housing Discrimination and Segregation in St. Louis, Rigel Christine Oliveri, Missouri Law Review, Forthcoming.
- Interactions between Job Search and Housing Decisions: A Structural Estimation, Rendon Silvio & Nuria Quella, FRB of Philadelphia Working Paper No. 15-27.
August 5, 2015 | Permalink | No Comments
August 4, 2015
MERS Victorious
Montgomery County, PA Courthouse
The U.S. Court of Appeals for the Third Circuit ruled in favor of MERS in Montgomery County v. MERSCORP, (August 3, 2015, No. 15-1219) (Barry, J.). MERS, for the uninitiated,
is a national electronic loan registry system that permits its members to freely transfer, among themselves, the promissory notes associated with mortgages, while MERS remains the mortgagee of record in public land records as “nominee” for the note holder and its successors and assigns. MERS facilitates the secondary market for mortgages by permitting its members to transfer the beneficial interest associated with a mortgage—that is, the right to repayment pursuant to the terms of the promissory note—to one another, recording such transfers in the MERS database to notify one another and establish priority, instead of recording such transfers as mortgage assignments in local land recording offices. It was created, in part, to reduce costs associated with the transfer of notes secured by mortgages by permitting note holders to avoid recording fees. (4, footnote omitted)
I, along with others, had filed an amicus brief in this case. The court states that
We acknowledge the arguments of the Recorder and her amici contending that MERS has a harmful impact on homeowners, title professionals, local land records, and various public programs supported in part by the fees collected by Pennsylvania’s recorders of deeds. In this appeal, however, we are not called upon to evaluate how MERS impacts various constituencies or to adjudicate whether MERS is good or bad. Just as the Seventh Circuit observed in Union County, while the Recorder is critical of MERS in several respects, “[her] appeal claims only that MERSCORP is violating [state law] by failing to record its transfer of mortgage debts, thus depriving the county governments of recording fees. That claim—the only one before us—has no merit.” 735 F.3d at 734-35. (13)
MERS has had a lot of success in cases like this, but the fact remains that it was implemented in a flawed fashion with little to no input from a broad range of constituencies. Regulators and legislators should pay renewed attention to MERS to ensure that the ownership and servicing of residential mortgages are tracked in a way that protects consumers from abusive behavior by sophisticated mortgage market players who rely on opaque mechanisms like MERS.
August 4, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- New York City Mayor Bill De Blasio recently unveiled an Inclusionary Housing Program which allows developers to build beyond existing restrictions if they create permanent affordable units, this is one of the most aggressive programs in the country – as many as one in four new apartments will include permanently affordable and low income units (available as rental or ownership programs).
- While the U.S. Congress is in recess advocacy groups are encouraging members to get in touch with their representatives who will be considering tax extenders and other affordable housing legislation when they return.
August 4, 2015 | Permalink | No Comments
August 3, 2015
Foreclosures & Credit Card Debt
Paul S. Calem, Julapa Jagtiani and William W. Lang have posted Foreclosure Delay and Consumer Credit Performance to SSRN. Effectively, it argues that long foreclosure delays may have reduced the credit card default rate because homeowners in default were able to pay down their credit card debt while living for free in their homes. The abstract reads,
The deep housing market recession from 2008 through 2010 was characterized by a steep rise in the number of foreclosures and lengthening foreclosure timelines. The average length of time from the onset of delinquency through the end of the foreclosure process also expanded significantly, averaging up to three years in some states. Most individuals undergoing foreclosure were experiencing serious financial stress. However, the extended foreclosure timelines enabled mortgage defaulters to live in their homes without making mortgage payments until the end of the foreclosure process, thus providing temporary income and liquidity benefits from lower housing costs. This paper investigates the impact of extended foreclosure timelines on borrower performance with credit card debt. Our results indicate that a longer period of nonpayment of mortgage expenses results in higher cure rates on delinquent credit cards and reduced credit card balances. Foreclosure process delays may have mitigated the impact of the economic downturn on credit card default.
The authors conclude,
our findings indicate that households do not consume all the benefits from temporary relief from housing expenses; instead, they use that temporary relief to cure delinquent credit card debt and reduce their credit card balances. Interestingly, we find that payment relief from loan modifications has a similar impact to payment relief from longer foreclosure timelines; both are associated with curing card delinquency and reducing card balances.
These households, however, are likely to become delinquent on their credit cards again within six quarters following the end of the foreclosure process. Thus, the results suggest that there may be added risk for nonmortgage lenders when foreclosures are completed and households must incur the transaction costs of moving and incur significant housing expenses once again. This implies an additional dimension of risk to credit card lenders that has not been observed previously. (23)
I am not sure what to make of these findings for borrowers, regulators, credit card lenders or mortgage lenders. Would a utility-maximizing borrower run up their credit card debt while in foreclosure? Should states seek to change foreclosure timelines to change consumer or lender behavior? Should profit-maximizing credit card lenders seek to further limit borrowing upon a mortgage default? What should profit-maximizing mortgage lenders do? I have lots of questions but no good answers yet.
August 3, 2015 | Permalink | No Comments
Monday’s Adjudication Roundup
- The Third Circuit upholds class certification in case against PNC Bank NA, in which individuals are alleging the bank participated in an illegal home equity lending scheme.
- Residential Credit Solutions Inc., a mortgage servicing company, will pay $1.6 million in restitution and fines, according to the CFPB, for many violations, but specifically for issues with loan modifications and treating consumers as if they had defaulted.
August 3, 2015 | Permalink | No Comments
July 31, 2015
Rapid Growth for Property Managers
Buildium.com quoted me in Can Rapid Growth Endanger Your Business? It reads, in part,
For property managers, the prospect of rapid growth can be thrilling. You lease the units in your first building, fill vacancies quickly, add services that let you charge higher rent, the building owner compliments your work, and before you know it, you’re thinking: “Why not more?” After all, why waste a great opportunity to make more money by simply repeating what you’ve done so well at your first property? All the stars seem aligned…
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7 Steps to Find Out If You’re Ready to Expand Your Property Management Portfolio
Here are seven steps to take before fast-tracking you company’s expansion:
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#6: Know the local rules & the laws
If the buildings you manage are different entities — one rent-controlled and the other a cooperative in an historic neighborhood, for example — you must understand their different requirements. The same can hold true for buildings in different communities where regulations covering trash pick-up and snow removal may vary.
And differences can be even greater for buildings in different states. In New York City, multifamily buildings with more than four units [may be] rent-regulated and involve a complex set of regulations between landlord and tenant, says attorney David Reiss, a professor of law and the Research Director at Brooklyn Law School’s Center for Urban Business Entrepreneurship. “If you don’t know what they are, it can be a recipe for disaster,” he says.
Also important to know, he says, is that some buildings are located in historic districts, which the Landmarks Preservation Commission can authorize, and that affects how owners and managers can renovate, rehab, and maintain exteriors, Reiss says. “You might have to place an air conditioning unit a certain way.”
#7: Consult with other property managers
Besides doing your homework, talk to owners and managers of similar properties who’ve expanded beyond a single listing. Reiss says many communities have property management organizations that share information, or your city or town may have an association of like-minded businesses. If not, maybe, you can become a local hero by starting one.
July 31, 2015 | Permalink | No Comments
