July 1, 2015
Wednesday’s Academic Roundup
- Separate and Unequal: The American Dream, Peter C. LaGreca, 16 Rutgers Race & L. Rev. 183 (2015).
- Reverse Mortgage Loans: A Quantitative Analysis, Makoto Nakajima & Irina Telyukova, FRB of Philadelphia Working Paper No. 14-27.
- Reverse Mortgages: What Homeowners (Don’t) Know and How it Matters, Thomas Davidoff, Patrick Gerhard & Thomas Post.
- Housing Price Volatility and the Housing Ladder, James W. Banks, Richard W. Blundell, Zoé Oldfield & James P. Smith, NBER Working Paper No. w21255.
- The Financial Rewards of Sustainability: A Global Performance Study of Real Estate Investment Trusts, Franz Fuerst.
- A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012, Fernando V. Ferreira & Joseph Gyourko, NBER Working Paper No. w21261.
July 1, 2015 | Permalink | No Comments
June 30, 2015
The Silent Housing Crisis
J. Ronald Terwilliger
The J. Ronald Terwilliger Foundation for Housing America’s Families, a new entity, has issued its first white paper on the Silent Housing Crisis: A Snapshot of Current and Future Conditions. The paper covers some of the same ground as another recent Urban Institute report that I had recently blogged about (and, indeed, it is informed by the work of those UI researchers, as can be seen in the endnotes), but it raises some interesting issues of its own.
The white paper opens with a quotation from President Truman’s Statement upon signing the Housing Act of 1949, which
establishes as a national objective the achievement as soon as feasible of a decent home and a suitable living environment for every American family, and sets forth the policies to be followed in advancing toward that goal. These policies are thoroughly consistent with American ideals and traditions. They recognize and preserve local responsibility, and the primary role of private enterprise, in meeting the Nation’s housing needs. But they also recognize clearly the necessity for appropriate Federal aid to supplement the resources of communities and private enterprise. (3)
The white paper argues that the United States
is unprepared for the tremendous challenges that a rapidly expanding renter population will pose to the already strained housing system. Absent a comprehensive and sustained policy response, it is likely that rental cost burdens will only grow in intensity and scope, undermining the stability and dampening the hopes of millions of American families. These conditions, in turn, will exacerbate income inequality, diminish the prospects of social mobility for countless individuals, make us less competitive in the global marketplace, and ultimately hinder America’s economic growth. (6)
While the white paper has a lot to offer in diagnosing problems in the American housing sector, I was surprised to find that it failed to discuss the role of restrictive zoning in increasing the cost of housing, particularly in the vibrant communities that are the main engines of job creation. Any serious effort to address the lack of decent and affordable housing has to tackle the problem of restrictive zoning.
The Terwilliger Foundation was founded in 2014 and “seeks to recalibrate federal housing policy so that it more effectively addresses our nation’s critical affordable housing challenges and meets the housing needs of future generations. The Foundation will offer a set of practical suggestions for tax, spending, and mortgage finance reform that is responsive to the ongoing crisis in housing and the profound demographic changes now transforming America. ” (2) It is good to have another voice in the mix on these important issues. The foundation’s namesake is the Chairman of Terwilliger Pappas Multifamily Properties and is the Chairman Emeritus of Trammell Crow Residential Company, the largest multifamily developer in the U.S. for many years.
June 30, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- U.S. Department of Housing and Urban Development Issues a Revised Rental Assistance Demonstration (RAD) notice, RAD which is the program by which Public Housing Authorities obtain funding for project based rental assistance. The revised notice, among other things, increases the maximum number of units per project, provides additional rights and protections for tenants and provides greater incentives for green initiatives.
June 30, 2015 | Permalink | No Comments
June 29, 2015
CFPB Mortgage Highlights
The Consumer Financial Protection Bureau issued its most recent Supervisory Highlights. The CFPB is “committed to transparency in its supervisory program by sharing key findings in order to help industry limit risks to consumers and comply with Federal consumer financial law.” (3)
There were a lot of interesting highlights relating to mortgage origination and servicing, including,
- one or more instances of failure to ensure that the HUD-1 settlement statement accurately reflects the actual settlement charges paid by the borrower.
- at least one servicer sent borrowers loss mitigation acknowledgment notices requesting documents, sometimes dozens in number, inapplicable to their circumstances and which it did not need to evaluate the borrower for loss mitigation.
- one or more servicers failed to send any loss mitigation acknowledgment notices. At least one servicer did not send notices after a loss mitigation processing platform malfunctioned repeatedly over a significant period of time. . . . the breakdown caused delays in converting trial modifications to permanent modifications, resulting in harm to borrowers, and may have caused other harm.
- At least one other servicer did not send loss mitigation acknowledgment notices to borrowers who had requested payment relief on their mortgage payments. One or more servicers treated certain requests as requests for short-term payment relief instead of requests for loss mitigation under Regulation X.
- At least one servicer sent notices of intent to foreclose to borrowers already approved for a trial modification and before the trial modification’s first payment was due without verifying whether borrowers had a pending loss mitigation plan before sending its notice. As the notice could deter borrowers from carrying out trial modifications, it likely causes substantial injury . . .
- at least one servicer sent notices warning borrowers who were current on their loans that foreclosure would be imminent. (14-18, emphasis added)
All of these highlights are interesting because they reflect the types of problems the CFPB is finding and it thus helps the industry comply with federal law. But from a public policy perspective, the CFPB’s approach is lacking. By repeating that each failure was found at “one or more” company, a reader of these Highlights cannot determine how widespread these problems are throughout the industry. And because the Highlights do not say how many borrowers were affected by each company’s failure, it is hard to say whether these problems are isolated and technical or endemic and intentional.
Future Supervisory Highlights should include more information about the number of institutions and the number of consumers who were affected by these violations.
June 29, 2015 | Permalink | No Comments
Monday’s Adjudication Roundup
- Massachusetts’s federal court found that a unit of Deutsche Bank AG failed to vet some residential mortgage-backed securities, which mislead Massachusetts Mutual Life Insurance Co.
- US Bank filed an amended complaint claiming that Citigroup Global Markets Realty Corp. and CitiMortgage Inc. in suit over bad mortgage-backed securities.
- After PHH Corp. was ordered to pay $109 million in penalties by the CFPB in a mortgage kickback scheme, it has asked to D.C. Circuit to reconsider.
- New York state court dismisses Commerzbank AG’s suit against UBS AG, Credit Suisse Group AG, and others due to the statute of limitations. Commerzbank brought suit alleging loan quality fraud in the sale of $1.9 billion in mortgage securities.
- NY federal court dismissed a derivative shareholder suit against American Realty Capital Properties Inc. as the suit did not fulfill the state law requirement that demand be made on the board of directors before bringing suit and this case did not meet the narrow futility exception to such demand. The shareholders brought suit over accounting issues that led to a sharp drop in stock value and destroyed a possible $700 million sale.
- In suit against Amazon for breach of contract, The Durst Organization will not be able to force Amazon to sign a $20 million per year lease. The court found that the letter of intent does not compel the retailer to execute the lease. However, Durst may be able to recover under the additional breach of duty and fraud claims.
- In a historical decision, the U.S. Supreme Court held that the Fair Housing Act covers unintentional discrimination through disparate impact, citing to the deep racial divides in the 1960s.
- US Bank, as a trustee of Lehman XS Trust, brings suit against Bank of America and Countrywide Financial for $178 million for alleged breach of representations and warranties in sale of residential mortgage loans.
June 29, 2015 | Permalink | No Comments
June 26, 2015
Homeowners Heading to Pottersville?
Mr. Potter from It’s A Wonderful Life
The Urban Institute has issued a report, Headship and Homeownership: What Does The Future Hold? The report opens,
Homeownership rates averaged around 64 percent until about 1990, when they began to climb dramatically, reaching 67.3 percent in 2006. The housing crisis that began in 2007 and the ensuing recession, from which the US economy is recovering slowly, resulted in a fall in the homeownership rate to 63.6 percent, according to the latest ACS numbers. Such a trajectory has generated important questions about the future of homeownership at all ages. The issues with young adults seem particularly acute. Will young adults want to own houses? Even if they do, will they be able to afford homeownership? The answers to these questions are still unclear, especially because millennials are not just slower to start their own households and purchase homes: they also are more likely to live in their parents’ homes than any generation in recent history. The rapidly changing racial and ethnic composition of the population also has profound implications for household formation and homeownership.
In this report, we dive deeply into the pace of household formation and homeownership attainment—nationally and by age groups and race/ethnicity over the past quarter-century—and project future trends. Considering the great uncertainty about household formation and homeownership, single-point forecasts of homeownership rates and housing demand could seriously mislead policymakers and obscure the potential implications of their decisions. Instead, we offer plausible competing scenarios for household formation and homeownership that generate a range of future national housing demand projections. (1)
I am not in a position to evaluate how well the report projects future trends, but some of its conclusions are worth considering together:
- the homeownership rate will decline from 65.1 percent in 2010 to 61.3 percent in 2030; (46)
- the rapid growth of the renter population will create significant demand for new rental housing construction and encourage shifting of owner-occupied dwellings to rentals; (47)
- very tight credit availability standards will retard homeownership attainment and may exacerbate the growing shortage in rental housing; (48) and
- the erosion of black homeownership needs to be addressed by more than mortgage policy. (48)
Taken together, these conclusions all point to a backsliding in the housing market: the American Dream disappearing for millions of Americans, particularly African Americans, who will end up living in overcrowded Pottersvilles straight out of It’s A Wonderful Life. Just like George Bailey, we have choices to make before that nightmare becomes a reality. But before we decide anything too hastily, we should consider the fundamental goals of housing policy.
I have argued that a “fundamental goal of housing policy is to assist Americans to live in a safe, well-maintained and affordable housing unit.” I am less convinced than most housing scholars that homeownership, given the state of today’s economy, is such a sure road to stable housing and financial well-being. So, instead of blindly focusing on increasing the homeownership rate, I would focus on increasing opportunities for sustainable homeownership. I believe the report’s authors would agree with this, but I think that housing scholars in general need to focus on policies that keep households in their housing, given how much income instability they now face.
June 26, 2015 | Permalink | No Comments
Friday’s Government Reports
- Consumer Financial Protection Bureau (“CFPB”) announces access to the consumer complaint database where users can read consumer narratives and download complaint data as desired. The CFPB describes it as an enhanced public-facing consumer complaint database, which includes for the first time over 7,700 consumer accounts of problems they are facing with financial services providers – including mortgages, bank accounts, credit cards, debt collection, etc.
- U.S. Department of Housing and Urban Development’s (HUD) Semi-Annual Report to Congress (SAR) for the period ending March 31, 2015 – In which it details how: $1.2 billion in funds put to better use; more than $1.7 billion in questioned costs; and more than $457 million in collections through 38 audit reports were reported. HUD also reported more than $38 million in recoveries.
- HUD’s Policy Development and Research Division (PD&R) publishes reports every quarter profiling 12-15 housing markets, the latest batch includes, amoung others: Denver-Aurora-Lakewood, Colorado; Savannah, Georgia; and Spokane, Washington.
June 26, 2015 | Permalink | No Comments
