March 20, 2015
Friday’s Government Reports
- Federal Housing Finance Agency’s Report on the Progress of Implementation of its Strategic Plan for Fannie Mae and Freddie Mac Conservatorships
- House Republicans Budget Plan “A Balanced Budget for a Stronger America,” Would Change Funding for process for Consumer Financial Protection Bureau and Privatize Fannie Mae and Freddie Mac (it would also repeal “onerous” policies enacted under Dodd-Frank in 2010)
March 20, 2015 | Permalink | No Comments
March 19, 2015
Tax Expenditure Wars: Wealthy Households v. Poor
Henry Rose has posted How Federal Tax Expenditures That Support Housing Contribute to Economic Inequality to SSRN. This short article examines “how federal income tax laws benefit more affluent owner households but provide no benefits to economically-strapped renter households.” (1) Housing policy analysts (myself included) constantly bemoan the regressive nature of federal tax policy as it relates to housing, but it is always worth looking at the topic with updated numbers. And this article contains some tables with some interesting numbers.
One table provides an overview of the estimated tax savings (in billions) in FY 2014 for five federal tax expenditures for owners of housing that they occupy:
Mortgage Interest Deduction (MID) $66.91
Property Tax Deduction (PTD) $31.59
Capital Gains Exclusion on Sales $35.54
Net Imputed Rental Income Exclusion $75.24
Discharge of Mortgage Indebtedness Exclusion $3.1
Total $212.38
The next table provides an estimated distribution of two of these tax expenditures (FY 2014, savings in millions):
Tax-Filer AGI PTD Tax Savings MID Tax Savings
Below $50,000 $693 $1,443
$50,000-75,000 $2,190 $4,330
$75,000-100,000 $3,478 $6,581
$100,000-200,000 $13,648 $27,421
$200,000+ $11,798 $29,340
Total $31,806 $69,115
The article concludes by noting that despite
the great disparity in economic positions between owners and renters, federal tax expenditures lavish tax savings on primarily affluent owners and provide none for renters. The federal tax expenditures for owners are so generous that interest can be deducted on mortgage balances up to $1,000,000 and can also be taken on second homes, even yachts, as well as primary residences. It is difficult to conceive of a federal public policy that more directly promotes economic inequality than the federal tax expenditures that support owners of housing but are not available to renters. (9-10, footnote omitted)
I don’t expect this disparity to be addressed any time in the near future, given the current political environment, but it is certainly one that should stay at the top of any list of reforms for those concerned with promoting equitable federal housing policies.
March 19, 2015 | Permalink | No Comments
Thursdays Advocacy & Think Tank Round-Up
- Citilab Calculates and Charts the Number of Years of Income it Would Take for the Average Household to Buy a Home in Metro Areas Across the Country
- CoreLogic’s Equity Report Finds Millions of Homes Still In Negative Equity Situation
- Fannie Mae’s February 2015 National Housing Survey Finds Consumer Optimism Toward the Economy Reaches New All-Time Survey High as Does Ease of Obtaining a Mortgage
- Federal Reserve Bank of New York Staff Report: How Mortgage Finance Affects the Urban Landscape
- Freddie Mac March 2015 U.S. Economic & Housing Market Outlook & Housing Interactive Map: What Affects Homebuyer Affordability
- Urban Institute, Housing Policy Center Briefs: What to Make of the Dramatic Fall in GSE Profits & The Impact of Early Efforts to Clarify Mortgage Repurchases: Evidence from Fannie Mae’s and Freddie Mac’s Latest Data
March 19, 2015 | Permalink | No Comments
March 18, 2015
Reiss on Foreign Buyers in NYC
MainStreet.com quoted me in Foreign Buyers Driving Up Rental Prices Impacts New York Residents. The story opens,
Emir Bahadir, a native of Turkey, purchased two apartments in Manhattan for the purpose of renting them out. The 24-year-old paid a total of $9 million for the apartments in the West Village and Chelsea and earns some $40,000 a month in rental income.
”Entry into the real estate market in Manhattan by the foreign buyer has become easier because of technology,” Bahadir told MainStreet.
As a result, foreign buyers are increasingly coming into the Manhattan market and buying properties worth $2 to $5 million for the benefit of rental income. That can push rental prices higher for those on Main Street.
“[Foreign buyers] are not keeping them empty but filling them with tenants,” said Tamir Shemesh, a Realtor at the Corcoran Group. “A $2 million apartment can be rented out for as much as $8,500 a month, while a $3 million apartment can go for $11,000 to $12,000 a month.”
The tenants who can afford to pay thousands a month in rent are largely foreign as well.
“The reason we invest in real estate in New York is because of the exorbitant amount of rent that people are willing to pay,” Bahadir said. “That doesn’t happen anywhere else except in the U.K., but because of complications in the Middle East, London is not so popular these days.”
The downside for Americans is that escalating prices impact the overall rental market.
“It lets landlords know what the ceiling is and may encourage them to reach for it,” said David Reiss, professor with Brooklyn Law School.
March 18, 2015 | Permalink | No Comments
Wednesday’s Academic Roundup
- Cohousing: An Idea for the Modern Age, by Nancy J. White & Charly Loper, February 18, 2015.
- Failure to Launch: Housing, Debt Overhang, and the Inflation Option During the Great Recession, by Aaron Hedlund, February 23, 2015.
- Have Distressed Neighborhoods Recovered? Evidence from the Neighborhood Stabilization Program, by Jenny Schuetz, Jonathan S. Spader, & Alvaro Cortes, March 4, 2015.
- Incorporating NY Land Banks into the Delinquent Property Tax Enforcement Processes, by J. Justin Woods, New York Zoning Law and Practice Report, Spring 2015, Forthcoming.
- The Impact of Investors on Housing Values and Markets, by Sumit Agarwal, John P. Harding, & Vincent Yao, January 27, 2015.
- Urban Renewal Amidst National Divides: Can Housing Development (Partially) Correct Past Injustices?, by Neta Ziv, Georgetown Journal on Poverty Law Policy, Vol. XXII, No. 1, 2015.
March 18, 2015 | Permalink | No Comments
March 17, 2015
CFPB Mortgage Supervision Highlights
The Consumer Financial Protection Bureau issued its Supervisory Highlights for Winter 2015. The highlights include a section on Mortgage Origination and “largely focuses on Supervision’s examination findings and observations from July 2014 to December 2014.” (9)
The headings of this section give a sense of the CFPB’s work in this area:
- Loan originators cannot receive compensation based on a term of a transaction
- Improper use of lender credit absent changed circumstances
- Failing to provide the Good Faith Estimate in a timely manner
- Improperly using advertisements with triggering terms without the required additional disclosures
- Adverse action notice deficiencies and failure to provide the notice in a timely manner
- Deficiencies in compliance management systems
For good or for ill, these are pretty modest examination findings. They certainly don’t reveal the fire-breathing regulator that some had prophesied. I was particularly interested in the last finding:
an effective compliance management system includes board and management oversight, a compliance program, a consumer complaint management program, and a compliance audit program. The board of directors and senior management should, among other things, adopt clear policy statements concerning consumer compliance, establish a compliance function to set policies and procedures, and assign resources to the compliance function commensurate with the size and complexity of the supervised entity’s practices and operations. A compliance program should include policies and procedures, training, and monitoring and corrective action processes. A compliance audit program should assist the board of directors or board committees in determining whether policies and standards adopted by the board are being implemented, and should also identify any significant gaps in board policies and standards. (13)
Compliance management systems are intended to create a culture of compliance within an organization, from top to bottom. The CFPB found that one or more financial institutions had weak compliance management systems that would allow for numerous violations of federal regulations governing mortgage lending. It is important for the CFPB to focus on these compliance issues now, before the mortgage market really froths up and carries mortgage professionals away from appropriate underwriting and servicing.
March 17, 2015 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Round-Up
- Consumer Financial Protection Bureau: Supervisory Highlights Details Deficiencies in Mortgage Origination in Supervised Institutions
- Federal Housing Finance Agency Issues Final Rule Regarding Federal Home Loan Bank Capital Stock and Capital Plans
March 17, 2015 | Permalink | No Comments
