September 15, 2014
Housing Goals and Housing Finance Reform
The Federal Housing Finance Agency issued a proposed rule that would establish housing goals for Fannie and Freddie for the next three years. The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required that Fannie and Freddie’s regulator set annual housing goals to ensure that a certain proportion of the companies’ mortgage purchases serve low-income households and underserved areas. Among other things, the proposed rule would “establish a new housing subgoal for small multifamily properties affordable to low-income families,” a subject that happens to be near and dear to my heart.(54482)
This “duty to serve” is very controversial, at the heart of the debate over housing finance reform. Many Democrats oppose housing finance reform without it and many Republicans oppose reform with it. Indeed, it was one of the issues that stopped the Johnson-Crapo reform bill dead in its tracks.
While this proposed rule is not momentous by any stretch of the imagination, it is worth noting that the FHFA, for all intents and purposes, seems to be the only party in the Capital that is moving housing finance reform forward in any way.
Once again, we should note that doing nothing is not the same as leaving everything the same. As Congress fails to strike an agreement on reform and Fannie and Freddie continue to limp along in their conservatorships, regulators and market participants will, by default, be designing the housing finance system of the 21st century. That is not how it should be done.
Comments are due by October 28, 2014.
September 15, 2014 | Permalink | No Comments
September 12, 2014
Reiss on Housing Finance Reform
Inside MBS and ABS, the trade journal, quoted me in DeMarco Cites ‘Structural Improvements’ in Housing Six Years After GSE Conservatorship, More Needed (behind a paywall). It reads,
Six years after the government takeover of Fannie Mae and Freddie Mac, the former regulator of the government-sponsored enterprises noted that the housing finance system has made “significant progress.” But even as critical structural changes are underway, comprehensive improvement is still several years out.
In a policy paper issued last week, Edward DeMarco–new senior fellow-in-residence for the Milken Institute’s Center for Financial Markets–said that house prices, as measured by the Federal Housing Finance Agency, have recovered more than 50 percent since their decline in 2007.
“While the damage from the housing crisis has been substantial, we are finally seeing a sustained market recovery,” said the former FHFA chief. “The crisis showed that numerous structural improvements were needed in housing–and such improvements have been underway for several years.”
Poor data, misuse of specialty mortgage products, lagging technologies, weak servicing standards and an inadequate securitization infrastructure became evident during the crisis.
“New data standards have emerged…with more on the way,” wrote DeMarco. “These standards should improve risk management while lowering origination costs and barriers to entry.” Development of the new securitization structure, begun more than two years ago, “should be a cornerstone for the future secondary mortgage market,” he added.
DeMarco said the major housing finance reform bills in the House and Senate share key similarities: “winding down Fannie Mae and Freddie Mac, building a common securitization infrastructure and drawing private capital back into the marketplace while reducing taxpayer involvement.”
DeMarco added, “We should build on these similarities, making them the cornerstone features of final legislation.” Prolonging the GSEs’ conservatorship, he warned, “will continue to distort the market and place taxpayers at risk.”
David Reiss, research director of the Center for Urban Business Entrepreneurship at the Brooklyn Law School, lauded the common securitization project. But Reiss worried the former FHFA head is too optimistic about the state of Fannie and Freddie.
“The GSEs have been in a state of limbo for far too long,” said Reiss. “All sorts of operational risks may be cropping up in the entities as employees sit around or walk out the door waiting for Congress to act.”
September 12, 2014 | Permalink | No Comments
September 11, 2014
Reiss on the $1M Parking Spot
Law360 quoted me in NYC’s $1M Parking Spot Shows Appetite For Luxury (behind a paywall).It opens,
Atlas Capital Group LLC caused a buzz Wednesday with its listing of a parking space in a condominium building in SoHo for $1 million, more per square foot than the homes above it, but experts say in the context of a burgeoning luxury market such a price may just be the beginning.
That price for a 99-year license that allows the condominium resident to use the parking space — even one in its own condominium unit and tax lot — may sound wild, but experts say much of the attention this property has gotten may be a bit overblown, especially considering the level to which many are willing to go for comfort and convenience in New York City.
“It’s not really about $1 million for a parking space,” said Bruce Bronster of Windels Marx Lane & Mittendorf LLP. “If you were just going to condo a parking space, you couldn’t get $1 million for it. It has to do with having an amenity on a very expensive apartment.”
There aren’t many places to park in SoHo, making a convenient parking spot a hot commodity, but experts say the bigger message is that New York City’s luxury residential market is hotter than ever, creating new opportunities for developers to differentiate themselves with the right amenities.
The development is at 42 Crosby Street, near Broome Street, where Atlas Capital Group is turning what used to be a parking lot itself into a condominium building with three-bedroom units ranging from $8.7 million to $10.45 million, according to information gathered by The New York Times.
The eye-popping element comes when one looks at the price per square foot. Some of the parking spots — there are actually 10 being built under the condominiums — are expected to be up to 200 square feet, but they will reportedly all cost between $5,000 and $6,666 per square foot. The condominiums, on the other hand, are only going for about $3,150 per square foot.
But experts say this isn’t too surprising, considering the demand for luxury housing and amenities that has skyrocketed in recent years.
Prices for luxury residential properties have risen to pre-recession levels and surpassed them in some cases, with a few record-breaking penthouse deals passing the $90 million mark thanks to flush foreign investors.
More than anything, experts say, the $1 million parking spots are a way for Atlas Capital Group to distinguish 42 Crosby from other apartment buildings and draw in those investors willing to pay top dollar.
“The million-dollar spots do highlight how developers have seriously monetized amenity spaces,” said David Reiss, a real estate professor at Brooklyn Law School. “In all likelihood, the prices for amenities like parking spaces will follow the same trend line as those for the apartments to which they are attached.”
And it’s not just parking spaces; Reiss said he has seen similar setups with amenities such as storage facilities and rooftop cabanas commanding top dollar.
September 11, 2014 | Permalink | No Comments
September 10, 2014
Is NYC Rent Too Damn High?!?
Husock and Armlovich of the Manhattan Institute for Policy Research have posted an Issue Brief, New York’s Rent Burdened Households: Recalculating the Total, Finding a Better Solution. The brief makes some important points, but they are almost lost because of its histrionic tone.
First, the good points. The authors write this brief in reaction to the de Blasio administration’s plan to build or preserve 200,000 units of affordable housing. They believe, however, that the administration has exaggerated the need. They write: “the housing needs of low-income New Yorkers must be acknowledged and addressed. Still, they should not be exaggerated by numbers that fail to reflect the income and in-kind assistance that benefit poor households.” (6)
They argue that the administration’s claim that more than 600,000 households are “severely rent-burdened” is flawed, resulting in an overestimate of the need for affordable housing. While I am not in a position to evaluate the underlying work, they make a reasonable case that the administration did not properly account for the impact of Section 8 housing subsidies and a variety of other programs that offer financial assistance to low-income households in arriving at their number.
They also argue that the administration’s proposed solution, permanent affordability, is flawed because some households that may be income-eligible at the commencement of their tenure in an affordable unit may end up with a significantly higher income down the line. Indeed, this has been a long-time issue with the Mitchell-Lama program.
These are some serious issues for the de Blasio administration to chew over. Clearly, we should be working from the best data we can about the extent to which households are severely burdened by housing costs. (Indeed, another recent study also indicates that the administration is working from too high of an number.) And just as clearly, the solution chosen by the administration should work as effectively as possible to reduce the rent burden for low- and moderate-income households.
But the brief’s tone, unfortunately, masks these insights. First, the brief opens by questioning the basis for the mayor’s affordable housing plan — that many New Yorker’s are severely rent burdened. But the authors acknowledge that at least 300,000 households are severely burdened, even after they make their adjustments to the administration’s numbers. That hardly undercuts the policy rationale for the Mayor’s affordable housing initiative.
Moreover, some of the adjustments made by the authors are themselves suspect. For instance, the authors exclude households “that report severe rent burdens while paying more than the 90th percentile citywide of per-capita” out-of-pocket rent. (5) They state that “Logic dictates that such households have significant existing savings or assets themselves, or they receive assistance from family or other sources.” (5) That seems like an extraordinary “logical” leap to me. While it may describe some households at the 90th percentile, I would think that it is also logical that it includes some people who barely have enough money to buy food.
As to the solution of permanent affordability, the authors write,
a household member could win the lottery, or sign a multimillion-dollar major league baseball contract, and an affordable unit’s rent would remain unchanged. Affordable units would be “permanently” affordable, creating what economists term a “lock-in effect,” limiting the likelihood that such units will be vacated. This is problematic for a city housing policy that seeks to decrease the overall number of severely rent-burdened households. (6)
This is just silly. Very few people have such windfalls. And very few of those who do have such windfalls live in small apartments afterwards. The more common problem is that young, educated people get affordable units when their earnings are low and then become middle-class or upper-middle class over the years. This is a serious program design issue and it means that the administration should think through what permanent affordability should mean over the lifetime of a typical household.
As I noted, this brief raises some serious issues amongst all of its heated rhetoric. One hopes that the administration can get through the hot air to the parts that are informed by cool reason.
September 10, 2014 | Permalink | No Comments
