November 30, 2017
Thursday’s Advocacy & Think Tank Roundup
- Jonathan Spader, Shannon Rieger, Christopher Herbert, and Jennifer Molinsky of Harvard’s Joint Center for Housing Studies published a paper entitled Fostering Inclusion in American Neighborhoods. The paper analyzed residential segregation and its intersection between income and race. Further the paper examined methods and strategies used to create and promote inclusive communities.
- The Bipartisan Policy Center published a report analyzing the “connections between the Low-Income Housing Tax Credit (Housing Credit) and improvements in health behaviors and outcomes.” While the data studied did not provide a direct causal link between Housing Credit and health outcomes, the study determined the data sufficient so as to illustrate a positive impact on public health. When families pay less for housing, they are able to direct funds elsewhere such as to their health.
November 30, 2017 | Permalink | No Comments
November 29, 2017
Another FHFA Win Against Shareholders
The U.S. Court of Appeals for the Sixth Circuit issued an opinion in Robinson v. FHFA et al. (No. 16-6680, Nov. 22, 2017) that is another win for the federal government in the fight with shareholders over Fannie and Freddie’s profits. The Court summarizes the issue presented as follows:
Appellant Arnetia Joyce Robinson is a stockholder in the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”; collectively, the “Companies”). During the economic recession in 2007–2008, Congress enacted the Housing and Economic Recovery Act of 2008 (“HERA”), which created an agency, Appellee Federal Housing Finance Agency (“FHFA”), and authorized FHFA to place the Companies in conservatorship. The Companies, through FHFA as their conservator, entered into agreements with Appellee Department of the Treasury (“Treasury”) that allowed the Companies to draw funds from Treasury in exchange for dividend payments and other financial benefits. The Third Amendment to those agreements modified the dividend payment structure and required the Companies to pay to Treasury, as a quarterly dividend, an amount just short of their net worth. The Third Amendment effectively transferred the Companies’ capital to Treasury and prevented dividend payments to any junior stockholders, such as Robinson. Robinson brought suit against FHFA, its Director, and Treasury, alleging that the Third Amendment violated the Administrative Procedure Act (“APA”). The district court found that Robinson’s claims were barred by HERA’s limitation on court action and that Robinson had failed to state a claim upon which relief can be granted. We AFFIRM. (2)
As I have argued previously, I think that courts have been getting these cases right — HERA granted the FHFA broad authority to act as conservator. In the words of the Court, “Congress granted to the Companies ‘unprecedented access’ to guaranteed capital from Treasury. And, in exchange, Congress also granted FHFA unparalleled authority to manage the Companies’ business.” (17) While I would not count out the plaintiffs in these cases, courts have been coming up with pretty consistent results based upon their reading of HERA.
A lot of what you read on the web about these cases is filled with a certainty about the wrongfulness of the government’s actions that borders on the fanatical. I recommend that those who want to get a sense of the legal issues at stake read the cases themselves. The judges have been struggling with the structure and text of the relevant statutes and have been making very reasonable determinations about their meaning.
But these cases are far from over. We still have to see what the Supreme Court has to say on these issues, and plaintiffs may get a more sympathetic hearing there.
November 29, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- Rising Sea Levels and Sinking Property Values: The Effects of Hurricane Sandy on New York’s Housing Market, Ortega and Taspinar
- Real Estate Fund Openings and Cannibalization, Downs
- Anchoring Under Currency Substitution: A Ratchet Price Mechanism in the Housing Market, Ben-Shahar and Golan
- Tax Fraud in the Housing Market: Identification and Exploration, Ben-Shahar, Golan, and Sulganik
- Property Rights in Sequential Exchange, Arrunada, Zanarone, and Garoupa
November 29, 2017 | Permalink | No Comments
November 28, 2017
Investing in Homes
TheStreet.com quoted me in Investing In Your Home Remains a Sound Financial Decision for 2018. It reads, in part,
Homeowners are still pouring money into their homes as renovations and upkeep are generating a large portion of sales for Home Depot as demand for purchasing homes rose in September and the three massive hurricanes in the U.S. boosted revenue.
Home Depot’s third-quarter sales surged in the aftermath of a robust hurricane season that spanned from Texas to Puerto Rico, increasing demand from homeowners who faced immense rebuilding as homes were destroyed by relentless floodwaters.
The Atlanta-based home improvement retailer reported an impressive 7.9% increase in comparable-store sales in the third quarter, which exceeded the Wall Street estimate of 5.8%. Home Depot also beat on earnings, reporting $1.84 a share, 2 cents ahead of forecasts. The company’s total revenue was $25.03 billion, up 8% from the same period last year.
“Though this quarter was marked by an unprecedented number of natural disasters,” said CEO Craig Menear in a statement, “the underlying health of our core business remains solid.
The company was able to raise its fiscal 2017 guidance due to its stellar earnings and now estimates comp sales growth of 6.5% and earnings per share of $7.36, which reflects its $8 billion buyback program this year.
Home Depot shares rose 2.7% to $168.06 on Nov. 14.
* * *
“When an individual buys a share of stock they can monitor the value of the investment on a minute-to-minute basis,” Johnson said. “People can see the fluctuation in value. With real estate, however, no one is quoting you a price instantaneously on your real estate purchase. Absent a market price, people tend not to worry about the value of their real estate purchase and assume that it is very stable in the short run.”
Millennials tend to be conservative with their investment choices and are “drawn to this seeming stability in the value of residential real estate,” he said.
Nevertheless, purchasing a home can often be a very poor financial decision and potential home buyers need to be aware of the additional costs and potential pitfalls.
Noble laureate economist and Yale University professor Robert Shiller had made a compelling case that real estate, especially residential homes, are a much inferior investment when compared to stocks. He found that on an inflation-adjusted basis, the average home price has increased only 0.6% annually over the past 100 years.
The stock market’s average return on a large stock index such as the S&P 500 has been about 10% while inflation has averaged around 3% from 1926 through 2016 while the inflation adjusted return of the stock market over the past 90 years has been approximately 7%.
The rate of homeownership still remains much lower than the 1998 rate of 9.5% and the rate has remained stable since the commencement of the financial crisis — hovering around 5% since 2008.
So should you own or rent?
Renting can be a better deal for many consumers, depending on the city and region, said David Reiss, a law professor at Brooklyn Law School in N.Y.
“This is a better question to ask yourself than whether owning is a sound investment choice because you are going to need to live somewhere no matter what,” he said. “It is not too helpful to look at national numbers to answer this question – you should look at the figures in the communities you are considering living in.”
November 28, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- The District of Columbia set aside $10 million dollars to support the capital’s affordable housing needs. The District of Columbia Department of Housing and Community Development (DHCD) will use the funds to preserve, rehabilitate, and purchase additional affordable units. Over 13,000 units are set to expire in 2020 while the district’s current affordable housing stock decreased by 1,000. Thus the district has a dire need for affordable housing.
- In order to support the transition of Cordray, the Consumer Financial Protection Bureau (CFPB) appointed two internal leaders as acting director. The pair of directors are fighting for power. As a result, the federal agency is in turmoil due to the pair’s power struggle. Though extremely critical of the CFPB, Trump nominated Mich Mulvaney as an acting director of the regulatory agency. In the upcoming weeks, the regulatory agency should return to a stable position and continue supporting the country in a positive light.
November 28, 2017 | Permalink | No Comments
November 27, 2017
Delaying Trump’s Wall
USA Today cited me in No, Cards Against Humanity Can’t Delay Trump’s Border Wall. It opens,
By now you’ve played a rousing game of Cards Against Humanity or at least heard the game makers want to buy land to block the construction of President Trump’s proposed border wall between the U.S. and Mexico.
The raunchy game, where people fill in the blank or complete sentences with terrible — but funny — things, pulls a holiday marketing stunt every year. Last year, Cards Against Humanity raised money to dig a hole. Before that, they mailed people boxes filled with actual bulls–t.
This year, they asked for $15 from customers to buy a large plot of land along the U.S./Mexico border for their “Cards Against Humanity Saves America” campaign. The promotion already sold out.
A marketing video implies they would separate acres of land into tiny pieces for each participant, in order to hold the government up in court for years. They want to make the push to build a wall time-consuming and expensive by hiring lawyers to keep the land tied up in court, according to the website.
The only problem is, that’s not how eminent domain works.
“This is a way for them to utilize their popularity with an audience most people assume are either indifferent toward political issues or at the very least unsophisticated about how things get done,” said Steve Silva, an eminent domain and land use attorney for Fennemore Craig law group in Reno. Silva has literally used eminent domain to build a wall.
“It’s got a lot of people literally buying into this issue of significant public importance,” he said.
The Fifth Amendment to the U.S. Constitution allows the Federal Government to take property from people for “just compensation.” The amendment favors the government’s ability to take while also protecting an owner’s right to make money. Meaning, property owners must be paid fair-market value for the land.
Determining value is what usually ends up taking years in court, Silva said. TheCongre actual taking of the property takes very little time.
“It’s a two-step process: First thing is that the government has to prove it has the right to take the property,” he said. “Once it establishes that, it can take it immediately.”
The federal government need only establish the land will be used for the public, such as for a large wall owned by the government. Then it can basically take that acreage and start building the wall while fighting out the value in court.
“Congress can also just pass a special bill to take land,” Silva said. “They’ve done that for national parks before. Finally, the U.S. Supreme Court has noted that the U.S. can just seize land summarily by occupying it and ousting the former owner.
“I suspect this sort of move would be really unpopular,” he added.
So, Cards Against Humanity may end up fighting the government for years after the wall is finished.
Even if Cards Against Humanity spreads the ownership of the land out to lots of people — say, thousands of them — the Federal Government can still take the land all at once. But now those individual owners will need to fight each other, Cards Against Humanity and the government for their just compensation.
Since people paid $15 for land, it’s likely they would establish land value and get that $15 back unless Cards Against Humanity somehow improves the land or plans to build a museum, monument or even a parking lot on that space.
But again, that would only increase its value, not slow down the wall’s construction.
In an interview on Mashable.com, law professors David Reiss and Richard Epstein argued the court would reject Cards Against Humanity’ claim over the land because they’re using it for political purposes. But attorneys Silva and Lynn Blais disagree. The game makers are using land as a protest, which should be respected by the court, so their protest shouldn’t matter in eminent domain proceedings.
November 27, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- A putative class of plaintiff’s filed a suit against CondoCerts.com. The class alleges the site overcharges customers for their document services. The state of Illinois mandates the use of these documents when homeowners sell their condos; however, the prices the site charges are allegedly illegal.
- The Lehman Brothers’ trial began for their alleged fraud involving mortgage-backed securities. RMBS trusts allege the Lehman Brothers are responsible for $11.4 billion in damages in their “sale of residential mortgage-backed securities.” The alleged acts occurred pre-financial crisis and included worthless mortgage-backed securities.
November 27, 2017 | Permalink | No Comments
