October 17, 2017
Evidence and Innovation in Housing
Lee Anne Fennell and Benjamin Keys have posted the Introduction to their new book, Evidence and Innovation in Housing Law and Policy, to SSRN. It opens,
No area of law and policy presents more important and pressing questions, or ones more central to human well-being, than that of housing. Yet academic discourse around housing is too often siloed into separate topical areas and disciplinary approaches, while remaining distanced from the contentious housing policy debates unfolding in communities across the nation. In June 2016, the Kreisman Initiative on Housing Law and Policy at the University of Chicago Law School convened a conference in downtown Chicago with the goal of breaking down these barriers and forging new connections – between different facets of housing law and policy, between different disciplinary approaches to housing issues, between academic inquiry and applied policy, and between the lessons of the past and adaptations for the future.
This volume is the product of that conference and the dialogue it provoked among academics, practitioners, and policy makers. Its baker’s dozen of contributions comprises cutting-edge interdisciplinary work on housing and housing finance from leading scholars in law, economics, and policy. The pieces individually and collectively showcase how research and policy can come together in the housing arena. We hope the end result will have lasting relevance in setting the course – and identifying the obstacles – for housing law and policy going forward.
This book is organized around two interlocking roles that housing serves: as a vehicle for building community, and as a vehicle for building wealth. These facets of housing carry implications both for the households who consume residential services and for the larger economic, political, and spatial domains in which housing plays such a primary and contentious role. Cumulatively, the pieces here confront, and respond innovatively to, the dilemmas that these two facets of housing create for law and policy at different scales of analysis. (1)
This collection of papers brings together an all-star cast of housing nerds. While the papers are an eclectic mix, they are pretty consistent in that they ask important questions about housing policy. Even better, the Introduction contains links to open access versions of each paper. They are listed below:
Part I – Housing and the Metropolis: Law and Policy Perspectives
1 – The Rise of the Homevoters: How the Growth Machine Was Subverted by OPEC and Earth Day By William A. Fischel
2 – How Land Use Law Impedes Transportation Innovation By David Schleicher
3 – The Unassailable Case against Affordable Housing Mandates By Richard A. Epstein
Part II – Housing as Community: Stability, Change, and Perceptions
4 – Balancing the Costs and Benefits of Historic Preservation By Ingrid Gould Ellen & Brian J. McCabe
5 – Historic Preservation and Its Even Less Authentic Alternative By Lior Jacob Strahilevitz
6 – Losing My Religion: Church Condo Conversions and Neighborhood Change By Georgette Chapman Phillips
7 – How Housing Dynamics Shape Neighborhood Perceptions By Matthew Desmond
Part III – Housing as Wealth Building: Consumers and Housing Finance
8 – Behavioral Leasing: Renter Equity as an Intermediate Housing Form By Stephanie M. Stern
9 – Housing, Mortgages, and Retirement By Christopher J. Mayer
10 – The Rise and (Potential) Fall of Disparate Impact Lending Litigation By Ian Ayres, Gary Klein, & Jeffrey West
Part IV – Housing and the Financial System: Risks and Returns
11 – Household Debt and Defaults from 2000 to 2010: The Credit Supply View By Atif Mian & Amir Sufi
12 – Representations and Warranties: Why They Did Not Stop the Crisis By Patricia A. McCoy & Susan Wachter
13 – When the Invisible Hand Isn’t a Firm Hand: Disciplining Markets That Won’t Discipline Themselves By Raphael W. Bostic & Anthony W. Orlando
October 17, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- In a unique display of camaraderie, Philadelphia’s Housing Authority reopened a school closed by the Philadelphia School District. The city agency bought the school outright. After purchasing the school, the city’s housing agency engaged a renowned non-profit education operator to manage the day-to-day function of the school. However, before the agency engaged the non-profit organization, it refurbished the school which will soon be home to ninth graders. This educational rebirth is part of their Neighborhood Transformation Plan geared towards assisting families in public housing with skills necessary for them to increase their income and reduce homelessness.
- Philadelphia is relentlessly working to turn their housing conditions around. Philadelphia’s Council Member, Cherelle Parker, introduced a bill which intends to release $40 million for housing repair loans. These loans would be solely for homeowners and landlords with the goal of preserving the city’s affordable housing stock. If passed, homeowners and small landlords “earning up to 120 percent of the area median income…” ,may take advantage of this loan. Further, Parkers goal is to support the city’s goal in creating and preserving the city’s affordable housing inventory.
October 17, 2017 | Permalink | No Comments
October 16, 2017
The Next Taxpayer Bailout for the Mortgage Market?
The HUD Office of the Inspector General issued an audit on Nonbank Oversight by Ginnie Mae. This audit is one of those dry government documents that contain whispers of crises to come. The worrisome sentence is buried at the end of the audit: “If disruption in servicing occurs, Ginnie Mae may need to request additional funds from the U.S. Treasury to pay investors.” (8) To understand what is at stake, it is worth reviewing the background of the audit:
The Housing and Urban Development Act of 1968 created the Government National Mortgage Association (Ginnie Mae), a wholly owned U.S. Government corporation within the U.S. Department of Housing and Urban Development, to pursue the creation of a mortgage-backed security market for government-insured loans. Through its mortgage-backed securities programs, Ginnie Mae guarantees securities backed by pools of mortgages and issued by mortgage lenders approved by Ginnie Mae. Ginnie Mae refers to these mortgage lenders as Ginnie Mae issuers.
Ginnie Mae depends on its issuers to take full responsibility for servicing, remitting, and reporting activities for the mortgages in every pool. If the borrower fails to make a timely payment on its mortgage, the issuer must use its own funds to ensure that the investors receive timely payment. If an issuer cannot ensure the timely payment of principal and interest to investors, Ginnie Mae, in accordance with its guaranty, defaults the issuer, acquires the servicing of the loans, and uses its own funds to manage the portfolio and make any necessary advances to investors. Ginnie Mae’s risk for loss occurs almost entirely at the point of issuer default, when Ginnie Mae must step in and exercise its guaranty. Counterparty risk refers to the risk of issuer default.
Following the financial crisis, the demand for government-insured loans increased, which created an increased demand for Ginnie Mae’s product. Ginnie Mae’s total remaining principal outstanding increased from $427.6 billion in 2007 to $1.7 trillion in 2016. This represents a 300 percent increase. The chart below shows the growth of the outstanding remaining principal balance of Ginnie Mae’s mortgage-backed securities programs from 2007 to 2016.
In addition to an increase in demand for Ginnie Mae’s products, Ginnie Mae’s issuer base had shifted dramatically since the financial crisis. Banks retreated from mortgage lending, causing a shift in Ginnie Mae’s issuer base from banks to nonbanks. For the purpose of this report, a bank refers to an institution licensed to receive deposits and make loans, whereas a nonbank refers to institutions that offer only mortgage-related services. In 2014, Ginnie Mae reported that 6 of its top 10 issuers were nonbanks. The chart below illustrates the shift in Ginnie Mae’s issuer base since 2010.
When banks dominated Ginnie Mae’s issuer base, Ginnie Mae outsourced a significant portion of its risk management to bank regulators, such as the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, and the National Credit Union Association. While the Consumer Financial Protections Bureau regulates nonbanks for consumerrelated issues, nonbanks are not subject to the same safety and soundness regulation as banks. No equivalent regulator exists for nonbanks. Therefore, Ginnie Mae must function as the first line of defense to evaluate nonbank institutions for financial and operational soundness. Ginnie Mae’s Office of Issuer and Portfolio Management is responsible for overseeing Ginnie Mae issuers concerning all matters related to participation in its mortgage-backed security programs, including monitoring issuer participation and executing issuer defaults.
Unlike banking institutions, nonbanks tend to have complex financial and operating structures and frequently use subservicers instead of servicing the loans in their portfolios. Additionally, nonbanks rely on credit lines for funding, which may limit a nonbank’s access to liquidity to meet the financial obligations of being a Ginnie Mae issuer. Banking institutions have standardized corporate ownership and lines of business, substantial liquidity, and the ability to service the loans in their portfolios.
Our audit objective was to determine whether Ginnie Mae responded adequately to changes in its issuer base. (3-4, charts omitted)
Unfortunately, the audit found that Ginnie Mae has come up short in dealing with the risks that it now faces. Time will tell whether it meaningfully responds to these deficiencies.
October 16, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- A potential class of homeowners will not allow the state of Illinois’s Cook County, to escape the consequences of their behavior. Allegedly, Cook County’s treasurer failed to pay refunds granted to a class of homeowners in a prior proceeding. The class of homeowners won the refund by appealing the valuations of their property so that they could receive property tax benefits which they were duped out of by Cook County.
- Pricewaterhouse Coopers LLP (PwC), one of the nation’s largest accounting firms, failed to effectively monitor the Federal Deposit Insurance Corp. The Federal Deposit Insurance Corporation’s downfall stemmed from a mortgage transaction scheme whicg led to a loss of more than one billion dollars. PwC, if properly monitoring the bank, should have identified the fraud which would have minimized the amount of loss and possibly saved the bank.
- The U.S. Securities and Exchange Commission struck again. This time, the federal agency settled a property based fraud scheme for $9.1 million with two managers of Silverleaf Financial LLC. Allegedly, the duo defrauded investors out of their funds invested in a phony plan to purchase defaulted property loans.
October 16, 2017 | Permalink | No Comments
October 13, 2017
Rethinking FHA Insurance
The Congressional Budget Office issued a report on Options to Manage FHA’s Exposure to Risk from Guaranteeing Single-Family Mortgages. FHA insurance stands out from other forms of mortgage insurance because it guarantees all of a lender’s loss, rather than just a portion of it. It is certainly a useful exercise to determine whether the FHA could reduce its exposure to those potential credit losses while also making home loans available to people who would otherwise have difficulty accessing them. This report evaluates the options available to the FHA:
The Federal Housing Administration (FHA) insures the mortgages of people who might otherwise have trouble getting a loan, particularly first-time homebuyers and low-income borrowers seeking to purchase or refinance a home. During and just after the 2007–2009 recession, the share of mortgages insured by FHA grew rapidly as private lenders became more reluctant to provide home loans without an FHA guarantee of repayment. FHA’s expanded role in the mortgage insurance market ensured that borrowers could continue to have access to credit. However, like most other mortgage insurers, FHA experienced a spike in delinquencies and defaults by borrowers.
Recently, mortgage borrowers with good credit scores, large down payments, or low ratios of debt to income have started to see more options in the private market. The Congressional Budget Office estimates that the share of FHA-insured mortgages going to such borrowers is likely to keep shrinking as credit standards in the private market continue to ease. That change would leave FHA with a riskier pool of borrowers, creating risk-management challenges similar to the ones that contributed to the agency’s high levels of insurance claims and losses during the recession.
This report analyzes policy options to reduce FHA’s exposure to risk from its program to guarantee single-family mortgages, including creating a larger role for private lenders and restricting the availability of FHA’s guarantees. The options are designed to let FHA continue to fulfill its primary mission of ensuring access to credit for first-time homebuyers and low-income borrowers.
* * *
What Policy Options Did CBO Analyze?
Many changes have been proposed to reduce the cost of risk to the federal government from FHA’s single-family mortgage guarantees. CBO analyzed illustrative versions of seven policy options, which generally represent the range of approaches that policymakers and others have proposed:
■ Guaranteeing some rather than all of the lender’s losses on a defaulted mortgage;
■ Increasing FHA’s use of risk-based pricing to tailor up-front fees to the riskiness of specific borrowers;
■ Adding a residual-income test to the requirements for an FHA-insured mortgage to better measure borrowers’ ability to repay the loan (as the Department of Veterans Affairs does in its mortgage guarantee program);
■ Reducing the limit on the size of a mortgage that FHA can guarantee;
■ Restricting eligibility for FHA-insured mortgages only to first-time homebuyers and low- to moderate-income borrowers;
■ Requiring some borrowers to receive mortgage counseling to help them better understand their financial obligations; and
■ Providing a grant to help borrowers with their down payment, in exchange for which FHA would receive part of the increase in their home’s value when it was sold.
Although some of those approaches would require action by lawmakers, several of the options could be implemented by FHA without legislation. In addition, certain options could be combined to change the nature of FHA’s risk exposure or the composition of its guarantees. CBO did not examine the results of combining options.
What Effects Would the Policy Options Have?
Making one or more of those policy changes would affect FHA’s financial position, its role in the broader mortgage market, and the federal budget. All of the options would improve the agency’s financial position by reducing its exposure to the risk of losses on the mortgages it insures (see Table 1). The main reason for that reduction would be a decrease in the amount of mortgages guaranteed by FHA. CBO projects that under current law, FHA would insure $220 billion in new single-family mortgages in 2018. The options would lower that amount by anywhere from $15 billion to $77 billion (see Figure 1). Some options would also reduce FHA’s risk exposure by decreasing insurance losses as a percentage of the value of the guaranteed mortgages. (1-2)
October 13, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- A recently released employment report shows a recent severe decline of jobs within the U.S. economy. A total of 33,000 jobs were lost in the month of September. Industry experts cite the nation’s natural disasters as a source aiding in the decline. This loss served as the first monthly decline in approximately seven years, which came as a shock to many because the economy showed many strengths. Though jobs were loss, wage growth grew 2.9%.
- The House Ways and Means Committee and Senate Finance Committee recently released a report titled, Unified Framework for Fixing Our Broken Tax Code. The goal of the report is to decrease tax rates, ensure the readability of the tax code is simpler, and expand the tax base and facilitate economic growth. The report has many hot topics such as decreasing the corporate tax rate to 20 percent. Further, the report purports to preserve only two corporate tax expenditures such as the Low-Income Housing Tax Credit.
October 13, 2017 | Permalink | No Comments
October 12, 2017
Rental Housing Landscape
A Row of Tenements, by Robert Spencer (1915)
NYU’s Furman Center released its 2017 National Rental Housing Landscape. My two takeaways are that, compared to the years before the financial crisis, (1) many tenants remain rent burdened and (2) higher income households are renting more. These takeaways have a lot of consequences for housing policymakers. We should keep these developments in mind as we debate tax reform proposals regarding the mortgage interest deduction and the deduction of property taxes. When it comes to housing, who should the tax code be helping more — homeowners or renters?
The Executive Summary of the report reads,
This study examines rental housing trends from 2006 to 2015 in the 53 metropolitan areas of the U.S. that had populations of over one million in 2015 (“metros”), with a particular focus on the economic recovery period beginning in 2012.
Median rents grew faster than inflation in virtually every metro between 2012 and 2015, especially in already high rent metros.
Despite rising rents, the share of renters spending more than 30 percent of their income on rent (defined as rent burdened households) fell slightly between 2012 and 2015, as did the share spending more than 50 percent (defined as severely rent burdened households). Still, these shares were higher in 2015 than in 2006, and far higher than in earlier decades.
The number and share of renters has increased considerably since 2006 and continued to rise in virtually every metro from 2012 to 2015. Within that period, the increase in renter share was relatively larger for high socioeconomic status households. That said, the typical renter household still has lower income and less educational attainment than the typical non-renter household.
Following years of decline during the Great Recession, the real median income of renters grew between 2012 and 2015, but this was primarily driven by the larger numbers of higher income households that are renting and the increasing incomes of renter households with at least one member holding a bachelor’s degree or higher. The real median income of renter households with members with just a high school degree or some college grew more modestly and remained below 2006 levels in 2015.
Thus, the recent decline in the share of rent burdened households should be cautiously interpreted. The income of the typical renter household increased as the economy recovered, but part of this increase came from a change in the composition of the renter population as more high socioeconomic status households chose to rent their homes.
For almost every metro, the median rent in 2015 for units that had been on the market within the previous year was higher than that for other units, suggesting that renters would likely face a rent hike if they moved. The share of recently available rental units that were affordable to households earning their metro’s median income fell between 2012 and 2015. And in 2015, only a small share of recently available rental units were affordable to households earning half of their metro’s median income. (3, footnote omitted)
October 12, 2017 | Permalink | No Comments
