July 4, 2017
Tuesday’s Regulatory & Legislative Roundup
- The Federal Reserve (FED) plans to overhaul its policies regarding bank lending and oversight. Leniency will no longer be given by the central bank. Inflation is at a solid place; however, critics believe the Federal Reserve is making “a’mistake’ by tightening.“
- The Federal Trade Commission warns potential home buyers. People are posing as real estate agents, realtors, and title insurance companies and are scamming buyers out of their closing costs. Hackers use email addresses to pose as the contact person in various closing process roles which tricks homebuyers into following through with their financial obligations to those individuals.
July 4, 2017 | Permalink | No Comments
July 3, 2017
Easy Money From Fannie Mae
The San Francisco Chronicle quoted me in Fannie Mae Making It Easier to Spend Half Your Income on Debt. It reads in part,
Fannie Mae is making it easier for some borrowers to spend up to half of their monthly pretax income on mortgage and other debt payments. But just because they can doesn’t mean they should.
The article condensed my comments, but they do reflect the fact that the credit box is too tight and that there is room to loosen it up a bit. The Qualified Mortgage and Ability-to-Repay rules promote the 43% debt-to-income ratio because they provide good guidance for “traditional” nuclear American families. But there are American households where multigenerational living is the norm, as is the case with many families of recent immigrants. These households may have income streams which are not reflected in the mortgage application.
July 3, 2017 | Permalink | No Comments
June 30, 2017
The Financial Meltdown and Consumer Protection
Larry Kirsch and Gregory D. Squires have published Meltdown: The Financial Crisis, Consumer Protection, and the Road Forward. According to the promotional material,
Meltdown reveals how the Consumer Financial Protection Bureau was able to curb important unsafe and unfair practices that led to the recent financial crisis. In interviews with key government, industry, and advocacy groups along with deep archival research, Kirsch and Squires show where the CFPB was able to overcome many abusive practices, where it was less able to do so, and why.
Open for business in 2011, the CFPB was Congress’s response to the financial catastrophe that shattered millions of middle-class and lower-income households and threatened the stability of the global economy. But only a few years later, with U.S. economic conditions on a path to recovery, there are already disturbing signs of the (re)emergence of the high-risk, high-reward credit practices that the CFPB was designed to curb. This book profiles how the Bureau has attempted to stop abusive and discriminatory lending practices in the mortgage and automobile lending sectors and documents the multilayered challenges faced by an untested new regulatory agency in its efforts to transform the broken—but lucrative—business practices of the financial services industry.
Authors Kirsch and Squires raise the question of whether the consumer protection approach to financial services reform will succeed over the long term in light of political and business efforts to scuttle it. Case studies of mortgage and automobile lending reforms highlight the key contextual and structural conditions that explain the CFPB’s ability to transform financial service industry business models and practices. Meltdown: The Financial Crisis, Consumer Protection, and the Road Forward is essential reading for a wide audience, including anyone involved in the provision of financial services, staff of financial services and consumer protection regulatory agencies, and fair lending and consumer protection advocates. Its accessible presentation of financial information will also serve students and general readers.
Features
- Presents the first comprehensive examination of the CFPB that identifies its successes during its first five years of operation and addresses the challenges the bureau now faces
- Exposes the alarming possibility that as the economy recovers, the Consumer Financial Protection Bureau’s efforts to protect consumers could be derailed by political and industry pressure
- Offers provisional assessment of the effectiveness of the CFPB and consumer protection regulation
- Gives readers unique access to insightful perspectives via on-the-record interviews with a cross-section of stakeholders, ranging from Richard Cordray (director of the CFPB) to public policy leaders, congressional staffers, advocates, scholars, and members of the press
- Documents the historical and analytic narrative with more than 40 pages of end notes that will assist scholars, students, and practitioners
I would not describe the book as objective, given that Senator Elizabeth Warren wrote the forward and the President Obama’s point man on Dodd-Frank, Michael Barr, wrote the afterward. Indeed, it reads more like a panegyric. Nonetheless, the book has a lot to offer to scholars of the CFPB who are interested in hearing from the people who helped to stand up the Bureau.
June 30, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- The Senate’s Committee on Banking, Housing and Urban Development held a hearing with mortgage, housing, and finance leaders to learn their perspectives on housing finance reform. The committee is specifically looking to reform Fannie Mae and Freddie Mac. Furthermore the committee seeks to ensure the viability of “bond markets and 30-year fixed rate mortgage.“
- Surprisingly, Republicans are upset about the cost of housing due to the burden it causes amongst American families. Republican Jason Chaffetz, suggested his fellow Senators live using a $2500 per month housing stipend. He also added, “I flat-out cannot afford a mortgage in Utah…” Furthermore, in D.C. a family must earn 70,000 in order to afford a HUD Fair Market two-bedroom rental in Washington D.C. Hopefully, the Senate will find a solution to the nationwide burdened hiring costs.
June 30, 2017 | Permalink | No Comments
June 29, 2017
The Hispanic Homeownership Gap
Freddie Mac’s latest Economic & Housing Research Insight asks Will the Hispanic Homeownership Gap Persist? It opens,
This is the American story.
A wave of immigrants arrives in the U.S. Perhaps they’re escaping religious or political persecution. Perhaps a drought or famine has driven them from their homes. Perhaps they simply want to try their luck in the land of opportunity.
They face new challenges in America. Often they arrive with few resources. And everything about them sets them apart—their religions, their languages, their cultures, their foods, their appearances. They are not always welcomed. They frequently face discrimination in housing, jobs, education, and more. But over time, they plant their roots in American soil. They become part of the tapestry that is America. And they thrive.
This is the story of the Germans and Italians and many other ethnic groups that poured into the U.S. a century ago.
Today’s immigrants come, for the most part, from Latin America and Asia instead of Europe. Hispanics comprise by far the largest share of the current wave. Over the last 50 years, more than 30 million Hispanics migrated to the U.S. And these Hispanics face many of the same challenges as earlier European immigrants.
Homeownership provides a key measure of transition from a newly-arrived immigrant to an established resident. Many immigrants arrive without the financial resources needed to purchase a home. In addition, the unfamiliarity and complexity of the U.S. housing and mortgage finance systems pose obstacles to homeownership. As a result, homeownership rates start low for new immigrants but rise over time.
The homeownership rate among Hispanics in the U.S.—a population that includes new immigrants, long-standing citizens, and everything in between— stands around 45 percent, more than 20 percentage points lower than the rate among non-Hispanic whites. Much of this homeownership gap can be traced to differences in age, income, education and other factors associated with homeownership.
Will the Hispanic homeownership gap close over time, as it did for the European immigrants of a century ago? Or will a significant gap stubbornly persist, as it has for African-Americans? (1-2)
It concludes,
Census projections of future age distributions suggest that the age differences of Whites and Hispanics will be reduced by six percent (0.7 years) by 2025 and 12 percent (1.2 years) by 2035. If these projections are realized, the White/Hispanic homeownership gap is likely to narrow by 20 percent (five percentage points) by 2035. The Census projections include both current residents and future immigrants, and averaging the characteristics of these two groups of Hispanics tends to mask the relatively-rapid growth in homeownership among the current residents.
It is important to remember that about 13 percent of the White/Hispanic homeownership gap cannot be traced to population characteristics such as age and income. The explanation for this residual gap is unclear, although some of it may be due to wealth gaps and discrimination. (12)
Researchers at the Urban Institute have documented the importance of the Hispanic homeownership rate to the housing market more generally. It is worthwhile for policymakers to focus on it as well.
June 29, 2017 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- The U.S. is no longer an affordable place because many of the low-cost units no longer exists across the country. In an article that analyzes recent housing reports entitled, “Our Disappearing Supply of Low-Cost Rental Housing,” an analyst finds the number of units available units under $800 have drastically declined while the number of units available above $2000 have increased “three-fold.” The article further notes the growing trend in many of the U.S. largest metropolitan areas such as Denver, CO.
- Harvard’s Joint Center for Housing Studies recently released a report titled “State of the Nation’s Housing.” In their report, ten new trends illuminate. The most availing trend is the lack of homes available to buyers. In the last ten years, the inventory of homes has been at its lowest point. Why one may ask? Fewer homes are built and many individuals are not selling their homes.
June 29, 2017 | Permalink | No Comments
June 28, 2017
Addressing NYC’s Affordable Housing Crisis
The NYC Rent Guidelines Board (of which I am a member) held a public hearing as part of its final vote on rent adjustments for the approximately one million dwelling units subject to the Rent Stabilization Law in New York City. My fellow board member, Hilary Botein, and I submitted the following joint statement at the hearing (also available on SSRN and BePress):
The Rent Guidelines Board determines rent increases for New York City’s 1 million rent-stabilized apartments. We must weigh the economic conditions of the residential real estate industry; current and projected cost of living; and other data made available to us. To make our decision, we reviewed reams of data and multiple analyses of those data. We also held five public hearings at which we heard hundreds of tenants speak, sing, chant, cry, and demonstrate. These hearings are among the only opportunities that tenants have to speak publicly about their housing situations, and they made clear the extremity of the housing crisis in the City, and that it will get worse without significant intervention.
Tenants who came to the RGB hearings are not a representative sample of rent-stabilized tenants in New York City. But they told us a lot about the state of housing in the City. We felt that it was incumbent on us to respond to what we heard, even where it did not relate directly to the jurisdiction of the Board.
New York City cannot expect any meaningful housing assistance from the federal government in the near term. Our observations therefore focus on state and municipal actions that could address some of the issues that regularly cropped up at our hearings.
There is a desperate need for affordable housing that is pegged to residents’ incomes. Housing is deemed “affordable” when housing costs are 30 percent of a household’s income. There is no guarantee that rent stabilized housing remain affordable to a particular household, and there is no income eligibility for rent stabilized housing. This aspect of rent regulation explains its durable political appeal, but makes it an imperfect vehicle for meeting the needs of low-income tenants.
Mayor de Blasio is protecting and developing hundreds of thousands of units of affordable housing through the Housing New York plan announced at the beginning of his term. More recently, his Administration announced a program to create 10,000 deeply affordable apartments and a new Elder Rent Assistance program. But more can be done to help low-income tenants.
The Senior Citizen Rent Increase Exemption (SCRIE) and Disability Rent Increase Exemption (DRIE) programs have proven their effectiveness in “freezing” the rents of more than 60,000 low and moderate income rent-stabilized households. The state should create and fund a similar program for low-income rent stabilized tenants who pay more than 30 percent of their incomes towards housing costs.
State laws governing rent stabilization must be amended. Three elements of the law particularly penalize low-income tenants in gentrifying neighborhoods, and were behind the most distressing tenant testimonies that we heard. They are not within the RGB’s purview, but change is critical if the law is to operate as it was intended to do. The state legislature has considered bills that would make the necessary changes. First, owners can charge tenants a “preferential” rent, which is lower than the legal registered rent for the apartment. Preferential rents are granted most often in neighborhoods where the rent that the market can bear is less than the legal rent. This sounds like a good option for both tenants and owners, and perhaps that was its original intention. But now, as neighborhoods gentrify and market rates increase, the prospect of increasing a preferential rent with little notice has become a threat to tenants’ abilities to stay in their apartments. Preferential rents should be restricted to the tenancy of a particular tenant, as was the law before a 2003 amendment. Owners would then be able to increase rents for those tenants no more than the percentages approved by the Board.
Second, owners can tack on a 20 percent “vacancy increase” every time an apartment turns over. This increase incentivizes harassment, and should be limited to situations of very long tenancies, to keep owners from actively seeking to keep tenancies short.
Third, owners making what is termed a Major Capital Improvement (MCI) – a new roof, windows, or a boiler, for example – can pass this expense on to tenants via a rent increase that continues in perpetuity, after the owner has recouped her or his expenses. We also heard allegations of sketchy capital improvement applications that were intended to increase rents without improving the conditions in the building. The state legislature should review how MCIs work in order to ensure that they are properly incentivizing landlords to invest in their buildings to the benefit of both owners and tenants.
New York City needs a repair program for broken gas lines. We heard from tenants who had not had gas in their apartments for more than a year. We understand that fixing gas lines is particularly complicated and expensive, and that gas leaks raise serious safety concerns, but it is unacceptable for families to go for more than a year without gas, and we are concerned about fire safety issues resulting from people using hot plates. The city needs to step in and make the repairs.
We have a housing crisis. Low income tenants, who live disproportionately in communities of color, experience this crisis most acutely. We will not find systemic solutions within the housing market. All solutions require a lot of money, and we cannot count on anything from the federal government. But it is imperative that our state and local governments act, or New York City’s already burgeoning shelter system will be forced to take in even more people. Since the 1970s, New York City has been a leader in committing public resources to housing its low income residents, and that legacy must continue. The Rent Guidelines Board cannot solve the housing crisis, but other arms of the New York State and City government can work together to reduce its impacts on low-income households.
June 28, 2017 | Permalink | No Comments
