July 4, 2017
Jefferson on Governing
President Jefferson on Mount Rushmore
In commemoration of Independence Day, I quote from Thomas Jefferson’s First Inaugural Address as President of the United States in 1801:
About to enter, fellow-citizens, on the exercise of duties which comprehend everything dear and valuable to you, it is proper you should understand what I deem the essential principles of our Government, and consequently those which ought to shape its Administration. I will compress them within the narrowest compass they will bear, stating the general principle, but not all its limitations. Equal and exact justice to all men, of whatever state or persuasion, religious or political; peace, commerce, and honest friendship with all nations, entangling alliances with none; the support of the State governments in all their rights, as the most competent administrations for our domestic concerns and the surest bulwarks against anti-republican tendencies; the preservation of the General Government in its whole constitutional vigor, as the sheet anchor of our peace at home and safety abroad; a jealous care of the right of election by the people — a mild and safe corrective of abuses which are lopped by the sword of revolution where peaceable remedies are unprovided; absolute acquiescence in the decisions of the majority, the vital principle of republics, from which is no appeal but to force, the vital principle and immediate parent of despotism; a well-disciplined militia, our best reliance in peace and for the first moments of war till regulars may relieve them; the supremacy of the civil over the military authority; economy in the public expense, that labor may be lightly burthened; the honest payment of our debts and sacred preservation of the public faith; encouragement of agriculture, and of commerce as its handmaid; the diffusion of information and arraignment of all abuses at the bar of the public reason; freedom of religion; freedom of the press, and freedom of person under the protection of the habeas corpus, and trial by juries impartially selected. These principles form the bright constellation which has gone before us and guided our steps through an age of revolution and reformation. The wisdom of our sages and blood of our heroes have been devoted to their attainment. They should be the creed of our political faith, the text of civic instruction, the touchstone by which to try the services of those we trust; and should we wander from them in moments of error or of alarm, let us hasten to retrace our steps and to regain the road which alone leads to peace, liberty, and safety.
Let us hope that our current leaders, and we the people, rededicate ourselves to the 21st century version of these principles on this our Independence Day.
July 4, 2017 | Permalink | No Comments
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
