May 31, 2017
Cracked Foundation for American Households
President Trump’s budget claims to lay A New Foundation for American Greatness. Whatever else it does, when it comes to housing it leads down a path to ruin for many an American family.
Here is just some of what he proposes: cutting housing choice vouchers by almost $1 billion; cutting support for public housing by nearly $2 billion; and getting rid of the entire $3 billion budget for Community Development Block Grants (CDBG). These are all abstract numbers, so it is worth breaking them down to a more human scale.
Vouchers. Housing choice vouchers help low-income families afford a home. Republicans and Democrats have long supported these vouchers because they help tenants afford apartments that are rented by private landlords, not by public housing agencies. Vouchers are effectively an income subsidy for the poor that must be used for housing alone. The landlord is paid the subsidy and the tenant pays the difference between the subsidy and the rent. These vouchers are administered by local public housing agencies.
Nearly half of vouchers go to families with children, nearly a quarter go to the elderly and another fifth go to disabled adults. The nonpartisan Center on Budget and Policy Priorities has found that voucher dramatically reduce homelessness. It also found that voucher holders were likely to be in the workforce unless they were elderly or disabled. While vouchers are a very effective subsidy, the federal budget has only provided enough funds for about a quarter of eligible households. Trump’s proposed cuts would cut funding for more than 100,000 families. That’s 100,000 families that may end up homeless as a result.
Public Housing. Public housing has been starved of resources for nearly forty years. While some believe that public housing has been a failure overall, it remains a vital source of housing for the very poor. Trump’s proposed cuts to public housing operating and capital expenses means that these tenants will see their already poorly maintained homes descend deeper into decrepitude. Unaddressed leaks lead to mold; deferred maintenance on boilers leads to no heat in the winter – every building needs some capital repairs to maintain a baseline of habitability.
We must ask ourselves how bad will we allow this housing stock to get before we are overcome by a sense of collective shame. If a private landlord provided housing that was as poorly maintained as much of the public housing stock, it would be on a worst landlords list in local newspapers. The fact that the landlord is the government does not redeem the sin.
CDBG. The Community Development Block Grant funds affordable housing and anti-poverty programs along with community development activities engaged in by local governments. CDBG has broad support from Republicans and Democrats because it provides funds that allow local governments to respond more nimbly to local conditions. Local governments use these funds for basic infrastructure like water and sewer lines, affordable housing and the soft costs involved in planning for their future.
While these expenditures are somewhat abstract, recent press stories have highlighted that CDBG also funds Meals on Wheels for the elderly. While this is not a big portion of the CDBG budget, it does make concrete how those $3 billion are being allocated each year by local communities seeking to help their neediest residents.
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Trump’s budget proposal is honest in that it admits to making “substantial changes to the policies and spending priorities of the previous administration . . .” Members of Congress from both parties will now have to weigh in on those substantial changes. Are they prepared to make Trump’s cuts to these housing and community development programs that provide direct aid to their neighbors and local governments? Are they prepared for the increase in homeless that will follow? In the increase in deficits for state and local governments? If not, they should reject President Trump’s spending priorities and focus on budget priorities that support human dignity and compassion as well as a commitment to local responses to address local problems.
May 31, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- Mortgage Debt and the Social Function of Contract, Domurath
- The Consumer Spending Response to Mortgage Resets: Microdata on Monetary Policy, Bhagat, Farrell, and Narasiman
- Screening as a Unified Theory of Delinquency, Renegotiation, and Bankruptcy, Kovrijnykh and Livshits
- An Equilibium Model of Housing and Mortgage Markets with State-Contingent Lending Contracts, Piskorski and Tchistyi
- Consolidated Tomoka- A Real Estate Holding Company, Simko
May 31, 2017 | Permalink | No Comments
May 30, 2017
Gen Z Eying Real Estate Trends
The Washington Post along with its content partner National Association of Realtors quoted me in Eye on the Future. It reads, in part,
The suburbs as we know them are in flux. Many of the country’s bedroom communities have traditionally been known for their single-family homes and a lack of walkable public spaces. That’s changing as condos, sprawling townhome complexes and apartment buildings now dot areas where single-family homes would have been built. Developers are building walkable public spaces to accommodate young families leaving cities but still seeking urban-like amenities.
Another wave of change is expected in the next five to 10 years. That’s when members of Generation Z-those born on the heels of millennials-will become homeowners. Experts say they’ll transform areas that are sandwiched between major cities and suburbs into districts with an urban feel and amenities, without the hefty price tags major metros demand.
That transformation is already starting to happen. “Many of our ‘suburbs’ are actually neighborhoods in Los Angeles, particularly the San Fernando Valley,” said Kathryn Bishop, a real estate agent with Keller Williams Realty in Studio City, Calif. and member of the National Association of Realtors. “In the Valley, many neighborhoods have become mini ‘cores.’ Sherman Oaks, Encino and Woodland Hills have office towers, good restaurants and night-life business creating their own city areas.”
It’s no surprise that the younger generation needs to find an alternative to the sky-high costs of urban living. The Economic Policy Institute noted in 2016 that folks who live in San Francisco face a cost of living that’s 52.9 percent above the national average. For New Yorkers, living costs were 49.4 percent higher. The country’s least-affordable place to live was Washington D.C., where residents faced costs 63.5 percent higher than the national average.
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“Since the financial crisis there has been an increase in multigenerational households, driven in large part by financial limitations and insecurity as well as by marital status and educational attainment,” said David Reiss, professor of law and research director at he Center for Urban Business Entrepreneurship at Brooklyn Law School. “Young adults are more likely to live at their parent’s home in recent years than they have been for more than a century.”
May 30, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- Representative Blaine Luetkemeyer of Missouri, gave the Financial Institution Customer Protection Act another try by reintroducing the bill into Congress. Luetkemeyer believes the bill will balance and protect the financial industry from “organized bureaucratic intimidation.” The proposed bill specifically limits the authority of federal banking agencies termination rights. The bill goes further to clarify the definition of material reason when deciding if a customer poses a security threat.
- Some are calling Trump’s proposed 2018 budget “unacceptable and unconscionable.” The proposed budget decreases spending by 4.6 trillion over ten years. The bulk of the savings plans stem from cutting funding to many of the programs most low and middle class Americans rely on each day such as federal pensions and social security disability insurance. Members of Trumps budget team believe, “This is, I think the first time in a long time that an administration has written a budget through the eyes of the people who are actually paying the taxes.“
May 30, 2017 | Permalink | No Comments
May 29, 2017
A Soldier’s Death
Thomas Hardy by William Strang
To commemorate Memorial Day, a poem about the death of a soldier:
Drummer Hodge
by Thomas Hardy
Uncoffined — just as found:
His landmark is a kopje-crest
That breaks the veldt around:
And foreign constellations west
Each night above his mound.
The meaning of the broad Karoo,
The Bush, the dusty loam,
And why uprose to nightly view
Strange stars amid the gloam.
Will Hodge for ever be;
His homely Northern breast and brain
Grow up some Southern tree,
And strange-eyed constellations reign
His stars eternally.
May 29, 2017 | Permalink | No Comments
May 26, 2017
Fannie Mae Student Loan Mortgage Swap
HIghYa quoted me in Fannie Mae Student Loan Mortgage Swap: Should You Do It? It reads, in part,
This past week federal mortgage giant Fannie Mae announced it had created a new avenue for its borrowers to pay off student loans: the student loan mortgage swap.
The swap works like this, according to documentation published by Fannie Mae:
- Fannie Mae mortgage borrowers get the benefit
- They do a “cash-out” refinance
- The money from that refinance is used to pay off your loan(s) in full
The concept of this is pretty elegant in our opinion. People who are saddled with student loans – the average grad has about $36,000 in debt at graduation – don’t usually stumble upon a huge chunk of money to pay off those loans.
If you’re lucky enough to own a home that’s gone up in value enough to create a sizeable difference between what your home is worth and what you owe, then Fannie Mae allows you to borrow against that amount (equity) by taking it out as cash you can use on a student loan.
The idea is that your mortgage rate will probably be lower than your student loan rate, which means instead of paying back your student loans at 6.5%, let’s say, you can now pay it back at your mortgage refi rate of, in most cases, less than 4.5%.
Basically, you’re swapping your student loan payments for mortgage payments, which is how this little financial maneuver gets its name.
The news first came out on April 25 in the form of a press release which said the mortgage swap was designed to offer the borrower “flexibility to pay off high-interest rate student loans” and get a lower mortgage rate.
The change was among two others that will, in theory, work in favor of potential or current homeowners who have student loan debt.
“These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers,” Fannie Mae Vice President of Customer Solutions Jonathan Lawless said in the release.
What You Need to Know About Fannie Mae’s Student Loan Swap
Remember how we said that the money you get from your mortgage refinance can be used for a student loan or multiple student loans?
That happens because this refinance is what’s known as a cash-out refinance.
What is a Cash-Out Refinance?
A cash-out refinance is part of the general class of refinancing.
When you refinance your home, you’re basically selling the rest of what you owe to a lender who’s willing to let you pay them back at a lower interest rate than what you currently have.
The upside is that you have lower monthly payments because your interest rates are lower, but the downside is that your payments are lower because they’re most likely spread out over 30 years, or, at least, longer than what you had left on your original mortgage.
So, you’ll be paying less but you’ll be paying longer.
A cash-out refinance adds a twist to all this. You see, when you do a traditional refinance, you’re borrowing the amount you owe. However, in a cash-out refinance, you actually borrow more than you owe and the lender gives you the difference in cash.
Let’s say you owe $100,000 on your house at 7% with 20 years left. You want to take advantage of a cash-out refi, so you end up refinancing for $120,000 at 4.6% for 30 years.
Assuming all fees are paid for, you get $20,000 in cash. The lender gives you that cash because it’s yours – it comes from the equity in your home.
How the Fannie Mae Student Loan Swap Works
Fannie Mae’s new program takes the cash-out refinance a little further and says that you can only use your cash-out amount for student loans.
However, it’s not that easy. There are certain requirements you have to meet in order to be eligible for the program. Here’s a list of what you need to know:
- The borrower has to have paid off at least one of their student loans
- You’re only allowed to pay off your student loans, not loans other people are paying
- The money must cover the entire loan(s), not just part of it/them
- Your loan-to-value ratios must meet Fannie Mae’s eligibility matrix
We checked the Fannie Mae eligibility matrix and, at the time this article was published in April 2017, the maximum loan-to-value they’d allow on your principle residence was 80% for a fixed-rate mortgage and 75% on an adjustable rate mortgage.
In other words, they want to know that what you owe on the house is, at most, 80% of what it’s worth.
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Our Final Thoughts About Fannie Mae’s Student Loan Swap
The Fannie Mae student loan mortgage swap is certainly an innovative way to cut down on your student loan debt via equity in your home.
The pros of this kind of financial product are that, if cash-out refinance rates are lower than student loan rates, then you can stand to save money every month.
And because refis typically last 30 years, your monthly payments will most likely be lower than what they were when you were making payments on your mortgage and your student loan.
The main drawbacks of using a Fannie Mae cash-out refinance to pay off your loans is that you’ll put your home at a higher risk because house values could fall below the amount you borrowed on your refi.
Making a student loan mortgage swap also changes your debt from unsecured to secured. Brooklyn Law School Professor David Reiss reiterated this point in an email to us.
He said that borrowers need to “proceed carefully when they convert unsecured debt like a student loan into secured debt like a mortgage.”
The benefits are great, he said, but the dangers and risks are pretty acute.
“When debt is secured by a mortgage, it means that if a borrower defaults on the debt, the lender can foreclose on the borrower’s home,” David said. “Bottom line – proceed with caution!”
We think what Mark Kantrowitz and David Reiss have pointed out is extremely valuable. While a student loan mortgage swap may seem like a good way to pay off your debt, the fact that it swaps your unsecured debt for secured debt could mean trouble down the road.
May 26, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- The U.S. Department of Urban Housing and Development (HUD) released its “FY 2017 HOME Match Reduction List.” HOME Program. HUD provides matches to specific municipalities when there is a fiscal distress and Presidential disaster declarations.
- The Consumer Financial Protection Bureau (CFPB) received support from a U.S. district court in California. CFPB defended the constitutionality of it’s power to “issue civil investigative demands.“
- Black Knight Financial Services is committing to helping homeowners uncover hidden municipal liens in their property report. The company created a “Municipal Lien Search” to help property owners discover county debts, code violations, and a host of other property owner issues.
May 26, 2017 | Permalink | No Comments
