April 13, 2017
Fannie + Freddie = Frannie
The Federal Housing Finance Agency released its 2016 Scorecard Progress Report. It contains some interesting information about the FHFA’s ongoing efforts to reshape Fannie and Freddie notwithstanding the inaction of Congress. These efforts are not broadcast very clearly, but they are documented nonetheless:
Maintaining a high degree of uniformity in the prepayment speeds of the Enterprises’ mortgage-backed securities is important to the success of the Single Security Initiative. Accordingly, the 2016 Scorecard called for the Enterprises to assess new or revised Enterprise programs, policies, and practices for their effect on the cash flows of mortgage-backed securities eligible for financing through TBA market.
In July 2016, FHFA published An Update on Implementation of the Single Security and the Common Securitization Platform (July 2016 Update), which included a description of specific steps FHFA would take and steps FHFA would require the Enterprises to take to ensure the continued convergence of prepayment speeds across the Enterprises’ mortgage-backed securities. The July 2016 Update indicated that each Enterprise would be required to submit for FHFA review any proposed changes the Enterprise believed could have a measureable effect on the prepayment rates and performance of TBA-eligible securities, including its analysis of any effects on prepayment speeds and/or removals of delinquent mortgage loans from securities under a range of scenarios. In addition, FHFA monitors Enterprise programs, policies, and practices that are initially determined to have no significant effect on prepayment rates or security performance and works with the Enterprises to address any unexpected effects as they arise. (25)
While this is all very technical stuff, it boils down to the effort of the FHFA to make Fannie and Freddie’s securities indistinguishable from each other so they can be treated as a Single Security. Once this process is completed, we will enter a new phase for the GSEs. The two companies wont really be competitors, they will be like identical twins.
Senators Corker and Warner are trying to resuscitate a housing finance reform bill, but this administrative reform is proceeding apace through ten years of Congressional inaction. The FHFA’s actions will likely limit the choices that Congress will have in very real ways, assuming Congress can ever get itself to act.
This is not necessarily a bad thing, it is just good to name it for what it is: housing finance reform implemented by an independent agency, not by a democratically elected Congress.
April 13, 2017 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- In an article by Enterprise, titled How Local Governments Can Raise Much-Needed Resources for Affordable Housing, discusses the importance of state and federal funds for housing, specifically for low income families.
- In an article by the Brookings Institute, titled The Federal Housing Administration Can Do More with More, discusses how the FHA has been an anchor to the US economy and could be an even greater positive influence with more funds.
- Last week, the finalists for Atlanta’s Affordable Housing Preservation Challenge (ATL Challenge) discussed their innovative proposals to strengthen the region’s ability to preserve affordable housing on the ATL Challenge blog. In January, submissions from Tapestry Development, TriStar, and Stryant Investments were chosen from a larger pool of proposals to compete for up to $70,000 to implement proposals related to expanding sources of capital, connecting preservation efforts with schools to expand community impact, and increasing affordability through zoning flexibility, respectively.
April 13, 2017 | Permalink | No Comments
April 12, 2017
Skinny Budget Sucker Punch
The Waco Tribune-Herald quote me in Cutting Habitat Could Hurt Local Economy. It reads,
Last summer, through a series of tragic events, one of our longtime church members faced the frightening possibility of homelessness. She had lived with her father for more than 50 years and, following his death, she learned of a crippling reverse mortgage on their home. She couldn’t pay off the mortgage and so she had to find a new place to live.
Our congregation sprang into action. More than 50 people contributed to the purchase of a mobile home, but it required extensive remodeling, so several church members worked over 300 hours to make it livable. One handyman devoted about three months to the project full-time.
On Sept. 21, we presented her with the keys to her new home during worship. It was one of the most uplifting moments I’ve had in 23 years of ministry. This congregation-wide labor of love brought us all closer to one another and closer to God. It was a demonstration of the love of Jesus Christ and it was transformative.
Home ownership changes lives and changes communities. I serve as a board member and volunteer for Waco Habitat for Humanity. Since 1986, Waco Habitat has built and sold 168 homes and completed another 414 home repairs and preservation projects. Over the past three decades, the economic impact of all these services exceeds $6.9 million in greater Waco. In a community that generally tracks about 15 percent higher than the state average for poverty rates and 20 percent lower than the state average for home ownership rates, this impact cannot be overstated. It’s transformative as well.
The “skinny budget” unveiled by the Trump administration on March 16 proposes reducing federal spending on housing programs and assistance by 13 percent. Among other cuts, it seeks to eliminate the Community Development Block Grant Program; Home Investment Partnerships Program; Self-Help Homeownership Opportunity Program; CDFI fund, which administers the New Market Tax Credit program at Treasury; and entire Corporation for National and Community Service, which implements the AmeriCorps program.
One reason I work with Habitat is because it offers a hand up, not a hand out. If these cuts are approved by Congress, they will devastate Habitat’s ability to offer that hand up. Other local housing agencies and organizations will see a similarly crippling effect.
Fortunately, this is just the first pass of the federal budget, and many members of Congress — including many Republicans — have already voiced opposition to it. For instance, Rep. Hal Rogers said: “While we have a responsibility to reduce our federal deficit, I am disappointed that many of the reductions and eliminations proposed in the president’s skinny budget are draconian, careless and counterproductive.”
David Reiss, director of academic programs at the Center for Urban Business Entrepreneurship, echoes this. “Terminating these programs out of the blue is like a sucker punch in the gut of countless communities across the country.”
April 12, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- Using exogenous variations in the market value of firms’ real estate assets caused by fluctuations in local commercial real estate prices, this article, Managing Innovation: The Role of Collateral, study how collateral shocks impact corporate innovation. I find evidence that collateral shocks change the quantity, quality, and trajectory of innovation.
- This paper, Small and Medium Multifamily Housing Units: Affordability, Distribution, and Trends, map the geographic distribution of small and medium multifamily properties, describe their characteristics, and evaluate the degree to which they contribute to affordability within their specific market areas.
- In this paper, The Effect of School Capital Investments on Local Housing Markets: Evidence from the Interest-Free Construction Bond in California, the author investigates what effect school capital investments have on housing values and household location choice in the context of the Tiebout model. This research identifies an exogenous variation in school capital investments by exploiting the lottery allocation of entitlement to an interest-free construction bond among districts in California.
April 12, 2017 | Permalink | No Comments
April 11, 2017
What Is a HUD Foreclosure?
Realtor.com quoted me in What Is a HUD Foreclosure? A Home That’s Below Market Value. It reads,
“Foreclosure” is a scary word with a simple definition: It’s the process of a lender attempting to recoup the balance owed on a loan after the homeowner fails to pay the mortgage. Mortgage lenders can be banks, private institutions, or the Federal Housing Administration. The FHA is the world’s largest insurer of mortgages; FHA loans are managed by the Department of Housing and Urban Development. So any foreclosed house that was purchased with an FHA loan is called a HUD foreclosure. But what exactly is a HUD foreclosure?
What is HUD?
HUD is a federal agency with the mission to help low-income and first-time home buyers. Through mortgage assistance and subsidized housing, it helps make the dream of owning a home a reality for many Americans.
A major division of HUD is the FHA, which is the world’s largest insurer of mortgages.
“A HUD foreclosure is the foreclosure of a loan that was insured by the FHA,” says David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School .
When a homeowner defaults on this government-backed loan, HUD pays off the mortgage and becomes the property’s de facto owner. To recoup financial losses, HUD then puts the house on the market.
The benefit of buying a HUD foreclosure
The upside for bargain home hunters is that HUD-owned properties are usually sold well below market value.
While anyone can buy a HUD home, “the agency has a special program for teachers, police officers, firefighters, and EMS personnel called the Good Neighbor Next Door program,” says Reiss.
This program allows people in those professions to purchase a HUD property at a whooping 50% discount if it’s in a “revitalization area” and the owner occupies it for three years. Revitalization areas are neighborhoods with very low income, low homeownership, or a high concentration of foreclosed homes.
How to buy a HUD foreclosure
HUD foreclosures are not sold in the typical manner, according to Reiss. Instead of open houses and offer letters, he explains, HUD foreclosures are sold through a bidding process that favors owner-occupants (people who actually want to live in the house) over investors by giving them priority in bidding.
Prospective owners working with a real estate agent authorized to sell HUD property submit bids but have no idea what the other bids are. If the property fails to sell to an owner-occupant, the HUD foreclosure is then open to investors.
How to find a HUD foreclosure
According to Reiss, HUD maintains the HUD Home Store, an online database that lists all its foreclosures. And unlike some foreclosed properties that may have liens (a notice attached to your property that means you owe a creditor money), HUD homes are for sale lien-free.
April 11, 2017 | Permalink | No Comments
Tuesday Regulatory & Legislative Roundup
- An article in The New York Times looks at the movement of health care providers who use federal housing and tax programs to prescribe housing along with medications to treat patients. Some hospitals and health care providers have brokered deals with local housing authorities to obtain housing vouchers, while other hospitals have created housing units themselves.
- Governor Andrew Cuomo of New York and state legislators came to an agreement last week on a $153.1 billion state budget for fiscal year of 2018, including $2.5 billion in housing funds for a variety of programs. The budget allocates $1 billion for 6,000 supportive housing units statewide, $125 million for senior housing and $200 million for the New York City Housing Authority (NYCHA).
- Former Federal Housing Finance Agency Acting Director Ed DeMarco joins the Financial Services Roundtable leadership team as FSR’s Housing Policy Council president, effective June 1. DeMarco has a long and extensive history in the housing market, which even landed him as HousingWire Magazine’s Person of the Year in 2012 for his efforts impacting housing policy and the industry landscape.
April 11, 2017 | Permalink | No Comments
April 10, 2017
What Is Compound Interest?
US News & World Report quoted in What Is Compound Interest? It opens,
When it comes to investing, compound interest really is the most powerful force in the universe. Remarkable in both its simplicity and its power, compound interest is the concept of reinvesting, along with the original principal sum, the interest earned on your investment.
As a result, you earn interest on top of interest, and then more on top of that larger sum, and so on. “Over time, a small amount of money can become a mountain of money,” says David Winters, CEO of Wintergreen Advisers.
Compound interest is one of the most basic concepts for investors to understand, in no small part because its magical results work the same whether you have $100 or $100 million.
In that sense, it’s every investor’s secret weapon – and you probably want to use your secret weapon if it can help you build your retirement nest egg (which it can). Unfortunately, if you look at how the average American spends and invests, it doesn’t reflect a great respect or understanding of compound interest.
It’s time to change that.
Proving its power in a thought experiment. David Reiss, professor of law at Brooklyn Law School, likes to convey the profound power of compound interest with a riddle of sorts.
“Would you rather receive a gift on Jan. 1 of $1 million, or a penny that doubles every day for the rest of the month?” Reiss says. “Most kids would go for the million bucks, but those who are patient enough to do the math know that they can get millions more if they are patient enough to wait the month.”
It’s true. The penny-doubler would in fact finish January with $9.7 million more than his or her instant gratification-seeking friend.
April 10, 2017 | Permalink | No Comments
