March 20, 2017
Monday’s Adjudication Roundup
- A class member in a suit against New Jersey is very unhappy with the 9.6 million dollar settlement reached. The “tax lien bid-rigging” costed homeowners approximately 400 million dollars. The class member filed an appeal in the Third Circuit to ensure a more reasonable settlement is reached.
- Rick Renzi, a former Arizona Congressman, was convicted of corruption due to his role in a local land deal. During the trial the Federal Bureau of Investigation (FBI) did not disclose an offer made to a witness of the prosecution. As a result, Renzi is asking for a new trial citing witness tainting as the reason.
- The Federal Home Loan Bank of New York (FHLB) and Lehman Bros. Holding Inc.recently completed their pretrial arguments. FHLB stands accused of defrauding the company of 150 million dollars due to a valuation of interest rates swapped during the 2008 financial crisis.
March 20, 2017 | Permalink | No Comments
March 17, 2017
Can Downpayment Assistance Work?
The HUD Inspector General issued a report on FHA-Insured Loan with Borrower-Financed Downpayment Assistance. Downpayment assistance has a long history of failure, a history that has led to big losses for the FHA and foreclosures for borrowers. The IG audited HUD’s oversight of FHA-insured loans that were originated with downpayment assistance. The Inspector General had already determined that “lenders allowed FHA borrowers to finance their own downpayments through an increase in their mortgage interest rate as part of programs administered through housing finance agencies.” (1)
The IG found that HUD
failed to adequately oversee more than $16.1 billion in FHA loans that may have been originated with borrower-financed downpayment assistance to ensure compliance with HUD requirements, putting the FHA Mortgage Insurance Fund at unnecessary risk. Between October 1, 2015 and September 30, 2016, HUD guaranteed nearly $12.9 billion in FHA loans that may contain questioned assistance. While governmental entities are not prohibited sources of downpayment assistance, the assistance provided through these programs did not comply with HUD requirements. FHA borrowers were required to obtain a premium interest rate and, therefore, repaid the assistance through higher mortgage payments and fees. Despite the prohibition against similar seller-funded programs, HUD’s requirements appeared to have enabled the growth of these questioned programs. In addition, HUD did not adequately track these loans and review the funding structure of these programs. Despite concerns raised by OIG, HUD failed to protect FHA borrowers against the higher mortgage payments and higher fees imposed on them, which increased the risks to the FHA Insurance Fund in the event of default. (1)
The Urban Institute’s Housing Finance Policy Center has criticized the IG’s report on methodological grounds. I will defer to the Urban Institute’s critique because they have done a lot of work in this area.
But I do think that the IG is right to pay careful attention to downpayment assistance programs. Historically, they have proven too good to be true. One of the FHA’s biggest failures resulted from the downpayment assistance program that was set forth in the American Dream Downpayment Assistance Act of 2003.
The IG recommends that HUD
(1) reconsider its position on questioned borrower-financed downpayment assistance programs,
(2) develop and implement policies and procedures to review loans with downpayment assistance,
(3) develop requirements for lenders to review downpayment assistance programs,
(4) require lenders to obtain a borrower certification that details borrower participation,
(5) ensure that lenders enter all downpayment assistance data into FHA Connection, and
(6) implement data fields where lenders would be required to enter specific downpayment assistance information. (1)
The IG’s procedural recommendations all seem reasonable enough, whether you agree or disagree with the folks at the Urban Institute.
March 17, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- In response to the Trump Administration’s preliminary budget plan, several Democratic Senators denounced potential cuts to HUD that would drastically undermine its programs. In a letter to HUD Secretary Ben Carson, the lawmakers called the budget reductions being considered “unconscionable” and warned that they could pose health risks to residents of HUD-assisted housing.
- The Federal Reserve just announced the first interest rate hike of 2017, and the second rate hike in three months. The Federal Open Market Committee concluded its meeting with the announcement that the Fed will raise interest rates by 25 basis points to a range between 0.75% to 1%.
March 17, 2017 | Permalink | No Comments
March 16, 2017
Trump, Homelessness and the General Welfare
The Hill published my column, Trump’s Budget Proposal Is Bad News for Housing Across the Nation. It opens,
The White House unveiled its much anticipated budget proposal today. It shows deep cuts to important agencies, including a more than $6 billion decrease in funding to the U.S Department of Housing and Urban Development (HUD). More than 75 percent of the agency’s budget goes to helping families pay their rent. Thus, these cuts would have a negative impact on thousands upon thousands of poor and working class households.
Many years ago, Congress enshrined the “goal of a decent home and a suitable living environment for every American family” within its Declaration of National Housing Policy. This goal was not just justified by the basic needs of those with inadequate housing, but also because “the general welfare and security of the nation” required it. As our nation’s leading cities grapple with rapidly growing homeless populations, this additional justification takes on added weight today.
Click here to read the rest of it.
March 16, 2017 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- A study by the Institute for Children, Poverty and Homelessness finds that New York City’s homeless high school students are more likely to face an array of health risks than their non-homeless counterparts.
- Boston Mayor Martin J. Walsh has made affordable housing a priority for his administration and has set a goal of creating 6,500 new affordable units by 2030. However, uncertainty in the Housing Credit market has affected the value of the credit, which could hinder cities and states in creating more housing for low-income residents.
- Citing an example from Des Moines, Iowa, an article by The Associated Press examines how the redevelopment of industrial districts often displaces light industrial businesses and warehouses.
March 16, 2017 | Permalink | No Comments
March 15, 2017
Fannie and Freddie’s Credit Risk Transfers
The Urban Institute’s Housing Finance Policy Center has released its February 2017 Housing Finance at a Glance Chartbook, always a great resource for housing geeks. Each Chartbook highlights one topic. This one focuses on GSE credit risk transfers, an important but technical subject:
March 15, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- This paper, ‘Monopoly’ in Real Life – The Housing Market and Inequality, uses a simple model based on the board game Monopoly to simulate the drivers of house prices and inequality. The starting capital, income per round (wage), rental income, rental costs and the timing of home ownership all matter for the evolution of house prices and inequality.
- This paper, Market Thickness and the Impact of Unemployment on Housing Market Outcomes, develops a search-matching model to study the impact of the unemployment rate on the housing market in the presence of the thick market effect. We estimate the structural model using Texas city-level data that covers three years, 1990, 2000 and 2010.
- This study, Nowhere to Go but Up: A Study of Listed Real Estate Sensitivity to Changes in Interest Rates, re-examines the sensitivity of global listed real estate markets to changes in market and Central Bank interest rates with respect to both their returns and volatility. Specifically the paper considers the recent period of relaxing monetary policies in the countries with the largest global listed real estate markets.
- In the wake of the financial crisis, mortgage lending to lower-income and minority borrowers overcorrected and has not recovered. This paper, Has the Mortgage Pendulum Swung Too Far? Reviving Access to Mortgage Credit, while homeownership is a riskier investment than previously realized, still it remains a proven path to increased wealth on balance for lower-income households.
March 15, 2017 | Permalink | No Comments
