March 14, 2017
Gorsuch and the State of Administrative Law
The United States Supreme Court
I was interviewed by Harold O’Grady on his podcast for the BLS Library Blog about Supreme Court nominee Judge Gorsuch:
This conversation with Brooklyn Law School Professor David Reiss focuses on his recent article Gorsuch, CFPB and Future of the Administrative State. Prof. Reiss talks about the impact that U.S. Supreme Court nominee Judge Neil Gorsuch would have on the future of administrative law and, in particular, on federal consumer protection enforcement if he is confirmed. Prof. Reiss reviews the case PHH v. Consumer Financial Protection Bureau which the United States Court of Appeals, District of Columbia Circuit decided last year. It is likely the case will be appealed to the Supreme Court. If so, Justice Gorsuch may vote to curtail the independence of the Consumer Financial Protection Bureau and limit its enforcement powers. More generally, Prof. Reiss believes that, given previous rulings by Judge Gorsuch in cases dealing with administrative law, a Justice Gorsuch will be a skeptic of agency action and will support greater judicial review of agency actions.
You can find the link to our conversation here.
March 14, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- The Federal Reserve Bank of Atlanta announced Monday that it selected Raphael Bostic to serve as its new president and chief executive officer, replacing Dennis Lockhart, who retired from the Atlanta Fed at the end of February. Bostic’s appointment at the Atlanta Fed takes effect on June 5, 2017.
- The Vice Chairman of the Federal Deposit Insurance Corp. just unveiled a proposal to regulate banks in a way he feels will be superior to current Dodd-Frank financial reform. Speaking at the Institute of International Bankers Annual Washington Conference, Thomas Hoenig said that while Dodd-Frank is well intended, the regulations are too burdensome for all banks, “especially smaller banks.”
- President Donald Trump held a listening session Thursday to talk to leaders of community banks. In the session, also attended by Treasury Secretary Steven Mnuchin and Gary Cohn, head of the National Economics Council, Trump promised lenders that soon they would be safe to loan and create jobs, according to an article by Renae Merle for The Washington Post.
- The three credit rating agencies will soon exclude tax liens and civil judgments from credit reports for many people, according to the The Wall Street Journal. Equifax, Experian and TransUnion will remove the tax-lien and civil-judgment data starting around July 1, helping omit negative information from the financial scorecards, the article noted.
March 14, 2017 | Permalink | No Comments
March 13, 2017
Three Paths to Housing Finance Reform
The Urban Institute’s Jim Parrott has posted Clarifying the Choices in Housing Finance Reform. It opens,
The housing finance reform debate has often foundered under the weight of its complexity. Not only is it a complicated topic, both in its substance and its politics, but the way that we talk about it makes the issues involved indecipherable to all but a few. Each proponent brings a different nomenclature, a different frame of reference, often an entirely different language, making it enormously difficult to sort through where there is agreement and where there is not.
As a case in point, three prominent proposals for reform have been put on the table in recent months: one offered by Lew Ranieri, Gene Sperling, Mark Zandi, Barry Zigas, and me (Promising Road Proposal); one offered by Ed DeMarco and Michael Bright (Milken Proposal); and one offered by the Mortgage Bankers Association (MBA Proposal). These proposals have been discussed and debated in many forums, each assessed for its respective merits, risks, and likelihood of passage in Congress, but each largely in isolation from one another. That is, they are not compared in any intelligible way, forcing those hoping to come to an informed view to choose among what appear to be entirely different visions of reform, without any easy way to make sense of the choice.
In this brief essay, I thus bring these three proposals together into a single framework, making it clearer what they share and where they differ. Once the explanatory fog is lifted, one can see that they actually share a great deal and that deciding among them is not prohibitively complex, but a matter of assessing two or three key differences. (1-2)
After a review of each proposal, Parrott finds that there are two critical differences between the three proposals.
- Ginnie versus CSP. For the securitization infrastructure in the new system, Milken uses the Ginnie Mae infrastructure, while the MBA and our proposal both use the CSP.
- What to do with Fannie and Freddie. The MBA would turn them into privately owned utilities that compete with other market participants over the distribution of the system’s non-catastrophic credit risk, Milken would turn them into lender-owned mutuals that do the same, and we would combine them with the CSP to distribute that risk and manage the system’s securitization.
With these distinctions in mind, the proposals can be much more easily compared across the criteria that should ultimately drive our decisions on housing finance reform:
- Access to sustainable credit. Which best maintains broad access to mortgage loans for those in a financial position to be a homeowner at the lowest rates?
- Protecting the taxpayer. Which best insulates taxpayers behind private capital, aligns incentives systemwide and addresses the too-big-to-fail risk that undermined the prior system?
- Promoting healthy competition. Which best maximizes the kinds of competition that will improve options and services for consumers, lenders, and investors?
- Ease of transition. Which provides the least disruptive, least costly path of reform? (7-8)
This is a very useful tool for understanding the choices that we face if we are to move beyond the limbo of Fannie and Freddie’s conservatorships. One limitation is that Parrott does not address the Hensarling wing of the Republican Party which is looking to completely privatize the housing finance system for conforming mortgages. Given that Hensarling is the Chair of the House Financial Services Committee, he will have a powerful role in enacting any reform legislation.
I am not all that hopeful that Congress will be able to come up with a bill that can pass both houses in the near future. But Parrott’s roadmap is helpful preparation for when we are ready.
March 13, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- A Florida title agent and an investment group president pled guilty Monday to charges that they participated in a $10 million mortgage fraud scheme that targeted Washington Mutual Bank.
- he JPMorgan Chase & Co. portfolio manager for a pair of complex investment vehicles faced tough questions Monday over why he and his team kept investors in residential mortgage-backed securities during the financial crisis to ultimately lose more than $1.4 billion.
March 13, 2017 | Permalink | No Comments
March 10, 2017
Minority Homeownership During the Great Recession
Print by Andy Kane
Carlos Garriga et al. have posted The Homeownership Experience of Minorities During the Great Recession to SSRN. The paper concludes,
The Great Recession wiped out much of the homeownership gains attained during the housing boom. However, the homeownership experience was very different across racial and ethnic groups. Black and Hispanic borrowers experienced substantial repayment difficulties that ultimately led to a greater share of homes in foreclosure.
Given that home equity often represents a substantial share of household wealth, these foreclosure events severely damaged the balance sheets of minority families. The dynamics of delinquency and foreclosure functioned differently across the income distribution within racial and ethnic groups.
For the majority, higher income was associated with lower delinquency rates and fewer foreclosures as a group. However, for Hispanic families this relationship was surprisingly reversed. Hispanics with the highest incomes fared worse than those with the lowest incomes. This counterintuitive finding suggests how college-educated Hispanic families may have had worse wealth outcomes than their non-college-educated peers: Hispanic families with high income (potentially the result of high educational attainment) had a greater share of home equity lost in foreclosure than lower-income Hispanic families.
Logit regressions suggest that underwriting standards and loan structure explain a significant amount of the greater likelihood of foreclosure among Black and Hispanic borrowers. However, underwriting standards explained more of the gap for Black borrowers, while loan structure was a stronger factor among Hispanic borrowers. Regional concentration and variation in housing markets explained more of the Hispanic-White foreclosure gap than any other group. This is understandable given that Hispanic borrowers in our sample were heavily concentrated in housing markets that experienced some of the largest volatility. Despite accounting for these important factors, sizable gaps remain in foreclosures among Blacks and Hispanics relative to Whites. Incorporating measures of labor market outcomes into the analysis may offer further insights.
In sum, the homeownership experience during the Great Recession proved to be inimical for many families, but far more so for Black and Hispanic families. For these families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership. (164-65)
I am not sure what this all means for housing finance policy other than the obvious: consumer protection in the mortgage market is a good thing as it ensures that underwriting standards evaluate ability-to-repay and loan structures exclude abusive terms like teaser rates (thanks to the ATR and QM rules and the Consumer Financial Protection Bureau). There are probably other policies that we should consider to reduce the depths of our busts, but they do not seem likely to gain traction in the current political environment.
March 10, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- HSBC is no longer a leader in residential mortgage loans. The company partnered with the Securities and Exchange Commission (SEC) to ensure the their “U.S. consumer mortgage loans” were significantly reduced. Today, the company holds consumer mortgage loans equal to the amount owned in 2008.
- On March 8, 2017, Trump’s Department of Housing and Urban Development (H.U.D.) budget for the 2018 year leaked. The documents displayed a potential 6 billion dollar cut to the federal agency. Ben Carson, the new director of the agency, believes the agency fosters dependency and would like to see funds used elsewhere.
- Governor Cuomo announced an elaborate 1.5 billion dollar plan to revitalize Brooklyn, NY. Cuomo’s plan will focus on housing, urban development, health, and family. Furthermore, the New York governor wants to prioritize resiliency and affordable housing.
March 10, 2017 | Permalink | No Comments
March 9, 2017
The Gap in Affordable Homes
The National Low Income Housing Coalition posted a report, The Gap: A Shortage of Affordable Homes. The report opens,
For the first time since the recession, U.S. household income increased significantly during 2015. Gains were seen even among the lowest income households, with the poverty rate declining from 14.8% to 13.5%. Millions of people, however, continue to struggle economically. Household income for the poorest 10% of households remains 6% lower today than in 2006, and more than 43 million Americans remain in poverty, many of whom struggle to afford their homes.
Each year, the National Low Income Housing Coalition (NLIHC) measures the availability of rental housing affordable to extremely low income (ELI) households and other income groups. This year’s analysis is slightly different from previous years in that NLIHC adopted the federal government’s new statutory definition for ELI, which are households whose income is at or below either the poverty guideline or 30% of their area median income (AMI), whichever is higher. Based on 2015 American Community Survey (ACS) data, this report provides information on the affordable housing supply and housing cost burdens at the national, state, and metropolitan levels. This year’s analysis continues to show that ELI households face the largest shortage of affordable and available rental housing and have more severe housing cost burdens than any other group. (2, citations omitted)
The report’s key findings include:
• 11.4 million ELI renter households accounted for 26% of all U.S. renter households and nearly 10% of all households.
• The U.S. has a shortage of 7.4 million affordable and available rental homes for ELI renter households, resulting in 35 affordable and available units for every 100 ELI renter households.
• Seventy-one percent of ELI renter households are severely cost-burdened, spending more than half of their income on rent and utilities. These 8.1 million severely cost-burdened households account for 72.6% of all severely cost-burdened renter households in the U.S.
• Thirty-three percent of very low income (VLI) renter households; 8.2% of low income (LI) renter households, and 2.4% of middle income (MI) renter households are severely cost-burdened.
• ELI renter households face a shortage of affordable and available rental homes in every state. The shortage ranges from just 15 affordable and available homes for every 100 ELI renter households in Nevada to 61 in Alabama.
• The housing shortage for ELI renters ranges from 8,700 rental homes in Wyoming to 1.1 million in California. (2)
It is of course important to talk about this gap as an affordable housing issue, but as I have written before, it is as much an income problem as a housing problem. It’s not just that the rent is too damn high, but that the paycheck is just too damn low.
I don’t see anything on the political horizon that will address this fundamental set of problems, but we should at least identify it properly so we can work toward a solution when the time is right.
March 9, 2017 | Permalink | No Comments
