February 2, 2017
Thursday’s Advocacy & Think Tank Roundup
- Kaitlyn Snyder and Rebekah King from the National Housing Conference write about the necessity of including affordable housing in any major infrastructure legislation, as part of a series of blog posts on the connection between housing and infrastructure by the Campaign for Housing and Community Development Funding (CHCDF). According to Snyder and King, providing affordable housing near jobs, similar to roads and bridges, helps connect workers to economic activity and ease congestion on transportation infrastructure.
- In a web seminar titled, How Should We Measure Affordability, Chris Herbert the Managing Director of the Joint Center for Housing Studies discusses the Joint Center’s annual State of the Nation’s Housing Report noted that the number of cost-burdened renters—those paying more than 30 percent of their income for housing—reached a record high of 21.3 million in 2014.
- The largest trade group in the mortgage finance space, the Mortgage Bankers Association, released its initial plans for its recommended approach for secondary mortgage market reform, unveiling the first product from its recently formed “task force,” which is made up of some of the top lenders and insurers in the industry. The paper is a first look at the MBA’s plans for ending the conservatorship of Fannie Mae and Freddie Mac, the government-sponsored enterprises, with the full paper anticipated to come in April.
February 2, 2017 | Permalink | No Comments
February 1, 2017
Gorsuch and the CFPB
Judge Gorsuch
Bankrate.com quoted me in Supreme Court Pick Could Spell Trouble for the CFPB. It opens,
President Donald Trump’s first Supreme Court pick has been identified as the “most natural successor” to the late Justice Antonin Scalia, whom he would replace.
Neil Gorsuch, 49, a judge on the 10th Circuit Court of Appeals in Denver, is said to share many of Scalia’s beliefs and his judicial philosophy. That could tip the high court back toward the 5-4 conservative split it held during controversial cases prior to Scalia’s death, although Justice Anthony Kennedy will remain a liberal swing vote on certain social issues before the court.
Gorsuch’s big judicial decisions have favored religious freedom over government regulation and state’s rights over the power of the federal government.
But how might that impact consumers or their wallets directly?
“I think with a judge like Gorsuch, you can see there probably will be a tendency in that direction to dissuade innovation,” says David Reiss, a law professor at Brooklyn Law School and the academic program director for the Center for Urban Business Entrepreneurship.
That could mean the Consumer Financial Protection Bureau, whose unique management structure a judge on the U.S. Court of Appeals for the D.C. Circuit last fall called unconstitutional, could face an obstacle on the bench should the legal fight over its construction ever reach the Supreme Court.
Judge Brett Kavanaugh, who wrote the majority opinion for the D.C. circuit panel, said because this independent agency is headed by a director whom the president cannot fire at will – and not, say, a set of commissioners like other agencies within the government – it is a threat to individual liberty.
“In short, when measured in terms of unilateral power, the director of the CFPB is the single most powerful official in the entire U.S. government, other than the president,” Kavanaugh wrote. “In essence, the director is the president of consumer finance.”
How Gorsuch May Rule
Supporters of the bureau are trying to get a hearing before the full U.S. Court of Appeals, but the issue could well wind up in front of the U.S. Supreme Court – that is if Congress doesn’t take action first.
Legal scholars say should Gorsuch win Senate confirmation he is unlikely to look favorably on the bureau’s structure.
Indeed, Gorsuch is likely to “echo the views of Judge Kavanaugh,” Melissa Malpass, senior legal editor for consumer regulatory finance at Thompson Reuters Practical Law, said in an email.
“Judge Gorsuch, through recent decisions, has expressed his disfavor with permitting government agencies to not only determine what the law is, but also to interpret and re-interpret the law as they see fit, often based on the political climate,” Malpass says.
If the Supreme Court were to uphold the Kavanaugh ruling, it “may, in effect, destroy the CFPB as we know it, and that will have an effect on consumers,” Reiss says.
Not everyone, though, thinks restructuring the CFPB as a commission-led agency like the Federal Communications Commission, for example, would be bad for consumers.
Gorsuch’s Path to the High Court
Democrats, still stung over the Senate’s refusal to consider Merrick Garland, then-President Barack Obama’s pick to succeed Scalia, could try to block Gorsuch’s nomination. Under current Senate rules, at least eight Democrats will need to cross the aisle to prevent a filibuster of the appointment.
Gorsuch, who was confirmed for his current post in 2006 by Senate voice vote, has won widespread acclaim in Republican circles. He also received a vote of confidence from a former Obama administration official.
“I think the Democrats are going to ask questions to determine if the nominee is outside what they call the political mainstream,” Reiss says. “We know this battle will be a brutal one, almost definitely because of the treatment of Merrick Garland’s nomination under the Obama administration.”
February 1, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- An essay titled, Riskiness of Real Estate Development: A Perspective from Urban Economics & Option Value Theory, defines a new construct for urban economic analysis which puts this conventional wisdom in a new light. The authors call the new construct, the Development Asset Value Index (DAVI). The DAVI is a value index for newly-developed properties (only) in a geographical property market.
- An article titled, Do Different Price Points Exhibit Different Investment Risk and Return Commercial Real Estate, shows that there are indeed large differences in price dynamics for different price points. These differences are suggestive of a lack of integration in the property asset market, because we find apparent differences in the risk/return relationship.
- In an article titled, Loss Aversion in the Housing Market: A New Paradigm, the authors propose a search model in a housing market which incorporates Tversky and Kahneman’s prospect value function as a special case. Our model provides a clear correspondence between each component of the prospect theory and its unique empirical implication.
February 1, 2017 | Permalink | No Comments
January 31, 2017
Mortgage Bankers and GSE Reform
The Mortgage Bankers Association has released GSE Reform Principles and Guardrails. It opens,
This paper serves as an introduction to MBA’s recommended approach to GSE reform. Its purpose is to outline what MBA views as the key components of an end state, the principles that MBA believes should be incorporated in any future system, the “guardrails” we believe are necessary in our end state, as well as emphasize the need to ensure a smooth transition to the new secondary mortgage market. (1)
While there is very little that is new in this document, it is useful, nonetheless, as a statement of the industry’s position. The MBA has promulgated the following principles for housing finance reform:
- The 30-year, fixed-rate, pre-payable single-family mortgage and longterm financing for multifamily mortgages should be preserved.
- A deep, liquid TBA market for conventional single-family loans must be maintained. Eligible MBS backed by a well-defined pool of single-family mortgages or multifamily mortgages should receive an explicit government guarantee, funded by appropriately priced insurance premiums, to attract global capital and preserve liquidity during times of stress. The government guarantee should attach to the eligible MBS only, not to the guarantors or their debt.
- The availability of affordable housing, both owned and rented, is vitally important; these needs should be addressed along a continuum, incorporating both single- and multifamily approaches for homeowners and renters.
- The end-state system should facilitate equitable, transparent and direct access to secondary market programs for lenders of all sizes and business models.
- A robust, innovative and purely private market should be able to co-exist alongside the government-backed market.
- Existing multifamily financing executions should be preserved, and new options should be permitted.
- The end-state system should rely on strong, transparent regulation and private capital (including primary-market credit enhancement such as mortgage insurance [MI] and lender recourse, or other available forms of credit risk transfer) primarily assuming most of the risk.
- While the system will primarily rely on private capital, there should be a provision for a deeper level of government support in the event of a systemic crisis.
- There should be a “bright line” between the primary and secondary mortgage markets, applying to both allowable activities and scope of regulation.
- Transition risks to the new end-state model should be minimized, with special attention given to avoiding any operational disruptions. (3-4)
This set of principles reflect the bipartisan consensus that had been developing around the Johnson-Crapo and Corker-Warner housing reform bills. The ten trillion dollar question, of course, is whether the Trump Administration and Congressional leaders like Jeb Hensarling (R-TX), the Chair of the House Banking Committee, are going to go along with the mortgage finance industry on this or whether they will push for a system with far less government involvement than is contemplated by the MBA.
January 31, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- The Senate Banking Committee on Tuesday voted unanimously to move the nomination of Dr. Ben Carson to serve as secretary of Housing and Urban Development amid concerns from some about his lack of experience in housing issues.
- President Donald Trump signed an executive order Monday morning to significantly roll back regulations, following through on claims that he would be “cutting regulation massively.” According to the executive order, “It is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources.” Link to article on Housing Wire for more.
- But executive orders are just the preamble to the big initiatives that Trump and the Republican majority in Congress are expected to push for shortly. Chief among those is the “dismantling” of the Dodd-Frank Wall Street Reform Act. During the presidential transition, Trump’s transition team stated that dismantling Dodd-Frank would be one of the president’s main priorities. And on Thursday, the American public got a reminder that the president and his party plan to keep that promise. Link to Housing Wire article here
January 31, 2017 | Permalink | No Comments
January 30, 2017
What Is at Stake with the FHA?
The Hill published my column, The Future of American Home Ownership Under President Trump. It reads,
One of the Trump Administration’s first official actions was to reverse the Federal Housing Administration (FHA) mortgage insurance premium cut that was announced in the last days of President Obama’s term. This is a pretty obscure action for Trump to lead with in his first week in office, so it is worth understanding what is at stake with the FHA and what it may tell about the future of homeownership in the United States.
The FHA has roots that stretch back to the Great Depression. It was created to provide liquidity in a mortgage market that was frozen over and to encourage consumer-friendly practices in the Wild West mortgage and home construction markets of the early 20th century. It was a big success on both fronts
After the Great Depression, the federal government deployed the FHA to achieve a variety of other social goals, such as supporting civilian mobilization during World War II, helping veterans returning from the War, stabilizing urban housing markets during the 1960s, and expanding minority homeownership rates during the 1990s. It achieved success with some of these goals and had a terrible record with others, leading to high rates of default for some FHA programs.
In the last few years, there have been calls to significantly restrict the FHA’s activities because of some of its more recent failures. Trump’s policy decisions for the FHA will have a big impact on the nation’s homeownership rate, which is at its lowest in over 50 years. This is because the FHA is heavily relied upon by first-time homebuyers.
We do not yet have a good sense of how President Trump views the FHA because he had very little to say about housing policy during his campaign. And his choices to lead the Department of Housing and Urban Development, Ben Carson, and the Treasury Department, Steven Mnuchin, had little to add on this subject during their Senate confirmation hearings.
The 2016 Republican Party Platform does, however, offer a sense of where we might be headed: “The Federal Housing Administration, which provides taxpayer-backed guarantees in the mortgage market, should no longer support high-income individuals, and the public should not be financially exposed by risks taken by FHA officials.”
This vague language refers to two concrete policies that have their roots in actions taken by the FHA during the Bush and Obama administrations. The reference to the support given to “high-income individuals” refers to the fact that Congress significantly raised FHA loan limits starting in 2008, so that the FHA could provide liquidity to a wider swath of the mortgage market. The GOP is right to question whether that the FHA still needs to provide insurance for $500,000 and more mortgages now that the market has stabilized.
The GOP’s statement that taxpayers “should not be financially exposed by risks taken by FHA officials” refers to the fact that the FHA had a lot of losses as a result of the financial crisis. These losses resulted in the FHA failing to meet its statutorily-required minimum capital ratio starting in 2009. In response to these losses, the FHA increased the mortgage insurance premiums it charged to borrowers.
While the FHA has been meeting its minimum capital ratio for the last couple of years, premiums have remained high compared to their pre-crisis levels. Thus, the GOP’s position appears to back off from support for homeownership, which has been a bipartisan goal for nearly 100 years.
The FHA should keep its premiums high enough to meet its capital requirements, but should otherwise promote homeownership with the lowest premiums it can responsibly charge. At the same time, FHA underwriting should be required to balance access to credit with households’ ability to make their mortgage payments over the long term. That way the FHA can extend credit responsibly to low- and moderate-income households while minimizing the likelihood of future bailouts by taxpayers.
This is the most responsible way for the Trump administration to rebuild sustainable homeownership for a large swath of Americans as we recover from the brutal and compounding effects of the subprime crisis, financial crisis and foreclosure crisis.
January 30, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- A California federal judge said Friday she will approve Ocwen Loan Servicing LLC’s $600,000 settlement resolving class action claims that it failed to apply certain mortgage payments to borrower accounts because of a software bug, calling the deal “an excellent result” for the roughly 9,000 class
- A New York federal judge Monday preserved most of a suit claiming Deutsche Bank National Trust Co. failed to protect investors from over $1 trillion in losses due to poorly underwritten residential mortgage-backed securities, dismissing only the claims the bank had a conflict of interest
January 30, 2017 | Permalink | No Comments
