Tag Archives: assessment

Fight Over The Community Reinvestment Act

Posted on by

Bloomberg BNA quoted me in Community Investment Revamp for Banks Likely To Spark Fight (behind a paywall). It opens,

Community groups and banks agree that the Community Reinvestment Act needs an update, but with regulators beginning an ambitious overhaul of the 1977 law there is little agreement on how that update should look.

The Trump administration has been targeting the CRA — which measures how well banks lend to low- to middle-income areas — for a rewrite since last June. Comptroller of the Currency Joseph Otting said March 28 that the first draft would be coming in early April.

Otting set out some broad ideas that his agency, the Office of the Comptroller of the Currency, and the other regulators that oversee the CRA will present to the public. The Federal Reserve and the Federal Deposit Insurance Corporation also have responsibility for measuring banks’ compliance with the law, and the OCC says that it hopes the two agencies will sign on to the coming advanced notice of proposed rulemaking.

Banking industry experts and community groups all said that the broad strokes of the regulators’ plan sound promising, but few expect that comity to continue when the details come more into view.

“I think you can assume that everybody is not going to be happy,” Laurence Platt, a partner at Mayer Brown LLP, told Bloomberg Law.

The CRA’s Present

The Trump administration first put the CRA in its sights in a June 2017 Treasury Department report outlining its broader views on altering the rules banks operate under.

The law calls for the OCC, the Fed and the FDIC to periodically measure how much lending the banks they oversee do inside geographical assessment areas based on their branch and ATM locations. If banks are found not to do enough of such lending, regulators can stop some business activities or hold up branch expansions and mergers. But it hasn’t been updated for nearly two decades.

The Treasury Department followed up the June 2017 statement on the CRA with an April 3 report outlining its thinking on ways to modernize the law. The report largely aligns with the path laid out by Otting.

“Our recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they serve while considering technological advances in the financial industry,” Treasury Secretary Steven Mnuchin said in a statement accompanying the report.

Changes to the Community Reinvestment Act have already begun, with the OCC under former acting Comptroller of the Currency Keith Noreika in October declaring that the OCC examiners would no longer include enforcement actions that are not linked to a bank’s CRA compliance in their rating.

That change was minor, and affected only one of the three regulators responsible for the CRA. Otting on March 28 laid out a host of other changes likely coming in a new proposal.

The CRA’s Future?

The broad outline Otting provided on March 28 largely highlights the areas in the CRA that community activists and banks have said need to be addressed.

Among the changes Otting said will be put out for comment include expanding the types of lending that would be included in calculations of banks’ CRA compliance to encompass small business, student lending and other money going into a community.

“I think there’s a sense that community-based activities, beyond individual lending, should be given more credit, such as small business loans and infrastructure loans,” Mayer Brown’s Platt said.

Other areas that are going to be addressed in the proposal will touch on the way CRA information is calculated and reported to the public. Currently, banks are examined for compliance every three to five years, and the banks’ reviews take an additional year.

Overall, Otting said the changes would be significant.

“This is monumental change for America,” Otting said in an appearance March 28 at the Operation Hope Global Forum in Atlanta.

The changes Otting discussed all sound promising, but they are vague. So fights are likely to emerge when the details come out.

“The comments that were made were vague enough to give you both concern and possible joy,” Taylor said.

One other aspect of the CRA that is ripe for reform is the geographic assessment areas regulators use to evaluate banks’ lending efforts. Otting and other regulators have yet to specifically outline their ideas for making changes to that, but both the comptroller and Fed Vice Chair for Supervision Randal Quarles have discussed including mobile banking, online lending, and other financial technology tools into their reviews.

How they elect to make that change is likely to be contentious as well.

“If the assessment area is poorly defined, then the CRA will lose its teeth and that’s going to drive CRA policy for a long time to come,” said David Reiss, a professor at Brooklyn Law School.

Framing Bipartisan Housing Finance Reform

Posted on by

photo by Jan Tik

The Bipartisan Policy Center has issued A Framework for Improving Access and Affordability in a Reformed Housing Finance System. The brief was written by Michael Stegman who had served as the Obama Administration’s top advisor on housing policy. It opens,

With policymakers gearing up to reform the housing finance system, it is worth revisiting one of the issues that stymied negotiators in the reform effort of 2014: how to ensure adequate access to credit in the new system. The political landscape has changed substantially since 2014. For those who are focused on financing affordable housing and promoting access to mortgage credit, the status quo—the continued conservatorship of Fannie Mae and Freddie Mac—may no longer be as appealing as it was during those negotiations. This brief draws upon the lessons learned from that experience to outline a framework for bipartisan consensus in this transformed political environment.

The “middle-way” approach described here is not dependent upon any one structure or future role for the government-sponsored enterprises (GSEs), though it does assume the continuation of a government guarantee of qualified mortgage-backed securities (MBS). It is this guarantee that forms the basis of the obligation to ensure that the benefits flowing from the government backstop are as broadly available as possible, consistent with safety and soundness and taxpayer protection.

In recent months, at least three such proposals have been developed that preserve a federal backstop (see Mortgage Bankers Association, Bright and DeMarco, and Parrott et al. proposals). Should the administration and Congress pursue a strict privatization approach to reform, lacking a guarantee, it’s unlikely that any affordable housing obligations would be imposed in the reformed system. (cover page, footnotes omitted)

Stegman goes on to describe “The Affordable Housing Triad:”

Over the years, Congress has made it clear that the GSEs’ public purpose includes supporting the financing of affordable housing and promoting access to mortgage credit “throughout the nation, including central cities, rural areas, and underserved areas,” even if doing so involves earning “a reasonable economic return that may be less than the return earned on other activities.” As part of this mandate, policymakers have created a triad of affordable housing and credit access requirements:

  1. Meeting annual affordable-mortgage purchase goals set by the regulator;
  2. Paying an assessment on each dollar of new business to help capitalize two different affordable housing funds; and
  3. Developing and executing targeted duty-to-serve strategies, the purpose of which is to increase liquidity in market segments underserved by primary lenders and the GSEs, defined by both geography and housing types. (1, footnote omitted)

The paper outlines three bipartisan options that would not

compromise the obligation to provide liquidity to all corners of the market at the least possible cost, consistent with taxpayer protection and safety and soundness. Each option attempts to ensure that the system as a whole provides access and affordability at least as much as the existing system; includes an explicit and transparent fee on the outstanding balance of guaranteed MBS; and includes a duty to serve the broadest possible market. (3)

The paper is intended to spark further conversation about housing finance reform while advocating for the needs of low- and moderate-income households. I hope it succeeds in pushing Congress to focus on the details of what could be a bipartisan exit strategy from the endless GSE conservatorships.

 

Assessing The Ability-to-Repay and Qualified Mortgage Rule

Posted on by

photo by Alan Levine

The Consumer Financial Protection Bureau has issued a Request for Information Regarding Ability-to-Repay/Qualified Mortgage Rule Assessment. Dodd-Frank

requires the Bureau to conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law. The Bureau must publish a report of the assessment not later than five years after the effective date of such rule or order. The assessment must address, among other relevant factors, the rule’s effectiveness in meeting the purposes and objectives of title X of the Dodd Frank Act and the specific goals stated by the Bureau. The assessment also must reflect available evidence and any data that the Bureau reasonably may collect. Before publishing a report of its assessment, the Bureau must invite public comment on recommendations for modifying, expanding, or eliminating the significant rule or order. (82 F.R. 25247)

The Bureau invites the public to submit the following:

  1. Comments on the feasibility and effectiveness of the assessment plan, the objectives of the ATR/QM Rule that the Bureau intends to emphasize in the assessment, and the outcomes, metrics, baselines, and analytical methods for assessing the effectiveness of the rule as described in part IV above;
  2. Data and other factual information that may be useful for executing the Bureau’s assessment plan, as described in part IV above;
  3. Recommendations to improve the assessment plan, as well as data, other factual information, and sources of data that would be useful and available to execute any recommended improvements to the assessment plan;
  4. Data and other factual information about the benefits and costs of the ATR/ QM Rule for consumers, creditors, and other stakeholders in the mortgage industry; and about the impacts of the rule on transparency, efficiency, access, and innovation in the mortgage market;
  5. Data and other factual information about the rule’s effectiveness in meeting the purposes and objectives of Title X of the Dodd-Frank Act (section 1021), which are listed in part IV above;
  6. Recommendations for modifying, expanding, or eliminating the ATR/QM Rule. (82 F.R. 25250)

As with the RESPA Assessment, this ATR/QM Assessment provides “consumers and their advocates, housing counselors, mortgage creditors and other industry representatives, industry analysts, and other interested persons” with the opportunity to help shape how the ATR/QM Rule should work going forward. (Id.)

Comments must be received on or before July 31, 2017.

Assessing RESPA

Posted on by

image by Yoel Ben-Avraham

The Consumer Financial Protection Bureau issued a Request for Information Regarding 2013 Real Estate Settlement Procedures Act Servicing Rule Assessment. The Bureau

is conducting an assessment of the Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), as amended prior to January 10, 2014, in accordance with section 1022(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bureau is requesting public comment on its plans for assessing this rule as well as certain recommendations and information that may be useful in conducting the planned assessment. (82 F.R. 21952)

This is certainly a pretty obscure initiative, albeit one required by the Dodd-Frank Act. But it is worth determining what is at stake in it. The Request includes some additional background:

Congress established the Bureau in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).1 In the Dodd-Frank Act, Congress generally consolidated in the Bureau the rulemaking authority for Federal consumer financial laws previously vested in certain other Federal agencies. Congress also provided the Bureau with the authority to, among other things, prescribe rules as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws and to prevent evasions thereof. Since 2011, the Bureau has issued a number of rules adopted under Federal consumer financial law.

Section 1022(d) of the Dodd-Frank Act requires the Bureau to conduct an assessment of each significant rule or order adopted by the Bureau under Federal consumer financial law. The Bureau must publish a report of the assessment not later than five years after the effective date of such rule or order. The assessment must address, among other relevant factors, the rule’s effectiveness in meeting the purposes and objectives of title X of the Dodd-Frank Act and the specific goals stated by the Bureau. The assessment must reflect available evidence and any data that the Bureau reasonably may collect. Before publishing a report of its assessment, the Bureau must invite public comment on recommendations for modifying, expanding, or eliminating the significant rule or order.

In January 2013, the Bureau issued the ‘‘Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X)’’ (2013 RESPA Servicing Final Rule). The Bureau amended the 2013 RESPA Servicing Final Rule on several occasions before it took effect on January 10, 2014. As discussed further below, the Bureau has determined that the 2013 RESPA Servicing Final Rule and all the amendments related to it that the Bureau made that took effect on January 10, 2014 collectively make up a significant rule for purposes of section 1022(d). The Bureau will conduct an assessment of the 2013 RESPA Servicing Final Rule as so amended, which this document refers to as the ‘‘2013 RESPA Servicing Rule.’’ In this document, the Bureau is requesting public comment on the issues identified below regarding the 2013 RESPA Servicing Rule. (Id., footnotes omitted)

The Bureau will be evaluating servicer activities such as responses to loss mitigation applications and borrower notices of error. It will also be evaluating fees and charges; the exercise of rights by consumers under the rule; and delinquency outcomes.

The Bureau is requesting comment on some technical subjects relating to the assessment plan itself. But if you think you have something to add, you should submit comments by July 10th here.

Retiree Real Estate Mistakes

Posted on by

Realtor.com quoted me in 5 Major Mistakes That Retirees Make With Real Estate. It opens,

You’ve worked hard year after grueling year and, finally, retirement is on the horizon. There’s nothing ahead for you but lazy days of relaxation and idle time to pursue those back-burner hobbies. Hey, you’ve earned it!

But if you haven’t planned ahead, those golden years could be full of stress—fraught with unknowns and major decisions to be made. And one of the biggest, most stressful aspects of retirement is, you guessed it, real estate.

Do you downsize? Buy a second property so you can make like snowbirds and fly south for the winter? Keep the home where all your family’s memories were made? While there’s no one-size-fits-all solution, there are some general pitfalls to avoid.

Here are five of the biggest real estate mistakes experts see retirees make.

1. Failing to ‘audit’ the situation

It might come as a surprise, but many retirees forget to assess their current real estate situation to make sure it meets their future needs, according to David Reiss, professor of law at Brooklyn Law School.

“Most people are on autopilot when it comes to their home: ‘It has worked for me up to now, so I assume that it will work for me going forward,’” Reiss says. “The mistake they make is that they do not realize that their future selves are very different from their current selves.

“As we age, our ability to do all sorts of physical things worsen—shoveling, climbing ladders—decreases,” he adds. “So it makes sense to assess your housing situation at regular intervals.”

Even if you plan on keeping your home, there are questions you should ask yourself: Should you make adjustments to your home so you can age in place? Does it make sense to refinance into a 15-year mortgage in order to pay off what you owe more quickly while paying a lower interest rate? Should you access some of the equity that’s built up in the house in order to supplement your retirement income?

“All of these options have pros and cons,” Reiss says. “It’s worth talking them through with someone whose financial judgment you trust.”

What Is an HOA?

Posted on by

photo by Clotee Allochuku

Realtor.com quoted me in What Is an HOA? Homeowners Associations—Explained. It opens,

If you’re buying a condo, townhouse, or freestanding home in a neighborhood with shared common areas—such as a swimming pool, parking garage, or even just the security gates and sidewalks in front of each residence—odds are these areas are maintained by a homeowners association, or HOA.

So what is an HOA, and how will it affect your life?

HOAs help ensure that your community looks its best and functions smoothly, says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. For instance, if the pump in the community swimming pool stops working, someone has to take care of it before the water turns green and toxic, right? Rather than expect any one individual in the neighborhood to volunteer their time and money to fix the problem, HOAs are responsible for getting the job done. And the number of Americans living in HOAs is on the rise, growing from a mere 1% in 1970 to 1 in 4 today, according to the Foundation for Community Association Research. So, it’s wise to know exactly how they work.

How much are HOA fees?

To cover these maintenance expenses, HOAs collect fees (monthly or yearly) from all community members. For a typical single-family home, HOA fees will cost homeowners around the $200 to $300 per month, although they can be lower or much higher depending on the size of your unit and the services provided. The larger the home, the higher the HOA fee—which makes sense, because the family of four in a three-bedroom condo is probably going to be using the common facilities more than a single woman living in a studio.

In addition, most HOAs charge their members a little more than monthly expenses require, so that they can build up a reserve to pay for emergencies and big-ticket items like repairing the roof and water heaters, or acquiring new carpeting, paint, and lights for the hallways.

If the HOA doesn’t have enough money in reserve to cover necessary expenses, it can issue a special “assessment,” or an extra fee, in addition to your monthly dues, so that the repairs can be made. For example, if the elevator in your condo building goes out and it’s going to cost $15,000 to replace it—but the HOA reserve account holds only $12,000—you and the rest of the residents are going to have to pony up at least an additional $3,000, divided among you, to make up the difference.

And yes, you would still have to contribute your share even if you live on the first floor.

HOA rules: What to expect

All HOAs have boards, made up of homeowners in the complex who are typically elected by all homeowners. These board members will set up regular meetings where owners can gather and discuss major decisions and issues with their community. For major expenditures, all members of the HOA usually vote.

In addition to maintaining the common areas, HOAs are also responsible for seeing that its community members follow certain rules. Homeowners receive a copy of these rules, knowns as “covenants, conditions, and restrictions” (CC&Rs), when they move in, and they’re required to sign a contract saying that they’ll abide by them.

CC&Rs can cover everything from your type of mailbox to the size and breed of your dog. Some HOAs require you to purchase extra homeowners insurance if you own a pit bull, for example; others prohibit certain breeds entirely. An HOA may even regulate what color you paint your house, and what kind of curtains you can hang if your unit faces the street. Its goal is not to meddle—it’s merely to maintain a neighborhood aesthetic. However, if you don’t like being told what to do with your home, an HOA may not be for you.

Evicted by Homeowners Association

Posted on by

photo by respres

Realtor.com quoted me in Homeowner Evicted for Not Paying HOA Dues: Can This Happen to You? It opens,

Who knew? Even if you pay your mortgage on time every month, your home can still be foreclosed on and sold from under your feet. That, at least, is what Triss McQuiston from Tomball, TX, learned recently when she was notified that she’d have to vacate her place. Why? It turns out she was evicted for not paying her HOA dues.

According to ABC13, McQuiston admits that she was guilty of procrastinating on paying her HOA fees to the Canyon Gate at Northpointe Owners Association in 2014 and 2015. Because she was opening a new business, her HOA bills slipped through the cracks, for a grand total of $1,800 in unpaid dues.

An attorney for the HOA claims that since March 2014, they’d sent McQuiston 12 notices by first-class certified mail to collect these assessments, warning her what would happen if she didn’t. When they received no response, they proceeded with the foreclosure, and sold the home at auction back in September.

Yet McQuiston argues that she’d received no warnings, and was made aware of her dire straits only when she received an eviction notice on her doorstep on May 20. She has since hired an attorney to help fight the case and remain in her home.

“I would never have thought in my wildest dreams that an HOA … would go to these lengths and they’d have this much power,” McQuiston told ABC13.

If this story has you viewing HOAs in a harsh (and terrifying) new light, we don’t blame you. And while the laws vary by state, it turns out that in most cases, HOAs really do have the power to foreclose on your home for unpaid dues, as do condo owners associations.

“Contrary to common perceptions, even if a person is current on a mortgage, the HOA or COA may foreclose,” says Bob Tankel, a Florida attorney specializing in HOA law. “What’s the moral of the story? Pay your assessments. These are not huge amounts. People apparently think that just because assessments are small there’s nothing bad that can happen. But that’s not true.”

To know specifically how your HOA or COA handles late payments, homeowners should “check the Declaration of Covenants, Conditions & Restrictions (CC&Rs),” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. You should check not only what constitutes a late payment, but also how you’ll be penalized; additional fees could include late charges, fines, interest, as well as attorneys’ fees.

It’s also smart to check what rights and recourse you have in your state if you end up unable to pay these assessments. “Some states have enacted some procedural protections for homeowners,” says Reiss. “It’s worth figuring those out if you are not able to pay off your HOA right away.”