Tag Archives: Brooklyn Law School

Planning and Protesting at the Brooklyn Book Festival

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I will be moderating a panel at the 2014 Brooklyn Book Festival on Sunday, September 21st at 10am in the Brooklyn Law School Moot Courtroom.  The panel is

Planning and Protesting: Cities Evolve!
With the city constantly evolving, each major project has its supporters and protesters. Authors Gregory Smithsimon and Benjamin Shepard (The Beach Beneath The Streets – Contesting New York City’s Public Spaces) and Daniel Campo (The Accidental Playground: Brooklyn Waterfront Narratives of the Undesigned and Unplanned) and Peter Linebaugh (Stop, Thief! The Commons, Enclosures, and Resistance) discuss how public space is shaped through policy, perspective and protests, how to agree to disagree, and the dynamics of shaping a city’s growth and change. Moderator David Reiss, Professor, Brooklyn Law School.

Reiss on $17 Billion BoA Settlement

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Law360 quoted me in BofA Deal Shows Pragmatism At Work On Both Sides (behind a paywall). It reads in part,

Bank of America Corp.’s $16.65 billion global settlement over its alleged faulty lending practices in the run-up to the financial crisis may have made bigger waves than recent payouts by JPMorgan Chase & Co. and Citigroup Inc., but attorneys say the deal still represents the best possible outcome for the bank and for federal prosecutors, who can now put their resources elsewhere.

The settlement, inked with the U.S. Department of Justice, Securities and Exchange Commission, the Federal Housing Finance Agency, the Federal Deposit Insurance Corp., the Federal Housing Administration and the states of California, Delaware, Illinois, Kentucky, Maryland and New York, released most of the significant claims related to subprime mortgage practices at Countrywide Financial Corp. and investment bank Merrill Lynch, both of which Bank of America picked up during the crisis.

Although the hefty price tag, which includes $7 billion in consumer relief payments and a record $5 billion in civil penalties, is nothing to balk at, the settlement will help Bank of America avoid a series of piecemeal deals that could stretch out over a much longer period without the prospect of closure, according to Ben Diehl of Stroock & Stroock & Lavan LLP.

“They want to start being looked at and considered by the market, their customers and regulators based on what they are doing today, in 2014, and not have everything continue to be looked at through the perspective of alleged accountability for conduct related to the financial crisis,” said Diehl, who formerly oversaw civil prosecutions brought by the California attorney general’s mortgage fraud strike force.

And the bank isn’t the only one looking for closure, according to Diehl.

“It’s in a regulator’s interest as well to be able to look at what is currently being offered to consumers and have a dialogue with companies about that, as opposed to talking about practices that allegedly happened six or more years prior,” he said.

The government also saw great value in getting a big dollar number out to a public that has expressed frustration over a perceived lack of accountability of financial institutions for their role in the financial crisis.

“The executive branch get a big news story, particularly with the eye-poppingly large settlements that have been agreed to recently,” said David Reiss, a professor at Brooklyn Law School, who added that the federal government also has an interest in global settlements that keep the markets running more predictably.

Reiss on Big BoA FIRREA Penalty

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Bloomberg BNA quoted me in FIRREA-Fueled Penalty Against BofA Signals More Risk for Large Institutions (behind a paywall). It reads in part,

A federal judge in New York ordered Bank of America to pay $1.26 billion in civil penalties to the U.S. government in connection with a Countrywide lending program, setting up a likely appeal in one of the most closely watched cases in the financial services arena (United States v. Bank of Am. Corp., S.D.N.Y., No. 12-cv-01422, 7/30/14).

The ruling by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, which also said former Countrywide official Rebecca Mairone must pay $1 million in installments, followed an October jury verdict that found Bank of America liable for Countrywide’s sale of bad loans to Fannie Mae and Freddie Mac, some of which were securitized.

Countrywide sold those loans under its “High-Speed Swim Lane” program—an initiative aimed at speeding the loan approval process and one launched before Bank of America acquired Countrywide in 2008.

Rakoff called the nine-month HSSL program “from start to finish the vehicle for a brazen fraud,” and imposed a $1,267,491,770 penalty on Bank of America.

The amount was less than the $2.1 billion sought by the government, but well above what Bank of America argued was appropriate, which was $1.1 million at the most .

“We believe that this figure simply bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company,” Bank of America spokesman Lawrence Grayson told Bloomberg BNA July 30. “We are reviewing the ruling and assessing our appellate options,” he said.

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According to Rakoff, Firrea could have allowed a penalty in this case that would have equaled the value of the loan transaction itself, which totaled $2.96 billion.

Rakoff, citing the discretion granted to judges in such cases, reduced the penalty to $1.267 billion, saying not all of the loans were flawed.

Brooklyn Law School Professor David Reiss called Rakoff’s ruling significant and a new turn in an important area of case law for businesses.

“We’re beginning to see a jurisprudence of Firrea penalties and a penalty regime that is very pro-government,” Reiss told Bloomberg BNA. “This shows that the penalty can be as high as the nominal amount of the transaction. It’s good guidance in the sense that it helps businesses know the outer boundaries of their risk, but it’s a generous view of deterrence,” he said.

Reiss on Investing In Real Estate Versus REITs

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Investopedia quoted me in Investing In Real Estate Versus REITs. It reads in part,

The U.S. real estate market is finally starting to fire on most, if not all, cylinders, with investors’ enthusiasm gathering steam seemingly each passing month.

According to a study from the Urban Land Institute and PwC,expectations on profitability from the U.S. real estate sector are on the upside going forward. “In 2010, only 18% of respondents felt the prospects for profitability were at a good or better level,” the ULI reports. “This has improved steadily each year, with 68% of respondents now feeling that profitability will be at least good in 2014.”

The study reports that myriad investment demographics are pouring into the market, including foreign investors, institutional investors and private equity funds, as well as leveraged debt from insurance companies, mezzanine lenders, and issuers of commercial mortgage-backed securities.

“The anticipated interest in secondary markets is indicative of how the U.S. real estate recovery is expanding beyond the traditional investment hubs,” says Patrick L. Phillips, chief executive officer at the ULI. “Access to greater amounts of both debt and equity financing, combined with a sustained improvement in the underlying economic fundamentals, means that the opportunities and returns offered in smaller markets are potentially very appealing.”

A burgeoning profit avenue for investors is the real estate investment trust market, a market that is truly growing by leaps and bounds. Ernst & Young reports the REIT (Real Estate Investment Trust) market has grown from $300 billion in 2003 to $1 trillion by 2013, with growth expected to accelerate going forward.

By definition, an REIT is a corporation, trust or association that owns and, in most cases, operates income-producing real estate and/or real estate-related assets. Modeled after mutual funds, REITs pool the capital of numerous investors. This allows individual investors to earn a share of the income produced through commercial real estate ownership, without having to go out and buy or finance property or assets.

REITs differ from traditional real estate investing, primarily due to the fund-heavy strategic asset flow from REITs, versus the traditional free, more direct access flow from real estate investing (like becoming a landlord or buying stocks from homebuilding companies.) But both investments offer distinct advantages

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some industry experts say the advantages of both investment classes cut much deeper than the descriptions above.

One big difference is that the market for REIT shares is much closer to the efficient market described by Nobel Prize winner Eugene Fama than the market for individual real estate parcels is, says David Reiss, a professor of law at Brooklyn Law School, and an expert on REITs.

“That means that the price of a REIT’s shares is more likely to contain all available information about the REIT,” he says.

“Because individual real estate parcels are sold in much smaller markets and because the cost of due diligence on a single property is not as cost-effective as it is on REIT shares, an investor has a better opportunity, at least in theory, to get a better return on his or her investment if he or she does the diligence him or herself.”

Reiss on Mortgage Insurance Proposal

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Law360 quoted me in FHFA Capital Rules Will Squeeze Older Mortgage Insurers (behind a paywall). It opens,

The Federal Housing Finance Agency on Thursday released proposals that would impose higher capital requirements on private mortgage insurers doing business with Fannie Mae and Freddie Mac, but experts say insurers with bubble-era mortgages in their portfolios may find it tough to meet the new mandates.

The new standards will force mortgage insurers to determine the amount of cash and other liquid assets they retain to cover potential payouts using more of a risk-based formula than they have up to this point, meaning that the riskier the mortgage, the more capital will be required.

Because of that, mortgage insurers that were in business during the housing bubble era and have older loans on their books will be hit harder than insurers that have only post-financial crisis loans on their books, said Paul Hastings LLP partner Kevin Petrasic.

“The older vintage mortgages have more challenging issues than the newer mortgages,” he said.

Fannie Mae and Freddie Mac are barred from backing mortgages where the borrower has contributed less than a 20 percent down payment without getting private mortgage insurance to make up the difference. The insurance on those mortgages absorbs any losses before Fannie Mae and Freddie Mac do in the case of default, in essence putting private money before taxpayer money.

During the financial crisis, private mortgage insurers paid out billions of dollars on bad mortgages even as Fannie Mae and Freddie Mac took on over $180 billion in federal bailout money in the fall of 2008, when they were put under the FHFA’s conservatorship.

However, the financial crisis also saw many of the larger mortgage insurers fail under the weight of the huge number of claims they had to cover, contributing to Fannie and Freddie’s collapses.

“The history of the mortgage insurance industry is a history of good profits during good times and catastrophic losses in bad times,” said Brooklyn Law School professor David Reiss. “It seems like what the FHFA is doing is saying we don’t want the taxpayer on the hook during the next period of catastrophic losses.”

That is exactly what the FHFA says it intends with its new regulations, part of a so-called strategic plan to strengthen Fannie Mae and Freddie Mac and to bring more private money into the mortgage market.

Reiss in CSM on Rental Policy

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The Christian Science Monitor quoted me in Census Outlines ‘Poverty Areas’: Which States Hit Hardest? It reads in part,

The number of US residents living in “poverty areas” has jumped significantly since 2000, according to a Census Bureau report released Monday.

According the 2000 Census, less than 1 in 5 people lived in poverty areas. But more recently, 1 in 4 residents have lived in these areas, according to census data collected from 2008 to 2012.

The Census Bureau defines a poverty area as any census tract with a poverty rate of 20 percent of more.

Sociologists and other analysts point to the Great Recession, in particular housing and job challenges, as well as slow and uneven growth since the recession.

“With the advent of the financial crisis and the bursting of the housing bubble, many people lost their homes and thus needed to rent or move in with relatives,” says Cheryl Carleton, an economics professor at Villanova University near Philadelphia. “[I]ndividuals need to move where they can afford to live … which is going to be in areas where public housing is available or housing prices and rental rates are low, which is more likely to be in a ‘poverty area.’ ” Professor Carleton made her comments via e-mail.

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Law professor David Reiss suggests that changes to homeownership policies could help.
“Federal and state housing programs could do more to support a market for well-maintained rental units for low-income households,” e-mails Professor Reiss, who teaches at Brooklyn Law School. “Many low-income households have difficulty maintaining homeownership because of irregular incomes and low wealth.”

Reiss on Abandoned Homes

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Interest.com quoted me in How to Deal with An Abandoned Home. It reads in part,

5 places to look for help

An abandoned home in an otherwise thriving neighborhood can be an eyesore – or worse.

What happens if the lawn goes uncut for weeks or months? If a pipe bursts inside? If a squatter takes up residence?

This abandoned property can quickly move from nuisance to become a real hazard. And if you’re trying to sell your home, an empty property next door can scare away potential buyers, or lead to lower bids than if your neighbor maintained that property.

You don’t need to fight this battle alone, though.

There are resources available to help turn that property around, whether you just want to cut the lawn, or try to get it out of the hands of an owner who is trying to squeeze every dime out of the property, at the expense of your street. Here’s who to call in what situation.

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Call the homeowner’s association

If you’re part of a homeowner’s association, it can help, too.

“HOAs have broad powers to enforce standards for homeowners,” says David Reiss, professor of law at the Brooklyn Law School in New York, where he teaches courses on real estate practice.

How much power they have depends on the HOA’s bylaws, rules and regulations, but HOAs can impose fines for non-compliance with standards laid out in those rules.

“Some might go further and allow and HOA to enter onto a property to conduct maintenance,” Reiss says, which can take care of immediate problems.

He warns, though, that an HOA should consult a lawyer before taking that step, not only to make sure what they’re doing is allowed according to its bylaws, but also because, even if the owner is delinquent on maintenance, they could still accuse the HOA of trespassing or stealing for entering the property.