Tag Archives: David Reiss

Paid off Mortgage in Three Years

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Sean Cooper

Sean Cooper

Realtor.com quoted me in Why the Guy Who Paid Off His Mortgage in 3 Years Isn’t as Smart as You Think.  You’ll want to read about this guy:

You’ve gotta hand it to Sean Cooper: In a mere three years, this Toronto homeowner made epic sacrifices to pay off a $255,000 mortgage on his $425,000 house. His reason: “For a lot of people, their mortgage is like a life sentence,” the 30-year-old explained to the press. “I just wanted to not have a mortgage hanging over my head.”

After his story broke in publications such as the Toronto Star and The Hamilton Spectator, thousands applauded this as a feat of frugality.

But some experts say the opposite—that Cooper made a colossal mistake.

Forget the fact that to pay off his mortgage this pension analyst took on two extra jobs (including in the meat section of a supermarket even though he’s a vegetarian) and worked over 100 hours per week. Let’s also set aside the fact that he stopped using his car and claims Kraft dinners were his “best friend” (because clearly his real friends stopped hanging out with him). No, experts argue that Cooper’s extreme mortgage-paying regimen may have actually damaged his financial health.

     *     *     *

“Having a mortgage is not really such a bad thing,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “When you think about what a mortgage is, it makes sense to pay it off over a long period of time. You use a mortgage to buy something that will last a long time—a home—so you would probably want to spread the payments for that expensive thing over the whole period you’re using it, just as you would with a car. [Cooper’s paying off his mortgage quickly] may work for him, but not for the typical person.”

So if you’re inspired to follow in Cooper’s footsteps, think twice and consider less drastic measures.

“There are less extreme ways of doing this,” Reiss says. “Some people make payments every four weeks instead of every month. This results in one extra payment every year and does not seem so painful. Others will put extra payments into their mortgage—a tax refund, a bonus, money from a consulting gig. This is also less painful because you were probably paying your regular expenses without that money already.”

Bottom line: Don’t beat yourself up for having a mortgage. Embrace the benefits, relax, and live a little. Cooper, for one, is now playing catch-up. Now that he’s debt-free, he’s moved on to his next goal: He’s looking for love. Because let’s face it, most bachelorettes aren’t into eating mac ‘n’ cheese on a date.

Reviewing the Big Short

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Jared

Wax Statue of Ryan Gosling at Madame Tussauds

Realtor.com quoted me in Explaining the Housing Crash With Jenga—Did ‘The Big Short’ Get It Right? The story reads in part,

One of the more hyped movie releases this Oscar season stars the housing crisis itself: “The Big Short,” in which four financial wheelers and dealers (Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt) join forces to figure out what caused the housing bubble of 2003-2005 to burst (and how they could profit from it, of course). It’s based on the best-selling, intensively reported book by journalist Michael Lewis.

Granted, the subprime mortgage meltdown is a complicated subject… but this movie purports to illuminate all with a simple visual aid: a tower of Jenga blocks. As Gosling explains in [this video clip], mortgage bonds at that time were made up of layers called tranches, with the highest-rated and most secure loans stacked on top of the lower-rated “subprime” ones. And once holders of those subprime mortgages defaulted in droves, as they did starting in 2006, the whole structure collapsed. Jenga!

Which seems simple enough. Only is this depiction accurate, or just a Hollywood set piece?

Well, according to David Reiss, Research Director at the Center for Urban Business Entrepreneurship at Brooklyn Law School, this movie’s high-concept depiction of the mortgage crisis is largely on the money.

“There is a lot that is accurate in the clip: the history of mortgage-backed securities, the degradation of mortgage quality during the subprime boom, the loss of value of lower grade tranches,” he says.

*     *     *

Yet there is one thing that the movie did fudge, according to Reiss.

“I would argue that there is one big inaccuracy that exists, I am sure, for dramatic effect,” he says. “I would have put the AAA [tranches] at the bottom of the Jenga stack. In fact, the failure of the Bs and BBs did not cause the failure of AAAs, and many AAAs survived just fine or with modest losses.”

In other words, only the top half of the Jenga tower should have crumbled … but that wouldn’t have looked quite as flashy, would it?

“It would not sound as cool if only the top part of the stack crashed,” Reiss concedes. “But the bigger point, that the failures of the secondary mortgage market led to the crash of the housing market, is spot on.”

And hopefully one that won’t play out again in real life.

Equitable Subrogation in Mortgage Refinancing

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Freyermuth-Wilson1

Professor Freyermuth

I am speaking on Equitable Subrogation in Mortgage Refinancing and Land Purchase Transactions in an ABA Professor’s Corner webinar on Wednesday with Professor Wilson Freyermuth of the University of Missouri School of Law. If this sounds like an esoteric topic, it is!

Subrogation refers to the substitution of one party for another and equitable subrogation refers to the doctrine where a court may use its equitable powers to find an implied assignment of a mortgage in order to avoid the unjust enrichment of a party. Since the commencement of the foreclosure crisis, this doctrine has been put to the test. Wilson and I will take a look at some of the recent cases that do the testing. More info about the webinar is below:

Professors’ Corner

A FREE monthly webinar featuring a panel of law professors, addressing topics of interest to practitioners of real estate and trusts/estates. All are welcome and encouraged to register and participate.

Wednesday, December 9, 2015

12:30 p.m. Eastern/11:30 a.m. Central/9:30 a.m. Pacific

Equitable Subrogation in Mortgage Refinancing and Land Purchase Transactions

Speakers:  

David Reiss, Brooklyn Law School

Wilson Freyermuth, University of Missouri School of Law

When a lender makes a mortgage loan to refinance an existing first mortgage, the lender typically expects its refinancing loan to have first priority.  If there is an intervening lien on the mortgaged property, however, a priority dispute may result in which the intervening lienholder argues that the recording statutes give it priority over the refinancing lender’s mortgage lien.

In this situation, the principle of equitable subrogation may apply to allow the refinancing lender to be subrogated to the priority of the paid-off mortgage so as to obtain priority over the intervening lien.  The Restatement (Third) of Property: Mortgages (1997) embraced the liberal application of equitable subrogation in this context.  While many courts have embraced the Restatement approach, not all courts have embraced the Restatement approach (including a recent Delaware Supreme Court decision rejecting the application of equitable subrogation in the refinancing context).

Our speakers will discuss a series of recent decisions (all decided in the 2015 calendar year) addressing the extent to which equitable subrogation is (or should be) available in the mortgage refinancing and land purchase context.

Register for this FREE webinar at https://ambar.org/ProfessorsCorner.

Sponsored by the ABA Real Property, Trust and Estate Law Section, Legal Education and Uniform Laws Group.

SF’s Airbnboom

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Brian Johnson & Dane Kantner

The Christian Science Monitor quoted me in San Francisco Votes Down Airbnb Limits: Can Competing Interests Be Balanced? It reads, in part,

A defeated ballot measure in San Francisco, which would have imposed further restrictions on users of Airbnb and similar websites, is a sign of how the issue of short-term housing rentals is vexing city governments in the United States and beyond.

From Fort Lauderdale, Fla., to Los Angeles, lawmakers and residents alike are struggling to balance the power of technological change with the many critics of the home-sharing industry: homeowners who complain about deterioration in the quality of life in residential neighborhoods, hotels that fret about lost revenues, and activists who say that short-term housing is stripping the marketplace of affordable long-term units.

Yet even some of the trend’s most ardent critics suggest that more restrictions are not necessarily the answer. Better enforcement of current laws would go a long way toward balancing the conflicting interests, they say.

*     *     *

On the other coast, just as many cities are struggling. New York City is still up in the air about how to handle the sharing economy, says Brooklyn Law School professor David Reiss, who has followed Airbnb’s evolution.

This week, Airbnb promised to provide detailed data to the New York City Council, he notes. “The company is doing this in part to fend off [legislation] that would severely limit their reach in NYC,” he says via e-mail. One piece of proposed legislation increases penalties for violations of existing laws, and another mandates that the city track illegal apartment conversions, according to Professor Reiss.

Still, the sharing economy is with us for the long term as consumers continue to vote with their wallets, he says. “The bottom line is that we are in a period of transition. And while it is unlikely that we will return to the pre-sharing economy, it is also unlikely that we will have a sharing economy that is driven just by market actors, without government regulation,” he adds.

The Low Cost of Homeownership

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plumbing-840835_1920

TheStreet.com quoted me in Why the Extra Costs of Owning a Home Are Lower Than Consumer Expectations. It reads, in part,

First-time homebuyers are often apprehensive about the extra costs of owning a house, fearful that routine maintenance and repairs will add up quickly, exceeding their original budget.

But their estimates about replacing air filters, mowing the lawn and conducting minor repairs are often much higher than average costs. Consumers have trouble estimating the actual amount and said it would cost $15,070 for home maintenance repairs each year, according to a recent survey by NeighborWorks America, a Washington, D.C-based organization focused on affordable housing.

The actual amount is more likely to be in the range of 1% to 3% of a home’s value or $2,000 to $6,000 nationwide, said Douglas Robinson, a spokesman for NeighborWorks America. Even some current homeowners’ estimates were above the average amount and predicted repairs to cost $12,360. The perception among current renters was even worse with a prediction of $20,503.

“The important thing to remember about buying a home is that there are costs after the purchase that go beyond the monthly mortgage,” he said. “By setting up a savings plan and budget for these costs – items such as landscaping, air conditioning and heating system maintenance – a homeowner will be better equipped to take on the expenses without having to use a credit card or worse, a high-cost emergency loan.”

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Home Emergencies

While they might appear to be rare, homeowners annually should prepare themselves to handle at least one unexpected major emergency such as replacing the boiler or roof in the aftermath of a major storm or flooding in the basement where water needs to be pumped out immediately to protect the foundation, said David Reiss, a law professor at Brooklyn Law School. Establishing an emergency fund would help protect a homeowner when these problems arise so consumers are not forced to turn to more expensive options of debt such as credit cards.

“If a homeowner has an emergency fund, he or she will feel like a genius when it comes time to use it,” he said. “The next step, of course, is to start saving up immediately for the next problem because as most homeowners know – there will be a next problem.”

Some homeowners might find that chronic problems such as the leaky roof are worse than the “acute ones such as the boiler giving out in the winter,” Reiss said.

“This is because we will do whatever it takes to turn the heat back on,” he said. “But we learn to live with the occasional leak and end up feeling like we can ignore it. However, water damage is bad for a house and always gets worse.”

Enhancing Mortgage Data and Litigation Risk

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Law360 quoted me in CFPB Data Collection Boost May Bring More Lending Cases (behind a paywall). It reads, in part,

The Consumer Financial Protection Bureau has given lenders more time to prepare for its new mortgage data reporting rule and streamlined some of the information lenders will have to provide to regulators, but worries persist that the new data will be used to bring more fair-lending enforcement actions.

The federal consumer finance watchdog on Thursday released a final version of its update  to the Home Mortgage Disclosure Act — a key tool that regulators for decades have used to determine which populations were receiving home loans and which were being shut out — that more than doubles the amount of information that lenders will have to provide about the mortgages they issue.

That alone will make for a major technical overhaul of lenders’ operations, an overhaul that is likely to be expensive both in purchasing and developing new technology but also in the number of hours lenders will have to spend to get up to speed. But a second concern revolves around the vast new amount of information that the CFPB will have, and how it could use that information to review lenders’ compliance with fair-lending laws, said Donald C. Lampe, a partner with Morrison & Foerster LLP.

“I don’t think the full cost has yet been established, and I think what you’re seeing here are that there are concerns that this level of granular data can be misinterpreted,” he said. “There’s enough information here from a practical standpoint to re-underwrite the loan.”

*     *      *

“My position is that collecting more data about the mortgage market is a very good thing for consumers,” said David Reiss, a professor at Brooklyn Law School. “The more data [lenders] provide, the more likely it is that academics or the feds could find patterns of discriminatory lending.”

The added litigation risks do not come solely from the CFPB. The HMDA data is released publicly each year, meaning that activist groups, state regulators and plaintiffs attorneys will be able to comb through the vastly more comprehensive information, said Warren Traiger, counsel at BuckleySandler LLP.

“This is public data, so in addition to bank examiners and the [U.S. Department of Justice utilizing the data, there’s nothing preventing state attorneys general from using it as well,” he said.

And when state regulators, private plaintiffs or other parties come along with new complaints, the expanded data set will allow them to make far more specific discrimination claims than the current HMDA data makes possible.

“There will be a number of additional fields that will be out there that will allow regulators and the public to make more specific allegations regarding discrimination in mortgage lending than the current HMDA data allows,” Traiger said.

5 Signs You Probably Need an Accountant

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Alan Cleaver

WiseBread quoted me in 5 Signs You Probably Need an Accountant. It reads, in part,

Do you dread filing your income taxes each year? Does preparing your taxes take weeks of your time? And once you’ve sent your papers to the IRS, do you have the sneaking suspicion that you might not have taken all the deductions to which you are entitled?

You might need to hire an accountant.

“Hiring an accountant depends on whether your knowledge, time, and money are best spent on bookkeeping, loan application, and tax preparation, or whether you have higher priorities,” says Valrie Chambers, associate professor of taxation and accounting at Stetson University in Celebration, Florida. “A business owner who excels at sales should probably use her time increasing sales rather than learning and doing accounting. That strategy is just more profitable for the business.”

Here are five signs that you need to hire an accountant.

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4. You Own Rental Real Estate

Renting an apartment or two is a great way to earn passive income. But doing so can also complicate your finances. That’s why it makes sense to hire an accountant to make sure that you don’t miss any important tax deductions related to rental income, and that you file all the paperwork necessary when working as a landlord.

“There comes a point when personal tax software is not sophisticated enough to take into account the complexities of real estate investments,” says David Reiss, professor of law and research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School in New York City. “If a taxpayer has multiple properties that have both a personal and investment component, tax software may not be able to accept all of the relevant inputs and generate the correct output.”