Tag Archives: default

The State of the Nation’s Sustainable Housing

Posted on by

Harvard University Widener Library

The Joint Center for Housing Studies of Harvard University released its The State of the Nation’s Housing 2015 report. I typically focus on the discussion of the mortgage market in this excellent annual report.  Here are some of the mortgage highlights:

  • mortgage delinquency rates nationwide have fallen by half since the foreclosure crisis peaked. But the remaining loans that are seriously delinquent (90 or more days past due or in foreclosure) are concentrated in relatively few neighborhoods; (6)
  • According to CoreLogic, 10.8 percent of homeowners with mortgages were still underwater on their loans in the fourth quarter of 2014; (8)
  • Despite rising prices, homebuying in most parts of the country remained more affordable in 2014 than at any time in the previous two decades except right after the housing crash. In 110 of the 113 largest metros for which at least 20 years of price data are available, payment-to-income ratios for the median-priced home were still below long-run averages. And in nearly a third of these metros, ratios were 20 percent or more below those averages. (22)

The Joint Center believes that “Looser mortgage lending criteria would help. Given that a substantial majority of US households desire to own homes, the challenge is not whether they have the will to become homeowners but whether they will have the means.” (6) I am not sure what to make of that statement.  It seems to me that the right question is whether looser mortgage lending criteria would result in long-term housing tenure for new homeowners. In other words, looser mortgage lending criteria that result in future defaults and foreclosures are of no benefit to potential homebuyers. Too few commentators tie mortgage availability to mortgage sustainability. The Joint Center should take a lead role in making that connection.

One last comment, a repetition from my past discussions of Joint Center reports. The State of the Nation’s Housing acknowledges sources of funding for the report but does not directly identify the members of its Policy Advisory Board, which provides “principal funding” for it along with the Ford Foundation. (front matter) The Board includes companies such as Fannie Mae and Freddie Mac which are directly discussed in the report. In the spirit of transparency, the Joint Center should identify all of its funders in the State of the Nation’s Housing report itself. Mainstream journalists would undoubtedly do this. I see no reason why an academic center should not.

Wednesday’s Academic Roundup

Posted on by

Wednesday’s Academic Roundup

Posted on by

Home Loan Toolkit

Posted on by

The Consumer Financial Protection Bureau has issued Your Home Loan Toolkit: A Step-by-Step Guide. The toolkit is designed to help potential homeowners navigate the process of buying a home. As the press release notes,

The toolkit provides a step-by-step guide to help consumers understand the nature and costs of real estate settlement services, define what affordable means to them, and find their best mortgage. The toolkit features interactive worksheets and checklists, conversation starters for discussions between consumers and lenders, and research tips to help consumers seek out and find important information.

*     *     *

Creditors must provide the toolkit to mortgage applicants as a part of the application process, and other industry participants, including real estate professionals, are encouraged to provide it to potential homebuyers.

The toolkit asks many of the important questions that homebuyers have:

  • What does affordability mean for you?
  • What kind of credit profile do you have?
  • What kind of mortgage is right for you?
  • How do points work?
  • How do you comparison shop with lenders?
  • How does a closing work?
  • How do you read your Closing Disclosure?
  • How do keep your mortgage in good standing?

That being said, it remains to be seen whether this toolkit will actually help potential homeowners. It is important for the CFPB to design an effectiveness study to see how the toolkit performs in practice.

Wednesday’s Academic Roundup

Posted on by

The Rescue of Fannie and Freddie

Posted on by

Federal Reserve researchers, W. Scott Frame, Andreas Fuster, Joseph Tracy and James Vickery, have posted a staff report, The Rescue of Fannie Mae and Freddie Mac. The abstract reads,

We describe and evaluate the measures taken by the U.S. government to rescue Fannie Mae and Freddie Mac in September 2008. We begin by outlining the business model of these two firms and their role in the U.S. housing finance system. Our focus then turns to the sources of financial distress that the firms experienced and the events that ultimately led the government to take action in an effort to stabilize housing and financial markets. We describe the various resolution options available to policymakers at the time and evaluate the success of the choice of conservatorship, and other actions taken, in terms of five objectives that we argue an optimal intervention would have fulfilled. We conclude that the decision to take the firms into conservatorship and invest public funds achieved its short-run goals of stabilizing mortgage markets and promoting financial stability during a period of extreme stress. However, conservatorship led to tensions between maximizing the firms’ value and achieving broader macroeconomic objectives, and, most importantly, it has so far failed to produce reform of the U.S. housing finance system.

 This staff report provides a nice overview of the two companies since the financial crisis. I was particularly interested by a couple of sections. First, I found the discussion of receivership versus conservatorship helpful. Second, I liked how it outlined the five objectives for an optimal intervention:

(i) Fannie Mae and Freddie Mac would be enabled to continue their core securitization and guarantee functions as going concerns, thereby maintaining conforming mortgage credit supply.

(ii) The two firms would continue to honor their agency debt and mortgage-backed securities obligations, given the amount and widely held nature of these securities, especially in leveraged financial institutions, and the potential for financial instability in case of default on these obligations.

(iii) The value of the common and preferred equity in the two firms would be extinguished, reflecting their insolvent financial position.

(iv) The two firms would be managed in a way that would provide flexibility to take into account macroeconomic objectives, rather than just maximizing the private value of their assets.

(v) The structure of the rescue would prompt long-term reform and set in motion the transition to a better system within a reasonable period of time. (14-15)

You’ll have to read the paper to see how they evaluate the five objectives in greater detail.

Mortgage Assignment Mayhem

Posted on by

Judge Drain issued a biting Memorandum of Decision on Debtor’s Objection to Claim of Wells Fargo Bank, NA in the case In re Carrsow-Franklin (No. 10-20010, Jan. 29, 2015). The Court granted the debtor’s claim objection “on the basis that Wells Fargo is not the holder or owner of the note and beneficiary of the deed of trust upon which the claim is based and therefore lacks standing to assert the claim.” (1)

This blog, and many other venues, have documented the Alice in Wonderland world of mortgage assignments in which something is true because the the foreclosing party, like the Red Queen herself, says it is.

Judge Drain adds to the evidence with ALLCAPS, a touch I can’t remember seeing in another judicial opinion that I have blogged about:

Because Wells Fargo does not rely on the Assignment of Mortgage to prove its claim, the foregoing evidence is helpful to the Debtor only indirectly, insofar as it goes to show that the blank indorsement, upon which Wells Fargo is relying, was forged. Nevertheless it does show a general willingness and practice on Wells Fargo’s part to create documentary evidence, after‐the‐fact, when enforcing its claims, WHICH IS EXTRAORDINARY. (17-18, emphasis in the original, footnote omitted)

In retrospect, legal historians will be shocked by the lending industry’s practices which seemed to ignore the law in favor of convenience. MERS, and the practices which arose from it, was an attempt to circumvent clunky laws in favor of efficiency. For many years, many judges went along with this regime. Since the foreclosure crisis began, however, more and more judges are engaging in a more rigorous analysis of the documents in a particular case and the applicable law governing mortgage notes and foreclosures. When these judges find that a transaction does not comply with the relevant law, it is incumbent upon them to deny the relief sought by the foreclosing party as Judge Drain did here.