- Civil Forfeiture and the Constitution, Caleb Nelson, Yale Law Journal, Forthcoming; Virginia Public Law and Legal Theory Research Paper No. 2.
- Cohabitants, Choice, and the Public Interest, Robert Leckey, Philosophical Foundations of Children’s and Family Law (OUP), Elizabeth Brake and Lucinda Ferguson (eds), forthcoming.
- Are Foreigners Entitled to a Right to Housing?, Luca Ettore Perrello, 1(2) The Italian Law Journal, 365–388 (2015).
- How Genetics Might Affect Real Property Rights, Mark A. Rothstein & Laura Rothstein, Journal of Law, Medicine and Ethics, Vol. 44, No. 1, 2016.
- Climate Change and Long-Run Discount Rates: Evidence from Real Estate, Stefano W. Giglio, Matteo Maggiori, Johannes Stroebel & Andreas Weber, CESifo Working Paper Series No. 5608.
- Mortgage Risk and the Yield Curve, Aytek Malkhozov, Philippe Mueller, Andrea Vedolin & Gyuri Venter, BIS Working Paper No. 532.
- The Abuse of MBS: A Monster Bigger than the Federal Government, Hak Choi.
- Market Concentration and the Recovery of Mortgage Credit, Adonis Antoniades.
- Green Clientele Effects in the Housing Market, Franz Fuerst, Elias Oikarinen & Oskari Harjunen.
- Rental Yields and HPA: The Returns to Single Family Rentals, Andrea L. Eisfeldt & Andrew Demers, NBER Working Paper No. w21804 (Paid Access).
Tag Archives: federal government
Feds Financing Multifamily
The Congressional Budget Office has released The Federal Role in the Financing of Multifamily Rental Properties. The report opens,
Multifamily properties—those with five or more units— provide shelter for approximately one-third of the more than 100 million renters in the United States and account for about 14 percent of all housing units. Mortgages carrying an actual or implied federal guarantee have been an important source of financing for acquiring, developing, and rehabilitating multifamily properties, particularly after the collapse in house prices and credit availability that accompanied the 2008–2009 recession. According to the Federal Reserve, the share of outstanding multifamily mortgages carrying such a guarantee increased by 10 percentage points, from 33 percent at the beginning of 2005 to 43 percent at the end of the third quarter of 2014. (A slightly larger increase of about 16 percentage points occurred in the federal government’s market share of the much larger single-family market.) Such guarantees are made by a variety of entities, and some policymakers are looking for ways to make the federal government’s involvement more effective. Other policymakers have expressed concern about that expanded federal role and are looking at ways to reduce it. (1)
This debate is, of course, key to housing policy more generally: to what extent should the government be involved in the provision of credit in that sector?
This report does a nice job of summarizing the state of the multifamily housing sector, particularly since the financial crisis. It provides an overview of federal mortgage guarantees for multifamily projects and reviews the choices that Congress faces when it decides to determine Fannie and Freddie’s fate. That is, should we have a federal agency guarantee multifamily mortgages; take a hybrid public/private approach; authorize a federal guarantor of last resort; or take a largely private approach?
We should start by asking if there is a market failure in the housing finance sector and then ask how the government should intercede to correct that market failure. My own sense is that we intercede too much and we should move toward a federal guarantor of last resort with additional support for the low- and moderate-income subsector of the market.
Floodproofing Communities
NYU’s Furman Center has released a Research Brief, Planning for Resilience: The Challenge of Floodproofing Multifamily Housing. The Brief opens,
As sea levels rise and storms become more frequent and severe due to climate change, many urban areas along the coasts and rivers of the United States are facing a flood-prone future. Especially in the older urban areas along the eastern seaboard, there is a significant stock of multifamily housing that will be increasingly at risk. Much of this housing is out of compliance with federal flood-resistant design and construction standards. Some of these buildings have housing units that are out of compliance because, regardless of their age, they were only recently mapped into the floodplain. And, even buildings that have been in the floodplain for longer may be out of compliance with the rules because their construction predated their jurisdiction’s adoption of the standards. (2)
And it concludes,
As the nation’s floodplains expand, the number and types of housing units at risk of flooding also grows. Multifamily housing makes up a larger share of the at-risk housing in the floodplain than was previously understood, and mitigating the risk to this housing and its residents presents unique challenges that local governments must be prepared to face. While there is no easy answer to how to fund the often costly and disruptive retrofit measures needed in these buildings, there are steps that local governments can take to make it easier for buildings to adapt, such as educating owners about risks, providing them with information about retrofit strategies, and helping them finance improvements. Including strategies like these in a long-term resilience plan will make communities stronger and will ensure that multifamily buildings and their residents are not left behind as flood-prone areas adapt. (10)
There is no doubt that this is right. New York City under both Mayors Bloomberg and De Blasio have taken this issue very seriously, but a lot of work remains to be done. And the odds are that the amount of work will only increase with time as sea levels rise higher and higher. Because many other local governments do not have the resources of NYC, they will get their wake up calls the hard way.
Given the broad effects of climate change, resiliency efforts would ideally be led by the federal government. But I don’t see that happening for a long time, probably after an avoidable tragedy on a large scale spurs Congress to action, notwithstanding its ideological commitments.
Friday’s Government Reports
- The Government Accountability Office (GAO) has released a report, Affordable Rental Housing, which points out that there are initiatives on the state, local and federal level which address this issue, however they are not always well coordinated, often overlap, and there is “incomplete information to assess performance.” Without sufficient information, the GAO argues it is impossible for Congress or other agencies to set appropriate spending priorities and assess performance. GOA’s recommendation is for the U.S. Department of Housing and Urban Development to work with state and local entities to develop a coordinated assessment and reporting structure.
- Also from the GAO, Pay for Success: Collaboration Among Federal Agencies Would be Helpful as Governments Explore New Financing Mechanisms is a report which describes Social Impact Bonds (SIBs). SIBs are a mechanism by which investors pay for social outcomes and receive an agreed upon return based on the success of the program or as GAO put it, “contracting for social outcomes.” According to the GAO SIBs can be useful in reducing the cost of providing social services while improving success. While the use of SIBs has been limited so far the Office of Management and Budget has been encouraging Federal Agencies to test their potential effectiveness. This GAO report analyzes SIBs that have already been piloted, for example the Department of Labor awarded $24 Million in grants in 2013 to reduce recidivism in New York and Massachusetts. One fear is that SIBs could create perverse incentives. SIBs could eventually be used to finance affordable housing development.
Monday’s Adjudication Roundup
- Building investors sue Waterbridge Capital LLC for $10 million for allegedly selling units and pocketing profits, refusing to pay back its investors.
- Hurricane Sandy $25 million contract-insurance suit is dismissed against one of the defendants, Arch Insurance Group and its subsidiary, because the underlying policy limits hadn’t been reached and thus Arch did not have any liability.
- In $189 million mortgage fraud suit, the federal government claims that Wells Fargo cannot access documents it withheld because “the release of some documents doesn’t waive protects for all of them.”
- The Federal Deposit Insurance Corp. sues US Bank and Citigroup, Inc. for allegedly failing as trustee of residential mortgage-backed securities leading to a $695 million loss to the insurance fund.
Monday’s Adjudication Roundup
- Quicken Loans Inc. argues that its suit against the federal government is valid because it is more than just a fraud case. It claims that it is about broader issues with government housing programs.
- A class action suit against JPMorgan Chase Bank NA will not be dismissed over failure to file timely mortgage satisfactions even though one of the plaintiffs rejected a settlement offer for more than she could get from a court judgment.
- An administrative judge denied that the SEC had shown fraud in commercial mortgage-backed securities suit against Standard & Poor’s former executive, Barbara Duka, because the SEC failed to show that S&P had done anything wrong, let alone Duka.
- IKB Deutsche Industriebank AG’s suit against Goldman Sachs Group Inc. remains intact for losses after a $73.2 million purchase of residential mortgage-backed securities. Goldman Sachs argued that the suit was beyond the German 3-year statute of limitations.
- Law360 compiles lists of “The Top Banking Cases In The First Half of 2015.”
AIG’s “Victory” and the GSE Litigation
Court of Federal Claims Judge Wheeler issued an Opinion and Order in Starr International Company, Inc. v. United States, No. 11-779C (June 15, 2015), the case that Hank Greenberg brought against the government over the terms of the bailout of AIG during the financial crisis. The judge found that the government exceeded its authority in taking an equity interest in AIG, but did not award the plaintiffs any damages. Many will read the tea leaves of this opinion to see what they tell us about the litigation brought against the federal government by shareholders in Fannie and Freddie arising from the bailout of those two companies. I think it offers little guidance as to liability but lots as to damages.
My most important takeaway from the opinion (which seems well-reasoned to me) is that the holding is based on a close reading of the Federal Reserve Act. The Act enumerates the powers and limitations of the Fed. The Court held that the Act does not authorize the Fed to take equity in a company as part of a bailout.
Fannie and Freddie are regulated by the Federal Housing Finance Administration (FHFA). The FHFA’s powers and limitations, in contrast, derive from the Housing and Economic Recovery Act of 2008 (HERA), passed during the financial crisis itself. HERA explicitly granted the FHFA broad powers as conservator. Section 1117 of HERA authorized the Secretary of the Treasury to make unlimited equity and debt investments in the two companies’ securities through December 31, 2009. (There is a disagreement as to whether the the Third Amendment to the Preferred Stock Purchase Agreement, discussed here, created new securities after that date, but the more general point is that HERA authorized equity investments in a way that the Federal Reserve Act did not.)
In sum, I would not read too much into the GSE litigation from the AIG litigation as it relates to the government’s ability to take equity in Fannie and Freddie. The two cases arise under two completely different statutes.
As to the damages component of the opinion, there are many cases when a court finds for a plaintiff but only awards nominal damages. Thus, the Court’s opinion is not particularly out of the ordinary in this regard. Here, the Court relied on the reasoning of the Court of Appeals for the Federal Circuit in a TARP case, A&D Auto Sales, Inc. v. United States, 748 F.3d 1142 (Fed. Cir. 2014). In that case, the Federal Circuit found that absent allegations that “GM and Chrysler would have avoided bankruptcy but for the Government’s intervention and that the franchises would have had value in that scenario,” there was no basis to argue that the government caused “a net negative economic impact” on the plaintiffs (Starr at 66, quoting A&D at 1158).
It would appear that to prove damages, the GSE litigation plaintiffs will need to overcome that bar too, even if they were to succeed in proving that the government had acted improperly in bailing out Fannie and Freddie.
