- Separate and Unequal: The American Dream, Peter C. LaGreca, 16 Rutgers Race & L. Rev. 183 (2015).
- Reverse Mortgage Loans: A Quantitative Analysis, Makoto Nakajima & Irina Telyukova, FRB of Philadelphia Working Paper No. 14-27.
- Reverse Mortgages: What Homeowners (Don’t) Know and How it Matters, Thomas Davidoff, Patrick Gerhard & Thomas Post.
- Housing Price Volatility and the Housing Ladder, James W. Banks, Richard W. Blundell, Zoé Oldfield & James P. Smith, NBER Working Paper No. w21255.
- The Financial Rewards of Sustainability: A Global Performance Study of Real Estate Investment Trusts, Franz Fuerst.
- A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012, Fernando V. Ferreira & Joseph Gyourko, NBER Working Paper No. w21261.
Tag Archives: homeowner
Homeowners Heading to Pottersville?
Mr. Potter from It’s A Wonderful Life
The Urban Institute has issued a report, Headship and Homeownership: What Does The Future Hold? The report opens,
Homeownership rates averaged around 64 percent until about 1990, when they began to climb dramatically, reaching 67.3 percent in 2006. The housing crisis that began in 2007 and the ensuing recession, from which the US economy is recovering slowly, resulted in a fall in the homeownership rate to 63.6 percent, according to the latest ACS numbers. Such a trajectory has generated important questions about the future of homeownership at all ages. The issues with young adults seem particularly acute. Will young adults want to own houses? Even if they do, will they be able to afford homeownership? The answers to these questions are still unclear, especially because millennials are not just slower to start their own households and purchase homes: they also are more likely to live in their parents’ homes than any generation in recent history. The rapidly changing racial and ethnic composition of the population also has profound implications for household formation and homeownership.
In this report, we dive deeply into the pace of household formation and homeownership attainment—nationally and by age groups and race/ethnicity over the past quarter-century—and project future trends. Considering the great uncertainty about household formation and homeownership, single-point forecasts of homeownership rates and housing demand could seriously mislead policymakers and obscure the potential implications of their decisions. Instead, we offer plausible competing scenarios for household formation and homeownership that generate a range of future national housing demand projections. (1)
I am not in a position to evaluate how well the report projects future trends, but some of its conclusions are worth considering together:
- the homeownership rate will decline from 65.1 percent in 2010 to 61.3 percent in 2030; (46)
- the rapid growth of the renter population will create significant demand for new rental housing construction and encourage shifting of owner-occupied dwellings to rentals; (47)
- very tight credit availability standards will retard homeownership attainment and may exacerbate the growing shortage in rental housing; (48) and
- the erosion of black homeownership needs to be addressed by more than mortgage policy. (48)
Taken together, these conclusions all point to a backsliding in the housing market: the American Dream disappearing for millions of Americans, particularly African Americans, who will end up living in overcrowded Pottersvilles straight out of It’s A Wonderful Life. Just like George Bailey, we have choices to make before that nightmare becomes a reality. But before we decide anything too hastily, we should consider the fundamental goals of housing policy.
I have argued that a “fundamental goal of housing policy is to assist Americans to live in a safe, well-maintained and affordable housing unit.” I am less convinced than most housing scholars that homeownership, given the state of today’s economy, is such a sure road to stable housing and financial well-being. So, instead of blindly focusing on increasing the homeownership rate, I would focus on increasing opportunities for sustainable homeownership. I believe the report’s authors would agree with this, but I think that housing scholars in general need to focus on policies that keep households in their housing, given how much income instability they now face.
New FHA Guidelines No Biggie
(Original Purchases in Levittown Funded in Large Part by FHA Mortgages)
Law360 quoted me in New Guidelines For Bad FHA Loans Won’t Boost Lending (behind paywall). It opens,
The federal government on Thursday provided lenders with a streamlined framework for how it determines whether the Federal Housing Administration must be paid for a loan gone bad, but experts say the new framework will have limited effect because it failed to alleviate the threat of a Justice Department lawsuit.
The U.S. Department of Housing and Urban Development provided lenders with what it called a “defect taxonomy” that it will use to determine when a lender will have to indemnify the FHA, which essentially provides insurance for mortgages taken out by first-time and low-income borrowers, for bad loans. The new framework whittled down the number of categories the FHA would review when making its decisions on loans and highlighted how it would measure the severity of those defects.
All of this was done in a bid to increase transparency and boost a sagging home loan sector. However, HUD was careful to state that its new default taxonomy does not have any bearing on potential civil or administrative liability a lender may face for making bad loans.
And because of that, lenders will still be skittish about issuing new mortgages, said Jeffrey Naimon, a partner with BuckleySandler LLP.
“What this expressly doesn’t address is what is likely the single most important thing in housing policy right now, which is how the Department of Justice is going to handle these issues,” he said.
The U.S. housing market has been slow to recover since the 2008 financial crisis due to a combination of economics, regulatory changes and, according to the industry, the threat of litigation over questionable loans from the Justice Department, the FHA and the Federal Housing Finance Agency.
In recent years, the Justice Department has reached settlements reaching into the hundreds of millions of dollars with banks and other lenders over bad loans backed by the government using the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act.
The most recent settlement came in February when MetLife Inc. agreed to a $123.5 million deal.
In April, Quicken Loans Inc. filed a preemptive suit alleging that the Justice Department and HUD were pressuring the lender to admit to faulty lending practices that they did not commit. The Justice Department sued Quicken soon after.
Policymakers at the Federal Housing Finance Agency, which serves as the conservator for Fannie Mae and Freddie Mac, and HUD have attempted to ease lenders’ fears that they will force lenders to buy back bad loans or otherwise indemnify the programs.
HUD on Thursday said that its new single-family loan quality assessment methodology — the so-called defect taxonomy — would do just that by slimming down the categories it uses to categorize mortgage defects from 99 to nine and establishing a system for categorizing the severity of those defects.
Among the nine categories that will be included in HUD’s review of loans are measures of borrowers’ income, assets and credit histories as well as loan-to-value ratios and maximum mortgage amounts.
Providing greater insight into FHA’s thinking is intended to make lending easier, Edward Golding, HUD’s principal deputy assistant secretary for housing, said in a statement.
“By enhancing our approach, lenders will have more confidence in how they interact with FHA and, we anticipate, will be more willing to lend to future homeowners who are ready to own,” he said.
However, what the new guidelines do not do is address the potential risk for lenders from the Justice Department.
“This taxonomy is not a comprehensive statement on all compliance monitoring or enforcement efforts by FHA or the federal government and does not establish standards for administrative or civil enforcement action, which are set forth in separate law. Nor does it address FHA’s response to patterns and practice of loan-level defects, or FHA’s plans to address fraud or misrepresentation in connection with any FHA-insured loan,” the FHA’s statement said.
And that could blunt the overall benefits of the new guidelines, said David Reiss, a professor at Brooklyn Law School.
“To the extent it helps people make better decisions, it will help them reduce their exposure. But it is not any kind of bulletproof vest,” he said.
Reiss on SCOTUS Junior Lien Decision
Bloomberg BNA quoted me in Nagging Economic and Credit Questions Dampen Bankruptcy Victory for Bankers (behind paywall). It reads, in part:
The U.S. Supreme Court delivered an important bankruptcy ruling for bankers that doesn’t, however, do anything about still-struggling homeowners (Bank of Am. N.A. v. Caulkett, 2015 BL 171240, U.S., No. 13-cv-01421, 6/1/15); (Bank of Am. N.A. v. Toledo-Cardona, 2015 BL 171240, U.S., No. 14-cv-00163, 6/1/15).
In a June 1 decision, the court said Chapter 7 debtors cannot void junior liens on their homes when first-lien debt exceeds the value of the property, as long as the senior debt is secured and allowed under the Bankruptcy Code.
The decision is a victory for Bank of America, which held both junior liens in the two related cases, and for banking groups that said a different result could have destabilized more than $40 billion in commercial loans secured by similar liens.
But Brooklyn Law School Professor David Reiss June 2 said the case highlights the need for a broad remedy for homeowners who have continued to struggle to make payments since the financial crisis.
“The bank’s position as a legal matter is a very reasonable one, but from a policy perspective we needed and still need a bigger and more systemic solution to the problems that households face,” Reiss told Bloomberg BNA.
* * *
[S]ome said the ruling highlights economic questions on several levels.
Reiss, who coedits a financial blog, June 2 said the case shows the federal government’s inability to deal head-on with the impact of financial turmoil in 2008 and 2009.
“Not enough is being done to move households beyond the crisis, and it’s bad for households and it’s bad for the financial sector,” Reiss said. “Here we are seven or eight years later and we’re sitting here with these valueless second mortgages. We’re just slogging through the muck and we’re not coming up with any good solutions to get past it.”
HAMP-ered Foreclosure Prevention
The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released a report, Treasury’s Opportunity to Increase HAMP’s Effectiveness by Reaching More Homeowners in States Underserved by HAMP. The Introduction opens,
TARP’s signature foreclosure prevention program, the Home Affordable Modification Program (“HAMP”), has struggled to reach the expected number of homeowners Treasury envisioned for the program. According to Treasury, TARP’s housing support programs were intended to “help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure.” Treasury announced that HAMP itself aimed “to help as many as three to four million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term,.” The only long-term sustainable help provided through HAMP is a permanent mortgage modification, which become effective after the homeowner successfully completes a trial period plan. Through December 31, 2014, according to Treasury data, 1,514,687 homeowners have been able to get into a more affordable permanent HAMP modification (of which, 452,322 homeowners, or 29%, subsequently redefaulted on their HAMP modifications), while there have been 6,165,544 foreclosures nationwide over the same period based on CoreLogic data.” (1, footnotes omitted)
There is a lot of soul searching in this report about why HAMP has been so ineffective and the report offers tweaks to the program to improve it. But perhaps the problem is structural — a program like HAMP was never really in a position to make a bigger impact on the foreclosure crisis.
When compared to the federal government’s intervention during the Great Depression, HAMP seems too modest. President Roosevelt’s Home Owners’ Loan Corporation bought out mortgages from banks in bulk and then refinanced them on more attractive terms than the private sector offered. HAMP, on the other hand, has trouble getting homeowners to apply to the program in the first place.
Bottom line: HAMP is too retail and what we needed and need is something that could be done wholesale.
Reset Tsunami
Newsday quoted me in When Home Equity Lines of Credit Reset when your plan resets. It reads,
A decade isn’t really a long time – just ask the millions of homeowners whose 10-year-old home equity lines of credit are resetting.
There are two types of HELOC resets: Variable interest rates can reset, and an interest-only repayment plan can reset to amortize. That means payments will switch to include principal and interest, explains David Reiss, a law professor specializing in real estate at Brooklyn Law School.
Many are in for a shock. If you’ve been making interest-only payments for 10 years, “the switch to amortizing over the compressed 20-year period [remaining on a 30-year loan] can lead to an increase of 100 percent or more,” says Peter Grabel of Luxury Mortgage Corp. in Stamford, Connecticut.
If your HELOC is resetting, know what to expect.
“You will no longer be able to draw on the equity line,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.” You’ll have a specific time to pay off the loan.
Consider your goals: “What is your purpose for having a HELOC?” says Ray Rodriguez of TD Bank in Manhattan. That drives the options.
Plan for change: “Prepare for the end of the draw period. Find out what your new payment will be,” says Kevin Murphy of McGraw-Hill Federal Credit Union in Manhattan. Cut expenses to make up for the jump.
Explore options: Consider refinancing your debt into a longer-term fixed-rate loan, suggests Ben Sullivan of Palisades Hudson Financial Group in Scarsdale. Replace the HELOC with a new one, or combine your first mortgage with your HELOC into a new interest-only ARM. Talk to a mortgage counselor.
Myths About Money
Chase.com quoted me in 5 Myths About Your Money. It opens,
There’s no shortage of money advice out there, but each person’s financial situation is unique. So there are times when conventional wisdom can be just plain unhelpful.
With that in mind, here are five money myths that experts say deserve to be reconsidered.
Myth #1: Your Home Is Primarily an Investment
A house can be an excellent investment, but David Reiss, professor of law and research director of the Center for Urban Business Entrepreneurship at Brooklyn Law School in New York, cautions against thinking of it only that way.
After all, he says, the housing market can be hard to predict, so it’s better to make decisions based on your own needs. You’re not just owning the house; you’re living in it.
“Make decisions about buying, remodeling, and refinancing your home because it makes sense for you and your family,” says Reiss. “If you make decisions based upon your guesses about the future and about what other people will do, there is a good chance that you will end up frustrated.”
Should you upgrade that bathroom? Is it solely an investment decision? Or is there also value in improving your quality of life?
