Tag Archives: housing market

Rent Freezes in NYC

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Zohran Mamdani, Democratic Nominee for Mayor of NYC

The New York Times quoted me in Free Buses and Billions in New Taxes. Can Mamdani Achieve His Plans? It reads, in part,

A major pillar of Mr. Mamdani’s economic plan is housing: He wants to build 200,000 units of affordable housing and freeze rent on the city’s nearly one million rent-stabilized apartments.

But to build, he has said the city will have to borrow $70 billion, exceeding its debt limit by some $30 billion. Going over the limit would require state approval.

Freezing rent, on the other hand, is relatively straightforward and has precedent. But there are consequences.

Mayors cannot freeze rent on their own, but they do appoint the nine members on the Rent Guidelines Board, which sets rents on the city’s rent-stabilized units.

David Reiss, who served on the board under Mr. de Blasio, said that before it voted, members generally considered the overall state of housing in the city, including affordability, landlord expenses and economic conditions.

He said that members could decide that affordability was the most important factor and vote to freeze rents, as they did in 2015, 2016 and 2020.

“A rent freeze would meet the needs of a lot of people who are having a hard time keeping up with their rent,” Mr. Reiss said, “but it’s an unsustainable operation.”

Landlords, including those whose buildings have a large majority of rent-stabilized units, are increasingly saying that they are not collecting enough rent to maintain units.

“Are we going to be pushing a distinct portion of the housing market into great distress because their expenses are outstripping their income?” Mr. Reiss said.

Trump’s Plans to Privatize Fannie and Freddie

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from Cato Institute website, https://www.cato.org/people/mark-calabria

Mark Calabria, OMB Associate Director for Treasury, Housing, and Commerce

I was interviewed on  WBUR-FM’s On Point (distributed by American Public Radio), hosted by Meghna Chakrabarti for an episode on How Trump Plans To Get Government out of the Mortgage Business. The link has the recording of the show as well as a transcript.

The transcript of the interview starts,

CHAKRABARTI: Now that President Trump is back in the White House, it seems that he intends to get the job done this time around. Mark Calabria has returned to Trump’s administration, this time working on housing policy at the Office of Management and Budget. Bill Pulte is now director of FHFA, and he just made the highly unusual move of appointing himself chair of both Fannie Mae and Freddie Mac, making the regulator and the regulated basically the same.

Pulte also fired 14 of the 25 sitting board members at Fannie and Freddie. A shakeup many are suspecting is a first step in leading these two companies out of government control and into privatization. We’re talking about a huge part of the U.S. economy that underpins the housing market. So this hour, we want to explore what privatization of Fannie and Freddie actually means, what it should look like, and how it might have an impact on homeowners and the housing market.

So to do that, David Reiss joins us. He’s a clinical professor of law at Cornell Law School and Cornell Tech, an expert in housing finance and policy. Professor Reiss, welcome to On Point.

DAVID REISS: Meghna, thank you so much.

CHAKRABARTI: I have to tell you that I actually can’t believe that it’s been 17 years since the financial crisis of 2008.

Let’s dust off the memory banks professor and go back to before 2008 and start there. Can you just remind us like what Fannie Mae and Freddie Mac were, what their purpose was, who owned them, et cetera?

REISS: I’m gonna go even a little bit further back than Fannie and Freddie’s creation, because I think it’s really gonna help people visualize what’s at stake here.

And if you think back to the 19th century and somebody was trying to buy a house, they didn’t have that many options. A house has always been a very expensive thing to buy, so they need to borrow some money to buy a house. And how could you do that?

Maybe if you’re rich, you could do it, or had a rich uncle, but otherwise you need to go to somebody who has capital and that you could borrow it and give them some interest in return. And pay them back over time, and be able to live in that house while you’re paying back the amount of money that you borrowed. And so if people think of It’s a Wonderful Life where there’s the Bailey Brothers building in loans and where they, people deposit their small savings into the buildings and loan.

And then some people are then able to borrow some money from the buildings and loan for mortgages. And there’s the famous scene where there’s a panic at the bank. And Jimmy Stewart says, Mrs. Kennedy, your money is in Mrs. Smith’s house. And Mrs. Smith, your money is in Ms. Macklin’s house.

And that’s the way it was done in the 19th century and the early 20th century. But there were real limitations to that. Sometimes communities didn’t have a lot of capital to lend people, so maybe in out west or in the Midwest there wasn’t a lot of capital, like there might’ve been back east in Boston or New York.

And so people who could have handled the mortgage just didn’t have access to it. It was like they were living in a dry area, and the fresh flowing credit didn’t reach their dry community. So during the Great Depression and the New Deal the government started to intervene, to spread credit out across the country in a way that kind of provided liquidity to all the communities where people wanted to borrow.

And Fannie Mae was a creature of the New Deal, but really took off in the ’70s along with its sibling Freddie Mac. And effectively, what those two companies were designed by Congress to do was to ensure that capital could go across state borders in a way that banks were typically not allowed to do. And they effectively created at first a national market for mortgage credit, and effectively when they access the global credit markets over time, an international global market for credit. So they’re really intermediaries.

Shaping the NYC Skyline

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David Shamshovich, Camila Almeida, and Brenda Slochowsky just posted an episode of their podcast, Shaping The NYC Skyline. In this episode (mysteriously titled “Uncovering the Whole Elephant: The Evolution of Real Estate” — mysterious, that is, until you listen to it).

They interviewed me back in May when I was at Brooklyn Law School. The Apple podcast write-up states

Buckle up, Skyliners, for an illuminating episode featuring Professor David Reiss, formerly of Brooklyn Law School and now at Cornell Law School and Cornell Tech. Renowned for his expertise in real estate finance and community development, Professor Reiss has shaped countless legal minds, including our very own David Shamshovich, with his practical approach to complex concepts. This episode offers a rare glimpse into his journey from NYU Law School and prestigious law firms to his influential role in academia, where he has spent over two decades demystifying real property law.

Starting as an associate at major law firms, David soon discovered his passion for teaching. This led him to Brooklyn Law School, where he served as a professor and the founding director of the Community Development Clinic. His dedication to education is matched by his commitment to real-world impact, evidenced by his work with not-for-profits and his previous role as Chair of the NYC Rent Guidelines Board.

In this episode, David delves into the critical role the Community Development Clinic has played in providing hands-on experience to students, preparing them for real-world transactional and corporate real estate challenges. He emphasizes the importance of consumer protection in the housing market, drawing lessons from the subprime mortgage crisis. David also shares insights on the evolution of real estate finance, discussing the transition from mutual savings to sophisticated global capital markets, and the lasting impacts of historical events like the Great Depression and the 2007-2008 financial crisis.

Listeners will gain a deeper understanding of how these complex systems work and the importance of regulatory frameworks in protecting consumers and maintaining market stability. David’s ability to simplify intricate concepts has made him a beloved figure among students and colleagues alike, earning him a reputation as one of the best in his field.

Join us as we explore Professor David Reiss’s extraordinary career, his innovative approach to legal education, and his deep belief in the power of practical experience. Without further ado, we present Professor David Reiss, a beacon of knowledge and a guiding light in Shaping the NYC Skyline!

More on Shaping the NYC Skyline:

Website – https://www.seidenschein.com/podcast/

LinkedIn – https://www.linkedin.com/company/shaping-the-nyc-skyline/

Instagram – Shaping the NYC Skyline (@shapingthenycskyline)

YouTube – https://www.youtube.com/@ShapingtheNYCSkyline

A Controversial Fix for America’s Housing Market

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Sustainable Economies Law Center

Insider quoted me in A Controversial Fix for America’s Housing Market: More Foreclosures. It opens,

How many people should lose their homes to foreclosure?

In an ideal world, of course, there would be no foreclosures at all. Everyone who buys a home would get one that fits their income and needs, and people would have enough money to make their mortgage payments on time and in full. But in a housing market built on debt, foreclosures are a painful reality. People lose their jobs or fall behind on payments, and lenders repossess the home to recoup their losses.

Too many foreclosures is obviously a bad thing — losing a home is devastating both financially and emotionally — but it’s also a problem to have too few foreclosures. Low rates of foreclosure activity signal that housing lenders aren’t taking enough risk, locking out hopeful buyers who could have kept up with payments on their mortgage if only lenders gave them the chance.

Most residential loans are backed by the government-sponsored enterprises Fannie Mae and Freddie Mac or the Federal Housing Administration. To try to find a happy medium of risk, the GSEs — government-sponsored enterprises — and FHA set a “credit box” to determine who gets a mortgage. The companies base these standards on factors including the borrower’s financial stability and the state of the housing market and economy. When the credit box gets tighter, fewer people get mortgages, and foreclosures generally go down. When it opens up, banks take more risks on people with lower credit scores or worse financial histories, increasing the possibility of foreclosures.

Finding the right size for the credit box is easier said than done. In the years leading up to the Great Recession, banks and private lenders handed out millions of risky loans to homebuyers who had no hope of repaying them. A tidal wave of foreclosures followed, plunging the US housing market — and the global economy — into chaos.

But some experts argue that in the years since the crash, the GSEs, lenders, and regulators overcorrected, shutting loads of potentially reliable buyers out of the housing market. Laurie Goodman, the founder of the Housing Finance Policy Center at the Urban Institute, a nonpartisan think tank, said there’s room today to “open the credit box” and relax lending standards without pushing the housing market into crisis. More foreclosures might come as a result, she said, but that would be “a worthwhile trade-off” if it gave more people the opportunity to build wealth through homeownership.

Opening the credit box isn’t a cure-all for housing, and given the weakening economy, more cautious experts argue that making it easier to get a mortgage is unnecessary or dangerous. But if lenders do it correctly, it could be a major step toward a healthier market. A more stable credit box over time could not only ensure future homebuyers aren’t locked out of getting the home of their dreams, but could also smooth out some of the market’s chaotic nature.

The ‘invisible victims’ of the housing market

In the aftermath of the Great Recession, the victims of the housing free-for-all were clear. An estimated 3.8 million homeowners lost their homes to foreclosure from 2007 to 2010, and plenty more also lost theirs in the following years. But the overly strict lending standards and tighter regulations that followed created a new class of victims: people who were unable to join the ranks of homeowners. David Reiss, a professor at Brooklyn Law School, called these would-be homebuyers “invisible victims” — people who probably could have stayed current on their payments if they’d been approved for a loan but who didn’t get that opportunity.

Escalation Clauses in a Tight Market

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photo by Jeramey Jannene (CC BY 2.0)

I spoke with Business Insider about the use of escalation clauses in hot housing markets.  The article (behind a paywall) opens,

With people around the US competing in a tight housing market, many are turning to a unique strategy: escalation clauses.

Escalation clauses are meant to help buyers beat the competition for an in-demand property. When would-be buyers put an offer on a home that they anticipate will have other offers, it automatically increases the buyer’s original offer by a specified amount in an effort to outbid everyone else.

Whether the buyer is notified before a seller applies an escalation clause depends on the particular contract terms, according to David Reiss, a law professor at Brooklyn Law School specializing in real estate. Some real-estate agents encourage clients to use escalation clauses, though not every state or seller allows them.

These clauses can give you a fighting chance by allowing you to skip some of the negotiation and back-and-forth, but can be harmful in that they show sellers how much buyers are willing to spend.

Insider spoke with several home buyers who used escalation clauses to understand the risks and rewards they come with.

Insuring Homeownership — Best of the ABA

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The American Bar Association selected my short article, Insuring Sustainable Homeownership, as part of “The Best of ABA Sections”–a compilation of some of the best articles published by the ABA’s sections, forums, and divisions.  It was published in the ABA’s journal, GPSolo and it is drawn from Insuring Sustainable Homeownership,  published in  20 (March/April 2018).  It opens,

The Federal Housing Administration (FHA) has suffered from many of the same unrealistic underwriting assumptions that did in so many lenders during the 2000s. It, too, was harmed by a housing market as bad as any seen since the Great Depression. As a result, the federal government announced in 2013 that the FHA would require the first bailout in its history. At the same time that it faced these financial challenges, the FHA came under attack for poor execution of some of its policies attempting to expand homeownership opportunities. This article examines the criticism that has been leveled at FHA and the goals the agency should pursue.

Non-debt Financing for Home Purchases

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Professor Shelby Green

I will be presenting on Non-Debt Financing for Home Purchase: Risks and Promises as part of the ABA’s Section of Real Property, Trust and Estate Law “Professors’ Corner.”  It will take place at 12:30 PM (Eastern Time) on June 9th.  The program is free for ABA members and non-members alike, although registration is required.  Professor Shelby D. Green of Pace University’s Elisabeth Haub School of Law will moderate.  The program description reads:

A new class of financing options is emerging, including non-debt or equity investment, either facilitating the initial purchase with no borrowing or enabling access to equity from existing homeownership. The presenter will discuss whether the surface appeal of these financing inventions may camouflage risks that if not disclosed and well-managed could portend disruption in the housing markets.

Update:  The slides for the presentation can be found here.