- The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment, Saty Patrabansh, FHFA Working Paper 15-2.
- Gender Bias and Credit Access, Steven Ongena & Alexander A. Popov, ECB Working Paper No. 1822.
- Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach, Paolo Gelain, Kevin J. Lansing & Gisle James Natvik, Norges Bank Working Paper 11, 2014.
- Monetary Policy, Hot Housing Markets and Leverage, Christoph Ungerer, FEDS Working Paper No. 2015-048.
- Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005, Atif R. Mian & Amir Sufi, Chicago Booth Research Paper No. 15-16.
Tag Archives: mortgage
Optimizing Mortgage Availability
The United States Government Accountability Office (GAO) has issued a report, Mortgage Reforms: Actions Needed to Help Assess Effects of New Regulations. The GAO did this study to predict the effects of the Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) regulations. The GAO found
Federal agency officials, market participants, and observers estimated that the qualified mortgage (QM) and qualified residential mortgage (QRM) regulations would have limited initial effects because most loans originated in recent years largely conformed with QM criteria.
- The QM regulations, which address lenders’ responsibilities to determine a borrower’s ability to repay a loan, set forth standards that include prohibitions on risky loan features (such as interest-only or balloon payments) and limits on points and fees. Lenders that originate QM loans receive certain liability protections.
- Securities collateralized exclusively by residential mortgages that are “qualified residential mortgages” are exempt from risk-retention requirements. The QRM regulations align the QRM definition with QM; thus, securities collateralized solely by QM loans are not subject to risk-retention requirements.
The analyses GAO reviewed estimated limited effects on the availability of mortgages for most borrowers and that any cost increases (for borrowers, lenders, and investors) would mostly stem from litigation and compliance issues. According to agency officials and observers, the QRM regulations were unlikely to have a significant initial effect on the availability or securitization of mortgages in the current market, largely because the majority of loans originated were expected to be QM loans. However, questions remain about the size and viability of the secondary market for non-QRM-backed securities.
This last bit — questions about the non-QRM-backed market — is very important.
Some consumer advocates believe that there should not be any non-QRM mortgages. I disagree. There should be some sort of market for mortgages that do not comply with the strict (and, in the main, beneficial) QRM limitations.
Some homeowners will not be eligible for a plain vanilla QM/QRM mortgage but could still handle a mortgage responsibly. The mortgage markets would not be healthy without some kind of non-QRM-backed securities market for those consumers.
So far, that non-QRM market has been very small, smaller than expected. Regulators should continue to study the effects of the new mortgage regulations to ensure that they incentivize making the socially optimal amount of non-QRM mortgage credit available to homeowners.
Wednesday’s Academic Roundup
- Valuing Control, Peter C. DiCola, 113 Michigan Law Review 663 (2015).
- A Framework for Understanding Property Regulation and Land Use Control from a Dynamic Perspective, Donald J. Kochan, 4 Michigan Journal of Environmental & Administrative Law 303 (2015).
- The Use of Listed Real Estate Securities in Asset Management, Alex Moss & Andrew Baum.
- Financial Literacy, Broker-Borrower Interaction, and Mortgage Default, James Neil Conklin.
- Mortgage Default, Juan Carlos Hatchondo, Leonardo Martinez & Juan M. Sanchez.
Bank Break-ins
Chris Odinet has posted Banks, Break-Ins, and Bad Actors in Mortgage Foreclosure to SSRN. The abstract reads,
During the housing crisis banks were confronted with a previously unknown number mortgage foreclosures, and even as the height of the crisis has passed lenders are still dealing with a tremendous backlog. Overtime lenders have increasingly engaged third party contractors to assist them in managing these assets. These property management companies — with supposed expertise in the management and preservation of real estate — have taken charge of a large swathe of distressed properties in order to ensure that, during the post-default and pre-foreclosure phases, the property is being adequately preserved and maintained. But in mid-2013 a flurry of articles began cropping up in newspapers and media outlets across the country recounting stories of people who had fallen behind on their mortgage payments returning home one day to find that all of their belongings had been taken and their homes heavily damaged. These homeowners soon discovered that it was not a random thief that was the culprit, but rather property management contractors hired by the homeowners’ mortgage servicer.
The issues arising from these practices have become so pervasive that lawsuits have been filed in over 30 states, and legal aid organizations in California, Florida, Michigan, Nevada, and New York report that complaints against lender-engaged property managements firms number among their top grievances. This Article analyzes lender-engaged property management firms and these break-in foreclosure activities. In doing so, the paper makes a three-part call to action, which includes the implementation of bank contractor oversight regulations, the creation of a private cause of action for aggrieved homeowners, and the curtailment of property preservation clauses in mortgage contracts.
This is a timely article about a cutting edge issue. All too often I have heard pro-bank lawyers claim that banks almost never foreclose improperly. The news reports and lawsuits discussed in this article counter that claim. And yet, I hope that some empirically-minded person could quantify the frequency of such misbehavior to better inform policymakers going forward.
Wednesday’s Academic Roundup
- Mortgage Finance and Technological Change, Robin Döttling & Enrico C. Perotti, Tinbergen Institute Discussion Paper 15-079/IV.
- Sustaining Neighborhoods of Choice: From Land Bank(ing) to Land Trust(ing), James J. Kelly Jr., Washburn Law Journal, Vol. 54, No. 3, 2015.
- President Eisenhower’s 1956 Prediction Becomes a Reality: The New Art of the REIT Spin, Katherine Riano, May 29, 2015.
- A Tale of Two Tensions: Balancing Access to Credit and Credit Risk in Mortgage Underwriting, Marsha Courchane, Leonard C. Kiefer & Peter M. Zorn, Real Estate Economics, Forthcoming.
- Loan Originations and Defaults in the Mortgage Crisis: Further Evidence, Manuel Adelino, Antoinette Schoar & Felipe Severino, June 21, 2015.
- How to Kill a Zombie: Strategies for Dealing with the Aftermath of the Foreclosure Crisis, Judith L. Fox, Notre Dame Legal Studies Paper No. 1519.
Wednesday’s Academic Roundup
- Airbnb and the Housing Segment of the Modern ‘Sharing Economy’: Are Short-Term Rental Restrictions an Unconstitutional Taking?, Jamila Jefferson-Jones, Hastings Constitutional Law Quarterly, Vol. 42, 2015.
- The Use of Tenant Screening Reports and Tenant Blacklisting, Gerald Lebovits & Jen M. Addonizio, LEGALEase Pamphlet, New York State Bar Association (2015).
- Banks, Break-Ins, and Bad Actors in Mortgage Foreclosure, Christopher K. Odinet, University of Cincinnati Law Review, Vol. 83, No. 4, 2015.
- Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays, Sewin Chan, Andrew Haughwout, Andrew T. Hayashi, & Wilbert Van der Klaauw, FRB of New York Staff Report No. 732.
- The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program, Douglas A. McManus, Jared Janowiak, Lu Ji, Kadiri Karamon & Jun Zhu, Real Estate Economics.
The State of the Nation’s Sustainable Housing
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.
