- 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: mortgage
Monday’s Adjudication Roundup
- Massachusetts’s federal court found that a unit of Deutsche Bank AG failed to vet some residential mortgage-backed securities, which mislead Massachusetts Mutual Life Insurance Co.
- US Bank filed an amended complaint claiming that Citigroup Global Markets Realty Corp. and CitiMortgage Inc. in suit over bad mortgage-backed securities.
- After PHH Corp. was ordered to pay $109 million in penalties by the CFPB in a mortgage kickback scheme, it has asked to D.C. Circuit to reconsider.
- New York state court dismisses Commerzbank AG’s suit against UBS AG, Credit Suisse Group AG, and others due to the statute of limitations. Commerzbank brought suit alleging loan quality fraud in the sale of $1.9 billion in mortgage securities.
- NY federal court dismissed a derivative shareholder suit against American Realty Capital Properties Inc. as the suit did not fulfill the state law requirement that demand be made on the board of directors before bringing suit and this case did not meet the narrow futility exception to such demand. The shareholders brought suit over accounting issues that led to a sharp drop in stock value and destroyed a possible $700 million sale.
- In suit against Amazon for breach of contract, The Durst Organization will not be able to force Amazon to sign a $20 million per year lease. The court found that the letter of intent does not compel the retailer to execute the lease. However, Durst may be able to recover under the additional breach of duty and fraud claims.
- In a historical decision, the U.S. Supreme Court held that the Fair Housing Act covers unintentional discrimination through disparate impact, citing to the deep racial divides in the 1960s.
- US Bank, as a trustee of Lehman XS Trust, brings suit against Bank of America and Countrywide Financial for $178 million for alleged breach of representations and warranties in sale of residential mortgage loans.
Wednesday’s Academic Roundup
- House Price Impacts of Racial, Income, Education and Age Neighborhood Segregation, David M. Brasington, Diane Hite & Andres Jauregui, Journal of Regional Science, Vol. 55, Issue 3, pp. 442-467, 2015.
- Housing Price Collapse Worsens the Opportunities for Educational Attainment for the Young in Cities Nationwide, I-Ling Shen & James R. Barth, June 8, 2015.
- Pixelating Administrative Common Law in Mortgage Bankers, Kathryn E. Kovacs, 125 Yale L.J. F. 31 (2015).
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.
The Quest for Consumer Comprehension
Lauren Willis has posted The Consumer Financial Protection Bureau and the Quest for Consumer Comprehension to SSRN. it opens,
Dodd-Frank tasked the Consumer Financial Protection Bureau with ensuring that “consumers … understand the costs, benefits, and risks associated with” financial products. Despite this ambitious mandate, and despite the Bureau’s self-branding as a “21st century agency,” the Bureau’s pursuit of consumer comprehension has thus far focused on the same twentieth century tool that has already proven ineffective at regulating financial products: required disclosures. No matter how well the Bureau’s “Know Before You Owe” disclosures perform in the lab, or even in field trials, firms will run circles around disclosures when the experiments end, confusing consumers and defying consumers’ expectations. Even without any intent to deceive, firms not only will but must leverage consumer confusion to compete with other firms that do so. While firms are not always responsible for their customers’ confusion, firms take advantage of this confusion to sell products.
If the Bureau wants to ensure that consumers understand the financial transactions in which they engage, then to meet the challenge posed by the velocity of today’s marketplace, the Bureau must induce firms themselves to promote consumer comprehension, either by educating consumers or by simplifying products. To generate this change in firm behavior, the Bureau should require firms to regularly demonstrate, through third-party testing of random samples of their customers, that their customers understand key costs, benefits, and risks of the products they have bought. Rather than attempting to perfect the format of price disclosures, for example, the Bureau should require firms to prove that their customers understand the price at the moment when the customers are deciding whether to take the actions that will trigger it, whether those actions be taking out a mortgage, overdrawing a checking account, or calling customer service to inquire about the balance on a prepaid debit card. Where consumers are confused about benefits rather than costs, such as the benefit of signing up for a credit repair service, buying credit life insurance, or paying off a debt that is beyond limitations, firms should be required to show that their customers understand the actual benefits the firm is offering before the consumer commits to the purchase or action. (1, footnotes omitted)
This paper poses an important challenge to the CFPB — can disclosure regimes be replaced with something better? One hopes that the answer is yes, although Willis’ previous work on financial education makes me somewhat pessimistic.
This new paper does offer some reason for optimism though. Willis argues that comprehension rules may induce firms to simplify products, so such rules may have a positive impact even if the CFPB cannot move the dial on consumer comprehension all that much.
Wednesday’s Academic Roundup
- Racial Discrepancy in Mortgage Interest Rates, by Ping Cheng, Zhenguo Lin, & Yingchun Liu, Journal of Real Estate Finance and Economics, Vol. 51, No. 1, 2015.
- House Prices, Local Demand, and Retail Prices, by Johannes Stroebel & Joseph Vavra, CEPR Discussion Paper No. DP10612.
- Housing Value Estimation: An Application of Forecast Combination to Residential Property Valuation, by Dennis Glennon, Hua Kiefer & Tom Mayock, May 18, 2015.
Friday’s Government Reports Roundup
- United States Government Accountability Office releases report: “Collateral Requirements Discourage Some Community Development Financial Institutions from Seeking Membership”.
- The National Low Income Housing Coalition (NLIHC) released its Out of Reach 2015 report, in which it asserts that low wages and high rents are preventing people from living in many different areas of the country. It states that the most expensive city to live in is San Francisco, where a worker would need to make $40/hour to afford a decent two-bedroom apartment.
- The Federal Reserve released its Report on the Economic Well-Being of U.S. Households in 2014, which reveals how adult-consumers feel they are doing financially. Though in a number of categories adults’ beliefs on how they are doing went up beneficially, half of all renters that wanted to purchase a home could not afford the down payment and 31% were unable to qualify for a mortgage.
