- Bankrupt Washington Mutual settles in class action suit for $10 million after duping plaintiffs into taking out mortgages with low “teaser rates.”
- Goldman Sachs asks NY Federal Judge not to certify class action suit over its Abacus collateralized debt obligation, which caused $1 billion in investor losses.
- The Third Circuit Court of Appeals has ruled that the Fair Debt Collection Practices Act (FDCPA) covers foreclosure complaints in suit brought by Bank of America and a NJ law firm.
- First Horizon National Corp.’s subsidiary First Tennessee Bank settles with FDIC over violation of due-diligence regulations for Federal Housing Administration-insured home loans for $212.5 million.
- HSBC and Assurant settle for $1.8 billion over allegations that the bank got kickbacks for getting consumers to purchase inflated flood insurance.
Tag Archives: mortgage
Friday’s Government Reports Roundup
- The Office of the Comptroller of the Currency released a report on mortgage performance.
- CFPB releases its Consumer Response Annual Report analyzing the complaints it received in 2014 and its fourth annual Fair Debt Collection Practices Act
- FHFA releases its 2014 fourth quarter Foreclosure Prevention Report stating the foreclosure prevention actions by Fannie Mae and Freddie Mac.
- HUD releases report in which it evaluates the Neighborhood Stabilization Program.
Home Loan Toolkit
The Consumer Financial Protection Bureau has issued Your Home Loan Toolkit: A Step-by-Step Guide. The toolkit is designed to help potential homeowners navigate the process of buying a home. As the press release notes,
The toolkit provides a step-by-step guide to help consumers understand the nature and costs of real estate settlement services, define what affordable means to them, and find their best mortgage. The toolkit features interactive worksheets and checklists, conversation starters for discussions between consumers and lenders, and research tips to help consumers seek out and find important information.
* * *
Creditors must provide the toolkit to mortgage applicants as a part of the application process, and other industry participants, including real estate professionals, are encouraged to provide it to potential homebuyers.
The toolkit asks many of the important questions that homebuyers have:
- What does affordability mean for you?
- What kind of credit profile do you have?
- What kind of mortgage is right for you?
- How do points work?
- How do you comparison shop with lenders?
- How does a closing work?
- How do you read your Closing Disclosure?
- How do keep your mortgage in good standing?
That being said, it remains to be seen whether this toolkit will actually help potential homeowners. It is important for the CFPB to design an effectiveness study to see how the toolkit performs in practice.
Mortgaging the Future
The Federal Reserve Bank of San Francisco’s most recent Economic Letter is titled Mortgaging the Future? In it, Òscar Jordà, Moritz Schularick, and Alan M. Taylor evaluate the “Great Mortgaging” of the American economy:
In the six decades following World War II, bank lending measured as a ratio to GDP has quadrupled in advanced economies. To a great extent, this unprecedented expansion of credit was driven by a dramatic growth in mortgage loans. Lending backed by real estate has allowed households to leverage up and has changed the traditional business of banking in fundamental ways. This “Great Mortgaging” has had a profound influence on the dynamics of business cycles. (1)
I was particularly interested by the Letter’s Figure 2, which charted the ratio of mortgage debt to value of the U.S. housing stock over the last hundred years or so. The authors write,
The rise of mortgage lending exceeds what would be expected considering the increase in real estate values over the same time. Rather, it appears to also reflect an increase in household leverage. Although we cannot measure historical loan-to-value ratios directly, household mortgage debt appears to have risen faster than total real estate asset values in many countries including the United States. The resulting record-high leverage ratios can damage household balance sheets and therefore endanger the overall financial system. Figure 2 displays the ratio of household mortgage lending to the value of the total U.S. housing stock over the past 100 years. As the figure shows, that ratio has nearly quadrupled from about 0.15 in 1910 to about 0.5 today. (2)
An increase in leverage for households is not necessarily a bad thing. it allows households to make investments and to smooth their consumption over longer periods. But it can, of course, get to be too high. High leverage makes households less able to handle shocks such as unemployment, divorce and death. it would be helpful for economists to better model a socially optimal level of household leverage in order to guide regulators. The CFPB has taken a stab at this with its relatively new Ability-to-Repay regulation but we do not yet know if they got it right.
Frannie Conservatorships: What A Long, Strange Trip It’s Been
The Federal Housing Finance Agency Office of Inspector General has posted a White Paper, FHFA’s Conservatorships of Fannie Mae and Freddie Mac: A Long and Complicated Journey. This White Paper on conservatorships updates a first one that OIG published in 2012. This one notes that over the past six years,
FHFA has administered two conservatorships of unprecedented scope and simultaneously served as the regulator for these large, complex companies that dominate the secondary mortgage market and the mortgage securitization sector of the U.S. housing finance industry. Congress granted FHFA sweeping conservatorship authority over the Enterprises. For example, as conservator, FHFA can exercise decision-making authority over the Enterprises’ multi-trillion dollar books of business; it can direct the Enterprises to increase the fees they charge to guarantee mortgage-backed securities; it can mandate changes to the Enterprises’ credit underwriting and servicing standards for single-family and multifamily mortgage products; and it can set policy governing the disposition of the Enterprises’ inventory of approximately 121,000 real estate owned properties. (2)
I was particularly interested by the foreward looking statements contained in this White Paper:
Director Watt has repeatedly asserted that conservatorship “cannot and should not be a permanent state” for the Enterprises. Director Watt has indicated that under his stewardship FHFA will continue the conservatorships and build a bridge to a new housing finance system, whenever that system is put into place by Congress. In this phase of the conservatorships, FHFA seeks to place more decision-making in the hands of the Enterprises. (3)
Those who have been hoping that the FHFA will act decisively in the face of Congressional inaction should let that dream go. And given that just about nobody believes (I still hope though) that there will be Congressional reform of Fannie and Freddie during the remainder of the Obama Administration, we must face the reality that we are stuck with the conservatorships and all of the risks that they foster for the foreseeable future. Today’s risks include historically high rates of mortgage delinquencies and exposure to defaults by counterparties like private mortgage insurers. As I have said before, the risks that Fannie and Freddie are nothing to laugh at. Let’s hope that the FHFA is up to managing them until Congress finally acts.
Wednesday’s Academic Roundup
- Regional Redistribution Through the U.S. Mortgage Market, by Erik Hurst, Benjamin J. Keys, Amit Seru and Joseph Vavra, NBER Working Paper No. w21007.
- Will the Bubble Burst Be Revisited, by P.D. Aditya, March 8, 2015.
- Data & Civil Rights: Housing Primer, by Alex Rosenblat, Kate Wikelius, Danah Boyd, Seeta Peña Gangadharan, & Corrine Yu, Data & Civil Rights Conference, Oct. 2014.
- What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets – A 2014 Update, by Karl E. Case, Robert J. Shiller, & Anne K. Thompson, Cowles Foundation Discussion Paper No. 1876R.
- Supply Restrictions, Subprime Lending and Regional US House Prices, André K. Anundsen & Christian Heebøll, CESifo Working Paper Series No. 5236.
- A Quantitative Analysis of the U.S. Housing and Mortgage Markets and the Foreclosure Crisis, by Satyajit Chatterjee & Burcu Eyigungor, FRV of Philadelphia Working Paper No. 15-13.
- Alcohol- and Drug-Free Housing: A Key Strategy in Breaking the Cycle of Addiction and Recidivism, by Susan F. Mandiberg & Richard Harris, McGeorge Law Review, Forthcoming.
- The International Problem of Skyrocketing Rent: Why Increased Rent Can Hurt the Economy, Fatima Al Matar, March 17, 2015.
Tax Expenditure Wars: Wealthy Households v. Poor
Henry Rose has posted How Federal Tax Expenditures That Support Housing Contribute to Economic Inequality to SSRN. This short article examines “how federal income tax laws benefit more affluent owner households but provide no benefits to economically-strapped renter households.” (1) Housing policy analysts (myself included) constantly bemoan the regressive nature of federal tax policy as it relates to housing, but it is always worth looking at the topic with updated numbers. And this article contains some tables with some interesting numbers.
One table provides an overview of the estimated tax savings (in billions) in FY 2014 for five federal tax expenditures for owners of housing that they occupy:
Mortgage Interest Deduction (MID) $66.91
Property Tax Deduction (PTD) $31.59
Capital Gains Exclusion on Sales $35.54
Net Imputed Rental Income Exclusion $75.24
Discharge of Mortgage Indebtedness Exclusion $3.1
Total $212.38
The next table provides an estimated distribution of two of these tax expenditures (FY 2014, savings in millions):
Tax-Filer AGI PTD Tax Savings MID Tax Savings
Below $50,000 $693 $1,443
$50,000-75,000 $2,190 $4,330
$75,000-100,000 $3,478 $6,581
$100,000-200,000 $13,648 $27,421
$200,000+ $11,798 $29,340
Total $31,806 $69,115
The article concludes by noting that despite
the great disparity in economic positions between owners and renters, federal tax expenditures lavish tax savings on primarily affluent owners and provide none for renters. The federal tax expenditures for owners are so generous that interest can be deducted on mortgage balances up to $1,000,000 and can also be taken on second homes, even yachts, as well as primary residences. It is difficult to conceive of a federal public policy that more directly promotes economic inequality than the federal tax expenditures that support owners of housing but are not available to renters. (9-10, footnote omitted)
I don’t expect this disparity to be addressed any time in the near future, given the current political environment, but it is certainly one that should stay at the top of any list of reforms for those concerned with promoting equitable federal housing policies.
