Tag Archives: Reiss

Mortgages for Grads

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Realtor.com quoted me in College Grads Can Get Home Grants—but There’s a Catch. It opens,

Recent college graduates hoping to buy a home have one more reason to toss their caps in the air these days: Programs offering home grants to new grads are popping up across the country, offering thousands of dollars in assistance that could put homeownership within reach. Talk about a nice graduation gift!

In New York, for instance, Gov. Andrew Cuomo recently announced a $5 million pilot program, “Graduate to Homeownership,” providing assistance to first-time buyers who’ve graduated from an accredited college or university with an associate’s, bachelor’s, master’s, or doctorate degree within the past two years. That aid can take the form of low-interest-rate mortgages, or up to $15,000 in down payment assistance.

The catch? You’ll have to live upstate—in Jamestown, Geneva, Elmira, Oswego, Oneonta, Plattsburgh, Glens Falls, or Middletown—eight areas that many just-sprung college students tend to flee as soon as they have their diploma in hand.

“Upstate colleges and universities have world-class programs that produce highly skilled graduates—who then leave for opportunities elsewhere,” Cuomo admitted in a statement. “This program will incentivize recent graduates to put down roots.”

The trade-off for college grads

New York is not the only state offering this type of assistance to college grads, many of whom are saddled with significant student loan debt. According to analysis by Credible.com, nearly half of states offer some form of housing assistance to student loan borrowers, with a handful focusing on recent grads.

For instance, Rhode Island’s Ocean State Grad Grant program offers up to $7,000 in down payment assistance to those who’ve earned a degree in the past three years. Ohio’s Grants for Grads program offers down payment assistance or reduced-rate mortgages to those who have graduated in the past four years.

Still, what’s noteworthy about programs like New York’s is that you can’t just buy a home anywhere. Rather, you have to plunk yourself down in semi-ghost towns. That’s hardly ideal for someone who’s trying to kick-start a career.

So as tempting as this home-buying “help” might appear at first glance, you have to wonder: Is it enough to offset what these students give up? Some experts say it’s a risky bet.

“The New York program aims to retain highly educated people in economically depressed regions and revitalizing struggling downtowns in those regions,” says David Reiss, research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. “It can certainly help people who are dealing with high student debt burdens. But programs like this have to deal with a fundamental issue: Do these communities have enough jobs for recent college graduates? Time will tell.”

Find a job first, then a home

Experts say students should think carefully before they pounce on this “gift” and make sure they can be happy in one of the designated locations—and gainfully employed.

“No question, they should have a job lined up first [before buying a house],” says Reiss. After all, “a good deal on a house or a mortgage is not a good deal if we don’t have a job to go along with it.”

Tapping Home Equity for Retirement Income

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photo by www.aag.com/retirement-reverse-mortgage-pictures

Newsday quoted me in Consider Tapping Your Home Equity for Retirement Income (behind paywall). It opens,

Just as Dorothy in the “Wizard of Oz” had her ruby slippers that could have gotten her back to Kansas at any time with three clicks of her heels, retirees have the option of tapping their home sweet home to bridge income shortfalls.

Yet, according to research from the National Council on Aging, only 20 percent of retirees polled said they would be willing to use their home equity to generate income. Information was obtained through focus groups with 112 people aged 60 to 75, and two surveys of 254 financial advisers and 1,002 older homeowners.

When you’re in a pinch, here’s how to get the max out of your home.

– Get over the notion a home is sacred: “Using your home equity to generate retirement income can help you delay claiming Social Security,” says Gary Borowiec, a financial adviser and managing partner at Atlas Advisory Group in Cranford, New Jersey.

– Audit your housing situation: Determine if you’re using your home equity wisely. “Is a senior citizen living in the same home where she raised her children who have now gone off to live on their own? Would it make sense to downsize to an apartment with lower costs and fewer maintenance issues? If so, redirect some of the equity from the original home to investments that can generate an income stream over the course of her retirement,” says David Reiss, a professor at Brooklyn Law School specializing in real estate.

Patenaude To Help Lead HUD

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photo: J. Ronald Terwilliger Foundation for Housing America’s Families

Pamela Hughes Patenaude

Realtor.com quoted me in ‘Ultimate Housing Insider’: Pam Patenaude Nominated as HUD Deputy Secretary. It reads,

Pam Patenaude was nominated by President Donald Trump to become deputy secretary of Housing and Urban Development, according to a White House statement released on Friday. The move has been met with resounding applause by industry insiders who think her background could serve as the perfect complement to HUD Secretary Ben Carson, who entered his role without experience in housing or government.

Patenaude, currently president of the J. Ronald Terwilliger Foundation for America’s Families, was formerly an assistant secretary for community, planning, and development at HUD, under President George W. Bush. She also served as director of housing policy at the Bipartisan Policy Center’s Housing Commission. Patenaude’s nomination must be confirmed by the Senate.

“She’s the ultimate housing insider,” says David Reiss, research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School. “She’s connected and has a lot of respect within the housing field.”

Real estate industry organizations hailed the choice, including the National Association of Realtors®. In a statement, NAR President William E. Brown said, “Pam’s extensive and strong background in real estate and housing will be an asset. … Pam is an ideal candidate for the position; she understands the issues that impact the industry.”

David Stevens, president and CEO of the Mortgage Bankers Association, also offered his thumbs-up.

“Pam is an exceptional choice for the position,” Stevens said in a statement. “Personally, I have worked with her for a number of years and she is exactly the kind of leader who will help support the secretary and also address the critical issues ahead for HUD. She has a well-informed understanding of the agency, and essential technical knowledge of the real-estate finance industry. I would encourage the Senate to move swiftly in confirming her nomination.”

This depth of experience, Reiss says, serves as the perfect foil for Carson. As HUD secretary, Carson serves as the public face of this department, while Patenaude will handle the daily duties of running the organization.

“The big criticism of Carson is that he has no experience or background in housing,” Reiss continues. “So to have a No. 2 who’s really responsible for the day-to-day responsibility of the agency is a plus.”

What Patenaude’s appointment could mean for housing

In November, rumors were swirling that the Trump administration was considering Patenaude as HUD secretary, but then Carson got the nod instead, and then the Trump administration released a budget calling for $6 billion in cuts to the department. Patenaude’s nomination has many hopeful that HUD’s core initiatives—like affordable housing—will remain a priority.

“Trump’s ‘skinny budget’ decimated HUD,” Reiss continues. “Trump has made lots of appointments who’ve expressly said they want to destroy the agencies that they’re running. But Patenaude is an insider with HUD. So my hope is she sees the value it provides, and be an advocate for many HUD programs.”

Rental Potholes

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photo by Eric Haddox

Realtor.com quoted me in Rental Potholes—and How to Avoid Falling Into Them. It opens,

Until you have the money to buy your own home, renting is eventually a part of just about every person’s life. And typically this transaction tends to work out just fine. Until it doesn’t. Because there is indeed plenty that can go wrong, leaving renters learning some difficult lessons through trial and error. To make sure you aren’t one of them, check out these rental roadblocks—and what you can do to keep from getting stuck.

Somebody’s watching you

“My work took our family to Florida and in our haste to find somewhere to live with our two kids, we found a gorgeous townhouse seaside rental. The ocean views were incredible, just what we’d dreamed of. So incredible, in fact, that we didn’t realize the unit lacked window coverings of any kind! And as much as I loved looking at the ocean, there were times when some level of privacy was desired; people could see into the whole house if they were walking along the beach. When we shared this ‘oversight’ with the landlord, his offer was to split the costs of full-house window coverings! We decided not to help the property owner increase the value of his home. We continued to enjoy ocean views on a 24/7 basis but moved out after a year.” – Rhonda Moret, Del Mar, CA

Lesson learned: Don’t let your enthusiasm keep you from doing your due diligence before thoroughly vetting a place and signing on the dotted line.

“This responsibility falls squarely on the tenant; you can’t expect someone else to look out for your interests. That’s your job,” says David Reiss, academic program director for Brooklyn Law School’s Center for Urban Business Entrepreneurship. But by the same turn, don’t fall for a landlord’s request to “split the cost”—any renovations should be his responsibility all the way.

Bye-bye, security deposit

“When I handed our landlord a $1,000 security deposit, I assumed I’d get it back whenever we left, and didn’t bother to do a walk-through of the apartment to make sure it was in decent shape. Big mistake! Once we moved out, the landlord sent us a letter stating he was keeping the security deposit because we had broken a window in the garage. Only we hadn’t—that must have been done by a previous tenant. We got charged for someone else’s damage.” – Mindy Jensen, Wheaton, IL

Lesson learned: “Doing a walk-through inspection is important if you want your security deposit back,” says Reiss. “It’s important to add details like time stamps to everything and get documentation that your landlord received the report.”

Also consider recording a video with your smartphone while you walk through the place. The more backup material you have, the better the odds that you’ll get back what you deserve.

Your pet or your pad

“A few years ago, my family and I rented a townhouse. There was a pet shop on the corner selling the cutest puppies, and we fell in love with a French bulldog and bought him. That’s when things started to get ugly. We hadn’t checked the rental agreement to see if we could own a pet. When our landlord found out, she became hysterical and asked us to leave—or get rid of the dog. We ended up homeless, but with a very cute puppy. Fortunately, we stayed at a friend’s place until we found a dog-friendly home.” – Derek McLane, Sydney, Australia

Lesson learned: “Read the fine print before you sign. This is pretty fundamental, even if it is not fun to do,” says Reiss.

At the very least, ask your landlord what the rules are and to specify where the pertinent parts can be found in the lease. Be aware that many leases don’t allow pets, or will make pet owners pay an extra fee known as pet rent.

You’ve got mail … a mile away

“I was living in an amazing apartment when the mailboxes in the foyer were vandalized to the point where the USPS deemed them ‘unsafe for delivery of mail.’ We were ‘temporarily’ redirected to pick up mail six blocks up and four very long avenue blocks over until the landlords had an opportunity to repair our mailboxes. A year and a half later, they still hadn’t been fixed—and to make matters worse, a stairwell skylight had collapsed. I was forced to take on the practically full-time job of challenging my landlord to make repairs. I finally was able to make something happen by researching the building and finding out that my landlord had illegally jacked up the rent more than was legally allowed by rent-stabilization laws. Eventually, my efforts resulted in a rent reduction, reinstated mail delivery, and a very bad tenant/landlord relationship.” – Tim Tucker, Las Vegas, NV

Lesson learned: “Know your rights. Tenants have a lot of them, particularly in rent-regulated apartments,” says Reiss.

What is the Debt to Income Ratio?

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OppLoans.com quoted me in What is the Debt to Income Ratio? It opens,

One of the great things about credit is that it lets you make purchases you wouldn’t otherwise be able to afford at one time. But this arrangement only works if you are able to make your monthly payments. That’s why lenders look at something called your debt to income ratio. It’s a number that indicates what kind of debt load you’ll be able to afford. And if you’re looking to borrow, it’s a number you’ll want to know.

Unless your rich eccentric uncle suddenly dies and leave you a giant pile of money, making any large purchase, like a car or a home, is going to mean taking out a loan. Legitimate loans spread the repayment process over time (or a longer term), which makes owning these incredibly expensive items possible for regular folks.

But not all loans are affordable. If the loan’s monthly payments take up too much of your budget, then you’re likely to default. And as much as you, the borrower, do not want that to happen, it’s also something that lenders want to avoid at all costs.

It doesn’t matter how much you want that cute, three-bedroom Victorian or that sweet, two-door muscle car (or even if you’re just looking for a personal loan to consolidate your higher interest credit card debt). If you can’t afford your monthly payments, reputable lenders aren’t going to want to do business with you. (Predatory payday lenders are a different story, they actually want you to be unable to afford your loan. You can read more about that shadiness in our personal loans guide.)

So how do mortgage, car, and personal lenders determine what a person can afford before they lend them? Well, they usually do it by looking at their debt to income ratio.

What is the debt to income ratio?

Basically, it’s the amount of your monthly budget that goes towards paying debts—including rent or mortgage payments.

“Your debt to income ratio is benchmark metric used to measure an individual’s ability to repay debt and manage their monthly payments,” says Brian Woltman, branch manager at Embrace Home Loans (@EmbraceHomeLoan).

“Your ‘DTI’ as it’s commonly referred to is exactly what it sounds like. It’s calculated by dividing your total current recurring monthly debt by your gross monthly income—the amount you make before any taxes are taken out,” says Woltman. “It’s important because it helps a lender to determine the proper amount of money that someone can borrow, and reasonably expect to be paid back, based on the terms agreed upon.”

According to Gerri Detweiler (@gerridetweiler), head of market education for Nav (@navSMB), “Your debt to income ratio provides important information about whether you can afford the payment on your new loan.”

“On some consumer loans, like mortgages or auto loans, your debt to income ratio can make or break your loan application,” says Detweiler. “This ratio typically compares your monthly recurring debt payments, such as credit card minimum payments, student loan payments, mortgage or auto loans to your monthly gross (before tax) income.”

Here’s an example…

Larry has a monthly income of $5,000 and a list of the following monthly debt obligations:

Rent: $1,200

Credit Card: $150

Student Loan: $400

Installment Loan: $250

Total: $2,000

To calculate Larry’s DTI we need to divide his total monthly debt payments by his monthly income:

$2,000 / $5,000 = .40

Larry’s debt to income ratio is 40 percent.

David Reiss (@REFinBlog), is a professor of real estate finance at Brooklyn Law School. He says that the debt to income ratio is an important metric for lenders because “It is one of the three “C’s” of loan underwriting:

Character: Does a person have a history of repaying debts?

Capacity: Does a person have the income to repay debts?

Capital: Does the person have assets that can be used to retire debt if income should prove insufficient?

What is a good debt to income ratio?

“If you listen to Ben Franklin, who subscribed to the saying ‘neither a borrower nor lender be,’ the ideal ratio is 0,” says Reiss. But he adds that only lending to people with no debt whatsoever would put home ownership out of reach for, well, almost everyone. Besides, a person can have some debt on-hand and still be a responsible borrower.

“More realistically, in today’s world,” says Reiss, “we might take guidance from the Consumer Financial Protection Bureau (CFPB) which advises against having a DTI ratio of greater than 43 percent. If it creeps higher than that, you might have trouble paying for other important things like rent, food and clothing.”

“Requirements vary but usually if you can stay below a 33 percent debt-to-income ratio, you’re fine,” says Detweiler. “Some lenders will lend up to a 50 percent debt ratio, but the interest rate may be higher since that represents a higher risk.”

For Larry, the guy in our previous example, a 33 percent DTI would mean keeping his monthly debt obligations to $1650.

Let’s go back to that 43 percent number that Reiss mentioned because it isn’t just an arbitrary number. 43 percent DTI is the highest ratio that borrower can have and still receive a “Qualified Mortgage.”

Kafka and the CFPB

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photo by Ferran Cornellà

Statue of Franz Kafka by Jaroslav Rona

The Hill published my latest column, The CFPB Is a Champion for Americans Across The Country. It opens,

Republicans like Sen. Ted Cruz (R-Texas) have been arguing that consumers should be freed from the Consumer Financial Protection Bureau’s “regulatory blockades and financial activism.” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) accuses the CFPB of engaging in “financial shakedowns” of lenders. These accusations are weighty.

But let’s take a look at the types of behaviors consumers are facing from those put-upon lenders. A recent decision in federal bankruptcy court, Sundquist v. Bank of America, shows how consumers can be treated by them. You can tell from the first two sentences of the judge’s opinion that it goes poorly for the consumers: “Franz Kafka lives. This automatic stay violation case reveals that he works at Bank of America.”

The judge continues, “The mirage of promised mortgage modification lured the plaintiff debtors into a Kafka-esque nightmare of stay-violating foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder, for all of which Bank of America disclaims responsibility.”

Homeowners who reads this opinion will feel a pit in their stomachs, knowing that if they were in the Sundquists’ shoes they would also tremble with rage and fear from the way Bank of America treated them: 20 or so loan modification requests or supplements were “lost;” declared insufficient, incomplete or stale; or denied with no clear explanation.

Over the years, I have documented similar cases on REFinBlog.com. In U.S. Bank, N.A. v. David Sawyer et al., the Maine Supreme Judicial Court documented how loan servicers demanded various documents which were provided numerous times over the course of four court-ordered mediations and how the servicers made numerous promises about modifications that they did not keep. In Federal National Mortgage Assoc. v. Singer, the court documents the multiple delays and misrepresentations that the lender’s agents made to the homeowners.

The good news is that in those three cases, judges punished the servicers and lenders for their pattern of Kafka-esque abuse of the homeowners. Indeed, the Sundquist judge fined Bank of America a whopping $45 million to send it a message about its horrible treatment of borrowers.

But a fairy tale ending for a handful of borrowers who are lucky enough to have a good lawyer with the resources to fully litigate one of these crazy cases is not a solution for the thousands upon thousands of borrowers who had to give up because they did not have the resources, patience, or mental fortitude to take on big lenders who were happy to drag these matters on for years and years through court proceeding after court proceeding.

What homeowners need is a champion that will stand up for all of them, one that will create fair procedures that govern the origination and servicing of mortgages, one that will enforce those procedures, and one that will study and monitor the mortgage market to ensure that new forms of predatory behavior do not have the opportunity to take root. This is just what the Consumer Financial Protection Bureau has done. It has promulgated the qualified mortgage and ability-to-repay rules and has worked to ensure that lenders comply with them.

Kafka himself said that it was “the blend of absurd, surreal and mundane which gave rise to the adjective ‘kafkaesque.’” Most certainly that is the experience of borrowers like the Sundquists as they jump through hoop after hoop only to be told to jump once again, higher this time.

When we read a book like Kafka’s The Trial, we are left with a sense of dislocation. What if the world was the way Kafka described it to be? But if we go through an experience like the Sundquists’, it is so much worse. It turns out that an actor in the real world is insidiously working to destroy us, bit by bit.

The occasional win in court won’t save the vast majority of homeowners from abusive lending practices. A regulator like the Consumer Financial Protection Bureau can. And in fact it does.

Blockchain and Real Estate

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CoinDesk.com quoted me in Land Registry: A Big Blockchain Use Case Explored. It opens,

With distributed ledger technology being promoted as a benefit to everything from farming to Fair Trade coffee, use case investigation has emerged as a full-time fascination for many.

In this light, one popular blockchain use case that has remained generally outside scrutiny has been land title projects started in countries including in Georgia, Sweden and the Ukraine.

One could argue land registries seemed to become newsworthy only after work on the use case had begun. However, those working on projects disagree, asserting that land registries could prove one of the first viable beachheads for blockchain.

Elliot Hedman, chief operating officer of Bitland Global, the technology partner for a real estate title registration program in Ghana, for example, said that issues with land rights make it a logical fit.

Hedman told CoinDesk: “As for the benefit of a blockchain-based land registry, look to Haiti. There are still people fighting over whose land is whose. When disaster struck, all of their records were on paper, that being if they were written down at all.”

Hedman argued that, with a blockchain-based registry employing a network of distributed databases as a way to facilitate data exchange, the “monumental headache” associated with a recovery effort would cease.

Modern real estate

To understand the potential of a blockchain land registry system, analysts argue one must first understand how property changes hands.

When a purchaser seeks to buy property today, he or she must find and secure the title and have the lawful owner sign it over.

This seems simple on the surface, but the devil is in the details. For a large number of residential mortgage holders, flawed paperwork, forged signatures and defects in foreclosure and mortgage documents have marred proper documentation of property ownership.

The problem is so acute that Bank of America attempted foreclosure on properties for which it did not have mortgages in the wake of the financial crisis.

Readers may also recall the proliferation of NINJA (No Income, No Job or Assets) subprime loans during the Great Recession and how this practice created a flood of distressed assets that banks were simply unable to handle.

The resulting situation means that the property no longer has a ‘good title’ attached to it and is no longer legally sellable, leaving the prospective buyer in many cases with no remedies.

Economic booster

Land registry blockchains seek to fix these problems.

By using hashes to identify every real estate transaction (thus making it publicly available and searchable), proponents argue issues such as who is the legal owner of a property can be remedied.

“Land registry records are pretty reliable methods for maintaining land records, but they are expensive and inefficient,” David Reiss, professor of law and academic program director at the Center for Urban Business Entrepreneurship, told CoinDesk.

He explained:  “There is good reason to think that blockchain technology could serve as the basis for a more reliable, cheaper and more efficient land registry.”