Tag Archives: Reiss

Plunging Minority Homeownership Rates

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Construction Dive quoted me in Why Minority Homeownership Rates Plunged After the Housing Crash — and How to Reverse The Trend. It opens,

The recovery from the 2007 U.S. housing crash is still underway, with the ramifications of foreclosures and subprime mortgages still playing out for many current and potential American homeowners. Northeastern markets are still struggling to clear out crisis-era inventory, largely due to foreclosure laws, and members of Generation X — one of the hardest hit groups during the crash — are just now building up the required financial strength and confidence to claw their way back to homeownership.

While the Census Bureau Housing Vacancy Survey indicated that U.S. homeownership overall was 63.5% in the first quarter of 2016 — down significantly from a 25-year average of 66.2% — the groups encountering the most difficulties snapping back from the housing crisis are the black and Hispanic populations.

The Census Bureau found that 41.5% of black households and 45.3% of Hispanic households are currently homeowners, compared to 72.1% of white households. And last year, while the Urban Institute projected that Hispanic homeownership would rise over the next 15 years, it also predicted that black homeownership would drop to 40%.

The stagnant and declining minority homeownership numbers are clear, but experts have varying views regarding why this situation is occurring and what can be done to reverse the trend.

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In Newark, NJ, for example, entire minority neighborhoods were targeted with home renovation schemes, which ended in high-interest home equity loans for the consumer, according to David Reiss, professor of law and academic program director for urban business entrepreneurship at Brooklyn Law School. “You would see entire streets with home improvement projects through the same company,” he said.

A study by University of Buffalo professor Gregory Sharp and Cornell University professor Matthew Hall found that “race was the leading explanation for why people lost homes they owned and turned back to rentals.” Sharp and Hall said that minorities were “exploited” by the mortgage lending system, which led to blacks being 50% more likely than whites to lose their homes and enter the rental market.

After the housing market crash, there weren’t enough educational resources and financial literacy programs available to minority groups to help them navigate the “new normal” of adjustable-rate mortgages and increases to their monthly payments, according to Franky Bonilla, with Churchill Mortgage in Houston. “Without access to even the most basic information, such as how to save money or properly document income, many borrowers were unequipped to overcome (these problems), and, as a result, many owners walked away from their homes,” he said.

How to boost homeownership among minorities

So with minority homeownership rates lagging — and in some cases sinking — since the housing crisis, what’s the answer to reverse the trend?

Bonilla, who is also a member of the National Association of Hispanic Real Estate Professionals (NAHREP), said approximately 60% of his business comes from minority homeowners and that this group in particular could benefit from borrower education and outreach, such as bilingual employees, as well as workshops and seminars.

“Lenders with more cultural diversity have an advantage because they can relate and communicate more effectively with individuals who might otherwise feel disadvantaged or intimidated by the mortgage process,” Bonilla said. “In turn, this creates an opportunity to establish a relationship at a personal level and determine which mortgage options are the best fit for each borrower’s unique financial situation.”

Another possible solution to increasing minority homeownership rates, along with homeownership among those who don’t meet the credit requirements for prime loans, is an overhaul of lending criteria for mortgages.

Reiss said there has been a move by some housing advocates to have credit for mortgage purposes reflect factors more indicative of future success as a homeowner. One of the critical issues, however, is to try to determine exactly how much credit is the right amount of credit. “You want to make credit available to people without having excessive default rates,” Reiss said. “Clearly the amount of credit we had in the early 2000s was too much credit, and it ended poorly for many people.”

Reiss added that home lending has always involved a careful balance between underwriting and available credit. “I think everyone would agree that the ‘Wild West’ days of lending were not good for American households in general,” he said.

Building a Wall

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Realtor.com quoted me in Mark Zuckerberg Annoys His Neighbors by Building a Big Wall. It opens,

They say good fences make good neighbors, but that’s definitely not the case for Facebook founder Mark Zuckerberg. Word has it he’s been building a 6-foot wall around his 700-acre property in Kilauea, Kauai—and this construction has sparked an outcry among his neighbors, who say the wall obstructs the gorgeous ocean view.

“It’s immense,” longtime resident Gy Hall told West Hawaii Today. “It’s really sad that somebody would come in and buy a huge piece of land, and the first thing they do is cut off this view that’s been available and appreciated by the community here for years.”

To make their annoyance known, neighbors have resorted to posting messages on Zuckerberg’s wall—the real wall, not the virtual one on his Facebook profile—asking (mostly) politely for him to take it down. But the signs get removed soon after they appear (most likely by the tech giant’s henchmen).

Granted, it does seem to be a bit of a travesty when a billionaire swoops in and builds a wall that blocks ocean vistas that have been enjoyed by Hawaiians for centuries. So, what are the rules, exactly, on building walls or fences on your property? Can you build whatever you want, or might he have overstepped his bounds?

“Fence and wall limits are generally set by local laws, and residential properties generally have a maximum allowable height,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “Common limits are 6 feet for backyard fences and 4 feet for front-yard fences.”

That said, in relatively unpopulated areas like Kauai, it’s certainly possible that no laws exist at all.

Saving On Homeowners Insurance

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Trulia quoted me in 5 Ways To Save On Homeowners Insurance. It opens,

Some basic decisions in life shouldn’t demand much debate in your mind. Behind car and life insurance, homeowners insurance is one of the biggest no-brainers. When golf ball–sized hail rips your Boca Raton, FL, roof to shreds, your dog bites a clueless runner, or someone breaks in and steals your vintage Larry Bird jersey and Grandmother’s pearl earrings, a basic homeowners insurance policy should have you covered. But as with any other form of shopping, it’s always best to look around, sniff out a good deal, and compare home insurance options. Luckily, deep discounts can be found. Here are five ways to save on your policy.

1. Shop around, then enlist help

Finding the biggest discount isn’t just for cars and airline tickets. In fact, a few phone calls and internet searches can land you some serious deals on homeowners insurance. “Start by looking to see if there are any companies that offer discounts,” says Cory Gagnon, associate financial adviser, The Beacon Group at Assante Wealth Management Ltd. in Calgary, Canada. “An insurance broker or financial planner can be very helpful in these situations as they have access to databases that allow them to source a wide variety of companies.”Then think about memberships you have — are you a veteran or AARP member? If you’ve used membership discounts for say, buying a car or booking a vacation, see if the association has discounts for homeowners insurance. Think hard about groups you’re part of: Check if your college alumni association offers discounts, or even the wholesale club you belong to (like Costco, BJ’s, or Sam’s Club).

2. Improve your home

Sometimes, Gagnon adds, little changes and improvements to your home can lead to lower premiums. “Some insurance companies offer lower rates for a variety of factors having to do with the structure and build of your home, including the type of wiring, plumbing, and structure material,” he says. “If you are in an older home, making an investment in upgrades to some of these core elements will make your home safer — for example, less threat of pipe bursts, electrical fires — and thus lower your insurance premiums with certain companies, saving you money in the long run.”

3. Know the difference between replacement cost and actual cash value

Homeowners insurance comes with options, and the best way to navigate those options is to know what they are. “One of the most important things that a homeowner should know about when shopping for [a] new or existing homeowners policy is the difference between replacement cost versus actual cash value [ACV],” explains Craig Ciotti, an insurance agent/broker with Fidishun Insurance & Financial Inc. in Yardley, PA. “Replacement cost will insure you for the cost that it would take to replace your home and all of the other personal property in it,” he says. “The other option is actual cash value. ACV is the actual value of your home and does not take into consideration zoning permits or removal of damaged property. ACV is more often used by investors and not homeowners.” If, for instance, a laptop you bought for $1,000 is stolen, with replacement cost insurance, you will get $1,000 for a new laptop. With ACV, you’ll get the current market value for the laptop — which will most likely be far less, since it has probably depreciated over time. ACV premiums generally cost less, but you’ll likely pay more out of pocket after a loss.

4. Agree to a higher deductible

As with other forms of insurance (ahem, car), you can save big on your policy if you simply increase your deductible. “This can shave a significant amount off of your annual premium, which is the good thing,” says David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “The bad thing about it is, if you have a casualty, you will be responsible for it until it reaches the higher deductible limit. Thus, you should be able to handle that additional amount before agreeing to the higher deductible. Given that your premium typically goes up when you make a claim, a silver lining of the higher deductible is that you will file fewer claims.”
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Chances of Negative Mortgage Interest Rates

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TheStreet.com quoted me in Odds of Negative Interest Rates in the U.S. Are Slim. It reads, in part,

The odds of the U.S. lowering interest rates to negative levels remain low, because other forms of monetary policy such as quantitative easing could be adopted first.

The odds of utilizing quantitative easing are “quite high” or policies such as the use of repurchase agreements and the term deposit facility, said Michael Kramer, a portfolio manager on Covestor, the online investing marketplace and founder of Mott Capital Management, a registered investment advisor in Garden City, NY.

Choosing a negative interest rate policy (NIRP) in the U.S. would also affect the stock markets immensely and hinder bank profits.

“Due to the size of treasury and money markets, it could have some very severe ramifications,” he said. “In my view, our treasury markets are the safest and most liquid in the world.”

Investors would seek a higher return on capital elsewhere such as higher paying bonds which carry more risk, Kramer said.

“This could become problematic for the US government which is dependent on issuing debt to fund the government operation,” he said.

Negative rates in the U.S. would result in too much risk and backlash and would only occur if all other attempts by the Fed failed.

“At this point, the Fed has a few other tools it can use before it has to use the tool of last resort,” Kramer said.

The use of negative rates remains divisive despite the growing adoption of them in the central banks of the Eurozone along with Denmark, Japan, Sweden and Switzerland. In countries such as Japan and Germany, investors are forced to pay a fee instead of earning interest.

Lowering current interest rates to negative ones “would not be a panacea,” said former Federal Reserve Chairman Ben Bernanke, now a distinguished fellow in residence at a meeting hosted by the Hutchins Center on Fiscal and Monetary Policy at Brookings last week. He also said the effect on consumers would be nominal.

During periods of low inflation, negative interest rates are now a more likely option to policymakers, but they have not proved to be a solution to boosting lackluster economies. The use of negative rates has not proven that they are an effective monetary tool, said Torsten Slok, chief international economist for Deutsche Bank, at the meeting.

Negative rates have produced anxiousness among investors who are seeking greater yield.

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The probability of U.S. banks paying consumers interest on their mortgages even though Danish banks are paying borrowers interest on them remains scant, said David Reiss, a law professor at the Brooklyn Law School. The interest rates of adjustable rate mortgages (ARM) are typically set for the first five or seven year and resets to a new rate. The new interest rate is the combination of an index and a spread with the index often being the London Inter Bank Offered Rate (LIBOR), which has flirted with 0%.

The majority of ARMs have a clause which limits the amount the interest rate can be changed annually, including ones offered by Fannie Mae.

Who are Fannie and Freddie?

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Realtor.com quoted me in What Is Fannie Mae? And Freddie Mac, for That Matter? It opens,

Whether you are shopping for a mortgage or just occasionally read financial news stories, you’ve probably heard of Fannie Mae. But what is Fannie Mae, anyway? And for that matter, what about her buddy Freddie Mac? While they may sound like a Nashville singer and standup comic, respectively, they aren’t actual people. Rather, they’re oddly cute nicknames for major forces in the mortgage market.

Fannie Mae stands for the Federal National Mortgage Association, or FNMA (FNMA becomes Fannie Mae, get it?). Fannie’s brother organization is Freddie Mac, aka the Federal Home Loan Mortgage Corporation, or FHLMC. In a nutshell, these two government-sponsored enterprises—hybrids of government agencies and private corporations—help thousands of Americans get loans for homes, so it pays to familiarize yourself with what they do in more detail.

How Fannie and Freddie help homeowners

Fannie Mae was born in 1938, during the height of the Great Depression, when about 25% of Americans were defaulting on their mortgages. As part of the New Deal, the federal government created Fannie (followed by Freddie in 1970) to stimulate the housing market by making mortgages more accessible to lower-income borrowers who might not qualify otherwise. So how do they do that, exactly?

For starters, Fannie and Freddie don’t actually make loans—which is why you may have only heard about them in vague terms, since you wouldn’t approach them directly for a mortgage. Instead, these organizations purchase other lenders’ loans on the secondary market, package them (into mortgage-backed securities), and sell them to investors such as hedge funds.

By buying up banks’ loans, Fannie and Freddie essentially flood those companies with cash, which they can then turn around and lend to more home buyers. This, in turn, helps more buyers get homes who might not qualify otherwise.

“They are the behemoths of the housing finance sector, owning or guaranteeing nearly half of all the residential mortgages in the United States,” says David Reiss, professor of law and academic program director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.

Risks and Rewards of Downsizing

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The Deseret News quoted me in Why The Young and Old Are Embracing The Rewards of Downsizing. It reads, in part,

Not very long ago, living with less implied money problems or a lack of professional success.

No longer. From younger and middle-aged professionals to retirees, more people are embracing the rewards of “downsizing” — a term that can mean anything from ridding yourself of unnecessary possessions to opting for a less spacious home.

“Downsizing your home can make sense,” said artist and designer Pablo Solomon. “You can save on energy costs, insurance, taxes and upkeep.”

But don’t cart stuff out to the dumpster or plant the “for sale” sign in the front yard just yet. First, consider the varied ways that downsizing can streamline your life.

Home, sweet (downsized) home

One of the most ready targets for would-be downsizers is their home. Perhaps they’ve recently retired and want to retire extensive upkeep responsibilities as well. By contrast, younger people might embrace the greater simplicity that can come from a home that better matches their lifestyle.

But downsizing is not the remedy for other issues, Solomon said, that need a different — and sometimes less costly — approach: “Don’t downsize to be part of a trend or fad or to escape depression or make a ‘statement,’” he said.

Approach downsizing your home as you would any sort of housing decision. Consider space, amenities and any associated costs — only from a particularly budget-conscious perspective.

“Think about the long-term needs you will have for the next 20 to 30 years. Don’t select a place to live temporarily — the costs of moving are high and the cost of buying and selling homes is also high,” said Linda P. Jones, host of the “Be Wealthy & Smart” podcast. “Think before you make a decision and be sure about the move you are making so you won’t have to do it again.”

Another way to approach downsizing a home is what Jodi Holzband of the self-storage search website Sparefoot referred to as “rightsizing” — beginning with basic living requirements and, from there, thoughtfully adding on those features that are of genuine importance.

“Focus first on your needs — essential living items like your bed, clothing and toiletries,” she said. “Then focus on what you love or value — the touchstones of life such as pictures, memorabilia from home, vacation souvenirs, high school pennants and varsity jackets. Look to the space you have and limit what you take in this second category based on space.”

Lastly, don’t ignore possible tax consequences of moving into a smaller space. For instance, retirees who have owned a home for a long time may have acccumulated a great deal of equity. As David Reiss, a professor of law at Brooklyn Law School, noted, capital gains that exceed a certain amount (generally, $250,000 for one person, $500,000 for a married couple) are taxable. Check with a tax professional to gauge your situation.

The High Cost of Living in NOLA

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Occupy.com quoted me in For Struggling Renters in New Orleans, Hope May Be Coming A Bit Late. It opens,

Twenty-four-year old Stuart Marino is a finance major at University of New Orleans with $8,000 in student loan debt and 33 credit hours until graduation. But the alternative to obtaining that diploma is worse. As statistics show, those not having a college degree are much more likely to remain poor. Marino was not fortunate enough to have been born a decade earlier. Then, tuition at UNO was half of what it is now. During Republican Governor Bobby Jindal’s term, from 2007 to 2015, tuition at Louisiana public colleges skyrocketed due to massive budget cuts.

Despite having a job, Marino says he spends more than 30 percent of his income on rent and utilities. He would not be able to cover the cost of a $1,000 medical emergency. Indeed, he has delayed getting his car fixed, something vital to reaching his job and school.

“Fixing my car would be something I would be doing with that $700,” he said, referring to the monthly rent.

Marino’s story personifies what many people here and nationwide have experienced over the last decade as rents in cities and even in urban areas of less than 1 million have soared, exacerbating income inequality while disproportionately affecting racial minorities, the less educated and millennials.

In the last year alone, rents in the U.S. have increased 3 percent, according to Apartment List. In New York City and San Francisco, the median rent has climbed to $4,500 and higher. The cost of living in these cities can be understood as the price, however astronomical, of living in one of the country’s major economic centers, where industries like finance and tech pay high salaries.

But in smaller cities such as Miami and New Orleans, both of which count on tourism as a major source of revenue, more than a third of residents devote 50 percent of their monthly income to rent and utilities, according to Make Room, a campaign by the non-profit Enterprises Inc. that aims to create more affordable housing.

Factor in stagnant wages, a low supply of multi-unit housing, and higher credit requirements post-Recession, and the number of Americans paying 30 percent or more of their gross income on rent and utilities has risen by 22 percent in the past decade. This goes against what financial experts recommend: that people spend no more than 30 percent on basic monthly costs in order to have a cushion in case of catastrophic events like a job loss or a medical emergency.

Working harder is, in most cases, not an option. According to last month’s Bureau of Labor Statistics report, the number of Americans involuntarily working part-time has reached 6 million, and is showing “little movement since November.”

The Housing Crisis in New Orleans

New Orleans has undergone many changes since Hurricane Katrina devastated the city in August 2005. And not all of them have been positive. Sociological studies show that renters are more likely to remain displaced than homeowners. In areas of the city like the Lower 9th Ward, where most residents rented, fewer have returned since Katrina than in neighborhoods where home ownership was predominant – even including those areas that flooded. For those who have returned with few economic resources, many face a long wait for housing; according to the Housing Authority of New Orleans, in September 2015 more than 13,000 people, disproportionally African-American, were still waiting for housing vouchers.

Changing the current housing reality is akin to shoring up the foundation of a home; it can be done, but not easily. “Fundamentally, building housing is costly,” David Reiss, a professor at Brooklyn Law School and an expert in real estate and community development, told Occupy.com.

A free market economy incentivizes people to invest in something only in exchange for profit. That leaves the job of providing affordable housing up to government, but municipalities have moved away from programs establishing dense urban public housing.

Reiss pointed out that vertical expansion could alleviate high rents in urban areas. But many residents, particularly those in historic neighborhoods, don’t want to see large buildings built in their neighborhoods; it’s a NIMBY, or “not in my backyard,” conundrum.