Friday, April 25, 2014
My colleague Bruce Huber (Notre Dame) has posted The Durability of Private Claims to Public Property, 102 Geo. L. J. 991 (2014). I had the chance to see him present this to our faculty here in South Bend and then again at last year's ALPS meeting in Minnesota. It has completely changed my understanding of the interaction between private and public interests on government-owned land. Here's the abstract:
If there is, here is what it might look like: private claims to public property are remarkably durable. Consider private claims to the lands and resources owned and managed by the federal government. Once established, these claims — of which there are hundreds of thousands — seem, in many instances, to take on a life of their own. Mining claims, leases for the development of coal or oil and gas, grazing permits, hydropower licenses, ski resort leases, even residential leases — claims such as these are often extended, expanded, renewed, and protected by law and by bureaucratic practices in ways that shape, and often trump, other policy objectives with respect to federal land. Newer claim-ants, and policies that would favor new land uses or alter the mix of uses, tend to be disfavored. These tendencies create a set of managerial and policymaking difficulties that constrain lawmakers and land managers and that ultimately disserve the interests of the citizens in whose interest state property ostensibly is managed.
This Article examines the durability of private claims to public property, first, by providing a set of examples, and second, by explaining how the American historical experience and legal system combine to give public property this character. Third, it suggests implications for both theory and practice, in particular cautioning that lawmakers should take into account the phenomenon described here before granting new forms of access to various public resources.
Tuesday, July 16, 2013
Edward J. Sullivan (Portland State) and Benjamin H. Clark (Independent) have posted A Timely, Orderly, and Efficient Arrangement of Public Facilities and Services--The Oregon Approach, 49 Willamette Law Review 411 (2013). The abstract:
The provision of public facilities and services is not an exciting planning topic because it deals with the details of supply, rather than the grander issues of economics, social equity and policy. Yet these details occupy an inordinate amount of time and attention by planners, elected officials, and other policy-makers, and account for a substantial share of unresolved issues in planning law.
This Article sets out the rise of infrastructure planning policy in Oregon under a statewide land use planning system that began in 1973.1 In Part I, we give a brief history and description of the structure of that system, followed by a discussion of the evolution of state infrastructure policy under Statewide Planning Goal 11, Public Facilities and Services, and its implementing rules. Following this background, this Article will examine the application of that policy, particularly with respect to the mechanics (Part II) and financing (Part III) of infrastructure planning and its role in the reinforcement of the separation of urban and rural uses (Part IV).
Oregon is one of the leading examples of the comprehensive approach to land use regulation, and any study of the state's approach--particularly one from lawyers who have been involved in the issues--will be a valuable additon to the literature in the field.
Thursday, October 4, 2012
David J. Reiss (Brooklyn) has posted Comment on the Use of Eminent Domain to Restructure Performing Loans, which was submitted to the Federal Housing Finance Agency (No. 2012–N–11) (2012). The abstract:
There has been a lot of fear-mongering by financial industry trade groups over the widespread use of eminent domain to restructure residential mortgages. While there may be legitimate business reasons to oppose its use, its inconsistency with Takings jurisprudence should not be one of them. To date, the federal government’s responses to the current crisis in the housing markets have been at cross purposes, half-hearted and self-defeating. So it is not surprising that local governments are attempting to fashion solutions to the problem with the tools at their disposal. Courts should, and likely will, give these democratically-implemented and constitutionally-sound solutions a wide berth as the ship of state tries to right itself after being swamped by a tidal wave of mortgage defaults.
A concise and thoughtful public comment on what is emerging as a hot, hot issue.
October 4, 2012 in Constitutional Law, Eminent Domain, Finance, Housing, Local Government, Mortgage Crisis, Mortgages, Property Rights, Real Estate Transactions, Scholarship, State Government, Takings | Permalink | Comments (0) | TrackBack (0)
Thursday, September 6, 2012
Patricia Salkin (Touro Law Center) has posted Key to Unlocking the Power of Small Scale Renewable Energy: Local Land Use Regulation, Journal of Land Use & Environmental Law No. 27 (2012). The abstract:
This article provides an overview of some of the strategies that have been used to increase the use of small-scale renewables, focusing on non-commercial renewable energy systems installed at the home or business level. The article begins in Part II with a discussion of various renewable energy incentives offered by the federal and state governments to promote the use of these alternative sources of electricity, including financial and permitting incentives. Part III continues with a detailed examination of how the land use regulatory system can be used to promote small-scale renewable energy by employing traditional zoning techniques, asserting that without an appropriate local land use regime, the incentives reviewed in Part II cannot be effectively utilized. Part IV concludes with a warning to local governments that if they fail to accommodate the emerging federal and state policies supporting the siting of renewable energy sources, they may face preemptive statutory measures in the area of land use regulation. This creates perhaps the greatest incentive for local governments to plan and regulate responsibly for promoting the appropriate use of small-scale renewable energy.
Wednesday, September 5, 2012
Chad Pomeroy (St. Mary's) has posted A Theoretical Case for Standardized Vesting Documents. The abstract:
real estate professionals, and lay people throughout the country rely
on the recording system to provide critical information regarding
ownership rights and claims. Indeed, the recording system acts as a
virtually mandatory repository and disseminator of all potential
parties’ claims. This system, in turn, relies on these claimants and
their agents to publicize their claims: property purchasers, lenders,
lien-claimants, title companies, attorneys - these parties interact,
make deals, make claims, order their affairs, and then record. The
information system available to us, then, is only as good as what we
make of it and what we put into it.
As such, it is surprising how little thought has been put into exactly what it is that we record. Should the mortgage of a lender in Ohio look like that of a lender in Florida? Should a deed from an individual in Texas differ from that of a corporation in Nevada? As it stands now, no one familiar with real estate law or commerce would expect different parties in different jurisdictions to record identical, or even similar, instruments. In an immediate sense, this heterogeneity of the recorded documents (“vesting heterogeneity”) does not seem a good thing: parties utilizing the recording system generally seek to make known, or to discern, the same generic type of information – that is, evidence of claims upon property – so why are different forms and types of documents utilized all over the country?
This article analyzes this vesting heterogeneity from a new perspective and concludes that it is, in fact, cause for significant concern. Vesting heterogeneity has arisen organically, growing with the recording system as they both evolved over time. This historical explanation does not, however, excuse the cost associated with such a lack of uniformity. Anyone seeking information with respect to any piece of property must navigate the complexities and uncertainties that arise because all such information is heterogeneous and, as a consequence, difficult to understand and utilize. This represents both a immediate transactional cost and an increased risk of ill-informed behavior.
This is particularly troublesome because this sort of cost-based concern arising from variability has a well-established analogue in property law that the law clearly desires to avoid. That analogue is the cost that would arise if property law were to permit unlimited property forms and gives rise to what is known as the numerus clausus theory. This theory explains the law’s hostility toward new, or different, types of property and holds that such heterogeneity is not generally permitted because of the extremely high informational costs associated with such creativity.
This article suggests that this common law concept can, and should, inform our analysis of vesting heterogeneity and that it precipitates strongly against such lack of uniformity. This is because the costs that drive the numerus clausus to hold that variability should be limited are strikingly similar to those created by variability of vesting documents. As such, this theory is relevant here such that the same analysis should be applied to vesting heterogeneity by asking whether a different (or “new”) document is helpful enough to outweigh the informational costs inherent therein.
Based on this reasoning, this article concludes that the law is wrong to systematically ignore heterogeneity in vesting documents. Instead, a numerus clausus type of analysis should be applied to new or different vesting documents to determine whether any inherent lack of uniformity is defensible. Where it is not, uniformity should be imposed.
Saturday, August 11, 2012
There has been some discussion over the past couple of months over an innovative proposal to have governments use the eminent domain power to take ownership of underwater mortgages, to decrease the risk of default and then refinance the obligations, all to promote the common good. Here are some links to give you a sense of the major points of this debate.
The launch of this idea comes from a proposal by Law Professor Robert C. Hockett (Cornell) in his piece It Takes a Village: Municipal Condemnation Proceedings and Public/Private Partnerships for Mortgage Loan Modification, Value Preservation, and Local Economic Recovery. The abstract:
Respected real estate analysts now forecast that the U.S. is poised to experience a renewed round of home mortgage foreclosures over the coming 6 years. Up to 11 million underwater mortgages will be affected. Neither our families, our neighborhoods, nor our state and national economies can bear a resumption of crisis on this order of magnitude.
I argue that ongoing and self-worsening slump in the primary and secondary mortgage markets is rooted in a host of recursive collective action challenges structurally akin to those that brought on the real estate bubble and bust themselves. Collective action problems of this sort require duly authorized collective agents for their solution. At present, the optimally situated such agents for purposes of mortgage market clearing are municipal governments exercising their traditional eminent domain authority.
I sketch a plan pursuant to which municipalities, in partnership with investors, can condemn underwater mortgage notes, pay mortgagees fair market value for the same, and systematically write down principal. Because in so doing they will be doing what parties themselves would do voluntarily were they not challenged by structural impediments to collective action, municipalities acting on this plan will be rendering all better off. They will also be leading the urgently necessary project of eliminating debt overhang nationwide and thereby at last ending our ongoing debt deflation.
Professor Hockett's idea was then promoted in the media by, among others, Prof. Robert J. Shiller (Yale--Economics & Finance), in the New York Times Piece Reviving Real Estate Requires Collective Action. As the title indicates, Schiller theorizes the mortgage crisis as in part a collective action problem that can be addressed by Hockett's proposal to use eminent domain to seize underwater mortgages.
But eminent domain law needn’t be restricted to real estate. It could be applied to mortgages as well. Governments could seize underwater mortgages, paying investors fair market value for them. This is common sense too. The true fair market value for these mortgages is arguably far below their face value, given the likelihood of default, with its attendant costs.
Professor Hockett argues that a government, whether federal, state or local, can start doing just this right now, using large databases of information about mortgage pools and homeowner credit scores. After a market analysis, it seizes the mortgages. Then it can pay them off at fair value, or a little over that, with money from new investors, issuing new mortgages with smaller balances to the homeowners.
Yesterday in The Atlantic Cities, Amanda Erickson published an excellent overview story about the proposal, Can Eminent Domain Solve our Mortgage Woes?. Of note to us are the comments by the eminent eminent domain expert (that's not a typo) Prof. Thomas Merrill (Columbia).
It's a clever idea. But is it legal? "It's very unusual," says Thomas W. Merrill, a law professor at Columbia University who specializes in property law. But, he notes, "this doesn't mean it's unconstitutional."
Before the landmark 2005 Kelo vs. New London decision, Merrill says, there's little doubt that the courts have upheld this kind of law. "Before Kelo, courts took a hands-off approach," Merrill says. In the 1984 case Hawaii Housing Authority vs. Midkiff, the Supreme Court ruled that the Hawaiian legislature could take a property controlled by landlords and sell it back to leasees. "Condemning a landlord's interest in property to transfer to a tenant is not too different," Merrill says.
But Kelo changed that. In that case, the Supreme Court ruled that cities could use eminent domain to transfer land from one private owner to another, and that doing so for economic development purposes constitutes a public use. "At this point, I guess you'd have to say all bets are off in terms of what is and isn't eminent domain," Merrill says.
And finally for now, Prof. Richard Epstein is critical of the idea. From More Nonsense on the Home Mortgage Front: Don't Let Municipal Governments Condemn Mortgages at Bargain Rates:
The idea has already been rightly panned by the Wall Street Journal. But the entire proposal needs still further consideration. First off, Hockett and his group insist that there is a huge collective action problem that prevents the rationalization of mortgage matters. And there is. It is called local government regulations that have blocked the foreclosure measures set out above. Handle those and the externalities to which they refer disappear. No longer do we have owners neglecting property or clogging the courts with endless motions.
Again, this post is just to give you some links to look at the arguments. From my perspective, these are some fascinating arguments that illuminate not only the mortgage crisis but also the general debate over eminent domain.
August 11, 2012 in Constitutional Law, Eminent Domain, Finance, Housing, Local Government, Mortgage Crisis, Mortgages, Politics, Property Theory, Real Estate Transactions, Scholarship, Takings | Permalink | Comments (1) | TrackBack (0)
Saturday, May 19, 2012
David J. Reiss (Brooklyn) has posted Reforming the Residential Mortgage-Backed Securities Market, forthcoming in Hamline Law Review (2012). The abstract:
This essay is a lightly-edited version of a talk given at the “Federal Housing Finance Policy, Secondary Mortgage Market Issues: Causes and Cures, Secondary Mortgage Market Reform” symposium at Hamline University School of Law. The issues that we are struggling with now are, in many ways, the equivalent of the issues that we struggled with during the Great Depression: what should housing policy look like and what decisions should be made in the next five years or so to bring us from crisis to stability? In all likelihood our answer to this question will define the housing market for generations. To help answer the question, this essay will proceed as follows. First, it will provide some context for American housing policy discussions. It will then outline three ethics that inform housing policy. The essay will then focus on one of the key issues that we face — what should happen with Fannie and Freddie as they exit conservatorship? It concludes by highlighting some of the other housing finance issues that must be addressed before we can move forward with a coherent plan of reform. These additional issues include, first, what is the future of the 30-year mortgage? Second, what is the fate of the lock-in, whereby a person could get a guaranteed interest rate prior to closing the loan? Third, what is the fate of the low-down-payment mortgage? Fourth, what is the appropriate role of the FHA in the context of the entire housing finance infrastructure, and in relationship to Fannie and Freddie in particular? And finally, how much will we allow the goal of increasing homeownership to impact the design of our housing finance system?
Saturday, January 14, 2012
From an email sent by Rick Su (Buffalo), the Chair of the AALS Section on State & Local Government Law, here is something that may be of interest to land users. The Section is already planning for the 2013 AALS meeting in New Orleans:
The tentative title is Cities in Recession. The program will look into the many ways that cities have not only been affected by, but are also responding to, the current economic downturn. This should provide a timely lens for exploring a wide range of local government issues, from municipal finance to education to economic development. In addition, it offers an opportunity to look at both distressed and resilient cities. The planning for this panel is in its early stages; I eagerly welcome any comments or suggestions that you might have (firstname.lastname@example.org).
Saturday, December 31, 2011
As we head into the New Year, The Urban Land Institute has also been looking ahead at the future of land use. ULI recently issued its report What's Next? Real Estate in the New Economy. From the press release:
A new economy is unfolding over the course of this decade, driven by an extraordinary convergence of demographic, financial, technological and environmental trends. Taken together, these trends will dramatically change urban planning, design and development through 2020, according to a new report from the Urban Land Institute (ULI).
What’s Next? Real Estate in the New Economy outlines how every aspect of living, working and connecting will change in major ways, driven in large part by the values, preferences and work ethic of Generation Y, the largest generation in American history. . . .
Among the report’s findings:
- Technology will reshape work places. Office tenants will decrease space per employee, and new office environments will need to promote interaction and dialogue. Offices will be transforming into meeting places more than work places, with an emphasis on conference rooms, break areas and open configurations. Developers will craft attractive environments to attract young, talented workers.
- Major companies will value space that enables innovation. They will continue to pay more for space in a global gateway served by a major international airport, or in 24-hour urban centers. Hard-to-reach suburban work places will be less in demand.
- The influx of Generation Y, now in their teens through early thirties, will change housing demand. They are comfortable with smaller homes and will happily trade living space for an easier commute and better lifestyle. They will drive up the number of single households and prompt a surge in demand for rentals, causing rents to escalate.
- For most people, finances will still be constrained, leading to more shared housing and multi-generational households. Immigration will support that trend, as many immigrants come from places where it is common for extended families to share housing. This may be the one group that continues to drive demand for large, suburban homes.
- The senior population will grow fastest, but financial constraints could limit demand for adult housing developments. Many will age in place or move in with relatives to conserve money. Developers may want to recast retirement communities into amenity-laden “age friendly” residences. Homes near hospitals and medical offices will be popular, especially if integrated into mixed-use neighborhoods with shops, restaurants and services.
- Energy and infrastructure take on greater importance. Businesses cannot afford to have their network connections down, and more will consider self-generated power or onsite generator capacity. Developers, owners and investors are realizing that the slightly higher costs of energy- and water-saving technologies can pay for themselves quickly, creating more marketable and valuable assets. Ignoring sustainability issues speeds property obsolescence.
You can download the full report here.
December 31, 2011 in Architecture, Clean Energy, Density, Development, Downtown, Environmentalism, Finance, Green Building, Housing, Planning, Property, Real Estate Transactions, Redevelopment, Scholarship, Smart Growth, Suburbs, Sustainability, Transportation, Urbanism, Water | Permalink | Comments (0) | TrackBack (0)
Friday, December 30, 2011
Rabah Arezki (IMF), Klaus Deininger (World Bank), and Harris Selod (World Bank) have posted What Drives the Global Land Rush? The abstract:
This paper studies the determinants of foreign land acquisition for large-scale agriculture. To do so, gravity models are estimated using data on bilateral investment relationships, together with newly constructed indicators of agro-ecological suitability in areas with low population density as well as land rights security. Results confirm the central role of agro-ecological potential as a pull factor. In contrast to the literature on foreign investment in general, the quality of the business climate is insignificant whereas weak land governance and tenure security for current users make countries more attractive for investors. Implications for policy are discussed.
December 30, 2011 in Agriculture, Comparative Land Use, Contracts, Density, Economic Development, Finance, Globalism, Property Rights, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)
Wednesday, December 14, 2011
Ioan Voicu (US Gov't--Office of the Comptroller of the Currency), Vicki Been (NYU), Mary Weselcouch (NYU Furman Center), and Andrew Tschirart (US Gov't--OCC) have posted Performance of HAMP versus non-HAMP Loan Modifications--Evidence from New York City. The abstract:
Policymakers have heralded mortgage modifications as a key to addressing the ongoing foreclosure crisis. However, there is a lack of research about whether modifications are successful at helping borrowers stay current on their loans over the long run and what kinds of modifications are most successful. Our empirical strategy employs logit models in a hazard framework to explain how loan, borrower, property, servicer and neighborhood characteristics, along with differences in the types of modifications, affect the likelihood of redefault. The dataset includes both HAMP modifications and proprietary modifications. Our results demonstrate that borrowers who receive HAMP modifications have been considerably more successful in staying current than those receiving non-HAMP modifications.
Thursday, December 8, 2011
Elizabeth Renuart (Albany) has posted Property Title Trouble in Non-Judicial Foreclosure States: The Ibanez Time Bomb? It's the first piece that I've come across to explore the title law ramifications of the Mass. Supreme Judicial Court's Ibañez decision that I alluded to in a post earlier this year. Hat tip to my colleague, Judy Fox, for sharing it with me. Here's the abstract:
The economic crisis gripping the United States began when large numbers of homeowners defaulted on poorly underwritten subprime mortgage loans. Demand from Wall Street seduced mortgage lenders, brokers, and other players to churn out mortgage loans in extraordinary numbers. Securitization, the process of utilizing mortgage loans to back investment instruments, not only fanned the fire; the parties to these deals often handled and transferred the legally important documents that secure the resulting investments — the loan notes and mortgages — in a careless manner.
The consequences of this behavior are now becoming evident. All over the country, courts are scrutinizing whether the parties initiating foreclosures against homeowners legally possess the authority to repossess those homes. When the authority is absent, foreclosure sales may be reversed. The concern about authority to foreclose is most acute in the majority of states where foreclosures occur with little or no judicial oversight before the sale, such as Massachusetts. Due to the decision in U.S. Bank N.A. v. Ibanez, in which the Supreme Judicial Court voided two foreclosure sales where the foreclosing parties did not hold the mortgage, Massachusetts is the focal jurisdiction where an important conflict is unfolding.
This article explores the extent to which the Ibanez ruling may have traction in other nonjudicial foreclosure states and the likelihood that clear title to foreclosed properties is jeopardized by shoddy handling of notes and mortgages. I focused on Arizona, California, Georgia, and Nevada because they permit nonjudicial foreclosures and they are experiencing high seriously delinquent foreclosure rates. After comparing the law in these states to that of Massachusetts, I conclude that Ibanez should be persuasive authority in the four nonjudicial foreclosure states highlighted herein. However, property title trouble resulting from defective foreclosures may be more limited in Arizona and Nevada. The article also provides a roadmap for others to assess the extent to which title to properties purchased at foreclosure sales or from lenders’ REO inventories might be defective in other states. Finally, the article addresses the potential consequences of reversing foreclosure sales and responds to the securitization industry’s worry about homeowners getting free houses.
Wednesday, October 26, 2011
Among his favorite examples of all the standard real-estate products built ad nauseum across the country over the last half-century, Christopher Leinberger likes to point to the Grocery Anchored Neighborhood Center. This creation is generally about 12 to 15 acres in size on a plot of land that’s 80 percent covered in asphalt. It’s located on the going-home side of a major four-to-eight lane arterial road, where it catches people when they’re most likely to be thinking about what to buy for dinner. . .
Leinberger, an urban land-use strategist and professor at the University of Michigan, includes the Grocery Anchored Neighborhood Center on his list of the 19 standard real estate product types dominant in post-war America. Also on the list: suburban detached starter homes, big-box anchored power centers, multi-tenant bulk warehousing and self-storage facilities. All of these products are designed for drivable suburban communities. They reflect almost exclusively what investors have been willing to finance for the last 50 years. And as construction picks back up following the recession, Leinberger says we'll need to get away from every single one of them.
It's a slightly fancier way to say we must get away from sprawl, but it's certainly food for thought.
And when you're done with that, check out Richard Florida's article "2011's Best Cities for Trick-or-Treating."
Jamie Baker Roskie
Monday, October 24, 2011
Lawrence Summers (former Treasury Secretary, Harvard President, and Obama advisor) has posted a Washington Post op-ed called How to Stabilize the Housing Market. From the article:
The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending. This is true, above all, of housing policies. Fannie Mae and Freddie Mac, government-sponsored enterprises (GSEs) whose purpose is to mitigate cyclicality in housing and that today dominate the mortgage market, have become a textbook case of disastrous and pro-cyclical policy.
Summers notes that the housing market is key to the economy, and makes several substantive recommendations, including:
First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and too rigorous. The characteristics of the average successful applicant in 2004 would make that applicant among the most risky today. The pattern should be the opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.
Wednesday, August 24, 2011
The NYU Furman Cente for Real Estate and Urban Policy has published some great stuff over the last few weeks. Here's one of their terrific recent reports:
We are pleased to share with you the latest publication from the Furman Center’s Institute for Affordable Housing Policy, Navigating Uncertain Waters: Mortgage Lending in the Wake of the Great Recession.
This report summarizes our February 4, 2011 Roundtable of the same name, and provides an in-depth exploration of credit availability and lending patterns during the recession. The event brought together 75 policymakers and academics from across the nation to assist government, the mortgage industry, academics, and non-profits address the challenge of mortgage credit need and availability through informed discussion and research.
By publishing this report, we aim to make the discussion and insights shared during the Roundtable available to a wider audience. We hope you find the materials informative, and we look forward to receiving your feedback.
Thursday, August 18, 2011
Here's some exciting news, for me anyway. South Texas College of Law is looking to hire a property scholar:
South Texas College of Law invites applications from both experienced and entry-level faculty for one or more full-time, tenure-track positions beginning in the 2012 - 2013 academic year. While all candidates will be considered, we particularly seek candidates interested in teaching the required property courses, and commercial law (including courses covering the Uniform Commercial Code). Other areas of interest include real estate development and finance, and international law. We seek candidates with outstanding academic records who are committed to both excellence in teaching and sustained scholarly achievement. Members of minority groups and others whose backgrounds will contribute to the diversity of the faculty are especially encouraged to apply.
South Texas College of Law provides a diverse body of students with the opportunity to obtain an exceptional legal education, preparing graduates to serve their community and the profession with distinction. The school, located in downtown Houston, was founded in 1923 and is the oldest law school in the city. South Texas is a private, nonprofit, independent law school, fully accredited by the American Bar Association and a member of the Association of American Law Schools, with 55 full-time and 40 adjunct professors serving a student body of 1,300 full and part-time students. South Texas is home to the most decorated advocacy program in the U.S. and the nationally recognized Frank Evans Center for Conflict Resolution.
Please send letters of interest and resumes to Professor Kevin Yamamoto, Chair, Faculty Appointments Committee, South Texas College of Law, 1303 San Jacinto Street, Houston TX 77002; Tel: (713) 646-2945; Email: email@example.com
Via Fran Ortiz, a property colleague on the hiring committee. You can contact Kevin or Fran about the position, and of course I'd be more than happy to talk with anyone about the great opportunities for teaching and scholarship at South Texas College of Law, or about living in the diverse and dynamic city of Houston.
Tuesday, June 28, 2011
I enjoyed this post by Charles Marohn from Strong Towns on grist.org. At our clinic (VLS) we discuss smart growth/smart decline principles and have focused on environmental and social impacts. I'd never heard the Ponzi scheme analogy and think it's a great way to bring cost into the discussion.
"Since the end of World War II, our cities and towns have experienced growth using three primary mechanisms:
- Transfer payments between governments: where the federal or state government makes a direct investment in growth at the local level, such as funding a water or sewer system expansion.
- Transportation spending: where transportation infrastructure is used to improve access to a site that can then be developed.
- Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage.
In each of these mechanisms, the local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange -- a near-term cash advantage for a long-term financial obligation -- is one element of a Ponzi scheme.
The other is the realization that the revenue collected does not come near to covering the costs of maintaining the infrastructure. In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance. The American Society of Civil Engineers (ASCE) estimates the cost at $5 trillion -- but that's just for just major infrastructure, not the minor streets, curbs, walks, and pipes that serve our homes.
The reason we have this gap is because the public yield from the suburban development pattern -- the amount of tax revenue obtained per increment of liability assumed -- is ridiculously low. Over a life cycle, a city frequently receives just a dime or two of revenue for each dollar of liability. The engineering profession will argue, as ASCE does, that we're simply not making the investments necessary to maintain this infrastructure. This is nonsense. We've simply built in a way that is not financially productive.
We've done this because, as with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations -- which are not counted on the public balance sheet -- are a generation away."
Thursday, May 5, 2011
The Massachusetts Supreme Judicial Court heard oral arguments Monday in a foreclosure title case called Bevilacqua v. Rodriguez. Earlier in the year, I blogged about the Court's Ibanez opinion invalidating a bank's foreclosure title based on a botched securitization. Bevilacqua concerns the validity of the title claim of a foreclosure sale purchaser. In the Land Court proceedings below, U.S. Bank was unable to establish its ownership of the underlying loan leading to a declaration that the foreclosure and sale left the original owner's title unaffected.
In addition to video of the oral arguments (brought to you by the good folks at Suffolk Law), the SJC website features an amicus brief supporting the decision below submitted by Adam Levitin (Georgetown) and three other leading real estate law professors. If the Court agrees with these prominent academics that "U.S. Bank, N.A. was no more capable of passing good title to the Rodriguez property than a common thief", then the decision could have broad implications for titles coming out of nonjudicial mortgage foreclosures in Massachusetts and possibly many other states. But, that would only happen if slapdash securitizations turned out to have been somewhat commonplace. The Court should issue a ruling in the next few months.
Saturday, April 23, 2011
David J. Reiss (Brooklyn) has posted Fannie Mae, Freddie Mac, and the Future of Federal Housing Finance Policy: A Study of Regulatory Privilege, published in the Alabama Law Review, vol. 61 (2010). The abstract:
The federal government recently placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit-driven, but as government-sponsored enterprises they also have a government-mandated mission to provide liquidity and stability to the United States mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship has implications that reach throughout the global financial markets and are of key importance to the future of American housing finance policy.
While the American taxpayer will be required to fund a bailout of the two companies that will be measured in the hundreds of billions of dollars, the current state of affairs presents an opportunity to reform the two companies and the manner in which the residential mortgage market is structured. Few scholars, however, have provided a framework in which to conceptualize the possibilities for reform.
This Article employs regulatory theory to construct such a framework. A critical insight of this body of literature is that regulatory privilege should be presumed to be inconsistent with a competitive market, unless proven otherwise. The federal government's special treatment of Fannie and Freddie is an extraordinary regulatory privilege in terms of its absolute value, its impact on its competitors and its cost to the federal government. Regulatory theory thereby clarifies how Fannie and Freddie have relied upon their hybrid public/private structure to obtain and protect economic rents at the expense of taxpayers as well as Fannie and Freddie's competitors.
Once analyzed in the context of regulatory theory, Fannie and Freddie's future seems clear. They should be privatized so that they can compete on an even playing field with other financial institutions and their public functions should be assumed by pure government actors. While this is a radical solution and one that would have been considered politically naive until the recent credit crisis, it is now a serious option that should garner additional attention once its rationale is set forth.
An important and innovative analysis; we're fortunate to have a number of sophisticated takes on the transactional finance system coming out right now.
April 23, 2011 in Affordable Housing, Development, Federal Government, Finance, Financial Crisis, Globalism, History, Housing, Mortgage Crisis, Mortgages, Scholarship | Permalink | Comments (0) | TrackBack (0)
Andrea J. Boyack (George Washington) has posted Laudable Goals and Unintended Consequences: The Role and Control of Fannie Mae and Freddie Mac, forthcoming in the American University Law Review. The abstract:
The United States is struggling to emerge from an era of loose mortgage underwriting standards – lapses in credit analysis that led to origination and securitization of toxic loans. The fallout has been crippling, costing borrowers their homes, investors their money, and the government its taxes.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) passed last summer was the first comprehensive effort to address the problems in the system that led – in sequence – to the subprime crisis, the housing crisis, and the financial crisis. The Dodd-Frank Act, which contains over 2,300 pages of legislation, is very broad as well as very detailed – even though hundreds of rulemakings have yet to completely define its parameters. But this extensive legislation deliberately did not deal with the biggest elephant (or perhaps elephants) in the room: Fannie Mae and Freddie Mac. These government sponsored enterprises (GSEs), behemoths of the secondary mortgage market, are currently in conservatorship and have (so far) cost taxpayers over $130 billion. Yet our current residential mortgage market is utterly dependent upon them for credit and liquidity. With political pressures to stop taxpayer bailouts and the reality of a frozen mortgage market should Fannie Mae and Freddie Mac cease to exist, when it comes to the GSEs, the administration feels damned if they do and damned if they don’t.
For decades, the U.S. mortgage finance system was the envy of the world – the only industrialized nation to have a significant segment of housing costs covered by private capital through a securitization investment system. The United States is the only country to routinely offer homebuyers 30-year fixed-rate pre-payable mortgage loans. Better capital accessibility has made more homeownership opportunities more available to more Americans. The GSEs have performed a vital role in financing the production of rental housing as well. Our real estate capital markets set the gold standard worldwide for what is possible in freeing trapped asset values and increasing the wealth of borrowers and investors alike.
Over the past decade, this system undoubtedly became unhinged – and it is critical to reform its failings. But a complete wind-down of the government sponsored enterprises that are the linchpin of our housing finance system goes too far. Subtracting Fannie Mae and Freddie Mac from the finance equation may very well be market suicide, and the repercussions for borrowers, communities and investors would be dire indeed. Furthermore, this extreme step is unnecessary: the system’s failures can be adequately (and better) addressed within the GSE framework.
Undoubtedly there is still ample dirty “bathwater” to throw out as we reform the mortgage finance market system. But it would be an excruciating mistake to bow to political pressures and throw out the “baby” too. Current and future mortgage borrowers will only be adequately “protected” if they are empowered through access to capital, appropriately constrained by valid underwriting criteria. A well functioning market – rather than political scapegoating – is the best way to emerge from the recession and protect future buyers and investors alike.
This article first discusses the history and purposes of the GSEs and what went wrong with the system that led to the 2008 conservatorship and bailout. With reference to the Obama Administration’s February 2011 Report to Congress, “Reforming America’s Housing Finance Market,” Part II analyzes proposals to reform and wind down the GSEs in light of their likely legal and market impact. Part III offers some general suggestions on better approaches to crafting America’s future mortgage market and advocates for solutions more precisely tailored to remedy apparent systemic problems while achieving the identified policy goals.
One of several interesting articles coming out this year that will add to our knowledge about Fannie, Freddie, and the mortgage crisis. An interesting take on reforming the system from within--check it out.
April 23, 2011 in Federal Government, Finance, Financial Crisis, History, Housing, Mortgage Crisis, Mortgages, Politics, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)