Monday, January 24, 2011

First Ibanez, next Bevilacqua: Title Insecurity and the Mortgage Securitization Mess

The most viewed business article today on the Boston Herald website examines the next foreclosure-mess case coming to the Supreme Judicial Court of Massachusetts and its impact on the title marketability of foreclosed homes there.  Francis Bevilacqua paid for a property in Haverhill, Mass. pursuant to a foreclosure on a mortgage in a securitized trust supervised by U.S. Bancorp.  Judge Keith Long of the Massachusetts Land Court found that Bevilacqua had no title to the property because the foreclosure was invalid.  In its recent decision in U.S Bank v. Ibanez (see my earlier post), the SJC upheld another Judge Long decision finding a completed U.S. Bank foreclosure to be invalid. 

According to an attorney quoted about the foreclosure buyer's predicament, even should he lose on appeal, Mr. Bevilacaqua may be able to take advantage of a color-of-title-shortcut adverse possession statute and obtain valid title in as little as three years.  (To think, I was concerned that nonjudicial foreclosures and botched mortgage securitizations might combine to create serious, widespread title problems.)  Stay tuned, the SJC will hear the case in April.

Jim K.

January 24, 2011 in Caselaw, Finance, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Real Estate Transactions, Remedies | Permalink | Comments (1) | TrackBack (0)

Thursday, January 20, 2011

The Full Story of the Ibanez Case



Following up on a post I made last week, I wanted to share an item that might be useful to those of us trying to teach on (and/or sort out ourselves) the ongoing mortgage mess.  Tracy Alloway of Financial Times has put up a blog post illustrating (literally) the tangled web of mortgage securitization missteps that led to the Massachusetts Supreme Judicial Court's recent ruling in U.S. Bank v. Ibanez. 

Jim K.

January 20, 2011 in Caselaw, Finance, Financial Crisis, Mortgage Crisis, Mortgages, Real Estate Transactions, Remedies | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 19, 2011

Levinson and Junge on Property Tax on Privatized Roads

Last week we posted a link to the new article by David Matthew Levinson (Minnesota) and Bhanu Yerra (Minnesota), How Land Use Shapes the Evolution of Road Networks.  Here's another road article from Levinson and Jason Junge (Minnesota): Property Tax on Privatized Roads.  The abstract:

Roads cover a significant fraction of the land area in many municipalities. The public provision of roads means this land is exempt from the local property tax. Transferring roads from public to private ownership would not only remove maintenance costs from city budgets, but increase potential property tax revenue as well. This paper calculates the value of the land occupied by roads in sample cities and determines the potential revenue increase if they were subject to property tax. Further calculation computes the extent to which the property tax rate could be reduced if the land value of roads were added to the tax base. Property tax on privatized roads could generate meaningful revenue, but a corresponding reduction in rate for existing property would be small.

Matt Festa

January 19, 2011 in Finance, Local Government, Scholarship, Transportation | Permalink | Comments (0) | TrackBack (0)

Saturday, January 15, 2011

Validity of Foreclosure Titles after Ibanez

This past week the Supreme Judicial Court of Massachusetts issued a slip opinion in the case of U.S. Bancorp v. Ibanez unanimously affirming a Land Court decision invalidating a nonjudicial power-of-sale foreclosure because the foreclosing party had not produced a valid chain of title with regard to the mortgage.  The SJC rejected the bank's arguments that a mortgage automatically passes to the assignee of the note and that an assignment in blank is a valid transfer of a mortgage.  The SJC acknowledged that an executed Pooling Service Agreement (PSA) that properly identified the subject property could authorize foreclosure but found that the bank lacked the necessary paperwork in this case.  Adam Levitin (Georgetown) analyzes the decision in a post at the Credit Slips blog.  

Even though the majority of states allow assignment of the note alone to provide authority to foreclose, this decision has significant ramifications for the validity of many foreclosure titles in Massachusetts and the states that may follow the SJC's reasoning.  The slapdash volume-maximizing paperwork practices of the mortgage securitization industry are hardly limited to robo-signing of foreclosure affidavits.  Pre-default shortcuts such as improperly executed PSAs, missing collateral schedules, and incomplete transfers appear to be all too common. 

What seems to be missing from the conversation so far is any discussion of how the nonjudicial nature of these foreclosures perpetuates the mess.  In the context of botched mortgage securitizations, properties transferred by nonjudicial power of sale processes enjoy little of the title assurance that properly noticed judicial proceedings confer.  Without the built-in action to quiet title provided by a judicial foreclosure, will those trying to prevent abandonment of foreclosed homes in the many power-of-sale states have to turn to title-clearing litigation just to make these properties bankable for rehabilitation and resale?  Will our inner-ring suburbs be peppered with chronically derelict houses because our mortgage foreclosure proceedings are now producing titles as unreliable as those that tax foreclosure actions have produced for inner-city vacants in years past?

Jim K.

kellyj@wlu.edu

January 15, 2011 in Caselaw, Finance, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Real Estate Transactions | Permalink | Comments (2) | TrackBack (0)

Tuesday, December 7, 2010

Mitchell, Malpezzi, & Green on Forced Sale Risk: Class, Race, and the "Double Discount"

Thomas W. Mitchell (Wisconsin, Law), Stephen Malpezzi (Wisconsin, Real Estate & Urban Economics), and Richard Green (USC, Lusk Center for Real Estate)  have posted Forced Sale Risk: Class, Race, and The 'Double Discount', Florida State University Law Review, Vol. 37 (2010).  The abstract:

What impact does a forced sale have upon a property owner's wealth? And do certain characteristics of a property owner such as whether they are rich or poor or whether they are black or white, tend to affect the price yielded at a forced sale? This Article addresses arguments made by some courts and legal scholars who have claimed that certain types of forced sales result in wealth maximizing, economic efficiencies. The Article addresses such economic arguments by returning to first principles and reviewing the distinction between sales conducted under fair market value conditions and sales conducted under forced sale conditions. This analysis makes it clear that forced sales of real or personal property are conducted under conditions that are rarely likely to yield market value prices. In addition, the Article addresses the fact that judges and legal scholars have utilized a flawed economic analysis of forced sales in cases that often involve property that is owned by low- to middle-class property owners in part because those who are wealthier own their property under more stable ownership structures or utilize private ordering to avoid the chance that a court might order a forced sale under the default rules of certain common ownership structures. The Article also raises the possibility for the first time that the race or ethnicity of a property owner may affect the sales price for property sold at a forced sale, resulting in a "double discount," i.e. a discount from market value for the forced sale and a further discount attributable to the race of the property owner. If minorities are more susceptible to forced sales of their property than white property owners or if there does exist a phenomenon in which minorities suffer a double discount upon the sale of their property at a forced sale, then forced sales of minority-owned property could be contributing to persistent and yawning racial wealth gaps.

Matt Festa

December 7, 2010 in Finance, Housing, Mortgage Crisis, Mortgages, Property, Race, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, December 3, 2010

Mixon on Home Mortgage Documents Interpreted as Nonrecourse Debt

John Mixon (Houston) has posted Fannie Mae/Freddie Mac Home Mortgage Documents Interpreted as Nonrecourse Debt (with Poetic Comments Lifted from Carl Sandburg), from the California Western Law Revew.  The abstract:

Virtually no home mortgage borrower who has not had (1) extensive professional training, or (2) prior experience as a foreclosed borrower, understands that home mortgages include the potential of a hovering judgment lien for deficiency after foreclosure. This lack of understanding makes any pretense of consent to liability for deficiency after foreclosure pure rationalization. Law acts in complicity with lenders to commit virtual fraud when it imposes this consequence on home buyers without full disclosure and real, intelligent consent.

The language problem is not lack of formalistic disclosure of the terms of the home loan itself. Virtually all home mortgage transactions provide borrowers with disclosure statements that spell out the full terms of their loans. But the consequence of lingering liability after foreclosure, which can be far worse than a misstated interest rate, is not disclosed (and perhaps cannot be disclosed meaningfully) to lay borrowers. Even the standard FNMA/GNMA documents are ambiguous and subject to interpretation as non-recourse obligation. These documents dominate the field, and their uniform covenants apply throughout the United States' mortgage market. This article proposes that they be re-read and interpreted as not imposing recourse liability, thereby eliminating deficiencies after foreclosure for most homeowners.

Matt Festa

December 3, 2010 in Finance, Housing, Houston, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 12, 2010

Miller on Strategic Default

Meredith R. Miller (Touro) has posted Strategic Default: The Popularization of a Debate Among Contract Scholars, Cornell Real Estate Journal, Vol. 9, Forthcoming .  The abstract:

A June 2010 report estimates that roughly 20% of mortgage defaults in the first half of 2009 were “strategic.” “Strategic default” describes the situation where a home borrower has the financial ability to continue to pay her mortgage but chooses not to pay and walks away. The ubiquity of strategic default has lead to innumerable newspaper articles, blog posts, website comments and editorial musings on the morality of homeowners who can afford to pay but choose, instead, to walk away. This Article centers on the current public discourse concerning strategic default, which mirrors a continuing debate among scholars regarding whether the willful breach of a contract has a moral element.

For those scholars that maintain that it is possible to describe and prescribe contract law with a general, unifying theory, the debate is primarily one between promise-based theories and economic theory. This debate between promissory and economic theory reflects a perpetual volley concerning whether contract law should reflect the primacy of morality or efficiency. 

The argument of those that support strategic default reads like a case for efficient breach. Many of these commentators argue that the mortgage contract simply presents home borrowers with a choice: pay or surrender the property in foreclosure. If a homeowner is deep underwater, she is better off defaulting and the lender is no worse off relative to the bargain (after all, the lender agreed to foreclosure as a remedy). However, those who argue in favor of strategic default are counteracting a prevailing social norm that it is fundamentally immoral to willfully breach a contract. Many of the blog comments and even newspaper editorials have reflected a general sense that the homeowners who strategically default are acting shamefully.

The public discussion further mirrors the academic debate about whether encouraging efficient breach enables the greatest public good or, instead, undermines the very convention of contracting. On the one hand, strategic default serves as an example of how encouragement of breach of contract may lead to a breakdown of confidence in the marketplace and, in turn, could inhibit market activity. On the other, it is difficult to muster sympathy for lenders, whose imprudent loans are a large piece of the systemic problems that precipitated the housing crisis.

In the end, to the extent that questions of morality are nuanced and contextual, the example of strategic default elucidates the futility of either morality or efficiency as a unifying descriptive or normative theory of contract law. Indeed, it suggests that instead of focusing on individual contracts between borrowers and lenders, a more fruitful public discourse should be reframed to focus on appropriate systemic reforms to prevent the practices that played a part in devastating outcomes for the housing industry, families and communities. Because the concerns about strategic default – neighborhood depreciation and market collapse – are systemic, the solutions should be driven by those concerns, rather than shaming individual borrowers who decide to walk away.

Matt Festa

October 12, 2010 in Contracts, Finance, Financial Crisis, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 5, 2010

Lefcoe on the Uses and Abuses of Tax Increment Financing

George Lefcoe (Southern California) has posted Competing for the Next Hundred Million Americans: The Uses and Abuses of Tax Increment Financing.  The abstract:

Demographers predict that the US population will grow by one hundred million in 2050. Newcomers will settle in suburbia, particularly to the fast growing big cities of the south and west, cities in the resurgent heartland of the country, exurbia and ‘superstar cities’. 

Communities eager to appeal to these newcomers will use tax increment financing for public improvements such as stadiums, museums, plazas and promenades. These public improvements are often integrated into signature private redevelopment projects carefully designed to achieve environmental and planning objectives by being pedestrian-friendly, high density, and mixed use, accessible not only by automobile but public transit as well. 

After illustrating the beneficial use of tax increment financing, I describe six major criticisms often leveled against tax increment financing (TIF). (1) TIF helps outer suburbs lure jobs from center cities and inner suburbs; (2) TIF should be confined to seriously blighted areas and is not; (3) TIF is often used to subsidize the increased supply of retail development in markets where demand is static, achieving little except the displacement of sales from other locations; (4) cities sponsoring tax increment projects unfairly and inefficiently drain property tax revenues from other taxing entities including schools and counties; (5) There are few serious obstacles preventing local governments from sponsoring TIF projects in places that would have attracted private development anyway, or bestowing subsidies greater than necessary upon firms agreeing to locate in marginal areas; and (6) Many local governments don’t bother to analyze whether TIF projects are net tax revenue producers or assess periodically whether actual yields match initial projections.
We're working on TIFs right now in my state & local government class.  Students find these animals to be challenging and interesting, because they are very powerful drivers of land use yet fairly obscure to the general public.  This article helps explain TIFs and put them in the context of land use debates over density, development, and urbanism.

Matt Festa

October 5, 2010 in Community Design, Density, Development, Environmentalism, Finance, Local Government, New Urbanism, Pedestrian, Planning, Redevelopment, Scholarship, Suburbs, Transportation, Urbanism | Permalink | Comments (0) | TrackBack (0)

Saturday, August 14, 2010

Fannie & Freddie Bailout?

I really enjoyed reading the article linked in Chad's post yesterday, and the good points in the comments so far.  I've linked or mentioned a few times about the need to rethink housing policy with respect to the primacy of homeownership.  But with all the talk in the article and elsewhere of reforming or replacing Fannie and Freddie, there is talk in the wind of a different plan: a Fannie-Freddie Bailout.

James Pethokoukis, the Reuters money & politcs blogger, wrote recently about such a bailout as an August Surprise:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

Then a couple of days ago the Boston Globe published an op-ed by Paul McMorrow titled One More Bailout.   

WHEN PRESIDENT Barack Obama signed legislation overhauling the nation’s financial regulations last month, he declared an end to Wall Street bailouts. Going forward, he said, failing finance houses won’t skirt by on the taxpayers’ dime. Bay State Representative Barney Frank characterized the new law as a death penalty for reckless institutions.

Both men are only half right. Congress has one more bailout to complete. That job — bringing Fannie Mae’s and Freddie Mac’s toxic balance sheets onto the government’s ledger — was left out of last month’s financial overhaul because the job is so massive and so politically unpalatable that it dwarfs every record-breaking handout that came before it.

That approach is also the only realistic option on the table.

Next Tuesday, policymakers will convene a summit to help determine what to do with Fannie and Freddie, the two government-owned mortgage giants. It’s bound to conclude that there’s little to do but nationalize them, stuff them with $300 billion in taxpayer funds, and hope that when they’re eventually able to stand on their own as semi-private corporations, the nation’s economy doesn’t implode again.

We'll we're certainly seeing mixed signals in the air about the future of housing, real estate, and land use in public policy and finance.  Keep your eyes on Tuesday's Treasury meeting

Matt Festa

August 14, 2010 in Affordable Housing, Budgeting, Federal Government, Finance, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Politics, Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 10, 2010

Smith on the Structural Causes of Mortgage Fraud

James Charles Smith (Georgia) has posted The Structural Causes of Mortgage Fraud, forthcoming in the Syracuse Law Review, Vol. 60.  The abstract:

Mortgage fraud, often a violation of federal and state criminal statutes, covers a number of different types of behavior, all of which have the common denominator of conduct that has the intent or effect of impairing the value of residential mortgage loans. Mortgage fraud has become prevalent over the past decade and shows no signs of diminishing despite the collapse of domestic housing markets during the past two years. This paper analyzes the complex relationships between prime mortgage loan markets, subprime markets, and various types of mortgage fraud. This paper concludes that the root causes of mortgage fraud are associated with the core institutional and structural components of mortgage markets, which cut across all types of residential mortgage products. The organizing principle is the historical evolution from proximity to distance within the mortgage market, which is explored along three axes. First, geographical distance between lenders and borrowers has replaced geographical proximity. The mortgage market is national, with local lending institutions no longer making a significant proportion of the loans that are originated. Second, transactional distance has replaced transactional proximity. Lenders and borrowers have little direct contact; instead intermediaries such as mortgage brokers, appraisers, insurers, and closing officers, separate the principals. Third, financial distance has replaced financial proximity. Previously both borrowers and lenders had significant financial interests in the mortgage loan transaction. The borrower had equity in the property, and the lender held the loan in its portfolio. Presently many borrowers have no equity (or negative equity) in their homes, and due to the securitization of loans through the secondary mortgage market, few originating lenders retain a stake in the loans they create. Reforms that could serve to reduce borrower-lender distance or to ameliorate its effects include the fashioning of better closing procedures for verifying borrower identity, providing a premium for community-bank loans to local borrowers, making originating lenders liable for all misconduct by appraisers, requiring significant down payments for borrowers, and allowing secondary market purchasers full recourse against originating lenders for losses caused by borrower defaults.
I saw Prof. Smith present an early version of his research on mortgage fraud last year; he announced "tentatively, I'm against it."  That cracked me up.  Anyway, check out the paper.

Matt Festa

August 10, 2010 in Finance, Housing, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (2) | TrackBack (0)

Friday, August 6, 2010

Fennell & Roin on Residential Stakes

Lee Anne Fennell (Chicago) and Julie Roin (Chicago) have posted Controlling Residential Stakes, University of Chicago Law Review, Vol. 77, p. 143 (2010).  The abstract:

Local communities often suffer when residents have too small a stake in their homes — a point underscored by recent rashes of foreclosures and abandonments, and implicated by longstanding questions about the effects on communities of renters and owner-occupants, respectively. However, homeowners with too great a financial stake in their homes can also cause difficulties for local governance by acting as risk-averse NIMBYs. Local governments should have a strong interest in helping members of their communities move away from problematic forms of stakeholding and toward more desirable intermediate positions. This essay examines how and why governmental entities at the state and local levels might regulate or shape the financial stakes that residents have in their homes. We give particular attention to the role local governments may play in facilitating homeowner and tenant access to index-based financial instruments that adjust residential risk-bearing. More radically, we suggest that local governments, assisted by state law, could formulate shared equity arrangements in which local residents hold stakes in the housing markets of surrounding localities as well as in their own jurisdictions.

As you might expect, this looks like a very interesting and important paper.

Matt Festa

August 6, 2010 in Finance, Housing, Landlord-Tenant, Local Government, Mortgage Crisis, Mortgages, NIMBY, Property Theory, Real Estate Transactions, Scholarship, State Government | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 4, 2010

Marsico on the Home Mortgatge Disclosure Act at Thirty-Five

Richard D. Marsico (New York Law School) has posted Looking Back and Looking Ahead as the Home Mortgage Disclosure Act Turns Thirty-Five: The Role of Public Disclosure of Lending Data in a Time of Financial Crisis, published in the Review of Banking and Financial Law, Vol. 29, No. 205, 2009-2010.   The abstract:

This article examines the history of the Home Mortgage Disclosure Act (HMDA) and makes proposals for improving it to help prevent another economic crisis. Passed in 1975, HMDA requires most lenders to disclose information about their home mortgage loans, including the number of home mortgage applications it received; the purpose of each application; the type of loan; the decision on the application; the race, gender, and income of the loan applicant/borrower; the location of the loan and the median income and racial composition of the neighborhood; and the interest rate on the loan. HMDA was originally conceived of as a tool to detect and prevent redlining. It was later expanded to cover lending discrimination and reverse redlining. However, Congress and the Federal Reserve have not required lenders to disclose enough information to permit HMDA to do its job. The pending financial reform legislation would expand HMDA's mission to detect and prevent predatory lending, but once again, the legislation does not require lenders to disclose sufficient information to accomplish its goal. The article proposes several types of information that should be added to the legislation, including, most importantly, the applicant's housing debt/income ratio and overall debt/income ratio.

Matt Festa

August 4, 2010 in Finance, Financial Crisis, History, Housing, Mortgage Crisis, Mortgages, Race, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Monday, July 12, 2010

Lehavi on the Global Law of the Land

Amnon Lehavi (Interdisciplinary Center Herzliyah - Radzyner School of Law) has posted The Global Law of the Land, University of Colorado Law Revew, vol. 81, p. 425 (2010).  The abstract:

Are we witnessing the gradual universality of national land laws, which have traditionally been considered to be the paradigm of legal idiosyncrasy, by virtue of their reflecting place-specific society, culture, and politics? This Article offers an innovative analysis of the conflicting forces at work in this legal field, basing itself on an historical, comparative, and theoretical study of the structures and strictures of domestic land laws and of current cross-border phenomena that dramatically affect national land systems. 

The central thesis of this Article is that, irrespective of our basic normative viewpoint regarding the opening up of domestic land laws to the forces of "globalization," we must come to terms with the particularly difficult institutional and jurisprudential constraints that are involved in undermining the local basis of land laws. Thus, in order to systematically succeed in intensifying cross-border land law rules, global and national actors need to construct more comprehensive supra-national institutions, prevent normative over-fragmentation within each legal system, and pay close attention to local-specific interplays between law, politics, economics, and culture.

Matt Festa

July 12, 2010 in Comparative Land Use, Development, Finance, Globalism, History, Property, Scholarship | Permalink | Comments (0) | TrackBack (0)

Sunday, May 30, 2010

Two by White on Strategic Default

Brent T. White (Arizona) has posted two papers on the topic of strategic default by homeowners.  First is The Morality of Strategic Default.  The abstract:

Responding to those who argue that homeowners who strategically default on their mortgages are immoral and socially irresponsible, this article argues that breaching a mortgage contract is not only morally acceptable, it may be the most responsible course of action when necessary to fulfill more important obligations to one’s family.

An increasingly influential view is that strategic defaulters make a rational choice to default because they have substantial negative equity. This article, which is based upon the personal accounts of over 350 individuals, argues that this depiction of strategic defaulters as rational actors is woefully incomplete. Negative equity alone does not drive many strategic defaulters’ decisions to intentionally stop paying their mortgages. Rather, their decisions to default are driven primarily by emotion – typically anxiety and hopelessness about their financial futures and anger at their lenders’ and the government’s unwillingness to help. If the government and the mortgage industry wish to stem the tide of strategic default, they must address these emotions. 

Because emotions are primary, however, principal reductions may not be necessary. Rather, many underwater homeowners simply need some reason to feel less apprehensive about the financial consequences of continuing to pay their underwater mortgages. One possible way to provide this comfort would be a “rent-based loan program,” allowing underwater homeowners to refinance their entire balances to an interest rate that would bring their mortgage payment in line with the rental cost of a comparable home. Indeed, a rent-based approach would relieve many underwater homeowners’ financial anxiety and likely be enough alone to stem the tide of strategic default.

Matt Festa

May 30, 2010 in Finance, Housing, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 26, 2010

Land Use Panel at Law & Society Association

This weekend is the always-excellent annual meeting of the Law & Society Association in Chicago.  I haven't scoured the program, but there is sure to be a plethora of interesting panels and events.  I do have firsthand knowledge, however, of one particular land-use panel that is guaranteed to present fascinating projects from interesting up-and-coming scholars.

Panel: Managing the American Dream: Land Use and the Politics of Growth after the Mortgage Crisis.  Fri., May 28, 12:30-2:15
Chair: James J. Kelly, Jr. (University of Baltimore)

The Effects of SmartGrowth on the Preservation of Historic Resources, William J. Cook (Charleston School of Law)

Debtors' Environmental Impact: Structured Finance and the Suburbanization of Open Space, Heather Hughes (American University)

Sustainability and the Practice of Community Development, James J. Kelly, Jr. (University of Baltimore)

The Artifice of Local Growth Politics: At-Large Elections, Ballot Box Zoning, and Judicial Review of Land Use Initiatives, Kenneth Stahl (Chapman University)

The abstract:

Land Use is one of the most interdisciplinary areas of legal theory and practice, yet in today's environment there are common issues facing land use planners. The goals of promoting growth, land development, and property ownership are in tension with emerging priorities such as growing “smart,” reducing sprawl, and sustainability. These issues expand across borders and regions yet remain intricately tied to local politics. The mortgage and financial crises have impacted the land use environment for governments, communities, and landowners. This panel explores contemporary land use challenges from the perspectives of local growth politics, sustainability and community development, smart growth and historic preservation, and the impact of policies promoting home ownership.

I had really hoped to be there for this panel, and I am very disappointed that I won't be able to make it.  But perhaps since Will, Jim, Ken, and (I hope) Heather are friends of the blog, perhaps we might be lucky enough to get a report, and we'd love to host more discussion of these forthcoming papers on the blog (hint, hint!).  At any rate, if you are going to LSA or will be in the Chicago area, I highly recommend that you attend.
Matt Festa

May 26, 2010 in Charleston, Chicago, Community Economic Development, Conferences, Environmental Law, Finance, Financial Crisis, Historic Preservation, Local Government, Politics, Scholarship, Smart Growth, Suburbs, Sustainability | Permalink | Comments (0) | TrackBack (0)

Sunday, May 9, 2010

Belsky and Wachter on The Public Interest in Consumer and Mortgage Credit Markets

Eric S. Belsky (Harvard--Joint Center for Housing Studies & Graduate School of Urban Design) and Susan M. Wachter (Penn--Wharton, Real Estate) have posted The Public Interest in Consumer and Mortgage Credit Markets.  The abstract:

This paper examines mortgage credit markets and the need for government intervention to protect and advance the public interest. We identify as rationales for the public interest: positive and negative externalities, the promotion of equal access, and information asymmetry and principal agent problems. We point to the role of market conduct and structure, as well as information asymmetry and principal agent problems, as prominent sources for the US mortgage debacle. While it is beyond the scope of this paper to outline a reform program, this paper points, in the aftermath of the crisis, to a need for a framework to address information and principal agent issues in the conduct and structure of mortgage markets. As a new framework for mortgage markets is developed, attention needs to be placed on the role that information on loan quality and pricing plays for borrowers’ and investors’ appropriate pricing and allocation of capital.

Matt Festa

May 9, 2010 in Finance, Financial Crisis, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, May 7, 2010

Hughes on Enabling Investment in Environmental Sustainability

Heather Hughes (American University) has posted Enabling Investment in Environmental Sustainability, Indiana Law Journal, Vol. 85, No. 2 (2010).  The abstract: 

This Article proposes an “environmental practices money security interest” (EPMSI) that could be added to Uniform Commercial Code (UCC) Article 9 to facilitate transactions that enable good environmental practices. EPMSI rules would grant priority over earlier investors to financers whose extensions of credit enable debtors to invest in improving environmental impact. This work suggests that we should not rely exclusively on government subsidies such as tax credits and subsidized loans to induce investments in improved environmental impact when we could also enact commercial law devices that do so. An EPMSI would add to states’ legislative efforts to address climate change by enabling companies to issue high-priority debt to finance improvements in sustainability. Article 9’s blend of first-in-time priority rules and later-in-time interests that enjoy exceptions to these rules is, essentially, about benefits and drawbacks of new money. As we consider these benefits and drawbacks, two points about Article 9 become important: first, legal scholars overstate the extent to which the purchase-money rules avoid dilution risk by limiting purchase-money collateral to new goods, and, second, scholars overlook the existence of production-money interests in agricultural finance in analyses of Article 9 and interests with later-in-time priority. Ultimately, levels of commitment to mechanisms for private funding of improved environmental sustainability, and of tolerance for risk of dilution to secured creditors’ positions, are for collective determination. Through making a concrete reform proposal, this Article intends to animate, in the context of UCC Article 9, questions about environmental costs and financing of improvements in sustainability.

An environmental law article focusing on the UCC?  This will warm the heart of my South Texas colleague and noted UCC apologist Tim Zinnecker.  Looks like a very interesting and innovative approach. 

Matt Festa

May 7, 2010 in Environmental Law, Finance, Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 13, 2010

Krugman on Georgia Bank Failures

Illustrious economist and New York Times columnist Paul Krugman has directed his learned attention toward the failure of small banks in Georgia.  Why? Embarrassingly enough, it's because Georgia leads the nation in bank failures, and the majority of those banks are small.

Georgia is part of what Krugman charmingly labels "Flatland" - where "permissive zoning and abundant land make it easy to increase the housing supply, a situation that prevented big price increases and therefore prevented a serious bubble."  In most of Flatland, by Krugman's reckoning, no housing bubble means fewer bad mortgages means fewer bank failures.  No so in Georgia.


Georgia’s debacle is that it doesn’t seem to have anything to do with the issues that have dominated debates about banking reform. For example, many observers have blamed complex financial derivatives for the crisis. But Georgia banks blew themselves up with old-fashioned loans gone bad.

And for all the concern about banks that are too big to fail, Georgia suffered, if anything, from a proliferation of small banks. Actually, the worst offenders in the lending spree tended to be relatively small start-ups that attracted customers by playing to a specific community. Thus Georgian Bank, founded in 2001, catered to the state’s elite, some of whom were entertained on the C.E.O.’s yacht and private jet. Meanwhile, Integrity Bank, founded in 2000, played up its “faith based” business model — it was featured in a 2005 Time magazine article titled “Praying for Profits.” Both banks have now gone bust.

So what’s the moral of this story? As I see it, it’s a caution against silver-bullet views of reform, the idea that cracking down on just one thing — in particular, breaking up big banks — will solve our problems. The case of Georgia shows that bad behavior by many small banks can do as much damage as misbehavior by a few financial giants.

Krugman's formula for reform in Georgia is better protections against predatory lending.  Former Democratic Governor (and predatory lending lawyer) Roy Barnes tried hard for those protections when he was in office, only to have them later rolled back.  Will this latest crisis change that calculation?  Probably depends on the next governor, who might be - Roy Barnes.  Predictions about how that race might come out are probably beyond even Krugman's prognosticating skills.

Jamie Baker Roskie

April 13, 2010 in Finance, Financial Crisis, Georgia, Mortgage Crisis, Politics, Sun Belt, Zoning | Permalink | Comments (0) | TrackBack (0)

Saturday, April 10, 2010

Malloy on Mortgage Market Reform and the Fallacy of Self-Correcting Markets

Robin Paul Malloy (Syracuse) has posted Mortgage Market Reform and the Fallacy of Self-Correcting Markets, Pace Law Review, Vol. 30, p. 79 (2009).  The abstract:

The article discusses the mortgage market collapse in connection to the broader financial crisis. In developing the argument I proceed in several steps. First, I discuss the fallacy of self-correcting markets as a way of explaining the need for volitional and purposeful regulation in the housing and mortgage markets. This involves explaining that markets are not self-correcting; while Alan Greenspan and company waited for the invisible hand to appear and correct the mortgage markets, the system collapsed. Second, I provide an overview of the basic exchange relationships among the parties involved in the underlying real estate transaction, those in the primary and secondary mortgage market, and potential investors in mortgage related securities. Third, I explain the inapplicability of Hernado DeSoto's idea of parallel lives between underlying real estate transactions and the market for securities based on the mortgages in these underlying transactions. And, fourth, I suggest a series of regulatory and transactional reforms to consider for improving the soundness of the underlying real estate transaction and the operation of the primary mortgage markets. These reforms include: taking steps to reduce speculation in housing prices; eliminating incentives for over borrowing and over lending; and, adjusting the structure of the underlying real estate transaction to undermine an inverse prisoner’s dilemma problem. I also suggest that lawyers reassert themselves into doing basic real estate transactions and that real estate sales people and others be restricted to simply doing the sales work that they are trained to do.

Matt Festa

April 10, 2010 in Finance, Financial Crisis, Mortgage Crisis, Mortgages, Property Theory, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Saturday, March 6, 2010

Burkhart on Manufactured Housing and Real Estate Finance

Speaking of modular housing, as Jamie Roskie does below, Ann Burkhart (Minnesota) has posted Bringing Manufactured Housing into the Real Estate Finance System, forthcoming in the Pepperdine Law Review.  The abstract:

Eight percent of the United States population - more than 23 million people - live in manufactured homes (also called mobile homes). In some years, more than 30% of the new homes sold have been manufactured. Moreover, manufactured housing is the most important form of unsubsidized affordable housing in this country. Up to two-thirds of the new affordable homes built each year have been manufactured. However, the manufactured housing industry currently is struggling to survive a meltdown in its sales and finance markets. A tremendous obstacle to the industry’s recovery is that most manufactured homes are characterized as personal property, though they have evolved tremendously from their earliest ancestor, the travel trailer. Today, only 1% of manufactured homes are moved after being sited on a lot. Recharacterizing manufactured homes as real property would reflect modern reality and would provide purchasers and owners with access to the mortgage market, which would increase credit availability and affordability and would provide manufactured home owners the same legal protections that owners of site-built homes enjoy.

Matt Festa

March 6, 2010 in Finance, Housing, Property Theory, Real Estate Transactions, Scholarship | Permalink | Comments (2) | TrackBack (0)