Thursday, March 4, 2010
David J. Reiss (Brooklyn) has posted Fannie Mae and Freddie Mac: Creatures of Regulatory Privilege, published in FINANCIAL INSTITUTIONS AND MARKETS: CURRENT ISSUES IN FINANCIAL MARKETS, Robert R. Bliss, George G. Kaufman, eds., 2010. The abstract:
This book chapter addresses the appropriate role of Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in the United States housing finance sector. The federal government recently placed Fannie and Freddie 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 book chapter 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 naïve until the recent credit crisis, it is now a serious option that should garner additional attention once its rationale is set forth.
Thursday, February 11, 2010
Dan Immergluck (Georgia Tech--Planning) strikes again, this time with The Accumulation of Lender-Owned Homes During the U.S. Mortgage Crisis: Examining Metropolitan REO Inventories, forthcoming in Housing Policy Debate. The abstract:
A key concern among policymakers and community developers in recent years has been the extent to which lender-owned homes, often called real estate owned or “REO” properties accumulate in different local housing markets during the mortgage crisis. This paper describes the accumulation of REO properties in 356 metropolitan statistical areas (MSAs) from August 2006 to August 2008. It examines differences in both changes and static levels of REO activity across MSAs and compares changes in REO levels to changes in home values over the same period. Special attention is paid to twelve large MSAs with substantial levels of REO as of August 2008. A model of REO volume at the metropolitan level is estimated which includes differences in state foreclosure legal processes and timing among the independent variables. Finally, cluster analysis is used to identify a simple typology of MSAs based on REO levels and home price changes.
Monday, November 2, 2009
David Reiss (Brooklyn) has posted Landlords of Last Resort: Should the Government Subsidize the Mortgages of Privately-Owned, Small Multifamily Buildings? The abstract:
The absence of stable financing options has long caused difficulties for owners of small multifamily buildings. Despite the ongoing maturation of a secondary mortgage market for small multifamily mortgages, this housing stock continues to shrink due to abandonment, demolition, foreclosure and other causes. As these buildings house many low-income households, some have suggested subsidizing the financing costs for the owners of these buildings. Any proposal to subsidize these landlords to meet affordable housing goals, however, should be predicated on determinations that (i) it is an efficient means to provide housing to the neediest tenants and (ii) the multifamily mortgage market is subject to failures that make such government intervention appropriate.
This article first describes what little is known about small multifamily properties and their owners. It then describes the lending environment for real estate entrepreneurs over the last hundred years. Finally, it evaluates the role the government should play in the small multifamily mortgage sector. The article concludes that subsidizing owners of small apartment building is an inefficient and unwarranted affordable housing policy and that more direct subsidies to low-income households, such as housing vouchers, are preferable.