October 09, 2012
ABA Professor's Corner on Eminent Domain for Mortgage Modifications
This month's installment of the ABA Section on Real Property's "Professor's Corner"--a free monthly teleconference featuring scholars' takes on important new property cases and issues--will feature a really hot topic, the proposal for municipal governments to take property by eminent domain to combat the mortgage/foreclosure crisis. The info, via David Reiss (who also recently posted a related public comment):
The program is Wednesday, October 10, at 12:30 pm EDT; 11:30 am CDT; 10:30 am MDT; 9:30 am PDT.
Participant Passcode: 5577419753
This month’s topic is Can/Should Municipalities Use Eminent Domain to Take Mortgages to Facilitate Mortgage Modifications? This conference call will be moderated by Professor James Geoffrey Durham, University of Dayton School of Law. Professor Steven J. Eagle, Professor of Law, George Mason University School of Law, is one of the nation’s leading scholars on eminent domain and regulatory takings. Professor Eagle will discuss whether it is possible for local governments to use eminent domain to acquire notes secured by mortgages in order to resell them to a private party which will then modify them, both under the 5th Amendment to the U.S. Constitution and also under state constitution taking clauses as they have been limited by amendments and statutes seeking to define what is a public use. Professor Robert C. Hockett, Professor of Law, Cornell Law School, is the scholar who in June proposed that municipalities could use eminent domain to acquire mortgages, in order to facilitate mortgage modifications to benefit underwater homeowners, in his article: It Takes a Village: Municipal Condemnation Proceedings and Public/Private Partnerships for Mortgage Loan Modification, Value Preservation, and Local Economic Recovery (download paper). Professor Hockett will discuss his proposal, which has received widespread attention. Professor Dale A. Whitman, James E. Campbell Missouri Endowed Professor Emeritus of Law, University of Missouri, Columbia, School of Law, is one of the premier experts on American property law and one of the nation’s foremost mortgage law scholars. Professor Whitman will discuss the impact that implementation of Professor Hockett’s proposal might have on the mortgage markets.
Check out the free telecast on this very interesting and current issue.
October 9, 2012 in Conferences, Eminent Domain, Financial Crisis, Housing, Local Government, Mortgage Crisis, Mortgages, Property, Real Estate Transactions, Scholarship, Takings | Permalink | Comments (0) | TrackBack
September 10, 2012
Levitin & Wachter ask Why Housing?
Adam J. Levitin (Georgetown Law) and Susan Wachter (Penn--Wharton--Real Estate) have posted Why Housing?, Housing Policy Debate, vol. 23 (2012). The abstract:
come and go. Only the housing bubble, however, brought the economy to its knees.
Why? What makes housing uniquely a cause of macroeconomic risk?
This Article examines the workings of the housing market as well as theories and empirical evidence about the housing bubble. It explains why housing is a particular source of macroeconomic risk and how changes in the housing finance channel were the critical element in the formation of the bubble.
Interesting stuff. A lot has been written about the mortgage/financial crisis, but this is a good point in time for looking back with a more long-term perspective.
August 23, 2012
NYT on Vietnam Property Bubble
“I can say this is the same as the crisis in Thailand in 1997,” said Hua Ngoc Thuan, the vice chairman of the People’s Committee of Ho Chi Minh City, the city’s top executive body. “Property investors pushed the prices so high. They bought for speculation — not for use.”
The article describes a Vietnam that sounds similar in many ways to the US and other places: a real estate bubble fueled by overpromotion; a recession that has left land development projects uncompleted; a disproportionate impact on younger workers; hard times for certain sectors of the economy, while others are relatively unscathed. Of course with Vietnam having dived in to the global economy in the past generation, the American recession and the European debt crisis are also having effects in Vietnam. But it's still quite interesting that the trigger seems to be a real estate bubble.
January 14, 2012
State & Local Government section--Cities in Recession program
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).
December 08, 2011
Renuart on the Ibañez Time Bomb
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.
December 05, 2011
Morgan Stanley says US moving toward "Rentership Society"
I came across a link to this Bloomberg report in reading for my previous post on the Leinberger-Kotkin debate. The article is a few months old, but I still think it's highly relevant: U.S. Moves Toward Home 'Rentership Society,' Morgan Stanley Says, discussing a report on housing.
The U.S. homeownership rate has fallen below 60 percent when delinquent borrowers are excluded, a sign of the country’s move toward a “rentership society,”Morgan Stanley said in a report today. . . .
The homeownership rate reached an all-time high of 69.2 percent in 2004 as relaxed lending standards fueled home sales and President George W. Bush promoted an “ownership society.” Mortgage delinquencies, foreclosures and tighter credit for housing loans are reducing property buying, [Morgan Stanley analysi Oliver] Chang said.
“Taken together they are forcibly moving the country away from being an ownership society,” Chang, based in San Francisco, said in an e-mail. “This change is only beginning, and is moving the country towards becoming a rentership society.”
A real estate professional demurs, but look at the reason why:
Most Americans still aspire to own their houses and don’t want to be renters forever, said Rick Davidson, president and chief executive officer of Century 21 Real Estate LLC in Parsippany, New Jersey.
“It isn’t about the financial aspects, but about building a family and having a part of the American dream,” Davidson, whose company is a unit of Realogy Corp., said today during an interview at Bloomberg’s offices in New York. “What really drives purchases at the end of the day is emotional and has to do with lifestyle.”
We're still conditioned to think of homeownership as the sine qua non of the American Dream--but it's not necessarily in our financial or economic interest; it's emotional and about lifestyle. But is there an adequate range of opportunities presented for Americans to choose (emotionally?) between different forms of lifestyle? I believe that at their base, issues of housing, community, and urban form are primarily cultural.
December 01, 2011
Georgia Judge Slaps Down US Bank Over Potentially Wrongful Foreclosure
Thanks to Atlanta lawyer Robert Jackson for the heads' up on this amazing decision from a Carroll County judge regarding the potentially wrongful failure to modify a mortgage for homeowner Otis Wayne Phillips. My favorite part of the opinion:
This court cannot imagine why U. S. Bank will not make known to Mr. Phillips, a taxpayer, how his numbers put him outside the federal guidelines to receive a loan modification. Taking $20 Billion of taxpayer money was no problem for U. S. Bank. A cynical judge might believe that this entire motion to dismiss is a desperate attempt to avoid the discovery period, where U. S. Bank would have to tell Mr. Phillips how his financial situation did not qualify him for a modification. Or, perhaps he was qualified, yet didn't receive the modification, in violation of U. S. Bank's Service Participation Agreement (SPA). A cynical judge might think that, if the guidelines clearly prevented Mr. Phillips from getting his modification, then U. S. Bank would have trotted out that fact in mathematic equations, pie charts, and bar graphs, all on 8 by 10 glossy photo paper, with circles and arrows and paragraphs on the back explaining each winning number. [Here the judge puts a footnote begging indulgence from Arlo Gutherie for the Alice's Restaurant reference.] U. S. Bank's silence on this issue might heighten the suspicions of such a cynical jurist. I, on the other hand, am sure that nothing of the sort could be true. Maybe U. S. Bank no longer has any of the $20 billion dollars left, and so their lack of written explanation might be attributed to some kind of ink reduction program to save money. I'm sure there is a perfectly reasonable explanation for why the U. S. Bank will not print out the ONE page of figures that show Mr. Phillip's financials compared to the RAMP guidelines to clear all this up.
Jamie Baker Roskie
October 31, 2011
Bevilacqua: In Massachusetts, the Other Shoe has Dropped
Earlier in the year, I blogged about a decision (Ibañez) by the Massachusetts Supreme Judicial Court finding as invalid a land title claimed by a foreclosing bank that could not show that it held the mortgage at the time of foreclosure. Prior to that ruling, a stated practitioners' standard recognized as curative post-foreclosure assignments of mortgages. The Bevilacqua v. Rodriquez case presented the Court (previously blogged about here) with similarly sloppy handling of the mortgage assignments but also a third-party purchaser (and redeveloper) of the property from the foreclosing bank.
Earlier this month, the Mass. SJC again found that the foreclosing bank had no title to transfer and that the title claimant's more sympathetic position with regard to the botched securitization process did not create title. The Court dismissed his "try title" action and suggested that his equitable rights to the (as yet unforeclosed) mortgage might support a possible reforeclosure--a less than reassuring directive if the purchaser has invested in the property more than the lien value of the mortgage.
Occupy Athens Creates Controversy
We're having our own mini-controversy here in Athens over the Occupy Wall Street-related protests. The Occupy Athens protesters are stationed outside The Arch, known as the "front door" to the University. It's the entrance to the historic north quadrangle, and the main entrance from downtown Athens.
As outlined in this article from the local paper, the UGA police chief has been warning the protesters not to block The Arch or the stops leading up to it. I've passed this protest on foot and in my car several times, and while protesters have been standing on the steps and near the Arch, I've never had my way blocked, nor seen them block anyone else, but apparently there have been complaints. Now a UGA law professor has weighed in to say that the University is violating the protestors' free speech rights.
There have been arrests and violence at Occupy protests all over the country, mostly notably in Oakland. I doubt very much we'll see anything that dramatic here - we tend to be polite and quiet here in Athens, even in our protesting.
Jamie Baker Roskie
UPDATE: Some interesting parallels between the situation in Athens and controversy over Occupy London's site on the steps of St. Paul's Cathedral - as reported in The New York Times. The City of London Corporation is suing to have the encampment removed:
Last week, the corporation went to court to seek an order dismantling the St. Paul’s camp as a breach of the historic right of unimpeded access to the country’s “highways.” Though the St. Paul’s encampment is concentrated on the cathedral forecourt, a pedestrian area in normal times, a corporation executive, Michael Wellbank, overlooked the distinction. “Protest is an essential right in democracy, but a campaign on the highway is not,” he told reporters. “Encampment on a busy thoroughfare clearly impacts the rights of others.”
October 24, 2011
Lawrence Summers on How to Stabilize the Housing Market
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.
October 03, 2011
Michael Lewis: California and Bust
Michael Lewis, the author of popular financial nonfiction books such as Liar's Poker, Moneyball, and The Big Short, has published an interesting Vanity Fair article on the looming municipal debt crisis called California and Bust. The intro:
The smart money says the U.S. economy will splinter, with some states thriving, some states not, and all eyes are on California as the nightmare scenario. After a hair-raising visit with former governor Arnold Schwarzenegger, who explains why the Golden State has cratered, Michael Lewis goes where the buck literally stops—the local level, where the likes of San Jose mayor Chuck Reed and Vallejo ﬁre chief Paige Meyer are trying to avert even worse catastrophes and rethink what it means to be a society.
While the piece isn't directly about land use, most of us know that land use is fundamentally intertwined with local government finance. The muni debt crisis flows from the real estate bubble, and future land use and development will be driven by the fiscal health of local governments. Also, just about anything by Michael Lewis is worth a read . . . no one else can spin a yarn about the financial world quite like him.
August 24, 2011
NYU Furman Center on Mortgage Lending in the Recession
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.
July 20, 2011
Cities With Not-So-Bad Housing Markets
According to CNBC/MSN, of the top ten cities with housing prices that have stayed flat or gone up during the recession, seven are in the south. Okay, LU Prof Blog readers, you've been pretty quiet this summer - give us your two cents on why this is so. Extra points to commenters from the Carolinas or Arkansas, where things seem to be quite rosy!
Jamie Baker Roskie
July 10, 2011
Closed Pools a Sign of Deeper Local Problems
From The New York Times, an article about the struggles local governments face in keeping their public pools open:
There are few things in life more doleful than a child looking at a closed pool on a steamy summer day, and yet that sad scene has become as common as sunburns and mosquito bites as struggling local governments make the painful choice to shut their pools to save the budget. The list of locales where public pools have been in jeopardy in recent years includes some of the sweatiest spots in the nation, including Central Florida (90s and humid on the Fourth), Atlanta (90), and Houston (97)...
The question of where pools are closed often raises issues of class and race. In the case of Houston, one of the pools closed in June was in Independence Heights, a historically black neighborhood where the median household income in 2009 was about $27,000, according to city statistics.
The city councilman for the area, Ed Gonzalez, said the loss of a pool there would sting worse than in more well-to-do neighborhoods. “There are no other true community assets out there,” he said. “Your neighborhood park and your pools are the only real amenities that some of these communities have.”
Mr. Gonzalez, a former police officer, said it was not just a matter of letting people beat the heat. The lack of a local pool, he said, could have an impact on public safety. “If kids do not have a productive thing to do, like swimming or community centers to go to,” he said, “it’s more idle time they have on their hands.”
Here in Athens the Leisure Services department seems to be doing a good job keeping the pools open, but we went without a public fireworks show this year due to lack of sponsorship. While these types of amenities are hard for local governments to support in tough economic times, they are also key to a community's quality of life. It will be interesting to see how deep communities will dig to maintain the rituals of summer in these difficult days.
Jamie Baker Roskie
June 05, 2011
Homeowner Forecloses on Bank
Yes, you read that right. A homewoner in Collier County, Florida foreclosed on a bank branch! Bank of America gets Padlocked after Homeowner Forecloses on It.
It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn't owe a dime on their home.
The couple said they paid cash for the house.
The case went to court and the homeowners were able to prove they didn't owe Bank of America anything on the house. In fact, it was proven that the couple never even had a mortgage bill to pay.
A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners', Maurenn Nyergers and her husband.
The Judge said the bank wrongfully tried to foreclose on the Nyergers' house.
So, how did it end with bank being foreclosed on? After more than 5 months of the judge's ruling, the bank still hadn't paid the legal fees, and the homeowner's attorney did exactly what the bank tried to do to the homeowners. He seized the bank's assets.
About an hour after the sheriff locked the doors, the bank branch manager handed the attorney a check. Nice to see at least one instance of good news for Florida homeowners in the foreclosure crisis. Thanks to Dru Stevenson and Louie Rodriguez for the pointer.
May 23, 2011
Fitzpatrick on Land Banking and Disposition of Vacant REO Properties
Among the more visible, lasting land-use legacies of the foreclosure crisis is an abundance of vacant REO (Real Estate Owned) properties held by foreclosing lenders. Tom Fitzpatrick (Federal Reserve Bank of Cleveland) has posted How Modern Land Banking Can Be Used to Solve REO Acquisition Problems in REO and Vacant Properties: Strategies for Neighborhood Stabilization (Federal Reserve Banks of Boston and Cleveland). Here's the abstract:
Modern land banks hold great promise as a dynamic community development tool that can help shrinking cities and local nonprofits overcome the two biggest challenges they face when trying to acquire REO property: interest in only a small number of properties and a lack of funding for acquisition. Practice provides us with a powerful example of their successes. As regions struggle to control their inventories of vacant, abandoned, or REO properties, they would be remiss not to consider the innovative modern land banking approach that is currently being employed in states like Ohio.
May 18, 2011
Rose on the Rights of Tenants of Residential Properties in Foreclosure
Henry Rose (Loyola-Chicago) has posted The Due Process Rights of Residential Tenants in Mortgage Foreclosure Cases, 41 N. M. L. Rev. ___ (forthcoming 2011). Here's the abstract:
The purpose of this article is to explore the rights of tenants who reside in buildings undergoing foreclosure to receive notice and an opportunity to be heard when foreclosures threaten to terminate their tenancies. The federal Protecting Tenants at Foreclosure Act of 2009 (PTFA) will significantly reduce the incidence of residential tenancies being terminated as a result of foreclosure. However, PTFA offers weak procedural protections if the mortgagee or the person who acquires ownership pursuant to a foreclosure seeks to terminate the tenancies of residents in the foreclosed building. In those states that require judicial foreclosures, the Due Process Clause of the Fourteenth Amendment to the United States Constitution should afford tenants faced with termination of their tenancies due to foreclosure with notice and an opportunity to be heard before their tenancies are terminated. In states that allow non-judicial foreclosures, Due Process protections are not likely to be available to tenants due to a lack of state action in the foreclosure process. PTFA should be amended to afford all tenants, including those who reside in non-judicial foreclosure states, with notice and an opportunity to be heard before their tenancies are terminated pursuant to a foreclosure.
May 18, 2011 in Affordable Housing, Federal Government, Financial Crisis, Housing, Landlord-Tenant, Mortgage Crisis, Mortgages, Property, Property Rights, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack
May 05, 2011
Massachusetts SJC Hears Arguments in Bevilacqua (and so can you)
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.
Boyack on Keeping HOAs Above Water in Foreclosure Storms
Andrea Boyack (GW) has posted Community Collateral Damage: A Question of Priorities. In it, she deals with the very timely issue of lien priority for statutory condominium and homeowner association (HOA) dues. Many such common interest communities are facing high homeowner foreclosure rates and an inability to maintain services without a viable collection mechanism. The Maryland state legislature has now passed a lien priority bill of the kind discussed in the article. The Governor should be signing it into law any day now. Here's the abstract:
Today’s soaring mortgage default rate and the uncertainty and delay associated with mortgage foreclosure proceedings threatens to cause financial tragedies of the commons in condominiums and homeowner associations across the country. Assessment defaults in privately governed communities result in an inequitable allocation of upkeep costs, and current law provides no way to prevent this spillover effect. But the collateral damages caused by delayed foreclosures and insufficient recoveries can be minimized by gradually increasing the priority position of the association lien.
In a majority of states, association liens are completely subordinate to the first mortgage lien. At foreclosure of the mortgage lien, the junior priority assessment lien will be extinguished whether or not there are sufficient proceeds to reimburse for community charges. Assessment delinquencies grow over time, so the longer it takes to complete foreclosure, the greater the costs to the neighborhood. Although several states have adopted a limited lien priority for up to six months’ worth of unpaid assessments, foreclosures today take far longer than six months, and the amount ultimately owed to a community can be significant and far exceed that cap. Federal housing policy impacts the resolution of the issue because the FHA, Fannie Mae and Freddie Mac only permit qualifying mortgages to be subject to a six-month assessment lien priority. The decelerating pace of foreclosure further exacerbates the already unjustifiable financial impact borne by non-defaulting neighbors. The lien priority status quo fails to adequately protect communities in today’s context of widespread and delayed foreclosures and under-collateralized mortgage loans. Decreasing the first mortgage lien’s priority during a foreclosure delay would mitigate the harm.
Lien priority statutory changes can protect association finances in the future, and such provisions may be applied retroactively as well. In other contexts, states have held that changes to a lien priority regime can apply to existing associations and existing mortgages without unconstitutionally impairing contract or property rights. This is particularly true where the association’s lien is deemed to be created as of the date the organizational documents for the community were recorded (prior in time to any unit’s mortgage). Bank lobbyists have historically opposed any enhanced assessment lien priority, but supporting property upkeep and making assessments more predictable and collectible would actually benefit lenders by shoring up the value of their collateral. Better certainty with respect to homeowner payment obligations will also enable more responsible credit underwriting and contribute to economic recovery. Shoring up assessment lien priority not only ensures a fair allocation of community costs, but also helps to contain the current housing market decline.
April 23, 2011
Reiss on Fannie, Freddie, and the Future of Federal Housing Finance Policy
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