Tuesday, October 25, 2011

Chan, Gedal, Been, & Haughwout on the Role of Neighborhood Characteristics in Mortgage Default

Sewin Chan (NYU Wagner), Michael Gedal (NYU Wagner), Vicki Been (NYU Law), and Andrew Haughwout (Federal Reserve Bank-New York) have posted The Role of Neighborhood Characteristics in Mortgage Default Risk: Evidence from New York City. The abstract:

Using a rich database of non-prime mortgages from New York City, we find that census tract level neighborhood characteristics are important predictors of default behavior, even after controlling for an extensive set of controls for loan and borrower characteristics. First, default rates increase with the rate of foreclosure notices and the number of lender-owned properties (REOs) in the tract. Second, default rates on home purchase mortgages are higher in census tracts with larger shares of black residents, regardless of the borrower’s own race. We explore possible explanations for this second finding and conclude that it likely reflects differential treatment of black neighborhoods by the mortgage industry in ways that are unobserved in our data.

Matt Festa

October 25, 2011 in Local Government, Mortgages, New York, Race, Scholarship | Permalink | Comments (0) | TrackBack (0)

Thursday, October 13, 2011

Chan, Sharygin, Been, & Haughwout on What Happens to Distressed Mortgage Borrowers and Their Homes

Sewin Chan (NYU Wagner School), Claudia Sharygin (NYU Furman Center), Vicki Been (NYU Law), and Andrew Haughwout (Federal Reserve Bank--NY) have posted Pathways after Default: What Happens to Distressed Mortgage Borrowers and Their Homes? The abstract:

We use a detailed dataset of seriously delinquent mortgages to examine the dynamic process of mortgage default – from initial delinquency and default to final resolution of the loan and disposition of the property. We estimate a two-stage competing risk hazard model to assess the factors associated with whether a borrower behind on mortgage payments receives a legal notice of foreclosure, and with what ultimately happens to the borrower and property. In particular, we focus on a borrower’s ability to avoid a foreclosure auction by getting a modification, by refinancing the loan, or by selling the property. We find that the outcomes of the foreclosure process are significantly related to: the terms of the loan; the borrower’s credit history; current loan-to-value and the presence of a junior lien; the borrower’s post-default payment behavior; the borrower’s participation in foreclosure counseling; neighborhood characteristics such as foreclosure rates, recent house price depreciation and median income; and the borrower’s race and ethnicity.

Matt Festa

October 13, 2011 in Affordable Housing, Housing, Mortgage Crisis, Mortgages, New York, Race, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, 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.

Matt Festa

August 24, 2011 in Finance, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Sunday, June 5, 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.

Matt Festa

June 5, 2011 in Financial Crisis, Housing, Humorous, Mortgage Crisis, Mortgages, Real Estate Transactions | Permalink | Comments (1) | TrackBack (0)

Monday, 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.

Jim K.

May 23, 2011 in Economic Development, Financial Crisis, Mortgage Crisis, Mortgages, Nuisance, Real Estate Transactions, Redevelopment | Permalink | Comments (0) | TrackBack (0)

Wednesday, 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.

Jim K.

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 (0)

Thursday, May 5, 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.

Jim K.

May 5, 2011 in Caselaw, Finance, Financial Crisis, Mortgage Crisis, Mortgages, Property, Property Rights, Real Estate Transactions, Remedies | Permalink | Comments (0) | TrackBack (0)

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.

Jim K.

May 5, 2011 in Common Interest Communities, Financial Crisis, Mortgage Crisis, Mortgages, Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Saturday, 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.

Matt Festa

April 23, 2011 in Affordable Housing, Development, Federal Government, Finance, Financial Crisis, Globalism, History, Housing, Mortgage Crisis, Mortgages, Scholarship | Permalink | Comments (0) | TrackBack (0)

Boyack on the Role and Control of Fannie Mae and Freddie Mac

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.

Matt Festa

April 23, 2011 in Federal Government, Finance, Financial Crisis, History, Housing, Mortgage Crisis, Mortgages, Politics, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 12, 2011

NYU Furman Center's State of NYC Housing & Neighborhoods

Vicki Been and the NYU Furman Center for Real Estate & Urban Policy have announced the release of their 2010 State of New York City's Housing and Neighborhoods report.  Here's the email announcement, posted with permission:

Dear Friends and Colleagues,

We are pleased to present the 2010 edition of the State of New York City’s Housing and Neighborhoods annual report. As you well know, this report is a critical resource for data on housing, demographics, and quality of life indicators for each borough and for the city’s 59 community districts.

This year, we examine multi-family rental properties, a critical source of housing for more than four in ten New Yorkers. We find that multi-family rental properties received more foreclosure notices in the last two years than any period since the early 1990s. The study finds that smaller multi-family rental buildings (5-19 units) are most likely to receive a foreclosure notice among the multi-family properties, while the largest properties (100 or more units) have experienced the sharpest uptick in foreclosures in the recent years. The report also finds evidence that renters experience deteriorating living conditions when multi-family rental properties fall into financial distress and foreclosure.

This year’s report also includes new chapters: Getting to Work in New York City, which presents an analysis of commuting patterns in New York City, and Public and Subsidized Rental Housing in New York City, which finds that nearly one in five residential units (18.4%) in the city is publicly supported.

A look at the trends in this year’s State of New York City’s Housing and Neighborhoods reveals that the state of New York City’s housing market remains uncertain.  After dramatic declines in housing prices in 2008 and 2009, the prices of condominiums and multi-family buildings began to bounce back in 2010, but the prices of single-family and 2-4 family homes continued to decline. In Manhattan, where the market avoided the sharp declines of the outer boroughs, housing prices are down only 9.9 percent from their peak, compared to 27.8 percent citywide.

Mortgage lending remained low in 2009, but the number of refinancing loan originations jumped as homeowners took advantage of historically low interest rates. While the housing crisis has been felt across the city, it has had a disparate impact on different racial and ethnic groups. Homeownership grew more quickly among white and Asian families in the last decade than Hispanic or black households, and declines in home purchase during the recession were most dramatic among black and Hispanic borrowers.

Despite the recession, most of the city’s social and economic indicators have improved in the last decade. Median inflation-adjusted incomes increased about five percent between 2000 and 2009. Poverty declined citywide, falling from 21.2 percent in 2000 to 18.7 percent in 2009. The population has continued to grow, led by the Asian population, which increased by 32 percent between 2000 and 2010. Health and quality of life factors have improved since 2000, and the city has experienced overall reductions in asthma hospitalizations, infant mortality and crime.

As always, we eagerly await your comments and feedback. If you would like to receive a hard copy, please email furmancenter@nyu.edu.

Vicki Been, Ingrid Gould Ellen, Sarah Gerecke

Fascinating information; you can download the full report at the link.

Matt Festa

April 12, 2011 in Affordable Housing, Housing, Local Government, Mortgage Crisis, Mortgages, New York, Planning, Property, Race, Real Estate Transactions, Scholarship, Urbanism | Permalink | Comments (1) | TrackBack (0)

Sunday, March 27, 2011

Lind on Public Nuisance Law and Bank Foreclosures

This blog has had the good fortune to feature the amazing work of Cleveland-Marshall's Urban Development Law Clinic (here and here, too) as well as dispatches from the front lines of the foreclosure fallout in Cleveland's neighborhoods from the Clinic's outgoing director, Kermit Lind (Cleveland State).  Kermit has now posted Can Public Nuisance Law Protect Your Neighborhood from Big Banks?, 44 Suffolk L. Rev. 89 (2011).  Here's the abstract:

One manifestation of the mortgage crisis of the past decade is the destabilization of housing markets and neighborhoods where mortgage defaults were concentrated. As banks and their mortgage servicers employ business practices that result in banks or their agents controlling or owning vacant dwellings, the noncompliance with housing and other municipal codes by these institutional absentee owners presents neighborhoods and cities with a huge and costly public nuisance problem.

This article explores both the theory of public nuisance law and the experience of applying nuisance law in practice to mitigate the harmful consequences of bank debt collection and REO management. It looks at how and to what extent public nuisance law provides protection for those non-defaulting homeowners whose health, safety and welfare are threatened by the business practices of big banks. It compares litigation that applies public nuisance law in different ways to distinguish viable uses from unsuccessful uses of public nuisance law doctrine. The recent efforts to use public nuisance law against manufacturers and marketers of harmful products like guns and tobacco are distinguished from the application of public nuisance law against owners of real estate maintenance deficiencies are in violation of laws protecting the public health, safety and welfare.

Jim K.

March 27, 2011 in Crime, Economic Development, Financial Crisis, Local Government, Mortgage Crisis, Mortgages, Nuisance, Redevelopment, Scholarship | Permalink | Comments (1) | TrackBack (0)

Monday, March 21, 2011

Brescia on State Enforcement Actions and the Robo-Sign Scandal

Raymond H. Brescia (Albany) has posted Leverage: State Enforcement Actions in the Wake of the Robo-Sign Scandal.  The abstract:

In the fall of 2010, in one of the largest scandals to ever hit the American court system, information gathered from lawsuits across the country revealed that tens of thousands of foreclosure filings were likely fraudulent - if not outright criminal. These revelations sparked a nation-wide investigation by all 50 state attorneys general to assess not only the extent of the scandal and its potential impacts but also potential legal and policy responses to such behavior. One of the tools at the state attorneys general’s disposal that might rein in this behavior includes each state's Unfair and Deceptive Acts and Practices (UDAP) laws. Such laws typically prohibit "unfair" and "deceptive" practices and often give consumers, as well as state attorneys general, the ability to bring affirmative litigation to rein in practices that violate their terms. UDAP laws serve a critical consumer protection function by filling in gaps in the law where other, more targeted statutes might not cover practices that have a harmful impact on consumers. Since their inception, UDAP laws have been used to rein in abusive practices in such areas as used car sales, telemarketing and even the sale of tobacco products. This paper explores the availability of UDAP laws and the remedies they provide to rein in the range of practices revealed in the so-called "robo-sign scandal." It concludes that such practices - the false affidavits, reckless claims and improper notarizations - all violate the essence of most state UDAP laws; accordingly, the remedies available under such laws may be wielded by state attorneys general to halt abusive foreclosure practices throughout the nation. Such remedies include civil penalties, actual and punitive damages, attorney's fees and injunctions. What's more, UDAP actions in light of robo-sign abuses could help chart a path towards a more robust mortgage modification regime, one that would result in principal reduction, which is the clearest path out of the current crisis.

Matt Festa

March 21, 2011 in Finance, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Property, Real Estate Transactions, Remedies, Scholarship, State Government | Permalink | Comments (0) | TrackBack (0)

Friday, March 18, 2011

Oliner, Nichols, & Mulhall on Commercial and Residential Land Prices across the U.S.

Stephen D. Oliner (Federal Reserve Board--Research & Statistics), Joseph Nichols (Federal Reserve Board) and Michael R. Mulhall have posted Commercial and Residential Land Prices Across the United States.  The abstract:

We use a national dataset of land sales to construct land price indexes for 23 MSAs in the United States and for the aggregate of those MSAs. We construct the price indexes by estimating hedonic regressions with a large sample of land transactions dating back to the mid-1990s. The regressions feature a flexible method of controlling for spatial price patterns within an MSA. The resulting price indexes show a dramatic increase in both commercial and residential land prices over several years prior to their peak in 2006-07 and a steep descent since then. These fluctuations in land prices are considerably larger than those in well-known indexes of commercial real estate and house prices. Because those existing indexes price a bundle of land and structures, this comparison implies that land prices have been more volatile than structures prices over this period.

Matt Festa

March 18, 2011 in Housing, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)

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

Cox on the Case Against Property Assessed Clean Energy (PACE)

Prentiss Cox (Minnesota) has posted Keeping Pace?: The Case Against Property Assessed Clean Energy Financing Programs.  The abstract:

Property Assessed Clean Energy (“PACE”) is a method of public financing for energy improvements through special assessments on local government property taxes. Interest in PACE exploded from its origination in 2008, with almost half the states rapidly enacted legislation enabling local governments to use their property collection power for this purpose. The growth in PACE is now suspended, and existing programs have been put on hold, in the face of opposition from the federal secondary mortgage market regulators. Governments and environmental advocates supporting PACE have initiated litigation against the federal regulators and are seeking passage of federal legislation to revive the programs. This Article argues that the theory underlying PACE is fundamentally flawed. PACE has been promoted as an alternative to traditional real estate financing that resolves the impediments to homeowners investing in alternative energy and energy efficiency. A careful analysis of these claims demonstrates that PACE in actual practice will operate similarly to most other types of real estate financing, and that the efforts to reconstruct PACE programs through litigation or legislation are misplaced. Instead, PACE programs should be radically restructured or should be considered a creative yet failed experiment offering valuable lessons for future residential energy investment programs.

Matt Festa

January 20, 2011 in Clean Energy, Environmentalism, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship, State Government | Permalink | Comments (0) | TrackBack (0)

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

Marsh on Foreclosures and the Failure of the American Land Title Recording System

Tanya D. Marsh (Wake Forest) has posted Foreclosures and the Failure of the American Land Title Recording System.  The abstract:

In this essay, Marsh argues that the current foreclosure crisis should serve as a wake-up call for a long-overdue modernization of the American land title recording system. Lenders invented the Mortgage Electronic Registration System (MERS) because the land title system, developed in a far different time and place, failed to meet the needs of the modern real estate industry. But a private MERS-like system is not the answer. Instead, Marsh argues that the federal government should implement a solution that replaces both the existing local land title system and MERS.

An ideal system should be organized around some clear principles. It should be transparent. It should be easy to search, through dynamic, robust indexing, and easy to access, preferably through the Internet. Documents in PDF form should be down-loadable. Electronic filing should be facilitated. There should be uniformity and consistency in the rules governing the form and substance of documents eligible for recording. The system should be public. Establishing and protecting a clear registry of property interests is and should continue to be an essential function of government.

Matt Festa

January 19, 2011 in Federal Government, Financial Crisis, Mortgage Crisis, Mortgages, Scholarship | 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)

Thursday, December 23, 2010

Levitin & Twomey on Mortgage Servicing

Adam J. Levitin (Georgetown) and Tara Twomey (Nat'l Consumer Law Center, Nat'l Ass'n of Consumer Bankruptcy Attys) have posted Mortgage Servicing, Yale Journal on Regulation, Vol. 28, No. 1 (2011) [first 2011 pub date on the blog so far?].  The abstract:

This Article argues that a principal-agent problem plays a critical role in the current foreclosure crisis.

A traditional mortgage lender decides whether to foreclose or restructure a defaulted loan based on its evaluation of the comparative net present value of those options. Most residential mortgage loans, however, are securitized. Securitized mortgage loans are managed by third-party mortgage servicers as agents for mortgage-backed securities (“MBS”) investors.

Servicers’ compensation structures create a principal-agent conflict between them and MBS investors. Servicers have no stake in the performance of mortgage loans, so they do not share investors’ interest in maximizing the net present value of the loan. Instead, servicers’ decision of whether to foreclose or modify a loan is based on their own cost and income structure, which is skewed toward foreclosure. The costs of this principal-agent conflict are thus externalized directly on homeowners and indirectly on communities and the housing market as a whole.

This Article reviews the economics and regulation of servicing and lays out the principal-agent problem. It explains why the Home Affordable Modification Program (“HAMP”) has been unable to adequately address servicer incentive problems and suggests possible solutions, drawing on devices used in other securitization servicing markets. Correcting the principal-agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.

Matt Festa

December 23, 2010 in Federal Government, Financial Crisis, Housing, Mortgage Crisis, Mortgages, Real Estate Transactions, Scholarship | Permalink | Comments (0) | TrackBack (0)