PropertyProf Blog

Editor: Stephen Clowney
Univ. of Kentucky College of Law

A Member of the Law Professor Blogs Network

Saturday, February 12, 2011

Shameless Self-Promotion Department

For those interested, my article Acceptable Deviance and Property Rights has now been published in the Connecticut Law Review.  Here's the abstract:

Compliance with - or deviance from - law is often dependent upon the law’s convergence with - or divergence from - normative sensibilities. Where the legality and social acceptability of behavior diverge, some deviance is socially acceptable. Property rights evolve in response to changes in normative sensibilities. Constructing a model of acceptable deviance and applying it to property rights, we can predict and actually observe the evolution of property rights in response to changes in normative sensibilities in areas as diverse as file-sharing, foreclosures, the use of public space, and fishing rights. We can also predict and observe stresses in legal institutions created by divergences in the legality and social acceptability of behavior with regard to property rights. Law functions as an anchor on behavior, providing stability, but also space for deviance which permits the evolution of property rights.

Mark A. Edwards

[Comments are held to make sure they are absolutely dripping with praise, so there may be some delay in posting]

February 12, 2011 in Articles, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Friday, February 11, 2011

White House Releases Plan for the Future of Housing Financing Market

The White House released a proposal today that would dramatically alter the long-term future of the American housing financing market, in ways that are almost as important and fundamental as the creation of the FNMA (later Fannie Mae) in 1938.

Starting in 1938, the U.S. government created and became the most important -- and often only -- player in the secondary mortgage market.  The FNMA bought loans and mortgages from banks, thereby allowing lenders to transfer the risk of default, but only if those loans met certain quality standards.  The secondary mortgage market was a great success and was responsible for much of the post-war housing boom in America.  The FNMA was semi-privatized in 1968, becoming Fannie Mae.  It helped created the mortgage-backed securities market, but when faced with competition from other players in the secondary mortgage market who captured market share by purchasing and securitizing loans that didn't meet its quality standards, Fannie Mae lowered its standards.  Because the appetite of investors for mortgage-backed securities was voracious, there was soon a race to the bottom through subprime lending.  Because Fannie Mae still had special privileges with regard to taxation and borrowing from the federal government, many investors assumed or gambled that Fannie Mae would be rescued by the federal government in the event it began to crash.  It did, and they were right.

The new plan's main objective is to release the United States from it's role as a de facto backstop for Fannie Mae, so that taxpayers aren't liable for reckless lending -- and presumably, so that reckless lending is less likely since liability for it will stay with lenders.  It offers 3 paths to that goal, essentially gradations of the same objective -- either (1) limiting its backstop role to certain targeted borrowers (such as lower income borrowers purchasing affordable housing), who meet the previously enforced Fannie Mae quality standards; (2) limiting its role to those borrowers during a time of crisis; or (3) eliminating its backstop role entirely. 

If implemented, any of these plans is likely to raise the cost of borrowing, since the risk of default must be priced into the private market system in ways that it may not have been previously.  I intend to write more about the plan's implications as I have more time to study it, but it is safe to say that what is envisioned is a reduced participatory role for the government in home lending; what isn't yet clear to me is whether the regulatory role of the government will increase or decrease correspondingly.

An apparently ideologically-distasteful truth in this mess is that the FNMA worked very well from 1938 to 1968.  But there is no stomach now for a government agency capturing an entire private market, even though it was able to impose quality standards that kept the market stable and functioning.  Since there is no stomach to dominate the market, the question is whether any participation is appropriate.  The plan's answer: perhaps, but only in the most limited sense.  My concern is that in the absence of significant particpation, quality assurance can only be achieved either by extensive oversight, or by rules that cause lenders to impose quality on themselves.

Given that, I still like my half-baked idea: lenders can make loans on whatever terms they choose, but they can't sell them all on the secondary market.  Instead some percentage -- let's say 20% -- must stay in-house in the portfolio of the originator.  But here's the key: that 20% is chosen randomly, by some computer sitting in a government agency that knows only the loan number.  It's lending Russian roulette.  Lenders can decide there own risk tolerance, but they can't fully escape it.  That should reduced the number of risky loans.

Meanwhile, the 80% of loans that enter the secondary market create capital for home lending.

Got another idea?  Speak up -- let's get in on the conversation about the future of housing finance in the United States.  If not us, who?

Mark A. Edwards

[comments are held for approval, so there will be some delay in posting]

February 11, 2011 in Home and Housing, Law Reform, Mortgage Crisis, Real Estate Finance, Real Estate Transactions | Permalink | Comments (0) | TrackBack (0)

Merrill and Smith on Making Coasean Property More Coasean

Tom Merrill (Columbia) and Henry Smith (Harvard) have posted Making Coasean Property More Coasean (Journal of Law and Economics).  Here's an abstract:

In his pioneering work on transaction costs, Ronald Coase presupposed a picture of property as a bundle of government-prescribed use rights. This picture is not only not essential to what Coase was trying to do, but its limitations emerge when we apply Coase’s central insights to analyze the structure of property itself. This leads to what we term the Coase Corollary: in a world of zero transaction costs the nature of property does not matter to allocative efficiency. But as with the Coase Theorem itself, the real point is the implication for a positive transaction cost world: we need to subject the notion of property to a comparative institutional analysis. Because transaction costs are positive, it is no accident that property is defined in terms of things as a starting point, that uses are grouped under exclusion rights, and that in rem rights are widely employed: these features of property receive a transaction cost explanation. Simple lumpy packages of property rights motivated by transaction costs form an important baseline that furnishes presumptive answers to bilateral use conflicts. A more thoroughly Coasean approach points back to a picture of property more like the traditional one furnished by the law.

Steve Clowney

February 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 9, 2011

On the Business of Selling Human Body Parts

Wired magazine has an excellent feature on the (black)market for human body parts.  The piece has lots of neat (if ghoulish) factoids.  I, for example, would have guessed that skin sells for more than $10 a square inch...

Steve Clowney

[Comments are held for approval, so there will be some delay in posting]

February 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 8, 2011

An Inside Look at Buying Rent Controlled Apartments

This weekend the N.Y. Times ran a story on the murky world of developers who buy rent-controlled buildings and then attempt to buy-out the tenants:

A whole industry is built around paying tenants to move, and it is cloaked in mystery. Developers, seeking to spend as little as possible, make offers quietly and individually. Neighbors, wary of spoiling a deal, don’t talk to one another about those offers. There are no guidelines to help people figure out what an apartment is worth, and no easy ways to calculate the emotional toll that comes with moving from a home, sometimes after decades.

This article might be useful for some PropertyProfs - it subtly but clearly points out a lot of the problems with rent control.  First, the piece shows how rent-controlled apartments randomly assign windfalls to some members of the community.  Second, the author choose to interview a really unsympathetic tenant - the tenant isn't a long-time resident looking for protection from gentrification, but an artist who moved to New York and found the apartment through "the friend of a friend" of her mother.  Third, it discusses how landlords may neglect tenants in rent-controlled units.  Finally, the piece demonstrates how rent control creates distortive pressures for tenants to remain in specific units, even when economic opportunities pop-up in other geographic areas.  Even though I'm not in the pro-rent control faction, this seems like a bit of a hatchet job.  Check out New York magazine's much shorter and more value-neutral piece as a comparison.

Steve Clowney 

[Comments are held for approval, so there will be some delay in posting]

February 8, 2011 | Permalink | Comments (2) | TrackBack (0)

Monday, February 7, 2011

Buffalo Law Conference on Hydrofracking

Save The Date and Call for Presentations

Hydrofracking: Exploring the Legal Issues in the Context of Politics, Science, and the Economy

March 28-29, 2011 at University at Buffalo School of Law

Buffalo, New York

On March 28-29, 2011 the University at Buffalo Environmental Law Program and the Baldy Center for Law and Social Policy will host the conference: Hydrofracking: Exploring the Legal Issues in the Context of Politics, Science and the Economy. Horizontal-gas drilling involving hydraulic fracturing, also known as hydrofracking or fracking, and its potential effects is an important environmental and energy concern for the nation. This conference provides an opportunity for a scholarly exchange of ideas regarding the issue as well as a forum for community discussion.

We welcome submissions on any related topic, including the following:

·         Hydrofracking and Nuisance Law
·         Impacts on Tribal Lands
·         Administrative law and the EPA Rulemakings
·         Environmental Review Processes    
·         Application of federal environmental laws, including the Clean Water Act and Clean Air Act
·         Energy issues, in including the Energy Policy Act and DOE policy
·         Endocrine Disruption and Human Health Impacts

Authors will have an opportunity to publish their work in the Buffalo Environmental Law Journal. You are invited to submit a paper or presentation proposal for of no more than 250 words by Monday, February 21st to jol@buffalo.edu.

For more information, contact Jessica Owley [jol@buffalo.edu or 716-645-8182] or Kim Diana Connolly [kimconno@buffalo.edu or 716-645-2092]

 

[Comments are held for approval, so there will be some delay in posting]

February 7, 2011 in Conferences | Permalink | Comments (0) | TrackBack (0)