December 21, 2012
Nationalization and De-Nationalization in the Mortgage Industry
Back in 1938, the Roosevelt Administration, in order to save the housing finance industry, created a federal agency called the Federal National Mortgage Association. The FNMA got banks lending to home buyers by agreeing to purchase the loans from the banks, so long as the loans met certain quality standards.
It was a smashing success! The banks made high quality loans to borrowers (20% down payment, fixed rate, roughly 30% debt-to-income ratio), then sold the loans on the secondary market to the FNMA, and housing boomed. By the 1960s, the FNMA owned about 80% of all the home loans in the United States.
But wait! The federal government owned about 80% of all private home loans in the United States? Wasn't that a little, well . . . socialist? Couldn't private industry do it instead? Yes, indeed. So in 1968 the federal government did something unprecedented: it privatized an entire federal agency. The agency became Fannie Mae, with a public offering and everything. In return for certain tax advantages, it had certain obligations to the federal government, but it was a private entity. And soon it was competing with other private entities purchasing loans on the secondary market, all of whom were securitizing those loans and selling the securties -- mortgage-backed securities. Those entities were competing for loans, so they couldn't be too picky about quality any more.
Fast forward to 2008. Remember that old LendingTree ad, "When Banks Compete, You Win!"? We all found out that was true -- so long as by "win" we meant "live in economically disastrous times."
Suddenly, things were a lot like 1937 again: the housing finance industry was dead. Banks weren't lending -- it was too risky, since borrowers couldn't repay their loans and third parties wouldn't buy mortgage-backed securities. How could the industry be revived?
Fannie Mae, on the verge of failure, was re-nationalized. Quality standards were imposed, mortgages were acquired and re-financed with an assist from the federal government, and banks could make loans and sell them to Fannie Mae. Extremely slowly, haltingly, the housing finance industry began to revive.
Back in 2008, I predicted this would happen. It didn't take a genius, that's for sure. As I wrote back back then (Nationalization, De-Nationalization, Re-Nationalization), we have a history of nationalizing, de-nationalizing and re-nationalizing lending in the United States. We tend to nationalize in a crisis, ending the crisis, then de-nationalize because of our ideological preference for a laissez-faire market system . . . which leads eventually to a crisis . . . repeat.
All that had to happen in 2008 was that history needed to repeat itself, and that was the path of least resistance. But, it also seemed likely that, if it worked -- if the re-nationalized Fannie Mae got the housing finance industry stabilized -- then it wouldn't be long before someone realized that the federal government owned a huge protion of the home loans in the United States and that would seem a little, well . . . socialist. Therefore, as soon as the program was successful, people would want to get rid of it.
The superb news site ProPublica, as part of its series on the housing crisis, is running a very interesting article entitled, We’ve Nationalized the Home Mortgage Market. Now What? It makes the point that suddenly things look alot like 1968 again: 9 out of 10 home loans in the U.S. today are backed by the federal government through Fannie Mae. The chart below, from the article, shows the percentage of home loans backed by the federal government.
What happens next? Well, if history is any guide, the cycle will continue. We will de-nationalize the industry, until the next crisis; then we will re-nationalize the industry to solve the crisis; then we will wonder why an industry that could be private is nationalized, so we will de-nationalize it . . . etc. etc.
Mark A. Edwards
February 08, 2012
Keep a Very Close Eye on the Foreclosure Fraud Settlement
It seems as though every day for weeks now we've been told a settlement between state attorneys general and fraudulent foreclosers -- by which I mean the largest home mortgage lenders in the country -- is imminent. The banks appear to be balking because they expected the type of suit filed by New York Attorney General Eric Schneiderman to be prohibited under the settlement -- but since Schneiderman is one of the key players in the settlement talks, there seems to have either been a serious misunderstanding or a serious play for leverage by Schneiderman. For an excellent analysis of the negotiations, and of the foreclosure crisis generally, I can't recommend Yves Smith's blog Naked Capitalism highly enough.
One issue that MUST be non-negotiable is the ability of people who were wrongfully foreclosed upon to maintain civil suits against their foreclosers. There is no indication that such suits will be barred under the settlement, but since the negotiations are not transparent we can't know until the settlement is announced. My first year property students have now spent weeks studying the crisis -- in part because I'm hoping to ready these young lawyers-to-be to take up the fight to ensure that foreclosure fraud doesn't pay and that its victims receive restitution. But if the state attorneys general negotiate away the only avenue victims of wrongful foreclosure have for relief, it will be the final injustice in a long, long line of them in this crisis. Not to mention a defeat for the rule of law.
For a very good discussion of how we should assess the settlement, when it is finally arrived at and released to public scrutiny, see this article by Richard Eskow.
Mark A. Edwards
December 15, 2011
Nevada Gets Tough on Foreclosures
The LA Times reports that the number of Nevada properties that entered foreclosure fell by 75% in October, even as the rate climbed elsewhere in in the country.
That news, though, did not result from a reversal of fortune in the Nevada housing market. It was spawned by a new Nevada law that plays hardball with companies doing the foreclosing. Assembly Bill 284, which took effect in October, requires those foreclosing on a home to file an affidavit proving they have the right to bring the action — and it increases civil and criminal penalties for using fraudulent documents in a foreclosure.
November 25, 2011
Finger on The Struggle for Housing as a Human Right
Davida Finger (Loyola New Orleans) has posted Public Housing in New Orleans Post Katrina: The Struggle for Housing as a Human Right (Review of Black Political Economy) on SSRN. Here's the abstract:
This article reflects on the post-Katrina demolition of public housing communities in New Orleans and associated loss of affordable apartments with a focus on the Columbia Parc redevelopment. Some key issues regarding displacement, race, gender, and public housing policies are referenced throughout. A concluding discussion of advocacy efforts to frame housing as a human right highlights a central, unmet movement demand: one for one replacement of all demolished public housing.
November 08, 2011
Is Co-Housing on the Rise?
From The Guardian:
The trend to build mixed use developments has morphed into "co-housing," the practice in which homes are built to share resources and space. One such development will soon break ground in Mountain View, the home of Google. . . . The 19 flats within this complex, 40 miles south of San Francisco, will have their own kitchen and washer-dryer hookups. Residents, however, will have the option to share laundry facilities, and a shared kitchen will encourage the scheduling of several communal meals a week. Additional shared indoor space will allow more social activities and entertainment.
October 17, 2011
Do Re Me Foreclosure
Singing protesters interrupt foreclosure proceedings at the New York State Supreme Court.
October 03, 2011
Don't Sell This Home. Ever.
Here's a property story from my local paper. Heiress Emma Watts grew up in creepy-looking mansion in Richmond, Kentucky. During her life, the local university (Eastern Kentucky U.), repeatedly attempted to purchase the property from her. The relationship between Emma and EKU deteriorated, and she refused to sell.
Here's the propety angle: When Watts died in 1970, her will specified that the mansion could never be sold. She left a trust fund to pay for basic upkeep and, for four decades, no one has touched the building or its furnishings. The will reads:
(The trustee) shall have no power or authority to sell or in any manner hypothecate any of my real estate located in Madison County, Kentucky, or any of the furniture, furnishings, linens, china, silver, glassware, books, ornaments or other tangible personal property located in Elmwood at the time of my death. . . . It is my primary testamentary intention to preserve my residence, “Elmwood,” and to maintain it in its present condition, in so far as is possible, for the benefit of my cousins, Margaret Kilgore Cope, Millard Lewis Cope, Jr., and Margaret Parhan Cope.
September 29, 2011
America's Housing Mismatch
When the census first started measuring the size of American households, back in 1790, the average home had nearly six people in it. By 1960, that number had fallen to just over three. According to early 2010 estimates—although the data also shows many of us doubling up to make rent in the recession—we’re now down to about 2.6.
But there’s one group that still hasn't caught on: homebuilders. American households have been shrinking for years at exactly the same time as our houses have been expanding. By a lot. Data from the Center for Neighborhood Technology compares trends in household size to census data on home construction, showing that the average size of new homes swelled from 1,400 square feet in 1960 to 2,100 four decades later.
The article goes on to hypothesize about what will become of all the McMansions that sprang up in the mid-1990s.
September 26, 2011
Renting is for Suckers
From the N.Y. Times: Why rent when you can move back home?
The author argues that the American obsession with real estate and independence is undermining our happiness and financial well-being:
I suspect that many young American adults who have to move in with their parents feel crummy about it. Most Russian immigrants I know do not. They don’t see it as a sign of failure but as a means to achieve their financial goals more quickly. Are Americans really all that desperate to break free of their parents? Or does the push toward independence originate from the top? Are baby boomers sending the not-so-subtle message to their children that they prefer an empty nest?
September 20, 2011
Can Landlords Discriminate Against the Unemployed?
Not in California. The California Fair Employment and Housing Act bars discrimination based on a rental applicant's source of income, as long as the applicant can show the financial ability to pay the rent. The justification for this rule is "the need to protect access to housing for rental applicants whose income comes from sources other than employment," such as social security and pension benefits.
September 01, 2011
Housing Policy and Happiness
Matt Yglesias argues that our national policy of encouraging homeownership ultimately undermines people's well-being and happiness.
August 23, 2011
Nichols on the Federal Protecting Tenants at Foreclosure Act
Elan Nichols (Michigan State) has posted Unanswered Questions Under the PTFA: Exploring the Extent of Tenant Protections in Foreclosed Properties (Journal of Affordable Housing) on SSRN. Here's the abstract:
The somewhat new Federal Protecting Tenants at Foreclosure Act (the “PTFA”), as recently amended, still leaves many questions of interpretation in states with the foreclosure by advertisement process, and in states with laws related to issues on which the PTFA is silent. The PTFA is vague in places, and does not address certain issues raised by the foreclosure processes in certain states, where state law is not clearly preempted.
This article will examine how the PTFA, including the recent amendments and any recent judicial and advisory opinions, applies in states with the foreclosure by advertisement process (as opposed to judicial foreclosure). The article will use Michigan as a case study for this inquiry, briefly discussing other states with a similar process. In so doing, the article will discuss issues raised in these states concerning matters on which the PTFA’s terms are vague or wholly silent.
To that end, this article picks up where the article, “Interpreting the Protecting Tenants at Foreclosure Act of 2009,” 19 J. of Affordable Housing & Community Dev Law 205 (Winter, 2010), by Allyson Gold, left off. Of particular assistance will be the recent statutory amendments, any relevant case law, interpretive statements from the Department of Housing and Urban Development, and the “working interpretation” adopted by legal services providers and others agencies dealing with the foreclosure crisis. Consequently, this article will conclude with a proposal for a reasonably fair interpretation of the PTFA in states with foreclosure by advertisement and in states where the PTFA is not expressly preempted but still leaves questions.
August 15, 2011
A Primer on Title Insurance
The New York Times' introduction to title insurance.
August 08, 2011
Lamb, Wilk, & Seabrook on the Right to Fair Housing
Charles Lamb (SUNY Buffalo - Political Science), Eric Wilk and Nicholas Seabrook have posted The Right to Fair Housing: It's Development, Growth, and Enforcement on SSRN. Here's the abstract:
The right to fair housing was initially created by the Thirteenth and Fourteenth Amendments and the Civil Rights Act of 1866. During the twentieth century, however, state governments adopted laws prohibiting various types of housing discrimination before Congress enacted the most important federal guarantee - the Fair Housing Act of 1968 (Title VIII of the Civil Rights Act of 1968). Indeed, not only did state governments precede the federal government in expanding the right to fair housing between the late 1930s and 1968, but state laws were usually broader than Title VIII in both their coverage and administrative enforcement provisions. Title VIII also strongly encouraged the expansion of fair housing rights at the state and local levels by requiring that subnational governments have the first opportunity to enforce the Fair Housing Act if they passed legislation substantially equivalent to Title VIII. This cooperative federalism requirement has dramatically influenced the growth and enforcement of fair housing rights. States and localities throughout most of the nation have significantly strengthened the right to fair housing since the early 1980s, increasingly enforcing Title VIII. To determine how well this cooperative federalism arrangement is working, we first compare the enforcement performance of HUD and state and local civil rights agencies along several dimensions by relying on two data sets obtained from HUD. Using one of these data sets, we then explore the extent to which federal, state, and local agencies provide outcomes favoring complainants in housing discrimination cases. We find that Title VIII enforcement at the state and local levels is often better than HUD enforcement. We further conclude that state civil rights agencies resolve complaints in favor of complainants nearly as often as HUD and that localities sometimes do so even more frequently. We address policy implications briefly in our conclusions.
August 01, 2011
The Rent is Too Damn High: Israeli Edition
The Israeli government is currently facing massive, nation-wide protests over the high cost of housing. On Saturday, 150,000 seemingly middle-class people took to the streets to demand socioeconomic change and "social justice." The anger has the Prime Minister Netanyahu so spooked that he's canceled a trip to Poland to deal with the situation.
As the New Yorker reports, the protesters "aren’t saying they can’t afford to get by, just that they can’t afford to live in the city. And the protesters contend that Israel has no Brooklyn or Scarsdale equivalent. One of them, Shlomo Krauss, criticized the outskirts of Israel for “their dubious infrastructure, failing public transportation and zero employment opportunities” in a widely circulated op-ed laying out the protesters’ gripes, with the headline, “Don’t call us spoiled.” Some sources estimate that the price of buying an apartment has gone up 55% over the five years, while rents have increased by 27% .
For me, the big surprise is how anti-market the protesters seem. They're calling for the government to "immediately get involved in the housing market. [T]hey would like to see fair housing for all, achieved by the construction of public housing projects, in addition to government oversight over the rentals market."
From an outsiders perspective, the problem looks very, very different; If anything it seems like there's way too much government involvement in the housing market already. The Israel Land Administration controls a huge chunk of the country's property, while the nation's planning bureaucracy moves at an infamously slow pace. Free up more land for development and you'll get more apartments. Moreover, there's clearly a title security problem that needs addressed (and no one seems to mention). Who wants to invest in infrastructure anywhere near the border before a lasting peace has been established?
(image found with creative commons search)
July 22, 2011
From Apartments to Vacation Rentals
Property owners in San Francisco are converting large numbers of rental apartments into short-term quarters for tourists. Some are blaming the city's rent control laws for this "hotelization:"
Ms. Kelley predicted that more units would be turned into vacation rentals as landlords sought to avoid rent-control laws available to long-term tenants.
“The city has made its bed with restrictive rent-control laws,” she said, “but with a vacation rental you can avoid that.”
July 21, 2011
Sprankling on the Interaction Between the Fifth and Third Amendments
Thomas Sprakling (Columbia - student) has posted Does Five Equal Three? Reading the Takings Clause In Light of the Third Amendment's Protection of Houses (Columbia Law Review) on SSRN. Here's the abstract:
The Supreme Court’s 5-4 decision in Kelo v. City of New London broke new ground by holding that the seizure of owner-occupied homes as part of a plan to foster economic development was a taking for “public use” under the Takings Clause of the Fifth Amendment. Kelo’s many critics have yet to advance a constitutionally-grounded rationale for why homes should receive special protection from condemnation. This Note argues that the Third Amendment’s solicitude for the home provides a constitutional basis for distinguishing between homes and the other forms of “private property” covered by the Takings Clause. The Amendment, which provides that “[n]o soldier shall, in time of peace be quartered in any house, without the consent of the owner, nor in time of war, but in a manner to be prescribed by law,” shares both historical and textual links with the Clause. These connections suggest the judiciary should apply a form of heightened scrutiny similar to the “meaningful” review standard proposed by Justice Kennedy’s concurring opinion in Kelo when determining whether the government’s seizure of an owner-occupied home is for “public use.”
July 13, 2011
Marion Barry's Housing Shenanigans
For those that haven't kept up with the career of Marion Barry, you'll be happy to hear that the erstwhile crack smoking mayor of D.C. is back on the city council. And not only is he back, he's proposing aggressively stupid legislation. Specifically, Barry plans to introduce a bill that would ban the construction of all new apartment buildings in his Ward (Here's a copy of the Bill's text). Why??? Barry thinks this plan will encourage home-ownership and the renovation of the area's dilapidated housing. "The American dream is to own a home. And black people have not gotten the American dream as much as they need to," he says. "Somebody can rent for 20 years, and has no equity in their unit at all."
It's hard to see how this bill helps the people of Ward 8 in any way. If anything D.C. in general, and Ward 8 in particular, needs denser & more affordable housing. Right now, DC's population is exploding. So any proposal to artificially limit the supply of available rentals seems likely to push (poor) long-term residents out of the neighborhood. It's also tough to comprehend how this land use measure would help the folks of Ward 8 acquire the downpayments and credit history that are the normal barriers to home ownership.
Perhaps the really interesting question here isn't about the policy but rather, why do people in D.C. keep voting for Barry?
July 08, 2011
Rental Vacany Rate Falls
Across the country, apartment vacancies are dropping fast and rents are starting to creep up. If you're looking for signs that the economy is about to turn around, this might be a good sign. If buying a home becomes more attractive versus renting that should kick-start the construction sector of the economy, which will lower unemployment, which will allow more people to buy more homes...
(Graph from calculatedriskblog.com)
June 09, 2011
Keep Me Off the Cover of US Weekly