Saturday, August 19, 2017
Zombies, Mortgages, and What New York State Is Doing About Them
(Photo Credit: Buffalo News)
Of the many ills that resulted from the 2008 financial crisis, none garnered such a fantastic moniker as did the “zombie mortgage crisis.” But despite its name, this isn’t an episode of The Walking Dead. Rather, the phrase refers to a practice by mortgage lenders (or, mortgage servicers to be more precise) whereby a notice of foreclosure would be given and the defaulted and distressed homeowner would typically move out in anticipation of a foreclosure sale. But then, the lender would decide not to go through with the foreclosure process after all.
Not finishing the process was typically due to the fact that the property was “underwater” (meaning that the net of the debt due on the mortgage loan and the value of the property subject to the mortgage was in the negative—the secured debt was greater than the value of the collateral, in commercial law terms). This meant that there was no chance the lender could recoup its losses at the sale, which typically resulted in the property becoming REO (owned by the lender itself). This might seem obvious, but lenders don’t like being property owners—they would rather get paid. One reason they really don’t like owning foreclosed property is because ownership comes with costs. For instance, the bank is going to have to pay any homeowners association dues that might be required (which failure to pay can result in a lien on the property). There could also be tort liabilities if someone is hurt on the premises. But the lender can avoid all of this (and did) by just not doing anything—leaving the house still titled in the name of the now-absent homeowner but also leaving the mortgage in place. Hence the name—the mortgage process is initiated, leading one (the homeowner) to believe that foreclosure will soon happen and the mortgage will be gone, only to have the mortgage linger on (potentially forever)--like a zombie. You get the gist...
If you want a great (or terrible, rather) story, then look no further than this excerpt from a piece by Andrea Boyack (Washburn) and Robert Berger (Kansas Bankruptcy Judge):
After receiving notice from JP Morgan Chase in 2008 that foreclosure was imminent, homeowner Joseph Keller vacated his home, moved to a new residence, and tried to pick up the pieces and start again. Two years after he had relocated, however, the county sued Keller because his house, “already picked clean by scavengers,” was in violation of the housing code. Upon returning to investigate, Keller found his former home “in  shambles,” with “hanging gutters and collapsed garage.” Keller also discovered that he owed back taxes, sewer fees, as well as bills for municipal weed and waste removal. Furthermore, he remained personally liable on the Chase mortgage loan, the debt having grown from $62,000 to $84,000 because of two years of unpaid interest, penalties, and fees. Adding insult to injury, the Social Security Administration rejected his disability application because the vacant, crumbling home he still unwittingly owned was a valuable “asset.” Chase had dismissed the foreclosure judgment two months after Kelley had moved out, but somehow Kelley was never informed. (citations omitted).
And the zombie mortgage problem isn't just something that's bad for homeowners. Abandoned property of this kind has a huge impact that reaches far beyond lot lines. Stories abound of zombie mortgaged properties that fall into disrepair and become havens for crime and create public health concerns. This, in turn, has the effect of diminishing the property values of those parcels that are nearby—indeed, the whole community can sink with just a handful of scatter-site abandoned properties. And of course, where the problem is bad enough, local governments see a shrinking of property tax revenues as a result of the decline of neighborhoods where abandoned homes are located. Also, for those vacant properties in common interest communities (like a homeowners association or a condo association), the lender has no reason to pay the assessments (except for those few states which have adopted the limited super priority of the Uniform Common Interest Ownership Act). Whatever lien is imposed by the HOA for nonpayment will almost always be inferior to that of the lender's mortgage. Again, the mortgagee's interest is protected. Thus, those owners still left in the neighborhood must bear the burden of the unpaid assessments.
Naturally, social harms also follow the zombie mortgage practice. Consider, again, an excerpt from Boyack and Berger:
. . . [P]roperties subject to zombie mortgages are concentrated in low-income and minority communities. More than 57% of zombie properties are located in census tracts made up of households in the bottom 40% of income, compared to only 22.5% of zombie properties in communities where household income is in the top 40%. Statistically, if minority households compose at least 80% of a census tract, it is 18% more likely that a foreclosure in that community will end up a zombie mortgage compared with foreclosures commenced in other neighborhoods. (citations omitted).
So why is this important now, since the practice has obviously been going on for several years? Well, in the 2016 legislative session, the New York legislature passed a bill (effective December 2016) to try and address the zombie foreclosure problem. At the time the bill was passed, NY state officials estimated there were over 6,000 homes that were unoccupied and falling into disrepair.
So how does this law work? First, the legislation (known as New York’s 2016 Zombie Property and Foreclosure Prevention Act but more properly Part Q of Chapter 73 of the Laws of New York) has "mandatory" reporting requirements when it comes to informing the state about abandoned homes. Second, the law requires mortgage lenders (servicers to be precise) to maintain vacant and abandoned properties (something that previously was only required when the bank actually became the owner of the property). The trigger for the shift in the obligation to maintain the property comes when the lender has “a reasonable basis to believe that the residential real property is vacant and abandoned . . . and is not otherwise restricted from accessing the property.” If the lender fails to maintain the property, the government can impose a civil penalty of $500 per violation, per day, per abandoned property.
For lenders, the law gives them an expedited foreclosure process if there is a good faith showing that the property has been abandoned. Importantly, the new act mandates that the foreclosing lender must proceed to the foreclosure sale within 90 days of obtaining a foreclosure judgment. If the lender itself purchases the property at the auction, then it must ensure that the home becomes reoccupied within 180 days of the date of acquisition. Lastly, the legislature gave the governor $100 million to be used to help low- to moderate-income individuals purchase and make repairs to these abandoned properties.
So now that we’re one year in (well, a little less), how is the law working? Evidently there are some practical/enforcement problems, as recently reported by the National Mortgage News and other outlets. First, reporting requirements (although mandatory) are not easy to enforce. The law leaves it up to lenders and local governments to report homes that are abandoned or vacant—which can be spotty and unreliable. Also, despite the penalities, the New York Department of Financial Services (the body that is not necessarily charged with enforcement of the law but that has taken up the mantle) reports that no penalties have been assessed since the law took effect. Although the NY deparment reports that banks and their servicers are broadly complying, state officials admit that they do not send inspectors to the properties to assess the situation themselves. And some local officials, like the mayor of Lackawanna, NY, says that not all banks are complying with the law. He noted this past May 2017 that "[t]his is bringing down our neighborhood, not just Lackawanna, not just Western New York but all of New York State by having banks being absent in their obligations in what they're supposed to be doing."
Also, unfortunately the abandoned home registry is not public. State officials say that doing so would make it a target for “squatters and criminal activity.” I’m a bit incredulous about that claim, since I can’t imagine many squatters and/or everyday criminals being sophisticated enough to go check out the Department of Financial Services’ website and find its registry database (or even know about it) and then go through the process of finding the ideal abandoned home for their purposes. Like the CFPB’s complaint database, making this registry public could help researchers and academics in empirically studying the zombie foreclosure issue more closely.
Lastly, NY state officials hope to help local governments build the capacity necessary to enforce this law themselves (an additional task that most municipalities will likely find difficult to pay for without funding from the state or another source).
Here at the #PropertyLawProfBlog, we’ll keep an eye on how this law continues to be rolled out in New York (as well as what other states might be doing to address the zombie foreclosure phenomenon). For now, over and out!
August 19, 2017 in Home and Housing, Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recording and Title Issues | Permalink | Comments (1)
Saturday, January 21, 2017
CFP: Fordham International & Comparative Urban Law Conference
From Nestor Davidson and the good folks over at the Fordham Urban Law Center:
4th Annual International & Comparative Urban Law Conference
Law and the New Urban Agenda
Cape Town, South Africa - July 17th & 18th, 2017
Call for Conference Participants
The Fordham Urban Law Center, in partnership with the University of Cape Town (UCT) and UN Habitat, is pleased to announce a call for participation in the 4th Annual International and Comparative Urban Law Conference. The Conference will be held on Monday July 17th and Tuesday July 18th, 2017 at UCT in Cape Town, South Africa.
The Conference will provide a dynamic forum for legal and other scholars to engage diverse international, comparative, and interdisciplinary perspectives in urban law. The Conference is open to urban law topics across a broad spectrum, such as:
- Structure and workings of local authority and autonomy
- Urban and metropolitan governance and finance
- Economic and community development
- Housing and the built environment
- Unique challenges facing cities in developing nations and the Global South
- Urban public health
- Migration and citizenship
- Urban equity and inclusion
- Sustainability and resilience
While the Conference will foster a broad scholarly dialogue about cities and legal systems in comparative and international perspective, we specifically invite submissions focusing on the role of law in the New Urban Agenda adopted this past October by the United Nations at the Habitat III Conference in Quito, Ecuador. In particular, the Conference seeks to investigate legal tools to advance the New Urban Agenda in a manner that is democratic, sustainable and equitable.
PROPOSAL SUBMISSION: Please submit a proposal (maximum 500 words) to Gilberto Vargas, Associate Director, Fordham Urban Law Center, at email@example.com. Please put "[name of proposed paper]" in the subject line of your email. If you have a draft paper, please include it with your proposal. Participants do not need to have prepared a formal paper in order to join the program. The Center is also pleased to be able to award partial travel grants for this Conference, although funds are limited. Please indicate the extent of your funding needs. Deadline for proposal submissions: March 6, 2017.
PUBLICATION: The Urban Law Center has developed a book series compiling cross-cutting global perspectives on law and urbanism, with a core focus on comparative enquiry. If you are interested in potential publication, please indicate this interest at the time of your proposal submission.
ABOUT THE URBAN LAW CENTER: The Urban Law Center at Fordham Law School in New York City is committed to investigating the role of the law and legal systems in contemporary urbanism through scholarship, pedagogy, programming, and applied research partnerships. Please visit http://urbanlaw.org for more details about the Center.
ABOUT UCT: Founded in 1829, The University of Cape Town is the oldest university in South Africa. UCT aspires to be the premier academic meeting point between South Africa, the rest of Africa and the world. Please visit https://www.uct.ac.za/ for more details about UCT.
January 21, 2017 in Conferences, Home and Housing | Permalink | Comments (0)
Thursday, September 22, 2016
Schaffzin on Property Law, Blight, and Clinical Legal Education
Daniel Schaffzin (Memphis) has posted (B)Light at the End of the Tunnel? How a City's Need to Fight Vacant and Abandoned Properties Gave Rise to a Law School Clinic Like No Other (Washington University Journal of Law & Policy) on SSRN. Here's the abstract:
Over the course of the last two decades, intensified by the mortgage foreclosure crisis of the late 2000s, an epidemic of vacant and abandoned properties has inflicted devastation on people, neighborhoods, and cities across the United States. Though surely coincidental, the same time period has seen the emergence of experiential learning coursework, long operating at the periphery of legal education, as a centerpiece of the law school curriculum. In Memphis, the temporal convergence of these two phenomena has acted as a catalyst for the creation of a law school clinical course in which students learn and work under direct faculty supervision to abate the public nuisance presented by neglected properties. This Clinic is distinctive for a number of reasons, not the least of which is its singular client: the City of Memphis itself.
In this article, the University of Memphis School of Law’s Director of Experiential Learning, one of the two founders and codirectors of the Neighborhood Preservation Clinic, asserts the efficacy of the Clinic’s role in training future lawyers and providing zealous legal representation to the City in lawsuits against the owners of blighted properties. For context, the article first considers the rise and devastating effects of the nationwide vacant and abandoned property epidemic, the statutory authority available in Tennessee to pursue recourse against the owners of such property, and the broader blight-fighting strategy being employed by the City within which the decision to launch the Clinic was made. The article then examines the Clinic’s multilayered design and articulates the benefits that the Clinic has conferred upon its students, the Law School and the City of Memphis. The article concludes that the Neighborhood Preservation Clinic offers a government representation model for in-house law school clinics that stays true to traditional clinical pedagogy while honoring clinical legal education’s two-pillared historical mission to effectively prepare students for practice and to work in advancement of social justice and public interest outcomes.
September 22, 2016 in Home and Housing, Land Use, Recent Scholarship | Permalink | Comments (0)
Sunday, September 11, 2016
Zasloff on the Clash between Land Use and Fair Housing
Jonathan Zasloff (UCLA) has posted The Price of Equality: Fair Housing, Land Use, and Disparate Impact (Columbia Human Rights Law Review) on SSRN. Here's the abstract:
What happens when local government policies run head-on into federal civil rights laws? Nowhere does this question assume greater importance than with land use and fair housing, yet in the nearly half-century since the passage of the Fair Housing Act (FHA), courts and commentators have skirted the question. With the Supreme Court’s recent decision in Inclusive Communities Project v. Texas, the most significant fair housing decision in the nation’s history, they can no longer do so. This Article represents the first sustained effort to show how the FHA affects land use, the most important power that cities have under American localism. The Supreme Court held for the first time that the FHA allows disparate impact liability, and outlined when such disparate impact cases can be brought. But it left many crucial questions unanswered, and this Article attempts to fill the gap. It concludes that when cities restrict affordable and multifamily housing, which often has a disparate impact on people of color, zoning ordinances must withstand intermediate scrutiny in order to be sustained. Courts must balance local policies with demands for inclusion: sometimes those policies will triumph, but in many instances they will not, for they rest on weak empirical or legal foundations, or they can be addressed in less restrictive ways. The Article sets forth a series of the most common scenarios and justifications for exclusionary zoning, and seeks to show that such justifications have far less purchase than is commonly supposed. The FHA comes nowhere close to abolishing zoning, but it does insist that local zoning must no longer exclude racial minorities, and the Court’s decision makes clear how fair housing advocates can and should use the law to fight such exclusion. If localities no longer have the discretion to exclude people of color, then that is the price of equality.
September 11, 2016 in Home and Housing, Land Use, Real Estate Transactions, Recent Cases, Recent Scholarship | Permalink | Comments (0)
Friday, September 2, 2016
Illegal Property Tax Foreclosures in Detroit
Check out this really fascinating (and disturbing) article about research conducted by Bernadette Athene (Chicago-Kent, currently visiting at Chicago) on illegal property tax foreclosures in Detroit:
This week was the 11th anniversary of Hurricane Katrina. Over the years, many have said that Detroit is experiencing a hurricane without water.
Like with Katrina, the property tax foreclosure crisis in Detroit has wiped out entire neighborhoods inhabited by poor and working-class black people. From 2011-15, the Wayne County treasurer foreclosed upon approximately one in four Detroit properties for nonpayment of property taxes.
In fact, Detroit has one of the highest number of property tax foreclosures any American city has had since the Great Depression. Most important, once foreclosed properties are vacated, they are often vandalized, burned down or stripped of all valuable materials, creating a flood of blighted properties that decimate communities by reducing property values, attracting crime and causing those who can to evacuate.
There is a debate about the origins of Detroit’s property tax foreclosure crisis.
Popular narratives have focused on a culture of lawlessness in which property owners have cheated the city by not paying their property taxes and then devising ways to avoid foreclosure.
Some have welcomed the record number of property tax foreclosures as a sign that Detroit, at long last, is establishing law and order. But, I recently co-authored a study titled “Stategraft” that demonstrates that Detroit’s unprecedented property tax foreclosure rate is indefensible because property tax assessments in Detroit are, in fact, illegal.
Michigan’s Constitution clearly decrees that a property’s assessed value cannot exceed 50% of its market value. In our study, we find that Detroit’s assessor is flagrantly violating this vital state constitutional provision. Consequently, contrary to popular narratives, it is the city that is stealing from Detroit property owners through illegal assessments and inflated property tax bills, and not the other way around. And while the city has reassessed properties during the last two years, those actions have not been enough to bring most assessments in line with the Michigan Constitution.
To investigate whether property tax assessments in Detroit are illegal, we use citywide property sales and assessment data for 2009-15. As required by Michigan case law and statute, we included only arm’s length transactions in our analysis, and we find that, in 2009, 65.5% of the properties sold violated the state constitutional assessment limit. In subsequent years the numbers were equally shocking: 2010 (84.7%), 2011 (54.6%), 2012 (71.4%), 2013 (78.2%), 2014 (83.2%), 2015 (64.7%).
The property tax assessments were not only above the legal limit, but they also exceeded it by a substantial sum. For instance, in 2010, assessments were, on average, 7.3 times higher than the legal limit. In 2015, assessments were, on average, 2.1 times higher than the legal limit.
In all years studied, the illegality was most pronounced for lower-valued properties. That is, the city is more likely to assess modest homes at illegal levels than it is more expensive homes, leaving the most vulnerable homeowners drowning in injustice.
Detroit’s mayor, Mike Duggan — a former prosecutor — acknowledged that “for years, homes across the city have been over assessed,” and tried to remedy this in 2014 and 2015 by implementing assessment decreases for most of the city, ranging from 5% to 20%.
Our study shows that illegal property tax assessments nevertheless persist for lower-valued properties despite these reductions. For example, in 2015, properties with the lowest values were, on average, assessed at 4.8 times the legal limit, while properties with the highest values were, on average, legally assessed.
Both before and after Duggan’s assessment reductions, those who can afford only modest properties have been subject to the most severe illegality and forced to endure the consequences of Detroit’s broken levees.
In July, the American Civil Liberties Union of Michigan, the NAACP Legal Defense Fund and the law firm of Covington & Burling filed a class action alleging that the unprecedented number of property tax foreclosures in Detroit is unlawful on several counts, including the fact that the property tax assessments systematically violate the state constitution and the Fair Housing Act. The findings of "Stategraft" strongly support this claim.
The end goal of the class action is to stop all property tax foreclosures that are based upon illegal assessments. As an interim measure, the legal team recently filed a motion for a preliminary injunction that would place a moratorium on property tax foreclosures of owner-occupied properties in Detroit and throughout Wayne County.
To be sure, by reducing city revenues, a moratorium would further wound a city that has been in economic decline for decades and is desperately trying to emerge from the shadow of the largest municipal bankruptcy in our nation’s history. But, just as we do not allow homeless people in desperate need to burglarize homes, we should not allow the City of Detroit to use unlawful assessments and inflated property tax bills to steal money from Detroit property owners. Additionally, the requested moratorium is narrowly tailored so that it protects only vulnerable homeowners and not investors.
Given the mortgage foreclosure crisis, water shutoffs and historic bankruptcy, the people of Detroit have already had to weather several devastating storms. Now that they are facing a hurricane without water, the federal government cannot leave Detroiters stranded.
Attorney General Loretta Lynch must ensure that the Housing and Civil Enforcement Section of the Department of Justice opens an official investigation, which will supplement the ongoing class action and begin to quell the tides of inequity.
Bernadette Atuahene is a visiting professor at the University of Chicago Law School and a research professor at the American Bar Foundation.
September 2, 2016 in Articles, Home and Housing, Mortgage Crisis, Real Estate Transactions, Recent Scholarship, Recording and Title Issues, Takings | Permalink | Comments (0)
Saturday, August 27, 2016
Mandelker on Zoning and Alternative Housing
Daniel Mandelker (Washington University) posted Zoning Barriers to Manufactured Housing (The Urban Lawyer) on SSRN. Here's the abstract:
Manufactured housing is a major affordable housing resource for millions of people. Restrictive zoning barriers limit its availability, even though studies have discredited myths, such as objections to its safety and quality. A national statute, the National Manufactured Housing Construction and Safety Standards Act, authorizes building code standards that address all aspects of safety, durability and quality, and that preempt state and local codes that deal with this problem. The Act does not preempt restrictive zoning, and Congress should amend the law to cover zoning restrictions. Judicial control of zoning barriers to manufactured housing is unsatisfactory and requires statutory change. Courts accept unequal treatment that applies restrictive zoning only to manufactured housing, though some statutes prohibit discrimination. The cases uphold exclusions from residential districts if manufactured housing is allowed elsewhere. Some statutes prohibit exclusion by requiring manufactured housing as a permitted use in all residential districts, or allow a community to decide what residential districts must accept manufactured housing. Courts uphold aesthetic standards, such as roofing and siding requirements, and some statutes authorize them, though limitations are needed to protect manufactured housing from exclusionary treatment. Communities often require approval of manufactured housing as a conditional use, and approval as a conditional use is often denied. Courts have upheld conditional use denials, and statutory protective standards are needed that will prevent abuse of the conditional use requirement.
August 27, 2016 in Home and Housing, Land Use, Recent Scholarship | Permalink | Comments (0)
Monday, August 22, 2016
Eagle on the Socioeconomics of Affordable Housing
Steven J. Eagle (George Mason) posted Conflation, Intractability and Affordable Housing (Fordham Urban Law Journal) on SSRN. Here's the abstract:
This Article examines the varying and often-conflicting views of “affordable housing” of different social and economic groups. It asserts that attempts to deal with affordable housing issues must take into account the shelter, cultural, and economic needs of those populations, and also the effects of housing decisions on economic prosperity. The article focuses on affordable housing goals such as making available an ample supply of housing in different price ranges; attracting and retaining residents who contribute to the growth and economic prosperity of cities; ensuring that neighborhood housing remains available for existing residents, while preserving their cultural values; and providing adequate housing in high-cost cities for low- and moderate-income persons and the overlapping concern for “fair housing” for families of all races and backgrounds.
Thereafter, the Article examines the benefits and detriments of various means of providing more affordable housing, including fair-share mandates, rent control, and inclusionary zoning (including whether that leads to impermissible government takings of private property). It then briefly considers the merits and demerits of federal subsidy programs.
The Article briefly considers conceptual and practical problems in implementing the Supreme Court’s 2015 Inclusive Communities disparate impact holding, and HUD’s 2015 regulations on “Affirmatively Furthering Fair Housing.” Finally, it discusses how the concept of “affordable housing” conflates the separate issues of high housing prices and poverty, and how housing prices might be reduced through removal of regulatory barriers to new construction.
Throughout, the Article stresses that advancing affordable housing goals have both explicit and implicit costs, and that goals often are conflicting. To those ends, it employs economic and sociological as well as legal perspectives.
August 22, 2016 in Home and Housing, Law & Economics, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0)
Wednesday, August 17, 2016
#LouisianaFlood: Property Law and Consumer Protection After a Natural Disaster
(Photo Credit: The Millennium Report)
As national news is just getting around to reporting, Baton Rouge and its surrounding areas recently experienced tremendous flooding. Large portions of southeast Louisiana were (and many remain) underwater. Our tax law friends over at the Surly SubGroup, specifically Phil Hackney (LSU), summarize the situation nicely:
The devastation stretches from around the Louisiana-Mississippi border all the way over to Lafayette -maybe 100 miles across. This story does a nice job explaining the weather phenomenon that caused this massive flood event. Neighborhoods that have never flooded before in our recorded history are under 4 -6 ft. of water, and some higher than that. Almost the entirety of certain cities are submerged. The last data I had for my area is that 20,000 were displaced and 10,000 in shelters. I expect that number to go up over the week. Even though it has stopped raining, the flood waters cannot drain because the rivers are too high and cannot take runnoff from tributaries.
For those who may find this helpful, this short post talks a little about the property law (specifically related to home mortgage obligations and homeowners’ insurance) that victims of natural disasters like the Louisiana flooding should keep in mind.
MORTGAGE LOAN OBLIGATIONS
After a disaster like the flooding in Louisiana it is important to get in touch with your bank or mortgage servicer to obtain relief. The reason for this is because even if your property is destroyed and/or you can no longer live in the home, the mortgage debt does not go away. It is still owed even if the improvements on the real estate are not longer habitable. If contacted, however, sometimes the mortgage company will give you more time to pay your monthly note and even dispense with late fees or penalties. Also, if the home has been lost due to substantial or total destruction, you’ll want to talk to your mortgage servicer ASAP to prevent or postpone foreclosure on the property. For private loans (i.e., not government-backed) it will be up to the lender and you to work out those details. Be aware that even if the lender gives you a forbearance for a period of time, you will still have to make up those payments later.
For those loans that are FHA-backed, borrowers are sometimes eligible for resources that allow them to remain in the home. The FHA has a disaster relief policy pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act where, if (1) you or your family live in a federally-declared disaster area; (2) you are a household member of someone who is deceased, missing, or hurt because of the disaster; or (3) your ability to pay your mortgage is significantly impacted by the disaster, then your lender cannot foreclose on its mortgage for a 90-day period. The FHA also strongly advises its participating lenders to work with mortgagees who are affected by natural disasters (for example, by taking a deed in lieu of foreclosure if appropriate or allowing only partial payment for a period of time). This is why it’s so important that homeowners in these flooded areas contact their mortgage servicers and let them know that they qualify for FHA Disaster Relief. For additional help in this process, HUD has a counseling hotline to call at 1-800-569-4287 or you can contact HUD's National Servicing Center.
With regard to property insurance, dealing with your insurer can be a long and complicated process after a natural disaster. The important part is knowing what your declaration and your policy states, and whether flood insurance is included (i.e., for damage caused from rising waters). A general homeowner’s policy only covers damage caused by wind, rain, hail etc. Flood damage is insured separately. The exclusions portion of the policy will help in making this determination.
When it comes to actually getting money for lost or damaged property, different insurance policies take different approaches. You can either obtain the replacement cost value of the property (which means the insurance company will give you funds necessary to substitute the damaged or lost property with comparable property) or actual cash value (which is where you receive the cash value of the property that was lost or damaged, minus depreciation over time). The insurance policy will reveal to which you are entitled.
In the case of personal property losses specifically, this is generally referred to as the insurance of “contents” of the home. Documenting these losses are particularly important (so don’t start throwing things away too quickly). Keeping receipts are also critical to submitting a successful claim.
Another important aspect of property insurance is the fact that you are not the only person insured. Your mortgage bank is also listed as an insured on your policy, which means that when the insurance company send the check the bank will also be listed as a payee. Usually your residential mortgage contract requires that you send the check to the bank and then, through an escrow and release process, the funds will be distributed to you to pay contractors to repair the home in tranches. This means that you and your mortgage bank will have to work together to get the repairs completed and your contractors paid. Another option can be to actually pay off the mortgage debt altogether (if there’s a sufficient amount), but that is a decision that the mortgage lender gets to make. As a homeowner you should try to find out how the mortgage lender will use the insurance proceeds because if the mortgage debt is paid off that leaves you with no money to make repairs to your home.
August 17, 2016 in Home and Housing, Land Use, Natural Resources, Personal Property, Real Estate Finance, Real Estate Transactions, Recording and Title Issues | Permalink | Comments (0)
Thursday, July 21, 2016
Weiss on Housing Tax Credits and Residual Value
Brandon M. Weiss (UMKC) has posted Residual Value Capture in Subsidized Housing (Harvard Law & Policy Review) on SSRN. Here's the abstract:
This Article argues that our primary federal subsidized housing production program, the Low-Income Housing Tax Credit (LIHTC), will result in the unnecessary forfeit of billions of dollars of government investment and the potential displacement of tens of thousands of households beginning in 2020 when LIHTC property use restrictions start to expire. The LIHTC example is presented as a case study of an inherent dynamic of public-private partnerships—namely, the potential capture by for-profit providers of “residual value.” For purposes of this Article, this is value generated by a public-private transaction that is unnecessary to incentivize a private provider to deliver the contracted for good or service.
Drawing on corporate organizational theory, which has highlighted the role that nonprofits play in solving certain contract failures and generating positive externalities, the Article argues that, in certain contexts, partnering with nonprofit providers can be an effective approach to increasing the share of residual value that flows to public purposes. The LIHTC program is one such context, given that a nonprofit preference results in a three-sector approach whereby the federal government provides tax credits to nonprofit developers that must attract private investor equity. This framework leverages institutional strengths, including the access to capital of government, the relative fidelity to public purposes of nonprofits, and the market-based underwriting and oversight of for-profit investors.
July 21, 2016 in Home and Housing, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0)
Thursday, July 7, 2016
DeBarbieri on Community Benefits Agreements
Edward W. De Barbieri (Brooklyn Law School) has posted Do Community Benefits Agreements Benefit Communities? (Cardozo Law Review) on SSRN. Here's the abstract:
Community Benefits Agreement (CBA) campaigns and public discussions about community benefits are becoming the norm in deciding how large urban projects are built outside of formal public land use approvals. CBAs have revolutionized land use approvals for large, public-private economic development projects: now developers and coalitions representing low-income communities can settle their disputes before formal project approval. As a result, CBAs are now commonplace nationwide.
Legal scholarship, however, has failed to keep up with these important developments. This Article aims to do just that by examining how CBAs, when properly negotiated, lower transaction costs, enhance civic participation, and protect taxpayers. It argues that CBAs achieve all these outcomes well, and more efficiently than existing government processes. Indeed, this Article’s central argument is that to the extent that scholars have analyzed CBAs, their analyses have gone astray by either dismissing CBAs as harmful to communities or by focusing on the role of the state in negotiating what really should be a private contract between a coalition of community groups and a developer. It is a mistake to give the state’s role in CBAs primacy over the community coalition because the inclusion of government in the CBA bargaining process creates a host of constitutional protections for developers — namely that the community benefits must be connected to and proportional with the instant government approval.
This Article places focus back on CBAs as private contracts enforceable by inclusive and representative community coalitions. It presents a case study of a successful CBA negotiated for the development of the Kingsbridge National Ice Center in the Bronx. This Article proposes a framework for assessing the impact of CBAs in economic development — one that recognizes the nuanced role that states and municipalities play in the formation and enforcement of CBAs. The framework focuses on the extent to which CBAs (1) lower transaction costs by effectively resolving disputes among developers and community groups, (2) increase civic participation in public processes, (3) protect taxpayers, and (4) avoid government intervention and constitutional protections for developers. This Article concludes with recommendations for the appropriate, limited role of government in CBA negotiations.
July 7, 2016 in Home and Housing, Land Use, Landlord-Tenant, Real Estate Finance, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0)
Friday, July 1, 2016
Roark gives TED Talk on Development and Human Impact
Marc Roark (Savannah) recently gave a TED Talk on his article Human Impact Statements (Washburn Law Journal). Here's the abstract from SSRN:
When a city undertakes a development project, low income and homeless persons face risks of expulsion. Public and private developers often target low-income neighborhoods and public lands because those spaces are viewed as economically more attainable or available for development. Moreover, the legal system's preference to treat disputes as individual entitlement claims tends to relegate disputes to broad questions of entitlements rather than unpacking the impacts that property changes have on the vulnerable populations. Whether by gentrification or by enhancement of city infrastructure, developer decisions disrupt what are already unstable living environments by imposing increased costs of relocation. These changes also destabilize community relationships by separating individuals and families from their support networks, local transportation options, and local employment that they have come to rely on. In short, low-income and homeless persons find themselves even more destabilized when public and private development projects force their evacuation from where they live. This article argues that though development may be necessary, it should not be undertaken without more serious evaluation of the human impacts in relation to the space. Such evaluations should include the impact on communities, employment, education, and environment for impacted persons. Importantly, failure to take notice of these impacts continues to promote cycles of poverty that plague American cities.
Drawing on similarities in the environmental context, the article argues that a NEPA-like approach to human housing can offset externalities that homeless persons and those living in low-income housing are forced to internalize through environment changes. Amongst those impacts are the imbalance between the well-funded developer and low income populations; the view that low income properties can be classified as nuisance-type properties; and the tendency to only consider the highest best use of property as the rationale for development. The article concludes by offering model legislation that could be implemented to provide a NEPA like assessment to city development.
And here's his TED Talk. Good job, Marc!
July 1, 2016 in Home and Housing, Law Reform, Real Estate Transactions, Recent Scholarship | Permalink | Comments (0)
Wednesday, May 25, 2016
AALS Property Law Section Call-for-Papers!
May 25, 2016 in Articles, Conferences, Home and Housing, Recent Scholarship | Permalink | Comments (0)
Monday, May 16, 2016
New Report Released by Seattle Law Homeless Rights Project
(Photo Credit: Rawstory.com)
The good people over at the Homeless Rights Advocacy Project (housed at the Seattle University School of Law) recently produced a series of briefs on various legal and policy issues relating to homelessness. These reports will certainly be of interest to those teaching property (particularly with an emphasis on social policy and housing). Click here to access the briefs. Cribbing from the Project's release page:
The new reports examine the impacts of increasingly popular laws and policies that criminalize homelessness, such as prohibitions on living in vehicles, sweeps of tent encampments, pet ownership standards, and barriers to access at emergency shelters.
"Our research in 2015 started an important conversation, both locally and nationally, about treating people with compassion and fairness under the law," said Professor Sara Rankin, HRAP's faculty director. "These new reports take that conversation to the next level."
HRAP students conducted extensive legal research and analysis to complete the briefs, conducting interviews with a wide range of experts (including people experiencing homelessness); surveying municipal, state, and federal laws; and reviewing legal standards set by previous court decisions.
"We found that common homelessness myths are refuted by statistics, experience, case law, and common sense," said Justin Olson, a third-year law student. "These are the issues that people experiencing homelessness struggle with every day."
"The reaction by many cities to visible poverty has been to try to make it invisible using methods like homeless encampment sweeps," said Samir Junejo, also a third-year law student. "However, it's clear that we cannot sweep the problem of homelessness under a rug and hope it goes away."
Prejudice and unconstitutional discrimination against the visibly poor continues, Professor Rankin said. The new reports identify specific common problems and offer effective, legally sound alternatives.
Key findings of the 2016 reports:
- Nearly one-third of Washington cities surveyed ban people from living in their vehicles, even temporarily. Seattle has the highest number of ordinances against vehicle residency (20). Ordinances in Tacoma, Aberdeen, and Longview likely violate the U.S. Constitution.
- Business improvement districts can function as quasi-governmental agencies, regulating public space in ways that can unfairly target the visibly poor. The Metropolitan Improvement District in Seattle, for example, conducted 22,843 trespass and wake-up visits from 2014-15, a rate of roughly 62 interactions per day.
- The assumption that people experiencing homelessness can simply go to an emergency shelter is deeply flawed. Barriers to shelter access include lack of capacity, lack of accommodations for families, rules against unaccompanied youth, unsanitary or unsafe conditions, and sobriety requirements.
- "Sweeps" of homeless encampments are ineffective, traumatizing to residents, and potentially unconstitutional.
- Pets contribute to the emotional well-being of people experiencing homelessness, but pet owners face constant attention, harassment, and scrutiny by both passersby and law enforcement officers. Licensing requirements, anti-tethering laws, and standards of care laws unfairly target the visibly poor.
- Immigrants and refugees are particularly vulnerable to homelessness. Factors include economic challenges, language barriers, education barriers, housing instability, and legal status.
(Hat tip: Sara Rankin)
May 16, 2016 in Home and Housing, Law Reform, Mortgage Crisis, Teaching | Permalink | Comments (0)
Monday, May 9, 2016
RPTE Professors' Corner: Law and Public Art
Professors’ Corner's FREE monthly webinar featuring a panel of law professors, addressing topics of interest to practitioners of real estate and trusts/estates.
Sponsored by the ABA Real Property, Trust and Estate Law Section Legal Education and Uniform Laws Group
Tuesday, May 10, 2016
12:30 p.m. Eastern/11:30 a.m. Central/9:30 a.m. Pacific
A Lawyer’s Guide to the Law of Public Art
Tyler T. Ochoa, Professor of Law, High Tech Law Institute, Santa Clara University School of Law
Anthony L. François, Senior Staff Attorney, Pacific Legal Foundation, Sacramento, CA
Moderator: Christopher K. Odinet, Assistant Professor of Law, Southern University Law Center
The use of art in public spaces has captivated the minds of federal, state, and local policymakers in recent years, with some cities even requiring that private developers include public art in all new projects. Moreover, ownership of public art has drawn the attention of lawyers and advocates, particularly when it comes to competing property and management rights between the public, the artist, landowners, and interested third parties. This program begins with an overview of the intellectual property rights in connection with public art, explaining the differences between the rights in the intangible work and the rights in the physical object itself. The program continues with a case study of the City of Oakland's art requirement for private real estate developers, exploring the property and related legal issues that surround such regimes.
Register for this FREE webinar by clicking here.
May 9, 2016 in Home and Housing, Land Use, Law Reform, Miscellaneous, Real Estate Transactions, Recent Cases, Takings | Permalink | Comments (0)
Thursday, April 28, 2016
A Look at the Latest Mortgage Foreclosure Data: On the Rise
The Transactional Records Access Clearinghouse (TRAC), housed at Syracuse University, is a super helpful organization that I've used for a number of years now. The group issues TracReports that provide free monthly information on, among other things, civil litigation throughout the U.S. federal district courts. One item of interest that the group reports on deals with the number of new foreclosure filings each month. Check out this latest report:
The latest available data from the federal courts show that during March 2016 the government reported 505 new foreclosure civil filings. According to the case-by-case information analyzed by the Transactional Records Access Clearinghouse (TRAC), this number is up 12.7 percent over the previous month when the number of civil filings of this type totaled 448. The comparisons of the number of civil filings for foreclosure-related suits are based on case-by-case court records which were compiled and analyzed by TRAC (see Table 1).
When TRAC last reported on this matter, foreclosure lawsuits had declined from a peak reached in May and June of 2012 but seemed to have bottomed out in January 2014. Indeed, as can be seen in Figure 1, the monthly count remained relatively stable from that point until about a year ago. When foreclosure civil filings for March 2016 are compared with those of the same period in the previous year, their number was up by nearly one third, or 32.7 percent. Filings for March 2016 are still substantially lower than they were for the same period five years ago however. Overall, the data show that civil filings of this type are down 25.1 percent from levels reported in March 2011.
Top Ranked Judicial Districts
Relative to population, the volume of civil matters of this type filed in federal district courts during March 2016 was 1.6 per every million persons in the United States. One year ago the relative number of filings was 1.1. Understandably, there is great variation in the per capita number of foreclosure civil filings in each of the nation's ninety-four federal judicial districts. Table 2 ranks the ten districts with the greatest number of foreclosure lawsuits filed per one million population during March 2016.
The District of Nevada — with 15.9 civil filings as compared with 1.6 civil filings per one million people in the United States — was the most active through March 2016. The District of Nevada was ranked first a year ago, while it was ranked fourth five years ago.
The District of Rhode Island ranked second and also ranked second a year ago.
The Southern District of Illinois now ranks third.
Recent entries to the top 10 list were Vermont, the Northern District of Georgia (Atlanta) and the Western District of Kentucky (Louisville), which are ranked seventh, eighth and sixth, respectively.
The federal judicial district which showed the greatest growth in the rate of foreclosure civil filings compared to one year ago — up 700 percent — was the Western District of Kentucky. Compared to five years ago, the district with the largest growth — 239 percent — was the Northern District of Florida.
April 28, 2016 in Home and Housing, Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recording and Title Issues | Permalink | Comments (0)
Sunday, April 24, 2016
Odinet on the Fannie Mae/Freddie Mac Mortgage Contract
Chris Odinet (Southern) has posted The Unfinished Business of Dodd-Frank: Reforming the Mortgage Contract (SMU Law Review) on SSRN. Here's the abstract:
The standard residential mortgage contract is due for a reappraisal. The goals of Dodd-Frank and the CFPB are geared toward creating better stability in the residential mortgage market, in part, by mandating more robust underwriting. This is achieved chiefly through the ability-to-repay rules and the “qualified mortgage” safe harbor, which call for very conservative underwriting criteria to be applied to new mortgage loans. And lenders are whole-heartedly embracing these criteria in their loan originations — in the fourth quarter of 2015 over 98% of all new residential loans were qualified mortgages, thus resulting in a new wave of credit-worthy homeowners that are less likely than ever before to default. As a result of this and other factors, the standard form residential mortgage contract, with its harsh terms and overreaching provisions, should be reformed. This is necessary not only due to the fact that such terms should no longer be needed since borrowers are better financially positioned than in the past, but also because of a disturbing trend in the past few years where lenders and their third party contractors have abused the powers accorded to them by the mortgage contract — mostly through break-in style foreclosures. This Article argues for a reformation of the Fannie Mae/Freddie Mac standard residential mortgage contract and specifically singles out three common provisions that are ripe for modification or outright removal.
April 24, 2016 in Common Interest Communities, Home and Housing, Law & Economics, Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recent Cases, Recent Scholarship | Permalink | Comments (0)
Monday, February 8, 2016
Housing, Minority Communities, and Nuisance Law Abuse in NYC
(Photo Credit here)
ProPublica recently came out with a story detailing how NYPD officials are using nuisance law to kick individuals out of their homes, largely based on groundless criminal claims that are ultimately dismissed in court. In at least 74 cases of nuisance eviction that were studied by ProPublica in partnership with The Daily News, residents agreed to warrantless searches of their dwellings (sometimes on an on-going basis) in order to be allowed to return to their homes. More importantly, the vast majority of these nuisance actions are falling on minorities. Over an 18-month study period, 9/10 homes targeted for nuisance abatement were in minority communities. The article notes that ProPublica "identified the race of 215 of the 297 people who were barred from homes in nuisance abatement battles. Only five are white."
This story raises some very interesting legal issues for property law professors in teaching nuisance principles. At the turn of the 20th century, nuisance law began to yield to zoning and land use restrictions, which were viewed as superior methods for regulating competing, adjacent land uses. In fact, in many cases zoning rules can preclude or at least diminish the validity of nuisance claims. For an excellent historical article on the progression of zoning and nuisance law in the U.S., click here.
The way nuisance law is being wielded in NY raises a host of policy and legal issues, spanning from fair housing, criminal procedure, constitutional law, and beyond. Here's an excerpt from the ProPublica article:
The nuisance abatement law was created in the 1970’s to combat the sex industry in Times Square. Since then, its use has been vastly expanded, commonly targeting apartments and mom-and-pop bodegas even as the city’s crime rate has reached historic lows. The NYPD files upward of 1,000 such cases a year, nearly half of them against residences. . .
A man was prohibited from living in his family home and separated from his young daughter over gambling allegations that were dismissed in criminal court. A diabetic man said he was forced to sleep on subways and stoops for a month after being served with a nuisance abatement action over low-level drug charges that also never led to a conviction. Meanwhile, his elderly mother was left with no one to care for her. . .
The NYPD has embraced nuisance abatement actions as part of its controversial “Broken Windows” strategy of aggressively pursuing low-level offenders to prevent more serious ones. . . Sidney Baumgarten, the former city official who commissioned the drafting of the nuisance abatement law in the 1970s, said it is now being abused. He is alarmed by the sheer volume of cases, especially those aimed at households in which no one has been convicted of a crime.
“I think it’s wrong. I think it’s unconstitutional. I think it’s over-reaching,” he said. “They’re giving up their constitutional rights. And why? Because they’re afraid they’re going to be evicted from their home, with their children. There’s a certain amount of compulsion, and threat and coercion, by the very nature of the process they’re using.”
February 8, 2016 in Home and Housing, Land Use, Landlord-Tenant, Nuisance, Takings | Permalink | Comments (0)
Sunday, January 31, 2016
Housing in a Time of Expanding Crisis @USFLaw
This past Friday I had the pleasure of participating in a symposium on Housing for Vulnerable Populations and the Middle Class: Revisiting Housing Rights and Policies in a Time of Expanding Crisis, hosted by the wonderful faculty and law review folks at the University of San Francisco School of Law (and a special hat tip to our very gracious host, Tim Iglesias). The timing of this gathering couldn’t have been better. 2015 was a busy year in the housing world as SCOTUS upheld the validity of the disparate impact theory under the Fair Housing Act and HUD issued its significantly updated regulations on the obligation to affirmatively further fair housing. Moreover, cities and local governments are being looked to more than ever to solve major and seemingly intractable issues around housing, spurring a host of new policies, programs, and initiatives. The impressive participants of the USF symposium (coming from practice, government, non-profit, and the academy) explored these and related issues, including potential solutions to pressing problems of housing. Here’s an overview of what the panelists had to say:
What’s the matter with housing?
Rachel Bratt (Harvard Joint Center) kicked off the day by giving an overview of the nation’s current housing woes. She noted that the increase in income inequality over the last 20 years, combined with disinvestment and misinvestment of public resources, has been at the core of the affordable housing issue. She also described how political spending has played a role in further entrenching existing housing interests (in 2015, $234M was spend on real estate/finance lobbying, second only to healthcare). Bratt also explained the uneven distribution of federal housing benefits to the wealthy and the continued persistence of concentrated racial segregation. Rosie Tighe (Cleveland State-Urban Affairs) followed by describing the particular housing problems facing so-called “shrinking cities” (those places in an intense population-decline). She noted that the issue for these cities has more to do with poor quality affordable housing, rather than quantity. Tighe described the failure of low-income housing tax credits to meet the needs of these locales, and discussed the need for more scattered-site developments in these areas, while recognizing the financing and property management challenges inherent in such developments. Peter Dreier (Occidental-Poli Sci) rounded-out the discussion by pointing out that the current political discussions around the presidential election have focused much on wages and other issues, but not at all on housing. He described some reasons for the absence of attention to this important area, and drew the strong connection between household over-all health and housing.
What’s the matter with our current solutions?
Chris Odinet (Southern) started the discussion by describing some current efforts by states and local governments to deal with the fall-out from the housing crisis and on-going issues of blight and abandoned property. He then explained a number of recent federal court cases and acts taken by the FHFA that have significantly frustrated these efforts and also seriously call into question the ability of states and local governments to be innovative in dealing with issues of housing when federal programs are involved. Michael Allen (Relman, Dane, & Colfax) discussed the Fair Housing Act and the new “affirmatively furthering” regulations. He went into depth on contemporary disagreements between affordable housing advocates (who support more affordable units) and fair housing groups (who support integrated housing, and advocated for a way to reconcile their views under the auspices of these new HUD regulations. John Infrana (Suffolk) followed by describing the types of housing in and changing household composition of many cities. Despite these changing demographics, however, housing has not kept pace. In connection with this, Infranca pointed to the many possibilities that micro-housing and accessory-dwelling units (ADU) provide in the way of meeting this need. He noted that ADUs allow for greater economic diversity and can better align with demographic trends, but noted current legal barriers to them such as occupancy requirements and zoning restrictions. Marcia Rosen and Jessica Cassella (both of the National Housing Law Project)) concluded the panel by discussing the current state of the public housing program in the U.S., noting that there are currently 1.2M units (and ever-declining). She described HUD’s recent efforts to give public housing authorities (PHAs) a financing tool to rehab and rebuild these properties through the Rental Assistance Demonstration Program (RAD). This program essentially allows PHAs to convert their public housing stock into section 8 funded housing, and to combine section 8 with tax credits and other forms of debt and equity financing to fund the project. Cassella stated that although the program has great potential in terms of revamping old and decaying public housing properties, there are draw-backs in the way of transparency and long-term funding stability.
What are some new solutions?
For this final panel, John Emmeus Davis (Burlington Community Development Associates) gave an overview of community land trusts (CLTs)—currently over 280 exist nationwide—and their successes across the country. He noted that these types of entities are usually most successful in communities where there would otherwise be no affordable housing available. He noted the ability of CLTs to empower communities, protect tenants, and provide street-level land reform. Andrea Boyack (Washburn) followed by noting the current lack of rental stock compared to the growing demand across the country. She pointed out that in 2015 over half of the population of the U.S. is renting, with an annual demand of 300K new rental units per year. She followed by describing some current statistical trends in American homeownership and posited a number of ways in which cities and states in particular can seek to achieve solutions to these major housing problems. Lastly, Lisa Alexander (Wisconsin) discussed the the human right to housing, not through the lens of federal law, but rather through the ways in which localities across the country are building legal structures that provide many of the rights associated with a right to housing. She noted that market participation has been important to this process, and she used the “tiny homes for the homeless” movement and community control of vacant land as examples.
You can watch each of these presentations by clicking on the youtube video above. Participants, moderators, and USF Dean John Trasviña (former HUD assistant secretary for fair housing) are pictured below.
January 31, 2016 in Conferences, Home and Housing, Land Use, Landlord-Tenant, Law Reform, Mortgage Crisis, Real Estate Finance, Real Estate Transactions, Recording and Title Issues, Takings | Permalink | Comments (0)
Monday, January 18, 2016
Remembering the Fair Housing Struggle on MLK Day
It's fitting that on MLK Day we remember Dr. King's property law legacy. Last year topics related to fair housing and access to mortgage credit filled the headlines (from the Inclusive Communities case to continuing issues of access to credit for blacks, Hispanics, and other underrepresented groups). As we enter 2016, let us all be mindful of Dr. King's words:
"Let us therefore continue our triumphant march . . . until every ghetto or social and economic depression dissolves, and [we] live side by side in decent, safe, and sanitary housing."
Dr. Martin Luther King, Jr.
March 25, 1965
January 18, 2016 in Home and Housing, Mortgage Crisis | Permalink | Comments (0)
Friday, 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
December 21, 2012 in Home and Housing, Mortgage Crisis | Permalink | Comments (0) | TrackBack (0)