Monday Morning Cup of Coffee: Former CFPB head eyes White House?
The bubble’s last days; New HUD rule the “Common Core” of housing
Monday Morning Cup of Coffee takes a look at news crossing HousingWire's weekend desk, with more coverage to come on bigger issues.
Is the day of reckoning coming for foreclosure law firms?
Every week or so, there seems to be new news of law firms getting into hot water.
Recently, one of Colorado’s largest foreclosure law firms, Aronowitz & Mecklenburg, confirmed it will pay $10 million to settle a price-gouging complaint brought against it by the state's attorney general. The other law firm named in AG John Suthers' complaint, The Castle Law Group, is reportedly going to fight the charges. (Read the complaint here.)
Now Lawyers Weekly reports that, in Massachusetts, Connolly, Geaney, Ablitt & Willard, which employed approximately 150 people earlier this year and, at one point, billed up to $100,000 a day, is facing some serious troubles. The company is being evicted from its offices and it recently came to light they were relying on a separate entity to even make payroll.
But it may not even end there. According to the source that brought the Ablitt closing to the attention of HousingWire, they are "also hearing from sources that the NY AG is digging into some of the major firms in that state, as well."
Is the architect of the Consumer Financial Protection Bureau looking to run for President in 2016?
Elizabeth Warren said she has no such intentions, but her recent speeches contain more and more of the fiery, anti-financial abuse rhetoric she used during her days building the CFPB.
An article in the Tidewater Review sums up the latest activity, during a speech she gave recently in Detroit — far away from her Mass. senatorial seat.
"As she began looking for ways to prevent banks from 'cheating' families seeking mortgages and credit cards, she said, experts told her she would lose, and the banks spent more than a million a day for more than year lobbying against financial reforms,” she said.
Warren noted that in its third year, the Consumer Financial Protection Bureau has forced financial institutions to return more than $4 billion to consumers. She argued that the bureau was evidence of how democracy can work in the 21st century."
The housing recovery that began in 2012 came on as fast and as artificially driven as the housing crash that preceded it.
And it, too, is over. Have doubts?
Fortune Magazine of all places has four charts to ruin your Monday morning cup of coffee.
They look at price-to-rent ratios.
“Price-to-rent ratios are near their long-term average…But the fact that rent rates didn’t rise with purchase prices should have been a warning that the underlying demand for shelter hadn’t increased as much as the demand for owning property as an asset.”
They look at homeownership rates, which are down but still near historic averages, and they hope (vainly) that policymakers in Washington have learned their lesson about pushing homeownership on people who aren't financially responsible, just to artificially push the ownership rate higher.
“But giving out credit to those who didn’t have the wherewithal to afford a home was one factor that led to the failure of the subprime mortgage market. It’s likely, now that policy makers are more aware of the dangers of pushing homeownership, that those rates will remain in the 64% or 65% historical average.”
(There’s a certain naiveté here bordering on precious. Washington learning a lesson?)
Fortune then looks at how the ratio of housing wealth to GDP has normalized, and how cash investors, so big in 2013, are nowhere near as active now.
Fortune concludes that while home prices will continue to rise at a slow and steady pace, the days of year-over-year double digit price gains are likely over, and for generalists covering the housing space, it’s worth a look.
With the immigration crisis heating up with tens of thousands of illegal Central American aliens flooding the border, some are worried that a proposed housing rule will be used to force communities to house the illegal immigrants against their will.
The U.S. Department of Housing and Urban Development's proposed “Affirmatively Furthering Fair Housing Rule” which was introduced on July 19, 2013, and will take effect in October, will increase Washington’s power over local zoning laws in every city and town that accepts federal block grants through HUD.
It’s being called by critics the “Common Core of local zoning” since the rule will put enforcement power into the hands of HUD. Some say the new rule will be used by HUD to aggressively absorb the nation’s swelling population of illegal immigrants.
U.S. Rep. Paul Gosar, R-Arizona, defined the proposed rule in stark terms, saying it would lead to racial quotas and amounts to an “assault on the suburbs.”
He authored an amendment passed in the House of Representatives last month that would prohibit HUD from implementing the rule. The amendment was successfully attached to the Transportation, HUD and Related Agencies Appropriations Act for the 2015 fiscal year. A version of the bill has now been introduced in the Senate by Sen. Mike Lee, R-Utah.
According to HUD’s own website, block grant recipients under the rule would be “required to sign a certification to affirmatively further fair housing.” As part of the city’s consolidated plan, these recipients are required to undertake fair housing planning, which consists of “an Analysis of Impediments (AI) to fair housing choice” as well as “actions to cover the effects of the identified impediments” and “maintenance of records to support the affirmatively furthering fair housing certification.”
We are in the bubble’s last days, and another reckoning is coming, David Stockman warns. The central banks – the one here and the others abroad – have been propping up a weak marketplace with zero interest rate policy for 68 months now, and the bill for the impact of the thumb on the scale is coming due.
So says David Stockman:
“The central banks of the world are massively and insouciantly pursuing financial instability…ZIRP fuels endless carry trades and the harvesting of every manner of profit spread between negligible ‘funding’ costs and positive yields and returns on a wide spectrum of risk assets… ZIRP systematically dismantles the market’s natural stability mechanisms,” Stockman writes. "One natural deterrent to excessive financial gambling, for example, is the cost of hedging a speculator’s portfolio of ‘risk assets’ against a broad market plunge. In an honest market environment, hedging costs consume a high share of profits, thereby sharply limiting risk appetites and the amount of capital attracted to speculative trading.”
And that effect trickles into the housing market, too.
DTIs can sink a mortgage application faster than almost anything. The LA Times has a story on what most often prompts lenders to say no.
“The results provide practical insights to anyone who is thinking about applying for a mortgage. Tops on the list? Surprise, it's not your credit scores. It's not how much you've got for a down payment or what's in the bank. It's your ‘DTIs’ — your debt-to-income ratios. Nearly 60% of risk managers in the FICO study rated excessive DTIs their No. 1 concern factor — five times the percentage who picked the next biggest turnoff.”
“Supply is about to increase significantly. The supply of existing homes is already increasing and the number of newly constructed homes is about to increase."
One way to interpret that statement — we’re in the depths of the usual summer buying rush, and these weak sales, slack demand and growing supply are as good as it’s going to get.
Happy Monday, right?
This week, we’ll see FHFA’s home price index and the existing home sales report on Tuesday, and the new home sales report on Thursday. The tale of the tape this week should put a definitive ruling on the pending verdict of housing’s performance for this year.
The FDIC reported that one bank, Eastside Commercial Bank in Conyers, Georgia was closed in the week ending July 18 after it was acquired by Community & Southern Bank.