September ’19

The BAN Report: GSE Reform / What’s Going on with Brexit? / NYC Rent Control / LGBT Charter / America’s Largest Metros Shrinking-9/11/19

GSE Reform

Last Friday, the Treasury Department announced its plan for GSE reform.

The U.S. Department of the Treasury today released its plan to reform the housing finance system. The Treasury Housing Reform Plan (Plan) consists of a series of recommended legislative and administrative reforms that are designed to protect American taxpayers against future bailouts, preserve the 30-year fixed-rate mortgage, and help hardworking Americans fulfill their goal of buying a home.

The Plan includes nearly 50 recommended legislative and administrative reforms to define a limited role for the Federal Government in the housing finance system, enhance taxpayer protections against future bailouts, and promote competition in the housing finance system.

Stock in the GSEs tumbled after the plan was announced last Friday, as the plan was criticized for its lack of specificity.    On Friday evening, the US Court of Appeals ruled that the “new worth sweep” violated the law, sending Fannie’s stock up 43% on Monday, a ruling likely to be appealed to the Supreme Court.   On Tuesday, various government officials testified before the Senate Committee.

Senators mostly agreed that the current state of affairs when it comes to the Treasury Department’s backing of Fannie Mae and Freddie Mac was risky and untenable. Just how to unwind to two mortgage giants’ conservatorship clearly remains up for debate.

The bottom line – GSE reform is a politically difficult issue.    Republicans are pushing for reduced regulations to encourage new construction of affordable housing, while the Democrats are concerned that an overhaul will weaken affordable housing goals.  The Treasury plan does call for reducing the supply of multi-family lending by the GSEs, which currently stand and nearly 40%.

What’s Going on with Brexit?

A battle between the British government and Parliament intensified this week, creating massive uncertainty as to what is next with Brexit.

That divide between Prime Minister Boris Johnson’s government and Parliament was thrown into sharp relief in a dramatic week full of intrigue, votes and resignations.

In the last seven days, lawmakers seized control of parliamentary business, voted to block a no-deal Brexit and to force the prime minister to ask for a further delay to the departure (legislation that hastily became law on Monday) as well as twice rejecting Boris Johnson’s bid to bring about a snap election that could strengthen his hand.

Johnson was dealt further blows with key resignations from his government, including that of his own brother who said he was torn between “family loyalty and national interest.”

Now Parliament is suspended for five weeks and will reconvene just days before an EU Council summit on October 17 which is just over two weeks from the currently proposed Brexit departure date.

The BBC outlined a number of possibilities as to what happens next.     The Brexit deadline is October 31.   If the British government complies with the new law, and the EU agrees to a delay, then there may be adequate time to sort this out.   But, if the EU refuses to grant the extension, then it gets especially chaotic.   If the deadline passes without an agreement, then the UK would immediately exit the customs union and single market, thus potentially damaging the economy.

NYC Rent Control

New York City landlords are fighting new rent control laws by filing suit, hoping that the case eventually ends up in the Supreme Court.

Last month, housing advocates in New York celebrated sweeping new laws that established rent control permanently and extended tenant protections beyond just New York City, allowing cities throughout New York to opt into rent stabilization programs, which limit how much rent can be increased.

In New York City, those rent caps affect about 1 million apartments, and landlord groups say the regulations not only deprive them of income, but the rules also violate their constitutional rights.

The Community Housing Improvement Program, a trade group that represents 4,000 building owners, joined other landlord plaintiffs in the lawsuit arguing that rent stabilization laws “effect a physical taking of property in violation of the Constitution’s Takings Clause,” according to the suit, citing a clause of the Fifth Amendment.

According to an analysis conducted by the Real Estate Board of New York, the new rent laws will reduce NOI on rent stabilized buildings by up to 25% by year 5, putting up to 272,000 units at risk of financial distress.   This could cause an uptick in multi-family loan delinquencies, as investors for years have been purchasing multi-family properties, in order to convert units from rent-control to market rents.   Multi-family loans are often done at high leverages due to the perceive safety of the asset class.   So far, we have seen multi-family lenders reduce their appetite for new multi-family originations.   Assuming these laws take effect and are not overturned by the courts, this will undoubtedly stress on multi-family loan portfolios in New York City.

LGBT Charter

This week Michigan approved a charter for a new financial institution, a credit union appealing to LGBT customers.

Superbia Credit Union will offer products which are often outside the scope of a more traditional lender, such as loans for transgender people in the process of transitioning, says Myles Meyers, founder of New York-based Superbia Services Inc., which created the credit union.

“I can walk into a bank or credit union and apply for a loan or credit card or savings accounts and frankly, no problem,” said Meyers.   “If I walked in to the same institution with my husband, we can come across different responses and welcome.   And this is where it all starts to change for the community.”

The credit union is expected to open its doors in early 2020.

America’s Largest Metros Shrinking

After gaining population after the recession, the nation’s three largest MSAs are all losing population.

Is this the age of the great metropolitan exodus? In 2018, the New York City area lost more than 100,000 people to other cities and suburbs—that’s 277 people leaving every day. The Los Angeles and Chicago areas lost, respectively, 201 and 161 residents each day. It’s quite a change from the post–Great Recession period, when an urban renaissance was supposedly sweeping the country and all three metro areas were experiencing a population boomlet.

Also for many years now, America’s biggest metros have attracted high-income firms and young, highly educated workers. On the one hand, this phenomenon had led to the sparkling revitalization of many downtown areas, a golden age of fine dining, and an eerie urban selfsameness with green-plant-and-exposed-brick coffee shops and lunch-in-a-bowl restaurants. But on the other hand, this urban blossoming has also made many desirable downtown areas too expensive for non-rich people to start a family, forcing new parents to move out to the fringes of the metro, or leave entirely.

There’s little mystery about where people are heading, or why: They are mostly moving toward sun and some semblance of affordability. The major Texas metros—Houston, Dallas, San Antonio, and Austin—have collectively grown by more than 3 million since 2010. The most popular destinations for movers are now Phoenix, Dallas, and Las Vegas, which welcome more than 100,000 new people each year.

Why is this happening?     Immigration overall is declining, and the high cost of living is pushing people to relocate.   So, while the core of these cities appears to be booming (just count the number of cranes in Chicago, for example), its success is pushing others to relocate to cheaper and warmer places.

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