Published on: July 29, 2013
GSE REFORM. The bipartisan proposal Sens. Bob Corker (R-TN) and Mark Warner (D-VA) have crafted for reforming the mortgage finance market continues to win plaudits from fellow lawmakers, regulators and industry executive. A separate proposal that Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, has introduced in that body, is also attracting attention, much of it negative, from housing industry executives and consumers. Notwithstanding the upcoming debate, which is likely to be heated in both the House and the Senate, the consensus is that reform remains a distant prospect. In a note to clients expressing that view, Wells Fargo structured products analysts wrote: “We continue to believe it would be at least 5 to 7 years before any significant change to Fannie and Freddie will occur, given the complexity, size of their footprint and fragile nature of mortgage finance.”
BUYING LAND. Demand for rental housing is pushing land costs skyward. Developers nationally purchased more than $3.6 billion in vacant land in the first quarter of 2013 – the largest first quarter total since the housing market tanked in 2006.
DUBIOUS DISTINCTION. Congress is poised to break its own record this term by accomplishing even less than it did in the previous two terms.
EMINENTLY UNDESIRABLE. Rep. Jeb Hensarling (R-TX), chair of the House Financial Services Committee, has reintroduced legislation proposed last year that would bar federal funding in any community that uses its eminent domain authority to seize and restructure underwater mortgages in order to help struggling homeowners avoid foreclosure.
MORE THAN HALFWAY HOME. Trulia’s Housing Barometer, charting the housing recovery, puts it 61 percent of the way toward “normal”, using construction starts, existing home sales and delinquency and foreclosure rates as the benchmarks. A separate report by Home.com finds 14 of the top 100 housing markets now “fully recovered.”
NOT SO FAST. Evidence of the housing recovery is widespread and growing (see above), “but long-term vacancies are at elevated levels in a number of places, millions of owners are still struggling to make their mortgage payments, and credit conditions for homebuyers remain extremely tight. It will take time for these problems to subside,” Harvard’s Joint Center for Housing Studies, warns in its annual report on The State of the Nation’s Housing.
THE BATTLE CONTINUES. In a legal battle that almost rivals Jarndyce v. Jarndyce (the endless litigation depicted in Dickens’ Bleak House), paint manufacturers are squaring off against a group of municipal and county officials in California seeking to make the manufacturers pay for the cost of removing lead-based paint from several million dwellings throughout the state.
The cities of Oakland and San Diego, along with a long list of counties including Los Angeles, San Francisco, San Mateo, and Monterey, have joined Santa Clara County, the lead plaintiff in a suit that was initiated 13 years ago. The government officials are arguing that the paint manufacturers knowingly distributed a substance (lead-based paint) they knew to be toxic, in violation of the state’s public nuisance laws, and so should assume the cost (about $1 billion) of de-leading approximately 5 million homes in 10 counties.
The named defendants ─ Sherwin-Williams Company, NL Industries, ConAgra Grocery Products, DuPont and Atlantic Richfield Company ― contend that successful public education and public health initiatives have negated lead paint as a health hazard, eliminating the basis for claiming it to be a public nuisance today.
“Plaintiffs cannot prove that…lead in paint now exists in identified locations in a condition constituting a substantial and unreasonable interference with a public right. This is the well-established test for public nuisance,” a brief submitted by the manufacturers’ attorneys argues.
The California case (The People of California v. Atlantic Richfield Company et al.) is virtually identical to legal battles that have been waged over the past decade in several other states, including Rhode Island, which was the first state to go after the paint manufacturers and the only one to win a judgment against them.
A jury in that case agreed that the sale of lead-based paint created a “public nuisance” for which the companies should pay damages estimated at more than $3 billion. But about five years ago, the Rhode Island Supreme Court overturned that decision, ruling unanimously that “public nuisance law simply does not provide a remedy for this harm.” The manufacturers in the California case are no doubt hoping the court there will reach a similar conclusion.
“The historical record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a federal backstop.” ― Jerry Howard, CEO of the National Association of Home Builder, expressing concern about a Republican proposal that would eliminate Fannie Mae and Freddie Mac.