MyNewPlace Blog

There was big news for the housing industry from Capitol Hill this week, as the Senate Banking Committee passed “The Federal Housing Finance Regulatory Reform Act of 2008" by a vote of 19-2.

We have been following the development of this legislation in our past Apartment Rental News Weekly Roundups. Tracking housing legislation during an election year is as confusing a task as following a David Lynch movie. Thanks are in order for Matt Carter over at Inman News, for all his help.

Housing legislation had stalled after the White House had threatened to veto a similar bill proposed in the House, H.R. 5380. That bill was subsequently rolled into H.R. 3221, which closely resembles the Senate bill (now under discussion) that made it out of committee earlier this week.

Republicans balked at the idea of a making $300 billion in at-risk mortgages eligible for guarantee by the Federal Housing Authority, citing concerns over taxpayers absorbing the cost of what some have called a bailout of irresponsible lenders and homeowners.

To get Republicans on board, Senators Chris Dodd (D-CT) and Richard Shelby (R-AL) modeled Senate legislation after the recently passed House Resolution 3221, which not only includes an expansion of FHA guaranteed loans proposed in HR 5380, but also introduces stronger regulation of Freddie Mac and Fannie Mae, which Republicans had been calling for since an accounting scandal five years ago.

The real sticking point for Senate Republicans and the White House, however, was the source of funding for the plan, estimated by Dodd to cost around $500 million (the Congressional Budget Office puts the price tag at $1.7 billion.) The deal was clinched upon the agreement that the cost will be paid for by a tax imposed on Fannie Mae and Freddie Mac that was originally earmarked for the creation of an affordable housing trust fund.

Limiting Foreclosures

• Lenders who want to participate must write down their loans to a 30 year mortgage valued at no more than 90% of the appraised value of the home and pay an initial fee to participate.
• Borrowers are required to have a mortgage debt-to-income ratio of 35% and will pay an annual fee to their new guarantor, the FHA.
• Fannie Mae and Freddie Mac will fund the costs by contributing 1.2 basis points on all outstanding loans.

For some great details on how an eligible homeowner would navigate through and benefit from the program, check out this article from CNN Money.

Questions Still Loom

Questions regarding the motivation, efficacy and wisdom of a federal housing rescue program have been raised, but are unlikely to derail legislation due to the widespread news coverage of the housing crisis and political expediency of dealing with such an issue in a huge election year.

AngryRenter.com has been a vocal opponent of what they allege to be a bailout for homeowners and lenders and has leveraged an ethical charge against the bill. Why should taxpayers help to bail out a reckless housing industry?

Other voices, mostly from the Wall Street Journal's Opinion pages, have called into question the prudence of government involvement. If the housing crisis was the result of an overvaluation bubble, is a stimulus necessary?

The subprime mortgage crisis had, at one time threatened to engulf the financial services industry because it was unclear as to who actually owned which mortgages; now that the stability of the financial system is intact, is there anything wrong with a 20%-off housing sale?

Lastly, upon a closer examination of the House version, funds originally designated to for a low income housing program, (from the 1.2 basis point fee on Fannie and Freddie) would be diverted to pay for the new measure. Moreover, these funds were aimed at helping folks in Louisiana and Mississippi who lost their homes in Hurricanes Katrina and Rita. Perhaps a reexamination of what actually constitutes a crisis is in order.

Implications for Apartment Rental Market

The rescue plan should help the housing industry as a whole, says National Home Builder CEO Jerry Howard, as developers should find it easier to find capital for new projects. Corrobarating this sentiment is BusinessWeek, whose article identifies how the housing bust has adversely affected the rental market.

We'll be keeping our eyes on this piece of legislation over the next few weeks.

Let us know what you think about the new Housing plan from Congress.

The front page of this morning's Wall Street Journal hosts an article about a political battle over how the government should address the collapse of the subprime mortgage market. The article, “Mortgage Bailout Infuriates Tenants (And Steve Forbes)," focuses on identifying the sponsors of AngryRenter.com, a site designed to mobilize renters against a federal bailout for lenders and homeowners who have been affected by the rampant foreclosures.

The article refers to AngryRenter.com as an ‘AstroTurf' political movement. A play on the political term ‘grass-roots' which refers to the organic, bottom-up organizing brand of political action, an AstroTurf movement seeks to reap the benefits from being perceived as a grass-roots campaign, but is created or backed by Washington power brokers.

AngryRenter.com is indeed a project of FreedomWorks, “a grassroots advocacy organization founded in 1984 to fight for lower taxes, less government, and more freedom," led by former House Majority leader Dick Armey and publishing magnate Steve Forbes.

Does the fact that these wealthy homeowners AngryRenter.com delegitimize the sites efforts to mobilize renters against a federal bailout for lenders and homeowners?

Rich Toscano, who was quoted in the article as a renter and creator of Professor Piggington's Econo-Almanac for the Landed Poor, feels the importance of the message is of greater importance than who started the movement.

Indeed, it seems that getting people informed and involved in political action, especially when it is often very difficult for citizens to be aware of what goes on in Washington, is a noble cause, regardless of sponsor.

Though the origin and backers of AngryRenter.com surely play a significant role, shouldn't the Wall Street Journal also find it expedient to provide summaries and implications of H.R. 5830 and S. 2636, the bills in question?

What do you think?

Are Steve Forbes and the folks at FreedomWorks legitimate advocates for renters and renting issues? Are there more truly grass-roots renters-rights groups that we should know about and highlight?

For more information on federal legislation pertaining to housing market and the multifamily industry, be sure to check out our Apartment Rental News Weekly Roundups.

On the next statewide California ballot, the June 3^rd legislative primaries, Propositions 98 and 99 will be battling to set new regulations on eminent domain. Since the landmark eminent domain case, Kelo v. the City of New London was decided by the Supreme Court in 2005, states have rushed to clarify the circumstances under which the government may condemn and seize private property for public use.

Although eminent domain is an important issue to all property owners, one of the proposed initiatives, Proposition 98, is of especial interest to apartment owners and renters as it includes language that would phase out rent control in California.

Currently, in California there are 12 cities that have rent control ordinances. West Hollywood, Santa Monica, Berkeley, East Palo Alto and Cotati have 'strong rent-control laws,' which establish permanently regulated rent control regardless of the turnover of tenants. This is different from San Francisco's rent stabilization, which sets caps on increases once a tenant has moved in.

Rent control is a contentious issue. Cities whose populations are comprised mainly of renters cite the need to maintain a stable rental market and protect low income families from tumultuous rental markets. The economy as a whole would be vulnerable if renters from each demographic were not able to contribute to a locality.

Arguments against rent control maintain that regulations are counterproductive to their own goals and end up creating housing shortages and reducing quality. When rents are artificially low for long term tenants, landlords must charge inflated prices for newly vacated apartments to make up for lost revenue from rent controlled apartments.

Another adverse effect of rent control is that nullifies one of the main advantages of renting, mobility. The Section 8 Housing Program, which grants housing vouchers, is commonly referred to as being a widely effective affordable housing program. Cities that impose rent control may in fact be making it more difficult for tenants to find affordable apartments for rent.

The Public Policy Institute of California polled likely voters and found that 53 percent believe rent control is a good thing and 39 percent think it is bad.

How do you feel about rent control? Have you benefited from rent control policies?

Smoking in rental apartments is a controversial topic. On one hand, it seems reasonable that one should be free to do all legal activities within their own home, rented or not. On the other hand, when does this right to privacy infringe upon the rights of others?

The State of California may soon be intervening on the side of non-smokers.

Senate Bill 1598, authored by Senator Alex Padilla (D-San Fernando Valley) and passed by the Senate Judiciary Committee on April 29^th, would provide legal protection for apartment owners who want to ban smoking in their apartment complexes.

The bill does not seek an outright ban on smoking in apartments, an action that some anti-smoking groups have pushed for, who claim that the bill does not change the status quo. This middle of the road approach protects private apartment owners who want to ban smoking in their apartments from lawsuits.

Apartment owners, however, already implicitly have the right to enact regulations and prohibitions in their apartment buildings, including any those pertaining to smoking. So, what does the bill actually accomplish?

All court cases that we have seen have involved non-smokers filing suit to force apartment owners to take action to prevent second hand smoke under the Fair Housing Act, or suits between neighbors not apartment owners facing legal recourse on the grounds of rights to privacy or a ‘right to smoke.'

Many apartment owners have already ‘cleared the air;' by prohibiting smoking in their apartment buildings, they can command higher rents as well as slow depreciation and mitigate the risk of fires.

The law may have the effect of creating publicity about the benefits that apartment owners may reap by going smoke free; smokers that rent apartments in buildings that change policies will face the decision of whether to move out or to take it outside.

Be on the lookout for tips in our apartment guide on the topic of settling disputes between apartment neighbors.

Have renters had problems with a neighbor who smokes? Would you pay more to live in a non-smoking apartment building?

Should MyNewPlace add a Smoke Free search filter?

As an addendum to our weekly Apartment Rental News Roundup, we wanted to give special focus to a current court case that may affect apartment rentals.

We saw an article over at apartmentmarketingblog.com that should be of significant interest to apartment owners, builders and architects. If the 9^th U.S. Circuit Court of Appeals sides with the plaintiffs, apartment owners, builders and architects would be held liable for an indefinite amount of time for violations of the Fair Housing Act.

The facts of the case are as follows:

A disabled “tester" from the Disabled Rights Action Committee (DRAC) found that a North Las Vegas apartment complex built in 1997 lacked some requirements, such as curb cut-outs, that are mandated by the Fair Housing Act. DRAC thereupon sued the developers, architect and all current and past owners for faulty design and sought retrofits and monetary damages.

The case was originally thrown out by a District Court over the matter now being reviewed by the 9^th Circuit, namely the interpretation of the statute of limitations. At issue is whether the statute of limitations, (2 years under the Fair Housing Act) goes into effect when the building is first occupied or when the violation is first discovered.

DRAC maintains that the statute of limitations should go into effect when the faulty design is discovered, whereas the defendants claim that if that precedent were to take effect, then apartment builders, owners and architects would be held liable for their properties for an indefinite amount of time, even if they are not the current owner.

The case is expected to proceed to the U.S. Supreme Court, notwithstanding the decision of the 9^th Circuit, whose en banc hearing on March 25^th was described my lawyers as acrimonious.

The town of Oxnard, California has voted to prohibit smoking in senior public housing complexes in the downtown area. The measure passed unanimously at a city council meeting on March 25^th. Oxnard's new legislation makes it the third town in California to restrict smoking in multifamily apartment rentals.

Calabasas and Belmont had both previously passed local ordinances in response to a growing numbers of complaints from renters who were affected by secondhand smoke.

These towns have taken bold stands on the issue of smoking in apartments. As we related in an earlier post on smoke free apartments, the issue can be quite contentious. Local ordinances generally draw the ire of civil liberty groups over the protection of an individual's right to privacy.

The matter has been quite difficult to resolve in the multifamily industry; unless the apartment is delegated by its owners as smoke free, the issue often is left to be hashed out between neighbors.

At least in once instance, a neighborly dispute about smoking has led to a negligence lawsuit. Galila Huff, of New York City was sued for endangering the health of her neighbors and their 4 year old son.

The lawsuit was settled out of court after Aerus, a manufacturer of home cleaning products, offered to install air filters and purifiers in both apartments.

If not for the intervention of the company, however, it is difficult to predict how this matter would have played out in court. How can a balance be struck between the right to privacy, especially in one's home and his or her effect on their community?

Is this issue best left to be settled amongst neighbors or should local municipalities start getting involved?