The impact of RTC dispositions on local housing and real estate markets

Abstract

This article examines the critical question of whether disposition activity of the Resolution Trust Corporation (RTC) will disrupt local real estate markets by driving values down and encouraging additional defaults. The question is approached by identifying key characteristics of local economies and real estate markets that could be associated with adverse market responses and then examining 12 individual metropolitan areas in this context. A survey of metropolitan areas with high RTC concentrations finds varying potential for adverse impact. Detailed case studies in three metropolitan areas—Dallas, Denver, and Oklahoma City—find the potential to vary widely by property type, quality level, and geographic location. By and large, commercial markets are expected to be less affected because of (1) the already depressed condition of most markets, (2) market segmentation that would insulate investment grade submarkets, (3) capitalization of expectations about disposition, and (4) political constraints on the rate of RTC activity. However, the geographic concentration of inventory that is combined with potential tipping dynamics associated with neighborhood change could render certain affordable housing markets vulnerable to adverse market responses. Policy recommendations to mitigate such impacts are suggested.     

RTC's affordable housing program: Reconciling competing goals

Abstract

Congress gave the Resolution Trust Corporation (RTC) authority to sell modestly valued housing at below‐market prices and with concessionary financing to enable lower income families to become homeowners and to expedite sales. Nonprofits and public agencies seeking to buy properties for occupancy by lower income people also qualified for these favorable terms. Setting a precedent for future housing policy initiatives, Congress conditioned access to this special program on the imposition of permanent low‐income use and affordability restrictions.

This paper considers whether the RTC can reconcile its mandate to maximize preservation of affordable housing with its duty to maximize return on assets and minimize negative impacts on local markets. This issue is addressed through a comparative review of property disposition programs administered by three other federal agencies. The author concludes that the RTC's three goals can be harmonized and suggests criteria for evaluating the RTC's performance in meeting its affordable housing mandate.     

Collusion in auctions for emission permits: An experimental analysis

Environmental markets have several institutional features that provide a new context for the use of auctions and that have not been studied previously. This paper reports on laboratory experiments testing three auction forms—uniform and discriminatory price sealed‐bid auctions and an ascending clock auction. We test the ability of subjects to tacitly or explicitly collude in order to maximize profits. Our main result is that the discriminatory and uniform price auctions produce greater revenues than the clock auction, both with and without explicit communication. The clock appears to facilitate successful collusion, both because of its sequential structure and because it allows bidders to focus on one dimension of cooperation (quantity) rather than two (price and quantity).© 2009 by the Association for Public Policy Analysis and Management.     

Declining foreclosure neighborhood effects over time

According to previous studies, residential foreclosures reduce the value of neighboring residential units and the initial negative effects decay over time and space. This study attempts to investigate the temporal path of the initial effects by following cohorts of single-family housing distressed sales (foreclosures and real estate owned sales) over time. A hedonic model estimation of single-family housing sales in Saint Louis County, Missouri, produced larger marginal impacts for new distressed sales in the year 2000 compared with the marginal impact of new distressed sales in 2007, that is, the marginal impact of new distressed sales is declining in at least one housing market. This result holds true for the distressed sale neighborhood impact, the effect of distress on the same unit's future sales price, and the discount on a distressed unit's current “liquidation sale” price.     

The legacy of the home owners’ loan corporation

Abstract

The appraisal practices of the Home Owners’ Loan Corporation (HOLC) and its Residential Security Maps are often cited as major contributors to later redlining and the perpetuation of segregation through unequal access to mortgage credit. This article focuses on whether there was a relationship between the HOLC's neighborhood assessments and mortgage outcomes.

Our results indicate that the agency was clearly instrumental in restructuring the home finance system and permitting far greater access to homeowner‐ship, but it is important to consider other factors in examining the HOLC's legacy in the reshaping of the mortgage market and the operation of the financial sector after the Great Depression. Specifically, the issue of increasing segregation in older cities in the late 20th century remains inextricably linked to both the shifting nature of real estate finance after the HOLC era and the demographic, economic, and residential changes affecting U.S. cities.     

Lessons Learned: Obtaining Value from Federal Asset Sales

If the government decides to sell assets, how can it obtain full value? Four case studies provide valuable lessons: (1) sale of the Elk Hills oil field by the U.S. Department of Energy, (2) sales of loans and property by the Resolution Trust Corporation (RTC) after the savings and loan debacle, (3) loan asset sales by the Small Business Administration (SBA), and (4) excess property sales by the Defense Reutilization and Management Service (DRMS). The federal government should create an office to assist agencies that seek to develop effective asset sales programs.     

The resolution trust corporation in historical perspective

Abstract

This paper contrasts the asset disposition challenges facing the Resolution Trust Corporation (RTC) with similar challenges that faced two earlier government agencies: the Home Owners Loan Corporation (HOLC) and the Federal Asset Disposition Association (FADA).

The paper first compares the quantity and diversity of RTC assets with the somewhat fewer but more uniform assets (one‐ to four‐family homes) sold by the HOLC. The FADA's challenge was quite modest compared with the RTC and the HOLC. The paper then contrasts current RTC policy issues with those that arose with the HOLC and the FADA. The paper does not, however, make specific policy recommendations.     

Policy directions concerning racial discrimination in U.S. housing markets

Abstract

This paper presents a catalog of 34 different proposed research and direct action policies aimed at futhering the two basic goals of public antidiscrimination policies: (1) ending unequal treatment of households in housing transactions because of their race or ethnicity, and (2) counteracting existing racial residential segregation by promoting stable racial integration. These 34 proposals have been derived from the many papers in this volume, plus a few suggestions by the author.

Each proposal is evaluated against five specific criteria of desirability: potential effectiveness, government costs, private‐sector costs, ease of implementation, and political feasibility. A final overall evaluation of each is made, and all policies are divided into three priority categories: high, moderate, and low. Many recommended policies are synergistic. This whole effort should have very high overall priority in American social policy.     

Single-Family Housing Market Segmentation,Post-Foreclosure Resale Duration,and Neighborhood Attributes

During the recent economic recession, the foreclosure crisis drew vast attention from scholars and policymakers. Numerous studies focused on factors resulting in foreclosures, the impact of foreclosures, and the relationship between neighborhood attributes and foreclosures. Fewer studies investigated the foreclosure resale mechanism by focusing on buyer characteristics and the market duration of foreclosed properties. This research uses foreclosed residential properties in Broward County, Florida, between 2007 and 2011 to explore how market segmentation by assessed value relates to time on market of foreclosed properties. This research finds that extremely low-value properties and very high-value properties generally take longer to sell. Mid-value properties take a shorter time to sell. After controlling for housing attributes and market segmentation, certain neighborhood characteristics, such as lower percentage black population, lower percentage Hispanic population, lower educational attainment, and higher homeownership rate, are associated with increased likelihood of a real estate owned property being sold. These results will help policymakers determine better strategies for the foreclosure resale process. Special attention should focus on properties taking longer to sell or not able to sell during certain time frames to alleviate the negative effects of these properties on neighborhoods.     

Turmoil among depository institutions: Implications for the U.S. real estate market

Abstract

Since the early 1980s, turmoil unlike any since the Great Depression has caused such unprecedented failures among federally insured banks and savings and loans (S & Ls) that the insurance funds for these institutions were driven into insolvency. The traditional commitment of S & Ls and the expanding commitment of banks to housing finance make it important to examine the implications of these record failures for the availability of owner‐occupied housing loans. The substantial commitment of banks and the more recent commitment of S & Ls to commercial real estate also necessitate an examination of the implications of depository failures on the commercial real estate market. This paper therefore will examine selected data from the past decade and assess the implications of the recent turmoil within the federally insured depository industry for the financing of U.S. real estate.     

Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer

Laboratory methods are used to evaluate the effects of institutional arrangements and rent-defending activity on rent-seeking auction outcomes. In part, Nash equilibrium predictions are a useful behavioral guide: As predicted, more rents are dissipated in perfectly-discriminating auctions, where the high-bidder wins, than in lotteries, where relative bids determine the chance of winning. Also as predicted, the introduction of a rent-defending buyer reduces social costs. Nevertheless, the social costs of rent-seeking consistently exceed predicted levels. Moreover, individual bidding, especially by buyers, deviates markedly from Nash predictions.     

Estimating the local economic impacts of HOPE VI

This study identifies and measures the demonstrable changes to local political economies that can be reasonably attributed to HOPE VI redevelopments. It examines the extent to which the developments have contributed to increases in surrounding property values, decreases in serious crimes, additional regional economic activity, and changes in local tax revenues. It weighs these benefits against the public costs associated with the program.

Despite the expenses associated with HOPE VI, the redevelopments generate significant net social welfare benefits. In most cases, the collective tenant and neighborhood benefits exceed the net public costs of redevelopment. In addition, the redevelopments spark additional regional economic activity and contribute to an increase in the local tax base. HOPE VI's effects are far from uniform, however, and depend on the location of the redeveloped property, the characteristics of project funding, the strength of the local real estate market, and the presence of other development pressures.     

What Causes the Death of Public Sector Organizations? Understanding Structural Changes and Continuities in Korean Quangos

ABSTRACT

This study explores the determinants of structural changes and continuities of public sector organizations in Korea using longitudinal data. Focusing on the political costs of termination, we examine external and internal factors that are closely linked to the political incentives to terminate quangos. This article primarily addresses the following question: What determines the termination of public sector organizations? The model suggests that survivability of public sector organizations largely depends on external factors such as political, institutional, and social changes. Specifically, quangos are more likely to be terminated during political turnovers and the period when presidential power is maximized. Termination seems easier for politicians when social demands are mature enough to blow away political burdens and cynicism. Although organizations with fewer resources are more vulnerable to external pressures and shocks, none of the quango-specific factors significantly affect the survivability of Korean quangos.     

Outsourcing: Uncovering the Complexity of the Decision

ABSTRACT

Outsourcing is a phenomenon that, on the surface, is used to reduce costs and enable an organization to focus on its core competencies. In researching into outsourcing and whether this assumption holds true, this article focuses on public health organizations where outsourcing has been applied to both clinical and non-clinical services. In the cases observed, public sector managers assumed contracting would lower production costs for peripheral services whose outcomes could be easily measured and monitored. Clinical services were not usually outsourced because these core services were more difficult to measure. In implementing contracts for non-core services, decision makers' political and ideological objectives overshadowed management imperatives that are necessary for effective contract design and implementation, leading to poor service outcomes and little cost savings. Choosing the “right” services to contract does guarantee good outcomes such as lower costs and improved labor flexibility, but it is necessary to understand that optimum outcomes are only achievable if the service is clearly non-core, has measurable outcomes, and has low transaction frequency. It is also clear that outsourcing will not remove management problems; it simply adds another layer of complexity on top of managing staff who still provide the service.     

The Janus Face of Europeanisation: Explaining Cross-Sectoral Differences in Public Utilities

Although policymakers have sought to liberalise network-based utilities, a more detailed look at privatisation pathways reveals remarkable sector-specific differences. This article examines why efforts to privatise public utilities have differed so greatly in the telecommunications, postal, and railway sectors. By estimating probit models, it is demonstrated that firm characteristics and sector-specific EU integration account for cross-sectoral differences in privatisation. More specifically, governments dispose of the most efficient firms first to maximise revenues from privatisation sales with low political costs. Regulations at the European level pushed governments to privatise their national postal providers, while privatisation in the telecommunications sector is a global trend. In the railway sector, exceptional clauses and regulations have decelerated privatisation.     

When is buying votes wrong?

In modern liberal democracies, offering individual voters in political elections money for their votes is wrong and illegal; offering groups of voters particular benefits in exchange for their votes is constitutionally protected. Voters do not sell their votes; instead, voters assign their votes to legislative representatives who sell or trade for them.Examining the role of coalition costs in political and corporate elections, we argue that these rules protect voters from themselves, from being compelled to approve proposals that leave them individually worse off. Simultaneously, these rules allow voters to seek particular benefits through collective organization and legislative representation.     

Auctions or grandfathering: the political economy of tradable emission permits

Despite the prevalence of grandfathered permits, we still observe that a hybrid policy, in which a fraction of initial emission permits is distributed through auctions, is adopted in some cases. We also observe that some polluting industries support auctioned permits, and that most environmental groups support grandfathered permits. This paper attempts to explain these phenomena from the perspective of political economy, and investigates the conditions under which grandfathering, auctions, or a hybrid instrument will be the equilibrium policy. By constructing a two-stage lobbying game, in which the type of policy instrument (auction, grandfathering, or a hybrid instrument) is determined in the first stage, and then the number of permits is decided in the second stage, we highlight the strategic interaction of the lobbying activities between the two stages in explaining the behavior of the lobbying groups.     

Bankruptcy During Foreclosure: Home Preservation Through Chapters 7 and 13

Filing for bankruptcy is the primary legal mechanism by which homeowners in foreclosure can exert control over ownership of their home, yet little is known about the interplay among bankruptcy types, mortgage servicers, state foreclosure laws, and home foreclosure auctions. We analyze 4,280 lower-income homeowners in the United States who were more than 90 days late paying their 30-year fixed-rate mortgages. Two dozen organizations serviced these mortgages and initiated foreclosure between 2003 and 2012. We identify wide variation between mortgage servicers in their likelihood of bringing a property to auction. We also show that when homeowners in foreclosure filed for bankruptcy, foreclosure auctions were 70% less likely. Chapters 7 and 13 filings both reduce the hazard of auction, but the effect is 5 times greater for Chapter 13, which contains enhanced tools to preserve homeownership. Bankruptcy's effects are strongest in states that permit power-of-sale foreclosure or withdraw homeowners' right-of-redemption at the time of auction.     

Beginnings of Real Estate Brokerage in Moscow

Abstract

This article describes the private housing transactions that are emerging as a large portion of Moscow's housing stock is transferred into private ownership and becomes available for sale or rent. An industry of real estate brokers is developing to facilitate those transactions. The structure of this industry is evolving and, so far, reflects the fragmented nature of the housing market it serves. No industrywide practices or standards have been developed.

It is not clear whether the U.S. model for maximizing information available to real estate brokers and their clients—the multiple listing service based on exclusive listing contracts—will be followed in Moscow, or even whether this is the model best suited to the Russian housing market. Furthermore, the nature and timing of government regulation of real estate brokerage will require careful design to avoid restricting competition and limiting the efficient pricing and housing mobility that can result from a well‐functioning real estate market.     

Hypotheses on the Italian administrative system

Why is the private economy in Italy thriving, while the public sector is so poor? This article spells out the general characteristics of the structures and procedures of the public sector and outlines the criteria on which to judge its efficiency in order to proceed to the presentation of four explanatory hypotheses.

The first hypothesis is an economic one: the private sector may have exploited the public sector, which bears costs that are to the direct advantage of the private economy. The second hypothesis is social: the public sector is poor because it is a means of taking on labour from the underdeveloped South, becoming in this way a social buffer. The third hypothesis is political: the administration is used to secure political support for the ruling parties (and in particular, for the Christian Democratic Party). The fourth hypothesis is historical: the administration is badly run because, as a result of the Fascist experience, Italians fear any form of ‘Bonapartism’: and it is badly organised because the public sector's take‐off has been delayed and the pace imposed on its development has been excessive. In the last section some remedies are suggested and some conclusions are outlined.