Tag Archives: Cox School of Business

Reiss on FHA Mortgages for First Timers

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MainStreet quoted me in FHA Loans Can Be A Good Option for First-Time Homebuyers. It opens,

FHA loans can be an attractive option for consumers purchasing their first home, because they require much smaller down payments.

First-time homebuyers often consider these Federal Housing Administration loans, because they do not require a large down payment or high FICO scores unlike traditional 30-year fixed mortgages. Given that young households tend not to have the savings for a substantial down payment, they can be an attractive option, David Reiss, a law professor at Brooklyn Law School.

Because FHA loans are mortgages insured by the Federal Housing Administration, this guarantee reduces the risk of “loss of principal for lenders, which is advantageous for borrowers,” said Joseph Cahoon, director of the Folsom Institute for Real Estate at Southern Methodist University’s Cox School of Business School in Dallas.

This results in some consumers being able to put down as little as 3.5% for a down payment towards the purchase of a new home. For many first-time Millennial homebuyers, the prospect of saving 20% for a standard down payment has been challenging during the past several years because of a combination of low growth in wages and high student loan debt.

“For those borrowers with good credit, FHA insured loans offer a good pathway to home ownership, he said.

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“Homebuyers should compare all of their options before going with an FHA mortgage,” Reiss said.

Reiss on Myths of the Fed

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Bankrate.com quoted me in a story, 5 Myths Debunked About The Federal Reserve. it reads in part,

Assassination, foreign control and money printing: the stuff of a motion picture thriller?

Not in this case. They’re all the fodder for wild and surprisingly popular myths surrounding the nation’s central bank, the Federal Reserve.

It does wield considerable power, evident in the extraordinary measures taken during and after the financial crisis. But it’s amazing the things that otherwise reasonable people say about this admittedly complex U.S. government institution.

David Reiss, professor at the Brooklyn Law School, says, “To most of us, the Federal Reserve is a riddle, wrapped in a mystery inside an enigma, to borrow Winston Churchill’s phrase.”

With the Fed celebrating its centennial, the time is right to tackle some of these myths head-on. There are many myths out there regarding the Fed. Here are just a handful.

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Myth 3: The Fed prints money

The notion is rooted in the Federal Reserve’s control of the nation’s money supply. The Bureau of Engraving and Printing, part of the U.S. Treasury, is responsible for printing currency.

“Although the Bureau of Printing and Engraving prints it, it delivers it to the Fed, and then the Fed gets to decide how much of it to put out into the economy,” says W. Michael Cox, director of the O’Neil Center for Global Markets and Freedom at Southern Methodist University’s Cox School of Business. He’s also former chief economist of the Federal Reserve Bank of Dallas.

In a way, Reiss of the Brooklyn Law School says, “the Fed can create money and does so in a variety of ways.” What he means is the Fed can increase the money supply through its monetary tools. Since the end of 2008, it has used “quantitative easing,” or QE, a term used to describe the Fed’s strategy to boost the supply of money. In the latest round of QE, the Fed has undertaken the monthly purchase of $85 billion in assets over the past year.

If you want to describe the process correctly, you might take a cue from St. Lawrence University’s Horwitz. The central bank isn’t in the printing business, but it has some control of the process.

“The money that the Fed creates is all done electronically in the form of bookkeeping entries that expand the deposit accounts that banks hold at the Fed,” he says.