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Reiss on EB-5 Green Card Reform

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GlobeSt.com quoted me in Congress Moves to Revamp EB-5. It reads in part,

Last week Senate Judiciary Committee Chairman Chuck Grassley and ranking member Senator Patrick Leahy introduced bipartisan legislation to reauthorize and reform the EB-5 Regional Center program.

This did not come as a surprise to the commercial real estate industry, which has been watching the approaching Sept. 30, 2015 deadline with a mixture of dread and anticipation.

Simply put, the program has become an increasingly popular funding source for projects, David Cohen, a shareholder at Brownstein Hyatt Farber Schreck in Washington DC, tells GlobeSt.com.

“As the popularity of the EB-5 program has grown in the last few years, so too has the scope of the deals its being used to fund,” he says. “There is far more money at stake than there was even a few years ago.”

The changes proposed in the bill — officially called the American Job Creation and Investment Promotion Reform Act — touched upon some of the more controversial parts of the program. It proposes strengthening oversight by Department of Homeland Security and Securities and Exchange Commission oversight and putting in place measures that would discourage fraud. Overall, national security would have a greater focus this time around.

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The EB-5 program “has a very interesting mix of policy goals, including immigration, community development and employment ones,” says David Reiss, a law professor at Brooklyn Law School and research director of the Center for Urban Business Entrepreneurship (CUBE).

It also has a great deal of flexibility – and many say too much flexibility, he continues. “For instance, companies have been able to characterize hot locations in Brooklyn and Manhattan as areas of high unemployment by defining the targeted employment area expansively,” he tells GlobeSt.com.

“For instance, the biggest real estate project in Brooklyn, Pacific Park — formerly known as Atlantic Yards –used nearby neighborhoods with high unemployment for an EB-5 investment located in a relatively low unemployment area,” he says.

In short, “there is a lot of talk of reform of the program that comes from all different directions – raise the minimum investment amount! – ensure that the targeted employment area is more narrowly drawn! – establish national standards!” Reiss says.

“But it is too early to tell which reforms might stick.”

Reiss on Payday Lending Regs

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CRM Buyer quoted me in CFPB May Rein In Payday Lending. The story opens,

The Consumer Financial Protection Bureau is considering various approaches to reforming the payday loan industry, The Wall Street Journal reported on Sunday.

The bureau is concerned about the short-term, high-rate debt consumers take on, sources said.

States typically have been responsible for regulating payday loan company practices. If the CFPB should take action, it would be the first time federal regulations were applied to this niche in the financial sector.

Consumer advocates have long been calling for some restraints to be imposed on providers of these loans. Interest rates tend to be astronomical, and borrowers frequently are unable to repay the loans within the prescribed time period. What happens more often than not is that they roll their loans into the next pay period, committing to a never-ending series of high-interest, short-term contracts.

The CFPB reportedly is considering approval of a “vanilla” type of short-term loan with underwriting criteria that would establish whether the borrower actually would be able to repay it — an approach similar to the mortgage qualification requirements put in place after the financial crash.

That is not the only model reportedly under consideration, however, and the CFPB might waive such underwriting requirements for borrowers who don’t tap payday advance loans very often, the Journal reported.

Pushback can be expected from the industry, which has been under fire for years. The payday lenders’ argument is straightforward: With so many Americans living from paycheck to paycheck, their services are necessary to meet emergencies.

Defanging the Predator

“There is clearly a demand for payday lending by unbanked consumers who have needs for short-term credit but do not have access to credit cards, home equity loans or other loan products,” said David Reiss, professor of law at Brooklyn Law School.

“At the same time, payday lending repayment terms are often seen as onerous and predatory, with annual interest rates that run in the hundreds of percent and with many customers stuck in a cycle where they roll over their high cost debt from one month to the next, accruing more interest and fees along the way,” he told CRM Buyer.

Given the mission of the Consumer Financial Protection Bureau, Reiss said, it is natural for it to attempt to develop a regulatory structure for the industry that would allow it to function — but not extract predatory profits from its customers.

Reiss on GSE Privatization

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GlobeSt.com quoted me in Waiting to Say Goodbye to the GSEs. It reads in part,

US HUD Secretary Julian Castro added another “to do” item to the lame duck Congress’ list of things they should get done before they adjourn on Dec. 11: pass the bipartisan Johnson-Crapo Senate bill introduced earlier this year that would wind down the GSEs.

“This could be, I believe, a good victory in the lame duck session or next term of Congress for housing finance reform,” he said in an interview with Bloomberg Television earlier this week. The crux of the plan – doing away with Fannie Mae and Freddie Mac, creating a backstop for these loans and removing tax payer risk – are all supported by the Obama Administration, he said.

“Housing finance reform will continue to be a priority for the Obama Administration,” Castro said.

The multifamily finance industry has been expecting GSE reform for years now; certainly there have been calls for their dismantlement when they were placed in conservatorship in 2008 during the depth of the financial crisis. Many in the industry, in fact, would welcome their sunset, in the expectation that the private sector could fully and more efficiently and more cheaply provide the same level of funding.

That is not the unanimous sentiment though. In fact, opinions about the subject in commercial real estate range, widely, across the board from “it is about time” to “the politics are too strident for it to happen” to “maybe it will happen but it is difficult to believe the GSEs could entirely be replaced by the private sector.”

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David Reiss, a professor of Law and Research Director, Center for Urban Business Entrepreneurship (CUBE) at Brooklyn Law School, has been calling for the privatization of Fannie and Freddie for some time and is dismissive of the “Chicken Little claims” that the sector will collapse if the government reduces its footprint in multifamily and single-family housing finance.

“With a carefully planned transition, it is eminently reasonable to believe that we can put private capital in a first loss position for multifamily housing so long as the government retains a role in subsidizing affordable housing and acting as a lender of last resort when necessary,” he tells GlobeSt.com.