Sunday, January 04, 2009

Housing Bubble Revisited & Local Tax Question...

The Wall Street Journal put together a pretty comprehensive (albeit snobbish) analysis of a single "home" in Arizona that resulted in a mortgage that was packaged and sold to investors. It's worth clicking through to the slideshow to see what $103,000 bought in Arizona a couple of years ago.

"The condemnation notice stapled to the wall says: "Unfit for human occupancy."

The story of the two-bedroom, one-bath shack on West Hopi Street, is the story of this year's financial panic, told in 576 square feet. It helps explain how a series of bad decisions can add up to the worst financial crisis since the Great Depression.

Less than two years ago, Integrity Funding LLC, a local lender, gave a $103,000 mortgage to the owner, Marvene Halterman, an unemployed woman with a long list of creditors and, by her own account, a long history of drug and alcohol abuse. By the time the house went into foreclosure in August, Integrity had sold that loan to Wells Fargo & Co., which had sold it to a U.S. unit of HSBC Holdings PLC, which had packaged it with thousands of other risky mortgages and sold it in pieces to scores of investors.

Today, those investors will be lucky to get $15,000 back. That's only because the neighbors bought the house a few days ago, just to tear it down."

"For a $350 fee, an appraiser hired by Integrity, Michael T. Asher, valued the house at $132,000. Mr. Asher says although he didn't personally believe the house was worth that much, he followed standard procedures and found like-sized homes nearby that had sold in that price range in 2006.
"I can't appraise it for the future," Mr. Asher says. "I appraise it for that day."

At closing, on Feb. 26, 2007, Integrity collected $6,153 in underwriting, broker, loan-origination, document, application, processing, funding and flood-certification fees, mortgage documents show. A few days later, Integrity transferred the loan to Wells Fargo, earning $3,090 more, Mr. Rybicki says."

A) The appraiser should be embarrassed by his actions - that house was never, ever, ever worth $132k. Taking sq feet and multiplying by some random $xx/sq feet of comp homes is something my 5 year old could do. An appraisers job is to differentiate between homes and determine values based on those differences.

B) Do you get a sense of why the housing boom was so insane? This woman had no ability to repay this loan on a house that was 10 times overvalued, but somehow her lender sucked $9,000 in fees out of this loan. That's why no one cried wolf (except for a few crazy bloggers) - everyone was getting rich.

On a separate note - I've been saying for sometime that state and local governments are going to start pushing to raise revenue as they struggle through the recession. At the absolute peak of the local housing bubble our town revalued all properties to 100% market value (by 1/1/08 it was clear the market had cracked, but the assessor didn't want to hear about current conditions). Well, the funny thing was that the revaluation to 100% market value was designed to update our tax rolls and we were assured our taxes would be little changed.

In 2008, that was the case as our taxes increased by a very small amount. However, our 2009 tax bill arrived promptly on 1/2/09 and showed a whopping 24% increase in our tax burden.

So my question is - many local communities have recently reassessed properties at 100% of market value, is everyone seeing a similar spike in taxes? Is this specific to my community? If so, I'd imagine this will become a topic of discussion as tax bills make their way to the many seasonal residents of the 1000 Islands.

Asian markets are still riding the Happy New Year - Santa Rally. Our markets have a chance to keep going for a little while, but the experienced money will return to play this week and the outlook for the global economy has never been worse (more on this tomorrow).



Anonymous said...

I don't believe that the assessment, be it 100%, or 70% of 50% or whatever number they have used historically or currently, is going to be the issue going forward. The issue is that regardless of the "value" that a communites assessors place on the homes, the rate per 1000 is going to skyrocket. Especially for those who don't fit into the "in need" catagories. As more homes become distressed or exempt, and incomes continue to deteriorate (except govt. jobs) the effect on property taxes nationwide, and particularly in NY will be devastating. You can expect at least a 200% increase in your property taxes in NY within the next 5 years.
This is ex inflation, which could be a whole different issue.

Dale Hobson said...
This comment has been removed by the author.
Anonymous said...

I live in the Town of Potsdam and our house was also reassessed at 100% valuation. While the tax rate only went up a few percent, my tax bill went up more than 50%. This process played out all over town just before the local school budget vote. Result--widespread anger and a rare rejection of the school budget.

Anonymous said...

In a neighboring town, our assessment nearly tripled in 2007 and was again raised in 2008. Altho the tax rate decreased the bottom line dollar almost tripled. IMHO this smokescreen is just a license to steal from the taxpayers. Now we have to pay big dollars to an additional assessor and pay to have new maps drawn up. Of course the school taxes are going to skyrocket because administration and teachers are never going to give an inch and heaven forbid we ever deprive our children of any of the frills. Every taxpayer needs to attend town budget meetings to learn how your tax dollar is being spent. You will be dumbfounded! Why do so many people sit back and complain but never get involved or even show up to vote? Voting down a budget is the only thing that makes a statment.

The Artful Blogger said...

Local real estate taxes clearly strike a nerve.

My question for the local assessor in 2007 was - when housing prices fall, will you adjust valuations down accordingly? She said certainly.

The problem with that is that you will need to see sales to demonstrate a lower average home value in our area. Inventory continues to grow sharply in NNY but sales have stagnated so there are very few comps to use when you argue for a lower assessment. I couldn't sell my house for 75% of it's assessed value today in my opinion.

My taxes in upstate NY on a house valued at 1/2 of my old NJ home are 10% higher than my NJ taxes (and NJ has it's own series of problems). Something is wrong with that picture.

Anonymous said...

Asking an assessor a question about the assessemnt falling if there are like properties sold at lesser than assessed values is of course good, but it will never work out. Not just because there are no homes being sold, but because the assessor isn't the person who has anything to do with how much you pay in taxes. The real quesiton is, how much money is needed in your community/county/state, and how do they split up that collection politically correctly proportionately (not to be confused with fairly, or reasonably).

Take for exaqmple a need in a town for $2,000,000- in tax revenue. If after you exclude the low income exempt, etc... everbody else's house values drop to 50% of what they were 2 years ago, and that can be documented by a few homes that actual sell.

Then of course the assessor should immed reval the entire town, and/or everone should greive their assessment. But the reality is, it won't maeeter, because all the town will do, is rase the rate for 1000 by 100%. It's just math, and everybody should be on their toes and watching for the games to begin.

Of course what you don't want to have haqppen is the towns increase the rate per 1000 in anticipation of or in reference to de-values, and then not have the negative revals done.

I beleive this is the first time in the history of the US that property values have decreased nationwide, so there will cetainly be many lawsuits fortcoming as towns try to squeeze more money out of both sides of this new and murky issue.