Take a shot at fixing the mess
Home prices falling. Foreclosures rising. Banks failing. Federal government bailing.
We're way past the point that the only people affected are those who had the bad timing to buy or cash-out refinance during the housing boom. In the words of the Wonk reader who goes by H, "We are all in this real estate mess together."
So: Got any ideas to address the root of the problem or its ripple effects?
I'll let H kick off the conversation with a tax-related suggestion:
There is no mystery to originating good residential loans, and confidence has to be restored to the system, so expect tighter limits on seller closing cost contributions, and elimination or reduction of lender closing help by using buy-up loans (higher rates to get closing money). The recent stock market drop has only increased the problems for home buyers because many have seen their savings disappear in the stock market. Home sales in the state are likely to drop even more unless there is action.
The key to limiting the likely impact in Maryland is to reduce closing cost for home buyers, because it’s invisible to the soon coming tighter mortgage underwriting standard.
I would suggest monthly tax payments for the elderly, first-time home buyers, and any homeowners in trouble. ... Yes, this will cost the state money in terms of cash-flow management and tax-collection operations, but it will lower closing cost across the state for all borrowers without lowering tax rates.
The changes in the '90s from an annual real estate tax payment to allowing a bi-annual tax payment helped a huge number of people buy homes in a fair manner. Given the increase in tax assessment over the years plus our national mess, it's a good time to start talking about state policies that would help elderly, first-time buyers and troubled homeowners. ...
Effective legislative reforms will take time, ... and should take a backseat to limiting the scope of the current crisis. Keep in mind the Great Depression in the 1930s was largely caused and prolonged due to a collapse in residential lending (it also took years to develop effective reforms). The stakes are high for our country, and leaders at all levels need to focus on effective near-term actions.
Chime in, guys.
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Comments
Just eliminate social security and write everyone a check for what they are owed. We're going to have to do it eventually anyway and this will lower taxes by about 7% for employees and 7% for employers. We'll then inject another stimulus into the economy that will allow everyone to pay down their current debt and increase their take home pay going forward at the same time.
Posted by: Liquidate SS | July 15, 2008 4:28 PM
i would like to know how many homeowners are in trouble due to cash-out refi's before i would be inclined to vote for any type of bailout. not that i think i would have a vote anyway. this video uses stats for california. stats are from december, 2007. please see from about the 4 minute mark to about 5:15.
http://www.youtube.com/watch?v=pmeBSWI9sF8
Posted by: chuck | July 15, 2008 8:07 PM
On the point of RE taxes made by H I'll add that locking in the actual amount of taxes paid for residential properties would do more to stabilize the kitchen table budget.
Eliminate the assessment process altogether and save money long term by lowering continuing costs of an entire Government department.
Use the sale price as the basis and set the % multiplier at X% for 10 years (eg a $250,000 property at 1% yields $2500; it's simple and you're done for 10 years)
Another County might charge a higher or lower % rate.
Everyone (lender, owner and county government) knows what the taxes are and will continue to be for that period of time.
For the few properties that are held long term some second tier adjustment of the multiplier could be used; but still no need for the cumbersome assessment. The simplicity of this shows itself in that most resi RE turns over within that 10 year time frame; so relatively few properties would ever need an adjustment (by whatever method).
eg: When the Smith family buys a home (structure and land) from the Brown family... market forces and their own good sense should be enough to impute that both parties accept the price paid then to reflect their perception of the value being exchanged.
The State and County use the paperwork already being done for the closing to begin the tax process for that property from.
Posted by: MrRational | July 16, 2008 7:43 AM
Real estate tax rate locks/homestead real estate tax systems have advantages but I think they have complicated matters in Florida, and California. In the states that have gone this route, you have sales tax set at the city, and county level in order to manage local funding. The result is hundreds of different sales tax across Florida, and California, and a headache for businesses. There is also a greater disparity between the wealth, and poor in those states.
I’m not crazy about State real estate calculation (mostly because mathematically it could be a simple formula to get the same numbers), but I fully support progressive taxation based on estimated values. As long as the county does have an excessive tax rate, the systems will tax those most able to pay. This comes from the mouth of one of the few Republicans in Baltimore City, (call me a radical what believes a two party system leads to less corrupt government.)
The system does have significant issues that I must point out. In the Baltimore City, the high real estate tax rate has been a catch 22, because they have encouraged homeowners to level the city, suppressed prices in many areas, increased the number of vacant homes, increase the number of poor condition rental properties, and discouraged business from locating in the City. The result is the city needs the higher tax rate to off set the economic impact of setting the rate too high in the first place.
Posted by: H | July 16, 2008 12:40 PM