From the Press of Atlantic City:
Realtors group beats drums against tax
This may be a difficult time to sell a house, but it’s a good time to try to kill a proposed local-purpose tax on house sales.
With prices and home equity falling, homeowners are more likely to notice and be concerned about some of their homes’ values going to government.The New Jersey Association of Realtors is taking advantage of the cyclical nature of housing to mount a half-million-dollar campaign this fall against property sales taxes, formally known as realty transfer fees.
The state has charged such a fee since 1968, raising it in 2003 to become a significant source of revenue. A $250,000 house sale, for example, requires a $1,325 payment to the state.
The Realtors would like to pre-empt further increases in the tax, but what worries them more is a proposal in the Legislature to allow municipalities to collect such a tax, as well.
Jarrod Grasso, vice president of government affairs for the Realtors, said the lame-duck session following next month’s election is when such a tax measure might be considered.
Bills in the Assembly and state Senate would give municipalities the authority to institute by ordinance a realty transfer fee of as much as 50 cents per $500 of property value sold – a tax of 0.1 percent.Grasso said this is a good time to call attention to the proposal.
“What we can use to our advantage is that home prices aren’t increasing at the rate they were in 2003, when (then) Gov. McGreevey proposed the realty transfer fee increase,” Grasso said last week. “His argument was, the philosophy was, home prices are increasing by leaps and bounds, so they’re going to make money on it when they sell.”
So much money that homeowners wouldn’t mind and maybe not even notice the increased state fee. Now, things are different.
“Somebody who bought a house last year might not have the equity built up to pay this transfer tax when they go to sell their home,” Grasso said.
…
For the Realtors, Grasso said a property-transfer tax isn’t a suitable source of municipal revenue because the amount collected would vary widely with the boom-and-bust cycle of the real estate industry.“There would never be a guarantee that the money would be coming in,” he said. “The Legislature really needs to find other ways to help municipalities balance their budgets.”
From Reuters:
Citigroup 3rd-qtr profit falls 57 pct
Citigroup Inc, the largest U.S. bank, on Monday said third-quarter profit fell 57 percent, hurt by losses and writedowns related to subprime and leveraged loans, fixed-income trading and weakness in its consumer business.
From the WSJ:
The Subprime FHA
By JOHN BERLAU
October 15, 2007; Page A23
…
FHA-backed loans are being touted for their “safety” — to consumers and the financial system. “If we can get people into the FHA rather than to some of the other kinds of loans they have, everybody will be better off,” argued Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, during a hearing this year.
Although differing on details, Bush administration officials agree with Mr. Frank on the basics. Secretary of Housing and Urban Development Alphonso Jackson, whose department is parent to the FHA, has described the loans the agency backs as a “safe alternative to . . . exotic subprime loans.”
Both Mr. Frank and President Bush support major increases in the limits on the value of loans the agency can make, which are contained in a bill that passed the House of Representatives last month. Only 72 Republicans, mostly members of the conservative Republican Study Committee, voted against the bill. A similar bill cleared the Senate Banking Committee 20-1.
But before the FHA’s loan spigots are opened up, a little due diligence by the political sector is in order. The FHA’s recent credit history shows it is far from the prudent institution it is said to be. By its own estimate, next year the agency expects to be in the red, paying out more for defaulted loans than borrowers pay to it in insurance premiums. “Because of adverse loan performance,” the FHA states in its budget submission for 2008, “total costs exceed receipts on a present value basis, and therefore would require appropriations . . . to continue operation.”
The agency poses more than just a threat to taxpayers. The collapse of whole segments of the housing market can be traced to FHA-subsidized mortgage products. Despite its decreasing market share, the FHA appears to have played a significant role in the current mortgage “meltdown” attributed to subprime loans.
For the past three years, delinquency rates on the oh-so-safe mortgages insured by the FHA have consistently been higher than even those of the dreaded subprime mortgages. In the last quarter of 2006, for instance, the delinquency rate for subprimes had increased to 13.33% in the National Delinquency Survey compiled by the Mortgage Bankers Association. But in the FHA category, the rate had risen to 13.46% — “a new record.”
Nationally, FHA-backed loans do have a lower foreclosure rate than subprimes do, but one that’s nearly twice as high as the rate for all mortgages. And in certain regions, FHA-insured loans account for a disproportionate share of mortgage woes.
…
FHA-insured loans have also been at the center of some of the worst excesses of the housing boom, including mortgage fraud, loans made without income verification, and property “flipping” with inflated appraisals. Last month, in a case brought by federal prosecutor Patrick Fitzgerald, a Rockford, Ill., real-estate agent pleaded guilty to conspiring to defraud the U.S. government through the use of phony pay stubs and credit letters to obtain FHA loans for home-buying clients.
Several similar schemes involving FHA-backed loans have been documented by congressional probes and newspapers such as the Baltimore Sun. GOP Sen. Susan Collins of Maine, who supervised a 2001 Senate subcommittee investigation of mortgage fraud, said bluntly that “the federal government has essentially subsidized much of this fraud.”
How could an agency with a reputation for being so conservative have made loans that turned out to be so problematic? Part of the answer rests in a foolish quest to compete with the private sector for “market share.” In both the Clinton and Bush administrations, the FHA’s response to private alternatives for low-income borrowers was to aggressively compete with them — by making the agency’s own lending standards even more “subprime” than those of the private sector.
Since its inception in 1934, the FHA has required a down payment — originally 20%, but gradually whittled down to 3% — for a home loan. The down payment requirement was to help ensure that borrowers were responsible, even if they didn’t have perfect credit histories.
But in 1997, home sellers and buyers started to get around this rule by donating money to foundations that provide down-payment assistance to buyers. Since the FHA does not count assistance from these foundations as a seller inducement — as many non-FHA lenders do — seller-funded charities can contribute virtually unlimited amounts to borrowers to cover down payments, closing costs and even FHA borrower insurance premiums. A recent paper by HUD researcher Austin Kelly notes that, since 2000, studies by HUD’s Office of Inspector General “have found that sales prices of homes using seller-funded nonprofits tend to reflect the assistance” provided by the charities.
In other words, the buyer’s assistance is frequently rolled into the home price, inflating the value of the home and leaving the FHA — and ultimately the taxpayer — holding the bag for a defaulted loan. And studies also indicate that the FHA will be picking up the tab at a higher level for these loans.
…
Despite these trends, HUD Secretary Jackson’s biggest concern has appeared to be not the FHA’s solvency, but the government agency’s loss of business to the private sector. “I am absolutely emphatic about winning back our share of the market,” he told the Washington Post in 2005.
Looking at the agency’s dismal performance over the past few years, we can predict that, if the FHA racks up more “wins,” taxpayers and low-income home buyers will likely be suffering the losses.
It is important to note that the vast majority of home mortgages, FHA-backed or otherwise, are not in danger of foreclosure. Overly burdensome regulation of any type of lender would be counterproductive. But those concerned with the fiscal health of the mortgage market and the U.S. Treasury should be emphatic in opposing the expansion of a government agency that added so much fuel to the current “meltdown.”
From MarketWatch:
Crude hits record high, tops $85 a barrel
Crude-oil prices hit a record high in London Monday, with the November-dated light crude contract trading as high as $85.19 a barrel. The move came after gold prices hit their highest level in more than 27 years earlier in the day.
Jarrod Spoke at a luncheon I attended last week. The info left at the table made example of how an older couple would sell their home and and still be able to give money to their grandkids, but would’nt be able to take that trip to europe they had dreamed about.
I was wondering if this particular tax is one I should be up in arms about?? Should I have donated? After all it will have a bigger effect on most than the 1% sales tax increase, right??
KL
( sarcasm off )
Here is the NJAR Anti-Transfer Tax site:
http://njhometax.com/Home.html
OT: The Rockies…….SICK!
Lol GO Rockies!!
GO figure – all those years I lived in Denver they $UCKED.
TO Post #3 – I am wondering when will employers start rasing people salaries to match “real” inflation??
SO far all we have seen is 3% increases in average at best.
Economic History Analogies
Subprime is to 2000’s as Tech Startups is to 1990’s.
TO Post #3 – I am wondering when will employers start rasing people salaries to match “real” inflation??
Depends who you work for.
Public sector jobs, where salaries are not set by competitive forces, but rather through negotiation with powerful unions, often do a better job of “keeping up” with rising costs. The PBA (police officer union) will argue, mostly successfully, about the cost of living and housing are going up for their members.
In the private sector, salaries are set based on supply & demand, not the cost of living. It doesn’t really matter what happens with inflation.
In the private sector, salaries are set based on supply & demand, not the cost of living. It doesn’t really matter what happens with inflation.
Well at some point it will simply be noth worth it to work – how about whole country on unemployment and wellfare?? When people who work at grocery stores will not be able to buy gasoline to commute to work – would you say this will casuse salaries to raise???
Or gasoline and rents and food will saty low?
Grim Regarding #2
The push to move loans into FHA is simply a move to federally subsidize as many of the funny money loans as possible. The point is to move the loans into FHA and then let them take the hit. The Federal Gov WILL bail out the FHA. It will be a win for everyone except the tax payer. The investment banks will get to dump a large portion of their bad loans and the politicians will get to bail out there banker buddies but still be able to claim that the did not bail out banks, they only supported the FHA!
Re: Salary Increases
You either compete or starve. A company is not going to accommodate us. They exist to make a profit. If things are tight, it’s time for a 2nd job, or maybe a 3rd. Or, as someone suggested, get a public sector job where the wheels are greased from every angle. The plebs don’t know the difference, they’ll keep paying regardless.
gary Says:
October 15th, 2007 at 8:54 am
Re: Salary Increases
You either compete or starve. A company is not going to accommodate us.
common mistake – company need to get the job done – to make product/provide service – whatever it is. If they can not find anybody to do the job for the pay – company increase the salary. Why do you think salaries raise in China and India so fast right now??? Just wait intill these countries develop Legal system – after that their compatitive edge will disappear.
They exist to make a profit. If things are tight, it’s time for a 2nd job, or maybe a 3rd. Or, as someone suggested, get a public sector job where the wheels are greased from every angle. The plebs don’t know the difference, they’ll keep paying regardless.
Hmm… Lets say from my peronal experience and one historic example:
There was a contry once … where people’s salaries were not indexed for inflation and inflation was at 10-50%/year……
Nobody was indexed – not public servants, not private sector. At some point majority of people just stopped working – believe it or not. It was a country with 70% unemployment.
In about 10 years severe lack of skilled labor force led to whjat happening now – this contry looking for skilled work force abroad – paying A LOT more than comparable salaries in other countries and stll sturggling to fill existing positions…
CEO’s will not hold a wrench to fix their car. They can not refine oil by themselves. They can not farm – to get food. They need doctors…. – Shall I continue…
Also in this purelly hypothetical county crime rates went through the roof as hungry people were breaking in better off neighbourhoods and warehouses in search of food….
P.S. A lot of rich people took their money and fled that country and moved to where do you think?? –Bingo!!! The United States of America.
Where do you suggest Rich people from US will flee????
Al,
The country you described exists. It is called Zimbabwe.
lol there is more than one country…. not all of them in Africa either.
When people who work at grocery stores will not be able to buy gasoline to commute to work – would you say this will casuse salaries to raise???
Possibly.
Like I said, salaries are based on the supply and demand for labor. If the supply of labor drops because people decide to stay home, then yes, you will see upward pressure on wages. This is especially true in the grocery store example, because these jobs can’t be outsourced.
I say “possibly” though, because its possible people will suck it up and deal with it. Perhaps they will carpool, take the bus or ride a bike to work. After all, in no other country in the world do workers making near minimum wage drive their own cars to work.