Nomura out of U.S. subprime

Posted on October 15, 2007 by grim

From Reuters:

Nomura to exit US mortgage business, post big loss

Nomura Holdings, Japan’s largest brokerage, said it would pull out of the U.S. residential mortgage-backed securities market and cut its U.S. work force by about 30 percent, pushing it to a big quarterly loss.

Nomura is the latest global investment bank forced to swallow bigger losses stemming from exposure to U.S. credit markets thrown into turmoil as “subprime” borrowers defaulted on housing loans.

Nomura said it would post a group pretax loss of about 40-60 billion yen ($340-$511 million) for the July-September second quarter, hit by losses on mortgage-backed securities and charges to cut its U.S. workforce to about 900 from 1,300 as of March.

“This should all but clear up our problems in the United States, and we believe we can build a structure that will allow us to achieve a speedy recovery from the second half,” Nomura Chief Financial Officer Masafumi Nakada told a news conference.

Nomura said earlier this year it may pull out of the mortgage business as part of a reorganisation of its U.S unit, which lost 74 billion yen on a pretax basis in the two quarters to June due to losses on residential mortgage-backed securities (RMBS).

In the second quarter through September, Nomura cut its U.S. RMBS exposure to about 48 billion yen from 266 billion yen. That has since shrunk to 14 billion yen, only 100 million yen of which is subprime-related, Nomura said.

Posted in National Real Estate, Risky Lending | Comments Off on Nomura out of U.S. subprime

Weekend Open Discussion

Posted on October 14, 2007 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 180 Comments

Borrowers facing “tough times”

Posted on October 14, 2007 by grim

From the Home News Tribune:

Many home owners suffer under high-interest loans

Expensive, high interest rate mortgage loans continued to grab a larger share of the market last year, and thousands of homeowners like Paul and Elizabeth Duncan are feeling the squeeze.

The Toms River couple are finding it increasingly hard to make the $3,200 monthly payments on their $327,000 mortgage, which they refinanced last year at a 9 percent interest rate. They are not sure how they are going to make this month’s installment.

“We have more going out than coming in,” Elizabeth Duncan said.

Soon, the Duncans say, they may be forced to sell their new dining room furniture, or take out a cash advance on a credit card in order to make payments and buy some time.

One in four mortgage loans in New Jersey last year were given to subprime borrowers like the Duncans, an Asbury Park Press analysis of new federal mortgage data shows. The loans typically come with interest rates higher than the prevailing market.

The housing and mortgage markets have struggled this year with the effects of those loans, usually granted to borrowers with poor credit or those who had borrowed more than they could afford. Nearly 15 percent of homeowners with subprime loans are late or in default on their payments.

Subprime lending continued at a breakneck pace through last year: 29 percent of all loans nationally, worth $600.2 billion, came with high interest rates, according to the federal data.

That could indicate that many new borrowers will face tough times. The cost of the loans could likely drain family income and force those who are not in trouble yet to begin to default.

The current rise in foreclosures — the highest in 10 years — and late mortgage payments is a ripple effect caused by borrowers who took out loans in 2004 and 2005, experts say. If the 2006 borrowers follow the same pattern, the housing market could see an overwhelming number of defaults in the next couple of years, experts say.

The Press analysis found that in Monmouth and Ocean counties last year:

One in five home loans were granted to subprime borrowers, for a total of $3.1 billion. In 2004, about 1 in 10 loans had gone to subprime borrowers.

The income of subprime borrowers was 5 percent lower than those taking out traditional mortgages, yet the subprime borrowers took out loans that were 10 percent larger. That means subprime borrowers, already facing higher interest rates, will be further strapped to make mortgage payments, especially if their mortgage interest rates adjust upward in the coming years.

More subprime money was lent in 2006 than the prior year. The median subprime loan of $221,000 in 2006 is up from $203,000 in 2005. A median means half borrowed more, half borrowed less.
…
Richard G. Stafford of Capital Home Mortgage in Spring Lake said he believes many borrowers were addicted to shopping.

“They didn’t change their lifestyle,” Stafford said. “The appraisers were generous to them. They just kept refinancing and then maxed their credit cards out again.”

Phyllis Salowe-Kaye, executive director of the consumer advocate group New Jersey Citizen Action, called such comments “blaming the victim.”

She and other advocates fault mortgages sales staff who gave loans to borrowers who never could make the payments long term or made promises that were not kept.

“These people are in business to make money, but they’re in the business to make money on the backs of people,” Salowe-Kaye said.

The Duncans appear to be an example for both arguments.

The couple married in 1999, but with two children each from previous marriages, they soon found that their two-bedroom mobile home was much too small. They bought the three-bedroom colonial in 2004 with $28,000 down and a $211,000 mortgage, land records show.

The Duncans earn $80,000 a year. Paul, 47, works as a dairy manager at a local supermarket. Elizabeth, 43, is a teller at a local bank.

They said they so enjoyed owning the house that they took out a $50,000 home equity loan to build a 450-square-foot family room extension.

They also racked up another $46,420 on five credit cards as they landscaped their front yard, and purchased new televisions, a $5,500 dining room set and a $5,000 pool table.

With bills piling high, a telemarketer called one day and offered a mortgage refinancing to Elizabeth. The woman told her they could refinance all their debt and pay $400 a month less than they were before.

Posted in New Jersey Real Estate, Risky Lending | 12 Comments

“Times are tough in the mortgage-lending business.”

Posted on October 14, 2007 by grim

From the Record:

Lender laws in works

Times are tough in the mortgage-lending business.

Not only are brokers and bankers coping with a severe credit crunch and a slowdown in loan applications, but they are facing legislation and rule changes on the state and federal levels that could make it harder for them to make loans when the market recovers.

“There really is no need for legislators to get involved in underwriting loans,” said E. Robert Levy, a lawyer and lobbyist who serves as executive director of both the Mortgage Bankers Association of New Jersey and the New Jersey Association of Mortgage Brokers.

The meltdown in the subprime lending market has spawned at least two bills pending in the State House. One would require licensing of the loan officers who act as sales agents for brokers and bankers. The other would require lenders to verify and document a borrower’s ability to repay a loan, and not just at an initial teaser rate that will later go way up.

On the federal level, President Bush and members of Congress, including Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., have floated proposals in recent weeks to protect consumers from lending practices blamed for a surge in foreclosures. The Federal Reserve and bank regulators also have issued new guidelines on subprime lending and are considering more rule changes.

Lenders in Northern New Jersey say Wall Street speculation and a few bad firms in the lending business are mostly to blame for the surge in reckless underwriting. They say that led to a big rise in foreclosures, and that the market already has corrected most of the abuses as investors are no longer providing funding for the types of loans that have caused the most problems.
…
On the state level, at least two proposed laws could affect how mortgage lenders do business.

One would require licensing, training and background checks of mortgage solicitors, more commonly known as loan officers.

Mortgage loan solicitors are neither mortgage brokers nor bankers, but they have direct contact with customers, gathering applications and supporting documents and providing customers with information about the loans. Currently, the only requirement in New Jersey is that they pay a $100 registration fee.
…
But mortgage brokers and bankers generally object to a proposed state law that would require a borrower’s income verification and make it illegal to judge a borrower’s ability to repay an adjustable-rate loan based on a teaser or introductory rate, and not on an estimated rate that reflects how much the payments are likely to rise over time.

They say the law would disqualify many would–be customers and it doesn’t take into account that most people refinance or sell their homes before the term of a loan expires. Teaser rates make sense for many borrowers, especially young professionals who can reasonably expect their income to rise, Levy said.

The proposed state law, which would apply to more types of loans, could, if passed, be subject to federal preemption if the lender is a federally chartered bank or thrift or a subsidiary of a federally chartered bank or thrift.

Posted in New Jersey Real Estate, Risky Lending | 3 Comments

Fixed rate too ‘boring’ for Gen X?

Posted on October 12, 2007 by grim

From Bloomberg:

Tie Me Up, Tie Me Down to Fixed-Rate Home Loan

There’s nothing wrong with fixed — the fixed-rate mortgage, that is.

As the mortgage crisis has unfolded, everyone has blamed the new-fangled mortgages: Interest-only, pick-a-payment, subprime ARMs, Alt-As became pejoratives overnight.

In the midst of it all you didn’t hear people talking much about the traditional model. The possibility that interest rates might go down soon and allow adjustable-rate mortgage holders to pay less for a while was tempting. The fixed format is still viewed as uncool, as paternalistic as, say, an old AT&T phone looks next to an iPhone.

New homebuyers who don’t take the fixed option seriously are playing fast and loose. Even if a recession is around the corner, there are more good long-term reasons than usual to “fix” yourself. A wider mortgage crisis is still possible, and such a crisis will probably lead Washington to demonstrate paternalism on a scale that most of the iPhone crowd has never known.

Consider the emotional forces at work here. Americans have become accustomed to counting on continuous real appreciation in home values.

In the last recession, houses seemed almost business-cycle- proof. Lately, consumers have developed the conviction that inflation and interest rates will always stay low. Increasing house values and low interest rates both make taking out an adjustable-rate mortgage a no-brainer.
…
But the future may not be sunlit. Today we can’t expect perpetual increases in housing values or permanently low interest rates. When rates rise, homeowners, especially lower earners, will find ARMs prohibitive.
…
Besides, a house is not an iPhone. It’s a necessity. People want their houses to be the safe part of their lives — that’s what all that marketing research about post-Sept. 11 nesting tells us. When you change jobs every 18 months, as so many Americans do, and your health insurance changes even more frequently — if you have it — a simple mortgage whose details you can remember in your sleep is a comfort.
…
The best case for a fixed life was made by that Moses of the modern mortgage: Franklin Delano Roosevelt.

In the early part of the Depression, interest-only loans were the rule: You paid off the loan, but the arrangement didn’t help you accumulate equity. So were short-term loans, what we today would call home-equity loans. They seemed benignly small against the overall value of the house at the time the loan was made, but turned nasty with deflation. They often forced evictions. Predatory lenders abounded and interest rates varied wildly from city to city.

Roosevelt despised this. He proceeded to ordain the shape of the standard mortgage. Let homeowners put only 20 percent down. Let them pay a fixed rate of about 5 percent. And let them have 20 years to pay off that mortgage.

Posted in National Real Estate, Risky Lending | Comments Off on Fixed rate too ‘boring’ for Gen X?

Who benefits from an open house?

Posted on October 11, 2007 by grim

From the Record:

Do open houses really sell?

Every Sunday, “Open House” signs sprout on the lawns of houses all over North Jersey.

But do open houses actually sell properties? Realtors don’t always agree.

I’ve been in business for 22 years, and I’ve sold only two houses through open houses,” said Ana Maria Quintela, an agent with Re/Max Villa Realtors in North Bergen. “It’s unproductive to spend four hours sitting in a house. Sometimes people show up, sometimes they don’t.”

On the other hand, Donna Tkacz, office manager of Weichert in Wyckoff, made one of her very first sales through an open house when she started as a real estate agent 12 years ago. She thinks they can be an effective sales tool.

Maureen McSpirit of McSpirit and Beckett Real Estate in Tenafly said her office does a lot of open houses — but with very mixed results. Sometimes they draw a dozen prospective buyers, sometimes only one or two.

“We just sold a house from an open house,” she said. “I don’t know if the buyers would have come otherwise.”

But, she added, sometimes months go by without an open house leading to a sale.
…
“Now, not as many people come through open houses,” Hall said. And, with more properties to choose from, few make bids on the spot at open houses, real estate agents say. If they visit an open house, they usually come back to see the place again before making an offer.

According to research by the National Association of Realtors, home buyers don’t rely heavily on open houses. The 2006 NAR Profile of Home Buyers and Sellers found that about half of recent buyers used open houses as an information source in their home search. Of those, 52 percent found open houses very or somewhat useful, while 48 percent found them not useful.

Realtors often complain that the only people who show up at open houses are nosy neighbors, rather than serious buyers. But Tkacz says those neighbors can help make the sale: “They have friends and relatives who may be very interested in living in the same neighborhood.”
…
Some real estate experts say that whatever open houses do for the home seller, they can help the agent find clients among the buyers who visit. Hall said he found several clients that way.

“It’s a good way for agents to start their business,” Tkacz said.

Posted in New Jersey Real Estate | 246 Comments

Should Foxtons let clients out?

Posted on October 11, 2007 by grim

From the APP:

Foxtons allowed to seek bids for home listings

Foxtons North America Inc., a West Long Branch-based real estate broker that abruptly began shutting down its operations two weeks ago, can seek bids for its listings from other Realtors, a bankruptcy judge ruled Wednesday.

But Judge Michael B. Kaplan cautioned that he wants to hear arguments about the impact on Foxtons’ customers before he allows their contracts to be assigned to someone else.

“There’s little lost in allowing (Foxtons) to start on this venture,” Kaplan said.
…
However, roadblocks might be looming. Carol Knowlton, an attorney who represents a Foxtons customer in Woodbridge, said Kaplan should prevent Foxtons from selling its customer listings.

“What right does the debtor have to impose upon these individuals a Realtor they don’t know?” Knowlton asked.

It was a thought echoed after the hearing by Alice Zavoki, 60, of Springfield. She and her husband signed a contract for Foxtons to sell their home about a week before the company began to shut down.

Caught off guard, she said, their plan to sell their home, retire and move to Ocean County is on hold indefinitely. The uncertainty has been frustrating enough to keep her awake at night.

“I want to be completely absolved from this contract,” Zavoki said in an interview. “I don’t want any dealings with (Foxtons), and I don’t want them to choose for me what company is going to sell my house.”

Posted in New Jersey Real Estate | 1 Comment

“[R]isky mortgages were made in nearly every corner of the nation”

Posted on October 11, 2007 by grim

From the Wall Street Journal:

The United States of Subprime
Data Show Bad Loans Permeate the Nation; Pain Could Last Years
By RICK BROOKS and CONSTANCE MITCHELL FORD
October 11, 2007; Page A1

As America’s mortgage markets began unraveling this year, economists seeking explanations pointed to “subprime” mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

The Journal’s findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system — and now are bringing deepening woe.

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish. Some borrowers may not run into trouble for years.

“We had an aggressive home-mortgage industry trying to get people into homes they couldn’t afford at a time when home prices were very high. It turned out to be a house of cards,” says Karl Case, an economics professor at Wellesley College. “We’re in the early stages of the cleanup.”

The Journal’s analysis indicates that some major subprime lenders, such as Washington Mutual Inc.’s Long Beach Mortgage unit, began scaling back or tightening their standards a year or more ago. But commercial banks and thrifts filled the void, helping to sustain real-estate markets that might otherwise have begun cooling.

The data suggest that financial suffering is likely to persist in many parts of the U.S. where subprime lending had surged. Many loans at risk of going bad have not yet done so. As much as $600 billion of adjustable-rate subprime loans, for example, are due to adjust to higher rates by the end of 2008, which means that more and more borrowers are likely to fall behind.

Posted in National Real Estate, Risky Lending | Comments Off on “[R]isky mortgages were made in nearly every corner of the nation”

“Movin’ out”

Posted on October 10, 2007 by grim

From the New York Times:

Departures for Other States Erode New Jersey’s Economy

The net number of people leaving New Jersey for other states has more than tripled since 2002, and if the trend continues, the state’s total population could dip next year for the first time in decades, researchers at Rutgers University are reporting today.

The pattern — caused in part by the growing number of retirees who move to Sun Belt states, and working families who seek better jobs and cheaper homes in North Carolina, Georgia and other Southern states — threatens to further erode the state’s wobbly economy.

“Young families raising children want to live in single-family homes, and that’s extraordinarily difficult to do in New Jersey,” said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers and co-author, with Joseph J. Seneca, of the report, titled “Where Have All the Dollars Gone? An Analysis of New Jersey Migration Patterns.”

In 2006, 72,547 more people left New Jersey than arrived there, compared with 23,759 in 2002.

The departures to other states were partly offset by the arrival of immigrants from overseas. But overall, New Jersey’s population increased just 0.2 percent last year, making it one of the 10 slowest-growing states in the country.

From 2000 to 2005, 190,702 residents of New Jersey left for New York, including many empty nesters, people whose children have grown up and moved away. An additional 188,704 people — including many retirees — moved to Florida. Pennsylvania received 183,885 New Jersey residents, thanks to cheaper home prices and lower tax rates.

California, North Carolina, Virginia, Georgia and Texas were next among popular destinations.

The economic consequences of these departures are profound. The net adjusted gross income of those who left — total income minus deductions for contributions to retirement accounts and other items — was nearly $8 billion from 2000 to 2005. The loss of income — and consumer spending — led to 38,810 fewer jobs and $85.4 million less in state sales and income taxes.

From Bloomberg:

New Jersey Loses $10 Billion as Residents Move Out, Report Says

New Jersey’s loss of residents to other U.S. states more than tripled between 2002 and 2006, draining $10 billion in personal income from the economy and reducing tax revenue by $680 million, according to a Rutgers University report.

The number of people who left New Jersey exceeded those who moved in from other parts of the nation by 72,547 last year, the report by two Rutgers economists said. While there is no one reason for the losses, the state’s high costs, including housing, and improved economic opportunities elsewhere are possible explanations, the report said.

Unless New Jersey can reverse its population trend, the state’s fiscal crisis will persist, said James Hughes, dean of Rutgers’s Bloustein School of Planning and Public Policy in New Brunswick and co-author of the report. Treasury officials said yesterday that New Jersey faces a shortfall that may exceed $3 billion in the coming fiscal year.

“It’s worrisome,” said Hughes, who wrote the population report with Professor Joseph Seneca. “When you are talking about $10 billion less in income and $680 million in income and sales taxes, it’s going to be very hard to balance the state’s budget.”

From the AP:

New Jersey’s population drain starting to hit state hard

New Jersey’s accelerating population loss is starting to have significant economic and fiscal consequences for the state, according to a Rutgers University report that found the state may be becoming a less attractive locale.

The report found the state lost 231,565 people between 2002 and 2006, including 72,547 people last year. The latter was the fourth highest loss in the nation behind only California, Louisiana and New York.

Meanwhile, North Carolina grew by 807,000 people over the four-year period, displacing New Jersey last year as the nation’s 10th most populous state, the report stated.

When lost income and sales taxes from the people who left New Jersey are considered, the population drain is estimated to have cost the state $680 million in tax revenue last year, the report found.

That estimated loss comes with the state confronting annual budget deficits and struggling to meet billions of dollars in unmet needs. The projected budget deficit could be as large as $3.5 billion next year, according to Gov. Jon S. Corzine.

The Rutgers report was authored by James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy, and Joseph J. Seneca, a university professor.

“The population outflow is real, is approaching worrisome dimensions and is exerting a small, but increasingly negative impact on the New Jersey economy,” they wrote.

They said the reasons behind the state’s population loss were unclear.

Posted in Economics, New Jersey Real Estate | 264 Comments

NJ facing $3.5b budget gap

Posted on October 9, 2007 by grim

From the AP:

NJ Budget Woes Loom

New Jersey Gov. Jon S. Corzine on Tuesday said the state could be facing a budget deficit as large as $3.5 billion next year.

A deficit that large could require the state to either increases taxes or cut services to balance next year’s budget, but Corzine noted state tax collections remain ahead of projections.

The deficit has been projected at $2.5 billion.

“It sort of depends what the economic conditions are, and they’re pretty broadly in dispute among a lot of the prognosticators,” Corzine said. “Revenues are coming in pretty well, as far as I know, at this stage.”

The state Treasury Department said tax collections are 1.4 percent ahead of projections, with income and sales tax collections doing better than expected. That indicates New Jerseyans are making more money and buying more goods than expected.

“While we are pleased that collections are tracking close to targets, we also know that it’s early and the revenue picture doesn’t come into real focus until later in the fiscal year,” acting state Treasurer Michellene Davis said.

David Rousseau, a fiscal policy adviser to the governor, said any better-than-expected revenue is critical with next year’s fiscal woes looming.

“We will continue to watch performance of our revenues closely,” Rousseau said.
…
New Jersey faced a $4.5 billion deficit in 2006. Corzine proposed increasing the sales tax to close that gap, sparking a dispute with lawmakers that closed state government for a week. The tax was increased, but half of it was devoted to property tax relief.

Posted in New Jersey Real Estate, Property Taxes | 10 Comments

The tax man giveth, the tax man taketh away

Posted on October 9, 2007 by grim

From the AP:

Property tax rebates must be reported on federal tax returns

New Jersey may have just delivered the largest amount of property tax relief ever to beleaguered homeowners, but that won’t stop the taxman from coming next spring to snag some of it back.

Property tax rebates averaging $1,051 were recently mailed to 2 million homeowners as part of an enhanced New Jersey program to help homeowners with America’s highest property taxes. The rebates are nearly five times more than ones sent last year.

But taxpayers who filed itemized returns and took a deduction for property taxes must report the rebates as income on federal tax returns, the Internal Revenue Service said.

The rebate money is designed to alleviate the property tax burden, though taxpayers can do whatever they want with it since it comes by a check.

Property tax reimbursement payments aren’t taxable by New Jersey and shouldn’t be reported on the New Jersey income tax return, the state Treasury Department said.

But IRS spokesman Gregg Semanick said property tax reimbursements must be reported on federal tax returns if taxpayers deducted their property taxes.

Posted in New Jersey Real Estate, Property Taxes | 9 Comments

Smoke and mirrors

Posted on October 9, 2007 by grim

From the Courier Post Online:

Don’t let tax rebate purchase your vote

Voters must remember the whole truth about the property-tax relief checks they’ve recently received.

Over the last few weeks, about 2 million New Jerseyans got a pleasant surprise in their mailboxes — property tax rebate checks from the state that averaged more than $1,000.

That much “found” money certainly puts a smile on anyone’s face. But, forgive us for being cynical, we hope it doesn’t serve to buy people’s vote come Nov. 6, when all 120 seats in the state Legislature are up for election.

The so-called “property tax reform” that state lawmakers hammered out months ago, culminating in these checks, is less reform than it is gimmick.

The rebates of 20 percent, 15 percent or 10 percent most New Jerseyans got depending on their household income, are a relief. But don’t forget where the money came from — state lawmakers raised the state sales tax in 2006 in part to pay for these property-tax rebates. All Trenton has really done is take more money from your pocket at the cash register every time you buy something and given some of it back to you in the form of a check.
…
For one, raising one tax to give people “relief” from another tax isn’t reform; it’s smoke and mirrors.

Second, real property-tax reform means actually slashing people’s quarterly tax bills. If you woke up tomorrow and found you suddenly owed only $1,200 and not $2,000 to the local tax collector next quarter, that would be actually cutting taxes. Continuing to collect the same amount in taxes but then giving a little back to people as a check or a tax credit is not the same thing.

The way to cut property taxes is to eliminate the fat from our government by reducing its size and consolidating and sharing services. We must also lessen the percentage of funding school districts draw from property taxes.

Our lawmakers in Trenton, despite the palpable outrage around the state over high property taxes, have done nothing in recent years to cut the size of state government or force consolidation and the sharing of services. Nor have they improved the school funding formula.

Posted in New Jersey Real Estate, Property Taxes | 141 Comments

If illegals can pay their mortgages, why can’t we?

Posted on October 9, 2007 by grim

From the WSJ:

Unlikely Mortgage Winner
Illegal-Immigrant Loans
Have Been Solid Bets;
Threats Are Looming
By MIRIAM JORDAN
October 9, 2007; Page C1

Despite the downturn of the mortgage market, a type of home loan has remained surprisingly sturdy: one extended to illegal immigrants.

Now, the question is whether these loans will continue to hold up. A number of factors — including a possible government crackdown on illegal workers and a slowdown in job prospects for undocumented laborers — threaten the ability of these borrowers to keep paying. And there are signs of a slowdown as some lenders have raised the interest rates they charge because of the recent mayhem in the credit markets.

Known as ITIN mortgages because applicants must have an individual taxpayer identification number, the fixed-rate loans are designed for immigrants who can prove they are creditworthy and pay taxes even though they don’t have legal permanent residency in the U.S.

The mortgages represent a fraction of the $2.8 trillion mortgage market. But they are a bright spot in today’s gloomy mortgage industry.

For loans more than 90 days in arrears, ITIN mortgages have a delinquency rate of about 0.5%, according to independent estimates. That compares with 1% for prime mortgages and 9.3% for subprime mortgages extended to those with spotty credit histories.

Many lenders who have sought this business remain bullish.

“Our default level is almost zero,” says Scott Hastings, director of marketing for Citizens Home Loan Inc., a Charlotte, N.C.-based lender that is active in 33 states. The bank has been originating ITIN mortgages for almost two years, and the loans now make up about 20% of the institution’s mortgage business. “It’s an absolutely promising market. These Hispanic families will pay their mortgage before anything else.”
…
A Department of Homeland Security plan to crack down on employers of illegal immigrants is giving some banks that issue ITIN mortgages the jitters. The new policy, which has been delayed by a court challenge, would force employers to terminate workers whose Social Security numbers and names don’t match. Those that don’t comply would face stiff penalties or criminal prosecution.

Only one of 120 homes financed by Mitchell Bank in Milwaukee, an ITIN-mortgage pioneer, has gone into foreclosure in seven years. But, “if these immigrants start to lose their jobs, they may have trouble paying their loans,” says James Mahoney, chairman of Mitchell Bank. “That would severely hurt the bank.”

Posted in National Real Estate, Risky Lending | 7 Comments

Real estate goes down sometimes too…

Posted on October 8, 2007 by grim

Interesting sale on the GSMLS hotsheet this afternoon. This home in Mendham, NJ was purchased in 2004 for $1,050,000, and was recently sold again. No, the fact that the house sold isn’t the interesting part, it’s that the home sold for less than it was purchased for in 2004.

Here is the prior sales history:

MLS# 1658622
Original List Price: $995,000
Sale (Purchase) Price: $1,050,000
Sale Date: 3/3/2004
DOM: 19

The first sales listing was:

MLS# 2291619
List date: 06/19/06
Original List Price: $1,469,000
Reduced to: $1,395,000
DOM: 183
Expired

It was relisted under:

MLS# 2392077
List date: 04/02/07
Original List Price: $1,250,000
Sale Price: $995,000
Sale Date: 10/01/07
DOM: 170

I’d estimate the loss, over three and a half years of ownership, at approximately $100,000.

Posted in New Jersey Real Estate | 36 Comments

“[M]ost home markets are in a funk and won’t pull out of it soon.”

Posted on October 8, 2007 by grim

From Bloomberg:

U.S. Housing Decline Reveals Winners and Losers: John F. Wasik

The U.S. housing bust is like a leaking ship. You may still be able to stay afloat, depending upon where and how bad the holes are.

Will the home market continue to sink or is it just bobbing around waiting for buyers to rescue it? With odds almost favoring a recession due to the housing and mortgage meltdown, it’s a good time to examine what makes local markets weak or robust.

There was no single cause that burst the housing bubble. Demographics, economics and mass psychology — what I call demoeconology — merged to create a buying frenzy that was like a meme, a contagious mass information pattern that infects minds with new ideas.

If you understand the dynamics of these powerful forces, you can then begin to see which markets will have more painful price declines and which will experience appreciation.

For now, it’s fairly easy to conclude that most home markets are in a funk and won’t pull out of it soon.

In August, housing prices posted their biggest drop in almost 40 years and pending sales fell the most on record. New- home sales declined to a seven-year low. There are more than 5 million homes sitting unsold. The behavioral economics of this market are tugging buyers to the sidelines for now. And with the possibility of 2 million more homes coming on the market due to foreclosures, the supply is outpacing demand.
…
Mass psychology anchored home buyers to the myth that homes were endlessly appreciating wealth vehicles. Now the sentiment has shifted.

As Yale University economist Robert Shiller wrote in a recent paper, home buyers fell prey to a “social epidemic” and a “widespread perception that houses are a great investment.”

The fallout from the bust will probably impair the economy at large. Shiller found that “residential investment as a percentage of gross domestic product has had a prominent peak before almost every recession since 1950.”
…
Will this downturn be like the 15 percent decline between the third quarter of 1989 to the fourth quarter of 1996 or the 42 percent rout in Los Angeles between December 1989 to March 1997? Since real estate is a conglomeration of local markets, it depends what area you are considering.

Posted in Housing Bubble, National Real Estate | 118 Comments