patrick.net

Maybe with the current lower brackets we could look at phasing some of those loopholes out. Keep in mind that the effect is on the lower income groups in this country. Basically it is a tax on the poor.

So if we agreed on the subsidy principle what would you have them do? Would you instantly remove the deductibility or would you phase it out?

I would say flat tax and no mortgage interest deduction. :)

So he shopped around for rates, and every outfit obviously salivates over such a customer.
OO,
I have to disagree with your cousin's methodology. The point of going to a mortgage broker is so you don't have to "shop around". I tried this briefly (going to different lenders), once, and it is waste of time. And yes, the tricky part is finding a decent mortgage broker. You do this by interviewing friends, familly and people within the REIC that you trust. I agree he should run from the room if someone is suggesting a product that is totally off base. There are honest brokers out there who will earn their keep (and repeat business/referrals) by finding you the best deal around.

trader,

I think way too many people are pointing fingers at the wrong guys.

There are lots of FBs who defraud the banks, no doubt about that, but when you look at the power balance between those who give out the money and those who receive the money, who actually has an upper hand?? Why didn't FBs get the same treatment 10 years ago?

The real culprit of all this is Wall Street, which decouples the risk and reward for each of the parties. Here is the risk and reward for each of the parties:

FB: taking on the risk of the home appreciation or depreciation way beyond his affordability, reward could be huge but so is downside, aside from getting scammed on a bad rate structure

mortgage banks: risk is negligible as long as he can pass on the loans, reward is commission, the more loans they originate, the more they make, but no substantial upside

Wall Street: risk is negligible since they have the "formula" to price the risk right and they are enough willing investors downstream, and after all, they are the middleman only. However, the reward could be huge due to the brokering volume, and when they twist their model a bit to influence how the pools are priced, we are talking about tens of millions of upside to be shared among a pool of 100s of people.

Investors: huge risk, little reward, well the biggest risk will be born by the retail investors, since the mutual fund managers are only playing with OPM, and they will pocket that annual management fee whatever the return is.

So the bagholders will be the FBs and the investors, aka, the small guys.

My wife and I went to her school reunion last year, there's not shortage of guys in their late 30s making millions annually, all HF and wall street types, at least a couple of them are in the MBS field. Without such a skewed risk reward pattern, nobody can be making that much at that age just by pushing paper around.

It's just the principle of partnership IMO. My current thinking (yes I change) is that you have government make social policy (like planning) let the free market take care of what it naturally would then the remaining areas based on social need or spillover potential naturally either falls into the government turf or through various mechanisms can be obtained through PPPs which are Public Private Partnerhsips. It's basically what I did my thesis on that's why I may seem a little opinionated about it.

I would say flat tax and no mortgage interest deduction.

Especially at the higher brackets. When it is all figured out some of these high rollers pay a smaller percentage than you and I do through some idiotic loopholes you have ever seen.

Yes but the problem is that all the goverment ’subsidies’ simply have the effect of raising the prices by the exact amount of the subsidy.

Exactly.

Why does the government "need" to favor one asset class (house flipping vs. daytrading) or one type of shelter (rent vs. buy) over another? Are we really running out of houses?

Why should the tax code reward unproductive activities (flipping/RE speculation)?

Why should loanowners enjoy superior rights/tax benefits over renters?

Why should early-born loanowners (Boomers, Silent Gens) enjoy superior rights/tax benefits (Prop. 13) over later-born loanowners?

Why should the tax code be as thick as a phonebook and require a law degree to decipher?

Tax code is kept thick so that CPA and tax lawyers get to keep their customers. You don't want a lot of CPAs and tax lawyers on the street, do you?

@OO,

No. I just want them repurposed for more productive activities, like waiting tables, changing tires, or cleaning bedpans at the local nursing home.

"IF we must have property tax the best way is have it base on the rental equivalent value. This way, it is just a form of consumption tax."

Another reason is that its predictable... "rental equivalent value" goes counter to the reason behind Prop 13... Should owner be forced to pay for inflation as well? No not really... Taxes prior to Prop 13 were insane.

Why does the government “need” to favor one asset class (house flipping vs. daytrading) or one type of shelter (rent vs. buy) over another? Are we really running out of houses?

-It is misguided policies but the goal and thinking is that home ownership brings pride and upkeep to areas because people have a vested interest in their shelter. I know Peter is going to back me up on that one.-

Why should the tax code reward unproductive activities (flipping/RE speculation)?

-Normally these are value add activities because someone buying a house to rehab it adds value by investing, upgrading, and increasing the tax base. Modern flippers who add no value are somewhat of a phenomenon. I certainly wouldn't base public policy on the last 3 years.-

Why should loanowners enjoy superior rights/tax benefits over renters?

-For the reason mentioned in the first part. It is generally good for society to have people own their homes.-

Why should early-born loanowners (Boomers, Silent Gens) enjoy superior rights/tax benefits (Prop. 13) over later-born loanowners?

-because you don't want a system which forces retirees out onto the streets because of the stupidity of others. Especially when they didn't do anything to cause it.-

Why should the tax code be as thick as a phonebook and require a law degree to decipher?

-At least computerized software is helping, but everytime a lobbyist spends enough money they get to add a page to it.-

Should owner be forced to pay for inflation as well? No not really… Taxes prior to Prop 13 were insane.

Space Ace, when inflation is high, SOMEONE has to pay for it. All Prop. 13 really did is to transfer that inflation-via-taxes to someone else (younger buyers). It did not repeal inflation nor property taxes. There is no free lunch.

@ gepetoh,

Wow is that old school! If only reality was that way today I'd be a buyer instead of a renter.

OO Says:

> My cousin was recently being upsold HELOC,
> I/O, negam loans.

It is interesting the way some people look at mortgage brokers and salespeople in general.

Customer # 1 may tell his friends: “I found a great loan broker who offered me an IO loan to reduce my monthly payment.”

Customer #2 may tell his friends: “I just ran out of the office of a creepy crooked mortgage broker that tried to upsell me and trick me in to getting an IO loan”

> He is about 70% equity since he bought over 10 years ago,

So unless he pulls out a ton of cash he will be fine with almost any type of loan (even the dreaded neg am IO combo)…

> So he shopped around for rates, and every outfit obviously
> salivates over such a customer. However, instead of quoting
> him the best rate possible on what he wants, all of them tried
> to talk him into I/O loan to “lower” his monthly payment (come
> on, this guy is trying to pay off his mortgage ASAP), and some
> tried to “upsell” him into HELOC loans to “free up” his home
> equity for “home improvement”. One outift even suggests that
> he should get a 5 year ARM that will reset later because the
> rate is “better”.

People don’t always say what they want right away. Ask anyone in sales how many people that come in looking for a cheap TV to replace the 19” set that died who walk out with a 66” plasma screen or how many people that come to just refi leave with an extra $100K in home erquity.

@gepetoh,

If the buyer has no downpayment and gets an interest only mortgage that whole first paragraph is false.

trader Says:

>Right now, there is NONE IN THE CHAIN holding
> this risk, and the TAXPAYER IS THE BAGHOLDER.

We may see some new laws or programs down the road, but under current laws it is BONDHOLDERS not TAXPAYERS the take a hit every time a Borrower does not make a payment (some of my best friends buy and manage pools of high risk CMBS bonds)…

Why should early-born loanowners (Boomers, Silent Gens) enjoy superior rights/tax benefits (Prop. 13) over later-born loanowners?

-because you don’t want a system which forces retirees out onto the streets because of the stupidity of others. Especially when they didn’t do anything to cause it.-

I don't want this thread to turn into *yet another prop. 13 debate*, but I can't leave this one unanswered.

So you say retirees are "forced out into the street", eh? They cannot just "sell their expensive city house" and move to another house in a cheaper area (they way people used to do before prop. 13)? And if they insist on keeping that expensive city house (near the jobs they no longer need to commute to), they cannot get a reverse mortgage to help pay the taxes and upkeep? I am somewhat skeptical about this claim.

So, the system that "forces" house-rich retirees to move to less densely populated areas is somehow "cruel" and "unfair". But the system which helps price ME out of the market (by rewarding unproductive speculation) and then forces ME to pay huge-assed taxes & fees (Mello-Roos, special assessments, etc.) to subsidize all those "poor retirees" is A-Ok?

Trader,

You are spot on with the shell analogy.

Prop 13 is not the government's fault, it's the People

Hence, Prop 13, and not Law 13.

The People wanted it, and that's what they got. It is still super popular.

Taxes prior to Prop 13 were insane.

Absolutely - In states that didn't have Prop 13, their citizens all went bankrupt and then DIED of scurvy because they couldn't afford vitamin C anymore.

-because you don’t want a system which forces retirees out onto the streets because of the stupidity of others. Especially when they didn’t do anything to cause it.-

Absolutely - In states that don't have Prop 13, seniors are not only forced out of their homes on a daily basis, they're then ground up and provide heat for... gasp... schools.

RE: forced out into the street

If the market desires, so be it.

I agree that property tax should not be based on some marked-to-market home prices though.

This is not a video game and most of the time gradual reforms are almost always the safest bets…

Right. We should test it out first. Let's peddle Prop 13 on that virtual world so that some cartoonish seniors will not be forced out into the cartoonish street.

May I just say that it is very important to remember that many REVOLUTIONARY ideas that looked SENSIBLE ON PAPER resulted in great carnage (Communism, Fascism, the cultural revolution…)

I'll add to that "Option ARM" and "Condo Flipping"

Right. We should test it out first. Let’s peddle Prop 13 on that virtual world so that some cartoonish seniors will not be forced out into the cartoonish street.

:lol: And let's not forget the cartoon Boomers that will tar-and-feather any politician that suggests 'reforming' their Holy cartoon Prop. 13, Third Rail of cartoon Clownifornia.

Actually, has any other state implemented something like Prop 13?

I know a few were considering it...

I know a few were considering it…

Trust me. It is the trend. Fortunately, they are comtemplating it at the top of a cycle.

Right. But still, it's really easy to sell the Thatcher line:

And, you know, there is no such thing as society. There are individual men and women, and there are families.

I really hope more states adopt it. That should put the final nail in our nation.

Actually, has any other state implemented something like Prop 13?
I know a few were considering it…

Yes: Florida. "Save Our Homes" (1992)
http://www.co.palm-beach.fl.us/papa/SaveOurHomes.htm

Funny how the two states with Prop. 13 laws on the books are the ones most associated with the housing bubble.

I definitely prefer having a market process to ensure that land uses are being optimized. Prop 13 is nothing more than a rent control program (for land).

From the summary that Trader provided, the NJ law does not impose liability (whether on the originator or on the investor) for fraud. It limits the amount of fees and points that borrowers can be charged, prohibits negative amortization loans and mostly restricts the types of provisions you can have in a loan. So long as the loan do not contain the prohibited provisions, and the borrower signs the appropriate forms, the law does not appear to impose any liability, even if the borrower is borrowing beyond his means, being duped by his mortgage broker or the victim of compromised lending standards. What Barney Frank and Spencer Bachus are proposing, and what PAR and Trader support, is very different from than what the NJ law contemplates.

I will be checking into rehab after I meet with a schoolroom full of prop 13 owners to apologize to them as well as Al Sharpton.

LOL. What a charlatan that Al Sharpton is.

May I just say that it is very important to remember that many REVOLUTIONARY ideas that looked SENSIBLE ON PAPER resulted in great carnage (Communism, Fascism, the cultural revolution…)

This is not a video game and most of the time gradual reforms are almost always the safest bets…

TOS,

You are truly the master of setting up straw man arguments to knock down. That's right. Doing away with Prop 13 is just like imposing communism or fascism.

My only issue with prop 13 is that Mr&Mrs McDebtor do not have their property tax re-adjusted when they refi their McChateau. If you refi your McChateau you are actually selling it to yourself. Why not tax them at the higher rate?

HARM
So you say retirees are “forced out into the street”, eh? They cannot just “sell their expensive city house” and move to another house in a cheaper area (they way people used to do before prop. 13)? And if they insist on keeping that expensive city house (near the jobs they no longer need to commute to), they cannot get a reverse mortgage to help pay the taxes and upkeep? I am somewhat skeptical about this claim.

Great, so someone worked their whole life paid their house off, is in retirement, and because HARM's agenda is not in line with theirs they have the joy of leaving their house to move. Way to promote the disposable society. Thank God it was an initiative that would take a super majority to overturn.

HARM Says:
April 10th, 2007 at 6:58 pm
Funny how the two states with Prop. 13 laws on the books are the ones most associated with the housing bubble.

What is your deal with this? This is almost self answering since living in those states past retirement would be miserable with volatility forcing you out of your house. Most impartial people would have to agree that we don't want public policy which says too bad to someone who has been in their house for what you determine to be too long. This sort of class envy is really distasteful. They had to pay the assessed rate when they bought, if you think it is too high at the present then don't buy. You don't get to just change the laws when you want to.
Also, if you are so solid on your argument, you would have to agree that a tax that penalizes new buyers more than the old ones puts DOWNWARD pressure on prices. You're shooting yourself in the foot for the sake of ....what?

What’s worse is that Jack Guttentag (Mtg. Prof.) has already said that the MB’s are fighting disclosure on YSP (yield spread premiums) tooth and nail!

My sub-prime MB mate in DC gets something like 5% commission for landing a loan, in one up-front payment, I don't believe they get trailing commissions. The 5% is a mix of YSP and borrower charge. They also have a couple of other bloated fees for credit checks and so on. Maybe that's why they clear $250K a year in the business, while working from home and never having to commute or answer to a boss... It's a hard life...

My only issue with prop 13 is that Mr&Mrs McDebtor do not have their property tax re-adjusted when they refi their McChateau. If you refi your McChateau you are actually selling it to yourself. Why not tax them at the higher rate?

No they are getting a loan and using the house as collateral. We can be as figurative as you want but you getting a cash advance on your credit cards would have sales tax if you followed that logic. Also, why do you even care what an FB does. You're smarter than them, just sit back and let them hang themselves, then come in and clean up.

News story last night said that inflation in food is significantly outstripping CPI...

Inflation in food could be due to higher freight costs from oil price rises, or it could also partly be a spin-off effect from the housing boom.

Ironically, the CPI is calculated on the cost of a 'basket of goods' -- so how long is it before this flows through to a CPI/inflation level of say 8%? The 'basket of goods' includes rents but not mortgage payments, interestingly.

So now we are seeing higher fuel prices, higher rents, and higher food prices. Apart from higher mortgages. What happens next?

For those that are wanting all of these reforms to punish people for whatever reason, keep in mind that you are limiting your own potential gains when you regulate a system to the point that it doesn't produce any wealth. I've said it before, the fundamental reasons for home ownership are sound. It provides stability over the long haul as a hedge to increasing rents, it becomes an asset with equity to sell, and when it is yours it is a very secure source of shelter for retirement.