- City lab’s analyzes why Billionaires Don’t Pay Taxes in New York, concludes that recent housing boom has been in the “ultralux” market and that the owners pay a fraction of their share due to a tax code that shifts the burden from owners to renters and from the wealthy to the poor.
- The Center on Budget and Policy Priorities released an analysis of federal housing subsidy programs and their effectiveness
- Corelogic’s National Foreclosure Report for March 2015 finds that while delinquency rates are down to 3.9% the percentage of mortgagees struggling to make their payments is still above pre-recession levels.
- National Association of Realtors released data showing decreased homeownership rates across regional metro areas of the U.S., analysis of this data lead to the conclusion that continued decline in homeownership means the gains are going to fewer people and likely leading to worsening inequality in the U.S.
- The Roosevelt Institute’s Rewriting the Rules of the American Economy: An Agenda for Growth and Prosperity by Joseph Stieglitz, seeks to completely revamp the rules and regulations that shape our economy, corporate behavior and the financial sector – with a view toward creating shared prosperity. Proposals related to real estate finance include, providing §11 bankruptcy protection for homeowners and creating a public option for the supply of mortgages.
- The Urban Institute released Welding a Heavy Enforcement Hammer has Unintended Consequences for FHA Mortgage Market concludes that the significant, easily triggered liability of both the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act have had a chilling effect, causing some lenders to do less origination to reduce their litigation risk.
Tag Archives: property taxes
Salary Needed for a House in 27 Cities
HSH.com has posted a study to answer the question — How much salary do you need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area? The study opens,
HSH.com took the National Association of Realtors’ fourth-quarter data for median-home prices and HSH.com’s fourth-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home — the principal, interest, taxes and insurance — in 27 metro areas.
We used standard 28 percent “front-end” debt ratios and a 20 percent down payment subtracted from the NAR’s median-home-price data to arrive at our figures. We’ve incorporated available information on property taxes and homeowner’s insurance costs to more accurately reflect the income needed in a given market. Read more about the methodology and inputs on the final slide of this slideshow.
The theme during the fourth quarter was increased affordability.
Home prices declined from the third to the fourth quarter in all of the metro areas on our list but one. But on a year-over-year basis, home prices have continued to trend upward.
“Home prices in metro areas throughout the country continue to show solid price growth, up 25 percent over the past three years on average,” said Lawrence Yun, NAR chief economist.
Along with affordable home prices, mortgage rates fell across the board which caused the required salaries for our metro areas to decline (again, except for one).
“Low interest rates helped preserve affordability last quarter, but it’ll take stronger income gains and more housing supply to help meet the pent-up demand for buying,” said Yun.
On a national scale, with 20 percent down, a buyer would need to earn a salary of $48,603.82 to afford the median-priced home. However, it’s possible to buy a home with less than a 20 percent down payment. Of course, the larger loan amount when financing 90 percent of the property price, plus the need for Private Mortgage Insurance (PMI), raises the income needed considerably. In the national example above, a purchase of a median-priced home with only 10 percent down (and including the cost of PMI) increases the income needed to $56,140.44 – just over $7,500 more.
This sounds like a pretty reasonable methodology, but there are a lot of assumptions built into the ultimate conclusions. They are generally conservative assumptions — buyers will get a 30 year fixed rate mortgage instead of an ARM, buyers will have 28% debt ratios. I would have liked to see some accounting for location affordability, because transportation costs can vary quite a bit among metro areas, but you can’t have everything.
As always, I am particularly interested in NYC, the 24th most expensive of the 27 cities. NYC requires an income of $87,535.60 to buy a median home for $390,000. By way of of contrast, the cheapest metro is Pittsburgh, which requires an income of $31,716.32 to buy a median home for $135,000 and the most expensive was San Francisco, which requires an income of $142,448.33 to buy a median home for $742,900.
Risky Reverse Mortgages
The Consumer Financial Protection Bureau released a report, Snapshot of Reverse Mortgage Complaints: December 2011-December 2014. By way of background,
Reverse mortgages differ from other types of home loans in a few important ways. First, unlike traditional “forward” mortgages, reverse mortgages do not require borrower(s) to make monthly mortgage payments (though they must continue paying property taxes and homeowners’ insurance). Prospective reverse mortgage borrowers are required to undergo mandatory housing counseling before they sign for the loan. The loan proceeds are generally provided to the borrowers as lump-sum payouts, annuity-like monthly payments, or as lines of credit. The interest and fees on the mortgage are added to the loan balance each month. The total loan balance becomes due upon the death of the borrower(s), the sale of the home, or if the borrower(s) permanently move from the home. In addition, a payment deferral period may be available to some non-borrowing spouses following the borrowing spouse’s death. (3, footnotes omitted)
The CFPB concludes that
borrowers and their non-borrowing spouses who obtained reverse mortgages prior to August 4, 2014 may likely encounter difficulties in upcoming years similar to those described in this Snapshot, i.e., non-borrowing spouses seeking to retain ownership of their homes after the borrowing spouse dies. As a result, many of these consumers may need notification of and assistance in averting impending possible displacement should the non-borrowing spouse outlive his or her borrowing spouse.
For millions of older Americans, especially those without sufficient retirement reserves, tapping into accrued home equity could help them achieve economic security in later life. As the likelihood increases that older Americans will use their home equity to supplement their retirement income, it is essential that the terms, conditions and servicing of reverse mortgages be fair and transparent so that consumers can make informed decisions regarding their options. (16)
Reverse mortgages have a number of characteristics that would make them ripe for abuse: borrowers are elderly; borrowers have a hard time refinancing them; borrowers can negatively affect their spouses by entering into to them. Seems like a no brainer for the CFPB to pay close attention to this useful but risky product.
Reiss on GSE Transfer Taxes
Law360 quoted me in Fannie, Freddie Look Unstoppable In Transfer Tax Fight (behind a paywall). It reads in part,
Class actions against Fannie Mae and Freddie Mac over hundreds of millions of dollars in unpaid transfer taxes in states and cities around the country continue to pile up, but experts say any attempt to challenge the housing giants’ exempt status is likely futile as court after court rules in their favor.
The Eighth Circuit on Friday joined the Third, Fourth, Sixth and Seventh circuits in ruling that Fannie Mae and Freddie Mac are exempt from local transfer taxes when it ruled in favor of the government-sponsored enterprises, or GSEs, after reviewing a suit brought by Swift County, Minnesota.
Swift County, as with a multitude of counties, municipalities and states before it, sought to dispute Fannie and Freddie’s claim that while they must pay property taxes, they are exempt from additional taxes on transfers of assets. But in what some experts say has come to seem like an inevitable answer, the Eighth Circuit found in favor of Fannie and Freddie.
“The federal statutes that set forth the charters of Fannie and Freddie are pretty clear that the two companies have a variety of regulatory privileges that other companies don’t,” David Reiss, a professor at Brooklyn Law School, said. “One of the privileges is an exemption from nearly all state and local taxation.”
The legal onslaught against the GSEs began in 2012 after U.S. District Judge Victoria A. Roberts ruled in March that they should not be considered federal agencies. In a suit filed by Oakland County, Michigan, over millions in unpaid transfer taxes, Judge Roberts rejected the charter exemption argument and, citing a 1988 U.S. Supreme Court ruling in U.S. v. Wells Fargo, found that “all taxation” refers only to direct taxes and not excise taxes like those imposed on asset transfers.
Counties, municipalities and states across the country were emboldened by the decision. Putative class actions soon followed in West Virginia, Illinois, Minnesota, Florida, Rhode Island, Georgia and elsewhere as plaintiffs rushed to see if they could elicit a similar ruling and recoup millions of dollars allegedly lost thanks to the inability to tax Fannie and Freddie’s mortgage foreclosure operations.
But Judge Roberts’ decision was later overturned by the Sixth Circuit, as were other similar orders, though many district judges found in favor of Fannie and Freddie from the start.
* * *
Many cases remain in the lower courts as well, but experts say the outcomes will likely echo those that played out in the Third, Fourth Sixth, Seventh and Eighth circuits, because the defendants’ chartered exemption defense appears waterproof.
“I find the circuit court decisions unsurprising and consistent with the letter and spirit of the law,” Reiss said. “I am guessing that other federal courts will follow this trend.”
Tax Incentives for Sustainable Homeownership
Harris, Steuerle and Eng have published New Perspectives on Homeownership Tax Incentives in Tax Notes. The report presents
three tax reforms designed to promote homeownership that are fundamentally different from earlier proposals. Many of those earlier proposals would convert existing deductions into credits but would mistakenly, in our view, perpetuate flaws in the current system — namely, the failure to adequately promote the accumulation of home equity. The reforms examined here instead share the common characteristic of subsidizing homeownership through a channel other than the deductibility of mortgage interest, which is the largest tax expenditure for housing. These reforms include a first-time home buyer tax credit, a refundable tax credit for property taxes paid, and an annual flat amount tax credit for homeowners — all largely paid for by restricting the home mortgage interest deduction to a rate of 15 percent. Although far from perfect, these reforms would provide a better and more efficient allocation of housing subsidies and ultimately provide a somewhat larger incentive for wealth accumulation than current policy does. Our simulations show that relative to existing incentives, each policy would raise home prices and make the tax code more progressive. (1315)
This report has some drawbacks, such as overstating the case that empirical studies reinforce “the notion that homeownership improves American communities.” (1315) In fact, the empirical literature is decidedly ambiguous about the spillover and wealth accumulation effects of homeownership, particularly when the last few years are taken into account (I discuss these ambiguities here).
But the report also presents some creative ways to change the incentives that are found in the tax code. They argue, for instance, that it is better to incentivize the accumulation of home equity than unfettered mortgage borrowing. And they make proposals that would do just that. Worth a read.
