[Subprime Truth In Lending] From A To Regulation Z

July 16, 2008 | 12:01 am | |

The Federal Reserve finished crafting their subprime mortgage rules regarding Truth in Lending called Regulation Z. I am doubtful that this rule would have been updated if we weren’t experiencing the current mortgage market turmoil.

Because this is such an important issue, it will take effect on October 1, 2009 (more than a year from now.)

“The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership,” said Federal Reserve Chairman Ben S. Bernanke. “Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers,” the Chairman said.

Ask anyone whether they thought these types of rules would already be on the books (for high priced mortgages – 1.5% above the “average prime offer rate”) – here are some excerpts:

  • Prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value.
  • Require creditors to verify the income and assets they rely upon to determine repayment ability.
  • Ban any prepayment penalty if the payment can change in the initial four years.
  • Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

And here are rules for all loans, not just high priced:

  • Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value.
  • Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees.
  • Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan secured by a consumer’s principal dwelling, such as a home improvement loan or a loan to refinance an existing loan.

Is it just me or do these rules seem crazy obvious? Why aren’t they on the books already? Why on earth do these rules only apply to subprime mortgages? Not Alt-A or Prime?

Speaking of scapegoating subprime, and something about the squeaky wheel getting the grease, lets talk oil and the evils of the dreaded speculation.

And the tale of two economies…

Highlights of Regulation Z [Federal Reserve]


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[The Hall Monitor] Bigger Is Not Always Better

May 19, 2008 | 1:04 pm | |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. This week Todd argues that we bought the ranch when we learned that smaller size does matter. …Jonathan Miller


McMansion, Starter Castle, Hummer House these are just a few of the nicknames that have been given to big new houses (by their critics) in existing neighborhoods of smaller houses. No one can argue that the “teardown” followed by the super-sized new house has not altered the suburban landscape in recent years. But the principle of highest and best use, which made the 1950’s Split Level an endangered species in many affluent communities, lives on. And the brand new Starter Castle next door is no more immune to the passage of time than was the Split Level it replaced.

In fact, if recent history is a harbinger of things to come then the economic lifespan of all our buildings, both residential and commercial, will be shorter in the future than it was in the past. Look at the ages of the buildings being demolished. With houses it’s nearly anything built after 1950. Many municipal buildings, sports stadiums, and the like have had, or will have, shorter lives than did Mozart (who died at 35 years of age).

Might Peak Oil and $4 plus gasoline do for outsized houses in outlying suburbs what PETA did for the fur industry? This is not to say that there won’t be big houses anymore inasmuch as there are still lots of people who like wearing fur coats and eating meat. Unfortunately, the newer McMansions are not usually located in the most desirable areas, within walking distance of shopping, train stations, etc. That’s where the “real” mansions are, and have been for 75 years. The newer big houses are mostly located in the outer ring suburbs, where they’re much more automobile dependent.

A story in the May 18, 2008 New York Times entitled Imagine No Possessions addresses ‘voluntary simplicity’, a movement which is the antithesis of the culture of the McMansion. A less affirmative “movement” based on the more mundane and difficult economic reality heading our way might be called ‘involuntary simplicity’. We may not be able to afford to maintain the McMansions, once they are no longer new. Big houses cost more to acquire and more to maintain. They have higher taxes due to their higher values (at least for the time being). But bigger houses are not always worth more than smaller houses.

There is a neighborhood in the Village of Bronxville known as Lawrence Park. Bronxville is a wealthy suburb just north of New York City and “The Hilltop”, as Lawrence Park is also known, was developed by William Van Duzer Lawrence in the late 1800’s as an artist’s colony. The houses are quite large, uniquely styled and sited on steep slopes along very narrow cobblestone roads. In recent years these houses have been renovated and they are today, some of the most valuable houses in Bronxville. But for decades following WWII this was a neighborhood in physical decline, based on historical assessment records. A longtime Hilltop resident once described it to me as a “slum” when she built her house there in the 1950’s.

If you walk through that neighborhood now it seems hard to believe but you have to consider how the world was looking in the 1950’s. As we all know, the 1950’s was a boom period for suburban construction and if you were buying a house you had the choice of a brand spanking new Ranch or Split Level with all the latest amenities, or one of these “old fashioned”, drafty dowagers then approaching 60 years old. Modern was “In” and late 19th century was definitely “Out”. The assessment records from that era reflect the fact that the newer, albeit smaller houses had higher values than the older ones.

There may come a time in the not so distant future when the adjustments appraisers make for differences in living area reverse themselves and the larger house is adjusted downward. It won’t be the first time that smaller houses will have been in greater demand, and more valuable, than larger ones.


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[Blind Eye Turned] Not Caring About The Borrower’s Income Could Be Criminal

May 6, 2008 | 12:01 am | |

When a lender is issuing mortgages to be competitive with their fellow banks, common sense can take a holiday. Over the past several years the proliferation of no doc or “liar loans” showed that the wheels came off the mortgage lending wagon. All common sense, reasoning and rationale thought was thrown out the window. At what point does negligence become criminal?

Q: Can any imagine lending money to someone today, basing the decision to give hundreds of thousands of dollars to a borrower who doesn’t need to prove their income and take very little effort to understand the value of the asset being used as collateral? Oh yeah, and then securitize those mortgages to legions of unwitting investors (with full disclosure, of course)?

A: Never in a million years, or less than a year ago, whichever comes first.

It looks like the FBI is getting involved. They have formed a task force to investigate whether lenders turned a blind eye to inflated income figures. It would seem fairly simple to cross check mortgages and stated income paid for taxes. The IRS and the FBI may very well be working together a lot in the near future.

The Federal Bureau of Investigation and the criminal division of the Internal Revenue Service have formed a task force to examine mortgages that were made with little or no proof of the earnings or assets of borrowers, a government official who had been briefed on the matter said Sunday.

The task force, which was established in January, stepped up its investigation in recent weeks as the financial industry disclosed billions of dollars in additional write-downs from bad mortgage investments. The latest inquiry is broader and deeper than a separate F.B.I. investigation of mortgage lenders that is also under way.

While the new task force is focusing on the role of mortgage lenders and brokers in low- or no-documentation loans, it is also examining how the loans were bundled into securities.

“This is a look at the mortgage industry across the board, and it has gotten a lot more momentum in recent weeks because of the banks’ earnings shortfalls,” the official said.

Speaking of turning a blind eye: Sure, Jonathan Miller Can Value Your Home, But Can He Cook?



[Straight From MacCrate] Real Property Taxation Is It Fair?

April 8, 2008 | 11:31 pm | |

Jim MacCrate, MAI, CRE, ASA has his own firm, MacCrate Associates, but has worn many hats as a Director at PricewaterhouseCoopers in New York City and Chief Appraiser at European American Bank. He is a prolific writer on valuation issues and teaches a number of the real estate appraisal classes through the Appraisal Institute and New York University. I have had the pleasure of taking a number of courses taught by Jim. His wife Judy is an SRA and is an accomplished appraiser in her own right, having managed an appraisal panel for a large lending institution throughout its various mergers for a number of years. I can only imagine the riveting conversations at dinnertime.

Jim shares his thoughts on how taxing the real property tax process is – like a maze of pipes.
…Jonathan Miller

I have a great deal of respect for civil servants and the professionals who work in the real property tax assessment offices throughout our country. Many hold appraisal licenses in their respective states and are members of the Appraisal Institute, The International Association of Assessing Officers, American Society of Appraisers, and other professional organizations. Theirs is an extremely difficult job; nobody really likes them because the general public perceives them as tax collectors. In actuality, politicians determine the budgets and set the tax rates applied to the assessed valuation that determines your real property tax liability. In addition, politicians tend to limit the resources for the real property assessors to do an adequate job. Further they fail to enforce standards such as mandatory licensing for all personnel in the real property tax departments, hearing officers and judges who hear the grievances, and the property owners’ representatives who prepare the tax appeal cases.

Real property taxation is no longer a fair and equitable method to pay for the cost of government and social services. At one time, real property represented the majority of wealth and produced most of the income from farming and other operations. Wikipedia states that the conventional property tax has some advantages—simplicity, stability, and open record keeping—but also many disadvantages.

The first disadvantage is market value assessment procedures. Market value can change dramatically with the fluctuating real estate market conditions as we are just witnessing. The second disadvantage is selected assessment and visibility because rent and leaseholders are not directly taxed. Most often the current assessed value is unrelated to any implied level of government service. Further inequities include that property taxes do not adequately provide for education and other social improvements in impoverished areas. Because real property valuation is more of an art than a science, the real property tax system has become just as corrupted as mortgage brokerage operations on Wall Street. Likewise our politicians ignore the fixes that are required, just as they failed to act to prevent our current mortgage banking meltdown.

Wealth today is no longer concentrated in real estate because on average it has been leveraged to 80% or more. In addition, the mortgage financing opportunities of the last five years created fictitious wealth and many individuals who were mislead, today are struggling or defaulting on their mortgage payments, so don’t have a prayer of meeting their real property tax liabilities. Financing influences the price paid for real estate; certainly the irresponsible actions of Wall Street and the bankers during the mid-2000s have resulted in inflated real property values from 15%-20% or more across the board in most communities. Any reassessment based on sales inflated by favorable financing is neither justified, nor equitable. Instead of real estate, wealth is now concentrated in stocks, bonds and other investment vehicles.

In addition, many lawyers and appraisers who present tax appeals are not licensed and thus not required to subscribe to a code of ethics similar to those of professional appraisal organizations. Similar to appraisals prepared by mortgage brokers, their improper valuations are biased, so their status as advocates is questionable. Their compensation is often contingent on the tax savings, regardless of whether the tax ruling is fair and equitable to the remaining residents in the community who must pick up the shortfall.

As a member of the Appraisal Institute, my compensation cannot be contingent upon the reporting of a predetermined value or direction in value that favors the client’s cause, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. In addition, my analyses, opinions, and conclusions are developed, and my reports have been prepared according to the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute and in conformity with the Uniform Standards of Professional Appraisal Practice. Most importantly, if someone in the tax assessment department feels that I have violated that code of ethics, he/she can send my reports to the Appraisal Institute for peer review.

Now is the time for our politicians to focus on alternatives to real property taxation to be fair and equitable. At the very least, licensing should be mandatory for all practitioners involved in the real property tax assessment process, which includes attorneys, hearing officers, judges and anyone involved in assessment-related activities.

The author was on the Board of Assessors and the Assessment Review Commission in Nassau County. Thanks also for editorial assistance from Nancy Reiss, The Write Stuff and Max Ramsland, MAI.


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When I’m 64? How About Now?

April 7, 2008 | 10:44 am | |

I like to read Bill Gross’ column every month (and podcast) and have mentioned it here on more than one occasion. He is a smart man and the zen-god of the bond market via his firm PIMCO. He is not without his critics and his columns have a lot of extra style stuff inserted that blur their clarity, but they are still worth reading. And the Beatles, of course, are still worth listening to.

This month Gross touches on asset-backed lending in his column, When I’m Sixty-Four, a tried and true (sort of) form of mortgage lending where the lender actually understands who they are lending too, something lost in the recent surge in securitization run amok. Of course, keep in mind that JP Morgan was a robber baron.

I’ve had a famous picture of J.P. Morgan on my office wall for 25 years. Even now, the old man seems to be staring at my back and taunting me with his famous quote written just below his vest with pocket watch in full view: “Lending is not based primarily on money or property. No sir, the first thing is character.”

If there is not swift action at a Federal level, we’ll likely slip into a significant economic downturn.

In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities. As a result, the deflating private market’s balance sheet is being re-nationalized in some cases with increased regulation, in others with outright guarantees and agency lending. Ultimately government programs which support private credit market assets may be required in order to prevent an asset deflation of significant proportions. Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices.

Think of the recent Federal Reserve rate cuts as a bailout.

Politicians – especially those on the Republican side of the aisle – are adamant about not using taxpayers’ funds to bailout Wall Street or housing speculators, or whoever the current devil may be. The public seems to nod in agreement while at the same time not noticing that their watch is being lifted or their pocket being picked. Let’s see: Twelve months ago the yield on your money market fund was 5%+ but your next statement will probably feature something closer to 2%. Did your money market fund (which in aggregate approaches 3 trillion dollars) experience any capital gains in the process? Absolutely not. So it looks like your (the taxpayer’s) contribution to the bailout of banks, or Florida condominium speculators can at least be quantified: 3% foregone interest per year on whatever you own

Now think about how free markets work. How can they perform freely if no effective standards or guidelines are in place? It’s not about more regulation, it is really about effective regulation and removal of distractions or those that provide a false sense of security.

You only need to look at the state of the current credit markets. Investors do not trust the packages being sold, and that is why we are in the mess we are in.


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[Housing Blame Game] Better Than PAC, Man

March 20, 2008 | 12:05 am | |

About a year and a half ago I posted about the housing blame game in my post, oddly enough called: [Matrix Commentary] The Housing Blame Game

As the falling housing market shakes financial institutions and pummels Americans in an election year, the nation’s economic woes have surged to the top of voters’ minds. The timely question: To what extent are politicians and regulators at fault?

Since its an election year, it is now fodder for the ongoing presidential election campaign. The Wall Street Journal had a page one story about this yesterday with a pretty neat graphic:

Open larger version.

  • Republicans: In power during the housing price run-up. Cheerleaded riskier mortgage products.
  • Democrats: Pushed homeownership increase. Prevented tough laws on subprime regulation.

The article seems to place more blame on the Republicans but housing has always been political.

As far back as the Civil War, owning a home has been associated with civic virtue and moral behavior. Democratic and Republican administrations alike sought to raise homeownership through subsidies, tax breaks and dedicated agencies.

When George W. Bush took office, that push became a pillar of his “ownership society” campaign. “We want everybody in America to own their own home,” Mr. Bush said at a housing conference sponsored by the White House in October 2002. Earlier that year, he issued a “challenge” to lenders and others in the industry: Create 5.5 million new minority homeowners by the end of the decade. In 2003, he signed the American Dream Downpayment Act, creating a program that would offer money to the poor so they could secure a first mortgage.

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[Matrix Zeppelin] a hefty profit, take your family out to dinner, Prolonging, rather deal with higher interest rates, greed and dishonesty, cliches, They are the worst, “fix” value, staight out liar, muck up the works

March 3, 2008 | 12:01 am | |


Well, the Matrix Zeppelin needed repairs, but the turmoil in the credit markets made it difficult to get a loan to make the repairs. But with the stimulus plan rebate check on its way, I decided to put the repairs on my credit card. Here’s a selection of recent comments on Matrix, whose readers cut to the chase:

  • Eliminate AMC’s and their high pressure tactics. They muck up the works mostly, get the instructions wrong, order 1004’s for condo units, forget to give you a unit number, or sales contract, contact phone numbers, etc etc.

  • Who has been a lender for 15 years is just a straight out liar. Terry comments that he or she has not yet to find an appraiser who will fix value. That means that he or she has tried, therefore the problem does exist. I believe Terry is just mad because now he or she will not be able to control a appraiser or appraisal value on a property. I have had on numerous occasions mortgage people call to see if I would push value. I never did and never will.

  • I’ve been a table funding correspondent lender for 15 years and I’ve yet to find an appraiser who will “fix” value for me. Your premise that mortgage brokers are pushing appraisers to set value, in my opinion, means the appraiser is the one to blame, not the mortgage broker. Certainly, there are “crooks” in every aspect of every business. Maybe you should get rid of them and not penalize those that have never had an issue following the lending guidelines.

  • Unless there is a minimum appraisal fee then I see more problems coming from this then good. How is the government going to order an appraisal? What would be different from whats going on with AMC’s now? They are the worst of the worst in terms of pressure and poor training. Somebody better clarify this quick because there is no such thing as a disinterested business

  • When we start to see lots of job listings for asset managers and work-out professionals on monster.com et al we’ll know this thing is getting understood and we’re there. Until then we hang in

  • There’s been a paradigm shift in cliches

  • the banks lent 100%+ on the appraised value of the home without looking at ANY supporting documentation. The model is flawed because it does not account for greed and dishonesty.

  • As a buyer, I’d rather deal with higher interest rates and less innovative financial products along with a lower house price. My property taxes will be lower, and I can always refinance if interest rates drop in the future.

  • What’s the point if they’re just going to default a few years later due to ARM resets? Note that I’m not even talking about the abuse from liar loans. If the conforming limits varied by region years ago, I would not have a problem with that. However, introducing this right now (and temporarily at that) will have the effect of prolonging the housing crisis more than necessary.

  • Jon Stewart summed up the “too little too late” observation on the Daily Show last night with the following (paraphrased) quip: “Look, we know your house is in foreclosure … and you lost your job … and you don’t have health coverage. But listen, here’s $400. Take your family out to dinner at a nice restaurant and try to forget we destroyed your economy.”

  • This video makes it seem like all the people who got mortgages needed to refinance or had rate adjustments. While in fact most people never needed to refinance nor did they have rate adjustments. Additionally, of those people that needed to get out of their sub-prime mortgages, a large portion were able to sell their property, which appreciated enough to yield them a hefty profit.

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FDIC As Tipster: Negotiating A Good Mortgage

November 20, 2007 | 12:02 am | |

When I came across this download mp3information by the FDIC, it brought to mind something I thought of while reading the review of Steve Martin’s new book “Born Standing Up” I saw in Time Out New York Magazine yesterday.

I remember one of my favorite Martin routines went something like:

>Q: How to have a million dollars and never pay taxes…

>A: First, get a millions dollars…then…

In other words, their advice is probably too late for many, although the FDIC probably means well with their publication.

The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans :

  • Try to raise your credit score in the months before you apply for a mortgage, such as by paying off much or all of what you owe on credit cards.
  • Contact several lenders, let them know you are comparison shopping, and then try to negotiate the best deal.
  • Compare fixed-rate and adjustable-rate mortgages (ARMs), even if the latter carries a lower initial interest rate, because a fixed-rate loan may be cheaper in the long run.
  • Be wary of a loan with payments that can increase substantially, such as mortgages with low monthly payments in the early years in exchange for the deferred repayment of principal and/or interest.
  • And, watch out for unfair and deceptive sales practices that lure people into costly or inappropriate loans.

Definitely wild and crazy advice.

Of course, it might make more sense to seek a loan modification.

Sheila Bair, chair of the FDIC has a constructive solution for borrowers in trouble:

>She’s proposing that the banks automatically modify every subprime loan if the borrower lives in the house and has been paying on time. Payments would continue at the starter rate, without a step-up. That could prevent foreclosure on about 1 million loans, Bair says, freeing overtaxed bank staffs to focus on the borrower’s default.

Loan modifications could be a good halfway point for many to avoid foreclosures. Lenders learned that it was often cheaper to renegotiate than to bear the expenses associated with foreclosure.


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Government Needs The Housing ATM Too

November 17, 2007 | 11:54 pm | |

As I was charged $1.50 today for using another bank’s ATM, I thought…

A lot has been made about the impact of the weaker housing market on consumer spending:

The question, though, is just how much consumers will restrain their free-spending ways. Research by economist Carroll suggests that every $1 decline in house prices lops about 9 cents off of spending. The current value of residential housing is about $21 trillion, according to the Federal Reserve. So if home prices fall by 10%, as many people expect, that would lead to roughly a $200 billion hit to spending over the next couple of years. A 15% tumble in home prices would produce a $300 billion pullback in spending, or about 3% of personal income.

That accords well with calculations by BEA economists. They figure that households took out $340 billion in cash from mortgage and home-equity financing in 2006. That source of funding could largely disappear over the next couple of years.

The California Governator [-10%] ordered all departments to plan for significant budget cuts because of the weakening housing market.

In response, Schwarzenegger’s finance department has ordered agency directors to formulate plans to cut budgets by 10% for the spending blueprint the governor will unveil in January, according to administration officials who spoke on condition of anonymity. That would mean substantial cuts in all state programs, including education, transportation and healthcare, the officials said.

NYC Mayor Bloomberg [-2.5% to -5%] issued a hiring freeze and curbs on spending due to a weakening economy.

It is the first time officials have resorted to a citywide plan to make cuts since October 2002, when the budget was still reeling from the aftershocks of the Sept. 11 terror attack. Since then, the city’s superheated real estate market and fat payouts on Wall Street have led to surpluses, including a record $4.4 billion in the last fiscal year, which allowed the mayor to increase spending and services while cutting taxes and offering rebates.

Reduced transfer taxes, real estate taxes and other housing related revenues may cause many local and state governments to pull back spending that may have ballooned during the housing boom. If governments don’t react quickly enough, taxes will need to be raised to make up the shortfall.

The ATM like behavior of local government is an economic element of the weakening housing market across the country that doesn’t get much attention.



Housing Market Depreciates The Politics Of Future Expectations

November 14, 2007 | 11:34 pm | |

Whatever your political persuasion, the housing industry is moving through politics like a freight train these days.

And why not? Housing is a key source of employment, wealth, taxes, consumer spending and personal identity in the US. The cynic in me strongly believes that the average citizen votes with their wallet. Well, the wealth effect associated with a weaker housing could make for a higher voter turnout next year (ok, ok thats a “glass is half full” political forecast).

Andrew Leonard’s The politics of home price depreciation in Salon.com that addresses the subject.

A key idea in the article is that the exurbs (beyond the suburbs) have been the bastion of new housing development championed by the current executive branch, yet those areas are among the hardest hit by the housing market slowdown. This housing-politics link resonates with me because of all the recent politics associated with housing:


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[The Hall Monitor] School Taxes Are Up But Not As Much As Houses

November 6, 2007 | 11:59 pm | |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

Two sure things: death and school taxes. …Jonathan Miller

The median price of a single family house in Westchester County – $285,000 in 1996, had increased 139% to $680,000 by 2006. There have been no complaints in our (Assessor’s) office from homeowners who were along for that ride. School taxes however, have also increased during that ten year span, though not quite to the same extent. For the twenty school districts comprising lower Westchester County, the increase in the school tax rate (less any reduction in the taxable assessed value for the district) averaged 105% with a median increase of 110%. I’m still waiting for the first person to come in to our office and say “Although my school taxes have more than doubled, I understand that the value of my house has gone up be even more than that, so I can’t really complain”. The fact is they can complain, and they do!

I do not have the statistical data to support this statement, but there has been a significant increase in student enrollment, the result of a recent “baby boomlet”, which is at least partially responsible for the double-digit annual increases in the school tax rates. This however, is no comfort to those struggling beneath the weight of ever increasing tax bills, particularly those on a fixed income, which is to say senior citizens. Fortunately, there are exemptions available to seniors, depending on their income, (Enhanced Star and Senior Citizens) which can lessen their tax burden to a significant degree. Unfortunately, whatever reductions they may see in their burden are merely re-apportioned to the rest of us. There is a certain amount of money that has to be raised and this is the tax levy. And if one taxpayer’s bill is reduced by one dollar, everyone else will see an increase to the extent necessary to make up that one dollar. It is a zero-sum game.

The most common argument I hear from people, usually but not always seniors, goes like this “I don’t have any children in the school district so why should I have to pay school taxes?” My answer has two parts. Part one is “there was a time when you did have children in school, and others didn’t, and yet they paid for yours.” But I think the more accurate answer is that there is a societal cost to the raising of each new generation. In supposedly advanced societies such as ours, we pay school taxes. We don’t have to pay school taxes – we don’t even have to have public education at all! Let those who can afford it send their children to private school and to hell with the rest of them! However, NOT educating children has a cost as well, a societal cost. Not paying, it seems to me, is not one of the choices. We can pay for schools, or we can pay for jails, and the fear of a group of young people walking by, or the frustration of day to day life interacting with store clerks who can’t make change for a dollar. But not paying is not one of the choices.

I am not an apologist for the status quo. Clearly, the cost of providing the services we expect in our communities has reached a tipping point and will, at some point, affect our ability to compete in a global marketplace, where one’s geographic location is less important than ever before. But for this to happen, people living in our communities have to take responsibility, as citizens, and participate more fully than they have in the past. As one who works with “the public” every day, I’m not hopeful. The old adage goes, in reference to a question posed to the average citizen “Which do you think is the greater problem today, ignorance or apathy”, to which the citizen answers “I don’t know, and I don’t care.”


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[The Hall Monitor] New York State Real Property Tax Law is Kafkaesque (Or is it the other way around?)

October 28, 2007 | 12:17 pm | |

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

In this column, Todd makes an arcane labyrinth of taxation more understandable in a literary confusing and complex sort of way. …Jonathan Miller

I had never read anything by Franz Kafka but I was familiar with the term “Kafkaesque” and I used it when trying to explain the nature of tax assessment in most of the municipalities comprising Westchester County. I didn’t really know what it meant but somehow it seemed appropriate. Then one night just for fun I decided to read one of his stories, “The Metamorphosis” actually, I only read the first sentence “As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect.” (note to self forget “The Metamorphosis”, by Franz Kafka and pick up a copy of “Charlotte’s Web”, by E.B. White)

Understanding Kafka may be difficult, but it is nothing in comparison to deciphering New York State Real Property Tax Law, particularly Tax Assessment as it is practiced in most of Westchester County. Here are just a few of the inconsistencies, contradictions and misconceptions you will find in the Tax Law.

The law states that “All property must be assessed at a uniform percentage of value”. It doesn’t have to be assessed at 100% of value, it can be assessed at 1%, but it must be “uniform” for all property. So if your property has a market value of $1,000,000 its assessment may be $1,000,000 (100%) or $10,000 (1%), or as is the case in my town presently $13,800 (1.38%). That’s easy enough to figure out, right? Your house has a value of $500,000 and the small office building around the corner has a value of $500,000, therefore, your assessments and taxes should be the same. Except that they’re not the same. While the law states they “must be assessed at a uniform percentage”, residential and commercial properties are, in fact, assessed at two different rates. Commercial property uses an Equalization Rate while residential property (except for co-ops and condos, but we’ll get to that later) uses the Residential Assessment Ratio, or RAR.

Not too long ago, in an effort to make your property tax bill easier to understand, New York State came up with the Taxpayer’s Bill of Rights. In my opinion this was done, at least in part, as a service to people living in municipalities where fractional assessments were the norm. This used to be the case in all of Westchester County but now it’s only the case in most of the county. It’s very easy to understand what the market value of your property is if it’s assessed at 100% because if it’s worth $500,000 it’s assessed for, you guessed it, $500,000. With fractional assessments your $500,000 property would have (if it’s in my town) an assessment of $6,900. Naturally, this confuses people. So New York State decided to “translate” the fractional assessed value shown on your tax bill into the “market value” so you could know, at a glance, its presumed market value. This way, if you believe the assessment is excessive you can file a grievance. Trouble is, the bill utilizes the Equalization Rate to translate the assessment and this is only appropriate for commercial property. Homeowners who look at their bill to see the “market value” are getting false information, unless the Equalization Rate and the RAR happen to be the same. Usually, they are not the RAR is lower. So in most cases the homeowner is lulled into thinking their assessment/market value is lower than it may actually be.

Let’s talk about co-ops and condos for a minute. Since “all property must be assessed at a uniform percentage of value” that must mean that the guy who paid $500,000 for his co-op is paying the same taxes as the woman with the $500,000 single family house. Well, maybe it must mean that but it doesn’t mean that. Those of us who are old enough remember a time when most apartment buildings were rentals. Very few apartment buildings were built as cooperatives, most were converted from rental buildings. Back when they were rentals, they were valued for assessment purposes using the Income Approach. This was appropriate since their value to an investor was based on their income stream. You couldn’t buy or sell one apartment, just the whole building. However, in buildings that have converted to co-op or condo, now you can buy or sell one apartment and that apartment has a far greater value than it did when it could only be sold together with the rest of the building. Is it fair that the owner of a $500,000 co-op should pay less taxes than the owner of a $500,000 single family house? No it isn’t, but he does.

Trust me when I say that we have not even begun to scratch the surface of this topic but before you leap, headlong into the world of New York State Real Property Tax Law, you just might want to brush up on your Kafka. Keep in mind however, Kafka is “assessmentesque”.


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