April 26th, 2007 10:01 AM by Ron Mastrodonato
At-risk homeowners have ‘exit strategy’ if FHA modernizedWASHINGTON – April 18, 2007 – In testimony before a U.S. House committee yesterday, Department of Housing and Urban Development (HUD) officials said that a modernization of HUD’s Federal Housing Administration (FHA) lending program would help many homeowners who find they can no longer afford their subprime ARM mortgage payments.
Modernizing FHA is “the most practical and immediate way to address the needs of a large number of troubled subprime borrowers,” said Assistant Secretary for Housing - Federal Housing Commissioner Brian Montgomery in testimony before the House Financial Services Committee. “With expanded authority to set insurance premiums commensurate with risk, FHA could potentially assist tens of thousands more borrowers who need an exit strategy from their subprime mortgages.”
Montgomery again urged Congress to pass legislation that enhances the FHA’s government-insured mortgage products and provides “a safer, more affordable financing option than many subprime loans” for first time homebuyers, minority families and families with troubled credit. The Expanding American Homeownership Act passed the House last year by a vote of 415 - 7 and has been reintroduced this year.
To prevent the FHA from being priced out of many housing markets, the FHA’s modernization legislation would increase loan limits. Currently, many buyers of homes in high cost areas cannot use FHA financing because FHA’s loan limits aren’t high enough to match the cost of local homes. The modernization legislation seeks to eliminate the 3 percent downpayment currently mandated by law, and create a new, risk-based insurance premium structure matched to the credit profile of the borrower.
FHA currently helps qualified borrowers refinance, but HUD claims that this type of relief is minor compared to the number of families who would benefit from FHA modernization. FHA’s refinancing business has increased over the past year. For the first five months of fiscal year 2007, conventional-to-FHA refinancing was up 94 percent from the same period in fiscal year 2006. If this current trend continues, FHA will endorse over 100,000 conventional-to-FHA refinancings in fiscal year 2007, compared to 64,474 in fiscal year 2002.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Property tax disparities examined via a sample neighborhoodMIAMI-DADE – April 18, 2007 – Karen Claus, a 37-year-old painter, loves the rainbow of neighbors along Southwest 63rd Place, a lush, quiet enclave of homes built during a simpler era in the 1950s. “It’s a nice cross section of Miami,” she says. “People from different countries, different ages, different races.”
Her South Miami-Dade neighbors also pay wildly different property taxes – even though most of the homes are similar in size and value.
Like much of South Florida, Southwest 63rd Place has seen home values skyrocket in the past few years, and it is a microcosm of the growing inequity in property taxes across the state. As home prices have climbed, newcomers and those who are ineligible for Save Our Homes – a provision that caps increases in the assessed value of homesteaded properties of permanent residents – are bearing a disproportionate burden.
While the Florida Legislature wrangles over what to do about the property-tax crisis, some residents of Southwest 63rd Place are feeling the squeeze.
Claus and her husband, Brad Wagshul, a federal law clerk, bought their 1,473-square-foot house for $215,000 in 2000. Their tax bill was $3,482 last year.
But right next door, Erin Kobetz and Joshua Diem, who bought a slightly smaller three-bedroom, two-bath home on an identical lot in 2004, were taxed $6,323 – 82 percent higher.
“We feel lucky,” Claus says. “We got in just before the market took off. But we often joke that we’re stuck. If we moved, our taxes would go through the roof.”
The current chasm in Florida property taxes dates to 1992, when voters approved a constitutional amendment called Save Our Homes. It capped increases in assessed value at 3 percent a year on homesteaded property, or permanent residences. Rental homes, second homes and commercial and industrial real estate aren’t eligible for the cap.
The measure aimed to protect homeowners from getting taxed out of their properties. But as home values have soared, the tax burden has shifted increasingly to recent buyers, whose assessed value gets reset to the full market value upon purchase of their homes, as well as to those with non-homesteaded residences and commercial properties.
A wide disparity
Among the largely comparable homes along Southwest 63rd Place, property taxes last year ranged from $2,278 to $9,432. Some neighbors – such as those with second homes and rental properties – aren’t eligible for the precious 3 percent cap on tax increases, and they are paying the most of all.
For Claus, the current tax situation has helped shape the way her family thinks about their cozy home. As her toddler, Madeleine, stretches on the front lawn, waving her arms and legs to make grass angels (Miami’s version of snow angels), Claus muses: “The dream – the way my parents did – was you save up money and you buy a house and you buy your next house and you buy the next house. We’re planning on staying. The only thing I think of is maybe refurnishing once every 10 years.”
The Legislature is mulling various ways to revamp property taxes. Lawmakers are considering, among other things, rolling back property taxes and capping property-tax revenue; eliminating all property tax on homesteads and increasing the state sales tax; and providing “portability” that would allow homeowners to transfer tax protection when they sell their homesteads and buy others.
But each of the options has downsides, from potentially crimping the tourist-heavy economy to exacerbating the tax inequalities. Some doubt that portability would withstand a constitutional challenge. And elected officials are finding no magic bullet, especially since the notion of a state income tax is unpopular.
Meanwhile, the tax disparity continues to grow as more of the residential tax base is shielded from taxation by the Save Our Homes cap. In 1995, when the cap kicked in, it snipped $3.5 billion in homesteaded property value off the tax rolls.
But by 2006, the value of residential property insulated from taxes swelled to $404.4 billion, or 24.5 percent of the total market value of residential real estate in Florida, according to Florida’s Legislative Office of Economic and Demographic Research.
For her part, Claus says the idea of portability sounds appealing. And although paying more in sales tax doesn’t seem too bad for her family, she says, it would hurt poor people most “and put the dream of owning a home farther out of reach.”
No exemption or cap
A block away live Ximena and Kurt Prelle, who bought their home at 8215 SW 63rd Pl. in 2003 for $280,000, before the hot run-up in prices that boosted some homes in the neighborhood above the half-million-dollar mark.
But you can’t tell their good fortune from their property taxes. The Prelles, who are from Peru, are in the United States on work visas and haven’t yet obtained permanent U.S. residency. That means they aren’t eligible for the homestead exemption or Save Our Homes cap.
So every year, their taxes have soared along with the rising property values. The Prelles forked over $8,550 for 2006 property taxes on their three-bedroom, two-bathroom house, which was assessed at $412,134.
“It’s unfair, and it affects a lot of people,” says Ximena Prelle, who works to promote international trade. “Even if you are living in the country legally on a work visa, you’re not eligible.” Part-time Florida residents are in the same boat.
“Miami is becoming so expensive,” Prelle says. “It also affects the ability of the city to promote Miami as a business environment. People are comparing Miami to Manhattan; the cost of living is so high.”
John Meltzer, who lives down the street in a home on a large corner lot at 8400 SW 63rd Pl., says the tax cap is forcing him to stay put, even though he’d like to move.
His lot covers 11,455 square feet, and he owns one of the street’s larger homes at 1,736 square feet. But because he bought in 1996 at $180,000, his taxable value is just $161,341, or 34 percent of the property’s assessed value of $474,530.
His 2006 taxes: $3,347. A similar house and lot at 8010 SW 63rd Pl. at the other end of the street sold for $500,000 in 2005. Taxes there: $9,432 last year.
“That’s why I live in this house,” says Meltzer, a 39-year-old mortgage broker. “I don’t want to spend $15,000 in property taxes. If I relocate, I get taxed like a new guy.”
Moving is difficult
Meltzer, like many, says the recent housing downturn is exacerbated by the tax structure, which discourages Floridians from moving. “I know a lot of people would like to upsize or downsize, me included,” but they’re hamstrung by the cap, he says.
He’d like to see real estate get a jolt from some sort of portability measure, so homeowners could carry tax exemptions to a new property. “It’s getting to the point you can afford the house, but you’re getting nailed on the taxes and insurance,” Meltzer says.
What irks him, he says, is spendthrift politicians. “Dade County spends an exorbitant amount of money. … They’re on a tax binge, and there’s plenty of fat to be trimmed.”
Some experts say the tax assessment cap has enabled local governments to boost spending without much ruckus from homeowners, since many tax bills are shielded from the increases. Along Southwest 63rd Place, several longtime residents with low taxes said the issue wasn’t on their radar screen.
“We’ve been here since ‘79, and I don’t think about my taxes, to be honest,” says Jack Coleman, a semi-retired engineer who lives at 8130 SW 63rd Pl. His taxes last year: $2,917. County tax rolls show his home’s taxable value as $140,598, or 33 percent of its listed market value of $421,235.
Of course, some people are still moving despite the tax consequences. David Smyth, who manages a private 52-foot Bertram fishing boat for a Key Biscayne man, has his three-bedroom, two-bath home at 8020 SW 63rd Pl. up for sale for $529,000. It’s a quiet and lushly landscaped spot that sits on a canal buffered by a duck pond and Fuchs Park, in South Miami.
His motive: “I’m getting married, and we’re trying to find a bigger house we can grow into,” says Smyth, who is looking around Coral Gables and Coconut Grove, closer to work. “Unfortunately, the taxes are going to be the killer.”
Smyth, who bought the place in 2004 for $310,000, paid $6,415 in property tax last year. With the homestead exemption and the Save Our Homes cap, his taxable value was $309,208, or 22 percent below the listed market value of $398,489, according to county tax rolls.
That’s a better break than Martha Gomez gets. She and her husband, Mel, bought the three-bedroom, two-bath house at 8101 SW 63rd Pl. in 2002 as an investment. With a son who is a contractor, she says, “We’re thinking of building a new home there when the property appreciates.”
For now, Martha Gomez says, the 1,461-square-foot house rents for $1,800 a month. But lawn maintenance and leasing a water heater and dryer gobble up several hundred dollars each month.
Because investment properties get no homestead exemption or cap on tax increases, the tax bill for 2006 totaled $8,026. Insurance, she says, cost $4,000 a year.
“I’m having to drop the wind insurance,” says Gomez, who owns other rental homes.
There’s no mortgage, she says. “No way you can manage this unless you own it outright. Imagine: The negative cash flow would eat you up. Soon enough, people are not going to stay in this business.”
Gomez recently signed a petition urging property-tax relief. “I’d rather see the sales tax go up than see property taxes going haywire,” Gomez says. “The rent is not adding up.”
Copyright © 2007 The Miami Herald, Martha Brannigan. Distributed by McClatchy-Tribune Business News.
Foreclosure rates expected to jump in South FloridaSOUTH FLORIDA – April 18, 2007 – A deluge of South Floridians are falling behind on their monthly house payments, raising fears that many of the delinquent property owners will lose their homes to foreclosure this year and next.
“Who knows how bad it’s going to get,” said Richard French, a manager with SunTrust Mortgage and president of the Broward County chapter of the Mortgage Bankers Association. “It’s a little scary to think about.”
Escalating home values from 2000 to 2005 caused buyers to overextend themselves. Many took out short-term, adjustable-rate mortgages and are seeing their loan payments spike as interest rates rise. Higher property taxes and insurance premiums also are putting homeowners in peril.
Broward had 1,168 property owners with late payments in March, a 331 percent increase over the 271 a year ago, according to Realestat.com, a Plantation-based firm that compiles local housing statistics. Palm Beach County’s late payments climbed 288 percent, to 888, from 229 last March.
Late home loan payments in both counties increased in each of the first three months of 2007. The rise “bodes ill for actual foreclosures down the road,” said Mike Larson, an analyst with Weiss Research in Jupiter.
Marc Thomashaw, a vice president for Realestat.com, was more blunt.
“We’re set for an explosion [of foreclosures] to happen between now and the next six months,” he said Monday. Foreclosures in Broward and Palm Beach counties also rose in March, but at a smaller rate than late payments compared with a year ago, according to Realestat.com.
Broward’s foreclosures hit 543 last month, more than double the 247 from last March. Palm Beach County had 205 foreclosures last month, up 19 percent from 173 a year ago.
Nationwide, the number of homes entering foreclosure in the January-March period doubled from a year earlier, according to California-based Foreclosures.com.
Homeowners with late house payments typically are behind at least three months and have been notified by their lenders that they intend to take back the properties. In recent years, some of those owners avoided foreclosure by refinancing or simply selling the homes, making large profits.
But refinancing isn’t as easy because lenders are tightening credit standards. Last week, for example, Citibank and other lenders sent notices that they’re stopping 100 percent financing for borrowers who can’t prove two years’ worth of income, said Louis Spagnuolo, a senior mortgage banker for WCS Lending in Boca Raton.
What’s more, South Florida’s slumping real estate market is holding down prices and preventing recent buyers from selling quickly to get out of financial trouble.
“A lot of these escape valves are now shut,” Weiss’ Larson said. “It’s not a pretty sight.”
But homeowners who can’t refinance are a small segment of the borrowing public, said Greg McBride, a senior financial analyst with Bankrate.com, a financial information firm based in North Palm Beach.
Refinancing remains an option for people who have lived in their homes for several years because fixed mortgage rates still are relatively low, McBride said.
“The equity these people accumulated over the past few years is a buffer that gives them some options without having to resort to foreclosure,” he said. “If they have $50,000 in equity, they have 50,000 reasons to make the payments every month.”
Mark Zandi, chief economist with Moody’s Economy.com, a West Chester, Pa., research firm, agrees that short-term investors and others who bought within the past few years are most at risk of losing their homes. Still, he said more mortgage delinquencies and foreclosures are inevitable due to a “noxious mix” of aggressive lending, falling home prices and borrowers facing large increases in their monthly payments.
Builders and other real estate firms have cut jobs in recent months in response to the housing slowdown. Overall, however, the nation’s job market remains strong.
“But it bears close watching,” Zandi said. “If it were to fall apart, the foreclosure problem would become very, very severe.”
Bloomberg News contributed to this story.
Copyright © 2007, South Florida Sun-Sentinel, Paul Owers. Distributed by McClatchy-Tribune Business News.