KeNo's Housing and Economic Portal: Sunday August 14 Housing and Economic stories

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TOP STORIES:

California Counties Reel From Tax Hit - (online.wsj.com) Declining home prices are starting to slam California harder than the rest of the nation, in part due to a state law that sets a ceiling—but no floor—on property taxes. The toll is evident here in Calaveras County, a largely rural area about 100 miles east of San Francisco. Over the past three years, it has seen among the biggest property-tax roll declines of any California county, with the total value of taxable properties down about 5% from last year—and 18% over the past three years—to $5.67 billion. Statewide, assessed values declined 1.8% last year from a year earlier, according to state data. Calaveras's shrinking property taxes have resulted in cuts to the sheriff's department and public-health services, as well as an effort to cut 10% of the county's budget for the coming year. The tax drop also has pitted the county assessor, who has lowered taxes by re-evaluating home prices, against the head of the county board of supervisors, who said the reassessments have been too aggressive. "We're getting cremated" by the decline in property taxes, said Tom Tryon, chairman of the board of supervisors. Calaveras's situation shines a spotlight on the unintended consequences of California's property-tax law. While many counties nationwide have offset property-tax declines by raising tax rates, a 1978 California law dubbed Proposition 13 prohibits that practice in the Golden State. The law caps property taxes at about 1% of a home's value and forbids major tax increases unless a home is sold or rebuilt, though it permits taxes to go down if a home's value drops.

California Wages War On Single-Family Homes - (www.newgeography.com) In recent years, homeowners have been made to feel a bit like villains rather than the victims of hard times, Wall Street shenanigans and inept regulators. Instead of being praised for braving the elements, suburban homeowners have been made to feel responsible for everything from the Great Recession to obesity to global warming. In California, the assault on the house has gained official sanction. Once the heartland of the American dream, the Golden State has begun implementing new planning laws designed to combat global warming. These draconian measures could lead to a ban on the construction of private residences, particularly on the suburban fringe. The new legislation’s goal is to cram future generations of Californians into multi-family apartment buildings, turning them from car-driving suburbanites into strap-hanging urbanistas.

Fannie/Freddie regulator sues UBS on $900 million loss - (news.yahoo.com) The regulator for Fannie Mae and Freddie Mac sued UBS AG to recover more than $900 million of losses after the Swiss bank misled the housing agencies into buying $4.5 billion of risky mortgage debt. In announcing Wednesday's lawsuit, the U.S. Federal Housing Finance Agency said it also plans more lawsuits to recover additional losses by Fannie Mae and Freddie Mac from investments in private-label debt. Last July, the FHFA issued 64 subpoenas to banks, seeking details about subprime and other mortgage debt that Fannie Mae and Freddie Mac bought when the housing market was healthy.

A self-serving proposal to inflate house prices and pass risk to taxpayers - (www.irvinehousingblog.com) No, actually we don't agree on those two things. Underwriting standards are not too tight. Lending is returning to prudent standards under which borrowers can make their payments and sustain ownership. Gone are the standards that were used to inflate a massive Ponzi scheme. What follows is a series of proposals designed to put unqualified borrowers into loans by passing the risk onto the US taxpayer. It is the only way to sustain current pricing. What I think we can all agree on is that current pricing cannot be sustained by the number of borrowers who meet conservative lending guidelines. Where we disagree is on what should be done about it. I don't believe we should try to sustain current inflated pricing by moving to an origination model where lenders have no risk and endlessly lobby the government to lower GSE and FHA standards so they can make more money from riskless originations. Supply and demand must come back into balance at price levels sustainable by private lenders who have evaluated the business risk and set interest rates and qualification standards. This must be private money that does not rely on government guarantees.

Rating Cut May Force Student-Loan Security Sales - (www.bloomberg.com) A cut in the U.S. government’s AAA grade could force investors to sell asset-backed securities tied to student loans, causing spreads to widen “significantly,” according to Citigroup Inc. “A ratings downgrade would be a significant blow” to the $250 billion government-guaranteed sector, Citigroup analysts led by Mary Kane said in a July 22 report. “The likelihood of forced selling is elevated.” Citigroup sees a 50 percent chance of a ratings cut this year as the U.S. struggles to reduce its long-term debt. Many investors buy student-loan securities specifically because they’re so highly rated and a U.S. government credit risk, according to analysts at the New York-based lender. Money managers with rating-based guidelines would be forced to sell into a sinking market, affecting the sector more than other asset-backed debt tied to consumers, commercial mortgages and corporate loans, they wrote.