Real Estate Crash catching up to U.S. Municipalities

Cities, counties and school districts had been sheltered from the full impact of the real-estate slump because of the lag between when realty prices fluctuate and values are reset by local tax assessors. That’s changing as property rolls are adjusted to the current market and residents push to have their taxes cut.

This is the first year that most local governments are seeing a decline in their property-tax revenues. Local and state property-tax revenue slid $5.3 billion, or 2.9 percent, in the fourth quarter from a year earlier to $177.1 billion. All but $3.7 billion went to municipalities. The decline may continue as values fall further, adding strains to cash- strapped localities that already fired workers, halted projects and cut spending because of the recession that began in 2007. Only 15 percent of counties raised property taxes to make up for the lost revenue, according to a survey by the National Association of Counties.

Local officials are now facing the consequences. The strain may mean credit-rating cuts this year for local- government debt, which trades in the $2.93 trillion municipal bond market, Moody’s Investors Service said in a report this month.

Residential real estate prices in 20 U.S. cities dropped by the most in more than a year in January. The S&P/Case-Shiller index of property values fell 3.1 percent from January 2010, the biggest year-on-year decrease since December 2009. That’s prompting homeowners to seek reductions in the assessed value of their properties.

One of the symptoms of the depressed real estate market has been a proliferation of successful tax appeals. They’ve come after a municipality has already assessed a property, collected taxes and made payments to local school boards and county governments.

Municipalities have been anticipating the revenue slide and cutting costs to compensate. They are looking further at a whole series of significant cuts to balance their budgets. They may be forced to stop providing additional books and periodicals in the libraries, abolish community pre-kindergarten and lay off municipal workers along the way. So far 377,000 jobs, or 2.7 percent of payrolls, have been eliminated since employment peaked in September 2008, according to the U.S. Labor Department.

Cities are by no means out of the woods yet either. They have got another year or two of dealing with either declining revenues or pretty slow growth. In Florida, after four years of falling property values, cities are even cutting into core services like police.

Editor's Note: The decline for local governments contrasts with a recovery for U.S. states led by income and sales taxes. Their collections in the fourth quarter climbed by $13 billion to $177.8 billion, the biggest jump since 2006, according to the census data released yesterday.

First-time homebuyers getting shut out

Many first-time homebuyers are sitting on the sidelines of the U.S. housing market, hampering its ability to gain traction.

Last month, 34 percent of existing-home purchases were made by first-time buyers, according to the National Association of Realtors. In January, they were 29 percent of the market, the lowest since NAR surveys started tracking them monthly in late 2008.

In healthy markets, first-time buyers make up 40 percent to 45 percent of all purchasers. They play a critical role in buying starter homes so those owners can buy more expensive homes.

Despite low mortgage rates and falling prices in many markets, existing-home sales have been weak for months and were down 2.8 percent in February from a year ago.

What’s keeping more first-timers at bay:

Federal credits boosted home sales in 2009 and 2010 and lured some first-time buyers into the market sooner than normal. Last March, 48 percent of buyers were first-timers. The credits expired in April last year.

Tighter lending standards since the housing bust are edging out first-timers who can’t meet credit or employment history requirements in a still-weak economy.

Higher credit standards are reflected in loans bought by government-backed mortgage giants Freddie Mac and Fannie Mae. Last year, loans in Freddie Mac’s portfolio had an average credit score of 758, it says. That was up from 720 five years ago.

Many lenders are also requiring higher downpayments. The best terms kick in with 20 percent or more down. Higher down payments are driving more buyers to Federal Housing Administration loans. The FHA requires as little as 3.5 percent down for borrowers with good credit scores. In fiscal year 2010, FHA loans were 19 percent of the home purchase market vs. 14 percent a decade before.

Competition. In February, cash buyers accounted for a record 33 percent of existing-home sales, NAR says. In some areas, including Southern Nevada, cash buyers now account for more than half of existing-home sales. Sellers often prefer cash offers, over offers from first-time buyers involving loans, because they’re more likely to close.

18% of Florida Homes Are Vacant

The Census Bureau recently revealed that 18% -- or 1.6 million -- of the Sunshine State's homes are sitting vacant. That's a rise of more than 63% over the past 10 years.

The vacancy problem is more dire in Florida than in any other bubble market: In California, only 8% of units were vacant, while Nevada, the state with the nation's highest foreclosure rate, had about 14% sitting empty. Arizona had a vacancy rate of about 16%.

In Florida, the worst-hit county is Collier -- home of Naples -- with a whopping 32% of homes empty. In Sarasota County, 23% of the housing stock sits vacant, while Lee County (Cape Coral) has a 30% vacancy rate. And Miami-Dade County has a vacancy rate of about 12%.

The state's rate of population growth slowed in the second half of the last decade to just 5.7%. Still, the 2000s saw the state population grow overall by nearly 18%, the Census Bureau reported.

It could take about eight years just to put the vacancy numbers back into the single digits.

Florida court system facing $72.3 million deficit

Florida's court system has frozen hiring and is bracing for possible staff furloughs due to a $72.3 million deficit blamed on a shortfall in filing fees after mortgage foreclosure cases dramatically declined.

In 2009 the Florida Legislature increased fees and funneled them into a trust fund to pay for most of the court system's expenses. The trust fund was expected to cover $370 million of the $462 million court system budget.

Most of the fees -- $293.7 million -- were expected to come from foreclosure filings, but they've dropped well below that estimate due to self-imposed moratoriums by many lenders over such issues as lost paperwork and erroneous filings.

Florida foreclosure mediation programs (a sampling)

In December 2009 the Florida Supreme Court issued an administrative order directing all circuits to develop foreclosure mediation programs. The Supreme Court’s order requires courts to allow homeowners to participate automatically in these programs. There are twenty circuit courts in Florida, and each one may select an entity of its choice to administer its mediation program. Circuit courts throughout the state implemented mandatory mediation programs during 2010.

The Collins Center, a state non profit organization, is the mediation manager for six Florida circuits. The data below is from the Eleventh Judicial Circuit, comprising Miami-Dade County. The Eleventh Circuit has by far the highest volume of foreclosures of any circuit in Florida. All foreclosure cases filed in the Eleventh Circuit are automatically eligible for mediation and referred to Collins Center for mediation. Collins Center attempts to contact all homeowners and refer them to housing counselors to prepare for a mediation session.

The Clerk of the Court reports that there were 34,400 foreclosure filings in Miami-Dade Country during 2010.

The following Collins Center data reported for Miami-Dade County only, is for the six months from June 2010 through December 2010:

13,265 cases received (cases referred to mediation upon filing)

6681 unable to contact homeowner

6044 homeowner successfully contacted

2178 mediations conducted (16.4 % of cases received)


Of the 2178 mediations conducted:

1392 reached impasse - foreclosure allowed to proceed

745 homeowner reached written agreement (could be modification or vacate)

219 settled before mediation session

Housing Market Indicators

*** Florida Housing Market Indicators

Florida consumer confidence: 77

Florida existing home median price: $122,200

Florida existing condo median price: $79,400

Florida existing home sales: +14% (month-to-previous-year comparison)

Florida existing condo sales: +36% (month-to-previous-year comparison)


*** National Housing Market Indicators

National existing home median price $158,800

National existing home sales: +2.7% (month-to-previous-month comparison; all housing types)

National (Freddie Mac) mortgage rate 4.87% (all housing types)

GOP back Banks over Homeowners

Leading House Republicans challenged a deal Wednesday that federal and state officials have offered to five big U.S. banks that would change the handling of foreclosures and force lenders to modify more mortgages.

Federal regulators and attorneys general of the 50 states offered the terms to the large banks last week, following extended talks over revelations that the lenders had cut corners and used flawed documents to foreclose on many home borrowers.

Asked about the GOP letter, Treasury, in a statement, said: “The mortgage servicing system we have today is broken, and we should work together to establish a stronger set of standards.”

Under the proposal, which would not need Congress’ approval, lenders could be required to write down the value of their loans to borrowers who owe more than their homes are now worth. They reportedly would be forbidden from starting foreclosure proceedings while a homeowner is trying to modify their mortgage terms, and there would be an independent review if they denied a mortgage modification.

The banks are Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and GMAC, which together have about 6 in 10 U.S. home mortgages.

Soaked <$751 Billion> Nationwide

The number of American homeowners underwater (those who owe more on their mortgages than their homes are worth) increased at the end of last year.

About 11.1 million households, or 23.1 percent of all mortgaged homes, were in a negative equity position in the October-December 2010 quarter. Another 2.4 million are nearing that point now, due to high levels of foreclosure and unemployment.

While the picture isn't very pretty for homeowners here in Florida, it's not nearly as ugly as it is in Nevada where roughly two-thirds were underwater in that last quarter, the worst in the country.

Top Florida foreclosure lawyer shutting down firm amid probe

A law firm that once led Florida in foreclosures is shutting down amid an investigation into "robo-signing" and other questionable practices.

A Securities and Exchange Commission filing Monday indicated that David Stern's Plantation-based practice will end operations March 31. The firm once had more than 1,200 employees and handled tens of thousands of foreclosures each year.

Stern's firm is one of several under investigation by Florida's attorney general. The probe focuses on whether false or improper affidavits were filed in foreclosures and whether employees were robo-signers who signed documents without reading them.

A broader national probe is examining how foreclosures were handled during the economic downturn.

Could the 30 year mortgage go away with Fannie & Freddie?

Congress has continually subsidized middle-class mortgages. Fannie and Freddie guarantee that investors will be repaid even if borrowers default -- a promise ultimately backed by taxpayers. Fannie, Freddie and other federal programs now support roughly 90 percent of new mortgage loans because lenders cannot raise money for mortgages that do not carry government guarantees.

If Freddie Mac and Fannie Mae were closed, the rare goal shared by the Obama administration and House Republicans, homeownership in America could change greatly. The 30-year fixed-rate mortgage loan, the steady favorite of American borrowers since the 1950s, but not available in most other countries, could become a luxury product. Interest rates would rise for most borrowers, but urban and rural residents could see sharper increases than customers in the suburbs. Lenders could charge fees for popular features now taken for granted, like the ability to "lock in" an interest rate weeks or months before taking out a loan.

It won't happen soon. Congress must agree on a plan, which could take years, and then the market must be weaned slowly from dependence on the companies and the financial backing they provide.