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Dishonest Real Estate Industry Hurts All
October 27, 2008 
As the financial meltdown continues it is becoming obvious that dishonest real estate people from developers to bankers contributed to a financial mess that is just beginning to become known.
People who couldn’t afford to purchase a home were granted loans in excess of the value of the property they wished to acquire. Here is how it worked:
–At the low end of the food chain, appraisers were told come up with a value that would cover the motrgage rate…there is a case in U.S. District Court of Idaho making that allegation at present.
–Mortgages often included various “concessions” as part of the purchase price. Say a house was worth $100,000 and needed $20,000 worth of repairs or upgrades, the mortgage was for $100,000, but the real purchase price was only $80,000.
–Buyers dishonestly claimed income levels high enough to get loans.
–Brokers often rolled second loans for down payments into the purchase price as well.
–Realtors dishonestly reported the $100,000 purchase price to the county and these “sales” became the value, even though the TRUE value was only $80,000. Sometimes the price was even higher if the 2nd loan was included.
–The mortgage brokers and bankers were dishonestly “covered” with inflated appraisals and sold the loans to the likes of Freddie Mac and Fannie Mae. The bubble was getting bigger, but still intact.
When reality reared its ugly head, the bubble burst and we now have a financial crises. Some dishonestly blamed dishonest stock brokers and bankers in Paris.
Ada County Assessor Bob McQuade told the GUARDIAN a whole new method of determining MARKET VALUE–the legal assessment standard in Idaho–needs to be determined. He said it may take legislation to get the changes made, but he admitted the current system is dependent upon factors which may or may not be honest.
Meanwhile we all await the new property valuations that come out in May based on market value as of December 31.
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Comments & Discussion
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Oct 27, 2008, 7:49 pm
Until proven wrong, I choose to believe that these actions are the exception, rather than the rule. I think the vast majority of homeowners in the valley are working hard and making their mortgage payments in good faith and on time. It would be foolish to believe that everything is roses and there is no doubt that families are feeling the pinch, but we don’t need to paint with such a wide brush. What we should do, is demand that those that “stretched” the rules, be held accountable. Licenses should be revoked and jobs lost, and some should make the trip to the crossbar hotel!
Oct 27, 2008, 7:54 pm
One has to ask: Under the current system, what is the – fair – appraised value of a house in a neighborhood where houses do not sell?
Oct 27, 2008, 8:07 pm
Credit default swaps (cds) were at the heart of the wall street melt down. Made illegal about a hundred years ago because they brought wall street to its knees, they were made legal again 8 years ago under the guise that ” wall street is smart enough and they can handle their own business”. Go to cbs.com and see the story “60 minutes” did on it last night. You will be shocked and sickened
Oct 28, 2008, 5:34 am
“While still Governor of New York, Eliot Spitzer wrote an article that was published in the Washington Post on February 14, 2008.
The article is titled
Predatory Lenders’ Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers
Spitzer concludes
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.”
Oct 28, 2008, 7:18 am
It will be interesting to see how Bob McQuade’s bunch will evaluate property prices this year. I appealed mine last year, successfully in part because of 3 mistakes the so called appraiser had made. Rather than admit they were wrong, they used comps from another city 6 miles away from my house. I used comps from land within 1/4 mile.
It is astonishing that adjacent properties land values are valued differently. One would think an acre is an acre is an acre or a gleek of an acre is a gleek of and acre is a gleek of an acre.
Part of the problem is that the engines of government are fueled by the property tax. The higher the property values, the higher the taxes, I think McQuade feels he’s doing the cities/county/ACHD/etc a service. During the appeals process, people were arguing that adjacent houses had sold for 50-80,000 less than their houses were valued by the “appraisers” of the county. They were told that was the wrong year. This year should see a huge decrease in valuations if the process is done accurately.
I also think a major part of the problem is the year ends on Dec 31 and the assessments do not go out until after the primary at the end of May. Any guesses why? Then, the appeals are heard at the end of June a full 1/2 year beyond the timeframe. The whole thing should be speeded up. Fat chance of that happening – it would only serve the public.
PS everyone should appeal. There is no downside, either your assessment stays the same or it’s reduced – they can’t raise it.
Oct 28, 2008, 8:26 am
Dishonest Real Estate Industry?
Do you mean agencies like the Idaho Housing Authority?
These are the sleaze balls are “repackaging” (ie disguising) Tamaracks bond so that companies that are prohibited from investing in real estate can be suckered into investing in Tamarack real estate.
Even when the system is melting under our feet, it is amazing to me that people in institutions like IHFA have no concept that is acts such as their that led to, and perpetuate the debacle.
EDITOR NOTE–We agree the IHFA was considering an ill fated program, but it appears the deal is off the table and Credit Suisse has a receiver appointed to take care of things for the short term.
Oct 28, 2008, 9:08 am
Cyclops and Matt make very good points. I’d like to go one step further than Matt.
There’s more good info about CDS at the Washington Post. Please note Mike Crapo is trying to grab the upcoming re-regulation power for his own committee. The Ag committee, and I contend CDS have little to do with agriculture.
WP article “3 Agencies Vie for Oversight of Swaps” here: http://tinyurl.com/5lccde
Credit default swaps enabled private mortgage companies like Countrywide et al, offload their riskiest loans. There was every incentive and little disincentive to make as many mortgage loans as possible regardless of creditworthiness.
It was as if the system had a license to print their own money. You know what happens when too much money is printed? Yep, you guessed it, Inflation.
Think about it, inflation was mostly in check except for the housing sector.
Nobody likes gov’t regulation but who would argue in favor of speeding in a school zone? Who would argue in favor of shooting ranges with no back stops next to a daycare?
Oct 28, 2008, 1:33 pm
What we are observing is the collapse of an economy based on people lying and people believing these lies. People who do not have the wherewithall to buy a house lied. The appraisers lied, or they got frozen out of the game. Real estate agents lied to fatten their commission. Mortgage companies lied to get more business. Wall Street lied when they bundled bunches of worthless mortgages and slapped a AAA credit rating on them. And on. And on. And on.
Now, those unfortunate people who paid their mortgages, didn’t take out home equity loans, saved for retirement get to reap the benefits of interest on savings which are less than inflation (if they were lucky enough to not have a great deal of exposure to stocks). They get to watch inflation soar. They get to see their taxes go up to pay off Wall Street. They get laid off like everyone else.
We, as a nation had better be careful, or we may actually learn something from all of this.
Oct 28, 2008, 3:53 pm
One of the problems is the county assessors think your house is some kind of investment like stocks. Stock prices go up and down like a rollercoaster. We are taxed based on the idea is that we are in the house game because we will sell high and buy low. When I appealed my tax Mr. McQuade informed me that I had made a good investment like it was some sort of hot mutual fund. Only once in 17 years has my tax assesment not gone up.
My monthly tax is equal to my first monthly mortgage. We need a new way to assess the taxes on our homes.
Oct 28, 2008, 5:36 pm
The taxing districts have us all by the short hairs on property taxes. Levy rate goes up and values go up, levy rate goes down taxes still go up. Short answer is they can grow by all the new tax base plus 3% of the old stuff each year.
Heck, they don’t care about foreclosures. Somebody will buy the property and will have title and they will eventually get their property taxes.
I for one am glad the era of “home as investment” is over. It is a place to live, raise a family and ward off the elements. The notion that there is only so much land and you better buy now has been proven to be a myth. Bad in the short run but good long term.
Real estate is a very non-liquid place to put your money and now people have good reason to think about renting a place to live. Keeps mobility options open for those not ready to settle down.
Oct 29, 2008, 6:26 am
dog says : “We need a new way to assess the taxes on our homes.” He is exactly right. And I think the answer is to assess taxes based on the cost of providing service, not the value of the property. But..the system and the voters are VERY resistant to any kind of change.
EDITOR NOTE–Actually the value of a house serves as the BASIS for a tax LEVY (% of value that is taxed) which is indeed determined by the cost of services.
Oct 29, 2008, 8:27 am
Editor: Not quite. It costs the same to answer a burglary call at a $100,000 house as for a $500,000 house. And the cost to put out a fire depends on construction and the distance from the station. Risk of fire also varies with construction and other factors not related to value. The cost of providing services to a house in the east end may be same as for the same house in a west Boise subdivision. But the east end house may pay considerably more because of higher assessed value based on location.
Oct 30, 2008, 7:00 am
The property tax law as it is now formulated in the Idaho Code mixes democratic
principles and the arbitrariness of an unpredictable market. First, I am not
against paying property taxes. I recognize the need. I believe the current super
majority requirement for levying property taxes is fair because it recognizes that
although everyone can vote, only property tax owners pay property taxes. Tax
levies are basically a democratic process.
However, the tax code provisions are not democratic when it comes to the assessment process. The criteria for raising property valuations is arbitrary and tied, not to a vote, but to forces which no one can control. This problem is magnified when it comes to a person’s primary residence. This country has always placed a high value on home ownership, yet, the uncontrollable rise in property taxes on personal residences threatens this widely held value.
The tax code is also counter-intuitive and detrimentally affects homeowners and
especially young homeowners and those approaching retirement age, and even the
economy.
Oct 30, 2008, 9:15 am
Taxed out, I strongly disagree. Everybody pays property taxes, tenants do so indirectly. Do you really think a landlord DOES NOT factor in taxes when deciding what to rent to charge?
What you are really saying is only landowners should be allowed to vote. Why don’t we take it back to basics even further and make white anglo saxon protestant males the only ones allowed to vote?
That’s what the onerous super-majority restriction does, in effect.
No one has answered the question I posed the last time this came up.
Why should 1 person have the power to tell us other 2 what to do?
Hey, George Bush didn’t have a super-majority in 00 and 04 yet he became President of the United States, the man with his finger on the nuclear weapons trigger.
EDITOR NOTE–The reason our constitution requires a 2/3 vote for long term debt is because it is SUPPOSED to be difficult to pass. If a bond proposal FAILS by even a simple majority, they just turn around and bring it back again 6 months later. If it PASSES there is no recourse to repeal it 6 months later. “NO” doesn’t mean “NO,” it just means “not right now.” THAT is the main reason we have a 2/3 majority safeguard. Also, in Ada County about half the assessed property value is without a vote…it is either commercial property or owned by non-residents.
In Valley County a huge amount of property parcels are owned by non-residents and they have no vote in their property taxes at all. Again, a 2/3 majority requirement safeguards the minority imposing its will on the majority.
In feudal times only property owners could vote. There are no doubt some landlords who would support a simple majority vote of either property owners or REGISTERED voters.
Oct 30, 2008, 4:05 pm
Fair enough BG, I can see the reasoning with respect to long term debt. I don’t buy the absentee landlord part though. A vacation home buyer knows full well in advance that they won’t be able to vote in their vacation home district.
Perhaps an overhaul is needed. When the ID Constitution was written, I don’t think vacation homes were much of an issue. Maybe we should allow absentee landlords the ability to vote on property tax matters even if they live out of district.
However, I see absentee landlords causing lots of problems. Neglected rental properties and derelict properties bring down property values thus limiting tax revenue. Admittedly, I don’t have a scientific study to back this up, but I think in many cases it’s easy to tell an owner-occupied property from a rental.
EDITOR NOTE–Cynic, gotta think outside the residential box. We are not talking vacation property and rental houses. We are talking Shopping malls, hotel chains, restaurant chains, franchises, sporting goods, department stores, real estate firms, etc. They can ALL be absentee landlords.