In Arizona, the Secretary of State is charged with the responsibility of certifying signatures on petitions to put proposed measures on the ballot. But in practice, it mostly seems to fall to courts to creatively reinterpret state law to fit the particular circumstances each initiative seems to fall into.

For example, Maricopa County Superior Court Judge Edward Burke ruled the state’s publicity pamphlet could not disclose to voters that an increase of the sales tax from 5.6 percent to 6.6 percent was an increase in the tax of 17.8 percent. Judge Burke noted the mathematics are correct and would not be confused. But instead many voters are too stupid to understand such complex calculations. That’s my language, not the judge’s. But that is what his more-judicious language meant. And maybe he is right.

The fate of several initiatives will depend on rulings by judges who consider the electorate kind of dense. But then that may not be far off the mark. Will we have to dumb down these explanations to the “See Jack run. Run, Jack, run” level?

That should exclude from the ballot any initiative that deals with inherently complex matters. But not every state problem can be solved at the “Run, Jack, run” level.

Last week Secretary of State Jan Brewer’s office disqualified the proposition seeking the sales tax increase for transit projects. She said there were insufficient valid signatures. Here are the numbers: 260,000 signatures were submitted. Backers needed 153,365. But only 138,451 were certified as valid. That’s not enough. But, and here the plot thickens, under the law, if backers can demonstrate in a random sample they could reach 105 percent of the required 153,365 certifiable signatures, they get the measure on the ballot. If the sample comes in at 95 percent or less, it is disqualified. Between 95 and 105 percent, each and every signature must be checked individually.

The fact is there is not enough time for that to happen before the ballot must be printed. So we fall back on a different court that held when there is uncertainty whether the measure qualifies for the ballot, it should be put on the ballot. That virtually assures every such case will go to court for a final ruling, and that ruling will be, “Put it on the ballot.” Let those voters who are too stupid to understand the mathematics of the sales tax increase decide multi-billion dollar propositions.

It’s pretty much the same situation regarding the proposition to ban real estate transfer taxes. I’ll spare you the numbers but here are the concepts. Some legislators are muttering loudly about broadening the scope of the state’s sales tax to apply to additional items and lowering the tax rate itself. That is an idea I have promoted for years. But one of those other items turns out to include real estate transfers, a rich source of revenue that has yet to be tapped. It is one that should be off the table.

In states that have such a tax, it can grow to 1.5 percent and beyond. Considering that ad valorum taxes are collected annually on each piece of real estate during ownership, that’s a mighty heavy charge for transfer.

Having formerly practiced in a state with a transfer tax, I can tell you the way most people there avoided the tax entirely, especially on large transfers. Anticipating the tax on every transaction, they buy each separate parcel in a separate entity (partnership or corporation) and when they sell, they don’t sell the real estate at all. They sell the holding company. Zap! No transfer tax.

There are other strategies, too, but I’ll save them for a time they may be needed. Besides, these techniques are primarily for professionals. The average taxpayer is just too stupid to understand this. At least I imagine that’s what Judge Burke would hold.

Credits: AZBiz.com

Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.

The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American CoreLogic that compiles and analyzes residential mortgage statistics.

Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.

And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.

“The extent of how bad these loans are doing is very troubling,” said Pat Newport, real estate economist with Global Insight, a forecasting firm.

Washington Mutual CEO Kerry Killinger said last month that the bank’s prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.

Also last month, JP Morgan Chase CEO Jaime Dimon called prime mortgage performance “terrible” and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe

Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn’t require strict documentation of a borrower’s assets or income.

Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight’s Patrick Newport.

“Home prices will drop for quite a while - maybe several years,” he said.

Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.

And there’s a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.

“It’s a feedback loop,” he said. “Price declines lead to more defaults, which leads to more price declines.”

More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month’s worth of sales at the current rate.

Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That’s up about 50% from three years ago, and near historic highs.

More foreclosures, fewer loans

The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.

About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.

That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. “It’s already harder and more expensive to get loans,” he said. “Lenders pull in their horns when things go south.”

While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.

“Eventually,” said Newport, “time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline.”

But there will probably more hard times ahead before markets come back into balance and recovery begins.

Credits: CNNMoney.com

With the market slowdown wearing on, real estate, home-building and lending professionals in Tucson are pinning hopes for a turnaround on a recently passed federal housing-stimulus package.

The wide-ranging bill, signed into law July 30, encompasses a slew of incentives and reforms aimed at helping the housing industry out of its slump. Among them are a potential $7,500 tax credit for first-time buyers, money for the rehabilitation of foreclosed properties and a variety of changes to Federal Housing Administration-insured loans.

Southern Arizona Home Builders Association President Ed Taczanowsky said the stimulus measures not only will help the local market, they also serve as a sign that it’s approaching a turning point.

“When the federal government steps in and puts a huge amount of money into the housing market, that signals to me that we are near the bottom,” Taczanowsky said.

In June, the number of sales was down about 25 percent compared with a year earlier, said a report from the Tucson Association of Realtors Multiple Listing Service. Both the median and average sale prices showed drops of more than 10 percent compared with June 2007. The median sat at $200,000 in Tucson in June, the Realtors’ report said.

Meanwhile, monthly new-home-start numbers have plunged this year to levels not seen since the early 1990s, according to local research firm Bright Future Business Consultants.

The tax credit alone might do wonders for helping to get would-be buyers off the sidelines, said Colin Zimmerman, spokesman for the Tucson Association of Realtors.

“Basically, it will lower the effective cost of your home by $7,500,” he said. “I don’t see why everyone isn’t taking advantage of it.”

As with all government initiatives, however, there are a few kinks — namely that the tax credit is actually an interest-free loan, intended to be repaid by the buyer over 15 years. The bill does not specify how the loan payments will be collected, said Megan Booth, senior policy representative for the National Association of Realtors. That will likely be determined by future regulations, she said.

Rita Thomson-Zurita, president of the Southern Chapter of the Arizona Association of Mortgage Brokers, said in an e-mail that she wishes the tax credit were available to other buyers.

Also “some first-time home buyers have other issues which a tax credit will not help,” she said, such as credit scores.

Thomson-Zurita said she is also concerned about a provision eliminating down-payment assistance from sellers for FHA loans.

The law may not be a total fix for the market, but it’s a good start, said Tom Heath, vice president of advocacy for the Southern Arizona Mortgage Lenders Association.

“Anything that’s going to keep homes out of inventory and out of foreclosure is going to benefit us,” he said. “To what extent, I’m not sure.”

Credits: Arizona Daily Star

• For the best rates on a conforming loan, people need a 20% down payment and a FICO of 750 or higher, Cecala said. Not surprisingly, very few people meet those requirements, he added. Risk-based pricing by Fannie Mae and Freddie Mac will cause those who don’t meet those basic parameters to pay more for their mortgage. So even if you’re able to get a mortgage with a 640 credit score, the loan terms will be more expensive, he said — and if you have a low credit score you’ll probably have to put more money down than someone who has better credit.
• Borrowers who aren’t able to put 20% down will likely have to purchase mortgage insurance, and to get that there’s another set of requirements that must be met. Insurers are being “very cautious” with regard to what they will insure, Habetz said. Requirements differ at each mortgage-insurance firm, but if a home is in a market where prices are declining, borrowers may be asked to put down 10%.
• Borrowers who are eligible for a loan backed by the Federal Housing Administration may be able to put down as little as 3%. That has become a more popular option for those with weak credit scores.
• Most nonconforming jumbo loans today are being made by portfolio lenders, who keep the loans on their books, Cecala said. Consumers may do well by doing some legwork and comparing rates at local community banks, which have been “coming out of the woodwork” to offer competitive rates, he added.

“There’s money to be had, you just have to jump through hoops to get it,” Cecala said.

Credit: MarketWatch.com

First Magnus has been closed but now they’re done for sure. In this kind of market and in the next, we should not use any business that is related or affiliated with the creators of First Magnus. The creators have created StoneWater Mortgage, operating in their previous First Magnus office.

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