Early alerts on longer-term business, economic and public policy issues. Successor to the web site www.cityeconomist.com. Maintained by John Tepper Marlin.
Showing posts with label Mortgage Bankers. Show all posts
Showing posts with label Mortgage Bankers. Show all posts
Wednesday, May 28, 2008
Subprime Loan Maps
Subprime Loan Maps. Here's a useful new service from the Federal Reserve Bank of New York. The Fed is now offering dynamic interactive maps showing conditions and density of owner-occupied subprime mortgage loans for all U.S. states, counties and zip codes. The maps are based on data for subprime mortgage loans, based on the grade assigned to the security. The underlying data start December 2007. A dozen separate functions are available, such as loans per 1000 housing units, foreclosures per 1000 housing units, REOs per 1000 housing units. Comment by CityEconomist: This is part of what the U.S. Conference of Mayors asked the Mortgage Bankers Association for at their recent Detroit meeting, i.e., a way to estimate what the impact of foreclosures might be in every neighborhood.
I write about the biographical and economic threads in history. Special interests include symbols of family, such as coats of arms, and the behavior of families in a crisis.
Wednesday, January 2, 2008
TAX | Deductible Interest Valuable to NYC
Jan. 2, 2008–City Limits Magazine includes a proposal (#7) to end the deductibility of interest paid on mortgages. The idea is the deduction encourages people to live outside of cities. (More people rent in the cities.)
But simply eliminating deductibility of mortgage interest without substituting a tax credit would exacerbate weakness in housing prices. It would especially affect New York City area homeowners:
1. NYC area homes cost more than the national average, so average mortgages are higher.
2. NYC area average incomes are higher than in the nation as a whole, so average tax rates are higher and more taxpayers are itemizing interest deductions.
3. Most NYC area taxpayers are subject to state and local income taxes, so the value of interest deductibility is higher than elsewhere.
President Bush's tax reform panel proposed ending the mortgage-interest deduction for homeowners that has been in the income tax code since it was created in 1913. The deduction benefits about 125 million U.S. homes but is under attack because Washington needs revenue and many economists believe there are better ways to structure tax incentives. The panel favors replacing the deduction with a 15 percent tax credit for mortgage interest up to a regional home-price limit. This would be a big change.
One feature of the panel's proposal that would be a minor change and would benefit New Yorkers is the panel's proposal for regional variation in the cap on tax-favored mortgage debt. The existing cap limits interest deductibility to a flat $1 million in mortgage debt. The cap does not allow for regional variation in housing prices and was instituted in 1987. Inflation has been steadily reducing the value of the deduction and the loss to the U.S. Treasury (and to NY State and NY City revenues).
But simply eliminating deductibility of mortgage interest without substituting a tax credit would exacerbate weakness in housing prices. It would especially affect New York City area homeowners:
1. NYC area homes cost more than the national average, so average mortgages are higher.
2. NYC area average incomes are higher than in the nation as a whole, so average tax rates are higher and more taxpayers are itemizing interest deductions.
3. Most NYC area taxpayers are subject to state and local income taxes, so the value of interest deductibility is higher than elsewhere.
President Bush's tax reform panel proposed ending the mortgage-interest deduction for homeowners that has been in the income tax code since it was created in 1913. The deduction benefits about 125 million U.S. homes but is under attack because Washington needs revenue and many economists believe there are better ways to structure tax incentives. The panel favors replacing the deduction with a 15 percent tax credit for mortgage interest up to a regional home-price limit. This would be a big change.
One feature of the panel's proposal that would be a minor change and would benefit New Yorkers is the panel's proposal for regional variation in the cap on tax-favored mortgage debt. The existing cap limits interest deductibility to a flat $1 million in mortgage debt. The cap does not allow for regional variation in housing prices and was instituted in 1987. Inflation has been steadily reducing the value of the deduction and the loss to the U.S. Treasury (and to NY State and NY City revenues).
I write about the biographical and economic threads in history. Special interests include symbols of family, such as coats of arms, and the behavior of families in a crisis.
Monday, December 3, 2007
Ben Stein's Challenge to Goldman
Ben Stein in Sunday's NY Times ("The Long and Short of It at Goldman Sachs"), citing Allan Sloan's research for Fortune magazine, questions the propriety of Goldman Sachs for underwriting securities representing packages of loans while simultaneously short-selling mortgage indexes. He also takes to task Goldman economist Jan Hatzius for being excessively bearish on mortgages and suspects that Goldman’s short-sellers were grateful for the negative portrait.
Stein is questioning the view that the marketplace is divorced from morality, that if someone wants to buy junk from Goldman's securitization window at overly high prices, caveat emptor and good for Goldman. Similarly, if Goldman's traders want to bet that the housing market is going to continue to deteriorate (in part because of a collapse of mortgage values), and they place their bets accordingly, what's wrong with that? If Goldman’s bets win at both windows, tant mieux.
This point of view depends, I think, on there being a wall between departments of the kind that the Glass-Steagall Act of 1933 put up between banking activities and investment banking. Is there anything left of this wall? Is there a limit on communication between Goldman's traders and the people who investigate the quality of loans that they packaged?
On the issue of excessive bearishness, I believe the Case-Shiller indexes and various estimates of the total likely losses support the idea that downward adjustment in housing markets has considerably further to go. But several factors will come into play to mitigate the impact:
1. Continuing infusion of central bank liquidity in the United States and overseas.
2. Local judicial insistence on seeing all the documents before permitting foreclosures, such as is occurring with Deutsche Bank in Ohio, which may slow down foreclosures - at some cost to the credibility of the American mortgage system.
3. Industry association assistance to mayors to help with easing the impact of foreclosures on local communities (the Mortgage Bankers are providing $100 per foreclosure to create a foreclosure database and to fund counseling services).
4. Congressional action to freeze interest rates on ARM interest rates that are about to float up.
Stein is questioning the view that the marketplace is divorced from morality, that if someone wants to buy junk from Goldman's securitization window at overly high prices, caveat emptor and good for Goldman. Similarly, if Goldman's traders want to bet that the housing market is going to continue to deteriorate (in part because of a collapse of mortgage values), and they place their bets accordingly, what's wrong with that? If Goldman’s bets win at both windows, tant mieux.
This point of view depends, I think, on there being a wall between departments of the kind that the Glass-Steagall Act of 1933 put up between banking activities and investment banking. Is there anything left of this wall? Is there a limit on communication between Goldman's traders and the people who investigate the quality of loans that they packaged?
On the issue of excessive bearishness, I believe the Case-Shiller indexes and various estimates of the total likely losses support the idea that downward adjustment in housing markets has considerably further to go. But several factors will come into play to mitigate the impact:
1. Continuing infusion of central bank liquidity in the United States and overseas.
2. Local judicial insistence on seeing all the documents before permitting foreclosures, such as is occurring with Deutsche Bank in Ohio, which may slow down foreclosures - at some cost to the credibility of the American mortgage system.
3. Industry association assistance to mayors to help with easing the impact of foreclosures on local communities (the Mortgage Bankers are providing $100 per foreclosure to create a foreclosure database and to fund counseling services).
4. Congressional action to freeze interest rates on ARM interest rates that are about to float up.
I write about the biographical and economic threads in history. Special interests include symbols of family, such as coats of arms, and the behavior of families in a crisis.
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