What happened to small towns?

[LizzieMaine]

Except when you actually sit there in a school board meeting and hear them stand up and say "what do these kids today need with this (whatever the thing being voted on is). We never had (one of those things) and we survived all right!"

Believe me, I heard that many many times in the nine years I covered the local education beat for the radio station. Did you know whole-language reading programs are a Communist plot to waste our money, undermine phonics, and subvert the American Way? McGuffey was good enough for great-grandpa, and it should be good enough for you. Etc. etc. etc.

I'll never forget the night in 1992 when the leader of this particular faction -- a retiree from the Northern Virginia/Washington DC area -- threw a box of tea bags in the superintendant's face during a budget meeting, declaring open rebellion against his fascist/communist/socialist/tax-and-spend agenda. The campaign and budget vote that followed nearly tore the town apart. I only say what I do about this stuff because I've seen it up close and first hand.

 

[ChiTownScion]

As an "old-fogey" who isn't retired, in large part because of our exorbitant property taxes, there is another side to the story. I bought my house back when my neighborhood was just an ordinary neighborhood with moderate house/property prices. Then it became "hot" and then "red-hot" due to it's near-city location. Gentrification, etc.
My property reassessment jumped by 50% in the reassessment before last and another 40% in the most recent reassessment. The word is that it will go up another 30-40% in the next round.
Has my salary increased anywhere near that rate over the past decade?? NO!! Is my property tax payment far greater than my mortgage ever was?? YES!!
Don't say I'm rich because the property is (theoretically) worth so much. The only way to get that money is to sell out and live in the street or go somewhere I don't want to go. ("We had to destroy the village in order to save it.")

I curse the city roundly every time I pay my property tax. I consider it a protection racket with bureaucrats running it instead of mobsters.

How much has the estimated resale value of your property appreciated from your purchase price?

 

[ChiTownScion]

Except when you actually sit there in a school board meeting and hear them stand up and say "what do these kids today need with this (whatever the thing being voted on is). We never had (one of those things) and we survived all right!"

Believe me, I heard that many many times in the nine years I covered the local education beat for the radio station. Did you know whole-language reading programs are a Communist plot to waste our money, undermine phonics, and subvert the American Way? McGuffey was good enough for great-grandpa, and it should be good enough for you. Etc. etc. etc.

I'll never forget the night in 1992 when the leader of this particular faction -- a retiree from the Northern Virginia/Washington DC area -- threw a box of tea bags in the superintendant's face during a budget meeting, declaring open rebellion against his fascist/communist/socialist/tax-and-spend agenda. The campaign and budget vote that followed nearly tore the town apart. I only say what I do about this stuff because I've seen it up close and first hand.

When you move into a community, you become part of said community. That means that you take on all of the obligations that everyone else has to bear, including the responsibility of educating the young.

In my college town, the kids at the local high school did without music, art, and sports programs. Their science lab facilities were antiquated, and teacher salaries were so paltry that much needed talent- particularly in match and the sciences- could not be attracted. And then they marveled why the most promising of their kids went off to college elsewhere and never returned.

A referendum that would have raised property taxes an average of twenty five bucks per home was proposed. The price of a decent dinner date for me- having worked low wage summer jobs to put myself through school- but too much for the locals, as it turned out. I remember one old battle axe at a local meeting in particular, howling about how she'd lose her home if the increase went through. Sorry ma'am, but if you're twenty five bucks between owning a home and being on the street, you are likely living way beyond your means.

 

[EngProf]

How much has the estimated resale value of your property appreciated from your purchase price?

A lot... which is exactly the problem, because I have to pay taxes based out of what I make, not from some highly-inflated "resale value", which has been driven up by mostly by out-of-State "developers"/speculators. To repeat, my salary has definitely not gone up by 50%, then 40%, then another 40%, *compounded*, over the past decade. The tax bill has.

If our local crime-Boss (Tax Assessor) said that the property was worth a million-billion-zillion dollars, I would not rejoice that I was now "rich". The only result would be that I would have to pay much more in taxes for exactly the same services.

A high "resale value" is only relevant if you want to sell. I don't, but may be forced to by the combined actions of people I despise.

 

[ChiTownScion]

A lot... which is exactly the problem, because I have to pay taxes based out of what I make, not from some highly-inflated "resale value", which has been driven up by mostly by out-of-State "developers"/speculators. To repeat, my salary has definitely not gone up by 50%, then 40%, then another 40%, *compounded*, over the past decade. The tax bill has.

If our local crime-Boss (Tax Assessor) said that the property was worth a million-billion-zillion dollars, I would not rejoice that I was now "rich". The only result would be that I would have to pay much more in taxes for exactly the same services.

A high "resale value" is only relevant if you want to sell. I don't, but may be forced to by the combined actions of people I despise.

Understood. Have you appealed the assessment?

Nonetheless, the individuals who have done the most to earn my empathy are those who, as result of the 2008 financial meltdown, are still underwater: paying mortgages (if they can) for properties now worth far less than their purchase price. I've a hunch that most would agree.

 

[LizzieMaine]

How many of us here know someone personally who lost a home in the meltdown? I do, and it's someone very close to me. And in this town, *any random person you ask on the street* will very likely have the same answer. There were weeks when the entire classified section of the local paper was taken up by foreclosure notices.

The situation in that respect hadn't been that bad since the Depression, but Depression people responded to it differently. There were cases of judges being dragged off their benches with a rope around their neck by mobs of the dispossessed, and of auctions where friends of the foreclosee mobbed the auction, chased off the bidders, bought the property for pennies on the dollar and deeded it back to the family that lost it. Those were the days.

 

[ChiTownScion]

How many of us here know someone personally who lost a home in the meltdown? I do, and it's someone very close to me. And in this town, *any random person you ask on the street* will very likely have the same answer. There were weeks when the entire classified section of the local paper was taken up by foreclosure notices.

We took a hit on both our residence and our vacation cabin. Never underwater or at risk (We own the latter outright: we jokingly refer to it as our ace against the upcoming zombie apocalypse and financial catastrophe.), but we did lose resale value while taxes rose. Things have slowly improved and I'm not complaining: we just had our street repaved and the curbs rebuilt and the residence looks better than ever.

Gal I grew up with and with whom we're still friends owns a home in the town in which we both lived then: her taxes are a fraction of ours and she still crabs about it. I think that she still has the first dollar that she earned as a teenager nearly fifty years ago: I think that's a personality thing. She's the kind who could be given a Ferrari, and she'd complain that she already HAS a small car.

 

[Fading Fast]

How many of us here know someone personally who lost a home in the meltdown? I do, and it's someone very close to me. And in this town, *any random person you ask on the street* will very likely have the same answer. There were weeks when the entire classified section of the local paper was taken up by foreclosure notices.

The situation in that respect hadn't been that bad since the Depression, but Depression people responded to it differently. There were cases of judges being dragged off their benches with a rope around their neck by mobs of the dispossessed, and of auctions where friends of the foreclosee mobbed the auction, chased off the bidders, bought the property for pennies on the dollar and deeded it back to the family that lost it. Those were the days.

Three thoughts. I have a lot more respect for that type of behavior in the '30s when, probably, none of the homeowners were speculators, but let's not kid ourselves, in '07, not every foreclosed homeowner was an innocent rube. In '07, many "homeowners," were zero or little-down speculators who mailed their keys back to the bank (remember "jingle" mail") once the home was under water as they didn't care because they had so little skin in the game (if the price had gone up, they'd have been glad to profit, but they weren't sticking it out on the downside). Also, while many people got screwed, many were helped by gov't programs and by bank programs (those billions in settlements the banks paid did help some - so the dynamic was different for some than in the '30s).

However, two, many innocent, hard working, honest people lost everything, but assigning blame is not as simple as blaming your local bank that might very well have sold your mortgage to one of several government sponsored agencies who encouraged aggressive lending (remember, I think it was Congressman Barney Frank who said - regarding what many saw as a housing bubble before it broke - I want to roll the dice a bit more on subsidized housing). The banks, the government and (some) greedy homeowners are at fault for the housing bubble - they all had a hand in it - good intentions or not. But as always, many very good people got destroyed - but hanging a judge or storming the castle is not a fair response. Oh, and tear down all the legal constructs and no one's home will be worth anything unless they also hire their own militia.

Three, the big lesson that many seemed not to learn is that any leveraged asset has risk - period, full stop. And while you can point to a time in history when it all appeared safe - that's only because prices didn't fall dramatically in that period (driving can appear safe until you have an accident - a long period without an accident doesn't mean there is no risk). And no amount of good intentions by the gov't (which I think had good intentions, but still made things worse), restrictions on banks (the irony is that today, "housing advocates" in and outside of the gov't are complaining the banks are being too "restrictive" to "marginal" homeowners owing to the post-crisis new gov't rules and regs they have to abide - does anyone learn anything, ever?) or thoughtfulness by the homeowner will make buying an asset that is 5 (20% down) or 10 (10% down) leveraged anything but very risky.

I lied, one final thought: the entire housing market's financing structure was predicated on one fatally flawed assumption - the assumption that housing prices would never have a sustained national decline of a double digit percentage. Hate your local bank, hate the gov't or blame the homeowner's profligacy (all have some legitimacy / all are far from the entire picture), but they all failed because. knowingly or not, the entire edifice was based on a flawed core assumption.

 

[LizzieMaine]

I'm not sure how the zero-down game works for speculation -- when I was put in the position of having to either buy my house or move out of it, I got a zero-down mortgage thru the only such program anyone here knows about, the USDA Rural Development Program (formerly the Farmers Home Administration.) The guidelines for that program -- which I applied for three times between 2008 and 2014 before finally being accepted -- were extremely stringent, both in terms of who they allowed to borrow money and in terms of the types of property that could be purchased thru it, and what could be done with it after the purchase. Purchase of property with intent to flip was explicitly not allowed -- the property had to be purchased and occupied as your primary residence for a set number of years before you could sell it.

When I was talking to lenders this was the only zero-down program any of them knew about. There were zero-down VA loans in the postwar years, but I don't know if that program still exists. But no other bank or program that I was able to learn anything about over a period of several years offered such loans.

 

[Fading Fast]

I worked for a very large Boston-based bank (reporting directly to the Treasurer) and was familiar with ours and several other bank programs that did allow for zero / near-zero-down payments and they were not anywhere near as stringent or restrictive as the one your mention (which I was marginally familiar with).

Many of these loans were part of what was called the Community Reinvestment Act, which was a gov't initiative that required banks to make a certain number of loans to "under-served" or "marginal" areas whose residents normally wouldn't qualify for a mortgage. For whatever reason, your area / your bank wasn't engaged in these programs (if your areas was already depressed and your bank didn't have a big footprint, then they probably didn't have to make CRA loans).

That said, the real mischief was at some (not all) of the smaller regional banks and "finance" companies that immediately sold the zero down loans to syndicates that, then, packaged the loans into securities (the "subprime" mortgages you've all read about were part of this chain) that were cut into traunches and sold to different categories of investors. I worked with some young kids (to me, men and women in their 20s), who took out 3% down loans (they seemed easy enough to get) in the pre '07 market after they were solicited by their local bank or a finance company. I have not doubt that, that bank or finance company immediately sold that mortgage to a syndicate.

As to the "kids" who took out those loans, some were really nice, honest men and women who saw it as a way to get a home they couldn't get otherwise (red flag, but they sincerely didn't see it that way), some were kind of aware, but still were just trying to buy a home and, some, got the game and saw it as a free "option" on a house - keep it if it goes up / walk away if it goes down. As mentioned before, the story isn't clean and the white and black hats don't fit a simple narrative of either political persuasion.

 

[HudsonHawk]

Except when you actually sit there in a school board meeting and hear them stand up and say "what do these kids today need with this (whatever the thing being voted on is). We never had (one of those things) and we survived all right!"...

No doubt that happens. I have an elderly gentleman friend who complains incessantly about all the "fancy" equipment the fire department has. I guess he only wants to pay for an old fashioned bucket brigade. But a cavalier attitude is not the only thing going on.

I suppose there's a bit of chicken and egg going on...gentrification is driving up appraisal values in working class neighborhoods, driving people to vote down improvements which in turn discourages the working class from staying/moving in.

Speaking of nothing related, I saw an interesting documentary that discussed the post-war manufacturing and consumerism that hit in the late 40s/early 50s. The argument was something along the lines of we had built up so much manufacturing capability during the war effort that afterward that was the only thing to be done with the factories and equipment and returning servicemen, and to keep that going, there had to be marketing for products. A lot of it was hooey, but I suppose there's a kernel of truth in there too. The US was left with a tremendous manufacturing capability that was just ripe for someone with a product to take his idea to the public, which before would have been very difficult.

 

[HudsonHawk]

I bought my house in '02 through one of those mortgage companies and a 3% FHA loan. The mortgage company told me ahead of time that they were going to sell it and at closing I paid the first payment to them, and that was it. The rest has been to Wells Fargo. I soon refinanced through WF to a 15-year mortgage which will be paid off next in 2018.

I bought my "ranch" through a local ag bank, which is sort of a locally owned co-op I guess. I had to do that because banks like WF wouldn't do it because there wasn't a fire hydrant within 500 feet. They just don't understand non city properties. I was unsure about the ag bank until talking to them and they explained that they needed to write loans, even if I'm not a local farmer/rancher. They didn't mind that it was vacation/investment property for me, the co-op needed loans to good credit risks in order to keep serving their purpose. Once he assured me that it was not only acceptable but encouraged, it was a no brainier.

 

[vitanola]

Three thoughts. I have a lot more respect for that type of behavior in the '30s when, probably, none of the homeowners were speculators, but let's not kid ourselves, in '07, not every foreclosed homeowner was an innocent rube. In '07, many "homeowners," were zero or little-down speculators who mailed their keys back to the bank (remember "jingle" mail") once the home was under water as they didn't care because they had so little skin in the game (if the price had gone up, they'd have been glad to profit, but they weren't sticking it out on the downside). Also, while many people got screwed, many were helped by gov't programs and by bank programs (those billions in settlements the banks paid did help some - so the dynamic was different for some than in the '30s).

However, two, many innocent, hard working, honest people lost everything, but assigning blame is not as simple as blaming your local bank that might very well have sold your mortgage to one of several government sponsored agencies who encouraged aggressive lending (remember, I think it was Congressman Barney Frank who said - regarding what many saw as a housing bubble before it broke - I want to roll the dice a bit more on subsidized housing). The banks, the government and (some) greedy homeowners are at fault for the housing bubble - they all had a hand in it - good intentions or not. But as always, many very good people got destroyed - but hanging a judge or storming the castle is not a fair response. Oh, and tear down all the legal constructs and no one's home will be worth anything unless they also hire their own militia.

Three, the big lesson that many seemed not to learn is that any leveraged asset has risk - period, full stop. And while you can point to a time in history when it all appeared safe - that's only because prices didn't fall dramatically in that period (driving can appear safe until you have an accident - a long period without an accident doesn't mean there is no risk). And no amount of good intentions by the gov't (which I think had good intentions, but still made things worse), restrictions on banks (the irony is that today, "housing advocates" in and outside of the gov't are complaining the banks are being too "restrictive" to "marginal" homeowners owing to the post-crisis new gov't rules and regs they have to abide - does anyone learn anything, ever?) or thoughtfulness by the homeowner will make buying an asset that is 5 (20% down) or 10 (10% down) leveraged anything but very risky.

I lied, one final thought: the entire housing market's financing structure was predicated on one fatally flawed assumption - the assumption that housing prices would never have a sustained national decline of a double digit percentage. Hate your local bank, hate the gov't or blame the homeowner's profligacy (all have some legitimacy / all are far from the entire picture), but they all failed because. knowingly or not, the entire edifice was based on a flawed core assumption.

Then there was the lady, a childhood friend of a business associate of mine, who lost her home to foreclosure over in the next county from us. Bank of America filed the action, though of course the mortgage in question was originated by the notorious Countrywide. She was in her late seventies and wintered in the South. When she returned in the Spring from her winter home in Alabama she found her house empty, with new locks. The odd thing was that she made her home in the lake house which was built by her father in the forties. He built it himself, paying cash for all materials. In fact the house never had a mortgage of any kind. Never. THERE WAS NO NOTE. Nothing. The woman lost her house to an "affidavit in lieu" which was sworn by a BOA employee whose true identity was never determined. The poor woman needless to say sued the bank. The courts in MI ruled that she would not get her house back, for to undo the foreclosure would call into question thousands of other titles, but she could sue for the value of her house and the furnishings (which had all of course been destroyed by the clean-out firm employed by BOA). She died before the matter went to court, and her heirs settled for a small percentage of the loss.

 

[Fading Fast]

Then there was the lady, a childhood friend of a business associate of mine, who lost her home to foreclosure over in the next county from us. Bank of America filed the action, though of course the mortgage in question was originated by the notorious Countrywide. She was in her late seventies and wintered in the South. When she returned in the Spring from her winter home in Alabama she found her house empty, with new locks. The odd thing was that she made her home in the lake house which was built by her father in the forties. He built it himself, paying cash for all materials. In fact the house never had a mortgage of any kind. Never. THERE WAS NO NOTE. Nothing. The woman lost her house to an "affidavit in lieu" which was sworn by a BOA employee whose true identity was never determined. The poor woman needless to say sued the bank. The courts in MI ruled that she would not get her house back, for to undo the foreclosure would call into question thousands of other titles, but she could sue for the value of her house and the furnishings (which had all of course been destroyed by the clean-out firm employed by BOA). She died before the matter went to court, and her heirs settled for a small percentage of the loss.

That is a horrible story. I'll stand arm in arm with anyone who wants to aggressively prosecute any and all involved, including, the judge who ruled against her. Nothing in what I wrote - I hope - an any way, shape or form defends horrific actions like these.

 

[ChiTownScion]

I'm not sure how the zero-down game works for speculation -- when I was put in the position of having to either buy my house or move out of it, I got a zero-down mortgage thru the only such program anyone here knows about, the USDA Rural Development Program (formerly the Farmers Home Administration.) The guidelines for that program -- which I applied for three times between 2008 and 2014 before finally being accepted -- were extremely stringent, both in terms of who they allowed to borrow money and in terms of the types of property that could be purchased thru it, and what could be done with it after the purchase. Purchase of property with intent to flip was explicitly not allowed -- the property had to be purchased and occupied as your primary residence for a set number of years before you could sell it.

When I was talking to lenders this was the only zero-down program any of them knew about. There were zero-down VA loans in the postwar years, but I don't know if that program still exists. But no other bank or program that I was able to learn anything about over a period of several years offered such loans.

My best friend from college bought his home back in '78 through such a program. I was a starving law student then- I wouldn't own a home for another eight years. His purchase price wouldn't get you a decent condo ownership parking garage space in many large cities now, but he and his wife stayed there all of these years, raised two kids there, hosted a gaggle of foreign exchange students there, and now entertain their grandkids there. If their experience in small town home ownership is fairly typical, I'd say that the Farm Homes Administration and its successor was quite worthwhile. Proving that a government program can and does get it right.

 

[LizzieMaine]

I can't imagine how any loan program could be any more stringent or any more difficult to manipulate. The loans are only offered in communities that qualify in terms of population -- it's a *rural* program, and even though I don't live out in the country, the population of the area is still under the ceiling for qualifying as rural. The property purchased must be "modest," which means a small house with a small lot -- no McMansions, "investment grade properties," or any other such extravagances are considered. And every last nickel of your income and debt load must be thoroughly documented, without exception. They go over your bank statements and tax returns with the proverbial fine toothed comb and every single questionable item has to be explained in writing, without exception.

The main advantage to me was that only qualified banks are allowed to participate in this program. The one servicing my loan is a strictly Maine bank that knows the community -- and it doesn't bundle and sell the mortgages under this program. All the interviews and the appraisal were conducted locally by local people. When I bought this house the first time back in the '90s -- I had to sell it in 2004 to pay medical bills -- it was an FHA loan, which was almost immediately sold off to a succession of secondary-market outfits, including Wells-Fargo and CUSO, neither of which knew me, ever spoke to me, or gave a damn about my situation. I was determined not to make that mistake again.

The one thing that did bother me was that I, as a middle-aged single woman with an excellent credit rating, got put thru a much longer processing period than another borrower -- who I encouraged to get a a similar loan. That borrower is a middle-aged single *man* with a bankruptcy in his past, but he whizzed thru approval in half the time it took me. I leave that fact without further comment.

As for the incident related by Vitanola, well, that's where I say that it's time to get a rope.

 

[vitanola]

That is a horrible story. I'll stand arm in arm with anyone who wants to aggressively prosecute any and all involved, including, the judge who ruled against her. Nothing in what I wrote - I hope - an any way, shape or form defends horrific actions like these.

The judge was ruled to have done nothing wrong. Michigan law limits the ability of injured parties to sue for damages in cases like these, and the MI Supreme Court has over the past fifteen years been staffed with "sympathetic" justices. Besides which, the National Mortgage Settlement of '12 and the BOA settlement of '14 preclude any further action.

The basis of the problem was the market for securitized mortgages, and the MERS (Mortgage Electronic Record System) a scheme which allowed traders in securitized mortgage interests to avoid the legal requirement of registering mortgage lines at the county courthouses. No one involved expected anything like the storm of fourclosures which eventually occurred. When the cirsis borke the servicers of those mortgages were sought without paperwork in many cases. So, in those cases they figured out a work-around, simply present an "affadavit in lieu" of the missing paperwork, a sworn statement by a bank officer that the necessary paperwork existed. For a time in 2009 and 2010 these were being produced wholesale by certain mortgage servicing firms. the term for this was "robo signing". in most cases there was a ligitamate defaulted mortgage, but in nearly eighteen thousand cases there turned to be no underlying note. In the old days, the creation of paperwork alleging a lein interest which did in fact not exist would have been considered fraud. Unfortunately there were so many questionalbke cases of this sort that the only reasonable solution was to pretend that the incident dod not happen, prevent further litigation by the terms of the verious mortgage settlement aggreements ( which were signed on to by the Attorneys General of the various states) and compensate those who lost out to the extent possible. o do anything elsw would have ended up taking a decade or more to litigate and may well have irreprably damaged our national deed and title system.

The solution was pragmatic and probably necessary, but the actors who submitted the faked documents never were called to account. This bodes ill for the future, I think.

 

[Dirk Wainscotting]

I'm sometimes (actually always) puzzled by the social mindset that sees expensive home-ownership as part of the dream of freedom when the loss of such an asset is so often in the wings, at the mercy of an economic structure that can separate you from it with relative ease. All it takes is another one of the periodic economic dips that never fail to put in an appearance, and a job loss can wreck it all. Selling a house to pay medical bills? No citizens of a modern first-world country should find themselves in that position.

Currently the purchase of property for normal people is a gamble and the selling of yourself to a bank to get the money for four walls priced from half a million up to a million of whatever currency.

I sold my house when I left the UK and moved to Europe. That was an Edwardian terraced house I bought outright for £22,000 in the early 1990s. That amount of money likely wouldn't be able to buy the bloody boxroom of that house now.

 

[HudsonHawk]

I'm sometimes (actually always) puzzled by the social mindset that sees expensive home-ownership as part of the dream of freedom when the loss of such an asset is so often in the wings, at the mercy of an economic structure that can separate you from it with relative ease. All it takes is another one of the periodic economic dips that never fail to put in an appearance, and a job loss can wreck it all. Selling a house to pay medical bills? No citizens of a modern first-world country should find themselves in that position.

Currently the purchase of property for normal people is a gamble and the selling of yourself to a bank to get the money for four walls priced from half a million up to a million of whatever currency.

I sold my house when I left the UK and moved to Europe. That was an Edwardian terraced house I bought outright for £22,000 in the early 1990s. That amount of money likely wouldn't be able to buy the bloody boxroom of that house now.

The problem isn't owning a home, it's trying to own more than you can afford. 99% of the people could in no way really afford a $500,000 house, let alone $1MM. But they over leverage themselves. They get 100-year loans and "interest only" loans, and still spend 30-40% of their take home pay on the mortgage. That's simply insane.

 

[LizzieMaine]

As far as selling a house to pay medical bills goes, that's what happens when you live in the US of A, suddenly require major surgery, have no insurance, only a couple of thousand in the bank, and no family with any money. Fortunately I was able to get said surgery in Canada for less than half of what it would have cost under the so-called American Health Care System. And eventually I was able to buy the house back, after living in it for ten years as a tenant.

It wasn't the money that worried me. It was the unimaginable horror of having to move that I dreaded and was willing to do anything to avoid.