Assessor Will Roll Back Tax Values
December 05, 2009 By Dan McKay Copyright © 2009 Albuquerque Journal Journal Staff Writer Bernalillo County Assessor Karen Montoya plans to roll back property values for homes sold since 2002, a move that could save some homeowners thousands of dollars on future tax bills. But the change might also reduce income to government agencies already facing budget shortfalls. Montoya said she decided to roll back values after two judges ruled the state's property-tax law is unconstitutional. The court decisions, however, applied only to the plaintiffs in those cases, raising the question of whether other residents would have to sue to get a proper tax bill. "The current system is inequitable," Montoya said Friday in a written statement released to the Journal. Tens of thousands of homeowners will be affected by the rollback, she said. It's not clear how her decision will affect tax bills. State administrators could offset the lower values by raising tax rates. Also unknown is how the change might affect government revenue. An initial analysis suggested the rollback could reduce Albuquerque's tax base by roughly 4.5 percent, according to Lou Hoffman, City Hall's director of finance and administrative services. That, in turn, would reduce how much the city has to spend on road and other construction projects through the general-obligation bond program, which is backed by property taxes. A $120 million bond package, for instance, might have to shrink by around $5.4 million. The impact on municipal operating budgets is less clear, because the state sets those tax rates through a complicated process called "yield control." Rick Homans, secretary of the state Taxation and Revenue Department, said Montoya's decision could have serious consequences. "A massive rollback in property taxes, as suggested by the county assessor, raises several complex legal questions and has potentially serious fiscal implications that need to be studied more closely in the weeks ahead," he said. Montoya's decision stems from legal problems with New Mexico's tax policy, which is set by state officials but carried out by county assessors. The controversy centers on a phenomenon known as "tax lightning." A 2001 state law says most people are subject to a 3 percent limit on how much their property values can climb each year for tax purposes. But the cap doesn't apply if the home changes ownership. That means new homeowners are often hit with property tax bills much higher than their neighbors' — sometimes three times as much. Critics call it "tax lightning" because the tax bill for the property jumps abruptly when it changes ownership. In August, state District Judge Theresa Baca ruled the system violated the state constitution by creating a class of people who are taxed more based on when they bought their homes. Baca said the law would be constitutional if the 3 percent cap applied to everyone.
Mortgages Fall to Rock-Bottom Rates
30-Year Fixed Loans at Record Low 4.71%
Friday, December 04, 2009 By Richard Metcalf Journal Staff Writer
The average interest rate for a 30-year mortgage dropped to a record low of 4.71 percent this week, not that home buyers are letting out a big cheer. “People are not as focused on rates,” said Robert Key of Ameriplex Mortgage in Albuquerque. “Rates help, but what really gets people motivated to buy is the tax credit.” The name of the game in home buying today is federal tax credits, which is a stimulus program that was recently expanded from just first-time buyers to repeat buyers. The tax credit program, originally set to expire Nov. 30, was extended to June 30, 2010. Interest rates on 30-year, fixed-rate mortgages have been so low that home buyers are taking them for granted, Key said. So far this year, 19 of 48 weeks have seen average interest rates below 5 percent, according to Freddie Mac. The highest rate of the year was 5.59 percent for the week ending June 11. This week's average rate of 4.71 percent, released Thursday by Freddie Mac, is the lowest since the mortgage finance company began tracking the data in 1971. The previous record of 4.78 percent was set during the week ending April 30 and matched last week. For comparison, rates on 30-year mortgages in 2008 generally ranged from 6 percent to 7 percent. In 2003, widely recognized as a great year for mortgage rates, the range was 5 percent to 6 percent. “Money is cheap,” said Don Padilla, chairman of the Greater Albuquerque Association of Realtors, about this year's low interest rates. “Other components are tax credits and home values, which haven't been this good in a long time, but interest rates help make this an obvious buyer's market.” Mortgage rates have been pushed down by an aggressive government campaign to reduce borrowing costs. The Federal Reserve is pumping $1.25 trillion into mortgage-backed securities to try to bring down mortgage rates, but that money is set to run out next spring. The average rate on a 15-year fixed-rate mortgage fell to a record low of 4.27 percent, from 4.29 percent last week, according to Freddie Mac. The AP contributed to this story.
Nervous Feds Hammer New Mexico Banks
Friday, December 04, 2009 By Winthrop Quigley Journal Staff Writer
Charter Bank has fewer bad loans on its books today than it had six months ago, nearly all of its commercial and residential real estate borrowers are paying on time, real estate values in New Mexico are stabilizing and the bank is solvent. That didn't keep federal Office of Thrift Supervision regulators from imposing new restrictions on Albuquerque-headquartered Charter's operations and requiring the bank to substantially increase reserves against loan losses. Charter isn't the only New Mexico bank under the federal gun. OTS, the Federal Reserve System and the Federal Deposit Insurance Corp. have among them taken regulatory action against First Community Bank, High Desert Bank, Sunrise Bank, Bank 1st and American Heritage Bank, and other banks are rumored to be in the regulators' cross hairs. Experts say regulators, fearful of declining real estate values and eager to protect federal deposit insurance, are imposing tough new standards even on solvent, profitable, well-managed and conservative banks. Some experts say the actions will backfire by reducing the amounts the banks will loan, and in some cases push them closer to failure. William J. Verant, the state official who regulates state-chartered banks, said no New Mexico banks are in imminent danger of failing. Without discussing specific banks, Verant said some federal regulation has become arbitrary and is driven by a desire to protect the FDIC fund that insures against bank failures. Verant does not regulate Charter. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, in an Oct. 29 letter to federal regulators complained that some smaller banks face "over-zealous regulatory actions based not on wrongdoing or poor management practices at these banks, but on changes in the economic environment and toughening regulatory standards." The problem banks face is too many commercial real estate loans on their books, Peter G. Weinstock, a Dallas attorney who specializes in bank regulation, told the Journal on Thursday. Weinstock emphasized he does not know anything about Charter's situation. Instead of evaluating the quality of individual loans, examiners require the bank to increase reserves for losses if the level of commercial real estate lending is too high. "Even if the assets are sound, if a bank has these kinds of assets, the regulators' view is that deterioration is coming," Weinstock said. "If you believe, as (federal regulators) do that commercial real estate loans will continue to deteriorate all through this year and next year, and if you believe that community banks have been slow to recognize their problems, the only thing that is important to you is how much non-owner-occupied commercial real estate the bank has. "You can't say this particular loan is well structured and has strong guarantees and that one does not. It's impossible to do that from Washington," Weinstock said. On paper, that decreases the amount of capital the bank has on hand, forcing the bank to curtail lending and find new sources of capital, by tapping existing owners for new investment or by finding new investors. Earlier this year Charter, with help from an outside auditor, reviewed all of its significant loans and decided to raise its allowance for loan losses from $10.8 million to $18 million. OTS examiners required Charter to raise that allowance to $55.4 million, in spite of an improvement in Charter's loan performance. Between March 31 and Sept. 30 the value of loans that were not being paid down on time declined from $86.4 million to $80.4 million, according to the bank's filings with the FDIC. Charter president R. Glenn Wertheim told the Journal that as of August not a single commercial construction loan was delinquent and only .34 percent of loans in the commercial real estate portfolio were behind on payments. OTS also imposed what is known as a cease and desist order that requires Charter to improve the amount of capital it has on hand to secure deposits, a goal Charter expects to achieve in January. The order also restricts the amount of new commercial real estate lending the bank can undertake, although residential mortgage lending is unaffected. Banks have been building up the size of their real estate loan portfolios for 20 years, Verant said. "Why is this a problem now?" he said. "Obviously it's a problem because the FDIC is burning through all of its reserves. The FDIC is coming into all banks with higher commercial real estate lending and laying down one hammer or another, whether the bank is making money or losing money." FDIC is funded by premiums paid by banks whose deposits the corporation insures, so to help pay its bills FDIC has required banks to pre-pay three years' worth of premiums. In his letter, Frank warned that arbitrary regulation will keep smaller banks from lending, which could make the recession worse. Banks that shouldn't fail will fail in this environment, Weinstock said, "but what's scary from the economic standpoint is none of the banks wants to issue commercial real estate loans. When you take that liquidity out of the market, real estate values go down."
