Inside Outrage

Our comments on outrageous things that happen or are proposed.
There are 3 articles written on this subject. The most recent 10 are listed here:

A sad, sad, sad true story...help! Bubble? Advantage Government Virginia's Nutty Gas Tax Proposal

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December 20, 2006

I debated writing this for a couple of weeks now. This is a true story. It should cause outrage. I have changed the names, places, and specifics of the story to protect the participants and to avoid jeopardizing any legal action that may emerge.

This story starts several years ago with the dream of an immigrant that life can be better, fairer and more fulfilling in this place we call America. A family with three young daughters pursuing their dream in Northern Virginia. A christian family of high moral values. Parents are hard working. Maria is a supervisor at a nursing home and the proprietor of a licensed handyman business. Jose, her husband runs the handyman business. Handyman is a bit of a misnomer. Jose is a skilled craftsman. A master at custom woodworking and a superb painter. Jose and his few employees are in constant demand because of the quality of work, reasonable rates and untarnished honesty. Many of his clients give him "the keys to the house" as they trust him like part of the family. Jose never works on Sundays and is known to give sermons at his church. Maria speaks a little english and often needs someone to translate. Jose communicates in english well enough to get by but is often misunderstood.

This family was able to purchase a very modest home with their hard earned savings 3 years ago. A good price with an attractive interest rate based on good credit. Based on their hard work and desire to own a bigger home, Maria and Jose started their search for a "new home." They found the perfect potential home in a new development. We will place the time in late spring/early summer of this year. The plan was to pull equity out of their current home that enjoyed significant appreciation to make the deposit on their new dream home. In come the sharks for the kill.
Here are the facts to set the stage for a financial disaster:

• Spring of 2006 inventory of homes for sale was rising rapidly and sales were dramatically slower.
• New construction home priced in the $550,000 range with closing within 6 to 9 months.
• Jose and Maria hooked up with a lender by referral to refinance their current home, extracting equity to make the deposit on their new one.
• Lender advertises a 1.25% interest rate.
• Current home was appraised at $420,000 by the lender.
• They refinance for about $340,000 taking just enough out to make their $50,000 deposit and pay lender and closing fees.
• Maria and Jose close on the loan, make their deposit and are happy to have met their objective.
• Their first month payment was in the $1,400 range, well within their budget.
• Their second month payment was a shocking $2,800 with a note on the payment notice that the interest rate was 8.75% and the loan was "sold" to a national lender.

Shocked and in disbelief, Jose calls me to see if I could help him understand what had happened. Although I had a hunch at what they got into, I referred Jose to a reputable lender friend to review his loan documents. The result was as I suspected. They signed on to an option-arm loan program. Here is an overview as I understand it:

• Loan amount: $340,000
• Option Arm at 1.25% start rate with an adjustment after one month.
• Fully amortized 30 year rate at 8.75%
• Payment Options: $2,800 fully amortized, $2,300 interest only, $1,400 minimum payment with negative amortization.
• A $9,000 PREPAYMENT PENALTY if paid in the first year! Tha't right. They hope to sell their home and close on the new one in 9 months!
• The closing documents show the original lender/broker received a huge commission for closing the loan

At this point in time, Maria and Jose need to sell their home. It appears their new home will be ready in about 60 to 90 days. I visited their home and found that it was nicely cared for, on a good lot and has an addition off the entire back of the house adding about 500 to 600 square feet of living space. It was originally built in the mid 1950's. Some quick research reveals that there are 20 homes active in the neighborhood at an average of 97 days on the market with a maximum of 217 days. There is one under contract at 375,000 and was on the market 341 days. 43 have sold since the first of the year at an average price of $335,000 with a maximum of $385,000. Sales are running about 2 homes per month since August. Average seller subsidy is $10,000.

Doing an estimated net sheet at an "optimistic" sale price of $380,000 and sold in 90 days yields:

Sale Price	$380,000
Mortgage	$352,000	Includes negative amortization
Gross Equity	$28,000
Listing Commission	$0	If I do it for free
Selling Commission	$11,400	3% to get agents to show it
Seller Subsidy	$10,000	Based on averages to date
Misc Closing Costs	$900	Escrow, title, recording, termite
Grantor Tax	$380
Prepayment Penalty	$9,000	Robbery!
Seller Prorations	$3,400	Taxes, Interest, etc.
Total Selling Expense	$35,080	Taxes, Interest, etc.
Net proceeds	-$7,080	Estimate

Closing cost estimate on new home (cash required): ~$13,000. They are not going to have it.

Now, this is the question: Would a reasonable person make the decision to accept these terms with a short term objective knowing the negative consequences? I say not. Are they naive? Maybe. I believe they were taken advantage of, as in FRAUDULENT and PREDATORY lending.
They have consulted other lenders after realizing what they had done and have been offered a refinance package in the low 6% range based on their stated income and good credit. So, I don't believe the loan they got themselves into was sub-prime. Refinancing again now is NOT the answer. Doing nothing is NOT the answer. Investigating the broker/lender practice IS the answer. The optimistic selling picture painted above is just that, optimistic. I believe it will be several thousand dollars worse.

If you are equally outraged and believe you can help, call me, email me, meet with me. We need to get this disaster fixed for these good people. People that wanted to be in America, living freer, a place that is fairer, with rewards going to those with high values, that play by the rules and are not afraid of hard work. They deserve better. We all do.

I keep asking myself why he didn't talk to someone he knows and trusts before making this decision...........................

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April 4, 2006

Our Loudoun County Board of Supervisors are zeroing in on the 2006 tax rate. It looks like it will be in the neighborhood of $0.90 per $100 of assessed value. The 2005 rate was $1.04. Lets do the numbers:

Average assessed values went up 28%.
$0.90 per $100 of assessed value is a rate reduction of 13.5% from $1.04.
Net: Average property tax will increase 14.5% (28%-13.5%).

So, if your property tax bill was $5,000 last year, then (on average) your tax bill will increase $725 to $5,725. For some a lot more because I have seen assessed values up as high as 50%. For few, if any, a little less than average.

The assessor looked backward into a hot market in 2005 when sales prices were going out of sight. The assessor does not visit homes (unless you appeal your assessment) so every home in a given area sort of looks the same. The market has melted in the last several months and many sellers are having to price homes less than assessed value. I know, because we have a few of those listings. So what about next year? Will assessments decrease? Never. Will government budgets decrease? Never. Now, there is a permanent bubble in the cost of government.

Have our assessments been wrong for several years? We used to be able to estimate assessments at 70 to 80% of market value. Has the new assessor determined that the past was in error? Where are the checks and balances? Who checks the assessor's math, past and present?

Market dynamics are pushing many residents out of Loudoun and other jurisdictions in Northern Virginia. Some of us just can't afford to live here any more. Many residents are outraged! Maybe we all should be. Have the political pendulum swings the last two or three elections caused mismanagement? Probably. Will the silent majority wake up and get involved in finding common sense, center focused people to run for office and elect them? I hope so. This year is the wake up call.

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February 21, 2006

A proposal attached to one of the transportation funding bills being considered is a higher tax on the wholesale price of fuel (gasoline). Now get this: the proposal will allow consumers (who will ultimately pay for the increase) to save their receipts and twice a year redeem these at a DMV office for a refund of the taxes. Estimates are that only half of us will go to the trouble of doing this. Is this the nuttiest proposal you have ever heard?

How in the &%$#* will anyone be able to administer this? Let alone the DMV that has a hard time serving their current customers. How do you prevent me from printing look alike receipts? What kind of procedures will be mandated that the distributors and retailers implement to administer this? Who pays for the administration (a stupid question)?

Whoever came up with this idea needs immediate psychological attention. And, it might include the entire senate finance committee who recently approved it.

Weird politics to the extreme! Give me a stupid tax break.

PS: I opened a new category called Outrage

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