San Francisco County Assessor Phil Ting sent me an email the other day asking me to read his article in the Examiner about turning San Francisco into a “No Foreclosure Zone.” After reading it, I wanted to respond to Mr. Ting publicly, because his ideas either betray a fundamental ignorance about financial policy management, or a shell game that plays on populist heartstrings to cover up the fact that he’s willing to fill San Francisco’s tax coffers through any means necessary, ethical or not.
Guess which one I think it is?
Milking and bilking
Couched in emotive terms like saving residents from their foreclosure fate through the penalization of predatory mortgage lenders, Ting’s email and article try to convince us that he wants to punish the exploitative lenders as a public service to San Francisco’s residents. What he’s really doing is milking the fears and anxieties of a populace struggling through the recession, in order to push through a measure that bilks lenders to cover San Francisco’s budget deficit.
Strip away the populist stump-thumping, and we’re left with these facts about how his proposal would work:
- The City will hire a consultant to determine the total economic harm that results from a typical foreclosure due to loss of tax revenue to the city. Also included in the analysis will be estimates of harder-to-quantify repercussions like contribution to urban blight, decline in neighbors’ property values, etc.
- Any lender who funds a loan that ends up in foreclosure will then be required to pay Ting’s tax collectors that amount through a local “foreclosure fee”, intended in Ting’s own words to “transfer the costs of foreclosure away from our communities and onto the banks and lenders.”
- This fee, which he describes as “the first step toward transforming our city into a “No-Foreclosure Zone”, would not be an emergency measure but an ongoing city policy.
The Shell Game
The reality of the situation is that this measure would protect just one party - Phil Ting. The fee would do a great job of making sure that the city gets its tax money no matter what happens to the housing market, removing it from having to face any decline in tax revenues from declining home values while still allowing it to raise taxes when property values rise.
That’s consistent with the new American character of shifting responsibility to others instead of taking accountability yourself. And why not? When the federal government encourages this mentality with its continuing bailouts for everyone who can’t seem to plan ahead, from giants like AIG to individual homeowners, it’s setting the standard for the new economy - “let someone else pay for me.”
What would the fee do in the short-term?
What would the fee do to protect those already in foreclosure? Nothing.
What would it to do to future responsible homebuyers? Screw them over. They’re the ones who will pay this fee, when it is invariably passed through to them by lenders.
What would it do to punish predatory lenders (which in Ting’s parlance means “all lenders”)? Nothing. They’ll pass the fee through to buyers during mortgage escrow if they can, and if they aren’t able to do that they’ll pass it through via higher interest rates on the loans themselves.
What about the long-term impact?
The effects in the long-term are much more fair - because everyone will lose.
The market impact of a $30,000 fee will be to drive home prices down by about $30,000. That doesn’t benefit buyers unless they never sell their home for the rest of their lives, because what they gain on the front end will be lost on the back end.
But chances are that fee will need to be repeatedly increased to cover the additional costs associated with another level of moral hazard. If Ting gets his utopian “no foreclosure zone”, it removes the incentive for homeowners to pay their mortgages on time because the city will have promised to prevent foreclosures using funds collected from these up-front fees.
What we’ll end up with is rent control for homeowners. Those lucky enough to own property when the no-foreclosure laws go into effect will benefit from knowing the city will pay their mortgage bills if they can’t or won’t. Those wishing to buy into the city commune will face a spiraling tax levy on home purchases that will price them out of the market.
Once in place, this vicious circle could ultimately result in turning San Francisco into a giant commune of people living in what will amount to government housing for the wealthy. Of course, we’d be unlikely to get there because this ridiculous fee system would be overturned before then.
Ekonomiks 101
One would expect the head tax collector to understand these economic principles, and I’ll bet he does. Ting knows this thing won’t work long-term. But it’s not meant to. The reality is that the city is in deep financial trouble now due to its unwillingness to plan for inevitable swings in the housing market by spending itself into massive debt during the recent boom times, adding record numbers of city staff that on the whole haven’t improved the quality or amount of city services as much as they should.
Ting has to find creative ways to make up for what is a disastrous situation for the city’s government, and this shell game is a cover up excuse for what is simply a giant fee to cover those losses.
Fortunately, it looks like some of the populace is starting to wake up to what’s going on here. The comments on Ting’s article are almost universally negative - and people are calling him out after figuring out what he’s really up to.
Hopefully, the only waste associated with this lame-brained idea will be the wasted money thrown at the consultants who will be putting together the study.
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