Angelo Mozillo, the former CEO of Countrywide Financial who was beset by the political loan scandal in 2008-2009 involving US politicians allegedly receiving favorable mortgage rates because they were “Friends of Angelo,” recently went public with his concerns about the housing industry.
In an interview with Bloomberg TV, Mozillo said, “the tax overhaul is devastating certain homeowners.” Specifically, those homeowners are those who own properties in coastal states that are considered luxury properties.
Mozillo believes that such properties may drop in value by as much as 40% simply because the homeowners cannot afford them after losing what once were standard deductions on homes. Mozillo is, of course, referring to the $10,000 SALT cap on state and local taxes and the $750,000 cap, formerly $1M, on home mortgages as well as deductions regarding second homes. Such a 40% decline compares to the 33% decline in home values from 2006 to the bottom of the housing market in 2009.
Mozillo said, “There is so much inventory in the market and there is going to be more inventory because this tax bill was devastating to the middle-to-higher income homeowner who can’t deduct anything except $10,000. The volume of sales has dropped dramatically, and values are coming down dramatically, particularly on the upper end.”
The 2017 Tax Bill limited write-offs to $10,000 to help cover the cost of cutting rates for corporations and individuals. States with disproportionate numbers of multi-million dollar homes, states such as New Jersey, New York, California, Connecticut, are “suffering,” according to Mozillo. “A $10M home in any of these markets could easily lose 40% of its value.”
In addition to jeopardizing the economic recovery and the recent highs in residential real estate prices, Mozillo believes the consequences of the tax bill will reverberate throughout all levels in the economy. He predicts that housekeeping staff and gardeners will be let go; restaurants will lose business; “luxury” services and the workers who provide them will disappear. He also foresees that banks that own the mortgages on these multi-million dollar properties will have to take write-downs and begin foreclosure proceedings.
Asked why he’s decided to speak now, Mozillo said that he has concerns for the country and “it’s time for me to speak my mind.”
“The moral of the story,” as Mozillo sees it, “is when you see things inflated and they look so good, it’s time to pull back and worry. When you sense it, if that’s one of the options, get out.”
And getting out is what many former homeowners in California, New York, New Jersey and Connecticut are doing.