From the Christian Science Monitory - Homebuyer tax credit: the scam of the century?

Posted on the Christian Science Monitor Paper Economy blogsite by SoldAtTheTop, worth publishing in full:


The Realtors backed it… the home builders backed it… the mortgage bankers backed it… virtually anyone with an financial interest in residential real estate transactions backed the Homebuyer Tax Credit (and it’s expanded extension) and now that the program is finally complete and a whole host of indicators (NAHB builder sentiment, pending home sales, existing home sales, home prices, etc.) suggest that the its effects were at best temporary, we can see fairly clearly that this policy was a scam of epic proportions benefiting few and costing many.

Reports indicate that the total credit cost could exceed $20 billion and while the cost of administration and vetting of claims is yet to be determined, it can safely be assumed to have been very costly, so what did we get for our Keynesian tax stimulus efforts?

First, it’s important to recall that early on in the program implementation it was reported that there was a massive number of fraudulently filed claims with thousands coming from inmates, children and tax preparers supposedly acting without the knowledge of filers that did not purchase homes.

Needless to say, the IRS has been busy with audits, so much so that as of June they blocked or froze over a billion dollars of claim payments.

As for properly filed claims, many of the homes purchased with the credit have already declined in value in excess of the credit’s maximum $8000 benefit (i.e. a mere 2.5% decline on a $350,000 home) leaving many unwitting home “buyers” in the cruel predicament of sinking in a quicksand of asset price deflation for simply having jumped for a slight nibble of the government’s meager tax carrot.

Finally, in trying to fully understand why the government undertook such a useless and poorly calculated program, it’s important to recognize those who truly walk away from this policy in better standing.

Realtors, home builders and mortgage bankers…. some of the most notable culprits of the housing bubble years… all walk away cleanly skimming the proceeds coming from the transactions of an estimated 2 million temporarily stimulated home purchases.

It should come as no surprise that these were the very same industry groups that worked tirelessly lobbying to enact this failed policy… it was a simple exchange… your tax dollars to their wallets.

While Washington elites likely continue to celebrate the “success” of this ludicrous policy, those opposed can at least draw some consolation from the recent refusal of NJ governor Christie’s to enact a similar program possibly indicating that public sentiment has turned against such overtly illogical and wasteful government efforts.

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Flood insurance program a mess

How would you like to live in home that is prone to flooding? How would you like to have it be “flooded 34 times since 1978?” Well, there is such a home, and there are more like it.

“In Wilkinson County, Miss., a home has been flooded 34 times since 1978.

“Extraordinary as the damage may be, even more extraordinary is that an insurer has paid claims every time, required no flood proofing, never raised premiums after a claim and vowed to continue insuring the house. Forever.

“The home's value is $69,900. Yet the total insurance payments are nearly 10 times that: $663,000.

“It's no surprise that the insurer faces huge financial problems.

“The insurer? The federal government.”

Billions of dollars have been paid to the owners of similar homes across the country and there is no end in sight.

Other insurers for casualties and liability are certain that the premiums collected exceed the cost of claims. But not with the federal government in charge.

“Instead it's running deeply in the red. A major reason, a USA TODAY review finds, is that the program has paid people to rebuild over and over in the nation's worst flood zones while also discounting insurance rates by up to $1 billion a year for flood-prone properties.”

In New Jersey, claim histories are not so great either.

As reported in the Asbury Park Press,

“For every dollar the National Flood Insurance Program has doled out since 1978 to repair flooded homes and businesses in New Jersey, 68 cents has been spent to repair properties that have been flooded more than once. Nearly one in seven of those properties is in Monmouth or Ocean counties.”

So, what do you think should be done? It seems that it makes sense that homes that are repeatedly subjected to floods are built where they shouldn’t be. Rather than continuing to pay claims, maybe the homeowners should be bought-out.

What do you think?

Read the entire USA Today report here.

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New Jersey property owners abused by tax abatements

Two columns in the Asbury Park Press this past week highlight the use of real estate tax abatements to attract development.  Both columns point out that ordinary tax payers take a beating when abatements are granted because school taxes are impacted when abatements are granted.

The first column is Sunday’s editorial.

"A report issued last week by the state Comptroller's Office spotlighted the practice of municipalities from Hoboken to Millville giving out tax breaks involving "hundreds of millions of dollars" on property worth billions of dollars statewide.”

 “It also recommended a number of steps the state should take to ensure the tax breaks are benefiting the average citizen, not developers and their political friends.”

School districts are hurt the most when abatements are given since the property being developed does not pay school taxes.  Thus, in the words of the editorial,

 “[W]hen a developer gets a huge tax break, it does not mean a municipality's tax demands are correspondingly reduced. Other property taxpayers make up the difference. That's not fair.”

Columnist Bob Ingle also goes after tax abatements.  Picking up the editorial’s theme, he writes,

“Abatements can make the situation worse for the already over-burdened property tax payers. Consider: A municipality gives an abatement to a widget factory which hires 30 people. The town arranges for payments in lieu of taxes. School districts receive no part of those payments, but the 30 workers bring an additional 90 kids to the school district, which has to expand at additional costs to the property tax payers and state aid from Trenton.”

How about this case?

“In South Jersey, Gloucester Township in a six-month period handed out three short-term abatements to Wawa stories expanding to Super Wawas. The three are within two to four miles of each other. Why should property tax payers have to underwrite the expansion of Wawa stores? The company is big and wealthy and probably would have expanded the stores anyway.”

Well, this does seem unfair.  What do you think?

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Mortgage program a bust with 50% dropout rate?

We have previously written about the Obama Administration’s program to encourage mortgage modifications.  Well, the news is in and it’s not good.

According to the Associated Press,

“Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out.

“The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday's report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.”

 “Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government program have been cut loose through July, according to the Treasury report. That's about 48 percent of  those who had enrolled since March 2009. And it is up from more than 40 percent through June.”

 Who is to blame?

“Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.

“The banking industry said borrowers weren't sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.”

 One thing is clear—we are facing more foreclosures.

Read the full report.

 

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Is the FDIC letting the foxes get a second chance at the hen house?

From the Associated Press:

“The Federal Deposit Insurance Corp. took over ShoreBank, with $2.16 billion in assets and $1.54 billion in deposits. Urban Partnership Bank, the newly chartered financial institution, agreed to assume ShoreBank's deposits and nearly all its assets.”

ShoreBank was shut down by the FDIC on Friday.  It was long expected.  According to the Associated Press, the bank

“has been known for its social activism but racked by financial troubles in recent months. A consortium funded by several of the biggest U.S. financial firms is buying its assets and pledging to operate the new bank by the same principles.”

So, what’s so strange about this turn of events? 

In an unusual move, the FDIC allowed some of ShoreBank's executives to continue running the restructured bank. Executives who joined ShoreBank recently, as the bank struggled to raise capital, will manage Urban Partnership Bank. These managers "did not contribute to the bank's problems," the FDIC said.

Well, we’ll see if the FDIC is right about that or if this is just another case of insiders getting a second chance at the gold.

Read the full story here.

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 OK, you've just bought a house or taken out a new mortgage.  In front of you is a stack of paper.  What do you do with that pile?  Well, an article by Carla Hill on Realty Times, Paperwork to Keep After Closing, is a concise guide to doing just that and is worthwhile to post in its entirety.

At the end of closing, a large stack of papers sits in front of you. How do you know which ones to file away for future use?

To make your job of sorting through the papers a little easier, here are a few "be sure to save" items.

1. Truth in Lending statement: This handy paperwork helps to summarize the details of your mortgage, including your percentage rate.

2. Insurance: Not only does it serve for proof of coverage, but just in the case you need to make a claim, you will have contact and coverage information on hand.

3. Deed: This paperwork proves that the property has "indeed" been transferred to your ownership.

4. Riders: These are sale contract changes (amendments) that affect you directly.

5. HUD-1 Settlement Statement: This is a great itemized list of your closing costs. It will be especially important for when it comes time to pay income taxes.

Be sure to keep all of your paperwork in an organized filing system and in a fire-proof safe. For a more in depth list of items to keep, be sure to ask your lender and real estate agent.

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Calling all credit card users- New credit card rules begin

By the time you are reading this, rules for credit cards will have changed. “Newly purchased gift cards won't expire as quickly, and late fees on credit card payments won't be as punishing."

“The final stage of consumer protections signed into law this year go into effect Sunday. Yet they only curb select practices; other fees and charges still abound.”

Here are some of the new safeguards, but remember, you can still get burned.

Penalty fees:

New protection:

Fees for late payments and other transgressions will be capped to the amount of the violation, up to $25. And, a single violation can no longer result in more than one fee.

Gaps to watch: Technically, there isn't an outright ban on penalty fees higher than $25.

“There aren't any caps on other charges. And not surprisingly, many issuers hiked fees for balance transfers, foreign transactions and cash advances in the past year.”

Rate hikes:
New protection:

“Banks must review a rate hike every six months to decide whether the increase is still warranted. If the factors that prompted the hike are no longer applicable, the rate must be lowered.”

This rule applies to hikes dating to Jan. 1 of last year, when banks began raising rates in anticipation of the new regulations.

Gaps to watch: 

“Even if a bank finds that a rate should be lowered, the reduction doesn't have to restore the previous interest rate.”

Gift cards:

Expiration dates

New protection:

“Gift cards issued after Aug. 22 must have expiration dates that are at least five years from their date of purchase.”

Gap to watch:

“The rule doesn't apply to certain gift cards, such as those issued as part of a rewards or loyalty program.”

Inactivity and service fees:

New protection:

“Such fees can only be charged if the card hasn't been used for at least one year. After that, only one fee can be charged each month.”

Gaps to watch:

“There's no cap on inactivity or service fees. So even though you can only be assessed one monthly fee, it could quickly eat away at a card's value if it's not used.”

It's a first step, some one say a small one, others a big one, in giving consumers more protection.  Let's see what Congress does next.

Read the Associated Press article.

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Loss of state support may end horse racing in New Jersey

New Jersey property owners are already hit hard by the state of New Jersey’s economy.  Taxes, taxes, and taxes head the list of complaints.  Now, a double-edged sword is being raised at one of N.J.’s homegrown businesses—horse racing.

According to a special report in the Asbury Park Press,

“Those in the New Jersey equine industry say the horse-racing business generates $780 million annually for the state's economy, responsible for more than 6,500 jobs.

“But with Gov. Chris Christie's proposal to shift the state's focus from horse racing to the casinos in Atlantic City, local horse farmers and other business owners worry the equine industry would lose its vitality or dissipate altogether.

"’People in the sport are going to go where horse racing is viable,'' said Tim Clevenger, 26, who tends to standardbreds every morning at a Manalapan farm.”If not here, they're going to race someplace else or get out of the game.’''

OK, so just how does this affect the quality of life in New Jersey?  Well, some will say that the 176,000 acres of real estate now being used for horse farms and related purposes will be, here comes the dirty word, developed into housing. 

In addition,

“In a study headed by Karyn Malinowski, director of Rutgers' Equine Science Center, the state's equine industry was valued at $4 billion, much of it related to racing. It generates $1.1 billion ($780 million from racing) annually in positive impact on the state economy, the study said, and is responsible for 13,000 jobs, more than half of which are generated by racing-related interests, such as race tracks, and horse breeding and training facilities.”

Read the full story.

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What can be done to control Canada geese in New Jersey?

Anyone who has tried to enjoy one of NJ’s beautiful parks and lakes knows first hand how foul the resident fowl—Canadian geese—can make those parks and lakes.  So, what to do?  Just last month someone decided enough was enough and killed 18 geese in Mount Laurel, N.J.
As noted in the Asbury Park Press:

“The butchering of the geese at the shopping center was a shocking reaction, perhaps undertaken by an annoyed resident or business owner, to what has become a growing problem in all corners of the state.”

“Towns, golf courses, parks and businesses face the choice of getting rid of the geese or letting them stay and dealing with the bacteria-carrying feces they leave behind. The towns and institutions that opt to get rid of some or all of their geese then face another choice: How to do it? Many of the options are unpopular. So is doing nothing about the problem.”

Municipalities and businesses around New Jersey have undertaken different ways to control the geese.  They range from euthanization to hiring dogs to chase the geese.  But as noted by Andrew Spears, superintendent of recreation for Monmouth County parks,

"The geese were taking over public facilities, lake fronts, golf courses and playing fields.

“Spears said Geese Chasers helps control the resident bird population by disrupting nests and eventually moving them to less trafficked areas in the park system. But Spears realizes chasing the geese from one place to another is not a permanent solution.”

Read the full story.

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Mortgage servicers take on two roles, and the homeowner pays

In her column, Fair Game, in the Sunday New York Times, Gretchen Morgenson lays bare a possible reason that homeowners are not getting approved for mortgage modifications—the folks who make those decisions also own junior liens that may be prejudiced by those decisions.

Morgenson introduces you to Brad Miller, a Democratic representative from North Carolina with a background in consumer law.  “This past March, Mr. Miller introduced a bill that would eliminate one of the most pernicious conflicts of interest in banking today: the dueling roles played by the big mortgage servicers.”

“When borrowers are defaulting in droves, as they are now, loan servicing becomes much more complex and laborious. Servicers must chase delinquent borrowers for payments and otherwise manage these uneasy relationships, possibly into foreclosure.

“So where does the conflict of interest lie? Often, the same bank that services a primary mortgage owned by another institution also owns a second mortgage or home equity line of credit on the same property. When that borrower has trouble meeting both payments, the servicer has an interest in making sure that amounts owed on the second lien, which it owns, continue to be paid even if the first loan, which it has no interest in, slides into delinquency. About two-thirds of primary mortgages are serviced by banks who do not own them but hold the accompanying seconds.”

Miller has some good ideas but knows it will be an uphill fight.  We’ll keep you posted.

Read the full story.


Your comments are welcome.

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The long arm of the law grabs 2 mortgage swindlers

New Jersey’s Attorney General Paula T. Dow and Criminal Justice Director Stephen J. Taylor announced yesterday “that a Union County mortgage loan solicitor has been charged with conspiring with others – including a Kearny woman who was charged previously – in a scheme to steal millions of dollars by obtaining mortgage loans using false identities and counterfeit documents.”

Nuno J. Sousa, 34, of Elizabeth, was arrested yesterday.  He joins Genilza R. Nunes who was arrested in March.

“The state investigation determined that Nunes, Sousa and a number of co-conspirators allegedly were involved in a sophisticated, multi-million dollar mortgage loan fraud scheme operating in northern New Jersey, including Morris, Somerset, Hudson, Union, Passaic and Essex Counties. The state has specifically alleged that Nunes and Sousa – with Sousa acting as the mortgage loan solicitor – engaged in fraudulent transactions involving five properties, with a total fraud of $2,152,800. However, it is believed that the scheme is much larger.”

We write about these arrests and hoped-for prosecutions not out of any sense of glee but to demonstrate that the real estate market collapse did not result just from the shenanigans of big Wall Street firms but also from thefts and frauds of the kind allegedly pulled-off by these defendants.  If the alleged scheme is part of a larger one, I can’t wait to see the rest.

You can read the Attorney General’s press release here.

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Stephen M. Flatow 

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Obama administration to send $112M to N.J. for mortgage assistance

Some New Jersey residents stand to benefit from mortgage assistance coming out of Washington, D.C.

Staying out of foreclosure in this economy can be tough enough. Try keeping up with the mortgage after losing a paycheck.

To try to help prevent more defaults, the Obama administration today said it will send $112 million to New   Jersey to design a program to help unemployed homeowners stay in their homes while looking for work.


New Jersey is one of 17 states with persistently high unemployment rates to share $2 billion in funding through the program, dubbed the "Hardest Hit Fund."

The state still has to come up with a plan on how the money will be dished and no one is predicting, yet, how many people will actually benefit from the program.  Of course, there’s a risk of abuse—money going to the wrong people—but this is New   Jersey, after all.

In any event, hats off to the folks in Washington for sending this money our way.

Read the full report from the Star-Ledger.


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From Bankrate.com - 3 ways to mess up a home mortgage closing

Here's some practical advice from Holden Lewis writing on Bankrate.com on how to botch your mortgage closing.

"Want a lender to delay or even cancel your mortgage closing? Then change your "borrower circumstances" between the day you apply for and the day you close a home loan."

"Lenders have gotten stricter in response to the mortgage meltdown. The latest tightening of the screws comes from Fannie Mae. The mortgage titan's Loan Quality Initiative, which went into effect June 1, requires lenders to track "changes in borrower circumstances" between application and closing."

It seems kind of silly to have to point this out to buyers, but there are certain no-no's when it comes to getting that mortgage loan closed on time.

Here are the 3 ways:

No. 1 -- Get a new credit card or auto loan

"Lenders have long admonished mortgage applicants to avoid getting new credit cards and auto loans while home loans are in underwriting. Fannie's Loan Quality Initiative adds urgency to this request."

"So at the eleventh hour, most lenders check credit for new accounts."

No. 2 -- Charge up credit cards

"Charging up credit cards with thousands of dollars' worth of appliances, tools and yard equipment is another surefire way to muck up a closing."

"Mortgage approval is based partly on debt-to-income ratio. The lender looks at the borrower's minimum monthly debt payments and compares them to income. If the ratio of debt payments to income is too high, the borrower could be turned down for a mortgage. Fannie encourages mortgage lenders to recalculate debt-to-income ratios just before closing."

No. 3 --  Change jobs

"Changing jobs is another good way to derail a mortgage before closing. Other potential deal-breakers include staying with a current employer, but switching from a salaried position to one where primary income comes from commissions or bonuses."

Not scared?  Then, read the full article.  Being forewarned is being forearmed!

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Freddie Mac suffers six billion dollar quarterly loss

Just when you thought it couldn't get worse at Freddie Mac here's news about its six billion dollar quarterly loss. As a result, Freddie asked the U.S. Treasury for another 1.8 billion dollars to cover the loss.

"We recognize that high unemployment and other factors still pose very real challenges for the housing market," said Freddie Mac chief executive Charles Haldeman.

So where's the Congressional criticism? How will America's home buyers cope if Freddie is taken out of the picture? Not well, I think. Talk about being too big to fail.

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Housing Policy's Third Rail

In her column in Sunday’s New York Time, Housing Policy’s Third Rail, Gretchen Morgenson discusses a taboo, Fannie Mae and Freddie Mac.

WHILE Congress toiled on the financial overhaul last spring, precious little was said about Fannie Mae and Freddie Mac, the mortgage finance companies that collapsed spectacularly two years ago.

Indeed, these wards of the state got just two mentions in the 1,500-page law known as Dodd-Frank: first, when it ordered the Treasury to produce a study on ending the taxpayer-owned status of the companies and, second, in a “sense of the Congress” passage stating that efforts to improve the nation’s mortgage credit system “would be incomplete without enactment of meaningful structural reforms” of Fannie and Freddie.

No kidding.

With midterm elections near, though, there will be talk aplenty about dealing with the companies precisely because Dodd-Frank didn’t address them. Unfortunately, if past is prologue, this talk is likely to be more political than practical.

Those in the residential real estate industry know that Fannie and Freddie provided the fuel to the housing boom. Talk about an upset stomach when the bust arrived. The only medicine for these behemoths was a federal rescue.

The Treasury’s study on Fannie, Freddie and housing finance must be delivered to Congress by the end of January 2011. In a speech last week, Timothy F. Geithner, the Treasury secretary, told a New York audience that resolving the companies isn’t “rocket science.”

According to Morgenson,

“attaining genuine remedies for our housing finance system could actually be harder than rocket science. That’s because it would require an honest dialogue about the role the federal government should play in housing. It also requires a candid conversation about whether promoting homeownership through tax policy and other federal efforts remains a good idea, given the economic disaster we’ve just lived through.”

Understanding how Fannie and Freddie did business requires a dialogue. “Alas, honest dialogues on third-rail topics like housing have proved to be a bridge too far for many in Washington.”

Morgenson outlines how the nation’s largest buyers of mortgages did business. Understanding that process, and not repeating it is the key to overcoming the problems the housing market faces.

“Understanding how these companies operated is crucial if we want to avoid repeating the mistakes of our recent past. So, when you hear about Fannie and Freddie reform this fall, remember that we still don’t know the half of it.”

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FDIC takes down 5 more banks - Forbes.com

Forbes.com is reporting that the nation has seen 108 banks closed this year by the FDIC.  Five more were closed at the end of July.

  As a result, The July failures drained the FDIC Deposit Insurance fund by $1.3 billion bringing the year-to-date total to $18.9 billion, well above the $15.33 billion prepaid assessments for all of 2010.

When will the takeovers cease or, at least, slow down?

Bank failures during “The Great Credit Crunch” began slowly as the FDIC only closed 25 banks during all of 2008. In 2009 the FDIC picked up the pace with 140 bank failures with a peak of 50 in the third quarter of 2009. So far in 2010 the FDIC closed 41 banks in the first quarter, another 45 in the second quarter, and so far 22 for the third quarter with two months to go.

The common denominator for weakness at the failed banks seems to be a high percent of non-residential and non-farm mortgage loans.  Construction and commercial loans did them in.

Yet, bank failures provide some good investing opportunities according to Richard Suttmeier, the Chief Market Strategist for ValuEngine.com.

Read the full report.

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New Jersey's open space disappearing

The Star-Ledger reports

For the first time, New Jersey’s landscape is covered more by housing and shopping malls rather than forests, the real consequence of the "two most sprawling decades" ever, a report being released today concludes.

The study, a collaboration between Rowan and Rutgers universities, analyzed land use data between 1986 and 2007 and estimates the state could run out of open space around 2050 if the pace of development that took place in the sprawl years continued.

The question is will the slow market further slow the amount of land under development?

And how about the upsurge in urban development, especially the kind seen in Hudson County?

Experts point to several factors behind the trend: younger generations now have fewer children and prefer urbanized settings; the recession has forced both builders and buyers to settle for smaller (and cheaper) houses; land is just too expensive now for more McMansions.

Read the full story.

 

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Revitalization money on the way to NJ communities

Thanks to New Jersey’s two U.S. Senators, Lautenberg and Menendez,

counties and municipalities across New Jersey will receive $24,195,998 for various housing and community revitalization programs. The grants, administered through the Department of Housing and Urban Development (HUD), are part of four initiatives: The Community Development Block Grant (CDBG) program, the HOME Investment Partnership, the Emergency Shelter Grants (ESG) program, and the Housing Opportunities for Persons With AIDS (HOPWA) program.

The grant money will be made available through the U.S. Department of Housing and Urban Development.

According to a press release issued by Senator Lautenberg’s office,

The CDBG and HOME programs provide funding to develop decent and affordable housing, enhance infrastructure and develop economic opportunities primarily in communities with large populations of low and moderate-income families.  HOPWA funding provides housing assistance and related support services to meet the special needs of people with HIV and AIDS.  The ESG program provides homeless people with basic shelter and other services.

  Let's hope there's more money coming for New Jersey's struggling communities.

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