First-Time Home Buyer Tax Credit Fraud Called 'Disturbing?'

Ahem... consider me "shocked" at this Reuters story. Who could ever foresee fraud, especially at the FHA which now has overtaken the entire U.S. mortgage market - an institution which until a few weeks ago did not even have a risk control officer? [Dec 11, 2008: Freddie, Fannie Considering Waiving Appraisals for Refinancing]

... we are going from semi government (Fannie/Freddie) to fully government "efficiency"? Cripes.

• ...some housing industry experts worry that F.H.A. may soon be hit by a wave of mortgage-related fraud and abuse that it is ill prepared to deal with.
• Over the years, the Department of Housing and Urban Development, which oversees F.H.A., has been slow to weed out mortgage lenders that abuse or defraud the agency and profit through means like certifying unqualified borrowers. (the circle of life - isn't this how we got here in the first place?)
• There are also growing concerns that subprime fraud artists have set their sights on F.H.A. “It looks like an incoming tsunami,” said HUD’s inspector general, Kenneth M. Donohue.
• The fallout for both homeowners and taxpayers could be substantial if F.H.A. becomes the next housing domino to teeter.
• And a HUD audit released this month suggests that fund may soon face trouble again; over the fiscal year, its capital ratio dropped to 3 percent, from 6.4 percent, reflecting a sharp increase in claims. By statute, that capital ratio must be at least 2 percent.

Gosh we are almost replicating to the shade of black v white, the exact same steps of 2003-2007 that got us here the first time around. But this time we skip go (the banks) and the bailouts will be hidden on the balance sheet of the Federal Reserve as the "great sucking sound" you hear is all these loans being hidden inside the offices of Ben Bernanke aka The Great Liquidator

Oh well, all we can do is spit in the wind and chuckle... should I even bother adding this to the list since its not FHA specific?

1. Warning: [May 6, 2009: FHA - The Next Housing Bust]
2. Warning: [May 8, 2009: Minyanville - Subprime Lending is Back with a Vengeance]
3. Warning: [May 13, 2009: Tax Credit as Mortgage Down Payment Now Official Federal Government Policy]
4. Warning: [Jul 6, 2009: WSJ - No Money Down or Negative Equity Top Source of Foreclosures]
5. Warning: [Aug 12, 2009: WSJ - The Next Fannie Mae - FHA/Ginnie Mae]
6. Warning: [Aug 14, 2009: Ginnie Mae CEO Resigns After 1 Year on the Job]
7. Warning [Sep 18, 2009: Washington Post - FHA's Cash Reserves Will Drop Below Requirement]
8. Warning [Oct 14, 2009: NYT - FHA Problems Raising Concerns of Policy Makers]

Well not to worry I am sure - as the Wall Street dogma goes... if the stock market is going up, everything must just be fine in the Ponzi scheme economy.

For an alternative to that view, please see:

Popout

Doo dooo doo dooo doo doo

• Thousands of individuals claiming the first-time home buyer's $8,000 tax credit may have been trying to scam the system, including purported 4-year-olds and illegal immigrants, according to a watchdog report released Thursday.
• Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased.
• George said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

Let's stop there... we were told that this wonderful credit only added about 350,000 additional sales... i.e. people who would of not bought a home if not for the credit. So assuming a good portion of the 74K + 19K = 93K frauds were part of that group (good portion as in ALL of them), it seems we spent

$16 billion for about 260,000 additional home sales

I'm no math genius but that means we spent

$61,000 for each incremental NON fraud home owner

(i.e. those who would not have bought a home without a tax credit). Sounds like a great use of "our money".* By the way, even the National Association of Realtors agrees with the roughly 350,000 figure. [Sep 1, 2009: Cash for Clunker Housing Working Wonders] But of course this non-biased group says we should extend the plan - after all its working great... at putting taxpayer money in their pockets.

• Assuming four-fifths of those (subsidized) homes were sold by realtors at a 5% fee, and that the average home price is $150,000, then the tax credit has put $2.6 billion in the pockets of brokers.

Doo doo doo do doo do do.

More....

• He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old.

580 more frauds? $4 million? Ah, just a rounding error - put it with the rest of the IOUs!

• The report further faults the IRS for failing to take its advice that a third party be required to document an individual claiming the credit actually purchased a home. (that is so pathetic; talk about shouting from the mountain - "fraudsters... come to us!")
• Extension in its current form would cost about a $1 billion a month. A proposal in the Senate to double the credit and extend it until June would cost about $17 billion.

Anyhow, just smile to yourself as you hear great tales of housing rebounds, and remember how the government-supported economy really works. (borrow money we don't have from the future - or Asia, to create "prosperity" today! Don't worry about the bill - someone else deals with that minor issue) Bravo to the 4 year old by the way - I am sure one of those mornings in May, June, August et al we rallied the stock market 2% on "housing strength / recovery" based on his work and many others like him. Good job (fraudster) people - you've added untold billions of market cap to the stock market via your "innovation".

p.s. I have unsubstantiated (and made up) reports that Goldman Sachs has identified / located said 4 year old, and offered him a job upon the age of 18. This is exactly the type of minds that thrive in the culture - to find such a prodigy at this age... oh heavens.

Comments

[TraderMark:]

I used to be in the same boat - you tend to extrapolate that others in a society think, act, have relative morals (or any morality) like you do.

Then you see tale after tale from the government, to the banksters to your fellow citizen - and it is revealed....

What is revealed? The only suckers left are the ones playing by the rules.

Ding, Ding! I'm a loser.


On Oct 23 07:55 AM 2houndz wrote:

> A few months ago I was disturbed by the number of people who seemed
> willing to steal money thru these schemes, walk away from their mortgages,
> or run their credit card debt sky high just to walk away a month
> later, but now I see that this is simply the culture we have created.
> And while I can't imagine myself ever doing these things I have to
> ask "why not"?
>
> If our government is going to hand out money by the boatloads to
> those on Wall Street who are politically connected, set it up with
> no strings attached, then sit back and watch them take it and run,
> then it's hard to blame an individual who is in dire straits for
> doing essentially the same thing. Sure, I know that this is fraudulent
> and illegal, while the bankers have the cover of some fabricated
> law, but we all know that its the same thing. One group receives
> the blessing of Congress while the other will receive a criminal
> investigation. All depends on how much you helped your congressman
> get and keep his or her job.

Oct 23 01:13 PM

[TraderMark:]

How about publicizing their names so their fellow citizens can know who they are...

Public shame still works for many - although some appear shameless.

But yes, I was wondering what the fallout would be. I know if it was Goldman Sachs they'd get my money, a verbal warning, and a subsidy. But I assume Joe scammer 6pack will get ??? Whats the penalty for this crap?


On Oct 23 09:05 AM davidbdc wrote:

> The solution is to make these 75,000 people feel the pain. Track
> them down, round them up and start throwing people in prison. Fine
> them 5 or 10 times the amount of the fraud, repossess their cars,
> take their belongings if they don't have the cash. No more of this
> type of BS can be allowed.
>
> After that we hunt down those that sold mortgage products to the
> elderly that couldn't possibly have been paid back. Then we hunt
> down those that falsified loan documents, then those that conduct
> insider trading.
>
> I don't care if its a million people. They are a cancer on our society
> and until we say no more it will continue. I pay my bills, I save
> money, I make sacrifices, and I'm beyond sick and tired of reading
> about people that are simply stealing (especially when its with the
> HELP of the government).

Oct 23 01:16 PM

[Michael Clark:]

I couldn't agree more. The Inflationists have had their day. But they don't want just a day. They want everything, always. They want to control every aspect of reality. And that's the problem.


On Oct 23 12:46 PM Socialism cannot compete! wrote:

> Further collapse in housing is NOT the worst thing that could happen.
> Many (like me) have waited to buy...and are still waiting...because
> we perceived housing to be far overpriced, and that it still is,
> due to this artificial propping-up. If the real problem is affordability,
> then prices *must* be allowed to deflate. Those that bought too
> high must necessarily take a hit on the value.
>
> The big rollers in banking and government who facilitate this prop-up
> at taxpayer expense do so because they stand to lose on their own
> property values; because their banking friends will lose on further
> mortgage foreclosures and short-sales; they lose political power
> by losing the votes of homeowners who see their values drop; and
> they lose the property tax revenue they need to fund their ever-increasing
> socialist oligarchies!
>
> It's all about big government and socialism, as opposed to freedom
> and self-reliance. Theft to keep power.

Oct 23 01:18 PM

[TraderMark:]

we had people scamming when the government was mostly out

we now have people scamming when the government is in

there is one common thread and we're living in denial of what it is, look around at your neighbors, co-workers, et al.

(yes there are many co-conspirators by the way)


On Oct 23 08:22 AM Steve in Greensboro wrote:

> Wait just a minute!
>
> I thought all the problems with mortgages in the U.S. were due to
> the evil bankers. Now that "... the FHA ...has overtaken the entire
> U.S. mortgage market...", now that we have removed the profit motive
> and placed mortgage lending in the hands of those highly competent,
> highly ethical public servants in the U.S. government and its agencies
> everything must be OK.
>
> I'm going back to watching CNN and reading the NYT. They'll reassure
> me that the U.S. government is the solution to everything.

Oct 23 01:18 PM

[TraderMark:]

"Further collapse in housing is NOT the worst thing that could happen. Many (like me) have waited to buy...and are still waiting...because we perceived housing to be far overpriced, and that it still is, due to this artificial propping-up. If the real problem is affordability, then prices *must* be allowed to deflate. Those that bought too high must necessarily take a hit on the value."

I see people rushing like lemmings into housing now akin to those who rushed into the stock market after the 2000-2001 crash... circa fall 2001. It got a lot worse in 2002.

Granted people today are being handed free money to buy homes so they win either way I suppose but what happens when the day comes mortgages go to 6.5% and there is no handouts to buy homes. You can imagine what that will do to price.

Now with that said, maybe I am talking 2053 before those conditions with mortgage rates and handouts by government stop.
But i assume at some point the responsible people in society will have had enough, and it will be before 2053.


On Oct 23 12:46 PM Socialism cannot compete! wrote:

Oct 23 01:21 PM

[TraderMark:]

The real stupidity of all this, as I've been typing for 2 years is lower home prices will benefit society. It will suck for current homeowners - I am one.. but it will help normal people who can spend far less of their nominal income for a roof. Unfortunately so much of our system (as many readers point out) is reliant on housing prices being elevated, otherwise taxes can be extracted, and people cannot fund their 3rd SUV or kitchen remodel without the equity appreciation.

It's actually quite a hilarious situation - people fighting to pay more for housing when in fact they'd benefit far more by spending 20-30-50% less for their housing cost.

Only in Cramerica.

Oct 23 01:24 PM

[John Galt:]

On Oct 23 12:46 PM Socialism cannot compete! wrote:
> Further collapse in housing is NOT the worst thing that could happen. Many (like me) have waited to buy...and are still waiting...because we perceived housing to be far overpriced, and that it still is,
> due to this artificial propping-up. If the real problem is affordability,
> then prices *must* be allowed to deflate. Those that bought too high
> must necessarily take a hit on the value.
> The big rollers in banking and government who facilitate this prop-up at taxpayer expense do so because they stand to lose on their own
> property values; because their banking friends will lose on further
> mortgage foreclosures and short-sales; they lose political power
> by losing the votes of homeowners who see their values drop; and
> they lose the property tax revenue they need to fund their ever-increasing socialist oligarchies!
> It's all about big government and socialism, as opposed to freedom
> and self-reliance. Theft to keep power.

For renters and those on the sidelines unwilling to participate in the hoopla bubble ( like you and I ), lower prices are good...

1. * For the government lower prices are bad *
2. For home owners looking to sell, lower prices are bad
3. For CDO owners defaults ( lower prices) are bad.

So who do you think the policies are looking to help? The government that writes the rules? Those "unfortunate and unlucky" people who bought homes and can't afford them now? The financial institutions that lobby the government silly or YOU and I?

You could even argue that lower prices are good for home owners ( as long as they aren't looking to sell anytime soon), because lower prices should keep their property taxes down...

In 2005 I was screaming from the rooftops telling everyone I knew on the fence NOT to buy. Some actually listened to me and some didn't ( since foreclosed on).

Look at the home prices to incomes....
The average person couldn't (still can't) afford an average home.

Where do the next crop of buyers come from? You think people like you and I that didn't buy are the norm? HA.

Look at the 30 and under crowd... even probably 33 and under in my area... 300,000 dollars for a condo ... not a house... a condo... and that's after the fall in prices... would require you to have 60,000 dollars saved up... Unless mommy and daddy give you money for a fat downpayment ( it happens), you either aren't buying or you aren't putting enough down.

How about living in the People's Republic of New Jersey? You buy a single family house and then owe the government 500 bucks or more per month, pay maybe the highest other taxes in the land and the state still can't balance their budget... Where is all that money going??? So instead of cutting freebee handouts to deabeats, they'd still rather raise your taxes because you are "rich and lucky".

The "stimulus" was a giant state government budget bailout... This recession/depression is going to be a humbling experience for a lot of people.

Oct 23 02:38 PM

[doubleguns:]

Two thinks, can service industry jobs, MacD's, Wendys, waitressing, card dealer at a casino etc..... provide the capital to afford a house. Doubtful, Since we have gone to a service industry country manufacturing virtually nothing but debt, house prices have to come down.

2nd. Congress wants to extend the home assistance rip-off and not only that but increase it to $15,000.00 per home and for everyone that buys a home. Not just first time buyers.

NOW WE CAN REALLY GET FLEECED AT NEARLY TWICE THE RATE!!!!!!!

If this is how they think we need them to stop thinking. We should be providing free lobotomies on every senator and congressman, even at tax payer expense it would be cheaper than the alternative.

Oct 23 02:46 PM

[Albertarocks:]

n Oct 23 01:18 PM Michael Clark wrote:

> I couldn't agree more. The Inflationists have had their day. But
> they don't want just a day. They want everything, always. They
> want to control every aspect of reality. And that's the problem.<

I'm wondering now if their day IS over just yet. Your use of the word "inflationists" is key when we consider who they really are. With the collapse of the US dollar imminent, the inflationists are still unfortunately going to be pulling the strings.

The "inflationists" are not the central bankers of the USA, but the dark lords of the global banking cartel who rule over them. And I don't think they have any plans to stop their evil ways with the United States. It looks to me like they're going to attempt to corral all the economies of the world and by force of utter destruction, offer a solution that's going to be more unpalatable than any of us have yet imagined.

Strangely, I still think the greatest, maybe the only hope the world has, still lies in the hands of the American people. If the American people controlled the mass media, the entire disaster would have never happened. And if they controlled it today, there would be hope. The media whores are at the center of the disease.

Oct 23 03:01 PM

[Albertarocks:]

And to take my point one step further... I think the evidence that the mass media are the whores who spread the disease is accentuated by the fact that the push is on to control the internet. What other proof do we need? It's all about keeping free thinkers from communicating with eachother. It's all about mind control. With the mass media machine firmly fixed in place globally, they thought they had it made. Then along came the internet, which in "their" view is the biggest obstacle currently in existence that's in their way.

Oct 23 03:11 PM

[tripleblack:]

Home prices are not like oil prices, where the cost of production is usually a small fraction of the market price, even when it is very "low", as it was recently. Homes cost a lot to build, and the price in a market will either equal that price (plus a small profit) or no new homes will be built.

Back to oil, some producers can pump it out of the ground and into a tanker for 2 or 3 dollars. They have an immense mark up available to them to play with, if need be.

With American homes already down about 30% (and of course much more in the "bubble economies" of Las Vegas, California, Florida, etc, etc), and with the gross profits for homes running less than that (again, absent the insanity inside the now-vanished bubbles), there is little elasticity left in the situation.

Eventually the balance between supply (particularly the recycling from foreclosures) and demand (particularly the purchasing of foreclosures at below-cost prices) will settle into some range above the cost of production, but far below the bubble prices.

Those seeking to purchase real estate at prices below fair value or cost have the advantage now, and would do well to make a move over the next few months, while the nutty government stands ready to finance the deal at super low interest rates, and give the purchaser a large tax credit to boot.

Unlike items where the production price is below even a depressed market price, homes will dip below the cost of replacement only rarely, and only for a relatively brief period of time. With very little new home production replacing the units removed by misadventure (storm, fire, flood, etc), old age, or demolition, the equation is already working against the seller (price), and will soon work against the buyer (selection and quality).

Timing, as in many things, is critical. I'm currently looking for bargains.

Oct 23 03:32 PM

[devinw.:]

Finance considerations aside, I really want to eat that monkey.

Oct 23 03:35 PM

[enigmaman:]

My understanding is that average housing prices have regressed back to about 2003 when the yearly average appreciation was about 3% year, so the excesses seem to have been rung out of much of the market, with 8 million more homes facing foreclosure in the next 4 years prices will be hard pressed to hold current values. Im not seeing the advantage some are speaking of as it relates to additional lower prices because along with lower prices you destroy owners value and future as well as having buyers with less cash, worse credit, lower paying jobs and mortgages that are harder to qualify for so where is the advantage. Unless the economy picks up having inexpensive houses for people that still wont qualify for doesn't really help anybody, it drags everybody down. Mutual net worth destruction serves no purpose but to indiscriminately destroy everyone but the rich. To work through the current and future housing inventory will take many years, better for home prices to stabilize and those buyers that do not qualify should rent until they do. We can hope the Government will help business recover so wages can rise to the point more can qualify but not at the expense of others who played no part in this economic fiasco. Cutting off ones nose to spite one face serves nobodies interest

Oct 23 04:04 PM

[TraderMark:]

--->" Im not seeing the advantage some are speaking of as it relates to additional lower prices"

Simple

calculate your payment if your home was worth $240K blown up by all these schemes

THEN

calculate your payment if your home was worth $140K in a real marketplace

THEN

look at your budget and ask yourself how much easier life would be if you could use the money you used to use for the bubble induced price to oh I don't know... savings OR buying other things (which also help the economy)

It hurts current homeowners yes indeed. I am one. But rather than having Americans daytrade homes - there would be great benefit to reducing % of income devoted to roof over head from 38-44-50%+ (as most are doing) to 22-25-27%

People could actually save, build up safety nets and other crazy things that almost no one does now. 70% of Amerians live paycheck to paycheck in every survey I've read the past decade, regardless of income.

So the larger question is, is it more healthy for Americans to save and shop out of INCOME or out of ASSET inflation. You argue asset inflation, I differ.


On Oct 23 04:04 PM enigmaman wrote:

> My understanding is that average housing prices have regressed back
> to about 2003 when the yearly average appreciation was about 3% year,
> so the excesses seem to have been rung out of much of the market,
> with 8 million more homes facing foreclosure in the next 4 years
> prices will be hard pressed to hold current values. Im not seeing
> the advantage some are speaking of as it relates to additional lower
> prices because along with lower prices you destroy owners value and
> future as well as having buyers with less cash, worse credit, lower
> paying jobs and mortgages that are harder to qualify for so where
> is the advantage. Unless the economy picks up having inexpensive
> houses for people that still wont qualify for doesn't really help
> anybody, it drags everybody down. Mutual net worth destruction serves
> no purpose but to indiscriminately destroy everyone but the rich.
> To work through the current and future housing inventory will take
> many years, better for home prices to stabilize and those buyers
> that do not qualify should rent until they do. We can hope the Government
> will help business recover so wages can rise to the point more can
> qualify but not at the expense of others who played no part in this
> economic fiasco. Cutting off ones nose to spite one face serves nobodies
> interest

Oct 23 05:03 PM

[JohnDough454:]

Nothing like a bunch of overblown calculations to get the RW turds to float to the top to bitch and moan.

"Let's stop there... we were told that this wonderful credit only added about 350,000 additional sales... i.e. people who would of not bought a home if not for the credit."

so this means the tax credit or a tax cut, usually the Holy Grail of RW turdliness is evul? Oh my, finally some sense.

$15 billion at $8000/pop is just under 2 million transactions. That's the smallest number of transactions. Who really believes that the other 1.6 million transactions would have taken place from first time buyers in the middle of the worst recession in 80 years?

Yes, prosecute the fraud, but at 2-5%, this is not an atypical amount of fraud in the world. And lets see just how much really stays lost after enforcement before we p-- our pants.

Oct 23 06:57 PM

[BullnBear:]

I have been reading a great deal about this lately, thanks for the update.

Oct 24 12:48 AM

[GotLife:]

Trader Mark,

You've hit the source of much of the concern over Federal health care proposals. For those assaulted over the years by government administrative and economic failures, not to mention the social disasters caused by the great Society, there is little assurance the government will get it right.

However, even more incredible is the timing of this proposal and the ineptitude of the change management process. At the point of the greatest financial crisis in recent US history, those proposing government health care are causing unbelievable angst over the one issue that might be even more threatening to Americans than financial collapse.

As a citizen of Illinois, Obama showed little pluck, interest or capacity to get anything accomplished during his career so I don't blame him for the timing and current futility of this disaster. Rahm Emmanuel, the former Israeli Special Ops member, has a hardball, take-no-prisoner, egotistical attitude, coupled with even greater arrogance caused by a Presidential victory last year and Congressional wins in 2006. Axlerod is also suffering from the same ego inflation.

Timing is everything in the markets ... and in life...

Oct 24 05:10 AM

[enigmaman:]

Yes I know the simple premise behind your argument, but what happens to all those who already own mortgaged homes, while you argument makes sense for those who may want to buy and need prices to fall further it will only exacerbate the problem for those who already own. The % of American that already own and are mortgaged exceeds those who would like to own, destroying a larger % (current owners) of the market to help future owners makes no sense at all. If the industry had stuck to its original mortgage underwriting guidelines the market would have never have spun out of control as it did, reinstating the older conservative quidelines would put a lid on home prices and allow the market to find a real bottom. yes I agree if home values dropped more it would make ownership much easier for many but at the expense of current owners, sounds to me like another form of redistribution of the wealth, Just think if prices fall another 50% maybe even those collecting unemployment could afford to buy then selves a home, assured mutual destruction seems the order of the day!


On Oct 23 05:03 PM TraderMark wrote:

> --->" Im not seeing the advantage some are speaking of as it relates
> to additional lower prices"
>
> Simple
>
> calculate your payment if your home was worth $240K blown up by all
> these schemes
>
> THEN
>
> calculate your payment if your home was worth $140K in a real marketplace
>
>
> THEN
>
> look at your budget and ask yourself how much easier life would be
> if you could use the money you used to use for the bubble induced
> price to oh I don't know... savings OR buying other things (which
> also help the economy)
>
> It hurts current homeowners yes indeed. I am one. But rather than
> having Americans daytrade homes - there would be great benefit to
> reducing % of income devoted to roof over head from 38-44-50%+ (as
> most are doing) to 22-25-27%
>
> People could actually save, build up safety nets and other crazy
> things that almost no one does now. 70% of Amerians live paycheck
> to paycheck in every survey I've read the past decade, regardless
> of income.
>
> So the larger question is, is it more healthy for Americans to save
> and shop out of INCOME or out of ASSET inflation. You argue asset
> inflation, I differ.

Oct 24 07:30 AM

[bigbear4511:]

Ya through that 4 year old in prison! That will show em


On Oct 23 09:05 AM davidbdc wrote:

> The solution is to make these 75,000 people feel the pain. Track
> them down, round them up and start throwing people in prison. Fine
> them 5 or 10 times the amount of the fraud, repossess their cars,
> take their belongings if they don't have the cash. No more of this
> type of BS can be allowed.
>
> After that we hunt down those that sold mortgage products to the
> elderly that couldn't possibly have been paid back. Then we hunt
> down those that falsified loan documents, then those that conduct
> insider trading.
>
> I don't care if its a million people. They are a cancer on our society
> and until we say no more it will continue. I pay my bills, I save
> money, I make sacrifices, and I'm beyond sick and tired of reading
> about people that are simply stealing (especially when its with the
> HELP of the government).

Oct 25 11:16 PM

[tivoboy:]

I love how the media make this out to be MONEY LOST, like taking cash OUT OF A BANK. This is TAX FRAUD, and at best, simply lowered TAX PAYMENTS. If they catch this, and audit it, these people will owe TAXES in following years tax payments, it isn't as if they got a 1500$ per child PAYMENT for not having children, and not having income to offset it with. This money will be recouped by the IRS and treasury. but, it could take 1-2 years.

Oct 26 10:08 AM