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Busted! First Time Homebuyer Tax Credit Fraud

July 31, 2009 By Jay Thompson

On Wednesday our friends at the IRS announced their first successful prosecution related to fraud involving the first-time homebuyer tax credit.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

Ouch.

There is more detail in an article posted at jacksonville.com. Things like Mr. Price was on probation for forgery, he was indicted on 35 tax-fraud counts (15 involved the first time home buyer tax credit) and my favorite part of the article:

Price, a married father of three, told U.S. Magistrate Howard Snyder he didn’t think he was in the wrong until he read the statute he was charged with.

Are you kidding me?

You make up addresses, you flat out lie and tell your clients you can qualify for the tax credit by working two jobs, and you skim a thousand bucks off your clients refund and you don’t think you are in the wrong?

Have fun in the pokey.

Folks, here’s the deal. Even if you have someone prepare your taxes, YOU are still responsible for the accuracy of the return. The tax code is ridiculously complex, but if you see things on your return like the address of some home you don’t know exists, if someone tells you that you get a homebuyers tax credit for working two jobs, then think about what you’re signing. If it doesn’t make sense, don’t sign the return.

Mr. James Otto Price may be the first person arrested for home buyer credit tax fraud, but I assure you he won’t be the last.

Yo! ”“> Need more info on the $8000 first time homebuyer tax credit?

Photo Credit: abardwell on Flickr. Creative Commons License.

Remember the $15K tax credit? House Republicans aren’t giving up yet

May 4, 2009 By Jay Thompson

Last week, National Public Radio reporter Mike Pesca sent me a link to the GOPs latest proposal for “The Responsible Homeowners Act” (PDF file). It contains several provisions, including the resurrection of the $15K home buyer tax credit that was briefly a part of the Stimulus Bill passed in February (and discussed on this blog at length).

Here’s what is in the plan with regard to a $15,000 Home Buyer Credit:

$15,000 Home buyer Credit: To spur home purchases across-the-board, House Republicans propose a $15,000 home-buyers credit for all purchases of primary residences provided that the buyer puts 5% down (covers purchases made before July 1, 2010). The down-payment requirement encourages responsible home ownership and will ensure that we do not repeat the mistake of the past where individuals ended up with more home than they could afford through the use of zero-down-payment loans.

Mike asked for my thoughts on this, and here’s what I told him:

This sounds *very* similar to the original $15K proposal that was nixed before the bill reached the President.

There was not (that I recall) a down payment requirement in that original version.
The down payment minimum of 5% concerns me for one reason — the current down payment requirement on FHA loans is 3.5%. So by requiring a minimum of 5%, many FHA buyers may be excluded. I understand (and agree completely) that some down payment should be required, but to exclude FHA buyers is not a good idea in my opinion. The best solution would be to simply write language along the lines of "a minimum down payment of 5% will be required (3.5% for those using FHA loans)". Or something to that affect. Obviously I’m neither a Congressman nor an attorney (nor do I have any desire to be either!).

The original plan also allowed for the $15K credit to be split equally across two years. I think it’s important that stay in this new plan as many (MANY) people do not have $15K of tax liability in one year. I don’t see any mention of this in the link you provided (and thanks for that by the way!). I’d also like to see the credit be "refundable" like the current $8K credit and not require re-payment (like the current credit and the original $15K proposed credit was.) I understand this document is likely just a summary and doesn’t include all the details — or maybe they haven’t even worked out details yet.

I *really* like that it’s not limited to first time buyers only.

Also of interest in the proposal:

A $5,000 refinancing credit.
Incentives for voluntary refinancing to keep homeowners in their home.
Mortgage modifications, not lawsuits.
Incentives for neighborhood investors.
Not rewarding those who created the problem.

There are not a lot of details in the plan summary but it is, if nothing else, thought provoking. The text of the full bill is available here. I haven’t had the time to read it, but it apparently goes into far more detail that the summary linked to above.

H.R. 1903 was introduced in the House on April 2 and was subsequently referred to the Committee on Ways and Means as well as the Committees on Financial Services and the Judiciary. There are 11 co-sponsors, all Republicans. Given the current make up of the House, I have a feeling this one will die in committee”¦

We’ll be keeping track of this and bring you whatever we can dig up!

Obama’s Mortgage Plan: What is, and isn’t, in the Homeowner Affordability and Stability Plan

February 19, 2009 By Jay Thompson

UPDATE: See this post for details released on March 4, 2009 regarding this plan.

The mainstream media, the blogiverse and the average Joe on the Street are all abuzz today with the “Mortgage Rescue”, “Homeowner Affordability and Stability Plan", “Homeowner Bailout” ”“ pick your title.

Announced yesterday right here in our backyard of Mesa, Arizona, the President delivered his $75 billion (and counting) plan to stave off foreclosures.

I’ve made it pretty clear here in many past articles that I’m not a fan of big government and/or government intervention in a free market. Color me a conservative ”“ it’s not a crime. But, and I say this with much trepidation, now may be time for the government to do something.

Things I like that Obama said:

But I also want to be very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans. It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell. It will not help dishonest lenders who acted irresponsibility, distorting the facts and dismissing the fine print at the expense of buyers who didn’t know better. And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.

Speculators (who made up a large chunk of the Phoenix housing market boom) shouldn’t be bailed out. All investments carry risk. These investors knew that (or should have known that) going in. For those “investors” that jumped on the housing market boom without doing their research, oh well. The responsible homeowner and taxpayer shouldn’t have to pay for your ignorance and failure to complete your due diligence.

I’ve seen too many people using their homes like ATM machines. Anyone who thinks home values only increase hasn’t done the 3 minutes of research required to dispel that fallacy. These people need to reap what they have sown. Sorry if that sounds callous.

. . . we will create new incentives so that lenders work with borrowers to modify the terms of sub-prime loans at risk of default and foreclosure.

While it’s unfortunate that lenders need to be incentivized to do what needs to be done, the simple fact is they do. Most of this plan will be voluntary on the part of lenders. Perhaps the planned incentives will motivate some to play that otherwise wouldn’t have.

Things I don’t like that Obama said:

My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value ”“ as long as borrowers pay their debts under a court-ordered plan.

Judges are people too, but they are not mortgage or financial experts. To give them the power of reducing principal balances ”“ if unchecked and without proper education/training ”“ is asking for trouble. How many will take the radical step of filing for bankruptcy just to get their principal balance reduced? As Jeff Corbet so eloquently pointed out in his great piece on “MObamanomics”, this provision may motivate lenders to pursue loan modifications. But I’m not sure that justifies a radical step like this.

Through its existing authority Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down.

It’s not holding mortgage rates down that I don’t like. Lower rates (if people can take advantage of them) are generally a good thing. It’s the slinging around of staggering amounts of money that concerns me. $75,000,000,000 here, $200,000,000,000 there, $787,000,000,000 for what some are calling only “Phase 1” of the stimulus package. Hell, I’m wearing out the “0” key. We’re throwing trillions of dollars at these problems like it’s nothing. That frightens me. I’m not fond of the idea of every future descendant of the Thompson clan having to pay for our mistakes.

What I wish Obama had said:

Elimination of pre-payment penalties: I rarely hear this being discussed. Right now there are tens (hundreds?) of thousands of people (typically with sub-prime loans) basically locked into a current mortgage because they can’t refinance due to (often ridiculous) pre-payment penalties. Many times reducing a mortgage payment by only a couple of hundred of dollars a month would help someone on the edge keep from defaulting on their mortgage. “Waiving” pre-payment penalties might allow some to refinance, thereby saving their home from foreclosure.

Call me crazy, call me a heretic, call me whatever. What’s about to follow will likely piss some people off. Oh well.

Falling home prices are not all bad: What I see very few people mentioning is that there are some good things about declining home prices. OK, I am a homeowner. Of course I’d love to see my home’s value increase every single day. This isn’t a realistic expectation, but I’d still love it. The simple fact is, declining home values mean homes become more affordable. Better affordability means more people can buy a home. It’s basic economics folks ”“ Demand curves and the Law of Supply and Demand and such. This market will reach equilibrium, with or without government assistance. That equilibrium point may lie lower on the price axis then people would prefer, but the government mucking about isn’t going to change fundamental laws of economics.

On reduction of principal balance

This is a tricky one. Many are saying that unless existing mortgage balances are written down to existing market values, nothing will help. My problem with this is two-fold. Primarily, I simply don’t know how this could possibly be managed. There aren’t enough appraisers on the planet to determine “market value” of every existing home ”“ or even just for homes where the owner wants their principal reduced (which would be basically anyone that bought, or did a cashout refi, on a home in the past 2 or 3 years).

What about the prudent home buyer that saved for a down payment, didn’t use the ATM feature of the boom, and is not currently underwater? They get to slog along as they are now, while the neighbor that refinanced and got cash for the new car and a trip to Disney World gets his principal balanced reduced. In other words, some of get to finance others transgressions. That should go over well.

And when does the writing down of balances stop? Do we just write down mortgage balances carte blanche when prices continue to decline? In 2012 (or whenever) when there is another downturn in home prices, do we engage in another wholesale write down? Home values are cyclical, always have been, always will be. Setting a precedent that the government will step in with a wholesale write down when prices decline could be a recipe for future disaster.

Will this mortgage rescue plan work?

I don’t know, but I have my doubts. Many of the details are to be released on March 4. Until then, we can only speculate and assume ”“ neither of which are particularly good things to do.

Most disturbing seems to be one of the guidelines that will help people who are underwater on their mortgages limits refinances to 105% of current market value. Prices in Phoenix have dropped 30 ”“ 50% depending on where you look and whose statistics you believe. 5% wouldn’t seem to touch it.

Clearly this isn’t a cure all. Obama even made that point. A step in the right direction? Maybe. Opening a big giant can of crap that may take a generation to undo? Maybe.

I’m not smart enough to know all the answers. A large part of me says that we suffer through it, painful as that will be, and let the market correct itself. I happen to think it will. Guys with Nobel Prizes in Economics think so too. I suppose a nudge in the right direction could speed things up and/or lower the pain threshold. But we need to be very careful. I’m not sure we are thinking all the ramifications through as Congress passes trillion dollar bills the no one has read and we start doinking with fundamental economic laws and principals.

I’d love to hear your thoughts. . .

Others Opine:
Morgan Brown at Blown Mortgage
Tom Royce at The Real Estate Bloggers
The White House Blog (yes, that White House)
Jeff Corbet, The X Broker on AR
Michelle Malkin
Chris Butterworth at The Phoenix Agents
Spencer Rascoff (Zillow COO) on Active Rain
Greg Swann on Bloodhound Blog
Have a good link? Drop it in a comment and I’ll add it to the list.

Obama to Roll Out “Homeowner Affordability and Stability Plan” in Phoenix Today

February 18, 2009 By Jay Thompson

President Obama is set to introduce his “Homeowner Affordability and Stability Plan” in a speech in Mesa, AZ today at about 10:15 (MST).

The full text of Obama’s speech is available here. (Note this is the prepared text of the speech. What is actually delivered could differ, though I suspect it will be very close to this.)

Some details of the Homeowner Affordability and Stability plan are available at the whitehouse.gov blog.

I’ve got interviews with two radio stations and the East Valley Tribune scheduled for later this afternoon for my reaction, and of course I’ll share that reaction here as well.

Busted! First Time Homebuyer Tax Credit Fraud

Remember the $15K tax credit? House Republicans aren’t giving up yet

Obama’s Mortgage Plan: What is, and isn’t, in the Homeowner Affordability and Stability Plan

Obama to Roll Out “Homeowner Affordability and Stability Plan” in Phoenix Today

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