This nonsense was one of the first scams I started to look into when I started working at the housing counseling agency where I work.
To a large degree these scams were put to rest by the IRS action, but I would guess there are still some operators out there. The IRS has made it very clear that any "downpayment assistance" provided by the seller must be recorded as a reduction in the price of the home, because part of this scam was to inflate home prices for comparison purposes.
This really is a lose-lose proposition for homebuyers, not only does the low wage worker who buys get saddled with payments they will, at best, struggle to make, it allows the builder to market the other homes in the project with those comp prices.
The fact that HUD can't find in in their hearts to ban this practice is truly disgusting.
BTW, there are legitimate downpayment assistant programs out there in many states. In New Jersey most counties offer $10,000 in down payment/closing cost assistance to home buyers who are already county residents through the federally funded American Dream program. There also is a companion program offered by some banks that would kick in another $10k after jumping through some hoops. The programs are targeted to first-time home buyers, but in some circumstances are open to people who have already owned a home.
The $20K is a nice start, but since the median home price in NJ is still over $350K (closer to $450K in Monmouth County where I live) unless a person is buying a home through a subsidized program it really isn't enough to swing the deal in most cases.
I wrote about these down payment assistance programs a few years ago. HUD has argued that it collects enough in FHA insurance premiums that DPA loans won't endanger the insurance fund.
The IRS says the DAPs aren't true charities, and more than a year ago it threatened to start stripping the 501(c)(3) status of the programs. Finally, late last month, it withdrew 501(c)(3) status from two obscure DPAs. But taking away 501(c)(3) status is rather beside the point, because people don't funnel money through these things to get tax deductions; they funnel money through these things so they can sell houses.
But taking away 501(c)(3) status is rather beside the point
Well, you're right that the deduction isn't the point for the seller. The issue is that the 501c3 makes the "nonprofit" eligible to participate in HUD programs. Until they are stripped of their 501c3 and labelled "money launderers," which they are, they get to claim that they're just like the legit nonprofits.
HUD has argued that it collects enough in FHA insurance premiums that DPA loans won't endanger the insurance fund.
And this, I think, should make everyone pause for a moment. It could be true (heretofore, at least), which suggests that borrowers are paying some pretty heavy insurance premiums if they can afford to subsidize what is, in essence, a give-away to homebuilders. Or, of course, it's nonsense.
In any case, I'd like to hear some accounting from HUD for what those two, count them, two, reports from this private contractor cost HUD, and how that was money well-spent when it appears to me at least that they managed to come up with the same conclusion that the IG originally did. I have this mental image of these contractors travelling all over the U.S. to ask a bunch of DE underwriters what they thought of the whole thing, and the DE underwriters saying, "look, idjit, we already told the IG that this is a scam."
Meanwhile, the "faith-based initiatives" go forward, without this onerous requirement that we gather empirical data three times over five years.
Does anyone want to bet me that after we're done with this one, we're likely to find out that some of those "faith-based initiatives" didn't exactly improve the health of the MMIF? It's not an easy bet, you know, since you have to put the credibility of some of these faith-based organizations against the likelihood that all the qualified staff in the IG's office got canned in favor of faith-based inspectors.
I sold my first house for 3.5 times what i paid for it. It doubled in price in the first year. I sold my next house for 10 times what i paid for it. The latest is worth double what i paid for.
I can understand why people want to buy a house and for sure i am not saying that people are not stupid for getting into some of these situations of debt and foreclosure but truelly i am almost weeping at the level of misery that this 'dream' is creating for those living this nightmare in the making.
And in these times of hostility towards people who talk about rising prices it is worth pointing out that we sold my mum and dads 1955 house for 96 times what they paid for it. Mum was expecting to get 125 times and were she alive now i suspect we would get the 125 and some more.
Houses can represent a good investment or store of value thru inflationary times. Does anybody really see deflation coming when money can be produced the moment it is needed? Sure there will be a crash but if its your home you will be ok i reckon.
Tanta - I know people who have seen their properties increase 10 times in less than 15 years... if you bought in a distressed market (say rural America) in the last bust... then sold now... its possible to see 10 times increases.
There was an 'acreage' near me that came up for sale around '90... it was really farm with 500 acres but most of the land was so crappy you couldn't make a living off of it... so I consider them 'big acreages'.
200 acres tillable sand loam, 100 acres mature walnut & oak, 100 acres 'pasture'... pasture if you had mountain goats that is... it was located in the Mississippi valley.
Oh and about a half mile top quality trout stream through the center of it... naturally reproducing, no stocking.
It had a 100 y/o 4 BR prairie square, old dairy barn two newer machine sheds... I almost bout it. The guy was only asking $240K... the realtor told be $220K cash would take it.
Places half than nice half that large in poorer locations are easily going for a couple million now... or were anyway at the peak of the bubble. Not sure what they would go for now.
Similar stories up in the lake country of N Minnesota & Wisconsin... ones I know are fact 'cause I looked at buying them also... What were $50K cabins a decade ago are now going for half a mil or more at peak.
Anyway if you 'perfectly time' in hindsight... 10X isn't that outrageous in some locations.
Yes, dryfly, but you notice it turned out we were discussing a renovated property. I usually count gain on sale from the actual cost basis, not the original unimproved contract sales price. And we find out it took 20 years to get there and in that case I like to see adjusted dollars. What this has to do with people buying new homes in an FHA program once again escapes me.
The issue is that the 501c3 makes the "nonprofit" eligible to participate in HUD programs.
You might be right, but I'm not positive about that. When I have time (not today!), I'll check. There are many forms of nonprofit besides 501(c)(3)s, and it's possible that a DPA doesn't have to be one. I don't know for sure, but wouldn't want to assume.
If a tax loophole exists, Nehemiah and AmeriDream will find and exploit it.
Forgive me for being a touch crabby today, but I think I have mentioned that I was prescribed expensive anti-anemia drugs last year that have now been determined to be either harmful or worthless, depending on how lucky the patient turned out to be.
So what do I read this morning?
Neither drug maker has disclosed the total amount of the payments. But documents given to The New York Times show that at just one practice in the Pacific Northwest, a group of six cancer doctors received $2.7 million from Amgen for prescribing $9 million worth of the drugs last year.
Yesterday, the Food and Drug Administration added to concerns, in a report that suggested use of the drugs might need to be curtailed in cancer patients. The report, prepared by FDA staff scientists, said no evidence indicated the medicines either improved quality of life or extended survival, while several studies suggested the drugs can shorten life when used at high doses.
"Back in 1999/2000, all those of us who supported the ban had to go on was 500 or so years of experience"
Tanta. I apologise for going OT, but i found what you said funny and yet also tragic and reacted to that immediate feeling of sorrow for people caught up in this mess.
Probably many of us here have made good money from houses over the years. I do feel for those wanting to try and do the same.
Off topic, but the link to the article that Tanta provided took readers to a shortened version of a NY Times article in the Boston Post. I'm not sure it even listed the names of the drugs involved (Procrit, Aranesp and Epogen). It's an absolute outrage, and people need to go to prison.
Yes, Holden, it is an outrage. But I hope my point in posting that is not perceived as looking for somebody like Worried to feel sorry for me. I didn't post on the FHA problem in order for anyone to "feel sorry for" these borrowers. I mean, anyone who is harmed by scumbucket business practices would, I'm sure, prefer sympathy to a kick in the teeth.
My point is just that it is hard to know why you would have to end up having to prove that someone was harmed before you banned kickbacks in these situations. Why would you have to pay doctors to prescribe an effective medicine? Why would you have to make a borrower's down payment by back-door methods in order to sell a home at the contract price? Why was the "sales inducement" not disclosed on the prescription I was given? Why was the "sales inducement" not disclosed on the appraisals for these homes?
We live in an environment in which people think this is all about pity for the victims. Well, again, I prefer that to being told that I was a rational informed agent who should have done some comparison shopping on my oncologist and cancer drugs before I entered the free market, and therefore it's all my own bloody fault, because that kind of crap tends to make me violent (or would, if I weren't a bit too anemic at times to be effectively violent). But really, I think just taking off the Pity Party hats and getting down to looking at public policy and decent government oversight issues is the thing we need, here.
Justice: It's not just a Hallmark Card for the victims any more.
And we find out it took 20 years to get there and in that case I like to see adjusted dollars.
And from rock bottom desperation to frothy peak on top of that.
I even personally know of an approximate 100:1 increase then to today from about the same time period but that was like winning the lottery. I know they guy who bought it.
:::Lake home on about 10 acres w/ trout stream overlooking N Shore Lake Superior - went at forced auction for about $8K after the local taconite mills shut down in the '90-'91 recession and the bank who held the loan was forced to liquidate (I believe the bank eventually 'failed into' a larger bank).
That area is now going crazy in the 'second home' market, places like that are going for half mil to a mil - or prior to this credit squeeze...
Next recession my guess is they step back again in price & volume by a factor of 10 or 20 off the current peak levels.. that is how the remote second home market up there has always behaved in the past... for every person who sees a '100% increase' there will likely be another sadder but wiser who experienced a '50% decrease':::
Maybe I am a slow learner but why do home builders, lenders, real estate agents, brokers, investors and everyone else connected to taking money from people who want a house to live in think the average homeowner can afford to pay 10X annual income to live somewhere? Seems to me if builders offered an affordable product, if lenders and agents said "no, you can't afford that one", if investors said "no, I won't buy those securities if they are backed by loans the home buyer can't pay on", all the toxic waste loans and sinking mortgage industry problems would go away.
I doubt any of us thought you were trying to make us feel sorry for you, Tanta. Your point was well-made. And I'll bet that a big majority of folks above the age of 40 (i.e., they have life experience and aging parents) know someone who has been on Procrit, Aranesp or Epogen. My mother-in-law was on Procrit during her chemo. I suspect that my aunt, who has kidney problems, is on one of these drugs. I don't feel sorry for anyone. I feel angry. I'm not the only one.
As for your larger point, that these kinds of market-altering kickbacks happen in an unregulated environment, why don't free-market fundamentalists understand this basic point? Well, obviously, it's because they're fundamentalists, first and foremost.
Someone who is anemic because of chemotherapy isn't in a "free market" for medication. An unsophisticated person, who doesn't know that a seller-provided down payment boosts the house's price, isn't in a "free market" for real estate. There are no violations of free-market principals in regulating these things.
"Some economists contend the typically close tie between mortgage applications and home sales may have loosened.
Lenders are becoming more restrictive in offering mortgages as foreclosures mount due to problems with subprime loans made to borrowers with blemished credit. Applications may be on the rise but rejections may also be climbing, some economists say."
My guess is that there is a wave of re-fi (for anyone that still can get an apraisal that show some equity) and that there are multiple loan apps for every loan. would not be suprized if people use multiple loan brokers.
Yal, Brian posted something about this in comments last week. Apologies for the repetition, but here's what Brian posted last week:
From the IAC conference call re: Lending Tree:
"The other business which significantly affected our Q1 results was obviously LendingTree. Doug will talk further about the dynamics here, but it is clear that the events in the subprime market have spilled over to other segments of the mortgage market, and virtually every element of this business has been affected. While overall QF volume was up 17% and at a reduced marketing cost per QF, close rates were down on both the exchange and in our own LendingTree Loans. Moreover, the highest-margin products have been the hardest hit, with significant lender pullback or outright exit.As a result, the business has become, at least for now, largely centered around conforming loans, which are the most competitive from a lender perspectives and hence the lowest margin for us, whether at the exchange or at LendingTree Loans. We do expect the business to increase its profitability from the Q1 level over the course of the year, but market conditions make giving any specific financial outlook very difficult."
"At LendingTree, margin compression in the mortgage industry caused major changes to our financial picture. Subprime, option ARM and home equity loans, particularly those with the high loan-to-value ratios, all saw liquidity tighten considerably. In many instances, investors simply stopped buying any loan that isn't conforming, meaning within the guidelines of Fannie Mae and Freddie Mac. Thus, the average margin per loan sold at LendingTree Loans decreased significantly. LendingTree Loans thus shifted away from originating these products and is in the process of changing to a lower-cost, mostly conforming mortgage platform. Additionally, some lenders on LendingTree's exchange also stopped taking consumers that fell out of those conforming guidelines. We saw transmits rates, which is the percentage of consumers we can match with at least one lender, fall in refinance leads from 90% to 87% this quarter versus last year, and transmit rates on purchase fell from 76% to 57%. Additionally, because fewer products were available for consumers, we saw our close rates fall 14% for refinance, 9% for home equity and 5% for purchase on the LendingTree Exchange"
"We live in an environment in which people think this is all about pity for the victims"
The victims have created their reality. And yes, hopefully, in a society there is a system in place to help prevent victims from creating bad realities.
The system seems to suck. Justice though is not a natural concept. Survival of the fittest is what is natural.
We all create our reality. Those who fight the system are likely to become bitter, angry, stressed and worse. Those who align themselves with posative change and direct there energy into areas where there energy is in harmony with what is already there are likely to find things work easier for them.
Well put, Holden. And let me say that what I appreciated about your post was the "outrage" part. I'm right there with you. It was Worried who instantly brought up the sorry-feeling-for issue, not you, and of course it wasn't sorry-feeling-for for me, it was for those poor homebuyers. Everything is just hitting me in the wrong combination today.
I'm afraid to open the NYT.
I hope your MIL and aunt are doing well. In my case the whole thing appeared to have been just a waste of huge sums of money, plus the side-effects I went through with Aranesp. It's weird to be grateful that your medication was merely pointless, but that's better than having it be toxic.
And I do read these risible screeds from "libertarians" suggesting that people who are so anemic they're having a hard time stepping off a curb, and who have just been told by a doctor that if something isn't done about it immediately they will probably die, should go hit the 'net and do some consumer research to make sure it's all priced properly and that the biotech companies did their science correctly.
At least my oncologist didn't say "I explained that 47,000 freaking times."
The selling of America.
Faustus and ... in too many places around us.
Don't think am naive in stating we should have a way of knowing the good guys and dealing only with them. Let the rest feed off each other like the sharks they are...
Can only hope your body finds ways to repair itself.
The language in those article quotes has that familiar tone of evasiveness, that just really makes my blood pressure rise. Like somehow, none of this could be made clear for nearly 8 years. Hello!!!
I know we don't like to make this a political commentary blog, but somehow I can just see the same obfuscation in the HUD players here that is so present in all the other politicized departments of government that are turning over the keys to the kingdom to corporate interests, and almost always, at the expense of those least able to defend themselves.
It's really getting hard to read this stuff.
And, lest we forget what kind of person is in charge of HUD :
Sorry for the OT comment. There is just a graphic difference between saying that there is evil in the world and saying that we inherently have no ability to discern it.
A crumbling housing market and an overextended consumer could result in an ugly ending for this economic party.
I'm typically not that bearish an investor, but these days there appears to be plenty to worry about, and though the financial markets continue to soar I believe the signs point to tougher times ahead for investors. A weaker housing market will likely be the lynchpin.
Yeah but...
The explanations as to why everything is going to turn out rosy just don't hold water with me. I find the market's tendency to credit a sector for its positive contributions while downplaying its negative potential a bit unbalanced. This psychological phenomenon -- commonly referred to as complete and utter denial -- has resulted in the current lack of appreciation for the truly negative impact of this housing downturn.
Don't worry about going off-topic, M. Z. Every now and again you have to get into it with somebody who missed those late-night bull sessions in the dormitory wherein the sophomores gather around to wonder if anybody else actually exists or not. It is an internet tradition to throw out observations that got hammered to death 250 years ago by some Enlightenment philosopher as if they were news.
Don't mind me; I'm just creating my own internet. That has to be easier than creating reality.
While I do agree a DPA can be a layer of risk within a loan, its presence however in most cases is not the overriding cause of a loan going into default. Normally, it is the presence of several "layers of risk" that causes a loan to default. For example, for most defaulted loans that had a DPA, it was the presence of other risks that caused the borrower to default. Even without the presence of a DPA, it was the high debt ratios, employment in-stability, credit issues, over valued property price, etc... that was the core cause...not the DPA. Thus, if the loans would have been underwritten soundly, most of the defaulted loans would not have been approved in the first place.
It pays to look deeper if you want to find the core or real causes of issues!
Don't worry about going off-topic, M. Z. Every now and again you have to get into it with somebody who missed those late-night bull sessions in the dormitory wherein the sophomores gather around to wonder if anybody else actually exists or not.
The knuckleheads missed those bull sessions because they were engineering majors cramming for a reactor design class so they could make the big bucks when they got a job with the pharmaceutical company they were interning with that next summer...
There was a time when I had a very strong libertarian leaning... until I realized all the ways I (as a chemical engineer) could bone everybody & their uncle UNLESS aggressively enforced regulations were in place to make me account for all my nasty witches brew.
This revelation came to me when I learned of a 'toxic waste recycling company' that other chemical companies would sub-contract with to pick up toxic waste and 'reprocess it'... turns out they also had an out of state subsidiary that 'oiled' country roads on contract (you know to keep the dust down).
Connect the dots.
The larger producers of the chemicals were mostly 'absolved' of any wrong doing... Or the source of the pollution was so untraceable as to make responsibility uncertain... And of course the smaller sub-contract 'recycler' immediately filed BK & dissolved.
But it had supposedly gone on for years before they were outed by a disgruntled employee or family member - so long ago now I can't remember the whole story.
Even then the 'damages' were uncertain because there was so much of it spread about - was it all this recyclers doing or somebody else's? Who do you sue? The owner of the 'recycler' did get jail time though - if I recall.
There isn't enough room in my head now for all the 'outrages' I've heard about already and I'm still decades from 'official' retirement. I can only imagine how completely blown my mind will be by then.
It pays to look deeper if you want to find the core or real causes of issues!
Yeah, but Tony, did you notice that it's only the builder money-launderers who are willing to give downpayment assistance to borrowers who are that weak?
Tanta - you said that the new element in this story is statistical evidence. But that isn't new - GAO's report on these things from over 2 years had overwhelming statistical evidence that buyers using DAP paid more than other buyers for comparable properties, went delinquent more often, went to foreclosure more often, and cost more per foreclosure. http://www.gao.gov/new.items/d0624.pdf
Tony G - it might be true to say that foreclosures are caused by risk layering, but that cuts both ways. It might be accurate to say that the DAP loan wouldn't have gone to foreclosure but for the high DTI, but it would be equally valid to say that the high DTI loan wouldn't have gone to foreclosure but for the DAP. And the GAO report finds a substantial effect of DAP on delinquency, foreclosure, and loss, holding other variables, like equity, FICO, and DTI constant.
Following up on Holden's comment I stumbled across this genius page on a DAP (that may be the parent of the Dreamhouse Charity that had its tax free status yanked):
Love the tables of math and the last line: EVERYBODY WINS!
Except that if you look at the samples you'll see that in the DAP case the buyer pays $2,000 more ($100K - $3K assistance, vs $95K negotiated discount), and the seller only nets $1,000. If the DAP covered the full difference in price ($5K in their example) the seller would actually lose $1000 vs. just lowering the price. So really the DAP, the agent, and the mortgage broker win, and the buyer/seller aka EVERYBODY ELSE LOSES! The only sellers that win are developers who can use this to game the comps for future appraisals in their developments.
This nonsense was one of the first scams I started to look into when I started working at the housing counseling agency where I work.
To a large degree these scams were put to rest by the IRS action, but I would guess there are still some operators out there. The IRS has made it very clear that any "downpayment assistance" provided by the seller must be recorded as a reduction in the price of the home, because part of this scam was to inflate home prices for comparison purposes.
This really is a lose-lose proposition for homebuyers, not only does the low wage worker who buys get saddled with payments they will, at best, struggle to make, it allows the builder to market the other homes in the project with those comp prices.
The fact that HUD can't find in in their hearts to ban this practice is truly disgusting.
BTW, there are legitimate downpayment assistant programs out there in many states. In New Jersey most counties offer $10,000 in down payment/closing cost assistance to home buyers who are already county residents through the federally funded American Dream program. There also is a companion program offered by some banks that would kick in another $10k after jumping through some hoops. The programs are targeted to first-time home buyers, but in some circumstances are open to people who have already owned a home.
The $20K is a nice start, but since the median home price in NJ is still over $350K (closer to $450K in Monmouth County where I live) unless a person is buying a home through a subsidized program it really isn't enough to swing the deal in most cases.
The Denver Post had a great story on this in December:
FHA program key in surge of foreclosures
I wrote about these down payment assistance programs a few years ago. HUD has argued that it collects enough in FHA insurance premiums that DPA loans won't endanger the insurance fund.
The IRS says the DAPs aren't true charities, and more than a year ago it threatened to start stripping the 501(c)(3) status of the programs. Finally, late last month, it withdrew 501(c)(3) status from two obscure DPAs. But taking away 501(c)(3) status is rather beside the point, because people don't funnel money through these things to get tax deductions; they funnel money through these things so they can sell houses.
But taking away 501(c)(3) status is rather beside the point
Well, you're right that the deduction isn't the point for the seller. The issue is that the 501c3 makes the "nonprofit" eligible to participate in HUD programs. Until they are stripped of their 501c3 and labelled "money launderers," which they are, they get to claim that they're just like the legit nonprofits.
HUD has argued that it collects enough in FHA insurance premiums that DPA loans won't endanger the insurance fund.
And this, I think, should make everyone pause for a moment. It could be true (heretofore, at least), which suggests that borrowers are paying some pretty heavy insurance premiums if they can afford to subsidize what is, in essence, a give-away to homebuilders. Or, of course, it's nonsense.
In any case, I'd like to hear some accounting from HUD for what those two, count them, two, reports from this private contractor cost HUD, and how that was money well-spent when it appears to me at least that they managed to come up with the same conclusion that the IG originally did. I have this mental image of these contractors travelling all over the U.S. to ask a bunch of DE underwriters what they thought of the whole thing, and the DE underwriters saying, "look, idjit, we already told the IG that this is a scam."
Meanwhile, the "faith-based initiatives" go forward, without this onerous requirement that we gather empirical data three times over five years.
Does anyone want to bet me that after we're done with this one, we're likely to find out that some of those "faith-based initiatives" didn't exactly improve the health of the MMIF? It's not an easy bet, you know, since you have to put the credibility of some of these faith-based organizations against the likelihood that all the qualified staff in the IG's office got canned in favor of faith-based inspectors.
I sold my first house for 3.5 times what i paid for it. It doubled in price in the first year. I sold my next house for 10 times what i paid for it. The latest is worth double what i paid for.
I can understand why people want to buy a house and for sure i am not saying that people are not stupid for getting into some of these situations of debt and foreclosure but truelly i am almost weeping at the level of misery that this 'dream' is creating for those living this nightmare in the making.
I sold my next house for 10 times what i paid for it.
You want to edit that sentence?
"You want to edit that sentence?"
There were special circumstances. Among them, the area underwent urban renewal. I renovated it. I rented it out for 20 years!
Dear Tanta,
Just reading the expression, faith-based initiatives makes me want to either laugh in disgust or cry in despair.
The Bush Administration wow are those guys evil masterminds or what?
Keep up the good work as soon as I find a leopard print office chair on E-Bay I am sending it your way!
Best regards,
And in these times of hostility towards people who talk about rising prices it is worth pointing out that we sold my mum and dads 1955 house for 96 times what they paid for it. Mum was expecting to get 125 times and were she alive now i suspect we would get the 125 and some more.
Houses can represent a good investment or store of value thru inflationary times. Does anybody really see deflation coming when money can be produced the moment it is needed? Sure there will be a crash but if its your home you will be ok i reckon.
Tanta - I know people who have seen their properties increase 10 times in less than 15 years... if you bought in a distressed market (say rural America) in the last bust... then sold now... its possible to see 10 times increases.
There was an 'acreage' near me that came up for sale around '90... it was really farm with 500 acres but most of the land was so crappy you couldn't make a living off of it... so I consider them 'big acreages'.
200 acres tillable sand loam, 100 acres mature walnut & oak, 100 acres 'pasture'... pasture if you had mountain goats that is... it was located in the Mississippi valley.
Oh and about a half mile top quality trout stream through the center of it... naturally reproducing, no stocking.
It had a 100 y/o 4 BR prairie square, old dairy barn two newer machine sheds... I almost bout it. The guy was only asking $240K... the realtor told be $220K cash would take it.
Places half than nice half that large in poorer locations are easily going for a couple million now... or were anyway at the peak of the bubble. Not sure what they would go for now.
Similar stories up in the lake country of N Minnesota & Wisconsin... ones I know are fact 'cause I looked at buying them also... What were $50K cabins a decade ago are now going for half a mil or more at peak.
Anyway if you 'perfectly time' in hindsight... 10X isn't that outrageous in some locations.
Yes, dryfly, but you notice it turned out we were discussing a renovated property. I usually count gain on sale from the actual cost basis, not the original unimproved contract sales price. And we find out it took 20 years to get there and in that case I like to see adjusted dollars. What this has to do with people buying new homes in an FHA program once again escapes me.
The issue is that the 501c3 makes the "nonprofit" eligible to participate in HUD programs.
You might be right, but I'm not positive about that. When I have time (not today!), I'll check. There are many forms of nonprofit besides 501(c)(3)s, and it's possible that a DPA doesn't have to be one. I don't know for sure, but wouldn't want to assume.
If a tax loophole exists, Nehemiah and AmeriDream will find and exploit it.
Forgive me for being a touch crabby today, but I think I have mentioned that I was prescribed expensive anti-anemia drugs last year that have now been determined to be either harmful or worthless, depending on how lucky the patient turned out to be.
So what do I read this morning?
Neither drug maker has disclosed the total amount of the payments. But documents given to The New York Times show that at just one practice in the Pacific Northwest, a group of six cancer doctors received $2.7 million from Amgen for prescribing $9 million worth of the drugs last year.
Yesterday, the Food and Drug Administration added to concerns, in a report that suggested use of the drugs might need to be curtailed in cancer patients. The report, prepared by FDA staff scientists, said no evidence indicated the medicines either improved quality of life or extended survival, while several studies suggested the drugs can shorten life when used at high doses.
Doctors reap huge payments for prescribing anemia drugs - The Boston Globe
Legalized kickbacks. In housing, in medicine, it's all there.
"Back in 1999/2000, all those of us who supported the ban had to go on was 500 or so years of experience"
Tanta. I apologise for going OT, but i found what you said funny and yet also tragic and reacted to that immediate feeling of sorrow for people caught up in this mess.
Probably many of us here have made good money from houses over the years. I do feel for those wanting to try and do the same.
Dear Tanta
They are b******* plain and simple.
Sincere regards to you,
That's an outrage, Tanta.
Just when you think you shouldn't be any more cynical...
Off topic, but the link to the article that Tanta provided took readers to a shortened version of a NY Times article in the Boston Post. I'm not sure it even listed the names of the drugs involved (Procrit, Aranesp and Epogen). It's an absolute outrage, and people need to go to prison.
Here's the full NY Times article.
You don't need 500 years of lending experiance to figure this one out, just have kids.
See which one gets treated better.
Got to have skin in the game.
Thanks, Kett82, my dear.
Yes, Holden, it is an outrage. But I hope my point in posting that is not perceived as looking for somebody like Worried to feel sorry for me. I didn't post on the FHA problem in order for anyone to "feel sorry for" these borrowers. I mean, anyone who is harmed by scumbucket business practices would, I'm sure, prefer sympathy to a kick in the teeth.
My point is just that it is hard to know why you would have to end up having to prove that someone was harmed before you banned kickbacks in these situations. Why would you have to pay doctors to prescribe an effective medicine? Why would you have to make a borrower's down payment by back-door methods in order to sell a home at the contract price? Why was the "sales inducement" not disclosed on the prescription I was given? Why was the "sales inducement" not disclosed on the appraisals for these homes?
We live in an environment in which people think this is all about pity for the victims. Well, again, I prefer that to being told that I was a rational informed agent who should have done some comparison shopping on my oncologist and cancer drugs before I entered the free market, and therefore it's all my own bloody fault, because that kind of crap tends to make me violent (or would, if I weren't a bit too anemic at times to be effectively violent). But really, I think just taking off the Pity Party hats and getting down to looking at public policy and decent government oversight issues is the thing we need, here.
Justice: It's not just a Hallmark Card for the victims any more.
Can someone explain this:
Business & Financial News, Breaking US & International News | Reuters.com
And we find out it took 20 years to get there and in that case I like to see adjusted dollars.
And from rock bottom desperation to frothy peak on top of that.
I even personally know of an approximate 100:1 increase then to today from about the same time period but that was like winning the lottery. I know they guy who bought it.
:::Lake home on about 10 acres w/ trout stream overlooking N Shore Lake Superior - went at forced auction for about $8K after the local taconite mills shut down in the '90-'91 recession and the bank who held the loan was forced to liquidate (I believe the bank eventually 'failed into' a larger bank).
That area is now going crazy in the 'second home' market, places like that are going for half mil to a mil - or prior to this credit squeeze...
Next recession my guess is they step back again in price & volume by a factor of 10 or 20 off the current peak levels.. that is how the remote second home market up there has always behaved in the past... for every person who sees a '100% increase' there will likely be another sadder but wiser who experienced a '50% decrease':::
Yal - homeowners need $$.
Yal said: "Can someone explain this:", in reference to the Reuters article about rising mortgage applications.
Yes, I addressed it on the "Housing: Selling Season a Bust" thread.
I think it's pretty self-explanatory, though.
Sebastia
Maybe I am a slow learner but why do home builders, lenders, real estate agents, brokers, investors and everyone else connected to taking money from people who want a house to live in think the average homeowner can afford to pay 10X annual income to live somewhere? Seems to me if builders offered an affordable product, if lenders and agents said "no, you can't afford that one", if investors said "no, I won't buy those securities if they are backed by loans the home buyer can't pay on", all the toxic waste loans and sinking mortgage industry problems would go away.
I doubt any of us thought you were trying to make us feel sorry for you, Tanta. Your point was well-made. And I'll bet that a big majority of folks above the age of 40 (i.e., they have life experience and aging parents) know someone who has been on Procrit, Aranesp or Epogen. My mother-in-law was on Procrit during her chemo. I suspect that my aunt, who has kidney problems, is on one of these drugs. I don't feel sorry for anyone. I feel angry. I'm not the only one.
As for your larger point, that these kinds of market-altering kickbacks happen in an unregulated environment, why don't free-market fundamentalists understand this basic point? Well, obviously, it's because they're fundamentalists, first and foremost.
Someone who is anemic because of chemotherapy isn't in a "free market" for medication. An unsophisticated person, who doesn't know that a seller-provided down payment boosts the house's price, isn't in a "free market" for real estate. There are no violations of free-market principals in regulating these things.
Seba,
I think you need to read page 2:
"Some economists contend the typically close tie between mortgage applications and home sales may have loosened.
Lenders are becoming more restrictive in offering mortgages as foreclosures mount due to problems with subprime loans made to borrowers with blemished credit. Applications may be on the rise but rejections may also be climbing, some economists say."
My guess is that there is a wave of re-fi (for anyone that still can get an apraisal that show some equity) and that there are multiple loan apps for every loan. would not be suprized if people use multiple loan brokers.
Yal, Brian posted something about this in comments last week. Apologies for the repetition, but here's what Brian posted last week:
From the IAC conference call re: Lending Tree:
"The other business which significantly affected our Q1 results was obviously LendingTree. Doug will talk further about the dynamics here, but it is clear that the events in the subprime market have spilled over to other segments of the mortgage market, and virtually every element of this business has been affected. While overall QF volume was up 17% and at a reduced marketing cost per QF, close rates were down on both the exchange and in our own LendingTree Loans. Moreover, the highest-margin products have been the hardest hit, with significant lender pullback or outright exit.As a result, the business has become, at least for now, largely centered around conforming loans, which are the most competitive from a lender perspectives and hence the lowest margin for us, whether at the exchange or at LendingTree Loans. We do expect the business to increase its profitability from the Q1 level over the course of the year, but market conditions make giving any specific financial outlook very difficult."
"At LendingTree, margin compression in the mortgage industry caused major changes to our financial picture. Subprime, option ARM and home equity loans, particularly those with the high loan-to-value ratios, all saw liquidity tighten considerably. In many instances, investors simply stopped buying any loan that isn't conforming, meaning within the guidelines of Fannie Mae and Freddie Mac. Thus, the average margin per loan sold at LendingTree Loans decreased significantly. LendingTree Loans thus shifted away from originating these products and is in the process of changing to a lower-cost, mostly conforming mortgage platform. Additionally, some lenders on LendingTree's exchange also stopped taking consumers that fell out of those conforming guidelines. We saw transmits rates, which is the percentage of consumers we can match with at least one lender, fall in refinance leads from 90% to 87% this quarter versus last year, and transmit rates on purchase fell from 76% to 57%. Additionally, because fewer products were available for consumers, we saw our close rates fall 14% for refinance, 9% for home equity and 5% for purchase on the LendingTree Exchange"
"We live in an environment in which people think this is all about pity for the victims"
The victims have created their reality. And yes, hopefully, in a society there is a system in place to help prevent victims from creating bad realities.
The system seems to suck. Justice though is not a natural concept. Survival of the fittest is what is natural.
We all create our reality. Those who fight the system are likely to become bitter, angry, stressed and worse. Those who align themselves with posative change and direct there energy into areas where there energy is in harmony with what is already there are likely to find things work easier for them.
There is a natural order to these things
http://tinyurl.com/2c8no
Well put, Holden. And let me say that what I appreciated about your post was the "outrage" part. I'm right there with you. It was Worried who instantly brought up the sorry-feeling-for issue, not you, and of course it wasn't sorry-feeling-for for me, it was for those poor homebuyers. Everything is just hitting me in the wrong combination today.
I'm afraid to open the NYT.
I hope your MIL and aunt are doing well. In my case the whole thing appeared to have been just a waste of huge sums of money, plus the side-effects I went through with Aranesp. It's weird to be grateful that your medication was merely pointless, but that's better than having it be toxic.
And I do read these risible screeds from "libertarians" suggesting that people who are so anemic they're having a hard time stepping off a curb, and who have just been told by a doctor that if something isn't done about it immediately they will probably die, should go hit the 'net and do some consumer research to make sure it's all priced properly and that the biotech companies did their science correctly.
At least my oncologist didn't say "I explained that 47,000 freaking times."
The selling of America.
Faustus and ... in too many places around us.
Don't think am naive in stating we should have a way of knowing the good guys and dealing only with them. Let the rest feed off each other like the sharks they are...
Can only hope your body finds ways to repair itself.
The language in those article quotes has that familiar tone of evasiveness, that just really makes my blood pressure rise. Like somehow, none of this could be made clear for nearly 8 years. Hello!!!
I know we don't like to make this a political commentary blog, but somehow I can just see the same obfuscation in the HUD players here that is so present in all the other politicized departments of government that are turning over the keys to the kingdom to corporate interests, and almost always, at the expense of those least able to defend themselves.
It's really getting hard to read this stuff.
And, lest we forget what kind of person is in charge of HUD :
Probe Finds Jackson Urged Favoritism in HUD Contracts - washingtonpost.com
And who put him there :
404 Page Not Found | The White House
We all create our reality
Not if we haven't been diagnosed with psychosis, we don't.
Mayberry Machiavellis strike again.
Justice though is not a natural concept.
Justice is a natural concept for rational beings.
Sorry for the OT comment. There is just a graphic difference between saying that there is evil in the world and saying that we inherently have no ability to discern it.
House of denial
Commentary: Confronting housing market myths The Guru's Corner - MarketWatch
A crumbling housing market and an overextended consumer could result in an ugly ending for this economic party.
I'm typically not that bearish an investor, but these days there appears to be plenty to worry about, and though the financial markets continue to soar I believe the signs point to tougher times ahead for investors. A weaker housing market will likely be the lynchpin.
Yeah but...
The explanations as to why everything is going to turn out rosy just don't hold water with me. I find the market's tendency to credit a sector for its positive contributions while downplaying its negative potential a bit unbalanced. This psychological phenomenon -- commonly referred to as complete and utter denial -- has resulted in the current lack of appreciation for the truly negative impact of this housing downturn.
Don't worry about going off-topic, M. Z. Every now and again you have to get into it with somebody who missed those late-night bull sessions in the dormitory wherein the sophomores gather around to wonder if anybody else actually exists or not. It is an internet tradition to throw out observations that got hammered to death 250 years ago by some Enlightenment philosopher as if they were news.
Don't mind me; I'm just creating my own internet. That has to be easier than creating reality.
While I do agree a DPA can be a layer of risk within a loan, its presence however in most cases is not the overriding cause of a loan going into default. Normally, it is the presence of several "layers of risk" that causes a loan to default. For example, for most defaulted loans that had a DPA, it was the presence of other risks that caused the borrower to default. Even without the presence of a DPA, it was the high debt ratios, employment in-stability, credit issues, over valued property price, etc... that was the core cause...not the DPA. Thus, if the loans would have been underwritten soundly, most of the defaulted loans would not have been approved in the first place.
It pays to look deeper if you want to find the core or real causes of issues!
Don't worry about going off-topic, M. Z. Every now and again you have to get into it with somebody who missed those late-night bull sessions in the dormitory wherein the sophomores gather around to wonder if anybody else actually exists or not.
The knuckleheads missed those bull sessions because they were engineering majors cramming for a reactor design class so they could make the big bucks when they got a job with the pharmaceutical company they were interning with that next summer...
There was a time when I had a very strong libertarian leaning... until I realized all the ways I (as a chemical engineer) could bone everybody & their uncle UNLESS aggressively enforced regulations were in place to make me account for all my nasty witches brew.
This revelation came to me when I learned of a 'toxic waste recycling company' that other chemical companies would sub-contract with to pick up toxic waste and 'reprocess it'... turns out they also had an out of state subsidiary that 'oiled' country roads on contract (you know to keep the dust down).
Connect the dots.
The larger producers of the chemicals were mostly 'absolved' of any wrong doing... Or the source of the pollution was so untraceable as to make responsibility uncertain... And of course the smaller sub-contract 'recycler' immediately filed BK & dissolved.
But it had supposedly gone on for years before they were outed by a disgruntled employee or family member - so long ago now I can't remember the whole story.
Even then the 'damages' were uncertain because there was so much of it spread about - was it all this recyclers doing or somebody else's? Who do you sue? The owner of the 'recycler' did get jail time though - if I recall.
There isn't enough room in my head now for all the 'outrages' I've heard about already and I'm still decades from 'official' retirement. I can only imagine how completely blown my mind will be by then.
It pays to look deeper if you want to find the core or real causes of issues!
Yeah, but Tony, did you notice that it's only the builder money-launderers who are willing to give downpayment assistance to borrowers who are that weak?
Tanta - you said that the new element in this story is statistical evidence. But that isn't new - GAO's report on these things from over 2 years had overwhelming statistical evidence that buyers using DAP paid more than other buyers for comparable properties, went delinquent more often, went to foreclosure more often, and cost more per foreclosure. http://www.gao.gov/new.items/d0624.pdf
Tony G - it might be true to say that foreclosures are caused by risk layering, but that cuts both ways. It might be accurate to say that the DAP loan wouldn't have gone to foreclosure but for the high DTI, but it would be equally valid to say that the high DTI loan wouldn't have gone to foreclosure but for the DAP. And the GAO report finds a substantial effect of DAP on delinquency, foreclosure, and loss, holding other variables, like equity, FICO, and DTI constant.
Following up on Holden's comment I stumbled across this genius page on a DAP (that may be the parent of the Dreamhouse Charity that had its tax free status yanked):
American Family Funds
Love the tables of math and the last line: EVERYBODY WINS!
Except that if you look at the samples you'll see that in the DAP case the buyer pays $2,000 more ($100K - $3K assistance, vs $95K negotiated discount), and the seller only nets $1,000. If the DAP covered the full difference in price ($5K in their example) the seller would actually lose $1000 vs. just lowering the price. So really the DAP, the agent, and the mortgage broker win, and the buyer/seller aka EVERYBODY ELSE LOSES! The only sellers that win are developers who can use this to game the comps for future appraisals in their developments.