so FHA is announcing they are solvent.........isn't that like LEH announcing they have plenty of capital and don't need to raise anymore capital???????????
Why are these things not literally considered money laundering in a legal sense? If FHA has rules that say an interested party cannot make these "gifts", and the seller pays a third party to make a gift on their behalf, how could that not already be illegal?
Can't the FHA make a rule that it will not fund/accept DAP assisted loans? Does it need the approval of Congress?
HUD can make such a rule. It does not do so without publishing the proposed rule in the Federal Register and soliciting comments (for any potential regulation of FHA, not just this). When it does so, it gets reams of whining from lobbyists and, in the case of DAP, backs off.
This proposed rule change would not require Congressional action. However, Congress could certainly pass an amendment to the National Housing Act that would force the issue. They're even less likely to do that than HUD is to end this via rule-making.
You have to understand that the DAP programs have two "sacred cow" things going for them: they're feel-good "homebuyer assistance" things that don't actually involve direct appropriations, which make them popular with Congress, and the so-called non-profits themselves who do the money laundering are mostly run by the kind of fast-talking Amen-shouting entrepreneurial hustlers who soak up "faith-based initiative" money and are beloved by the current administration. They are very good at positioning themselves as "private sector solutions" who are being picked on by the big evil govermint bureaucrats.
Hmmm... the following are illegal in places:
jaywalking, driving 57 when the speed limit is 55 mph, and downloading copyrighted music from a friend's PC.
As a lawyer told me, It's not whether there's a law (or reg) against it, it's whether it makes sense to spend time, money & resources on enforcement & prosecution. Sometimes it's common sense v. book sense in understanding what societal battles are worth waging" In modern America, the answer often is we wont really enforce 'x' law/reg...often for good reasons based on both logic and a firm grasp of the (ugly) realities of human behavior...aka common sense v. book sense.
Why in the world do they HAVE to accept these loans? Is it a law? Why doesn't the director of the FHA just mandate they stop taking on those loans? Where does it say they have to?
Wasn't FHA's attempt to halt this practice shot down by some "progressive" judge? And is it not the case that most of the pressure to expand the FHA's role in this mess is coming from "progressives"?
"Wasn't FHA's attempt to halt this practice shot down by some "progressive" judge? And is it not the case that most of the pressure to expand the FHA's role in this mess is coming from "progressives"?"
This program reflects the American Dream. From my limited experiences with this program, there were also groups like ACORN (hardly a Dubya fan) involved.
Nil writes:
Wasn't FHA's attempt to halt this practice shot down by some "progressive" judge? And is it not the case that most of the pressure to expand the FHA's role in this mess is coming from "progressives"?
Nil | 06.10.08 - 12:29 pm | #
Seller-financed DAP only still exists because of the willingness of people to delude themselves.
The man is telling the truth. There's more about FHA's problems in the first link. There's an article at Housing Wire too.
It's not just this administration. Barney Frank has been adamantly opposed to shutting down seller money laundering DAP. Congress Critters just lurve this program. I think if they really insist on it, they should get part of the losses deducted from their paychecks.
Nice to see you post, Tanta. I wuz feeling lonely.
PS: Yes there was a decision Nov 2007 blocking HUD's attempt to bring some rationality back into play. Bank Lawyer's Blog. They use the term "DAP scam".
Tanta had hysterics (in a sober and ladylike way) over the case too, but my search didn't bring it up.
IMHO they shouldn't attack them head on, that way lies madness and failure. I have two modest proposals that should help to battle these fraud-y (fraud-ish?) transactions.
HUD should insist that appraisers deduct and DAP from their comps. This is the root of the problem, the idea that money that the buyer never has to pay is somehow part of the "fair market price," of a house. Secondly, they should draw the line at DAPs that have been funded by sellers. We all like the idea of charities giving out a helping hand, but that's not what this is about IMHO. Of course ISTR tha this is what they tried before, so good luck. But it is important to separate charities from money launderes, even if their default characteristics are similar.
Of course, the FHA head also trashed the bailout bill in Congress yesterday. But the New York Times didn't even mention it...the bill is just one of the vectors (FHA, Fed lending, GSEs) where the taxpayer may end up holding the bag.
This really is an outragous scam. It's gotten to where I assume most low end sales around here will go this way so I price my man-homes accordingly and come down if this isn't part of the sale. It's no surprise these make up a large part of the foreclosures. The "buyers" get into a crappy man-home for next to no money, their payments are higher than renting, they are underwater on day one and sinking fast. I take my profit, the buyer broker gets his 3%, what a racket. Hell, I'd feel better about selling drugs. At least then everyone gets something of value.
The Nehemiah program started in 1997. So I guess my dear Tanta, that makes it a little bit harder for you to blame it on Bush. Try Dick Cheney for a change!
When will the "Wiley Coyote Moment" occur? When will he/us, the world, look down and see that the bridge of debt he has been running on has Minneapolis bridge piers?
When will CR get back to looking at Long Beach container movements as the oracle bones of the economy?
I have long asserted that 'DAP' loans are a big scam. If one can't manage to save 3% for a down payment... ONE SHOULDN'T OWN A HOUSE!
Some group of people at HUD in the not too distant past (16 years ago?)must have thought these loans were a good idea, else the programs would have never been approved to start with. I would like to know who those morons were.
Appraisers are already 'supposed' to adjust comparable sale prices to account for Seller paid closing costs and down payments, SOP.
Want to hear something really funny? Several years ago (2003), when I was preparing taxes for one of the big firms, a client wanted to deduct this assistance. It was over $20,000!!!! I instructed him this was not deductible. He insisited. I put a note in the file and sent the return in.
So the IRS is getting fleeced on these programs too. That is what will cause action to take place. The IRS will get involved.
Appraisers are mostly scam artists. Many's the time I've had buyer brokers tell me to raise the listing price to compensate for me having to "contribute" the down payment and then almost like magic the appraisal comes in right on the money. Strange that.
.. when I was preparing taxes for one of the big firms, a client wanted to deduct this assistance. It was over $20,000!!!! I instructed him this was not deductible. He insisited.
I am not an accountant, but the money the seller gives to the buyer (under these DAP programs) seems like a 'cost of sale' deduction to me. I would deduct it, and have deducted it, and will continue to do so in the future. Why do you say that it is not deductable?
When will the "Wiley Coyote Moment" occur? When will he/us, the world, look down and see that the bridge of debt he has been running on has Minneapolis bridge piers?
I've been calling that moment the "Katrina" moment: when the public/politicians realize that the engineers/wonks really did know what they were talking about.
Loan or origination fees paid by the seller are deductible, and the buyer must reduce the basis in the property by the amount. That is not what DAP is. The 'non profit' pays these fees, not the seller directly. How do you spin that?
Closing costs incident to procuring a mortgage, except for MI within limits, are not deductible.
So what is DAP? Expalin to me how they are deductible. What category do they fall in, other than a way to launder money from the seller? If it is a gift, why is it deductible?
I would advise you have a good explanation if you signed your name to those returns as the preparer. Not if, but when, the IRS gets involved in this area, look out.
Clarification: I am talking about this from the buyer's point of view, not the sellers. For the sellers, these would possibly be a selling expense. Definitely not deductible for the seller. The only deductions for sellers are taxes, interest, or pre-sale real estate taxes, back interest, repairs, etc, owed by seller and paid by buyer.
Source: Quickfinder 2007 Tax Year
Thomson Tax and Accounting
Unless the drug is Aranesp, of course. Then they just die.
Well, I have to say they don't all die. I was given Aranesp three times in 2006, and although there are days I have my doubts about it, it appears I'm still alive.
What the article doesn't mention, btw, is that the stuff costs well over a thousand bucks a dose. And it has painful side effects, too. All in all, a cruddy way to risk your life.
Perhaps HUD should just write a new disclosure for homebuyers getting a DAP deal: "OUR RESEARCH HAS SHOWN THAT YOU ARE THREE TIMES MORE LIKELY TO LOSE THIS HOUSE TO FORECLOSURE BY TAKING DOWNPAYMENT ASSISTANCE. FEELIN' LUCKY TODAY, DUDE?"
So what is DAP? Expalin to me how they are deductible. What category do they fall in, other than a way to launder money from the seller? If it is a gift, why is it deductible?
I think the DAP (fees/bribe/shadow money/whatever) are deductable because they are a condition of the Purchase Contract. DAP may be a scam, but is not illegal, it is all documented on the HUD1. The sale does not take place unless you pay the fee, it is simply "a cost of sale". They fall in the "cost of sale" category. One need not analyze it beyond that.
The sale does not take place unless you pay the fee, it is simply "a cost of sale". They fall in the "cost of sale" category. One need not analyze it beyond that.
Wait a minute. These DAP outfits are already 501(c)3s. So you're telling me the sellers deduct the "charitable contribution" and then also deduct it again as a "cost of sale"?
No wonder the IRS is threatening to revoke their tax-exempt status.
I don't know what other sellers's do. I would not deduct it twice. I can't imagine anyone rationalizing deducting it twice. To me it is just a 'cost of sale'. I would not even think of deducting it second time as a charitable contribution.
In most of these "HUD to Stop DPA Scam" stories from WSJ, NYT, etc., Howard Glaser is often quoted in the story as an "industry consultant".
Howard Glaser was the acting general counsel of HUD, the top HUD attorney, at the time of the 1998 Nehemiah settlement agreement with HUD in which the HUD General Counsel's office issued an opinion letter that started this whole Nehemiah thing.
That opinion letter, criticized in the GAO report, is now a secret document at HUD headquarters and Howard Glaser has not admitted publically to issuing it, even though his employment history suggests otherwise.
When are any of these "investigative" reporters going to ask Howard the hard questions? Ask Howard why he interfered with the June 17, 1997 order from HUD Headquarter's program staff. Who did Howard Glaser work for before HUD? What job did Howard Glaser get immediately upon leaving HUD?
Tater!
..."seller money laundered"
hilarious
welcome back
Good Morning Tanta!!!
This practice has always seemed illegal. Money laundering is a good term for what is going on.
I call them "DAP" (Down Payment Assistance)
would that make the Federal Housing Administration "FAH"?
would that make the Federal Housing Administration "FAH"?
heh.
Tanta, such brevity!
Wow, the FHA has 5 months of reserves left. Just in time for the election.
so FHA is announcing they are solvent.........isn't that like LEH announcing they have plenty of capital and don't need to raise anymore capital???????????
Why are these things not literally considered money laundering in a legal sense? If FHA has rules that say an interested party cannot make these "gifts", and the seller pays a third party to make a gift on their behalf, how could that not already be illegal?
This does not even sound like a gray area.
Idiotic organisations do idiotic things.
Tanta,
Can't the FHA make a rule that it will not fund/accept DAP assisted loans? Does it need the approval of Congress?
Tanta,
Hope all is well with you - collective nerd withdrawal pangs were getting fierce - we missed ya!
Can't the FHA make a rule that it will not fund/accept DAP assisted loans? Does it need the approval of Congress?
HUD can make such a rule. It does not do so without publishing the proposed rule in the Federal Register and soliciting comments (for any potential regulation of FHA, not just this). When it does so, it gets reams of whining from lobbyists and, in the case of DAP, backs off.
This proposed rule change would not require Congressional action. However, Congress could certainly pass an amendment to the National Housing Act that would force the issue. They're even less likely to do that than HUD is to end this via rule-making.
You have to understand that the DAP programs have two "sacred cow" things going for them: they're feel-good "homebuyer assistance" things that don't actually involve direct appropriations, which make them popular with Congress, and the so-called non-profits themselves who do the money laundering are mostly run by the kind of fast-talking Amen-shouting entrepreneurial hustlers who soak up "faith-based initiative" money and are beloved by the current administration. They are very good at positioning themselves as "private sector solutions" who are being picked on by the big evil govermint bureaucrats.
Hmmm... the following are illegal in places:
jaywalking, driving 57 when the speed limit is 55 mph, and downloading copyrighted music from a friend's PC.
As a lawyer told me, It's not whether there's a law (or reg) against it, it's whether it makes sense to spend time, money & resources on enforcement & prosecution. Sometimes it's common sense v. book sense in understanding what societal battles are worth waging" In modern America, the answer often is we wont really enforce 'x' law/reg...often for good reasons based on both logic and a firm grasp of the (ugly) realities of human behavior...aka common sense v. book sense.
Why in the world do they HAVE to accept these loans? Is it a law? Why doesn't the director of the FHA just mandate they stop taking on those loans? Where does it say they have to?
Wasn't FHA's attempt to halt this practice shot down by some "progressive" judge? And is it not the case that most of the pressure to expand the FHA's role in this mess is coming from "progressives"?
If theres any justice in this country, they will fail yet again, said Scott Syphax, who added...
"Can I gettah Aye-MEN!!!11!?!?"
"Wasn't FHA's attempt to halt this practice shot down by some "progressive" judge? And is it not the case that most of the pressure to expand the FHA's role in this mess is coming from "progressives"?"
This program reflects the American Dream. From my limited experiences with this program, there were also groups like ACORN (hardly a Dubya fan) involved.
Nil - I believe that is horse crap. Tanta, welcome back!
MiTurn writes:
Tanta, such brevity!
MiTurn | 06.10.08 - 11:49 am | #
Did you follow her links? The brevity in this post is somewhat akin to the brevity of the part of the iceberg you see above the water...
Nil writes:
Wasn't FHA's attempt to halt this practice shot down by some "progressive" judge? And is it not the case that most of the pressure to expand the FHA's role in this mess is coming from "progressives"?
Nil | 06.10.08 - 12:29 pm | #
'Progressive' homebuilders...
Seller-financed DAP only still exists because of the willingness of people to delude themselves.
The man is telling the truth. There's more about FHA's problems in the first link. There's an article at Housing Wire too.
It's not just this administration. Barney Frank has been adamantly opposed to shutting down seller money laundering DAP. Congress Critters just lurve this program. I think if they really insist on it, they should get part of the losses deducted from their paychecks.
Nice to see you post, Tanta. I wuz feeling lonely.
PS: Yes there was a decision Nov 2007 blocking HUD's attempt to bring some rationality back into play. Bank Lawyer's Blog. They use the term "DAP scam".
Tanta had hysterics (in a sober and ladylike way) over the case too, but my search didn't bring it up.
IMHO they shouldn't attack them head on, that way lies madness and failure. I have two modest proposals that should help to battle these fraud-y (fraud-ish?) transactions.
HUD should insist that appraisers deduct and DAP from their comps. This is the root of the problem, the idea that money that the buyer never has to pay is somehow part of the "fair market price," of a house. Secondly, they should draw the line at DAPs that have been funded by sellers. We all like the idea of charities giving out a helping hand, but that's not what this is about IMHO. Of course ISTR tha this is what they tried before, so good luck. But it is important to separate charities from money launderes, even if their default characteristics are similar.
OT:
Study: Same-sex weddings may lift Calif.'s economy
Business Week Online > File Not Found
Creative revenue sources to beat the recession.
Forget about the FHA... thats just small frys.
Total Borrowings of Depository Institutions from the Federal Reserve now exceed $150 billion... and that does NOT even include the TAF.
To put that into context, the entire bush stimulus package was $145 billion or 1% of GDP.
Non-Borrowed Reserves are now -$100 billion.
'Just' 1% of GDP
HUD should insist that appraisers deduct and DAP from their comps.
Smart idea. The whole point of FMV is that it is an "arm's length" transaction. Seller financing is absolutely not "arm's length".
Of course, the FHA head also trashed the bailout bill in Congress yesterday. But the New York Times didn't even mention it...the bill is just one of the vectors (FHA, Fed lending, GSEs) where the taxpayer may end up holding the bag.
FHA chief warns on Congress housing rescue bill
| Reuters
This really is an outragous scam. It's gotten to where I assume most low end sales around here will go this way so I price my man-homes accordingly and come down if this isn't part of the sale. It's no surprise these make up a large part of the foreclosures. The "buyers" get into a crappy man-home for next to no money, their payments are higher than renting, they are underwater on day one and sinking fast. I take my profit, the buyer broker gets his 3%, what a racket. Hell, I'd feel better about selling drugs. At least then everyone gets something of value.
The Nehemiah program started in 1997. So I guess my dear Tanta, that makes it a little bit harder for you to blame it on Bush. Try Dick Cheney for a change!
When will the "Wiley Coyote Moment" occur? When will he/us, the world, look down and see that the bridge of debt he has been running on has Minneapolis bridge piers?
When will CR get back to looking at Long Beach container movements as the oracle bones of the economy?
I have long asserted that 'DAP' loans are a big scam. If one can't manage to save 3% for a down payment... ONE SHOULDN'T OWN A HOUSE!
Some group of people at HUD in the not too distant past (16 years ago?)must have thought these loans were a good idea, else the programs would have never been approved to start with. I would like to know who those morons were.
Appraisers are already 'supposed' to adjust comparable sale prices to account for Seller paid closing costs and down payments, SOP.
Want to hear something really funny? Several years ago (2003), when I was preparing taxes for one of the big firms, a client wanted to deduct this assistance. It was over $20,000!!!! I instructed him this was not deductible. He insisited. I put a note in the file and sent the return in.
So the IRS is getting fleeced on these programs too. That is what will cause action to take place. The IRS will get involved.
Appraisers are mostly scam artists. Many's the time I've had buyer brokers tell me to raise the listing price to compensate for me having to "contribute" the down payment and then almost like magic the appraisal comes in right on the money. Strange that.
Bob Mologna writes: Hell, I'd feel better about selling drugs. At least then everyone gets something of value.
Unless the drug is Aranesp, of course. Then they just die.
MacroMan writes:
.. when I was preparing taxes for one of the big firms, a client wanted to deduct this assistance. It was over $20,000!!!! I instructed him this was not deductible. He insisited.
I am not an accountant, but the money the seller gives to the buyer (under these DAP programs) seems like a 'cost of sale' deduction to me. I would deduct it, and have deducted it, and will continue to do so in the future. Why do you say that it is not deductable?
Why do you say that it is not deductable?
It is structured as a loan. Just imagine the shenanigans that are possible if you could deduct money that is loaned out.
When will the "Wiley Coyote Moment" occur? When will he/us, the world, look down and see that the bridge of debt he has been running on has Minneapolis bridge piers?
I've been calling that moment the "Katrina" moment: when the public/politicians realize that the engineers/wonks really did know what they were talking about.
"We are not insolvent...." That reminds me of "I am not over the hill, but I can see the other side."
Loan or origination fees paid by the seller are deductible, and the buyer must reduce the basis in the property by the amount. That is not what DAP is. The 'non profit' pays these fees, not the seller directly. How do you spin that?
Closing costs incident to procuring a mortgage, except for MI within limits, are not deductible.
So what is DAP? Expalin to me how they are deductible. What category do they fall in, other than a way to launder money from the seller? If it is a gift, why is it deductible?
I would advise you have a good explanation if you signed your name to those returns as the preparer. Not if, but when, the IRS gets involved in this area, look out.
Clarification: I am talking about this from the buyer's point of view, not the sellers. For the sellers, these would possibly be a selling expense. Definitely not deductible for the seller. The only deductions for sellers are taxes, interest, or pre-sale real estate taxes, back interest, repairs, etc, owed by seller and paid by buyer.
Source: Quickfinder 2007 Tax Year
Thomson Tax and Accounting
...they're feel-good "homebuyer assistance" things that don't actually involve direct appropriations
or shell corps for builders and developers to help unload inventory
Broker writes:
"We are not insolvent...." That reminds me of "I am not over the hill, but I can see the other side."
Who can forget the inimitable
"I am not a crook."
?
Good to see you back, Tanta. I read the Nerdly bit for nostalgic reasons.
Incidentally, I remember one of the deal-killer questions in days of yore being, "Is any part of the down payment borrowed?
love the line:
"The term "seller financed" isn't exactly helpful; if we are to use our own term for these deals, I'd suggest "seller money laundered" instead."
Whether there's a correlation between lack of a REAL down payment with foreclosure, or a lack of equity, programs like these contribute to both.
Furthermore, IME, these loans were more often given to people with the shakiest qualifications.
Again, back when prices were going up every day, this wasn't much of a problem.
But even when they were, I warned buyers that they shouldn't plan on being able to sell their homes for 5 years (without bringing a check to closing).
Unless the drug is Aranesp, of course. Then they just die.
Well, I have to say they don't all die. I was given Aranesp three times in 2006, and although there are days I have my doubts about it, it appears I'm still alive.
What the article doesn't mention, btw, is that the stuff costs well over a thousand bucks a dose. And it has painful side effects, too. All in all, a cruddy way to risk your life.
Perhaps HUD should just write a new disclosure for homebuyers getting a DAP deal: "OUR RESEARCH HAS SHOWN THAT YOU ARE THREE TIMES MORE LIKELY TO LOSE THIS HOUSE TO FORECLOSURE BY TAKING DOWNPAYMENT ASSISTANCE. FEELIN' LUCKY TODAY, DUDE?"
MacroMan writes:
So what is DAP? Expalin to me how they are deductible. What category do they fall in, other than a way to launder money from the seller? If it is a gift, why is it deductible?
I think the DAP (fees/bribe/shadow money/whatever) are deductable because they are a condition of the Purchase Contract. DAP may be a scam, but is not illegal, it is all documented on the HUD1. The sale does not take place unless you pay the fee, it is simply "a cost of sale". They fall in the "cost of sale" category. One need not analyze it beyond that.
The sale does not take place unless you pay the fee, it is simply "a cost of sale". They fall in the "cost of sale" category. One need not analyze it beyond that.
Wait a minute. These DAP outfits are already 501(c)3s. So you're telling me the sellers deduct the "charitable contribution" and then also deduct it again as a "cost of sale"?
No wonder the IRS is threatening to revoke their tax-exempt status.
IRS ruling threatens down-payment-assistance industry
I don't know what other sellers's do. I would not deduct it twice. I can't imagine anyone rationalizing deducting it twice. To me it is just a 'cost of sale'. I would not even think of deducting it second time as a charitable contribution.
In most of these "HUD to Stop DPA Scam" stories from WSJ, NYT, etc., Howard Glaser is often quoted in the story as an "industry consultant".
Howard Glaser was the acting general counsel of HUD, the top HUD attorney, at the time of the 1998 Nehemiah settlement agreement with HUD in which the HUD General Counsel's office issued an opinion letter that started this whole Nehemiah thing.
That opinion letter, criticized in the GAO report, is now a secret document at HUD headquarters and Howard Glaser has not admitted publically to issuing it, even though his employment history suggests otherwise.
When are any of these "investigative" reporters going to ask Howard the hard questions? Ask Howard why he interfered with the June 17, 1997 order from HUD Headquarter's program staff. Who did Howard Glaser work for before HUD? What job did Howard Glaser get immediately upon leaving HUD?
Investigative reporters? We'll see.
Maybe we can get Bobby Jindal to exorcise them.