Financial fraud is more American than apple pie. In the absence of financial fraud to push more debt the America's debt-addicted economy will collapse. But, with the continuation of fraud the whole system will collapse. We don't have many good choices, do we?
.03 of the cost of my house was less than the amount I've had to spend on immediate "oh crap it doesn't work" renovations since I moved in three months ago.
somewhat related. I recently received an offer on a property. The offered price was $147K. A bit below market but still plenty of profit. Then the details of the offer were revealed. It was an FHA program and they were offering $147K but they were only going to pay $130K. The other $17K was going to be their downpayment in a seller's concession. They seemed shocked that we weren't interested. "we can certainly get an appraisal for $147K" they assured us (as we have a contract for an identical property next door for $170K, this certainly is true). They had no money for a down payment. We told them we weren't interested in giving them a bunch of our equity. I was surprised that FHA would allow something like this.
Hey, I once taught a couple CPA's working for a bank that just because one of them bought their appliances in a sales tax-free state (New Hampshire), that didn't mean their bank could buy millions of dollars in computer equipment out of state and avoid sales tax. Lama got fired off that job.
Is the plural of ignoramus, ignorami?
Can someone explain why the Nehemiahs of the world came to exist? When I sold my last house, I paid the buyer's closing costs - not that I was thrilled about it, mind you - but given the market at the time I figured it would be better to "get 'er dun." In any event - I don't recall needing to funnel the cash through some third party.
I was surprised that FHA would allow something like this.
FHA would be surprised to discover that they allow something like this, too.
FHA allows seller concessions (paying points, closing costs, downpayment assistance) up to 6.00% of sales price without adjustment to appraised value. Anything over 6.00% is a "sales inducement," and the appraiser has to make a dollar-for-dollar downward adjustment to the appraised value to take it into account.
So "I can get an appraisal for $147k" means "I can find a bribable appraiser" or "I do not intend to disclose the facts to the appraiser."
So next you'll be giving us grief for saying that the data is instead of the data are?
No, I gave up on that one 20 years ago. It is what it are.
I must confess that "REOs" drives me up the wall, but I try to suppress the urge to complain about it. Life is too short to get worked up over people who think "real estate" is pluralized by adding an /s/.
Can someone explain why the Nehemiahs of the world came to exist?
To get around the "interested party" rules. It's really a form of "interest laundering": take a contribution from an interested party and channel it through a "nonprofit" so that it appears to be coming from someone with no interest in the transaction. Then it's not a sales inducement, you see.
"But third-party conduits which funnel financial aid from buyers to sellers are not going away without a fight."
Huh? Is this some sort of secret, double-reverse scheme?
That aside, it's mind boggling that these idiotic schemes were ever allowed. We are supposed to have one of the most sophisticated financial markets in the world, yet all the contributing factors to the current crisis were just dumb-ass failures of even rudimentary regulation.
If this scheme was used 600,000 times, that means there are 600,000 homes out there that were over-valued by 10-20% on the day they sold.
So "I can get an appraisal for $147k" means "I can find a bribable appraiser" or "I do not intend to disclose the facts to the appraiser."
My first job out of college was as an appraiser. Right after the market tanked in the late 80s. Mostly did commercial work and sadly no one every tried to bribe me. Got chased by some dogs. That was the extent of the excitement. But I certainly can attest to three things. 1) You don't need a college degree to be an appraiser. 2) Appraisal work is far from an exact science. 3) Banks were making really stupid loans back then too. We were working on a strip mall foreclosure and I was amazed that anyone in their right mind would've loaned this mall owner $20 million. That is when I decided that if banks were willing to loan money to idiots, I should get in line for my piece of the pie.
Thanks for the FHA info. I figured something was not right.
Scott Syphax, president of the Nehemiah Corp., Sacramento, Calif., called the rule "outrageous," saying it removes practically the only "lifeline" left for working families to achieve ownership.
Hmmm, where was this guy back when I bought a house....of wait, I bought something I could afford based on my (actual, not wished for) income. Stupid me,
Nehemiah/Ameridream make their money (yes, these non-profits make money, they just use it to pay "wages" to people like the director) by charging a fee to the seller to act as the pass through.
There are legitimate down payment assistance programs, some run by banks, some using federal money like CDBG grants.
"Scott Syphax, president of the Nehemiah Corp., Sacramento, Calif., called the rule "outrageous," saying it removes practically the only "lifeline" left for working families to achieve ownership."
I heard Scott Syphax speak once in Sacramento. Have you ever seen and heard someone and you just get the feeling that they are underhanded and greedy. There is something fishy about the whole Nehemiah program. I think what Syphax was thinking to himself was: "this is outrageous! It will remove my $500K salary and I'll have to go do real work!" Seriously, the guy has gotten wealthy off that "down payment assistance" program for the underclasses. Someone I respect just shook their head when I mentioned Nehemiah. That person has public policy experience in Sacramento, and his reaction told me that Nehemiah probably has some dirt swept under the rug. Who knows, it was just the feeling I got from the guy.
Congress caves in almost always. It has caved into Bush on Iraq, to Turkey on the Armenians, and if the Chinese really got mad it would revoke the award to the Dalai Lama. You don't find much backbone in some 500+ people all of whom seek to be loved (by voters).
I operated in Sacrameto for 15 yrs and came across those folks from time to time....answer was always the same, we do not allow them to provide funds.
Gifts are not all bad but like most everything else in the mortgage industry, that rule was bastardized over time too. Gifts used to be and are still allowed from immediate family members who must prove they have had the cash for >2 months and the ability to give it. Parents helping their children buy their first home kind of thing. The farther removed the family member is from "immediate", the more is begins to smell.
Nehemiah and their brethern need to find some other worthy cause to put their funny money into.
I was surprised that FHA would allow something like this.
FHA would be surprised to discover that they allow something like this, too.
FHA allows seller concessions (paying points, closing costs, downpayment assistance) up to 6.00% of sales price without adjustment to appraised value. Anything over 6.00% is a "sales inducement," and the appraiser has to make a dollar-for-dollar downward adjustment to the appraised value to take it into account.
So "I can get an appraisal for $147k" means "I can find a bribable appraiser" or "I do not intend to disclose the facts to the appraiser."
Tanta | Homepage | 10.18.07 - 10:43 am | #
The DPA is not currently included as part of the 6% seller concession with FHA 203b notes. For instance in a $80k FHA purchase, the seller can pay $4800(6%) in allowable closing cost, prepaids. Buyer must invest at least 3% in the deal( unless they're a vet) and this is where the DPA's are using the FHA gift honeyhole. Actually, the seller can gift as much as he pleases
The DPA's claim the funds are not from that particular seller as the DPA advances funds from their pool and takes the seller's funds plus a $300 admin fee for their generosity......do th emath, 600,000 DPA times $300/transaction....$180 mil for a riskless propostion.
Financial transaction tax. Levy a .0025 tax on the value of each financial transaction. That is one-quarter of one percent. This will be incidental to most transactions. 25 cents on every one hundred dollars, or 25 dollars on every ten thousand dollars. For transactions with high leverage, this tax is relatively more for the hedge fund, since they will incur the tax on the total no matter that their total is small. That is, if using a million dollars, they leverage another nine million for the transaction, the effective tax on them is 2.5 percent. If money is being moved higgley piggley to take advantage of short-term arbitrage, over a year's time it will be subject to the tax several times. The yield of such a tax would be immense. The cost to the real economy would be negligible. (This is similar to the Tobin Tax, proposed to slow down the mad rush of currency speculation around the globe.)
New top marginal rates on personal income tax, no income source excluded, of 50% on $1 million or more and 90% on $10 million or more. Take the reward out of high risk. Return sobriety to corporate governance. The companies of Europe are winning with executive salaries one-third of those in the U.S. Top hedge fund managers make $1 billion per year.
Reestablish the SEC. William Donaldson, former head of the SEC, whose appointment actually brought confidence in Wall Street back from the grave after the Enron and World Com fiascos, abandoned the post after three years. Partisan hacks returned to the posts. Donaldson has called for "getting tough" on conflict of interests, increasing oversight and closing the loophole that lets hedge funds play in the market without disclosure of their practices.
Windfall profits tax. There are obscene rewards to those who take a company private, do financial slicing and dicing, and sell it back to the public. These and other financial gymnastics are today's replacement for productive work. They should not be encouraged in the tax code.
At the bottom of the article, Holden Lewis, who occasionally posts here, comes down (weakly) on the side of the "non-profits." He says
Holden Lewis, who follows mortgage and real estate matters for Bankrate.com, said there's been talk of banning the practice for almost as long as it has been allowed. The debate comes down to a value judgment, he said: If 15 percent of the homeowners end up in foreclosure, is it better to ban the assistance altogether to avoid that or continue it for all the buyers who don't end up in trouble?
"On this one, I really, really feel ambivalent," said Lewis, who thinks both critics and proponents have a point. "I probably come a little bit more down on the side of the down-payment-assistance programs because they do say, 'Look, if there are objections, then let's refine it.'"
I don't understand the "don't end the fraud, just refine it" stance.
I am amazed that this sort of thing has been allowed. It is basically fraud if you ask me. Of course there is "a clear quid pro quo", these 'non-profits' are just scams. These little scams were purposely setup to defeat the safeguards in the lending standards. Really, these people should be arrested, but I suppose they make political contributions and have some community groups on retainer.
Tanta you called it "interest laundering", sounds good to me. I suppose it just ever so slightly falls outside of money laundering.
I like Neremiah's odds better than those of the Red Sox.
Red Sox . . . are they a football team?
The CEO of Nehemiah has an interesting bio:
Scott Syphax
Lots of public policy experience, not a whole lot of econ. Safe to say he believes in his cause.
Don't they teach "Moral Hazard 101" in business school anymore?
Even if Congress caves I'd think the mortgage companies would put a stop to this as they don't want to finance 100%+.
My vote is No, the govt will not cave.
No if he was using a football analogy he'd have said the Jets. That's always the safe bet. Hell of a year to be from NJ.
Tanta, were you a "mathlete" in high school?
--
Disallowing fraud? That is un-American.
Financial fraud is more American than apple pie. In the absence of financial fraud to push more debt the America's debt-addicted economy will collapse. But, with the continuation of fraud the whole system will collapse. We don't have many good choices, do we?
Those who live by fraud...
Jas
Tanta, were you a "mathlete" in high school?
Of course not. What kind of a nerd do you think I am?
(I did compete in the state Latin Tournament. Soc et tuum.)
Tanta: Did you teach a course in Roman History at UMUC ~ 20 years ago? Since the teacher who did was a Latin major working at downtown bank.
Helping families? LOL!!!
All these programs do is increase the home price and the risk. Go borrow 3% from your credit cards and pay 3% less.
Tanta: Did you teach a course in Roman History at UMUC ~ 20 years ago? Since the teacher who did was a Latin major working at downtown bank.
Wasn't me, but I'd love to meet her.
I once taught two bankers that the plural of addendum is addenda.
Out of a class of 50.
I almost looked up soc et tuum.
.03 of the cost of my house was less than the amount I've had to spend on immediate "oh crap it doesn't work" renovations since I moved in three months ago.
I can't imagine why these people would default.
somewhat related. I recently received an offer on a property. The offered price was $147K. A bit below market but still plenty of profit. Then the details of the offer were revealed. It was an FHA program and they were offering $147K but they were only going to pay $130K. The other $17K was going to be their downpayment in a seller's concession. They seemed shocked that we weren't interested. "we can certainly get an appraisal for $147K" they assured us (as we have a contract for an identical property next door for $170K, this certainly is true). They had no money for a down payment. We told them we weren't interested in giving them a bunch of our equity. I was surprised that FHA would allow something like this.
pft. you latin nerds think you're so much cooler than math nerds. oh, lah di dah, miss fancy pants!
Nehemiah and Ameridream are scammers, and they have made that clear from the get-go.
Back in the day we called "seller financed purchase assistance," a price reduction.
I really can't believe these guys haven't been locked up for fraud yet.
Red Sox . . . are they a football team?
No, you silly girl! You're thinking of the Yankees...
Hey, I once taught a couple CPA's working for a bank that just because one of them bought their appliances in a sales tax-free state (New Hampshire), that didn't mean their bank could buy millions of dollars in computer equipment out of state and avoid sales tax. Lama got fired off that job.
Is the plural of ignoramus, ignorami?
So next you'll be giving us grief for saying that the data is instead of the data are?
Tanta, you're obviously not a cricket fan.
Can someone explain why the Nehemiahs of the world came to exist? When I sold my last house, I paid the buyer's closing costs - not that I was thrilled about it, mind you - but given the market at the time I figured it would be better to "get 'er dun." In any event - I don't recall needing to funnel the cash through some third party.
lama: because everyone in MD is turning in this http://forms.marylandtaxes.com/current_forms/usetax.pdf every month.
I was surprised that FHA would allow something like this.
FHA would be surprised to discover that they allow something like this, too.
FHA allows seller concessions (paying points, closing costs, downpayment assistance) up to 6.00% of sales price without adjustment to appraised value. Anything over 6.00% is a "sales inducement," and the appraiser has to make a dollar-for-dollar downward adjustment to the appraised value to take it into account.
So "I can get an appraisal for $147k" means "I can find a bribable appraiser" or "I do not intend to disclose the facts to the appraiser."
So next you'll be giving us grief for saying that the data is instead of the data are?
No, I gave up on that one 20 years ago. It is what it are.
I must confess that "REOs" drives me up the wall, but I try to suppress the urge to complain about it. Life is too short to get worked up over people who think "real estate" is pluralized by adding an /s/.
Can someone explain why the Nehemiahs of the world came to exist?
To get around the "interested party" rules. It's really a form of "interest laundering": take a contribution from an interested party and channel it through a "nonprofit" so that it appears to be coming from someone with no interest in the transaction. Then it's not a sales inducement, you see.
"REOs"...yeah, that is as bad as saying "RBIs", oh wait...I forgot...you know nothing about volleyball.
OK, so help me here -- when would a seller need AmeriDreamamiah to pay closing costs?
"But third-party conduits which funnel financial aid from buyers to sellers are not going away without a fight."
Huh? Is this some sort of secret, double-reverse scheme?
That aside, it's mind boggling that these idiotic schemes were ever allowed. We are supposed to have one of the most sophisticated financial markets in the world, yet all the contributing factors to the current crisis were just dumb-ass failures of even rudimentary regulation.
If this scheme was used 600,000 times, that means there are 600,000 homes out there that were over-valued by 10-20% on the day they sold.
It is what it are.
That datum is what separates the 10 kinds of people; those who understand techspeak and those who don't.
I must confess that "REOs"
Aren't you afraid of any moral hazard from insisting they be called REOeds? [ducks]
So "I can get an appraisal for $147k" means "I can find a bribable appraiser" or "I do not intend to disclose the facts to the appraiser."
My first job out of college was as an appraiser. Right after the market tanked in the late 80s. Mostly did commercial work and sadly no one every tried to bribe me. Got chased by some dogs. That was the extent of the excitement. But I certainly can attest to three things. 1) You don't need a college degree to be an appraiser. 2) Appraisal work is far from an exact science. 3) Banks were making really stupid loans back then too. We were working on a strip mall foreclosure and I was amazed that anyone in their right mind would've loaned this mall owner $20 million. That is when I decided that if banks were willing to loan money to idiots, I should get in line for my piece of the pie.
Thanks for the FHA info. I figured something was not right.
Scott Syphax, president of the Nehemiah Corp., Sacramento, Calif., called the rule "outrageous," saying it removes practically the only "lifeline" left for working families to achieve ownership.
Hmmm, where was this guy back when I bought a house....of wait, I bought something I could afford based on my (actual, not wished for) income. Stupid me,
Just to be clear:
Nehemiah/Ameridream make their money (yes, these non-profits make money, they just use it to pay "wages" to people like the director) by charging a fee to the seller to act as the pass through.
There are legitimate down payment assistance programs, some run by banks, some using federal money like CDBG grants.
These guys are just shysters.
"Scott Syphax, president of the Nehemiah Corp., Sacramento, Calif., called the rule "outrageous," saying it removes practically the only "lifeline" left for working families to achieve ownership."
I heard Scott Syphax speak once in Sacramento. Have you ever seen and heard someone and you just get the feeling that they are underhanded and greedy. There is something fishy about the whole Nehemiah program. I think what Syphax was thinking to himself was: "this is outrageous! It will remove my $500K salary and I'll have to go do real work!" Seriously, the guy has gotten wealthy off that "down payment assistance" program for the underclasses. Someone I respect just shook their head when I mentioned Nehemiah. That person has public policy experience in Sacramento, and his reaction told me that Nehemiah probably has some dirt swept under the rug. Who knows, it was just the feeling I got from the guy.
Congress caves in almost always. It has caved into Bush on Iraq, to Turkey on the Armenians, and if the Chinese really got mad it would revoke the award to the Dalai Lama. You don't find much backbone in some 500+ people all of whom seek to be loved (by voters).
I'm with James, Congress will cave...
I operated in Sacrameto for 15 yrs and came across those folks from time to time....answer was always the same, we do not allow them to provide funds.
Gifts are not all bad but like most everything else in the mortgage industry, that rule was bastardized over time too. Gifts used to be and are still allowed from immediate family members who must prove they have had the cash for >2 months and the ability to give it. Parents helping their children buy their first home kind of thing. The farther removed the family member is from "immediate", the more is begins to smell.
Nehemiah and their brethern need to find some other worthy cause to put their funny money into.
I was surprised that FHA would allow something like this.
FHA would be surprised to discover that they allow something like this, too.
FHA allows seller concessions (paying points, closing costs, downpayment assistance) up to 6.00% of sales price without adjustment to appraised value. Anything over 6.00% is a "sales inducement," and the appraiser has to make a dollar-for-dollar downward adjustment to the appraised value to take it into account.
So "I can get an appraisal for $147k" means "I can find a bribable appraiser" or "I do not intend to disclose the facts to the appraiser."
Tanta | Homepage | 10.18.07 - 10:43 am | #
The DPA is not currently included as part of the 6% seller concession with FHA 203b notes. For instance in a $80k FHA purchase, the seller can pay $4800(6%) in allowable closing cost, prepaids. Buyer must invest at least 3% in the deal( unless they're a vet) and this is where the DPA's are using the FHA gift honeyhole. Actually, the seller can gift as much as he pleases
The DPA's claim the funds are not from that particular seller as the DPA advances funds from their pool and takes the seller's funds plus a $300 admin fee for their generosity......do th emath, 600,000 DPA times $300/transaction....$180 mil for a riskless propostion.
mikhail, you're right, I meant to type "(paying points, closing costs, not downpayment assistance)" but I had my head in my . . . hands.
Policy Responses:
There are real things that could be done:
but I had my head in my . . . hands.
There is no excuse for poor typing skills. Ahem.
Adjusts bow-tie pompously
Bank Lawyer's Blog - I Have Not, Therefore, I Must Have...
Bank Lawyer's Blog: I Have Not, Therefore, I Must Have
Following FFDIC's link to the bank lawyer blog leads one to a link for a Baltimore Sun article.
State Tax Amnesty Nearing Deadline - Baltimore Sun
At the bottom of the article, Holden Lewis, who occasionally posts here, comes down (weakly) on the side of the "non-profits." He says
Holden Lewis, who follows mortgage and real estate matters for Bankrate.com, said there's been talk of banning the practice for almost as long as it has been allowed. The debate comes down to a value judgment, he said: If 15 percent of the homeowners end up in foreclosure, is it better to ban the assistance altogether to avoid that or continue it for all the buyers who don't end up in trouble?
"On this one, I really, really feel ambivalent," said Lewis, who thinks both critics and proponents have a point. "I probably come a little bit more down on the side of the down-payment-assistance programs because they do say, 'Look, if there are objections, then let's refine it.'"
I don't understand the "don't end the fraud, just refine it" stance.
I am amazed that this sort of thing has been allowed. It is basically fraud if you ask me. Of course there is "a clear quid pro quo", these 'non-profits' are just scams. These little scams were purposely setup to defeat the safeguards in the lending standards. Really, these people should be arrested, but I suppose they make political contributions and have some community groups on retainer.
Tanta you called it "interest laundering", sounds good to me. I suppose it just ever so slightly falls outside of money laundering.