$8,000 first-time homebuyer credit targeted by fraudsters

This year’s $8,000 federal tax credit for first-time home buyers was apparently so popular that it even attracted ineligible claimants – potentially more than 90,000 of them, including former homeowners and 4-year-old children.

A report from the Treasury inspector general for tax administration found that more than $600 million worth of tax credit claims were questionable. The $8,000 offer, enacted by the Obama administration in February and expanding a similar credit from 2008, was designed to boost housing demand.

Eligibility extended to those who had not owned a primary residence in the last three years and earned less than $75,000 as an individual or less than $150,000 as a married couple. The credit could be claimed after purchasing a home between Jan.1 and Dec. 1.

But on 19,351 electronically filed tax returns, taxpayers listed the credit for properties that hadn’t been purchased. An additional 73,799, claiming nearly $504 million, seemed to have already owned a home.

And 582 supposed first-time home buyers turned out to be younger than 18 years old, claiming nearly $4 million. Meanwhile, 48,580 taxpayers still working with the less-generous 2008 version of the credit may have claimed less than they were entitled to.

The Internal Revenue Service has so far discovered 167 criminal schemes, opened 115 criminal investigations and temporarily frozen more than 110,000 refunds. The IRS has also agreed to recommendations from the inspector general to take corrective action.

Through late August, more than 1.4 million claims have been made to some version of the home buyer’s credit.

-- Tiffany Hsu

Feds say early goals met on loan modifications

The Obama administration and lenders are saying that the federal Make Home Affordable loan modification plan is finally getting some traction.

The $75-billion program pays lenders to reduce loan payments for troubled homeowners and pays bonuses to borrowers who stay current on the modified loans.

First off, my colleague Jim Puzzanghera in Washington reports this morning that the administration says it has already reached its Nov. 1 goal of 500,000 trial restructurings.

Meanwhile, Wells Fargo, the second largest mortgage-servicing company, joined No. 1 servicer Bank of America in touting its progress on the modification front.

In a news release, San Francisco-based Wells said it has “done 62,989 trial and completed Home Affordable modifications through Sept. 30; nearly double what the U.S. Treasury reported last month.”

Stand by for more details in the short term and for answers to the big question: whether these modified loans will hold up or whether “underwater” homeowners will stumble back into default after hitting new bumps along their financial roads.

Economist Mark Zandi of Moody's Economy.com says the federal program "is kicking to a higher gear, but not high enough to forestall a continued increase in foreclosures and more house price declines.”

The trial modifications “are simply offers,” Zandi notes. “Many won't turn into actual mods, and those mods that occur will have a high redefault rate.”

In an e-mail to me this morning, he estimated that of 4.5 million home loans that are in the foreclosure process or 90 days or more delinquent, 1.5 million will be modified and only 1 million will avoid a redefault.

-- E. Scott Reckard

BofA says it will meet goals under Obama foreclosure plan

The big banks that provide customer service on most U.S. home loans had egg on their faces in August, when the U.S. Treasury reported that they had made little progress toward modifying mortgages under President Obama’s then-newly implemented anti-foreclosure program.

The No. 1 servicer, Bank of America Corp., was the slowest of all to generate what the administration called Making Home Affordable modifications. Bank of America had offered three-month trial modifications to just 4% of the customers deemed likely to qualify, compared with 9% for all servicers combined, the Treasury announced.

The Treasury is set to release its third monthly report on the program Thursday. And this time, Bank of America says that it has gotten up to speed and will meet an Obama-set goal of starting 125,000 trial mortgage modifications by Nov. 1. (In all, the company services 14 million home loans.)

Bank of America, including the Countrywide Home Loans operations it acquired last year, had started more than 27,000 Obama-style trial modifications as of the end of July. That number reached 59,000 by the end of August, about 95,000 as of Sept. 30, and is now well above 100,000, said Steve Bailey, the bank’s home-retention strategies executive.

"Obviously, we’re feeling pretty good about the program," Bailey said.

Before the federal foreclosure-prevention plan emerged, Bank of America already was doing loan modifications to comply with its settlement of lawsuits brought against Countrywide by state regulators.

That program involved lowering and suspending interest payments, as well as extending the payback time on certain subprime and exotic loans. The goal was to get first-mortgage payments down to 34% of borrowers’ incomes.

The Obama program introduced some twists, including bonuses for borrowers who stay current on loans and paying servicers to reduce the first-mortgage payments (including taxes and interest) down to just 31% of borrowers’ gross earnings.

It also mandated the three-month trial modifications, during which time borrowers would prove they could make the lower payments and provide additional documentation before qualifying for long-term loan restructurings.

Bailey said Bank of America had done hundreds of thousands of modifications outside the Making Home Affordable plan, although the federal program is its first alternative these days.

It wasn’t possible to obtain details Wednesday on how modifications are going at mortgage rivals Wells Fargo & Co. and JPMorgan Chase & Co.

But there should be a lot more information Thursday in the Treasury report, which presumably will be posted on the department’s press release site.

-- E. Scott Reckard

Are loan modifications merely postponing default?

Consumer advocates expressed some skepticism today about a Fitch Ratings study predicting a high redefault rate for mortgages that are restructured to avert foreclosure.

The study, which I wrote about in today's Times, looked at mortgages bundled up on Wall Street during the housing boom to back debt securities. It projected that 65% to 75% of subprime mortgages in these loan pools would be at least 60 days delinquent within a year of when they were modified.

Center for Responsible Lending officials said the study doesn't adequately account for the more drastic lowering of payments expected as Obama administration loan-mod programs kick in. The buzzword here is "sustainability" -- getting the loan payment to a level at which the borrower can realistically be expected to afford it over time.

The Obama programs aim at persuading lenders and loan investors to reduce payments on first mortgages to 31% of a borrower's income. The initiatives include financial incentives for mortgage customer-service firms to accomplish this by lowering interest rates, extending loan terms and sometimes suspending interest payments on part of the principal of the loan.

"The Fitch report applies to non-Obama plan mods," Center for Responsible Lending spokeswoman Kathleen Day said in an e-mail. "So this just shows the need for real sustainable mods."

Any thoughts on whether Fitch was overstating the potential problems?

-- E. Scott Reckard

Obama taps USC professor for HUD

President Obama has nominated USC faculty member Raphael Bostic to be assistant secretary for policy development and research in the Department of Housing and Urban Development. Bostic is a professor in the university's School of Policy, Planning and Development. He was director of USC's master's program in real estate development and is considered an expert on housing, mortgage markets, discrimination, market forecasting, urban economics and real estate regulations.

"We are pleased that the administration has reached out to tap a member of our highly respected real estate and urban economics faculty and delighted to tell you that Dr. Bostic has assured us of his return to campus following his two-year post at HUD," the university said Monday.

-- Roger Vincent

Job security is job 1

More than half the respondents to a nationwide survey released Thursday think that generating jobs and making existing jobs more secure are the most important things President Obama can do to stabilize the housing market. The survey, conducted two weeks ago for online search engine Trulia by Harris Interactive, included 1,418 homeowners and 595 renters.

"Housing is obviously the epicenter of the economic crisis," said Trulia CEO Pete Flint during a telephone press conference. He said he expected 2009 to be another tough year as job-loss-related foreclosed homes are added to the already clogged foreclosure market.

Comments posted at Trulia Voices sound a lot like those at L.A. Land, including complaints that the government actions will keep homes unaffordable. One former homeowner told how his dream of homeownership turned into a nightmare and that he is glad to be renting -- free of the risks of ownership. Still, the survey found 3 in 4 respondents consider owning a home part of their American Dream.

-- Lauren Beale

Thoughts? Comments?

Obamas should apply feng shui in the White House, practitioner says

Remember when moving into the White House engendered controversies over the new first lady's choice of curtains? A New York Realtor sent around a press release Wednesday urging the Obamas to redecorate and clean the White House based on the principles of feng shui, the ancient Chinese system of aesthetics intended to improve the flow of positive energy. 

The Obamas should install fish tanks and water features in rooms that face southwest, west, northwest or northeast; they could also paint those rooms red, peach or rose, said Debra Duneier, a New York real estate broker who is also a feng shui practitioner.

Duneier says the White House is an old building where a lot of drama has taken place, so there might be some lingering bad vibes the new residents need to shoo away.

"So much history is in the White House, and energy from all of those years, both good and bad, inhabit this space," Duneier said

Here are some of Duneier’s suggestions to spiritually spiff up the White House: Change the doorknobs on the doors in the rooms most frequented by the departing administration. If the doorknobs cannot be changed, wash them with warm water and sea salt solution. "The minerals in the sea salt will cleanse the energy and make room for the new energy to flow," Duneier said. She also suggests "smudging" the place before moving in, an American Indian method of banishing evil spirits that involves lighting a bundle of dried sage and lavender herbs on fire and waving it around. "Let the smoldering smoke travel in all corners of the room, especially where energy enters the home by the doorways, windows, fireplaces and electrical outlets," she said.

Oh, and the Obamas should hook up the stereo first and play their favorite music as they move in. "The vibrations of the music will be uplifting and bring good energy," according to Duneier. Finally, she said, based on his birth date, Obama is an "East Life" person who will feel most grounded in the East Room. That's where he should entertain his "most challenging" guests.

-- Roger Vincent

Photo: Time for good vibrations at the White House?

Credit: Karen Bleier / AFP / Getty Images