Senators reached a compromise to extend the $8,000 tax credit for first-time home buyers, a boost the housing industry expects will help it pull out of its two-year-old downturn.
Lawmakers in Washington also added a $6,500 tax credit for other primary-home purchasers and raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, housing-industry sources said.
Under the Senate compromise, buyers must have sales agreements in hand by April 30, but they will have until June 30 to go to settlement, the sources said. The measure still faces votes in the full Senate and the House.
The current tax credit did little for the new-home market in September, the Commerce Department reported – news that took many industry analysts by surprise. Sales fell 3.6 percent from August and 7.8 percent from September 2008.
Industry observers had expected a fifth consecutive monthly increase in new-home sales, believing that the tax incentive for qualified first-time buyers – credited with 357,000 sales of previously owned homes so far this year – would do the trick.
Instead, sales of typically more expensive newly built houses slipped.
“The decline in new-home sales seems to us to be more a function of the attractive pricing available on resales in the current environment than a reflection of weakening demand,” said Michael Feder, president of Radar Logic Inc., of New York, which tracks the market.
“Big deal,” said Joel L. Naroff, of Naroff Economic Advisors, of Holland, Bucks County. “Since hitting rock bottom in March, demand is up 20 percent.”
For Naroff, the robust rise in existing-home purchases – 9.2 percent year over year in September – indicated that the housing market was not faltering.
“Maybe the issue is supply, which fell to its lowest level in 27 years,” he said. “Builders, at least those left standing, have been making sure they don’t have any houses sitting around, and they have been very successful in controlling inventories.”
IHS Global Insight Inc. economist Patrick Newport echoed that, noting new-home inventories “sank for the 29th straight month to their lowest level since November 1982.”
Naroff maintained housing had recovered enough to stand without the tax credit. But Newport said he believed that if the credit were not extended and expanded, housing demand would take a hit, and home sales would drop.
Until the Senate compromise today, the extension of the credit seemed mired in what National Association of Home Builders vice president Jerry Howard called “a game of partisan chicken.”
Howard’s take on the lower September numbers: It was too late to sign a contract on a house that would be completed by the current Nov. 30 deadline, and many buyers were concerned the credit would not be extended.
The credit has helped, acknowledged Marshal Granor, a principal in Granor Price Homes, of Horsham. But he added, “I’d love for it to go away, for a month.”
“People who believe there is no rush aren’t buying, they are waiting for more bargains from more squeezed sellers,” Granor said.
Still, said Feder of Radar Logic, lower home prices have carried “buyers further into the autumn than we would expect, based on historic patterns.”
Declining inventory means builders will have to ramp up production, Newport said.
As the Senate worked on the compromise, third-quarter data were released showing that the burden of foreclosure filings in the post-bubble market continued to shift from the subprime-ridden “sand” states (California, Nevada, Florida and Arizona) to areas with rising levels of unemployment and adjusting rates on the “exotic” mortgages prevalent in high-cost metropolitan markets.
Yet Las Vegas remained the toxic-loan capital, according to the third-quarter survey by RealtyTrac Inc., of Irvine, Calif. – its rate of foreclosure filings was seven times higher than the national average.
Copyright © 2009 The Philadelphia Inquirer
Thursday, October 29, 2009
Wednesday, October 28, 2009
New home sales fall 3.6 percent
Sales of new U.S. homes dropped unexpectedly last month as the effects of a soon-to-expire tax credit for first-time owners started to wane.
The Commerce Department said Wednesday that sales fell 3.6 percent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists surveyed by Thomson Reuters had expected a pace of 440,000.
It was the first decline since March. Sales in September were down 7.8 percent from a year ago.
The median sales price of $204,800 was off 9.1 percent from $225,200 a year earlier, but up 2.5 percent from August’s level of $199,900.
A nearly 11 percent decline in the West and a 10 percent drop in the South drove the drop in sales. Sales rose 35 percent in the Midwest and were unchanged in the Northeast.
The data reflect contracts to buy homes, not completed sales. Many new homes are sold while they are still under construction, and buyers may be worried that they won’t be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers.
Congress is considering extending the tax credit through March 31 and gradually phasing it out over the rest of next year.
“If they don’t extend it, then I think the pullback could be quite significant,” said Brad Hunter, chief economist with Metrostudy, a real estate research firm.
Even builders of more upscale homes have felt the impact of the looming deadline. That’s because those move-up buyers will have trouble selling their homes without the incentive of the credit.
“The fact that the first-time homebuyer tax credit runs out is hurting,” said Bob Mitchell, chief executive of Rockville, Maryland-based builder Mitchell & Best, who has gone from selling 80 to 100 homes annually to around 30 this year. Still, he noted, “we’re at least selling something.”
There were 251,000 new homes for sale at the end of September, down 3.8 percent from August and the lowest inventory in nearly 17 years. At the current sales pace, that represents 7.5 months of supply.
Copyright © 2009 The Associated Press
The Commerce Department said Wednesday that sales fell 3.6 percent to a seasonally adjusted annual rate of 402,000 from a downwardly revised 417,000 in August. Economists surveyed by Thomson Reuters had expected a pace of 440,000.
It was the first decline since March. Sales in September were down 7.8 percent from a year ago.
The median sales price of $204,800 was off 9.1 percent from $225,200 a year earlier, but up 2.5 percent from August’s level of $199,900.
A nearly 11 percent decline in the West and a 10 percent drop in the South drove the drop in sales. Sales rose 35 percent in the Midwest and were unchanged in the Northeast.
The data reflect contracts to buy homes, not completed sales. Many new homes are sold while they are still under construction, and buyers may be worried that they won’t be able to complete the deal before the Nov. 30 deadline to take advantage of a tax credit of up to $8,000 for first-time buyers.
Congress is considering extending the tax credit through March 31 and gradually phasing it out over the rest of next year.
“If they don’t extend it, then I think the pullback could be quite significant,” said Brad Hunter, chief economist with Metrostudy, a real estate research firm.
Even builders of more upscale homes have felt the impact of the looming deadline. That’s because those move-up buyers will have trouble selling their homes without the incentive of the credit.
“The fact that the first-time homebuyer tax credit runs out is hurting,” said Bob Mitchell, chief executive of Rockville, Maryland-based builder Mitchell & Best, who has gone from selling 80 to 100 homes annually to around 30 this year. Still, he noted, “we’re at least selling something.”
There were 251,000 new homes for sale at the end of September, down 3.8 percent from August and the lowest inventory in nearly 17 years. At the current sales pace, that represents 7.5 months of supply.
Copyright © 2009 The Associated Press
Tuesday, October 27, 2009
Senators differ on extending homebuyer tax credit
Top Democrats in the Senate are pressing a plan that would extend a popular tax credit for first-time homebuyers but gradually phase it out over the course of next year.
The proposal, by Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., would extend the $8,000 tax credit – which expires Nov. 30 – through March 31. Its value would drop by $2,000 for each of the subsequent three quarters of 2010.
The plan, which could face a vote in the Senate this week, appears aimed at countering a far more generous $17 billion bipartisan plan that would extend the $8,000 credit through June 30, 2010, boost the income cap for eligibility and open the credit to all buyers, rather than first-timers.
Senators are maneuvering to add the homebuyer tax credit extension to legislation to extend unemployment benefits by up to 20 weeks. That bill faces a key test vote on Tuesday.
Supporters say the tax credit has helped revive the housing market and say that if it’s cut off as scheduled at the end of next month, home sales could drop off.
Reid sought to schedule a vote on the competing measures on Monday but was blocked by top Senate Republican Mitch McConnell of Kentucky, who is demanding votes on unrelated GOP proposals.
One such proposal would require people receiving unemployment insurance to be processed through the E-Verify program to prove legal immigration status and would require all federal contractors to use E-Verify. E-Verify is an Internet-based system that employers use to check on the immigration status of new hires.
The Democratic plan also would extend the ability of money-losing businesses to claim refunds on taxes paid during profitable times up to four years ago. All businesses could take advantage of the credit; when passed in February it was limited to smaller companies with annual revenues of $15 million or less.
The provision is especially popular with homebuilders who made huge profits in the housing boom but are struggling today. Critics say it’s a giveaway to some of the very companies that helped build up the housing bubble years ago.
Copyright © 2009 The Associated Press
The proposal, by Majority Leader Harry Reid, D-Nev., and Senate Finance Committee Chairman Max Baucus, D-Mont., would extend the $8,000 tax credit – which expires Nov. 30 – through March 31. Its value would drop by $2,000 for each of the subsequent three quarters of 2010.
The plan, which could face a vote in the Senate this week, appears aimed at countering a far more generous $17 billion bipartisan plan that would extend the $8,000 credit through June 30, 2010, boost the income cap for eligibility and open the credit to all buyers, rather than first-timers.
Senators are maneuvering to add the homebuyer tax credit extension to legislation to extend unemployment benefits by up to 20 weeks. That bill faces a key test vote on Tuesday.
Supporters say the tax credit has helped revive the housing market and say that if it’s cut off as scheduled at the end of next month, home sales could drop off.
Reid sought to schedule a vote on the competing measures on Monday but was blocked by top Senate Republican Mitch McConnell of Kentucky, who is demanding votes on unrelated GOP proposals.
One such proposal would require people receiving unemployment insurance to be processed through the E-Verify program to prove legal immigration status and would require all federal contractors to use E-Verify. E-Verify is an Internet-based system that employers use to check on the immigration status of new hires.
The Democratic plan also would extend the ability of money-losing businesses to claim refunds on taxes paid during profitable times up to four years ago. All businesses could take advantage of the credit; when passed in February it was limited to smaller companies with annual revenues of $15 million or less.
The provision is especially popular with homebuilders who made huge profits in the housing boom but are struggling today. Critics say it’s a giveaway to some of the very companies that helped build up the housing bubble years ago.
Copyright © 2009 The Associated Press
Friday, October 23, 2009
Congress scrutinizes problems in home buyer credit
The rush to implement a tax credit for first-time home buyers opened the program up to potential fraud by people who hadn’t bought a home or already owned one, Congress was told Thursday.
J. Russell George, Treasury Inspector General for Tax Administration, questioned the eligibility of some 100,000 claims out of the 1.5 million who have sought to take advantage of the $8,000 tax credit incorporated in the economic stimulus package enacted last February.
He said claimants include those who could possibly be illegal immigrants and that 580 people seeking $4 million from the first-time home buyer credit were under the age of 18. The youngest taxpayers receiving the credit were 4 years old, his office said.
George and an Internal Revenue Service official testifying before a House Ways and Means Committee subcommittee stressed that many of the questioned claims may eventually be found to be legitimate after further examination.
But the hearing raised a yellow flag as Congress considers whether to extend, or even expand, the popular program that is set to expire at the end of November.
The top Republican on the panel, Rep. Charles Boustany, Jr., of Louisiana, said that while the issue of extending the credit was not the purpose of the hearing, “every time Congress creates a new refundable credit ... the incentive for fraud is magnified.”
Linda Stiff, IRS’ deputy commissioner for services and enforcement, agreed that “any time that there is an opportunity to receive cash back, it tends to attract people that might have an intent to defraud the government.” She said the agency “will vigorously pursue those who filed fraudulent claims.”
Rep. John Lewis, D-Ga., chairman of the oversight subcommittee, said he had introduced legislation to improve the IRS’ administration of the program, including giving it the authority to look at prior returns to determine eligibility and requiring that taxpayers provide documented proof of a home purchase.
Currently, applicants must fill out a separate IRS form, but do not have to supply documentation.
The tax credit is “a vital part of our economic recovery efforts. We must ensure that we are administering the credit accurately,” Lewis said.
George said more than 19,000 people filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. Those claims amounted to $139 million and it was not clear that the IRS planned to go back to verify that those purchases actually took place, he said.
He said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.
The home buyer credit was a key element of the $787 billion stimulus package enacted last February. Under the measure, low- and middle-income first-time home buyers purchasing a home between Jan. 1 and Nov. 30 of this year could claim a credit of up to $8,000 on their 2008 or 2009 income tax return.
George said the IRS has implemented computer programming to reject claims from people who have not yet purchased a new home. He also acknowledged that the agency has installed filters to catch claimants who had entered information on tax returns indicating they may have owned a home in the three previous years. Those could include deductions for home mortgage interest or real estate taxes.
While the program has widespread support in Congress, there are growing concerns about the costs. The cause, said Sen. Jack Reed, D-R.I., “is a worthy one.” But “I hope we can find ways to pay for it.”
Critics have also characterized the program as a subsidy for people who would have bought a new home regardless of the tax credit. The National Association of Realtors has estimated that one-fourth of those who have claimed the credit, about 350,000, would not have purchased their homes without the credit.
Copyright 2009 The Associated Press
J. Russell George, Treasury Inspector General for Tax Administration, questioned the eligibility of some 100,000 claims out of the 1.5 million who have sought to take advantage of the $8,000 tax credit incorporated in the economic stimulus package enacted last February.
He said claimants include those who could possibly be illegal immigrants and that 580 people seeking $4 million from the first-time home buyer credit were under the age of 18. The youngest taxpayers receiving the credit were 4 years old, his office said.
George and an Internal Revenue Service official testifying before a House Ways and Means Committee subcommittee stressed that many of the questioned claims may eventually be found to be legitimate after further examination.
But the hearing raised a yellow flag as Congress considers whether to extend, or even expand, the popular program that is set to expire at the end of November.
The top Republican on the panel, Rep. Charles Boustany, Jr., of Louisiana, said that while the issue of extending the credit was not the purpose of the hearing, “every time Congress creates a new refundable credit ... the incentive for fraud is magnified.”
Linda Stiff, IRS’ deputy commissioner for services and enforcement, agreed that “any time that there is an opportunity to receive cash back, it tends to attract people that might have an intent to defraud the government.” She said the agency “will vigorously pursue those who filed fraudulent claims.”
Rep. John Lewis, D-Ga., chairman of the oversight subcommittee, said he had introduced legislation to improve the IRS’ administration of the program, including giving it the authority to look at prior returns to determine eligibility and requiring that taxpayers provide documented proof of a home purchase.
Currently, applicants must fill out a separate IRS form, but do not have to supply documentation.
The tax credit is “a vital part of our economic recovery efforts. We must ensure that we are administering the credit accurately,” Lewis said.
George said more than 19,000 people filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. Those claims amounted to $139 million and it was not clear that the IRS planned to go back to verify that those purchases actually took place, he said.
He said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.
The home buyer credit was a key element of the $787 billion stimulus package enacted last February. Under the measure, low- and middle-income first-time home buyers purchasing a home between Jan. 1 and Nov. 30 of this year could claim a credit of up to $8,000 on their 2008 or 2009 income tax return.
George said the IRS has implemented computer programming to reject claims from people who have not yet purchased a new home. He also acknowledged that the agency has installed filters to catch claimants who had entered information on tax returns indicating they may have owned a home in the three previous years. Those could include deductions for home mortgage interest or real estate taxes.
While the program has widespread support in Congress, there are growing concerns about the costs. The cause, said Sen. Jack Reed, D-R.I., “is a worthy one.” But “I hope we can find ways to pay for it.”
Critics have also characterized the program as a subsidy for people who would have bought a new home regardless of the tax credit. The National Association of Realtors has estimated that one-fourth of those who have claimed the credit, about 350,000, would not have purchased their homes without the credit.
Copyright 2009 The Associated Press
Property tax appeal fee could triple
Fighting property taxes would cost more under a push to more than triple filing fees imposed on taxpayers appealing their tax bills.
Property owners statewide can now pay $15 to appeal their tax assessments. Palm Beach County officials are calling for the Legislature to increase that statewide fee to $50.
This comes as more South Florida property owners are filing appeals to try to reduce what they owe in property taxes amid an economic recession.
The $15 fee isn’t enough to cover processing costs to consider appeals, according to Palm Beach County’s Value Adjustment Board.
Palm Beach County contends it costs about $43 per application to cover appeal costs that include holding a hearing with an independent magistrate who serves as a mediator.
Linda Phillips, supervisor of the Broward County Value Adjustment Board, said that her agency hasn’t calculated actual cost of processing tax appeals, but she knows it’s more than $15.
With the number of appeals increasing, the Legislature should boost the fee to $50, said Palm Beach County Commissioner Karen Marcus, who heads the county’s value adjustment aboard.
“People should be willing to pay what it costs to process,” Marcus said. “The rest of the taxpayers are going to have to subsidize them.”
The fee has been around for at least 20 years, Phillips said.
“We found a 1989 resolution that it was $15,” Phillips said. “It’s been $15 for a long time. It has not gone up.”
Meanwhile appeals have steadily increased over the last 15 years or so.
Appeals of property values used for tax assessments are increasing as more people grow frustrated that their property tax payments are staying the same or rising, even though their property values are dropping.
South Florida county property appraisers say their estimated property values are going down, but that property tax bills may remain the same or go up because of rising tax rates set by local governments as well as the differing effects of the state’s homestead exemption.
Appeals hit record numbers this year in Palm Beach County, which saw a 40 percent increase with 18,325 taxpayers filing to challenge their 2009 assessments.
In Broward County, the appeals increased 9 percent, to 32,411.
Miami-Dade County has yet to finish counting the appeals filed as of the September deadline. As of last week, about 69,000 petitions have been entered into Miami-Dade’s appeals system and the total is projected to far exceed the 70,000 filed last year.
Before raising the cost to file appeals, state legislators and local officials should look for ways to cut costs, said Robert Weissert, spokesman for Florida Tax Watch – a nonpartisan Tallahassee-based research group.
Too many times, state and local governments increase fees to help cover other expenses, Weissert said.
“We are seeing these fees raised more than necessary,” Weissert said. “It is absolutely vital that the citizens have an opportunity to challenge their property taxes.”
State legislators last spring resisted calls to boost property tax appeal filing fees, even as they changed state law to make the appeals process more taxpayer friendly.
In the past, county property appraisers benefited from a “presumption of correctness” that put the burden on taxpayers to prove that an assessment was wrong. Now county property appraisers have to go further to defend how they arrived at their numbers.
Changes to state law also now allow more leeway for property owners to file appeals late, if they can prove that an extraordinary circumstance, such as illness, delayed their application.
Copyright © 2009 Sun Sentinel, Fort Lauderdale, Fla
Property owners statewide can now pay $15 to appeal their tax assessments. Palm Beach County officials are calling for the Legislature to increase that statewide fee to $50.
This comes as more South Florida property owners are filing appeals to try to reduce what they owe in property taxes amid an economic recession.
The $15 fee isn’t enough to cover processing costs to consider appeals, according to Palm Beach County’s Value Adjustment Board.
Palm Beach County contends it costs about $43 per application to cover appeal costs that include holding a hearing with an independent magistrate who serves as a mediator.
Linda Phillips, supervisor of the Broward County Value Adjustment Board, said that her agency hasn’t calculated actual cost of processing tax appeals, but she knows it’s more than $15.
With the number of appeals increasing, the Legislature should boost the fee to $50, said Palm Beach County Commissioner Karen Marcus, who heads the county’s value adjustment aboard.
“People should be willing to pay what it costs to process,” Marcus said. “The rest of the taxpayers are going to have to subsidize them.”
The fee has been around for at least 20 years, Phillips said.
“We found a 1989 resolution that it was $15,” Phillips said. “It’s been $15 for a long time. It has not gone up.”
Meanwhile appeals have steadily increased over the last 15 years or so.
Appeals of property values used for tax assessments are increasing as more people grow frustrated that their property tax payments are staying the same or rising, even though their property values are dropping.
South Florida county property appraisers say their estimated property values are going down, but that property tax bills may remain the same or go up because of rising tax rates set by local governments as well as the differing effects of the state’s homestead exemption.
Appeals hit record numbers this year in Palm Beach County, which saw a 40 percent increase with 18,325 taxpayers filing to challenge their 2009 assessments.
In Broward County, the appeals increased 9 percent, to 32,411.
Miami-Dade County has yet to finish counting the appeals filed as of the September deadline. As of last week, about 69,000 petitions have been entered into Miami-Dade’s appeals system and the total is projected to far exceed the 70,000 filed last year.
Before raising the cost to file appeals, state legislators and local officials should look for ways to cut costs, said Robert Weissert, spokesman for Florida Tax Watch – a nonpartisan Tallahassee-based research group.
Too many times, state and local governments increase fees to help cover other expenses, Weissert said.
“We are seeing these fees raised more than necessary,” Weissert said. “It is absolutely vital that the citizens have an opportunity to challenge their property taxes.”
State legislators last spring resisted calls to boost property tax appeal filing fees, even as they changed state law to make the appeals process more taxpayer friendly.
In the past, county property appraisers benefited from a “presumption of correctness” that put the burden on taxpayers to prove that an assessment was wrong. Now county property appraisers have to go further to defend how they arrived at their numbers.
Changes to state law also now allow more leeway for property owners to file appeals late, if they can prove that an extraordinary circumstance, such as illness, delayed their application.
Copyright © 2009 Sun Sentinel, Fort Lauderdale, Fla
Wednesday, October 21, 2009
Property tax appeals rise during economic decline
Even after years of sinking real estate prices, thousands of South Florida property owners are fighting to further deflate the values of their homes and businesses.
Appeals of property values used for tax assessments are rising in Palm Beach, Broward and Miami-Dade counties as owners try to cut tax bills during a dreary economy. Deadlines for appealing property taxes have passed, though there are some exceptions.
Appeals jumped a record 40 percent in Palm Beach County, where 18,325 taxpayers filed to challenge their 2009 assessments. In Broward County, the appeals increased 9 percent to 32,411.
Miami-Dade County, which usually leads the pack, has yet to finish counting how many appeals were filed by last month’s deadline.
About 69,000 petitions have been entered into Miami-Dade’s appeals system. At that pace, the appeals are expected to far exceed the 70,000 filed last year, Value Adjustment Board Manager Robert Alfaro said.
Many of those filing appeals in South Florida are frustrated that even though their property values dropped, rising tax rates leave their tax payments about the same or higher this year.
Sherman Lein said he decided to appeal the tax assessment for his home west of Boca Raton. The Palm Beach County property appraiser decreased his home value by about $100,000, but his tax bill was still higher than last year.
“It’s ridiculous,” said Lein, 79, who owes about $6,000 in property taxes. “This house is not worth what they are saying it is. ... It is just a matter of what is fair and reasonable.”
The spike in appeals comes at a time when changes in state law make the process more taxpayer-friendly. In the past, property appraisers benefited from a “presumption of correctness” that put the burden on taxpayers to prove that an assessment was wrong. Now property appraisers have to go further to defend how they arrived at the number.
There is also more leeway this year for property owners to file late if they can prove that an illness or other extraordinary circumstance delayed their application.
“I had a flood of phone calls this year,” said real estate representative Sheila Anderson, who handles hundreds of appeals for property owners across Florida. “This is the year to appeal.”
Property owners who cannot work out their differences with county appraisers can file appeals with value adjustment boards. They get a hearing with an appointed magistrate – an independent appraiser or real estate attorney who hears arguments from the property owner and the appraiser’s office and then decides what the assessment should be. Taxpayers who lose can then appeal in circuit court.
Broward County Property Appraiser Lori Parrish said she supported the changes to the appeals process.
“Why shouldn’t we have to prove to them where we got our numbers?” Parrish asked. “The issue is, did we get the assessment right? ... That’s what is important.”
It still takes proof of a mistake or misjudgment by the property appraiser to win an appeal, and just complaining about an increased tax bill won’t necessarily be enough.
Palm Beach County property values determined by the appraiser’s office went down about 13 percent because of the struggling real estate market, but the County Commission opted to increase property tax rates 15 percent to avoid losing tax revenue.
Also, even if tax rates for other government agencies remain the same as property values continue to drop, the state’s “recapture rule” can result in tax bills going up for homesteaded properties.
If the taxable value of a property is less than market value, the state requires property appraisers to increase the taxable value by 3 percent or the percent change in the Consumer Price Index, whichever is less.
John Thomas, director of residential appraisals for the Palm Beach County Property Appraiser’s Office, said his office has explained why taxes may go up despite falling property values to “literally thousands of people.” He said: “These people are screaming foul. ... They are angry and they have a right to be angry.”
In addition to fighting the tax assessment on his home west of Boca Raton, Lein is also appealing the taxes on the half-vacant commercial building he manages near Lake Worth.
County appraisals, based on values as of Jan. 1, need to better reflect the current market, Lein said. Cities and counties should have done a better job managing the money that flooded their coffers during South Florida’s housing boom, he said.
“What did they do with all that money?” Lein asked.
Copyright © 2009 Sun Sentinel, Fort Lauderdale, Fla.,
Appeals of property values used for tax assessments are rising in Palm Beach, Broward and Miami-Dade counties as owners try to cut tax bills during a dreary economy. Deadlines for appealing property taxes have passed, though there are some exceptions.
Appeals jumped a record 40 percent in Palm Beach County, where 18,325 taxpayers filed to challenge their 2009 assessments. In Broward County, the appeals increased 9 percent to 32,411.
Miami-Dade County, which usually leads the pack, has yet to finish counting how many appeals were filed by last month’s deadline.
About 69,000 petitions have been entered into Miami-Dade’s appeals system. At that pace, the appeals are expected to far exceed the 70,000 filed last year, Value Adjustment Board Manager Robert Alfaro said.
Many of those filing appeals in South Florida are frustrated that even though their property values dropped, rising tax rates leave their tax payments about the same or higher this year.
Sherman Lein said he decided to appeal the tax assessment for his home west of Boca Raton. The Palm Beach County property appraiser decreased his home value by about $100,000, but his tax bill was still higher than last year.
“It’s ridiculous,” said Lein, 79, who owes about $6,000 in property taxes. “This house is not worth what they are saying it is. ... It is just a matter of what is fair and reasonable.”
The spike in appeals comes at a time when changes in state law make the process more taxpayer-friendly. In the past, property appraisers benefited from a “presumption of correctness” that put the burden on taxpayers to prove that an assessment was wrong. Now property appraisers have to go further to defend how they arrived at the number.
There is also more leeway this year for property owners to file late if they can prove that an illness or other extraordinary circumstance delayed their application.
“I had a flood of phone calls this year,” said real estate representative Sheila Anderson, who handles hundreds of appeals for property owners across Florida. “This is the year to appeal.”
Property owners who cannot work out their differences with county appraisers can file appeals with value adjustment boards. They get a hearing with an appointed magistrate – an independent appraiser or real estate attorney who hears arguments from the property owner and the appraiser’s office and then decides what the assessment should be. Taxpayers who lose can then appeal in circuit court.
Broward County Property Appraiser Lori Parrish said she supported the changes to the appeals process.
“Why shouldn’t we have to prove to them where we got our numbers?” Parrish asked. “The issue is, did we get the assessment right? ... That’s what is important.”
It still takes proof of a mistake or misjudgment by the property appraiser to win an appeal, and just complaining about an increased tax bill won’t necessarily be enough.
Palm Beach County property values determined by the appraiser’s office went down about 13 percent because of the struggling real estate market, but the County Commission opted to increase property tax rates 15 percent to avoid losing tax revenue.
Also, even if tax rates for other government agencies remain the same as property values continue to drop, the state’s “recapture rule” can result in tax bills going up for homesteaded properties.
If the taxable value of a property is less than market value, the state requires property appraisers to increase the taxable value by 3 percent or the percent change in the Consumer Price Index, whichever is less.
John Thomas, director of residential appraisals for the Palm Beach County Property Appraiser’s Office, said his office has explained why taxes may go up despite falling property values to “literally thousands of people.” He said: “These people are screaming foul. ... They are angry and they have a right to be angry.”
In addition to fighting the tax assessment on his home west of Boca Raton, Lein is also appealing the taxes on the half-vacant commercial building he manages near Lake Worth.
County appraisals, based on values as of Jan. 1, need to better reflect the current market, Lein said. Cities and counties should have done a better job managing the money that flooded their coffers during South Florida’s housing boom, he said.
“What did they do with all that money?” Lein asked.
Copyright © 2009 Sun Sentinel, Fort Lauderdale, Fla.,
IRS investigates home tax credit claims
Key congressional leaders want to extend the tax credit for first-time homebuyers beyond its scheduled end-of-November expiration despite complaints of fraud and Obama administration concerns about the costs.
Housing and Urban Development Secretary Shaun Donovan says the administration is not sold on the idea. For the past several weeks, Obama administration officials have been talking about possibly extending the credit to help spur the economy and create jobs. But at a congressional hearing Tuesday, Donovan said the administration needs better cost estimates.
“To truly understand the costs, we will not know that until Americans have filed their tax returns,” Donovan told the Senate Banking Committee. “We believe it’s critical to have the information necessary to make a fully informed decision about the costs.”
Tax filing season doesn’t start until next year. But Donovan said he expects to get cost data in the next few weeks. “We understand the urgency of this situation,” Donovan said.
The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
But lawmakers understand the program is popular and has helped the struggling housing industry recover.
Lawmakers said they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program.
House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”
Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.
It would cost about $1 billion a month to extend the existing credit, according to congressional estimates. The bill sponsored by Dodd and Isakson is estimated to cost $16.7 billion.
The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
“The housing market would not have moved without this tax credit,” said Lucien Salvant, spokesman for the National Association of Realtors. “It’s a fragile recovery, which is why we think it should be extended.”
The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.
Processing claims presented special challenges for the IRS during the spring tax filing season because homebuyers were eligible for different credits, depending on when they purchased their homes.
First-time homebuyers who purchased homes in 2008 were eligible for only $7,500 in tax credits, and the credits had to be repaid over the following 15 years. Those who bought homes in 2009 were eligible for up to $8,000, and there was no requirement to repay the money. Also, people who bought homes in 2009 were allowed to claim the credit on their 2008 tax returns.
An audit by the agency’s inspector general found that 93 percent of the returns claiming credits for homes bought in 2009 were coded incorrectly, meaning those taxpayers could be incorrectly identified as liable for repaying the credit. The audit was released in September by the Treasury Inspector General for Tax Administration. It reviewed 47,276 electronically filed returns.
The IRS, in a response to the audit, said it plans to track the returns and confirm that taxpayers are liable to repay the credit before pursuing them.
Copyright 2009 The Associated Press
Housing and Urban Development Secretary Shaun Donovan says the administration is not sold on the idea. For the past several weeks, Obama administration officials have been talking about possibly extending the credit to help spur the economy and create jobs. But at a congressional hearing Tuesday, Donovan said the administration needs better cost estimates.
“To truly understand the costs, we will not know that until Americans have filed their tax returns,” Donovan told the Senate Banking Committee. “We believe it’s critical to have the information necessary to make a fully informed decision about the costs.”
Tax filing season doesn’t start until next year. But Donovan said he expects to get cost data in the next few weeks. “We understand the urgency of this situation,” Donovan said.
The Internal Revenue Service has opened 107,000 examinations of questionable claims and identified 167 criminal schemes involving the tax credit since it was expanded as part of the economic stimulus package enacted in February.
But lawmakers understand the program is popular and has helped the struggling housing industry recover.
Lawmakers said they might add protections to help prevent fraud. But there is a growing consensus among congressional leaders that the housing market is still fragile enough to justify extending the program.
House Majority Leader Steny Hoyer, D-Md., said he favors extending the existing credit through the end of the year as lawmakers work to “find out about how ethically and how honestly this policy is being pursued.”
Senate Banking Committee Chairman Chris Dodd said, “We still need to use every tool at our disposal” to help the housing market. Dodd, D-Conn., has joined Sen. Johnny Isakson, R-Ga., in sponsoring a bill that would extend the credit until June 30 and expand it to people who already own homes.
It would cost about $1 billion a month to extend the existing credit, according to congressional estimates. The bill sponsored by Dodd and Isakson is estimated to cost $16.7 billion.
The existing credit allows qualified first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. Homes purchased after Jan. 1 are eligible. The full credit is limited to single filers making less than $75,000 a year and joint filers making less than $150,000.
About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
“The housing market would not have moved without this tax credit,” said Lucien Salvant, spokesman for the National Association of Realtors. “It’s a fragile recovery, which is why we think it should be extended.”
The IRS began special screening procedures for tax returns claiming the credit after it was enacted, said IRS spokesman Frank Keith. For example, taxpayers who previously claimed the mortgage interest deduction would warrant a second look if they claimed the first-time homebuyers credit, he said.
Processing claims presented special challenges for the IRS during the spring tax filing season because homebuyers were eligible for different credits, depending on when they purchased their homes.
First-time homebuyers who purchased homes in 2008 were eligible for only $7,500 in tax credits, and the credits had to be repaid over the following 15 years. Those who bought homes in 2009 were eligible for up to $8,000, and there was no requirement to repay the money. Also, people who bought homes in 2009 were allowed to claim the credit on their 2008 tax returns.
An audit by the agency’s inspector general found that 93 percent of the returns claiming credits for homes bought in 2009 were coded incorrectly, meaning those taxpayers could be incorrectly identified as liable for repaying the credit. The audit was released in September by the Treasury Inspector General for Tax Administration. It reviewed 47,276 electronically filed returns.
The IRS, in a response to the audit, said it plans to track the returns and confirm that taxpayers are liable to repay the credit before pursuing them.
Copyright 2009 The Associated Press
Monday, October 19, 2009
Some entrepreneurs find opportunity in foreclosure meltdown
South Florida’s housing boom cratered fast and, like the epicenter of an earthquake, left a trail of destruction in its wake.
But in the aftershocks of plummeting home prices, unemployment and continuing foreclosures, some professionals and entrepreneurs have found ways to make money amid the ruins.
Jeff Waters, of Giving Tree Development of Fort Lauderdale, considers himself a “white angel” for buying notes at deeply discounted rates and then lowering borrowers’ monthly mortgages to help save their homes.
Others, like Peter Zalewski, of CondoVultures of Bal Harbor, have no qualms about capitalizing on the misfortunes of others by gobbling up bargains to make big bucks.
“It’s not noble, but it’s definitely profitable,” Zalewski said.
The opportunities that have arisen from one of the biggest housing meltdowns in South Florida history are expected to continue for the next year or two with new foreclosure filings swamping the courts with no end in sight.
“Those who never came to grips with the historic bust are improving their golf games or catching a lot of fish,” said Jack McCabe, a Deerfield Beach real-estate analyst. “Those who had the foresight to shift gears for the tumultuous marketplace have found opportunities to start and grow businesses. Some are going to make fortunes.”
Former business journalist Zalewski founded his foreclosure specialty real estate and consulting firm in March 2006 – a few months before the start of the housing crash he predicted would come.
Over the past three years Zalewski said he has hired 36 agents to keep up with the demand from cash investors looking for bargains. His business, with its provocative name, caught the eye of filmmaker Michael Moore while he was working on his new documentary, Capitalism: A Love Story.
Zalewski is featured in the documentary and its trailer, which shows foreclosure signs in front of residential homes. It cuts to the well-groomed entrepreneur sitting at his desk. As he makes his hands look like he’s firing a gun, Zalewski says: “This is straight up capitalism. Chi-Chi-Boom.”
Waters helped found Giving Tree Development last year out of necessity. He was a casualty of the bankruptcy of global investment bank and brokerage firm Bear Stearns.
He soon found it possible to buy up distressed mortgages – as few as one at a time, rather than purchasing them in large pools of 200 houses or more.
The process works like this: A company or its investors purchase a note, then the homeowners get a knock on their door and are given the news about the change of their loan servicer and offered a modification.
“It’s not every day a white angel knocks on the door wearing a T-shirt and shorts and wants to reduce your mortgage payment,” Waters said. “They are in disbelief.”
Win-win situation
Because the notes are bought at deep discounts, Waters’ company is able to make a profit by making the mortgage affordable now and then refinancing the home years later when the housing market recovers.
“It’s gratifying to make a living helping people who are really down and out,” Waters said.
Foreclosures also have been good business for Ken Arnold. In December 2006, he founded Miami-based Association Financial Services, a finance company for condo and homeowner associations, just as the foreclosure crisis began.
He soon started offering advances to cash-strapped associations, enabling them to move forward with foreclosures on homes and units where owners were no longer paying association dues or their mortgages.
“I don’t want to say it was good luck,” Arnold said. “But we were in the right place at the right time when things began to fall apart.”
Other businesses have adapted, McCabe said:
Some law firms that previously had large real estate transaction departments have converted to large real estate litigation departments, which are now handling the flood of foreclosure cases swamping South Florida courts.
Some developers have gone from being the principals in building condos to contractors who complete unfinished products for banks that have taken over properties.
Instead of working on new units, some interior design firms now provide packages to furnish foreclosed condos that developers and lenders can rent out.
John Tur’s School of Creative Real Estate has taken off during the housing meltdown. Enrollment in his seminars has zoomed from about five students a month to 50, he said.
Enrollment also has soared in his “Millionaire Mind” class that teaches people self-discipline, how to stop procrastinating and how to be more productive.
Seeking solutions
“For me, the foreclosure crisis has helped my business,” Tur said. “I’m in the business of helping people solve problems, and right now more people than ever have problems.”
David Southwell’s Creative Asset Protection Strategies also has embraced the foreclosure crisis. The certified public accountant helps those who have gone through foreclosures “sort out how to avoid taxes.”
He also helps clients plan for the possibility of a future deficiency judgment, a lien against a borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full.
“Banks have five years to file a deficiency judgment,” Southwell said. “And once the banks get through all the foreclosure mess, they may go back and try to collect the deficiency. Residential mortgages rarely are without recourse.”
Marshall Kaplan’s Green Thumb Lawn Service has grown like weeds during the housing crisis. He said his crews have gone from maintaining lawns at 40 to 60 foreclosures a week a year ago to 250 to 300 a week now. “It’s a lot more high end now,” he said. “We see a lot of gated houses in Coral Gables and houses on the bay.”
Some companies that adapted to the foreclosure crisis are finding it necessary to alter their strategies once again.
“Business is not booming anymore,” said Scot Barton, who in mid 2008 revamped his home-sitting business into a company that rehabs foreclosures for banks and real estate agents.
He hired seven employees to clean pools, remove trash, maintain lawns and make repairs. Now he’s down to two part-time employees.
Cutting their losses
“Things changed. Now the banks aren’t worried about the grass, the pool, showing the house in order,” Barton said. “They are so upside-down on the house, and because they are not going to make their money back, they don’t want to put more money into it. All the REOs (lender-owned properties) are being sold as is.”
The Broward Real Estate Investors Association, which provides education and networking for investors and real estate professionals, was launched in 2002 when home prices were appreciating nicely. Now co-owner Jan Leon said instruction has been adjusted to the rapidly changing market, with emphasis now on how to make money on foreclosures. In a half mile radius between Riverland Road and Broward Boulevard in Fort Lauderdale, she said, there were 211 addresses of properties that were delinquent or in foreclosure.
“The state has come up with all kinds of new rules and regulations of what you can and can’t do,” Leon said. “We teach how to keep yourself out of trouble, and avoid the pitfalls a lot of people have fallen into.”
Copyright © 2009 The Miami Herald,
But in the aftershocks of plummeting home prices, unemployment and continuing foreclosures, some professionals and entrepreneurs have found ways to make money amid the ruins.
Jeff Waters, of Giving Tree Development of Fort Lauderdale, considers himself a “white angel” for buying notes at deeply discounted rates and then lowering borrowers’ monthly mortgages to help save their homes.
Others, like Peter Zalewski, of CondoVultures of Bal Harbor, have no qualms about capitalizing on the misfortunes of others by gobbling up bargains to make big bucks.
“It’s not noble, but it’s definitely profitable,” Zalewski said.
The opportunities that have arisen from one of the biggest housing meltdowns in South Florida history are expected to continue for the next year or two with new foreclosure filings swamping the courts with no end in sight.
“Those who never came to grips with the historic bust are improving their golf games or catching a lot of fish,” said Jack McCabe, a Deerfield Beach real-estate analyst. “Those who had the foresight to shift gears for the tumultuous marketplace have found opportunities to start and grow businesses. Some are going to make fortunes.”
Former business journalist Zalewski founded his foreclosure specialty real estate and consulting firm in March 2006 – a few months before the start of the housing crash he predicted would come.
Over the past three years Zalewski said he has hired 36 agents to keep up with the demand from cash investors looking for bargains. His business, with its provocative name, caught the eye of filmmaker Michael Moore while he was working on his new documentary, Capitalism: A Love Story.
Zalewski is featured in the documentary and its trailer, which shows foreclosure signs in front of residential homes. It cuts to the well-groomed entrepreneur sitting at his desk. As he makes his hands look like he’s firing a gun, Zalewski says: “This is straight up capitalism. Chi-Chi-Boom.”
Waters helped found Giving Tree Development last year out of necessity. He was a casualty of the bankruptcy of global investment bank and brokerage firm Bear Stearns.
He soon found it possible to buy up distressed mortgages – as few as one at a time, rather than purchasing them in large pools of 200 houses or more.
The process works like this: A company or its investors purchase a note, then the homeowners get a knock on their door and are given the news about the change of their loan servicer and offered a modification.
“It’s not every day a white angel knocks on the door wearing a T-shirt and shorts and wants to reduce your mortgage payment,” Waters said. “They are in disbelief.”
Win-win situation
Because the notes are bought at deep discounts, Waters’ company is able to make a profit by making the mortgage affordable now and then refinancing the home years later when the housing market recovers.
“It’s gratifying to make a living helping people who are really down and out,” Waters said.
Foreclosures also have been good business for Ken Arnold. In December 2006, he founded Miami-based Association Financial Services, a finance company for condo and homeowner associations, just as the foreclosure crisis began.
He soon started offering advances to cash-strapped associations, enabling them to move forward with foreclosures on homes and units where owners were no longer paying association dues or their mortgages.
“I don’t want to say it was good luck,” Arnold said. “But we were in the right place at the right time when things began to fall apart.”
Other businesses have adapted, McCabe said:
Some law firms that previously had large real estate transaction departments have converted to large real estate litigation departments, which are now handling the flood of foreclosure cases swamping South Florida courts.
Some developers have gone from being the principals in building condos to contractors who complete unfinished products for banks that have taken over properties.
Instead of working on new units, some interior design firms now provide packages to furnish foreclosed condos that developers and lenders can rent out.
John Tur’s School of Creative Real Estate has taken off during the housing meltdown. Enrollment in his seminars has zoomed from about five students a month to 50, he said.
Enrollment also has soared in his “Millionaire Mind” class that teaches people self-discipline, how to stop procrastinating and how to be more productive.
Seeking solutions
“For me, the foreclosure crisis has helped my business,” Tur said. “I’m in the business of helping people solve problems, and right now more people than ever have problems.”
David Southwell’s Creative Asset Protection Strategies also has embraced the foreclosure crisis. The certified public accountant helps those who have gone through foreclosures “sort out how to avoid taxes.”
He also helps clients plan for the possibility of a future deficiency judgment, a lien against a borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full.
“Banks have five years to file a deficiency judgment,” Southwell said. “And once the banks get through all the foreclosure mess, they may go back and try to collect the deficiency. Residential mortgages rarely are without recourse.”
Marshall Kaplan’s Green Thumb Lawn Service has grown like weeds during the housing crisis. He said his crews have gone from maintaining lawns at 40 to 60 foreclosures a week a year ago to 250 to 300 a week now. “It’s a lot more high end now,” he said. “We see a lot of gated houses in Coral Gables and houses on the bay.”
Some companies that adapted to the foreclosure crisis are finding it necessary to alter their strategies once again.
“Business is not booming anymore,” said Scot Barton, who in mid 2008 revamped his home-sitting business into a company that rehabs foreclosures for banks and real estate agents.
He hired seven employees to clean pools, remove trash, maintain lawns and make repairs. Now he’s down to two part-time employees.
Cutting their losses
“Things changed. Now the banks aren’t worried about the grass, the pool, showing the house in order,” Barton said. “They are so upside-down on the house, and because they are not going to make their money back, they don’t want to put more money into it. All the REOs (lender-owned properties) are being sold as is.”
The Broward Real Estate Investors Association, which provides education and networking for investors and real estate professionals, was launched in 2002 when home prices were appreciating nicely. Now co-owner Jan Leon said instruction has been adjusted to the rapidly changing market, with emphasis now on how to make money on foreclosures. In a half mile radius between Riverland Road and Broward Boulevard in Fort Lauderdale, she said, there were 211 addresses of properties that were delinquent or in foreclosure.
“The state has come up with all kinds of new rules and regulations of what you can and can’t do,” Leon said. “We teach how to keep yourself out of trouble, and avoid the pitfalls a lot of people have fallen into.”
Copyright © 2009 The Miami Herald,
Friday, October 16, 2009
Lawmakers seek to extend $8K tax credit
Lawmakers are trying to extend and expand an $8,000 federal tax credit for first-time homebuyers, a stimulus-package tax break that many regard as a significant prop for the still-tottering economy.
The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.
The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.
While the White House says there will not be a second stimulus package following the $787 billion economy booster enacted last February, extending the homebuyers’ credit and unemployment benefits are among several primary means being pushed by the administration or Congress to help people get through the prolonged economic downturn.
Others include continued subsidies for laid-off workers trying to keep their health insurance and a proposal by President Barack Obama to provide seniors and others with a $250 payment to make up for the lack of a Social Security cost of living increase next year.
The stimulus-package credit allows first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. The credit, which could cost in the $12-15 billion range this year, is set to expire Dec. 1.
The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.
As with the Cash for Clunkers program for cars, skeptics have questioned whether the credit will have any long-term effect on the housing market.
Brookings Institution economist Ted Gayer wrote in a recent report that the tax credit is “very poorly targeted.” He calculated that of the 2 million or more people who would make use of the credit if it were extended for a year and expanded to cover all buyers, only about 383,000 would be additional sales motivated by the credit. He estimated that the real cost of the credit would thus be more than $40,000, rather than $8,000, per buyer.
But believers say it has been instrumental in sustaining an economic recovery highly dependent on housing.
The National Association of Home Builders, the source of the 383,000 figure for increased home purchases, pointed out that this would also create more than 347,000 jobs, generate $16.1 billion in wages and salaries and $12.1 billion in business income.
“Homebuyers for the past two years have been sitting on the fence and we needed something to move them into the market,” said Lucien Salvant, managing director for public affairs at the National Association of Realtors. With more foreclosures coming next year, “to knock the props out of the housing market at this point would not be a wise move.”
The NAR, together with the NAHB and the Mortgage Bankers Association, have been running ads in the Washington area urging Congress to extend the homebuyer tax credit.
They note that home sales to first-time buyers have increased by 25 percent in 2009 and now account for 50 percent of all sales. They add that first-time buyers are often at the lower end of the market and the tax credit is reducing the inventory of foreclosures.
Isakson, in a speech on the Senate floor this week, said lawmakers owed it to the country to extend “a proven program that works” and “buoy the marketplace.”
He said that if the program is allowed to expire, the market again will depress values, sales and consumer confidence.
Senate Democratic leaders have not decided whether the homeowners’ credit issue should be part of the unemployment bill. But there is powerful backing for taking it up in some form.
House Speaker Nancy Pelosi, D-Calif., said last week that she is looking into extending and expanding the popular tax credit, which according to IRS data has so far drawn more than 1.4 million applications from first-time homebuyers.
Senate Majority Harry Reid, D-Nev., last month joined Sens. Ben Cardin, D-Md., John Ensign, R-Nev., Debbie Stabenow, D-Mich., and Isakson in introducing a bill calling for a straight six-month extension of the tax credit.
The potential addition of the Isakson-Dodd proposal to the unemployment benefit bill would be a new element to a bill that the Senate is already trying to enlarge.
The House last month passed legislation to increase jobless benefits by 13 weeks, but only in those 27 states where the unemployment rate is at or above 8.5 percent.
That left lawmakers from the other 23 states unhappy, and last week Senate Democrats reached agreement on a bill that would give an additional 14 weeks of benefits in all 50 states, and another six weeks on top of that to those in states with the 8.5 percent unemployment rate. The national unemployment rate is 9.8 percent.
Currently, a laid-off worker in a high unemployment state is entitled to up to 79 weeks of state and federal assistance. The average payment is about $300 a week. Supporters of the extension say it is necessary in an economy where 15 million unemployed are competing for 3 million jobs.
Copyright © 2009 The Associated Press
The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.
The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.
While the White House says there will not be a second stimulus package following the $787 billion economy booster enacted last February, extending the homebuyers’ credit and unemployment benefits are among several primary means being pushed by the administration or Congress to help people get through the prolonged economic downturn.
Others include continued subsidies for laid-off workers trying to keep their health insurance and a proposal by President Barack Obama to provide seniors and others with a $250 payment to make up for the lack of a Social Security cost of living increase next year.
The stimulus-package credit allows first-time homebuyers to reduce their federal income taxes by 10 percent of the price of a home, up to a maximum of $8,000. The credit, which could cost in the $12-15 billion range this year, is set to expire Dec. 1.
The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.
As with the Cash for Clunkers program for cars, skeptics have questioned whether the credit will have any long-term effect on the housing market.
Brookings Institution economist Ted Gayer wrote in a recent report that the tax credit is “very poorly targeted.” He calculated that of the 2 million or more people who would make use of the credit if it were extended for a year and expanded to cover all buyers, only about 383,000 would be additional sales motivated by the credit. He estimated that the real cost of the credit would thus be more than $40,000, rather than $8,000, per buyer.
But believers say it has been instrumental in sustaining an economic recovery highly dependent on housing.
The National Association of Home Builders, the source of the 383,000 figure for increased home purchases, pointed out that this would also create more than 347,000 jobs, generate $16.1 billion in wages and salaries and $12.1 billion in business income.
“Homebuyers for the past two years have been sitting on the fence and we needed something to move them into the market,” said Lucien Salvant, managing director for public affairs at the National Association of Realtors. With more foreclosures coming next year, “to knock the props out of the housing market at this point would not be a wise move.”
The NAR, together with the NAHB and the Mortgage Bankers Association, have been running ads in the Washington area urging Congress to extend the homebuyer tax credit.
They note that home sales to first-time buyers have increased by 25 percent in 2009 and now account for 50 percent of all sales. They add that first-time buyers are often at the lower end of the market and the tax credit is reducing the inventory of foreclosures.
Isakson, in a speech on the Senate floor this week, said lawmakers owed it to the country to extend “a proven program that works” and “buoy the marketplace.”
He said that if the program is allowed to expire, the market again will depress values, sales and consumer confidence.
Senate Democratic leaders have not decided whether the homeowners’ credit issue should be part of the unemployment bill. But there is powerful backing for taking it up in some form.
House Speaker Nancy Pelosi, D-Calif., said last week that she is looking into extending and expanding the popular tax credit, which according to IRS data has so far drawn more than 1.4 million applications from first-time homebuyers.
Senate Majority Harry Reid, D-Nev., last month joined Sens. Ben Cardin, D-Md., John Ensign, R-Nev., Debbie Stabenow, D-Mich., and Isakson in introducing a bill calling for a straight six-month extension of the tax credit.
The potential addition of the Isakson-Dodd proposal to the unemployment benefit bill would be a new element to a bill that the Senate is already trying to enlarge.
The House last month passed legislation to increase jobless benefits by 13 weeks, but only in those 27 states where the unemployment rate is at or above 8.5 percent.
That left lawmakers from the other 23 states unhappy, and last week Senate Democrats reached agreement on a bill that would give an additional 14 weeks of benefits in all 50 states, and another six weeks on top of that to those in states with the 8.5 percent unemployment rate. The national unemployment rate is 9.8 percent.
Currently, a laid-off worker in a high unemployment state is entitled to up to 79 weeks of state and federal assistance. The average payment is about $300 a week. Supporters of the extension say it is necessary in an economy where 15 million unemployed are competing for 3 million jobs.
Copyright © 2009 The Associated Press
Tuesday, October 13, 2009
Banks making short sales tougher
Banks are backing away from short sales, forcing sellers to pay extra at closing or demanding a promissory note for the amount due. One-third of borrowers owe more on their mortgages than their properties are worth, according First American CoreLogic.
When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.
Today, banks demand 9.5 weeks to respond to a short-sale request compared to 4.5 weeks a year ago, according to research firm Campbell Communications. The banks’ reluctance is frequently stymieing sales and frustrating real estate practitioners.
“It drives me up a wall,” says Robert G. Hertzog of Summit Home Consultants in Phoenix. “(The bank is) holding my client hostage.”
Source: BusinessWeek, Christopher Palmeri (10/09/2009)
© Copyright 2009 INFORMATION, INC. Bethesda, MD
When their situations were really tough, most banks preferred short sales because they were their best opportunity to get the most money back. But with an improving economy, and because the losses on many of these properties have already been written off the books, banks are increasingly reluctant to negotiate a short sale.
Today, banks demand 9.5 weeks to respond to a short-sale request compared to 4.5 weeks a year ago, according to research firm Campbell Communications. The banks’ reluctance is frequently stymieing sales and frustrating real estate practitioners.
“It drives me up a wall,” says Robert G. Hertzog of Summit Home Consultants in Phoenix. “(The bank is) holding my client hostage.”
Source: BusinessWeek, Christopher Palmeri (10/09/2009)
© Copyright 2009 INFORMATION, INC. Bethesda, MD
Tuesday, October 6, 2009
Firms are getting billions, yet aren’t averting foreclosures
The federal government is engaged in a massive mortgage modification program that’s on track to send billions in tax dollars to many of the very companies that judges or regulators have cited in recent years for abusive mortgage practices.
The firms, called mortgage servicers, have been cited for badgering, manipulating or lying to their customers, sticking them with bogus fees, or improperly foreclosing on them.
Mortgage servicers are the middlemen between homeowners and the investors that hold their mortgages, collect homeowners’ checks and disburse payments for the mortgages, property tax and insurance. They’re a necessary player for any modification.
The reliance on such companies points to an ironic paradox for federal regulators: Cleaning up the nation’s financial crisis often rewards the firms that helped create the mess. Those Wall Street banks and mortgage servicing companies argue that they’re best positioned to repair the damage they’ve helped cause. In the case of the mortgage program, the firms getting the taxpayers’ money are, after all, the firms that control the troubled mortgages.
To make matters worse, the Government Accountability Office, Congress’ watchdog, has said that the Treasury Department hasn’t done enough to oversee the companies participating in what’s known as the Home Affordable Modification Program, which emerged from the bank bailout bill Congress passed last fall.
The modification program has been slow to get off the ground. Since it began this spring, only 12 percent of a potential 3 million delinquent mortgages have begun the process of being reworked, or put into “a trial modification,” according to Treasury Department data through August, the most recent available.
“We’ve consistently been behind this problem,” said Mark Pearce, North Carolina’s chief deputy commissioner of banks, who works with a state-level group of attorneys general from across the country. “Two years ago, maybe some were caught by surprise. But we still haven’t gotten to a point where the servicers have demonstrated an ability to handle the problem.”
Housing advocates say homeowners still face “reluctant lenders,” said Irwin Trauss, an attorney who represents low-income homeowners for Philadelphia Legal Assistance. He recently testified at a hearing of the Congressional Oversight Panel, the watchdog that monitors the Treasury’s Troubled Asset Relief Program, better known as TARP, or the bank bailout bill.
Trauss said that Bank of America, at least through July, told homeowners that they couldn’t participate in the program when they should’ve been allowed to do so, and he alleges that Saxon Mortgage forced one of his clients into bankruptcy without providing a valid reason for turning down her modification request. Trauss’ comments were echoed by other housing advocates, who’ve found mortgage servicers slow to respond and confused about modification rules.
“Servicers look for reasons to avoid making the modifications when they are most needed, rather than for opportunities to make them,” Trauss said.
Saxon Mortgage said it couldn’t comment on Trauss’ testimony because it wasn’t provided with specific details of the account in question. Bank of America said there could have been instances in which improperly trained employees were confused about the modification rules, but the vast majority of customers have been given proper information.
Although it’s early in the Treasury Department’s program, housing advocates say the servicer industry for years has resisted helping customers with modifications. Donna and Ronnie Fruia, of Troutman, N.C., learned firsthand how difficult it can be.
The couple was in the midst of a series of health crises, and three members of the family – the couple’s son, Donna’s mother and Ronnie – were in the hospital.
It was then that Donna got an urgent call that somebody from her mortgage company, CitiFinancial, had just showed up in her husband’s hospital room, where he was recovering from a stroke.
“They said, ‘Some guy’s in there aggravating him,’ “ she said.
“At the time, I couldn’t even really talk that good,” Ronnie said. “But he wanted me to sign a bunch of papers.”
The Fruias had been trying to get a mortgage modification from CitiFinancial. The company, however, was pushing the Fruias to accept a modification that wouldn’t have cut their interest rate, they said.
Only after the episode in the hospital room and the involvement of state regulators did CitiFinancial cut the mortgage’s interest rate from 11.5 percent to 5 percent, lowering their monthly payment from $985 to $602. The process took from the start of the year until July.
“They were the perfect candidate for someone with a subprime rate getting a modification,” said Henrietta Thompson, who as housing coordinator for United Family Services, a United Way-funded organization in Charlotte, helped the Fruias. “I know if the banking commissioner hadn’t gotten involved, it wouldn’t have happened.”
While CitiFinancial, a unit of Citigroup Inc. – one of the largest recipients of TARP bailout funds – said it couldn’t talk about specific customers, it’s “pleased” that the case was resolved.
“We have strict guidelines concerning the behavior of our representatives, and the incident you described would not be acceptable under our policies, even if well-intentioned,” said Mark Rodgers, a spokesman.
It shouldn’t have been a surprise that the mortgage service companies would have trouble executing wide-scale mortgage modifications. They generally aren’t set up for the complicated business of reworking loans.
In 2007, an assistant attorney general in Iowa, Patrick Madigan, analyzed the looming mortgage meltdown and found that mortgage service companies have a “highly automated process, spending as little time as possible on an individual loan and preferably no time actually talking to the customer.”
“Loan modifications, by contrast, are a time-intensive process that requires a great deal of individualized attention,” he wrote. “In some situations, it may be easier and cheaper for a servicer to simply foreclose on a borrower than to try to fix the underlying problem.”
Service companies had high turnover and employees who saw their jobs as akin to that of collection agents. Some were known to hang up on callers if they started to get tough questions, Madigan wrote. He urged mortgage service companies to hire far more staff and boost training.
That year, Iowa Attorney General Tom Miller convened a group of state officials (Iowa’s Madigan helped coordinate the effort), who then contacted the nation’s 20 largest servicers of risky subprime mortgages.
By September 2008, however, as the economy went into free fall, the mortgage industry’s efforts had been “profoundly disappointing.”
“Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better,” said a report from the State Foreclosure Prevention Working Group.
By this year, more federal and private efforts were under way to modify millions of troubled mortgages, and customer service was beginning to improve. Companies, though, were still having trouble getting the job done.
“It is difficult for homeowners to initiate productive discussions with lenders because many servicers lack the capacity to deal with a large volume of modifications,” the Congressional Oversight Panel reported. “Servicers are generally understaffed for handling a large volume of consumer loan workouts.”
The panel found that it’s “unlikely” that mortgage servicers will be able to do all they’re being asked to do: “Servicers are simply in the wrong line of business for doing modifications en masse,” it said.
Madigan, the assistant Iowa attorney general, said in an interview that “the mortgage industry has responded to this crisis with a series of half steps based on a notion that a turnaround in the housing market was just around the corner.”
Under the Treasury Department’s mortgage modification program, three parties can participate: the company that owns the loan, the company that services the loan, and the homeowner. All get a portion of the more than $20 billion that the federal government currently estimates it could spend to keep homes out of foreclosure.
While the Treasury said it’s necessary to take in as many mortgage service companies as possible, the GAO found that the department wasn’t doing enough to monitor the process.
In a July report, the GAO said that the department had “significant gaps in its oversight structure,” and was short-staffed in the office monitoring the modification program. As of July – eight months into the program – the Treasury had filled fewer than half the positions in a key modification office. (Many of those jobs have since been filled, the department said.)
Beyond that, the government had conducted “readiness reviews” of only seven of 27 mortgage servicers the GAO examined; no more were planned. The reviews only included interviews with senior executives – and the information gathered wasn’t verified.
“Treasury cannot identify, assess and address risks associated with servicers that lack the capacity to fulfill all program requirements,” the GAO said.
Treasury said it’s beefing up its review procedures and also said it recognizes many of the problems and has been working to correct them. “Clearly, we’re not there yet,” said Seth Wheeler, one of the Treasury officials who oversees the modification effort. “Clearly there’s still inconsistent application of the program, even though we have made progress.”
Several companies in the Treasury program have been cited by judges or regulators for engaging in improper behavior with their customers.
They include Select Portfolio Servicing Inc., a Utah-based company formerly known as Fairbanks Capital Corp.; Countrywide Home Loan Servicing, now a unit of Bank of America Corp.; Carrington Mortgage Services LLC, based in California; Saxon Mortgage Services Inc., a unit of Morgan Stanley; EMC Mortgage Corp., now a subsidiary of JPMorgan Chase & Co.; and Green Tree Servicing, a Minnesota company.
Ocwen Financial Corp., a Florida-based company that services more than 300,000 mortgages nationwide, could receive more than $200 million in TARP payments.
“Ocwen has screwed up my finances so bad you can’t believe it,” said Brad Rhoton, whose rental properties in the Houston suburbs are part of a nationwide lawsuit against Ocwen. “It’s been the most maddening process you can imagine.”
Rhoton’s lawsuit charges that Ocwen constantly misapplied Rhoton’s mortgage payments and tacked on unnecessary fees and insurance, causing his accounts to fall behind.
So far under the Treasury’s modification program, Ocwen has started trial modifications in 8 percent of potential mortgages – below the national average and well below some other servicers.
Paul Koches, a company spokesman, said the number is misleadingly low. Ocwen, he said, has set rigorous standards in documenting its modifications and is therefore likely to have a far higher share of its modifications stick than other companies. He said that Ocwen undertook its own loan modification program in 2007 and has beefed up its staff substantially since then.
As for the suits against it, Koches said they represent a fraction of the firm’s customer base, and many were copycat lawsuits that tried to paint Ocwen with the same brush as other mortgage servicer firms. He said the company continues to vigorously defend itself against lawsuits.
Over the years, Ocwen has lost other lawsuits and has been slapped down by a federal judge for its conduct.
In one Texas bankruptcy case, for example, a federal judge blasted Ocwen after it tried to pass the cost of a $1,000 sanction onto the customer it was cited for mistreating. When the judge found out, he said, “Ocwen’s course of conduct in this proceeding bordered on the outrageous.” He fined the company an additional $27,500.
The case was far from isolated, however. A jury in Galveston, Texas, ordered the company to pay $11.5 million, and one down the coast in Corpus Christi ordered it to pay $3 million for unfairly foreclosing on homeowners (both cases were then settled in the appeals process for undisclosed amounts).
In both cases, the plaintiffs were on the edge financially, and so when Ocwen added extra fees to their accounts, they quickly fell behind.
That was part of their strategy, plaintiffs’ attorneys said. One of the key witnesses before both juries was a former Ocwen account officer who said the company trained its sights on customers who had substantial equity in their homes. In those cases, the company had the most to gain if customers lost their homes in foreclosure.
“We didn’t treat the people very well, but the money was pretty good,” the former account officer, Ron Davis, testified during one of the trials. (Davis couldn’t be reached for further comment.)
The motive, he said, was simple: force people into foreclosure as a way to earn higher bonuses.
“We would call the customers and ask them what bridge they were going to live under,” Davis testified.
Ocwen lost that lawsuit. A Texas jury found that the company engaged in “fraudulent, deceptive, or misleading” tactics that it called “unconscionable.” The case involved an elderly Texas woman the bank tried to evict from her home even after a local judge had ordered it not to. The jury awarded her $11.5 million, which was reduced to $1.8 million, according to Ocwen’s Securities and Exchange Commission filings; the case was settled during appeals.
Outside the courts, federal regulators in 2004 approached Ocwen to request that the company enter into a formal supervisory agreement under which it promised to improve its customer service. It required, for example, that Ocwen beef up its ombudsman to take customer complaints; adopt a “borrower-oriented customer service commitment plan”; take reasonable actions to see if homeowners already have hazard insurance before adding it to customers’ accounts; and regularly report to federal regulators about outstanding customer complaints.
Koches of Ocwen said the agreement was merely an attempt to formalize many of the steps the company was already taking – and that the company and federal regulators wanted to avoid the kind of problems other firms had experienced.
Later that year, however, Ocwen took steps to ensure that such regulatory findings wouldn’t come again.
By successfully petitioning to have itself removed from the oversight of the Office of Thrift Supervision, the supervisory agreement hatched just months before was ended, according to Ocwen’s regulatory filings. Ocwen said it removed itself from OTS oversight for business reasons unrelated to the supervisory agreement and that it continues to follow the intent of the agreement.
© 2009 McClatchy-Tribune Information Services
The firms, called mortgage servicers, have been cited for badgering, manipulating or lying to their customers, sticking them with bogus fees, or improperly foreclosing on them.
Mortgage servicers are the middlemen between homeowners and the investors that hold their mortgages, collect homeowners’ checks and disburse payments for the mortgages, property tax and insurance. They’re a necessary player for any modification.
The reliance on such companies points to an ironic paradox for federal regulators: Cleaning up the nation’s financial crisis often rewards the firms that helped create the mess. Those Wall Street banks and mortgage servicing companies argue that they’re best positioned to repair the damage they’ve helped cause. In the case of the mortgage program, the firms getting the taxpayers’ money are, after all, the firms that control the troubled mortgages.
To make matters worse, the Government Accountability Office, Congress’ watchdog, has said that the Treasury Department hasn’t done enough to oversee the companies participating in what’s known as the Home Affordable Modification Program, which emerged from the bank bailout bill Congress passed last fall.
The modification program has been slow to get off the ground. Since it began this spring, only 12 percent of a potential 3 million delinquent mortgages have begun the process of being reworked, or put into “a trial modification,” according to Treasury Department data through August, the most recent available.
“We’ve consistently been behind this problem,” said Mark Pearce, North Carolina’s chief deputy commissioner of banks, who works with a state-level group of attorneys general from across the country. “Two years ago, maybe some were caught by surprise. But we still haven’t gotten to a point where the servicers have demonstrated an ability to handle the problem.”
Housing advocates say homeowners still face “reluctant lenders,” said Irwin Trauss, an attorney who represents low-income homeowners for Philadelphia Legal Assistance. He recently testified at a hearing of the Congressional Oversight Panel, the watchdog that monitors the Treasury’s Troubled Asset Relief Program, better known as TARP, or the bank bailout bill.
Trauss said that Bank of America, at least through July, told homeowners that they couldn’t participate in the program when they should’ve been allowed to do so, and he alleges that Saxon Mortgage forced one of his clients into bankruptcy without providing a valid reason for turning down her modification request. Trauss’ comments were echoed by other housing advocates, who’ve found mortgage servicers slow to respond and confused about modification rules.
“Servicers look for reasons to avoid making the modifications when they are most needed, rather than for opportunities to make them,” Trauss said.
Saxon Mortgage said it couldn’t comment on Trauss’ testimony because it wasn’t provided with specific details of the account in question. Bank of America said there could have been instances in which improperly trained employees were confused about the modification rules, but the vast majority of customers have been given proper information.
Although it’s early in the Treasury Department’s program, housing advocates say the servicer industry for years has resisted helping customers with modifications. Donna and Ronnie Fruia, of Troutman, N.C., learned firsthand how difficult it can be.
The couple was in the midst of a series of health crises, and three members of the family – the couple’s son, Donna’s mother and Ronnie – were in the hospital.
It was then that Donna got an urgent call that somebody from her mortgage company, CitiFinancial, had just showed up in her husband’s hospital room, where he was recovering from a stroke.
“They said, ‘Some guy’s in there aggravating him,’ “ she said.
“At the time, I couldn’t even really talk that good,” Ronnie said. “But he wanted me to sign a bunch of papers.”
The Fruias had been trying to get a mortgage modification from CitiFinancial. The company, however, was pushing the Fruias to accept a modification that wouldn’t have cut their interest rate, they said.
Only after the episode in the hospital room and the involvement of state regulators did CitiFinancial cut the mortgage’s interest rate from 11.5 percent to 5 percent, lowering their monthly payment from $985 to $602. The process took from the start of the year until July.
“They were the perfect candidate for someone with a subprime rate getting a modification,” said Henrietta Thompson, who as housing coordinator for United Family Services, a United Way-funded organization in Charlotte, helped the Fruias. “I know if the banking commissioner hadn’t gotten involved, it wouldn’t have happened.”
While CitiFinancial, a unit of Citigroup Inc. – one of the largest recipients of TARP bailout funds – said it couldn’t talk about specific customers, it’s “pleased” that the case was resolved.
“We have strict guidelines concerning the behavior of our representatives, and the incident you described would not be acceptable under our policies, even if well-intentioned,” said Mark Rodgers, a spokesman.
It shouldn’t have been a surprise that the mortgage service companies would have trouble executing wide-scale mortgage modifications. They generally aren’t set up for the complicated business of reworking loans.
In 2007, an assistant attorney general in Iowa, Patrick Madigan, analyzed the looming mortgage meltdown and found that mortgage service companies have a “highly automated process, spending as little time as possible on an individual loan and preferably no time actually talking to the customer.”
“Loan modifications, by contrast, are a time-intensive process that requires a great deal of individualized attention,” he wrote. “In some situations, it may be easier and cheaper for a servicer to simply foreclose on a borrower than to try to fix the underlying problem.”
Service companies had high turnover and employees who saw their jobs as akin to that of collection agents. Some were known to hang up on callers if they started to get tough questions, Madigan wrote. He urged mortgage service companies to hire far more staff and boost training.
That year, Iowa Attorney General Tom Miller convened a group of state officials (Iowa’s Madigan helped coordinate the effort), who then contacted the nation’s 20 largest servicers of risky subprime mortgages.
By September 2008, however, as the economy went into free fall, the mortgage industry’s efforts had been “profoundly disappointing.”
“Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better,” said a report from the State Foreclosure Prevention Working Group.
By this year, more federal and private efforts were under way to modify millions of troubled mortgages, and customer service was beginning to improve. Companies, though, were still having trouble getting the job done.
“It is difficult for homeowners to initiate productive discussions with lenders because many servicers lack the capacity to deal with a large volume of modifications,” the Congressional Oversight Panel reported. “Servicers are generally understaffed for handling a large volume of consumer loan workouts.”
The panel found that it’s “unlikely” that mortgage servicers will be able to do all they’re being asked to do: “Servicers are simply in the wrong line of business for doing modifications en masse,” it said.
Madigan, the assistant Iowa attorney general, said in an interview that “the mortgage industry has responded to this crisis with a series of half steps based on a notion that a turnaround in the housing market was just around the corner.”
Under the Treasury Department’s mortgage modification program, three parties can participate: the company that owns the loan, the company that services the loan, and the homeowner. All get a portion of the more than $20 billion that the federal government currently estimates it could spend to keep homes out of foreclosure.
While the Treasury said it’s necessary to take in as many mortgage service companies as possible, the GAO found that the department wasn’t doing enough to monitor the process.
In a July report, the GAO said that the department had “significant gaps in its oversight structure,” and was short-staffed in the office monitoring the modification program. As of July – eight months into the program – the Treasury had filled fewer than half the positions in a key modification office. (Many of those jobs have since been filled, the department said.)
Beyond that, the government had conducted “readiness reviews” of only seven of 27 mortgage servicers the GAO examined; no more were planned. The reviews only included interviews with senior executives – and the information gathered wasn’t verified.
“Treasury cannot identify, assess and address risks associated with servicers that lack the capacity to fulfill all program requirements,” the GAO said.
Treasury said it’s beefing up its review procedures and also said it recognizes many of the problems and has been working to correct them. “Clearly, we’re not there yet,” said Seth Wheeler, one of the Treasury officials who oversees the modification effort. “Clearly there’s still inconsistent application of the program, even though we have made progress.”
Several companies in the Treasury program have been cited by judges or regulators for engaging in improper behavior with their customers.
They include Select Portfolio Servicing Inc., a Utah-based company formerly known as Fairbanks Capital Corp.; Countrywide Home Loan Servicing, now a unit of Bank of America Corp.; Carrington Mortgage Services LLC, based in California; Saxon Mortgage Services Inc., a unit of Morgan Stanley; EMC Mortgage Corp., now a subsidiary of JPMorgan Chase & Co.; and Green Tree Servicing, a Minnesota company.
Ocwen Financial Corp., a Florida-based company that services more than 300,000 mortgages nationwide, could receive more than $200 million in TARP payments.
“Ocwen has screwed up my finances so bad you can’t believe it,” said Brad Rhoton, whose rental properties in the Houston suburbs are part of a nationwide lawsuit against Ocwen. “It’s been the most maddening process you can imagine.”
Rhoton’s lawsuit charges that Ocwen constantly misapplied Rhoton’s mortgage payments and tacked on unnecessary fees and insurance, causing his accounts to fall behind.
So far under the Treasury’s modification program, Ocwen has started trial modifications in 8 percent of potential mortgages – below the national average and well below some other servicers.
Paul Koches, a company spokesman, said the number is misleadingly low. Ocwen, he said, has set rigorous standards in documenting its modifications and is therefore likely to have a far higher share of its modifications stick than other companies. He said that Ocwen undertook its own loan modification program in 2007 and has beefed up its staff substantially since then.
As for the suits against it, Koches said they represent a fraction of the firm’s customer base, and many were copycat lawsuits that tried to paint Ocwen with the same brush as other mortgage servicer firms. He said the company continues to vigorously defend itself against lawsuits.
Over the years, Ocwen has lost other lawsuits and has been slapped down by a federal judge for its conduct.
In one Texas bankruptcy case, for example, a federal judge blasted Ocwen after it tried to pass the cost of a $1,000 sanction onto the customer it was cited for mistreating. When the judge found out, he said, “Ocwen’s course of conduct in this proceeding bordered on the outrageous.” He fined the company an additional $27,500.
The case was far from isolated, however. A jury in Galveston, Texas, ordered the company to pay $11.5 million, and one down the coast in Corpus Christi ordered it to pay $3 million for unfairly foreclosing on homeowners (both cases were then settled in the appeals process for undisclosed amounts).
In both cases, the plaintiffs were on the edge financially, and so when Ocwen added extra fees to their accounts, they quickly fell behind.
That was part of their strategy, plaintiffs’ attorneys said. One of the key witnesses before both juries was a former Ocwen account officer who said the company trained its sights on customers who had substantial equity in their homes. In those cases, the company had the most to gain if customers lost their homes in foreclosure.
“We didn’t treat the people very well, but the money was pretty good,” the former account officer, Ron Davis, testified during one of the trials. (Davis couldn’t be reached for further comment.)
The motive, he said, was simple: force people into foreclosure as a way to earn higher bonuses.
“We would call the customers and ask them what bridge they were going to live under,” Davis testified.
Ocwen lost that lawsuit. A Texas jury found that the company engaged in “fraudulent, deceptive, or misleading” tactics that it called “unconscionable.” The case involved an elderly Texas woman the bank tried to evict from her home even after a local judge had ordered it not to. The jury awarded her $11.5 million, which was reduced to $1.8 million, according to Ocwen’s Securities and Exchange Commission filings; the case was settled during appeals.
Outside the courts, federal regulators in 2004 approached Ocwen to request that the company enter into a formal supervisory agreement under which it promised to improve its customer service. It required, for example, that Ocwen beef up its ombudsman to take customer complaints; adopt a “borrower-oriented customer service commitment plan”; take reasonable actions to see if homeowners already have hazard insurance before adding it to customers’ accounts; and regularly report to federal regulators about outstanding customer complaints.
Koches of Ocwen said the agreement was merely an attempt to formalize many of the steps the company was already taking – and that the company and federal regulators wanted to avoid the kind of problems other firms had experienced.
Later that year, however, Ocwen took steps to ensure that such regulatory findings wouldn’t come again.
By successfully petitioning to have itself removed from the oversight of the Office of Thrift Supervision, the supervisory agreement hatched just months before was ended, according to Ocwen’s regulatory filings. Ocwen said it removed itself from OTS oversight for business reasons unrelated to the supervisory agreement and that it continues to follow the intent of the agreement.
© 2009 McClatchy-Tribune Information Services
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