In an absolutely-stunning revelation yesterday The WSJ reported:
WASHINGTON -- The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break, another sign of potential trouble for the soon-to-expire program.
Now let's boil this down a bit. The credit is widely credited with "350,000 home sales that would not have otherwise occurred."
Ok, let's accept this at face value. But it appears that along with these sales we got 100,000 possibly-false claims.
So for every three and a half homes sold, roughly, someone attempted to steal the credit who wasn't entitled to it.
A spokesman for the National Association of Realtors, Lucien Salvant, said, "Any time there is a lot of money around, there is going to be people attracted to it with evil intent."
Really? You mean like Realtors, right? (sorry, couldn't resist!)
There are estimates that the current program (due to expire shortly) costs the government $43,000 per house sold, mostly because most of the people who claimed the credit would have bought a house anyway.
Then there are those who bought a house but really shouldn't have and will lose it, credit or no credit, like this lass:
Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.
The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.
I think its great that she's willing to work three jobs. But if she loses just one, she will also lose the house. Never mind the ridiculous belief system she has ensconced related to the value of her abode:
Tejada appears to be using imaginary numbers about the value of her house. She says that when she bought it, the house was just a “box” with no kitchen or bathroom. Now it is "gorgeous". She claims the renovation has increased the value of her home from $155,000 to $255,000.
Uh huh. Oh, and it gets better:
Tejada sees her house as an investment rather than a home. And she is planning on buying more homes, despite the fact that her income is already strained by her debt. This three bedroom house is just her "first house" and is "a little too big for me." This is the opposite direction house buying traditionally moved in, with young people buying a small fixer-upper or renting and moving into larger homes as their incomes and family size increased. Tejada has started big.
What will she be buying those homes with, one asks? Income? Hmmm... she seems to have committed all her income already, and is working three jobs. With only 24 hours in a day and some of them required for sleep, one wonders.
This much I don't wonder about - the FHA and government have turned the housing industry into a toxic brew of fraud and games, instead of the inherent value: a shelter, or, if you prefer, a place to "hang your hat."
The destructive cycle of over-leveraging individual Americans has not been wrung out of the system; indeed, everyone involved seems hell-bent on continuing the game as if all the bad things of the last two years never even happened.
This is a fool's game folks, but one that our policymakers are more than willing to promote - so long as you're the sucker who gets reamed when things go bad.
Audio Streams
