There is apprently quite the processing backlog over at the IRS for first time buyers who have filed for but not received their $8,000 first time buyer tax credit.

Kara McGuire at the Strib has the scoop

Like many first-time buyers, the McIlherans didn’t have extra cash available after purchasing their home. What they thought would be an eight-week wait for the tax refund turned into 20 weeks.

Also:

Due to the delays and the time of year, taxpayers who wait and claim the credit when they e-file their 2009 returns could very well see their $8,000 sooner than taxpayers who amend their 2008 taxes.

And: Senator Amy (!) Klobuchar is on the case:

She sent a letter to the IRS on Monday inquiring about the long waits and what’s being done to get Minnesotans their cash. “The full and immediate economic impact of the tax credit is lost when it takes up to four months for people to get the money due to them … such lengthy delays are unacceptable and erode the public’s trust in the competence of the government,”

First Time Buyers Holler: “Show me the money!” [Kara McGuire]

To this point in the mortgage banking meltdown, Fannie Mae, Freddie Mac, and the FHA have gotten most of the attention. 

But now the Washington Post and something called the Center for Public Intergrity have set their sights on Ginnie-Mae (the lesser-known Government backed enterprise that insures FHA-based mortgage securities) for their ongoing relationship with “troubled” lenders.

At issue: GNMA continues to endorse at least a few lenders with awfully skanky track records:

More than a dozen lenders with Ginnie’s endorsement have made loans that are now delinquent at rates far in excess of what regulators consider acceptable. And some of these lenders have been accused of misleading both borrowers and the government about these loans.

Ginnie, in it’s own defense, says that policing the lenders is primarily the FHA’s job, but they are tightening standards, and by the way:

…the average delinquency rate on all their loans is lower than that of the overall market, which has suffered mortgage defaults and foreclosures on a scale unseen since the Great Depression. These officials added that they have never needed taxpayer money to meet their obligations and have enough money in reserve to cover foreseeable losses

Hard to know where this goes, but we’ve certainly heard similar “we’re fine, there’s nothing to see here” assurances before, and you can be sure there are a few more rocks to flip over before the residential finance mess is over.

Without doubt, the response of GNMA and the FHA to concerns over their health will eventually lead to stricter standards that will trickle down to individual borrowers.  Case in point - the FHA even now is seeking higher down payment, credit score, and insurance premiums to offset their losses.

Ginnie Mae’s Growth Fuels Risky Lenders [Washpost.com]

Floyd Norris has up a very good piece on the current state of the loan modification drive, with great insight as to why things are not going so well. 

The article first reveals a problem that might surprise everyone but a banker - Many people aren’t turning in the required paperwork:

“But to make a modification permanent, the banks have to see proof of income, and the borrower has to make three monthly payments of the new lower amount. In most cases, those requirements are not being met.”

You can lead a horse to water.

Also, no matter the “success” of modification efforts, many may be the banking version of a self-licking ice cream cone: Neat, but ultimately useless. 

The money quote:

“It is far from clear that some modifications being granted are really in the borrowers’ interests. Some will be able to stay in homes when they could rent a comparable house for less, and will be so far underwater that they are unlikely to be able to sell the house for years without defaulting on the new terms. It is conceivable that this process is doing more to drag out the foreclosure crisis than to alleviate it.”

 Why Many Home Loan Modifications Fail [Norris, NYT]

FICO, purveyer of the widely used credit scoring model of the same name, has always held information on how their models score specific behaviors - like bankruptcy - a secret.  In fact, it wasn’t long ago that the score itself was supposed to be kept from the consumer.

This is all changing, and FICO is now giving consumers a peek under it’s skirts by revealing how many points a consumer can expect their credit score to drop for credit-related transgressions.

Jeremy Simon from Yahoo Finance explains (see also chart at right):

“The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.”

Also, since our post the other day regarding short sales and credit (quickly: A common misconception, reinforced by the media, is that a short sale can help one “preserve” their credit rating.) I’ve done some digging, and here’s the scoop:

There is no credit reporting designation of “short sale.”  It seems that servicers have mostly been reporting them as “settled” or “charged off,” either of which have a serious derogatory impact on FICO scores - basically, the negative impact of a short sale is on par with a foreclosure, repossession, charge off, and other types of bad debt. 

So referring to the chart above, a short sale will likely result in a drop of 45 to 65 points for a sub-700 score, and a 105 to 125 point drop for scores in the upper 700’s. 

Note that the key here (at least until the industry decides on how they will report short sales) is how the account is reported.  I’ve heard more than one first hand account of a borrower negotiating (read: paying) how the account will be reported as part of their short sale - and if it’s reported as paid as agreed, and there have been no late payments, the impact on credit score may likely be negligible.

Now, this is in some sense “preserving” your credit rating, but unless you decide to lie to a lender in a future application (this is called fraud, don’t do it) a high credit score won’t get you another home loan any sooner.  It will still take 2-4 years, depending on the circumstances.

Short sale inventory in the Twin Cities, Oct 2009 [pdf]

The Treasury yesterday anounced new guidance for servicers/lender to help unclog the short sale sewer pipe.  Calculated Risk has summarized the details, and Rueters has a good write up.

There is however, a small rhetorical flourish within the Reuters piece worth hoisting here for elaboration:

“Short sales are favored by real estate agents and community groups over foreclosure because they can preserve the borrower’s credit rating…”

Depending on how you define “preserving” this is true.

However, those considering a short sale (see graphic above) would be wise to understand that regardless of your credit “rating” you won’t likely be getting a loan from Fannie, or Freddie, or the FHA for at least two years, and in many cases four years after a short sale.

True since at least June of last year.  You can read the memo yourself from Fannie Mae right here.

Over the years, much ink, and many, many pixels have been annihilated advising mortgage shoppers how to best select a lender.

I won’t get into that, but letters like the one below make it easy to eliminate at least one lender under the “don’t ever transact business with someone who is trying to trick you from the start” theory:

The letter above - a run of the mill solicitation letter trying it’s hardest to masquerade as official correspondence offering government support - was sent in by a client, who received it in the mail from a local firm.

My sarcastic streak wants to add that anyone who falls for such a letter deserves whatever they get, but seriously, If you need to explore refinancing, or a modification, or anything else, call a real banker or a real bank.

About a year ago, we had a running semi-serious joke around the office that the government should just buy up every foreclosure for the value of the loan and rent the home back to the owners - back of the napkin math suggested it would just be cheaper in the long run than all of the banking bailouts and the rest of the mess downstream.

I am not sure whether to be pleased or amazed, but our joke is now (almost) reality:

WASHINGTON, DC — Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

Fannie Announces Deed-for-Lease Program [Fannie Mae]

Dear Star-Tribune: 

I dig the asterisk.  Also your new online version of the “real” paper is better than your website.  By a lot.  It took me five minutes to find an article online that was front page above-the-fold this AM.  That seems weird and kind of dumb.

Your friend,

 ~Alex

Nations Hottest Housing Market? [Strib]

Based on a study conducted with my two dogs and the checkout lady at Cub Foods, we know that most people never get beyond the headline. 

In this case, the headline fronting this housing-market story in the Twin Cities Busines Journal, (cropped above) is accurate, until you get to this little tidbit at the tail end of the 5th paragraph:

“…but local home prices have declined 13.7 percent since August 2008.”

That is a positively Kardashian-sized ”but.”

A 13.7% annual home-price decline leads the nation in nothing.  It is a middle of the pack number.

Month-to-month gains, while not negative, are basically statistical noise - a snapshot - and meaningless without the context of a larger trend.  Year over year gains matter far more.

Not to be the one to throw cold water on a market desperate for any sort of positive news, but this kind of thing does not help advance anyone’s understanding of the real estate market.

So for Kim’s sake, if not for mine, keep reading until you get to the but.

It should come as little suprise that the lure of an $8,000 check from the Federal Government - especially one you can get by re-filing taxes outside of the real estate closing - is tempting bait for scam artists:

“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.
—-
“The IRS said it was investigating 167 “criminal schemes” involving the credit, according to the subcommittee. IRS officials on Monday declined to describe the suspected schemes or provide additional details.”

But hey, with another $16.7 Billion worth of housing tax credits being proposed, $800 Million in fraud barely amounts to spilled milk - Just take it from the Wall Street Bonus pool.
Home Buyer Credit is Focus of Inquiry [WSJ]