$7,500 Tax Credit in the Stimulus Package

Homebuyers get a bonus in the stimulus bill
First time buyers could receive a $7,500 tax credit if they purchase soon.
By Les Christie, CNNMoney.com staff writer
Last Updated: January 29, 2009: 7:38 AM ET

NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.
Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.
Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.
"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."
A 10% increase would yield an extra half million sales this year.
Who qualifies
To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.
Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.
Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.
And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability.So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.
The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.
Buyers beware
But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card. Williams points out that buyers should beware that they won't actually receive any refund for a home purchased this year until after they file their 2009 income taxes in April 2010.
And he argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway.
And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."
The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.
"By the time it's implemented," said Trupo, "there could be very few months left to act."
First Published: January 29, 2009: 4:45 AM ET

Find this article at: http://money.cnn.com/2009/01/29/real_estate/tax_credit_near/index.htm?postversion=2009012907

Foreclosure Scams are Happening Here, Too!

From the New York Times, January 14, 2009
January 15, 2009
Swindlers Find Growing Market in Foreclosures
By JOHN LELAND
As home values across the country continue to plummet, the authorities say a new breed of swindler is preying on the tens of thousands of homeowners desperate to avoid foreclosure.
Until recently, defrauders tried to bilk homeowners out of the equity in their homes. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” that charge upfront fees to modify loans but often do nothing to stave off foreclosure.
The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more. In Florida, Attorney General Bill McCollum recently sued a company that he said had more than 600 victims.
“There’s no way for the consumer to sort out the legitimate companies,” said Mr. McCollum, who added that he had limited resources to fight what he called “a sheer volume question.”
The companies under suspicion typically charge an upfront fee of up to $3,000 to help borrowers get lower rates on their mortgages from their lenders. But borrowers often cannot afford the fees, the service can be bogus and, in the worst cases, the homeowners lose their chance to renegotiate with their bank or to file for bankruptcy protection because of the time wasted.
There are companies that provide legitimate foreclosure services, but the industry is largely unregulated, making it difficult for homeowners to separate the good from the bad. Some of the fraudulent companies — often run by former real estate agents or mortgage brokers — are local; others are national. Many have official-looking Web sites that suggest that the companies have government affiliations and give homeowners a false sense of security.
“That’s all I’ve been doing for the last year,” said Angela Rosenau, a deputy attorney general in California, citing more than 300 complaints about fraudulent companies last year, not counting those made to local prosecutors.
Experiences like those of Maria Martinez, of Stockton, Calif., are playing out with greater frequency across the country, the authorities say. Ms. Martinez struggled to pay her mortgage last summer. She had no shortage of people offering to help. Fliers for rescue companies filled her mailbox.
At a seminar for troubled borrowers near her home, one company offered a service that promised just what Ms. Martinez needed: for $1,000, the company said it would negotiate with her mortgage company to lower her interest rate.
“I was desperate,” said Ms. Martinez, 57, a clerk at the San Joaquin County Jail. She made an initial payment of $500 and paid another $500 a few weeks later.
Now the house is in foreclosure, and Ms. Martinez is waiting for the sheriff to evict her. She cannot reach the man she paid to modify her loan.
In California and 20 other states, including New York, companies are prohibited from collecting payment until they have completed their services, something Ms. Martinez did not know. In Colorado, the attorney general’s office has closed 15 mortgage rescue companies that charged fees up front.
Carol McClelland, 46, fell into foreclosure on her Chicago home when she lost her job as a waitress in two restaurants. She received a call from a company called Foreclosure Solutions Experts, promising to stop the foreclosure and lower her mortgage payments to around $550 a month, from $1,056, Miss McClelland said.
“She showed me other clients’ files, and they were paying $650 a month,” she said. The charge for the service was $1,300, which Miss McClelland paid in installments, borrowing the money from friends and relatives.
When the loan servicer notified her that the house was still in foreclosure, Miss McClelland said, the representative from Foreclosure Solutions Experts told her that the matter had been taken care of.
“She told me everything was all settled; I don’t have to worry about anything,” Miss McClelland said. “All I had to worry about was getting the rest of the money to her.”
According to a suit brought by the Illinois attorney general in November, Foreclosure Solutions Experts does little or nothing to help consumers, and when it does take action, the result is often a repayment plan unsuited to the borrower’s ability to pay. The suit alleges that the company never contacted Miss McClelland’s lender, HSBC.
Illinois is one of the states that bans upfront payments to foreclosure rescue companies. The attorney general’s office has received “thousands” of complaints about such companies, said Michelle Garcia, an assistant attorney general, and the suit against Foreclosure Solutions Experts is one of 22 filed by the state.
Stacy Strong, who runs Foreclosure Solutions Experts, did not return calls for comment.
Advocates say foreclosure rescue scams are particularly insidious because they prey on people’s desperation and because they victimize those who can least afford it.
Borrowers seeking loan modification are often frustrated that they cannot reach the right people at their lender or that the lender insists on a repayment plan they cannot keep, said Ira Rheingold, executive director of the National Association of Consumer Advocates.
“When you’re desperate, that’s when the crooks come out,” Mr. Rheingold said. “You’ve tried everything, and a guy calls you up on the phone or there’s an ad on TV, and you have no other options, what do you do? You go to those guys.
“People probably know in their heart of hearts that they may be getting ripped off, just like most people understood on their mortgages that they were getting in too deep, but bankers said yes, so it must be O.K. It’s the same thing. The real problem is that we continue to fail to have systems in place that help people.”
Ms. Rosenau, the California prosecutor, said that even when she told people that they had been swindled, “they don’t believe it, because they want it not to be true.”
“And any money they had to possibly work with the lender is now gone to the scam,” she said.
In Baltimore, where neighborhoods have been buffeted by successive waves of mortgage scams, Ann Norton, director of foreclosure prevention at the nonprofit St. Ambrose Housing Aid Center, said companies promising loan modifications started to multiply last summer.
“It’s the same people that joined the industry during the refinance boom, and now they’re making fees for submitting loan remediation forms,” said Ms. Norton, whose agency provides free help to borrowers.
Although Maryland was among the first states to enact legislation defining mortgage rescue fraud, Ms. Norton said, “it’s a growing industry, and it’s under the radar.”
Often the scammers represent themselves as having connections to government groups, or copy the name and typography of the Hope Now program, an alliance of nonprofit, government and lending agencies, said Marietta Rodriguez, director of national homeownership programs at NeighborWorks America, a nonprofit group that provides free government-certified foreclosure counseling through 235 local organizations.
“Several took the Hope Now Web site and just reskinned it with their own information, or they use government seals,” Ms. Rodriguez said. “They’re very crafty, and their marketing strategies are aggressive.”
Peggy L. Twohig, associate director of the financial practices division at the Federal Trade Commission, said consumers should be wary of companies that promise results, charge upfront fees or tell them not to contact their lender on their own. Ms. Twohig said consumers could get the same help free from nonprofit housing counselors.
“Our advice to consumers is to contact their loan servicers directly or to call Hope Now or HUD-approved housing counselors,” she said.
Last year, Congress approved $180 million in grants to nonprofit housing counselors.
As Ms. Martinez awaits eviction, the temptation to try another foreclosure rescue specialist remains. “There’s other agencies that say they can help,” she said, “but I’m scared that I can’t trust them.
“One man said, ‘You have to be persistent,’ ” she said. “But I’m scared to get someone else, because they probably won’t help me, or can’t.”