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Lying to get a Loan

For about a year, the U.S. government has given qualified first-time homebuyers an $8,000 tax credit. The program ends at the end of November, and lawmakers are considering whether to extend it.

According to the testimony of the U.S. inspector general to the House Ways and Means Committee, J. Russell George, more than 1.2 million tax returns claiming almost $8.5 billion in First Time Homebuyer Credits have been processed by the IRS, for more than 350,000 home purchases from the program's start in February through Oct. 22.

There is much controversy around the tax break, primarily focused on the fact that many borrowers cheated to get the credit.

Did I get that right? American homebuyers lied to get a mortgage?

Yes, just like in the glory days that ended a couple of years ago, borrowers stepped up and signed their names to loan documents claiming they qualified when they did not. Four-year-olds got loans. People said they didn't already own a home when they did. Others said they would live in the home when they in fact planned to sell it as an investment. To date, the IRS has frozen 110,000 refunds pending civil or criminal examinations to determine if refunds requests are fraudulent.

It comes as no surprise that people are still cheating to get loans. I wasn't surprised when people stepped out of the shadows to talk desperate people into giving them money to save them from foreclosure, only to bilk them out of everything. And I am not surprised to hear people on the phone with servicers, trying to qualify for loan modification, say things like, "Tell me what the W-2 needs to say to qualify for this program. I can always print another." None of that is surprising because we, as a country, haven't figured out how to change our values so that people don't feel like they should have a loan they don't qualify for or a home they can't afford.

I am just a lifelong student of the mortgage securities industry; I don’t know a thing about changing a society’s values. I can’t help with the social-values aspect of our national crisis, but I can offer advice on how to stop some of the fraud.

Investors shouldn’t buy fraudulent loans. They should make the effort to find out if the loans they buy are clean or dirty, and they should buy only the clean ones. If investors don’t buy fraudulent loans, bankers can’t sell them. If bankers can’t sell them, originators won’t create them in the first place. Investors should do this because it makes the most business sense. But it also happens to be the right thing to do.

What does it take? Investors have to demand real due diligence. Loan buyers have to do their homework. They know there are ways to verify occupancy on a home. They know there are tried and proven methods to determining whether a borrower is four or 40. And they know there are ways to determine if a borrower already owns a home.


tax credit might help

Because of recession we cannot afford to buy or own a new house. We often result in renting, so that we can be more practical with all our daily expenses. But we should never lie just to get a loan. There still many alternatives to cut expenses in order to buy/rent a house to live, one of this is using tax credits. For instance, the American Opportunity Credit – replacing the Hope credit, expenses for college can be deducted. The Making Work Pay Credit will credit $400 for single filers making under $75,000. The Residential Energy Credit is for homeowners that install greener appliances and make environmentally friendly renovations, and there are also homebuyer credits, along with vehicle credits. Totally it can add up to a nice fat return.