Tag Archives: Dawn Kopecki

Four-Year-Old Got Homebuyer Tax Credit, Treasury Says

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Thanks, this type of thing fuels the ‘govt can’t do anything right’ constituency.

I’m always careful to make proposals that minimize incentives for fraud and abuse, and also minimize the amount of regulation and supervision needed to ensure compliance.

Hence, I’ve proposed the payroll tax holiday and per capita revenue distributions to the states to support aggregate demand.

Four-Year-Old Got Homebuyer Tax Credit, Treasury Says

By Dawn Kopecki

Oct. 22 (Bloomberg) — Children as young as four years old have
improperly received first-time homebuyers tax credits as the U.S. failed
to adequately screen filings, a Treasury inspector general told
lawmakers today.

“Some key controls were missing to prevent an individual from
erroneously or fraudulently claiming the credit and receiving an
erroneous refund of up to $8,000,” Treasury’s J.
Russell George told the House Ways and Means Committee’s oversight
panel.

More than 1.2 million borrowers through Oct. 9 have claimed almost
$8.5 billion of the $13.6 billion set aside for “first- time” homebuyer
tax credits this year, George said.

George said the IRS has identified almost 74,000 claims that may
not have qualified as first-time homebuyers. They also found that 580
taxpayers under 18 years old and therefore ineligible to buy a home
claimed almost $4 million in tax credits.

The credits, which are available for taxpayers who haven’t owned a
home in the last two years, are credited by Realtors and mortgage
bankers with helping to stabilize home sales this year following the
worst housing slump since the Great Depression.

Lawmakers in the Senate are pushing to extend the credit beyond its
Nov. 30 expiration and expand it to more borrowers.

“Every time Congress creates a new refundable credit — meaning
that individuals can get a check from the government whether or not they
have actual tax liability — the incentive for fraud is magnified,”
Louisiana Representative Charles Boustany, the subcommittee’s
top-ranking Republican, said during the hearing.

Waste, Fraud and Abuse

If Congress extends the credit, the IRS needs to institute better
controls to prevent waste, fraud and abuse, Boustany and Chairman John
Lewis, a Georgia Democrat, said.

Federal auditors also found claims in excess of the maximum amount
allowed, with improper documentation or that exceeded the income
requirements of $75,000 per individual and $150,000 per couple.

Senate Banking Committee Chairman Christopher Dodd and Senator
Johnny Isakson, a Georgia Republican and former Realtor, urged
colleagues at a separate hearing this week to extend the credit through
next June and to expand it to all couples earning $300,000 or less.
Isakson estimated that his plan would cost less than $17 billion in lost
tax revenue.

Purchases of existing homes in August were up 3.4 percent compared
with a year earlier, the National Association of Realtors said. New home
sales were up 30 percent from January’s record low, government figures
show.

Shaun Donovan, secretary of the Housing and Urban Development
Department, called the tax credit a “positive force” in the housing
market during the Oct. 20 hearing before the Senate Banking Committee.

“The end of the tax credit would have some negative affect in the
market,” he said. He said he doesn’t think it would cause a
“catastrophic decline” in home prices.


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Here we go…

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Giving them a quantity target rather than a price target can mean overpaying to meet their mandated buying requirements.

This is a direct fiscal transfer to the sellers of the ‘overpriced’ securities without the compensation or equity costs associated with the TARP.

Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets

by Dawn Kopecki

Oct. 11 (Bloomberg) — Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury’s $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies.

“For now, they’re under conservatorship and they have to be used to keep the flow of capital going to the housing market,” former Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff.” “They’re important to maintaining the flow of government finance” and need to be used actively, he said.

Adding underperforming assets to Fannie and Freddie’s combined $1.52 trillion mortgage portfolios would come at a time when the two mortgage-finance companies already hold as much as $210 billion of bad debt that may be eligible itself for the Treasury’s relief program, their regulator said Oct. 5.

A spokesman for Washington-based Fannie, Brian Faith, and Doug Duvall at McLean, Virginia-based Freddie wouldn’t comment.

Overall Goal

Neither Fannie nor Freddie has turned a profit in the past year, accumulating $14.9 billion in combined quarterly losses, largely related to bad subprime and Alt-A mortgage assets.

FHFA spokeswoman Stefanie Mullin declined to comment on the details of the program. Treasury spokeswoman Jennifer Zuccarelli wasn’t immediately available to comment.

“The overall goal of the program will be to contribute greater stability and liquidity in the mortgage market, which should enhance consumers’ access to mortgage financing and ultimately result in reduced mortgage interest rates,” FHFA Director James Lockhart said in a Sept. 19 statement.

Hard to see how it would move that needle by more than a very small amount.

Subprime loans were given to borrowers with poor or limited credit records or high debt burdens. Alt-A loans were made to borrowers who wanted atypical terms such as proof-of-income waivers, without sufficient compensating attributes. About 35 percent of subprime loans in non-agency mortgage securities are at least 60 days late, while 15 percent of Alt-A loans are, according to a Sept. 9 report by FTN Financial Capital Markets.

Growth

Non-agency, or private-label, bonds are issued by banks and don’t carry guarantees by Fannie, Freddie or government-agency Ginnie Mae. Freddie held about $207 billion in non-agency debt in its $760.9 billion portfolio as of August, according to its latest monthly volume summary. Fannie had about $104 billion of such securities in its $759.9 billion portfolio in August.

Regulators initially restricted Fannie and Freddie’s growth when they seized control of the government-sponsored enterprises Sept. 7. To “promote stability” and lower mortgage costs to borrowers, Treasury Secretary Henry Paulson said the two would be allowed to “modestly increase” their mortgage portfolios to as much as $1.7 trillion through the end of next year and said they would no longer be run “to maximize shareholder returns.”

Less than two weeks later, Fannie and Freddie were told to ramp up their mortgage bond purchases as the financial crisis deepened and credit activity came to near standstill.

Fannie and Freddie which own or guarantee almost half of the $12 trillion U.S. home loan market, were given access to $200 billion in emergency Treasury financing as part of their rescue package. The companies may also be able to sell their bad debt to the Treasury through its $700 billion financial-rescue program signed into law Oct. 3.

FHFA has said the companies plan to release third-quarter results next month as scheduled. Analysts surveyed by Bloomberg project losses for both Fannie and Freddie at least through 2009.


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Bloomberg: Thoughts on Treasury plan

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My take is an RTC type solution only works when the government owns the institutions, so this will probably be different.

I suspect it will be more like Japan, where the government bought a new class of preferred stock in the banks to add capital.

Whatever they will do will cause credit spreads to come in, which will make the assets of AIG far more valuable and probably result in a ‘profit’ for the government.

Unsold Lehman assets will also appreciate.

More comments below:

Paulson, Bernanke Push New Plan to Cleanse Books

by Alison Vekshin and Dawn Kopecki

Government Options
Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets

I see this as problematic as above and as below.

and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff. They spoke on condition of anonymity because the plans may change.

This puts money funds on par with insured bank deposits. Seems no need for both.

Instead, better to remove the $100,000 cap on bank deposit insurance to allow large investors use bank deposits safely. There is no economic reason for the low cap in any case.

Another possibility is using Fannie and Freddie, the federally chartered mortgage-finance companies seized by the government last week, to buy assets, one of the people said.

That’s already in place. They already have treasury funding to buy mortgages.

“We will try to put a bill together and do it fairly quickly,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said after the meeting. “We are not in a position to give you any specifics right now” on the proposals, he said when asked about the potential cost.

The likelihood of the government taking on yet more devalued assets, after the seizures of Fannie, Freddie and AIG and the earlier assumption by the Fed of $29 billion of Bear Stearns Cos. investments, may spur concern about its own balance sheet.

We need to get past this concern about government solvency. It’s simply not an operational issue.

Debt Concern
The Treasury has pledged to buy up to $200 billion of Fannie and Freddie stock to keep them solvent, while the Fed agreed Sept. 16 to an $85 billion bridge loan to AIG. The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program.

“It sounds like there’s going to be a giant dumpster for illiquid assets,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets. “It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative” to the size of the American economy, he said.

This is ridiculous and part of the problem that got us to this point.


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