Fraud, Waste, and the First Time Homebuyer Credit

October 20, 2009 by  
Filed under Economics

The Cash for Clunkers program was by many accounts a waste of taxpayer money because its primary economic effect was to time-shift a bunch of new car sales that would have happened anyway. We also need to critically examine the first time homebuyer credit because the real estate industry is lobbying Congress to extend and expand it. That alone makes me suspicious that the program is a taxpayer ripoff.

Often, when a government-funded program is good for a particular industry, it’s bad for the taxpayer.

An economist at the Brookings Institution ran some numbers in September and came up with these conclusions about the practical effect of the program:

The tax credit is very poorly targeted. Approximately 1.9 million buyers are expected to receive the credit, but more than 85 percent of these would have bought a home without the credit. This suggests a price tax of about $15 billion – which is twice what Congress intended – for approximately 350,000 additional home sales. At $43,000 per new home sale, this is a very expensive subsidy.

It’s even worse in that most of the new home sales just result in moving renters to owners, which does not absorb the excess supply of houses. The core of our weak housing market is that the housing bubble led to too many homes being built, and the recession has led to a decline in household formation. By moving renters into owners, the tax credit does not address either of these causes.

So this fellow believes that each home sale subsidized by the credit will actually cost us about $43,000. More recently, he applied a similar analysis to the pending proposal to extend the credit beyond November and to expand it to $15,000. This, he believes, would ultimately cost the taxpayers between $259,000  and $292,000 per additional home sale generated by the credit.

Mr. ToughMoneyLove doesn’t like the sound of those numbers.

Some readers may be inclined to ignore these estimates because they won’t believe anything they read or hear from the Brookings Institution. Fair enough. I feel the same way about tax legislation from Charlie Rangel whom I wrote about last year and is back in the news with his tax-dodging exploits.

So let’s shift gears to the issue of fraudulent claiming of the homebuyer credit, now a more bipartisan concern. According to the Wall Street Journal, the IRS is already examining more than 100,000 suspicious claims for the credit and 167 different “criminal schemes” related to it.

The discovery of massive fraud in the program would not surprise me for the simple reason that the credit is claimed on a tax return and not at the time of sale. From a recent White House advisory panel came this testimony:

Bonnie Speedy, national director of AARP Tax-Aide, a volunteer service for low-income people, suggested that abuse of the home-purchase credit appeared to be widespread, in part because of relatively loose standards for claiming the credit.

The credit “has some fraud issues because it’s not being done at the time of the sale,” said Ms. Speedy. “People are filing for the home credit who don’t have a right to file for it.” Taxpayers don’t have to file their claims as part of a real-estate transaction and instead can file or amend their income-tax returns to claim the credit.

I’m a Tax-Aide Volunteer myself. I’m now having to mentally prepare myself to cross-examine the credibility of those who come to me claiming to be first-time homebuyers. If I get folks asking for help amending their 2008 returns, the warning bells will go off. There seems to be an endless supply of scam operators and fraud enablers in our culture along with thousands of unethical taxpayers willing to play along.

I hope the IRS finds everyone of them. And I hope that Congress lets the first time homebuyer credit disappear as a lesson learned.

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17 Responses to “Fraud, Waste, and the First Time Homebuyer Credit”
  1. Interesting way of looking at it. That is a really bad deal for the tax payer.

  2. Rick Beagle says:

    I understand why the Administration and others went down this path in that it helps stimulate home buying again, and it was hoped that this demand would slow the decline in housing costs a bit. But I do agree that the transfusion of capital without correcting the underlying problems with the market is rarely a successful strategy. My guess is that they were just buying time (sort of like the cash for clunkers program).

    Insofar as the prosecution of people who are using these or any program to enrich themselves – amen. Let’s send a paddy wagon to Wall Street and pick up those criminals as well.

    Finally, it strikes me as odd that you do not berate the continued waste of money that are our two “wars”. While it is unlikely that withdrawing from these conflicts would improve the economy directly, the continued dump of cash into these two money pits is not sustainable.

    Remember I’m a vet, so don’t blast me for being unpatriotic, but at this juncture it is unclear what our objectives are and I for one am tired of spending our cash (what remains of it) and the blood of our patriots on something dubious and unclear.

    Rick Beagle

  3. MasterPo says:

    As I’ve always said: *Buying* a home is actually the cheapest part of home ownership!!

    If someoen needs a hand out to make the purchase then how are they going to afford to pay the property tax? The utilities? The insurance? The constant repairs and maintenance? Or even just the furnishings of a house compared to an apartment?!

    Home ownership is a transaction – NOT a right! :-(

  4. MasterPo says:


    Our two “wars” are what’s keeping your butt and mine safe so we can banter all day long here!!

    Besides, wasn’t it your Nobel Prize-winning lad who said Afaganastan was the real war? Don’t you support our Messiah-n-Chief?

    • Rick Beagle says:

      Like many of your ilk, you confuse support for our troops with partisanship, and patriotism.

      Afghanistan was our enemy, but our enemy has moved on to other countries in the area (Pakistan) which renders continued forays into Afghanistan a waste of blood and money.

      Iraq was never about anything other than making “friends” of Cheney wealthy. For my part swapping the blood of our military so other can enrich themselves is tantamount to treason in my book. Unfortunately that lying weasel is too well connected to hang from the gallows like he should.

      Continued blood loss and capital loss in either conflict is unacceptable and furthermore does nothing to insure our safety or protect our freedoms. We are just squandering peoples lives in a game of political chess which is disgusting and vile.

      Rick Beagle

      • Rick – I have to partly agree with you. The time has come to get our money and troops out of Muslim countries that are completely dysfunctional. Let the Sunni, Shia, and other “tribes” kill each other if that’s what they want. We should redirect our resources towards securing our borders, measures that will defend us against rogue nuclear attacks by terrorist organizations, and military build-ups that will intimidate rogue nations (e.g., Iran and North Korea) from any military aggression. In other words, the nation building activities should be redirected internally.

        • MasterPo says:

          If it were just them killing each other I’d agree. Wipe each other out.

          But intead one side will win and I promise you the victor will not be friendly to the U.S.

          You can’t hope to stop future 9/11’s being solely defensive. They are coming for us. Maybe tomorrow, maybe next Tuesday, maybe 7 years from now. But they are coming.

          You should learn from history: When Israel invaded Lebanon in 1990 and pushed out the PLO, under international pressure they retreated back inside Israeli boarders. The result was a power vaccum that lead to the Lebanese civil war that gave rise to Hezbola and Syrian control of much of the country and the problems there now.

          Frankly, I don’t understand why “nation building” is no such a bad thing. Didn’t we “nation (re)build” Germany and Japan after WW2?

          • Rick Beagle says:

            “You can’t hope to stop future 9/11’s being solely defensive. They are coming for us. Maybe tomorrow, maybe next Tuesday, maybe 7 years from now. But they are coming.”

            “Frankly, I don’t understand why “nation building” is no such a bad thing. Didn’t we “nation (re)build” Germany and Japan after WW2?”

            Wow. I worry about you MasterPo. Make sure you have a lifeguard on hand when dipping into the koolaid so far. I truly love how you ignore history to make your last statement…. Just wow. Wear “floaties” or something next time you flip on FOX.

  5. MasterPo says:

    Oh that’s right.

    Radical, extreme, homicidal islamic terrorists were just soooooooo outraged by Bush’s election in 2000 that in a mere matter of months from when he took office they conceived of, designed, planned, trained, and carried out the 9/11 attacks. This wasn’t anything long term in the planning. The prior bombing of the WTC along with the attacks on the U.S. embassies in Africa, the USS Cole bombing, the Philipean(sp) bombings, etc. were all isolted incidents, not part of a long running and escalating war. Just a knee-jerk reaction to President Bush.


    You can put your head back in the sand now.

    • Rick Beagle says:

      You are so deep in the koolaid that you can’t even tell reality from fantasy. Seriously, you need to back off a bit and read what you type. Do you really think it is my belief that terrorists’ targeted us because of Bush? We disagree, but seriously, that is an absurd comment to make.

      Furthermore, sending armed forces into a country just so we can get bidding on their oil fields does little to stop terrorism (yep, after thirty years, the oil fields in Iraq were opened for bidding – the very day we pulled out of their biggest cities). It was all about the money and the oil… never about terrorism or preventing it. Doubt it? Why did we let OBL get away? That’s not the claims from some left winged blog, that is testimony from the CIA and military operatives on site in Afghanistan. Want a link?

      They put the fear of God into you and then took advantage of our country and it’s most patriotic and bravest.


  6. MasterPo says:

    If we did “let OBL get away” that’s because the political end didn’t have the stones to do what is need to get him. Carpet bomb, blast anything that moves, etc. Rather than swoop down and arrest him. Clinton did no better. The Sudan offered OBL to him on a silver platter and he didn’t take him, saying we didn’t have enough “evidence” to arrest him!

    Can you explain why, to this day, the British have NEVER recanted their intellegence reports that Saddam had WMD’s? I’d remind you that a WMD isn’t just a nuke but also chemicals (and bios). We know for a FACT Saddam had them and used them on his own people. I clearly saw CNN (no friend of Republicans) reporting how Saddam used chemicals on unarmed civilian Kurds in the north of Iraq after Desert Storm. Funny, they blamed it on Bush too!

    But your right. Let’s just put out WANTED posters in the post offices and 7-Eleven’s of the world. Maybe someone will drop a dime on OBL and other terrorists. In the meantime, if you see something say something is out best defense. (That is, if you say something you may be sued for discrimination!)

    My greatest fear: People of your think have lead us back to a pre-9/11 thinking mode a mere 8 years after the most DEVISTATING attack in American history. I thank G-D you and your thought followers weren’t around in 1941.

    Just what will it take for you to get your hackles up over the death of Americans? If 3,000 civilians (I knew some of them!) wasn’t enough would 30,000 or 300,000 be enough for you? Or is that still Bush’s fault anyway…

    • Rick Beagle says:

      14,000 die a year (and growing according to recent report from some hack group at Harvard) due to lack of adequate health care, but I don’t see you wanting to spend a trillion or two on that?

      More to the point, explain to me how in the heck is our efforts and blood overseas stopping terrorism? Please explain that to me because so far, you have nothing. As for WMDs being in Iraq, where are they and more importantly, where is the data that showed that they represented a threat to our country or our allies? Again, you have nothing….

      Here is a thought for you, before we send our people to die how about we actually have a goal besides making Cheney and his friends rich. Point in case, we had Iraq stabilized and we were set to move out — Cheney replaced the transition team and fired the Iraq military (thereby creating the insurgency). There is no way you could possibly look at the timeline and see that treason wasn’t committed by the office of the Vice President. Throw in some torture and the man needs to be sent to prison.

      If you were around in 1941 you would have happily supported Hitler — mull that over.

  7. MasterPo says:

    And, according to some groups, 50,000 children a year die from “second hand smoke” but cigs are still legal.

    So what’s your point?

    ps- You’re Hitler comment proves you’re off your meds.

    • Rick Beagle says:

      Hitler was a right wing fanatic that used propaganda and patriotism to seize power. He believed that his countrymen were superior and that they should take what they need or want from those that would dare oppose or oppress them.

      That is a short succinct version, but you get the point. Now read your asinine comments and tell me how you wouldn’t have supported Hitler? You are a “history fail” MasterPo.

      Rick Beagle

  8. MasterPo says:

    pps- I would *still* like for you or anyone to show me a *well documented* (meaning I can read both the claim being made, the reason for the insurance denial and the details of both the bill and the policy, among other information) example of someone with full health insurance coverage that was in force and paid up to date then got sick and we denied insurance benefits just because the “evil” insurance company didn’t want to pay the coverage the person had in force!

    I’m willing to bet well that in 99.999% of the cases where it is *claimed* that someone with insurance was denied benefits it is because either:

    – the policy has lapsed (probably due to non-payment of premiums)
    – the claim was not properly submitted (paper work BS)
    – there is some specific limitation or exclustion listed in the policy the person either knew about or didn’t bother reading about
    – some kind of treatment clearly not include or clearly excluded from coverage but they think they should be able to get anyway
    – a set limit of coverage the person either didn’t want to pay for or didn’t bother to read about
    – a specific lack of coverage the person chose not to pay for or didn’t bother to find out about

    I know there are situations where an insurance company will simple play dumb and drag their feet hoping the claim will go away. That’s not in any way exclusive to the health insurance industry. Car, home, disability, even life insurance has had those problems on occation. It isn’t a perfect world.

    But I just can’t fathom that your number of 14,000 (I’ve heard other numbers from 12,000 up to 20,000) people die a year from bad health care due to having insurance but simply being denied services for the sole reason of “just because we say ‘No'”.

    • Rick Beagle says:

      There are thousands of examples MasterPo. If you can’t find them, you aren’t looking that hard. Did you happen to catch that case in California with regards to Blue Cross and Blue Shield? A few billion in penalties for doing this should equal proof, but at this point, you are so hell bent on supporting your myriad of views that proof to the contrary is neither welcomed nor even considered.

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