Let's mix tax and mortgage fraud and see how bad that can be.

The latest: People are amending their 2008 tax returns to show that they've bought a home and are entitled to the $8,000 first-time homebuyers tax credit.

But they haven't bought a home.

They did, however, get a big fat check, because that tax credit is refundable.

A local mortgage processor tells me she seen loan applications from five families that have done this.

The first-time homebuyers tax credit covers any home purchased by Dec. 1 this year. So these families could indeed get a home by the deadline and everything would be OK. But I have a feeling that wasn't the point.

If they don't, they probably would have to repay the tax credit. And, they could be in legal trouble, too, for filing a false tax return.

Meanwhile, some of these folks have such poor credit, they're not going to qualify for a mortgage. Now or in December.

Dangerous game they're playing.

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Some thoughts on loan modifications, which I wrote about on Monday and today's Wall Street Journal covered.
There's a huge logjam, borrowers say they're not getting any results, and from the street level. everyone's frustrated, including some bankers.

We're not hearing anything from Washington, either. The Obama Administration set up a program to pay lenders to modify mortgages. So far, few have been done. When I called Treasury to ask for some specifics about how the program is working and whether banks are required to report back on how many loans have been changed, I didn't get an answer or a promised call back with the information.

-Take One: A reader responding to my last story said she put her paperwork in with Chase in December and still hasn't heard back. Another said he waited seven months for word from Wells Fargo. Paperwork got lost. Misinformation was on the application. He was denied.

-Take Two: Chase this morning tells me they have modified 15,000 loans naitonwide since last October using the Obama administration's new plan. This is both a good and a bad number, It's a good number, for one lender (even though Chase now includes Washington Mutual), considering that it's a big chunk of the 55,000 loans nationwide that the administration says have been modified under its plan. But in the overall picture, there are millions of loans in trouble. The proportion of those getting help remains small.

-Take Three: John Ulzheimer, president of consumer education for Credit.com, points out in an email that you don't have to pay anyone to get your loan modified. Sure, some law firms and companies that advertise will handle your modification, but for a fee. It's not necessary. You can do it yourself. But as my story pointed out, it takes a lot of effort.

-Take Four: Ulzheimer points out that modification, if you can get it, won't damage your credit the way a foreclosure or a short sale would.

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Clark Howard, on Headline News, had a good suggestion. He pointed out that lots of people are trying to refinance their mortgages but lenders are simply not responding. His idea: Try again later. Because interest rates aren't going up.

I completely agree. These low rates are here to stay for a few months, at least. The Treasury wants them to be low and there's almost no inflation at the moment. Rates have ticked up from the very bottom. But they're still good.

If you want to watch Clark's Video Tip of the Day, have a look http://clarkhoward.com/archives/video.html

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Everybody's talking about loan modifications.

So here's my report, a commentary I did the other day on Nightly Business Report on PBS.

http://www.sun-sentinel.com/video/?slug=sfl-brackey-protect-home-042409-vid

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Think you're in trouble with your mortgage?

Here's a quiz that can help. Take this "Mortgage Reality Check" from the National Foundation for Consumer Credit Counseling. It'll tell you whether it's time to worry.

http://www.housinghelpnow.org/MortgageQuiz.cfm

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How do you refinance a mortgage today?

I've been working on a story about that and the answer is, it's not easy. One mortgage broker told me six out of ten borrowers don't qualify.

Either they don't have any equity n their home or their home is worth far less than what they borrowed.

If you think you might want to refinance -- and rates still are at historic lows -- here are some tips:

-You need a minimum credit score of 700 to get the best terms. Borrowers with lower scores can get financing, the lenders say, but those borrowers will pay additional fees.

-Ask for less. Lenders also are making smaller loans than they did only a few years ago during the housing boom. Wells Fargo, for example, in November cut the amount it would lend to 90 percent of a single family home’s value, down from 95 percent. For condos, the figure is 80 percent.

-Don't go above 80 percent of your home's value.
That's because anyone who borrows more than 80 percent of value also has to get mortgage insurance – which lenders say has become very difficult to obtain in Florida.

-You have to be working.
Borrowers these days need proof of income, at a time when unemployment is rising. One lender said a very wealthy client who is living off his investment portfolio wasn’t able to refinance because he dodmt have a job.

Bottom line: The mortgage industry rules have changed.
“People who want to get a mortgage who have no equity or little equity in their homes or who want those gold old [loan] programs for those who make money but don’t prove it, those are pretty much gone,” said Stuart Shanefield, of WCS Lending in Boca and Fort Lauderdale.

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The other day, one of the talking heads on The Today Show gave some brilliant personal finance advice. If you’re unable to pay your bills and thinking about bankruptcy, she said, call a bankruptcy judge and ask for advice.

I howled at that one.

Like those folks sitting on the federal bench have time.

They’ve seen the number of cases being filed soar. The judges – and the clerks and everyone else in the Southern District bankruptcy court - can handle the surge, I’m sure. They went through worse times in 2005, when the bankruptcy law changed and everyone rushed to the courthouse to beat it.

But the debtors today are in true distress.

And bankruptcy isn’t going to help everyone.

Just ask Judge A. Jay Cristol of the Miami court.

Clearly exasperated with the court’s inability, under current law, to alter the terms of a mortgage on someone’s primary residence, Judge Kristol told me, “The banks are rich and stupid and greedy.”

It’s open to debate whether banks that refuse to renegotiate with troubled borrowers are acting in what might be their own best interest. They’d rather drive another home into foreclosure? With the more than a million homes already there?

But many may have their hands tied, as do the judges. They may have agreements with loan servicing firms that they can’t change. They can’t force the servicers to change loan terms.

As long as this situation continues, “There are going to be a lot of empty homes, a lot of losses and a lot of people on the street,” Judge Cristol said.

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Mortgage interest rates plunged below 6 percent in the last week, reaching the lowest level in five months, reflecting investors’ relief over the government bailout of Fannie Mae and Freddie Mac.

Freddie Mac’s weekly survey released Thursday showed average 30-year, fixed-rate mortgages have fallen to 5.93 percent, down from 6.35 percent the week before.

The rate on 15-year, fixed-rate mortgages averaged 5.54 percent, down from 6.90 percent.

“It puts a little more buying power behind those prospective buyers in today’s marketplace,” said Greg McBride, senior financial analyst at Bankrate.com.

The new rate would slice about $76 off the monthly payment on a new $200,000 loan, compared to one month ago, Freddie Mac said.

Offsetting the good news, though, are declining home values, which would make it impossible for some homeowners to refinance their existing mortgage to take advantage of lower rates.

Looking ahead, rates may have a little bit farther to fall, says Orawin Velz, associate vice president of economic forecasting at the Mortgage Bankers Association of America.

In the fourth quarter, the organization expects rates to hit an average of 5 percent. Next year, however, she said they could pop up above 6 percent as the economy recovers.

And, lenders have told regulators that they've raised their standards for making new loans, which means it is more difficult to qualify for a mortgage.

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Thirty-year fixed mortgages overnight have fallen well below 6 percent.

That's a huge drop from last week, when the 30-year fixed average was 6.35 percent. As of Tuesday, Bankrate.com says the rates have fallen to 5.88 percent.

It's probably a sign of how much the market likes the Fannie and Freddie takeover.

Watch for further declines Thursday, when Freddie Mac posts the weekly average.

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I get somewhat frightened by the prospect of the financial markets going back to business as usual, at least the way they've defined that since 2006.

I am wary of re-opening the market for subprime mortgages. I am wary of lenders who make home loans based on such small down payments that the buyers walk away the minute trouble begins.

Call me out of touch, but high lending standards are a plus. They are high for a reason. The people who couldn't really handle buying a house have now fallen, at the fastest foreclosure rate in more than three decades.

Did lax lending standards do us much good? I don't see that they did. Neighborhoods were transformed into fertile grounds for speculation. They're gone, the homes and condos are empty, and so many small-time buyers are hurt. And, as I've reported before, the rate of home-ownership in America went up only marginally while all this was going on. In 2000 it was 66.2 percent. In 2006, it was 67.3 percent, the Census Bureau says.

So the government is taking over the two giants of mortgage finance. That should quiet the storm in financial markets.

But the crisis here, in the real world of too many homes to sell, continues.

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The FDIC tells me that 597 Florida homeowners will be included in the first round of offers to modify IndyMac loans. That's about 15 percent of the 4,000 total letters that are due to go out by tomorrow.

If you are an IndyMac borrower -- meaning the failed bank either made your loan or serviced it -- you may be eligible for the loan modification program that the FDIC announced yesterday. You can call 1-800-781-7399 to talk with the bank's customer service staff.

Here's the part some borrowers might not like. IndyMac, which made tens of thousands of loans in Florida, was known for making Alt-A loans, which required little or no verification of a person's income. In other words, liar loans.

To qualify for the FDIC loan modification program, you have to do it the right way this time. You must show proof of income.

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Trying to set an example for the mortgage industry, the Federal Deposit Insurance Corporation Wednesday said it would offer new mortgages to thousands of troubled homeowners whose loans came from or were serviced by IndyMac Bank, which failed in July.

In Florida, that means some of IndyMac’s thousands of borrowers could be getting the offers, starting this week. According to National Mortgage News, IndyMac originated 30,223 loans in Florida in 2006, the most recent year for which statistics are available. The loans were valued at $6.3 billion.

IndyMac was a major originator of what are called Alt-A loans, which required little or no documentation of the buyer’s income.

While a greater proportion of sub prime mortgage borrowers are in trouble as the nation’s housing crisis deepens, distress is growing in the Alt-A category. According to First American CoreLogic, a mortgage data firm, 12.79 percent of Alt-A loans nationwide are 60 days or more behind in payments. That compares to 3.4 percent in May, 2007, and 1.38 percent in May, 2006.

The FDIC said it will send modification offers to 4,000 IndyMac borrowers by the end of this week and “thousands” more in following weeks.

“We hope to be a model for other servicers,” FDIC Chairman Sheila Bair said at a press conference.

The new loans would be fixed-rate mortgages, with payments for principal, interest, taxes and insurance equal to no more than 38 percent of the borrower’s gross monthly income.

To make the payments affordable, Bair said the agency would first consider cutting the loan’s interest rate for up to five years. Next, the loan’s length might be extended. A third tactic would be principal forbearance, in which the payment would be calculated only part of the full amount of the principal.

Interest rates on the new loans would be capped permanently at about 6.5 percent.

The new loans, however, would not forgive the debt or any part of it.

“Borrowers should understand that this modification program is for people who want to stay in their homes and to promote long-term home ownership,” she said.

The FDIC took over IndyMac in July, in the second largest bank failure in U.S. history.

At that time, the bank serviced or owned more than $184 billion in home mortgages for an estimated 740,000 borrowers.

For more information on the FDIC’s loan modification program for IndyMac borrowers, call 1-800-781-7399 or visit the FDIC website, www.fdic.gov or the IndyMac website, www.imb.com

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Here’s a thought:
Maybe first-time homebuyers can rev up the housing market.

After all, the housing bill that President George W. Bush signed July 30 gives them a nice $7,500 refundable tax credit against the purchase of their home. They have to use the credit right away, because this provision expires next July 1.

They’re an important group, by the way. The Florida Association of Realtors said than in 2007, first-time homebuyers accounted for 38 percent of all sales. Young people ages 25 to 34, presumably the group that includes the most first-time homebuyers, snapped up almost half the homes sold in Florida last year.

What does a young person need? A job, some savings and now, we’re going to hand out a little cash to help with the purchase.

Ara Hovnanian, the CEO of builder Hovnanian Enterprises, said on CNBC this morning that a much smaller tax break for first-time homebuyers in the 1970s “really worked.”

For more on the housing bill, look in the paper on Sunday. In my column, I’ll discuss the help it offers struggling homeowners to refinance their loans.

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“Foreclosure Prevention Rises 136 percent in Florida”

So said the press release.

But read on and you’ll find that it’s just so little help for so many people in trouble.

Lenders say they are willing to work with troubled homeowners, but are they?

The release from Genworth Financial says that in the second quarter 276 Florida borrowers completed loan workouts – a catchall word for deals in which terms of a troubled loan are changed so that the borrower can afford to repay it.

Great. It’s not a big number, but it’s something.

In June, almost 5,000 homes in Broward and Palm Beach were in some stage of foreclosure.

The 276 Florida buyers who Genworth Financial helped may have been the lucky ones.

Or may not.

The release says one in four in Florida who did get a workout lost their home anyway.

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Answer this one quick: What percent of Floridians would you guess have homes in foreclosure?
Ten percent? Twenty?

It may come as a surprise that between 5 and 6 percent of Florida homeowners are 60 days behind in their payments, according to the credit bureau TransUnion. That was in the first three months of this year. It's a high rate. But I'm betting it's not as high as you might have guessed.

And, another surprise is that TransUnion is predicting that Florida will fall out of first place by year-end.

Nevada may end the year at 7 percent, the credit bureau predicts.

Let's do a Behind on Our Payments Scorecard. On auto loans, 0.65 percent were 60 days behind in the first quarter nationwide. On mortgages 3.23 percent. On credit cards, 1.19 percent were delinquent on one or more cards

TransUnion looks at its 27 million credit records to come up with its stats. That gives you some perspective on the dramatic rise in foreclosures. It is dramatic. It is a rise. But it may not be quite the phenomenon that you think it is.

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The explanations that have come out of the subprime mortgage crisis just don't ring true.

One of the arguments they’re making to explain why they lent money to anyone breathing, without checking to see if the person could afford to repay the mortgage, was because they wanted in their heart of hearts to increase home ownership in America.

Baloney.

We have a lower rate of home ownership today than we had four years ago. And I’ll bet it goes lower.

The Census Bureau’s American Community Survey says nationwide, we had a 66.2 percent rate of homeownership in America back in 2000. By 2006, the rate had grown to an astounding …. 67.3 percent.

The gain is so small it’s almost nothing.

What we have today is a rate below the peak of 69.2 percent at the end of 2004.

What did we gain, by expanding sub prime lending?

Tens of thousands of foreclosures.

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