Major mortgage fraud investgation linked to Indiana

The Indianapolis Star has just posted a report that an Indianapolis resident is being targeted in mortgage fraud investigation (click here). The report is based on a front-page article in today’s New York Times. Click here to read the NYT article, which begins as follows:

“MARTINSVILLE, Va., Sept. 27 — In a tightknit neighborhood, where people’s social lives often revolve around their churches, Beulah Penn and her daughter, Sharon, were well-connected and trusted. Beulah Penn was a lay minister in a local church; her daughter, Sharon Penn, dressed hair.

Using these connections, according to a recent lawsuit, the two women and another relative in Indianapolis perpetrated one of the largest mortgage frauds in American history, victimizing dozens of local residents and, according to sources with knowledge of the accusations, at least $40 million in fraudulent loans — perhaps even twice that amount.”

Wow. Mortgage fraud is truly an epidemic that leads to bankruptcies, foreclosures, and family tragedies. Check out The Mortgage Fraud Blog, which is a sort of clearinghouse for information on fraud activity around the country.

New flash from HoweyPolitics.com: Gov. floats idea of TABs

A couple of weeks back we commented on an idea under consideration in Allen Co. regarding Tax Adjustment Boards. You can read that post here.

Brian Howey of HoweyPolitics.com is now reporting that Governor Daniels has "floated" a version of the TAB approach to property tax control during a speech today (click here to see his coverage). There is a lot of merit in pursuing this concept and IAR appluads the Administration for raising the profile of this idea.

UPDATE: Brian Howey's recap of the Governor's comments this morning on TABs is no longer at the link above, but you can click here to read the article Theodore Kim posted on IndyStar.com at 1:55 pm.

Interesting summary of Chicago Fed housing conference

The Federal Reserve Bank of Chicago has published "Fed Letters" for the month of October. One of them summarizes a conference on the national housing market held earlier in the year. It is a brief but nice overview of changes in the mortgage market, homeownership rates, and home price appreciation. You can read the full document by clicking on the link below:

Developments and innovations in real estate markets: A conference summary

Remember the Tax Adjustment Board?

Fort Wayne-area blogger and former state legislator Mitch Harper has written before on the Tax Adjustment Board, and a renewed discussion of this concept could not be timelier. Read Mr. Harper’s most recent post here for background on the TAB.

IAR has written before here that perhaps the best public policy element of the controversial “2% cap” is that it creates a shared accountability between taxing units. With mayors declaring “war” on the 2% cap and some legislators indicating that changes will be made, we fear that this shared accountability could be lost in any changes.

In the legislative give-and-take over the 2% cap, Hometown Matters, and property tax relief next session, maybe there is hope for a new system of property tax controls that looks at the overall burden on each taxpayer? Some form of the TAB could be the answer to balance out any new fiscal flexibility for locals.

Leo Morris of the Fort Wayne News-Sentinel wrote a great editorial on the TAB idea yesterday (read it here). Kudos to the Fort Wayne community for putting more good options on the table for the 2007 session of the General Assembly.

New OFHEO data reveals slowdown

When the news release arrived in my email inbox yesterday, the text accompanying the latest figures from the Office of Federal Housing Enterprise Oversight seemed a bit shocking: "OFHEO House Price Index Shows Largest Deceleration in Three Decades". Click here to jump to the report (it is a rather large PDF file).

Comparing the first and second quarters of 2006, Indiana was one of only five states showing actual price declines. The others were Michigan, Ohio, Maine, and Massachusetts. Massachusetts was a surprise to us, and the 0.72% price decline over the last quarter in Michigan stood out as well.

Matrix, the top-notch real estate blog by Jonathan Miller of the Miller Samuel appraisal firm, has two great graphics that illustrate the latest OFHEO numbers. Click here to see this post.

Using technology to assess property

The folks over at Talking Taxes, a great blog run by the Citizens for Tax Justice, picked up on a New York Times article about the City of Philadelphia’s use of a company called Pictometry to assess property from the air. This firm can compare old photos of a property with new ones to direct assessors' attention to improvements and new construction without leaving the office. Here is a snippet from the NYT article:

"Scott Yamamoto, the property appraiser for Geauga County, Ohio, which is east of Cleveland, also uses the change-detection feature. The computer, he said, is programmed to look for “something that wasn’t there before, or something that was there before but isn’t there now.”

“We get a list, in spreadsheet form, of all the parcels where there was some type of change,” he said.

Unfortunately, he said, there are a lot of false positives. A pile of sand, or snow on the ground, can trigger the change detector. “Or a boat parked close to a garage can look to the computer like the garage has been expanded,” he said.

But Mr. Yamamoto is not complaining. The first time his office used the change-detection feature, he said, his office “picked up about $1.8 million in property value that we could not see from the ground.”

That translated into $35,000 in tax revenue last year for his rural county."

Click here to read the full article. The blog post on this article at Talking Taxes here provides a link to the webpage of Lee County, FL which allows anyone (after registration) to view the Pictometry data.

On a somewhat related note, Indiana has been developing some cutting-edge GIS technology in the past few years, and I highly recommend you check out the webpage of the state's Geographic Information Council (IGIC) here. We would love to hear if readers know of any Indiana counties using aerial maps or GIS for property assessment. There may be some initial costs to taxpayers, but the benefit of a broader, more accurate tax base probably outweighs the cost in the long run.

2Q-2006 housing market stats released by NAR

Bubble-watchers in the media jumped on the latest market data releases from NAR this week, as some cooling does seem to be occurring in many formerly “hot” markets. For the Hoosier state, there was both good news and bad news buried in the figures.

The Good: Sales of existing home sales fell nationally, and this has been the major point in most media coverage (see this AP piece here, for example). But home sales in the Midwest did not fall as sharply as they did nationally, and Indiana actually saw a 4.8% increase from 2Q 2005 to 2Q 2006. Click here to jump to the release document and stats.

The Bad: Some Indiana metro areas included in NAR’s survey showed price declines (although they were slight) for single-family homes from 2Q 2005 through 2Q 2006. Click here for the release on the price appreciation stats.

More thoughts on the 2% cap

We have written about the 2% property tax cap here before (see this post), but a recent piece by RiShawn Biddle of the Indianapolis Star posted on the paper's "Expresso" blog section reminded us of another unintended (or possibly intended?) consequence of the cap. Biddle writes:

“Another factor lies with the state's antiquated -- and oft-tinkered -- property tax system under which a property tax increase by one of the local governments pulling off the tax rolls can slam the finances of other governments. At the heart of this is the so-called circuit breaker under which total tax increases are limited to 2 percent of assessed value. Since no one completely understands how this will play out over the next couple of years, an IPS tax increase would likely not be appreciated by the city-county government or other agencies, whose efforts to pay for projects may be hamstrung as a result.”

Biddle doesn't quite have the specifics correct-- it is not increases that are limited but the dollar amount that each property owner must pay. The 2% cap was conceived mostly as a simple limit on the level of property taxes. But beyond that, the concept has resulted in giving each taxing unit in Indiana a greater interest in the actions of any taxing unit whose tax base overlaps its own.

In this sense, Biddle is absolutely correct that the borrowing by IPS could directly reduce revenue for other taxing units that overlap its base, such as Indianapolis, township governments, and others.

To illustrate this, let's fast-forward to 2008 when the 2% cap becomes effective for homeowners. In one hypothetical county, no homeowner pays any more than 1.99% of their gross assessed value in annual property taxes. However, if a school plans a major project that would increase the effective tax rate for some homeowners over 2%, then other elected officials will be highly motivated to enter any debate over the project since their own budgets will be impacted.

The future for the 2% cap is uncertain, and some legislators have already called for modifications. IAR hopes that no matter what develops, this element of making taxing units more accountable to one another remains in place.

REALTOR® repsonds to IBJ editorial

We didn't post specifically on the IBJ's recent off-base editorial since we had just written about HEA 1339 (click here), but we just had to link to the terrific response from REALTOR® Joe Shoemaker. Under the heading "New law not unfair to discount brokers", Mr. Shoemaker writes in the newest issue of the IBJ:

"I have been very disappointed over the last two weeks with items I've read published in your paper regarding changes in Indiana's real estate license law. The first article, written by Tracy Donhardt [in the July 10 issue], implies that the new minimum-duties law is designed to protect full-service real estate brokers and squeeze out limited-service brokers.

No part of HB 1339 prevents limited service brokers from providing such services, as suggested by Donhardt. Just because Broker A decides to raise his fees or change his business model doesn't mean that the state forced him to do so. That's a business decision he made."

Way to go Joe! Click here to read the full letter. IAR had hoped we had set the record straight back in March (click here to read what we wrote back then), but we think that the recent spate of news has been generated by marketing departments rather than real consumer advocates.

Mortgage fraud warning signs

IAR recently attended a regional meeting of the Association of Real Estate License Law Officials, or ARELLO. Much of the focus was on the mortgage fraud epidemic in the states represented at this meeting. The scope of wrongdoing and the diversity of schemes are truly staggering.

One presentation was by a Special Agent in the FBI’s white-collar crime division who provided a helpful list of “red flags”. Real estate professionals should be on the lookout for these warning signs of mortgage fraud, and the FBI requests that law enforcement be contacted if one suspects criminal activity.

Mortgage Fraud: “Red Flags”

• Purchase offer significantly exceeds the listing price
• There are an unusual number of addenda to the purchase contract
• Last minute invoices are submitted to the closing agent
• Unusual expenses are paid by the seller, such as “marketing” fees, large repair charges, and/or charitable donations
• “Seller carry” second mortgages are used
• Lenders or mortgage broker not willing to commit something to writing
• Transactions are not recorded on the HUD1 settlement statement
• Mortgage broker does not want real estate professional to contact lender or investor to alleviate concerns

NOTE: These “red flags” could be present during a perfectly legitimate transaction, and this list is only meant to provide general guidance. Each transaction is different and your instincts are likely to be the best indicator of any fraudulent activity.