Although the article didn’t spell it out, here’s how this particular scam works:
1) Have some idiot set up a non-profit
2) The banks funnel their profits to the non-profit in the form of “donations” so that the banks don’t have to pay taxes on that profit
3) The non-profit funnels that money to the banks’ customers in the form of “charity”
4) The banks’ customers funnel the money back to the bank in the form of “mortgage payments”
Actually, this particular form of the scam looks to be a little risky. Under this structure, the donating bank can’t be sure that it will get back its donations. What I imagine that we will see shortly is each bank setting up its own non-profit. For example, Bank of America will set up its own non-profit arm where donations into that particular non-profit can only be used to pay off mortgages owned by Bank of America. Either this will be done explicitly and sanctioned by the government or each bank will put one of their people in charge of a non-profit and that person will make sure that the bank gets its donations back. Maybe the guy in charge of the non-profit from the above article has already been bought by the banks and he will funnel the donations such that each bank will eventually get their donated money back.
Let’s take a look at an example of how this scam is likely to work. First, a bank donates money to a non-profit they set up. Let’s say the bank donates $1 billion in profit. If the bank had to pay taxes on that $1 billion in profit, maybe they would only have $700,000,000 left after taxes. By donating that money to a non-profit controlled by the bank, the bank can assure itself of getting that $1 billion back tax-free. Maybe the non-profit is even structured such that “donations” go from the bank to the non-profit and then straight back from the non-profit to the bank in the form of mortgage payments — all without ever touching the hands of the bank’s customers. Thus, there wouldn’t even be any risk that the bank wouldn’t get that money back as that money would only ever be in the hands of the bank or the non-profit.
I imagine will see more scams like this as time goes on. The very rich will continue to get richer; idiotic, financially irresponsible persons will be rewarded, and the financially responsible average American will continue to get squeezed.
OK People aren’t paying the money given to them as mortgages. They are definetly not going to pay something given to them as charity.
The whole problem is this, They expect to see 10% appreciation year over year. They expect to catch up by 08 or 09, after all their realtor told them that, as did the seller and the mortgage broker and the 10 idiots on the street and the 1000 idiots on TV. If they know for certain they are even 1% under, and they aren’t going to get back on the skyward ramp real soon, its going to be a reason to dump the house back to the bank and run.
In any case, banks can use some sorta external agency or get the feds to lighten up the regulations to let them sit on the dumped property for longer.
I still think they’ll lose their ass … for example, casey serin’s larchmont house, had a buyer offer 225 ~3 months ago, the bank refused saying they wanted minimum 240. They took it back and few months later its on the market for 199K. If the bank had the funds come from an external unit (feds or what ever) and they can hold it till market value comes back, maybe they can … maybe, but will it ever come back to 330 when new houses are ~300 for similar size ???
Cool.
Cow_tipping.
Granted I didn’t read the article above, but I don’t see how the banks benefit by this. They have a profit which they give to a non-profit org so they don’t pay taxes…but eventually the money makes its way back to the bank, at which time they will owe the taxes they avoided at the earlier period.
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