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Finance | Financial advice | Immigration | Banking | Accounting | Business

Francis Vayalumkal

Very often, I get calls from customers who want to get a loan that is structured just like a friendís loan. Their financial scenarios might be completely different, but thatís none of their concerns. Not all mortgage programs are for everyone. Its important you ask enough questions to see if the mortgage program you are about to choose is right for you.

If mortgages were automobiles, and you had the power to witness every sale, you would watch pizza deliverers passing up Toyota Priuses or Geo Metros and buying Hummers instead. You would cringe as 16-year-olds screeched off the lot in souped-up cars, destined to die young. If mortgages were cars, you would see people making these mistakes all the time. Too often, consumers get home loans that are inappropriate or too risky.

Whose job is it to decide that a particular loan is unsuitable for a specific customer? Even as a loan officer, who am I to tell you that you're eligible for this kind of loan, but you're not suitable for it?


What federal regulators call "nontraditional" mortgages are home loans in which the borrower is required to pay only interest, and not principal, for the first few years and several other new loan programs. About one-quarter of new mortgages are nontraditional loans, up from a negligible market share just five years ago. That worries regulators because these loans are considered riskier. Some nontraditional loans, called payment-option adjustable-rate mortgages, don't even require the borrower to pay the interest accrued. The amount owed can increase every month (negative amortization).

Federal regulators have proposed a "guidance" asking lenders to step cautiously when underwriting nontraditional loans. A guidance is a recommendation -- not as binding as a regulation, but stronger than a mere suggestion. The proposed guidance says lenders should avoid loans "that may result in the borrower having to rely on the sale or refinancing of the property," once the borrower has to start paying principal as well as interest. In other words, don't give a mortgage to someone who can't afford to pay principal and interest, even if it's an interest-only loan.


Regulators worry about interest-only and payment-option mortgages because payments can rise abruptly after a few years. In unlikely worst-case scenarios, monthly payments can more than double in one traumatic leap. A lot of borrowers don't make down payments or document their income -- additional risk factors that increase the odds of eventual foreclosure.

Interest-only mortgages have been around for decades, and they were originally marketed to two types of customers: wealthy people who can afford volatile payments, and workers with unpredictable incomes, such as business owners, salespeople on commission and executives whose income mostly comes from annual bonuses. But now a lot of homeowners get these loans because they offer the only way to afford an acceptable house in pricey markets.


A suitability standard "would put some obligation on some part of mortgage lenders and mortgage brokers to not squeeze people into loans where they have no reasonable prospect of being able to repay them," says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.

If that sounds inaccurate, that's because it is. A suitability standard would be applied subjectively in a lot of cases. It would screen out extremely risky loans.

Fishbein spoke in favor of suitability tests at the FTC workshop. Bankers countered that the lending industry has built-in suitability standards. Riskier borrowers pay higher interest rates and sometimes must buy mortgage insurance. Mortgages are bundled together and sold on the secondary market to investors, who have powerful analytical tools to gauge just how risky a particular pool of loans is.

"If loans are being underwritten that will inevitably fail, there will be no buyers for those loans on the secondary market," says Robert McKew, general counsel for the American Financial Services Association. "The secondary market acts as a regulator in addition to government regulation."


Ultimately, suitability is about financial literacy. Thatís not just within the industry. The general public can and will rise to the challenge of learning how these loans work.

Michael Williams, vice president for legislative affairs for The Bond Market Association, agrees "you have to put the burden on the consumer to be educated." On the other hand, he says, people don't want to be educated. They just want the loan. It is very important you ask your loan officer about the pros and cons about a loan program that you are trying to get for yourself. Do some research about the loan program and get a clearer idea of how it works. Your loan officer can give you guidance but the decision about what loan program will work best for you should be made by you.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at

Finance | Financial advice | Immigration | Banking | Accounting | Business

Nitesh Patel

There are more than 19 million family owned businesses in the U.S. today. (1,2) If you own one of them, you probably have dreams of passing your business on to one or more of your children, or even selling it for a handsome price when you retire. But such dreams may never become reality if you donít have a current business continuation plan in place.

In fact, only a third of family enterprises successfully make the transition to the next generation.(3) This is, in part, fueled by the fact that few companies have strategies in place to address the immediate business needs caused by the loss of the owner. Without proper preparation, a family-owned business will likely face an immediate crisis and a dramatic decrease in its value if and when an owner suddenly dies or becomes disabled.

To ensure the livelihood of the company, business owners need to create a strategic plan of how critical family and corporate issues will be addressed. Consideration must be given to create a strategy that is as concrete and specific as possible. The end result is a detailed document called an Exit Plan.

Why take the time to create an exit strategy? Interestingly, most business owners spend many hours just planning their day-to-day operations. They invest vast amounts of energy developing marketing plans, handling crises with customers and employees, and dedicating resources to strategic planning. Yet they often overlook the most important type of planning they can do for themselves, Exit Planning. Business owners must make Exit Planning a priority and start as early as possible to maximize the value they and their family will realize from the business.

Exit Planning should be comprehensive and detailed, but it need not be complicated. Following are seven steps to help make the process as seamless as possible.

(From How To Run Your Business So You Can Leave It In Style by John H. Brown, Business Enterprise Institute Inc., 2002)

Define your objectives and form an advisory team.

When would you like to retire or have the option to reduce the amount of time you spend in the business? How much income will you need in todayís dollars to have a certain level of financial security? To whom do you wish to leave the business (family member, key employee or sell to an outside party)? Avoid piecemeal planning by forming an advisory team consisting of your insurance advisor, CPA, attorney and others as necessary.

Determine the value of your business.

Utilize your advisory team to facilitate the valuation process. They will help determine the type of valuation needed and recommend the type of professional who can perform the valuation.

Determine crucial value drivers to maintain long-term growth.

These include:

Attraction and retention of key employees;
Effective financial controls;
Operating Systems that improve cash flow;
Broadening or diversifying the customer base;
Good facility appearance;

Competitive employee benefits.

Evaluate how to maximize your cash and minimize your tax liability. This is especially important should you decide to sell to a third party.

Use your advisory team to maximize financial security.

The majority of business owners prefer to transfer their business to the next generation, co-owners or key employees. In this step, your advisory team will help you determine the method that minimizes taxes and also allows you financial security.

Develop a business continuity plan in case of death or disability.

Make it applicable for you and other key personnel.

Review the estate plan should something unexpected happen to you. This is to ensure your family is protected. Once the written plan has been created, it should be stored in a secure location such as a safety deposit box, fireproof safe, etc. Members of the advisory team also should have a copy. The importance of a buy/sell or shareholder agreement is never fully realized until the owner becomes disabled or dies unexpectedly. The agreement should specify the valuation method, the funding method (usually life and disability buyout insurance), and who will take over the business. The members of the advisory team should have access to the plan so they can help the family implement it.

Finally, keep in mind the Exit Plan is not a static document. It needs to be updated and changed periodically. Annual reviews with the advisory team will help determine if objectives have changed or if significant developments have occurred in the business. These updates will help ensure the longevity of the business as well as your peace of mind.

"Small Business by the Numbers" Small Business Administration Office of Advocacy, June 2004

2 (J.H. Astrachan and M.C. Shanker "Family Businesses' Contribution to the US Economy: a Closer Look," Family Business Review, September 2003.)

3 "Passing on the crown-Family Business: Family businesses, How a family firm can avoid a succession crisis" The Economist, Nov. 6, 2004

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

Finance | Financial advice | Immigration | Banking | Accounting | Business

Dr. Ram P. Ramcharran

Imagine this. Your child is diagnosed with a disability and you now have to face the reality that your child will never be able to things other kids take for granted. You may have suspected something was wrong but you were in denial for a while. Finally, you couldnít take it any longer. So, you take the child to the doctor and your insight was correct. Your child has a disability that will limit him or her in some capacity for the rest of their life. What do you do next? Here are some suggestions that may help you deal with the shock and reality.

First thing:

1. Purchase "The Child with Special Needs" by Dr. Stanley Greenspan. It's a detailed book that covers a variety of issues and concerns all parents will face at some point with their child. You'll want to read the book right away because it will help you deal with the emotional side of your childís disability.

2: Read about both sides on dealing with the new diagnosis: one that advocates treatments and cures, and another that specifically discourages them. You need to become extremely familiar with all the options available to you and by investigating them, you are better off in dealing with the matter at hand.

3: Join an online support group or local chapters of a support group that will help you cope with the new issue in your life. Groups such as Families of Children with Autism meet and share with others who have been where you are. This will help you gain insight and some sense of stability in dealing with issues that may arise in your home.

4: Visit or browse on the Internet listings of the specific disability your child may be suffering from. This will give you instant access to knowledge on how to cope and handle immediate issues.

5. Seek professional guidance if you are having problems adjusting to the situation you are faced with. Avoiding and denying the problem will only create more issues that will ultimately lead to unnecessary stress in your life.

Dr. Ram P. Ramcharran can be reached at

Finance | Financial advice | Immigration | Banking | Accounting | Business

Kamlesh Patel
CRUNCHING ĎEM NUMBERS: How The New Tax Law Could Affect You


The Tax Increase Prevention and Reconciliation Act, signed on May 17, 2006, provides benefits if youíre subject to the Alternative Minimum Tax, or are an investor, business owner or IRA holder. The new law is less generous when your kids have unearned income or if you work abroad.

Hereís an overview:

Alternative Minimum Tax (AMT). The law increases AMT exemptions for 2006. If youíre married filing jointly, the amount you can use to reduce taxable income for AMT purposes is $62,550 ($42,500 for singles). In addition, you can apply nonrefundable personal credits such as Hope scholarship and lifetime learning credits to offset the AMT in 2006.

Investors and business owners. Increased Section 179 asset expensing ($108,000 for 2006) is allowed through 2009, and reduced rates on long-term capital gains and dividend income (15 percent for the highest brackets) will remain in place through 2010.

Roth IRA conversions. Starting in 2010, youíll be able to convert a traditional IRA to a Roth no matter the amount of your adjusted gross income. Youíll still have to include the conversion amount on your return and pay the tax, but you can spread that amount over two years for conversions made in 2010.

The kiddie tax. In the past, when your under-age-14 child had interest, dividends, capital gains and other unearned income over a specified amount ($1,700 for 2006), you were generally required to pay tax on that income at your rate. At age 14, your child could file a separate return and pay tax at what was typically a lower rate. Under the new law, beginning with 2006 tax returns, your childís unearned income over the specified limit is taxed at your rate until age 18.

Working abroad. Changes include indexing the foreign earned income exclusion (raising the maximum exclusion to $82,400 for 2006) and a limitation on the foreign housing exclusion.

use your vacation home wisely to enjoy tax breaks

If you own a vacation home (some boats and recreational vehicles also qualify) that you also rent out to others, keep track of who uses it during the year to maximize your tax breaks.

Meet the rules and receive tax-free income. If your home is rented for 14 or fewer days during the year, you donít have to report the income. You can generally deduct mortgage interest and real estate taxes as itemized deductions, but you canít deduct any other rental expenses.

Limit your personal use and deduct all your rental expenses. If you limit your personal use to not more than 14 days or 10 percent of the time the home is rented, all rental expenses are deductible.

Offset your rental income with your rental expenses. If you use the property for more than 14 days or 10 percent of the number of days itís rented, the rules change. Your rental deductions (except for taxes and mortgage interest) are limited to the amount of your rental income.

Example. You stayed in your vacation home 20 days last year. It was rented at fair market value for 190 days. In this example, your personal use exceeded the 10 percent limit (19 days). Your rental deductions are limited to the rental income you received.

Convert the property to your residence, and the gain when you sell may be tax-free. If you use your vacation home as your principal residence for two out of the five years before you sell it, you may exclude up to $250,000 of gain ($500,000 for married couples) from your income. However, you will have to pay tax on any depreciation taken after May 6, 1997.

some tips for the twenty-something generation

Young people generally feel pretty good about life, but once in a while, they may wonder if theyíre making the right financial moves. Here are some simple (yet effective) financial strategies for people in their early 20s.

Pay yourself first. Every time you get paid, put something aside in a savings or investment account. As a general rule, save 10 percent of your income. Even smaller amounts add up over time.

Watch your plastic. Credit cards are an expensive form of debt, and itís easy to lose control of them. Try to pay your entire credit balance every month, even if itís a stretch. If youíve been carrying a balance, buy nothing more on credit until the balance is zero.

Keep a clean credit record. If you plan to own a home, buy a car, or start a business, youíre going to need squeaky-clean credit. Keep all of your financial obligations current, and never make a financial commitment that you canít keep. If you fall behind on any obligation, talk to the creditor immediately to make alternative arrangements.

Make sure you have top-notch medical coverage. You may not see a doctor even once this year. But if you do need medical care, it could be for something serious and expensive. Anything less than a good major medical policy could ruin you financially.

Watch your expenses. At this point in your career, you may not receive large or frequent pay raises. But you can achieve the same effect by cutting expenses. Shop before you buy. Very similar ó and sometimes identical products ó are sold at widely varying prices. Wise shopping can be the equivalent of having a good-paying second job.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail or

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