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  Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

Francis Vayalumkal

Mortgage industry altogether is going back to basics before Congress makes them. Experts will agree that a 30-year fixed-rate mortgage is the hottest mortgage product now.

After several years of fancy products and programs we are back to the basic fixed and conforming mortgage types. The mortgage loans that are taken out now most likely conforms to Fannie Mae and Freddie Mac guidelines (under $417,000), are not subprime, and do not have adjustable rates. The customer puts down a good-size down payment if they are purchasing and have good size equity for refinancing.

Over the past few years, mortgage programs became fancier, exotic and we called them creative. In 2003, about 9 percent of mortgages (in dollar terms) were subprime; last year, about one-quarter of mortgages were subprime, according to the Government Accountability Office.

The growth was even more explosive for Alt-A mortgages -- nontraditional home loans for which the borrower doesn't document income or is required to pay only interest and not principal. In 2003, 1-in-50 mortgages were Alt-A; in 2006, they made up about 1-in-6.

Almost half of home buyers last year made down payments of 5 percent or less, according to Credit Suisse. Hard figures for previous years are difficult to come by, but the consensus in the mortgage industry is that down payments shrank in the early years of the 21st century.

Now, the housing bubble has burst (wherever there was one) and home prices are falling. Foreclosures are surging as homeowners fall behind on their mortgage payments and then discover that they owe more than their homes are worth. In response, lenders have pulled back. Subprime loans are almost extinct, more borrowers are asked to document their incomes, many lenders require bigger down payments than they used to, and jumbo loans are harder to get and have higher rates.

The 30-yr Fixed

The 30-year fixed has been in widespread existence since 1934 -- and it was introduced by the federal government as part of a bailout during a foreclosure crisis.

In a research report for the Federal Reserve Bank of America, authors Matthew Chambers, Carlos Garriga and Don E. Schlagenhauf wrote: "Prior to the Great Depression, the typical mortgage contract had a maturity of less than 10 years, a loan-to-value ratio of about 50 percent, repayment of interest only during the life of the contract and a balloon payment at expiration."

Except for the low loan-to-value ratios, mortgages in the early part of the 20th century were similar to the subprime and interest-only loans that were all the rage in the first years of this century. In both eras, interest-only loans were popular. In both eras, the mortgages were time bombs: In the early 1900s, the entire loan amount was due in a lump sum after a few years; in the early 2000s, the initial interest rate on an ARM was due to skyrocket after a few years. In both eras, homeowners were expected to refinance themselves out of peril.

And in both eras, home values plummeted in some parts of the country, trapping people in loans for more than their houses were worth, unable to refinance.

In 1933, the federal government created an agency called the Home Owners Loan Corp., or HOLC, which within three years bought one-fifth of the nation's residential mortgages. The HOLC bailed out the owners by converting their loans to something novel: long-term, fixed-rate, amortizing mortgages. The federal government followed up by creating the Federal Housing Administration in 1934, and the 30-year-fixed with a small down payment quickly became the dominant mortgage for home purchases. The Depression-era government bailout of delinquent homeowners succeeded, and the homeownership rate climbed rapidly for three decades.

The mortgage industry is convinced that it has pulled back enough from the excesses of recent years. Fear of business failure on one hand and government regulation on the other has reminded lenders to attend to the fundamentals. It’s time for the industry to get back to basics. We know the basics will work.

Francis Vayalumkal is a mortgage banker with Regions Bank and can be reached at (813) 719-0303 cevaya@gmail.comm

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Nitesh Patel

Take a minute to fast-forward to your retirement and envision your own American Dream. If you’re like most Americans, your dream entails a financially comfortable “worry-free” retreat with an abundance of free-time and available assets to spend on things you really love doing.

Now, rewind back to today. What specific action steps are you taking now to attain your retirement goals? How much money have you saved – and how much should you save in the future to support a worry-free retirement?

If you struggled answering these questions, your financial behavior – or lack of action – may be sabotaging your retirement plans.

An ongoing study of America’s financial behaviors, Money Maladies, highlights the fact that most Americans come up short when it comes to their knowledge of financial matters and a strategy to achieve their financial goals. The 2006 study, commissioned by Northwestern Mutual, asked a cross-section of Americans about their financial dreams and goals, and examined whether they were taking necessary actions to achieve them. The study found a well-defined chasm between respondents’ goals and behaviors – a disconnect that most don’t even realize. (Northwestern Mutual, Money Maladies Financial Matters Study, March 2006)

For example, the study found that, in general, most respondents anticipate retiring at age 62. However, the actions taken by most people aren’t conducive with those expectations: According to the study, only 6 in 10 have an employer-sponsored retirement account such as a 401(k) or 403(b). And, while a large majority have a savings account, fewer than half own an IRA, stocks or mutual funds. (Northwestern Mutual, Money Maladies Financial Matters Study, March 2006)

Americans also are missing the boat on saving for college education. Half have children they would like to send to college and most expect to pay for at least some of that cost; but only a small share have a goal of how much they would like to save. While most estimate college will cost about $100,000, the majority have saved less than $20,000. (Northwestern Mutual, Money Maladies Financial Matters Study, March 2006)

Another study by the Employee Benefit Research Institute (EBRI) in 2006 underscores the finding that Americans have a false sense of security about being prepared for retirement and underestimate how much money they’ll actually need. (Employee Benefit Research Institute (EBRI), “Annual Retirement Confidence Survey,” April 2006) The EBRI study found that two-thirds of workers say they’re confident they’ll have enough money for retirement, despite the following eye-opening realities:

More than two-thirds of workers – and more than half of those 55 or older – have less than $50,000 saved for retirement.

Seventy percent of workers say they or their spouses have saved for retirement, though only 64 percent are actually saving.

Only 42 percent of workers say they or their spouses have taken time to calculate their financial needs during retirement.

Behavior modification

Clearly, Americans need to put their money where their mouths are when it comes to preparing for retirement. The key is aligning financial behavior with goals and aspirations. Here are a few ideas to get your financial behavior in order:

Set realistic goals and crunch the numbers. Start by figuring out how much money you’ll need in retirement. Experts generally estimate that most need 70-80 percent of their pre-retirement income. Be honest about how you want to live in retirement and how much it will cost. Then calculate how much you must save to supplement Social Security and other sources of retirement income. Use Web sites, such as the Learning Center at, to utilize financial calculators and help the process.

Create your strategy. Having a financial strategy in place – complete with objectives and action steps – will help put your future into clear focus. You might consider working with a qualified financial professional to help you put together a strategy to achieve your individual goals.

Build your knowledge. The more you know about spending, saving and investing, the farther your knowledge will take you in attaining your aspirations. Take time to read financial publications, such as The Wall Street Journal, attend seminars, and research online resources to build your financial knowledge. Incidentally, the 2006 Money Maladies study showed that the majority failed to correctly answer 60 percent of the study’s questions pertaining to financial knowledge. (Northwestern Mutual, Money Maladies Financial Matters Study, March 2006) It may be eye-opening to gauge your own financial knowledge and see how you match up by taking the same test at

Use the power of investing. The sooner you begin saving, the more time your money has to grow. Gains build yearly thanks to compounding – a good strategy for accumulating wealth. Also, contributing money to retirement accounts, such as a 401(k) gives you an immediate tax deduction, tax-deferred growth on your savings, and often a matching contribution from your company.

While there’s no rule of thumb when it comes to securing a financially comfortable retirement, there is one common thread for everyone to follow: Taking action now will help keep your financial goals on track and make a positive difference in your financial future.

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

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Kamlesh Patel
CRUNCHING ‘EM NUMBERS: do year-end tax planning for your business


Although it’s getting late in the year, small business owners still have time to reduce their 2007 tax bill.

The bottom line of tax planning for small businesses is minimizing taxable income and maximizing deductible expenses. Unless you expect a higher tax bracket in 2008, consider deferring income until next year. You might wait until January to mail out sales invoices or to ship sold goods. This might sound counter-intuitive, but remember, income deferred to January will not be reported on your tax return until you file for 2008.

The flip side of reducing taxable income is increasing your deductions. Try to accelerate business expenditures planned for next year into 2007. Stock up on supplies or take a business trip earlier than planned. If you need to purchase major equipment, consider buying before year-end. Up to $125,000 can be written off in 2007 for business equipment acquired and placed in service before December 31.

Accrual-basis businesses can reduce taxable income by writing off bad debts, as long as there is adequate documentation. Identifying obsolete inventory might also score a deduction. One of the surest methods for cutting business taxes is a qualified retirement plan. If you already have a plan established, be sure to contribute the maximum allowed for 2007.

Your business may already qualify for some deductions but lack one thing: proper accounting records. For instance, the business use of your personal vehicle is deductible, but only if you keep detailed records. You also may be eligible for a home office deduction. But without documentation, you could lose the write-off.

Finally, do a quick review of your estimated tax payments before year-end. This will tell you where you stand, and possibly save you tax underpayment penalties to boot.

A little year-end planning could pay big dividends come April 15.

time is running out for 2007 tax-cutting

Even though 2007 is nearly over, shrewd taxpayers can still make last-minute reductions in their tax bill.

Most people have sought to maximize their personal earnings throughout the year. Now it’s time to reverse course and look for ways to minimize your taxable income. For instance, if you sold stocks for a net gain this year, consider offsetting those gains by unloading securities that have lost value. In addition, you can deduct up to $3,000 of net capital losses against other income.

If you are thinking about selling appreciated stock in 2007, you should know that taxpayers in the 10 or 15 percent tax brackets will pay no capital gains tax in 2008. If you are in either of these tax brackets, you might postpone sales until next year. On the other hand, taxpayers age 18 to 24 should consider selling appreciated securities this year. Why? Because in 2008, the new “kiddie tax” rule will require many in this age group to pay tax on unearned income over $1,700 at their parents’ higher tax rate.

Another tried-and-true tax-cutting strategy is a year-end charitable donation. But beginning this year, even cash gifts under $250 must be substantiated by a written receipt or bank document (such as a canceled check) to qualify for a deduction. Cash gifts of $250 or more still require a written receipt from the charity. For these gifts, a cancelled check alone is not sufficient.

Another way to make a contribution is a charitable IRA rollover. Taxpayers age 70½ and older can donate up to $100,000 directly from their IRA. What’s more, the donation qualifies as part of the taxpayer’s required minimum distribution from the IRA. At press time, this provision was set to expire at the end of 2007, so it might be now or never.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail or

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Satya Shaw

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.

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