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

Francis Vayalumkal

If you're a homeowner who has an adjustable-rate mortgage, you may already have been disappointed to discover that your situation doesn't qualify for the ARM (Adjustable-rate mortgages) interest-rate freeze that was announced recently. You're not alone.

It was announced that "up to" 1.2 million of the 1.8 million homeowners whose subprime ARMs are due to reset in 2008 and 2009 would be "eligible for fast-tracking into consideration for affordable refinanced or modified mortgages." The 1.2-million figure comes from Hope Now, a coalition of loan servicers, lender trade associations and credit counseling organizations.

But there was no mention of how many of those 1.2 million homeowners would be expected to refinance their existing mortgage or how many could qualify for the interest rate freeze that's supposed to help them avoid foreclosure if they can't afford their mortgage payments at the reset interest rate.

How many homeowners qualify?

The question of how many homeowners could benefit is important because the plan has been put forward by the Bush administration as a "framework to help preserve communities by preventing foreclosure." If the actual number turns out to be far fewer than 1.2 million, that objective may not be achieved through this approach.

In fact, the interest rate freeze is targeted toward a relatively small group of homeowners whose situations meet specific requirements such as loan origination date, the date initial interest rate is scheduled to reset, total equity homeowners have in the property, and homeowners’ credit scores and other qualifying parameters.

The narrow requirements mean plenty of people who have subprime ARMs won't qualify, and the number of those who eventually do qualify could be relatively small.

Analysts' estimates of how many loans may be eligible for the interest-rate freeze fall into a broad range, from as few as 145,000, or 12 percent of the 1.2 million people the overall plan is supposed to help, to as many as 360,000, or 30 percent of that population. The lower figure comes from the Center for Responsible Lending, a nonprofit organization funded by a consortium of charitable foundations.

In a statement released after the plan was announced, the center noted that most 2/28 mortgages originated in 2005 won't qualify because the interest rate will have reset before the plan becomes effective. Some of those homeowners likely will have already fallen behind on their payments, which is another disqualification. A 2/28 ARM begins with a low interest rate for the first two years, after which the rate is reset to a level that's typically much higher.

The center also noted that payment-option ARMs might not be considered subprime loans in this context. A payment-option ARM allows the borrower to choose from among several payments each month. The minimum payment repays only some of the interest and none of the principal, which means the loan balance can increase over time and eventually the homeowner could be forced to make much bigger payments to pay off the loan.

Lender participation is not mandatory

The new plan is voluntary on the part of lenders, loan servicers and investors, and it contains neither incentives (apart from foreclosure avoidance) for those companies to implement it, nor reporting mechanisms for them to track the outcomes.

The voluntary nature of the program means the companies may not modify any more loans than they otherwise would have without the plan.

Foreclosure rate on the rise

Delinquency and foreclosure rates on residential properties have been on the rise. In the third quarter of 2007, payments were delinquent on 5.59 percent of all such outstanding loans, and foreclosures had been initiated on 1.69 percent of those loans, according to a statement from the Mortgage Bankers Association. Both figures were reported on a seasonally adjusted basis and had increased compared with the second quarter and prior-year third-quarter figures.

Prime fixed-rate mortgages accounted for 63 percent of the country's outstanding loans and 17 percent of the started foreclosures, while subprime ARMs accounted for 6.8 percent of the outstanding loans and 43 percent of the started foreclosures.

Florida and California are "the two largest states in terms of mortgages outstanding and are the key drivers of the increase in the national foreclosure rates," according to the MBA statement. That means our state might also be home to some of the most disappointed homeowners.

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: how long should you keep tax records?


One question that clients often ask is how long they should keep their tax records. While this seems like a simple question, the answer isn’t simple. It depends on what item in the tax return the records support.

For example, records that support itemized deductions, such as mortgage interest statements, property tax bills, statements detailing contributions to charity, or any other records that support a deduction, should be retained for seven years. That’s because the IRS can audit your return for up to three years after it’s filed and up to six years if you underreport income. So to be on the safe side, keep records supporting your tax return for seven years.

If you own property or businesses in more than one state, check the statute of limitations in each state since some are longer than the federal statute. Save copies of the tax returns themselves permanently because you might need information in the returns for other purposes.

Items that support deductions on Schedules C (business), E (rental), F (farm) and other schedules also need to use the seven-year rule. Actual receipts should be kept, as well as supporting documentation such as cancelled checks. IRS rules require “contemporaneous records,” which means that regularly maintained log books and diaries can be used as supporting documentation as well.

Items purchased that are depreciated rather than expensed need their receipts and supporting documentation to be retained for a longer period of time. These items require documentation to be kept for seven years beyond the year in which the item was disposed, sold, abandoned, or otherwise removed from service.

Capital transactions reported on Schedule D require supporting documentation such as brokerage statements, purchase and sales confirmations, dividend reinvestment statements, etc., to be kept for seven years beyond the year in which the stock or other investment property was sold.

With today’s technology, records can be stored electronically, as long as they can be readily produced for the IRS. So you can store many documents in relatively little space.

the irs has rules on borrowing money from your corporation

Borrowing from your closely held corporation may seem simple, but without proper planning it can be painfully expensive. The IRS often reviews such loans to determine if they’re merely disguised cash withdrawals. For example, the IRS may treat an improperly structured loan as a dividend, which would be taxable to you and not deductible by the corporation.

The IRS generally asks the following questions when evaluating a corporation’s loan to one of its shareholders:

Does the borrowing shareholder control the corporation? The greater the degree of control, the more closely the loan will be scrutinized.
Did the corporation require adequate collateral for the loan?
Is the borrower financially able to repay the loan within a reasonable time period?
Did the shareholder sign a promissory note with an appropriate interest rate, a reasonable repayment schedule, and a fixed maturity date?
Has the borrower been making the required payments on schedule?
If the borrower missed a payment(s), has the corporation tried to collect?

When a corporation lends money to one of its shareholders, the transaction should be structured as though it were being made to an unrelated party — a stranger. The borrower should sign a promissory note that includes payment terms and a final due date. At a minimum, interest should be charged at the IRS statutory rate in effect at the time of the loan. Requiring adequate collateral will be regarded as a favorable indicator by the IRS, although it is not mandatory. The terms of the loan should be voted on by the Board of Directors, and the details should be entered into the corporate minutes. The borrower should make payments according to the agreed-upon schedule.

Since circumstances are different for each corporation and each shareholder, you should always consult your accountant before transferring money from your company.

how to spot problem accounts early

If you extend credit to your customers, some losses are inevitable. So unless you are willing to forgo the credit part of your sales, you have to figure out ways to control your bad debt losses.

Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect there might be trouble a-brewing. You don’t want to crack down on a good customer too hard too soon; yet you don’t want to be “taken” by a debtor who has become unable or unwilling to pay. The problem is distinguishing between slow pay (which is bad enough) and no pay.

What you need is an early warning system to detect a credit problem in the making, so you can stop additional sales to that customer and begin collection procedures in earnest. Here are some of the telltale signs that point to an account that is turning sour.

The debtor has begun paying erratically, settling up on smaller invoices while larger ones just get older, at the same time disputing specifications or terms.
The debtor fails to return your phone calls or shows unusual annoyance at your inquiries.
Your requests for information, such as updated financial statements, are ignored.
The debtor places jumbo orders and presses you for a higher credit limit.
Despite the problems you are having, the debtor tries to coax you into providing a good credit report to another supplier.
You get word that the debtor’s credit rating has been downgraded.

Any one of these hints of trouble can be the handwriting on the wall. Two or more and it’s time to crack down. Take a firm stand; turn up the heat on your collection efforts with this debtor, and make no more sales unless they’re cash on delivery.

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

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

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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