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Francis Vayalumkal

Over the past several months, with the news full of stories about the collapse of lenders that sell mortgages to people with less-than-perfect credit, the survivors are tightening their standards. This leaves several people wondering, “Will I be able to buy a house?” “Will I be able to refinance my current loan, which is going to change rates soon?”

The answer, of course is that it depends. The people who are considered prime borrowers still won’t have a problem getting a loan. They might be asked for a bit more down payment, higher credit scores etc. People who could only get a subprime loan, a low-doc or a no-doc loan will feel the changes.

Until last year, the overheated lending market was pumping out money. Brokers competed to sell mortgages, and, in many cities, incentives to sell stoked home prices into double-digit yearly appreciation. Loans covering 100 percent of a home's purchase price were not uncommon, with no down payment required. Borrowers, even with badly damaged credit, were breezing into lenders' offices and emerging with loans that sometimes even locked them into paying more than they earned.

Now, it's back to the old-fashioned rules. With less money available, and with fewer buyers and a glut of houses for sale, lenders are requiring detailed application forms and documents detailing finances and income.

It is predicted that 13 percent of the 8.37 million adjustable-rate mortgages sold from 2004 to 2006 will fall into foreclosure in the next six or seven years, and that certainly will be disastrous for the 1.1 million families involved.

No-documentation or low-documentation loans will be considerably harder to find. With no-doc and low-doc loans, lenders waived income documentation requirements, taking a borrowers' word for their income or not asking at all. Such "stated-income" loans are sometimes called "liars' loans," and no doubt plenty of borrowers did overstate their incomes. But stated-income loans are a godsend for self-employed people who have a good, if erratic, income or take a lot of tax deductions, creating a low net number on their income tax returns, the document lenders use to verify income.

Hundred percent loans will still be around but with tighter standards. You will see that many loan programs, which offered 100 percent financing will require some down payment going forward.

Now, not only are lenders concluding it was risky to have borrowers overloaded with debt, they also are seeing, in the recent tide of foreclosures, evidence that when homeowners have no own money tied up in a house, it's emotionally and financially easy for them to walk away. They were homeowners, but they really weren't homeowners.

A down payment is a good idea for other reasons, too. By increasing the proportion you pay of the purchase price, you lower your loan-to-value ratio, one of the important metrics that lenders use to figure your interest rate.

Another important metric is the debt-to-income ratio. The less you borrow, the better your ratio.


The return to traditional loan requirements includes ending the practice of removing taxes and insurance from the payment for which a borrower qualifies. In recent years, some lenders qualified borrowers based just on their ability to cover the monthly mortgage payment. Now, be prepared to demonstrate that you can make not just the monthly mortgage but the entire ball of wax, including taxes and insurance.


The key to a new mortgage is to make conservative decisions. Here are five steps you can take to protect yourself as the housing market changes.

1. If you can't make your mortgage payments, call the lender. It is not in a bank's best interest to foreclose on your home; so, there's an incentive to try to help you by reducing your payment and restructuring your loan.

2. If you're shopping for a loan, get the safest, most economical product, the 30-year, fixed-rate mortgage. Newer 40- and 50-year loans cost too much, and ARMs are risky, and growing riskier, with mortgage rates rising for many borrowers.

3. Don't buy any loan that you do not thoroughly understand.

4. Wait to buy and save for a down payment. House prices could easily go down in many markets, so put off your purchase if you can. Sock your money away so you can get score better terms from the lender when you do buy.

5. If you buy, scale back your expectations and buy a less-expensive house. Even if a lender lets you, don't break your personal bank trying to get into a house you can't afford.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 932-4578, Ext. 234 or via e-mail at

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Nitesh Patel

The roller-coaster ride of the past few years has left many investors growing weary of the extreme market volatility and muted investment returns. Increasingly, individual investors are facing decision time. “What should I do now?” is a common question.

For starters, avoid panic and keep a cool head. Timing the ups and downs of the market is difficult, at best, for professional portfolio managers to do, let alone the average investor.

Most important, it’s time to revisit a sound, time-tested investment strategy known as asset allocation. Simply put, asset allocation is spreading money among a variety of different asset classes such as stocks, bonds and cash equivalent investments.

Different investors approach asset allocation in different ways. Thus, generalizations about its importance are difficult to make. Your personal risk tolerance varies greatly depending on your age and your savings goals. When assessing your personal risk tolerance, it is important to decide how much volatility you can live with and still sleep at night. You also will have to consider factors such as your cash flow requirements, liquidity needs, time horizon, tax situation and financial goals.

When determining your asset allocation, keep an eye on diversification. History has proven that no single investment performs well under all economic or market conditions. By dividing your investments among a variety of investments such as stock funds, based on style (growth, income and value); size of the company (small, mid and large-cap); and location (domestic or international), you can potentially reduce the impact that one poor performer may have on the overall portfolio.


Once you have settled on an appropriate allocation among stocks, bonds and cash based on your risk level, you should consider monitoring your portfolio on a period basis. A strategy you might consider is annual rebalancing. This strategy keeps your investment allocation aligned with your investment strategy by automatically selling asset shares that have outperformed and investing in asset shares that have underperformed. If market changes cause your portfolio to become overweighed in one type of investment, your portfolio is re-adjusted automatically to match your original asset allocation.

Another proven long-term investing strategy is dollar cost averaging. (Dollar cost averaging does not assure a profit and does not protect against loss in declining markets. The investor should carefully consider financial ability to continue payments during periods of low price levels.)

While it may require discipline, especially in a down market, investing a fixed amount on a regular basis can allow investors to take full advantage of long-term growth. When prices are low, your investment buys more shares and when prices are high, you will buy less. The practice keeps you active in the market at all times, and research shows that staying in the market is far more successful than jumping in and out, trying to time the upswings and downswings.


During the roaring 1990s, many felt working with a financial professional was almost unnecessary. Many investors simply placed money in the market and saw double-digit returns, sometimes in as little a few months time. In the new era of financial reality we have learned that portfolio management is a dynamic decision making process that requires ongoing monitoring and evaluation.

Because investing often becomes an emotional process to the non-professional, it’s a good idea to consult with a knowledgeable financial professional, who can help you determine which asset allocation is right for you.

A financial professional can help you identify attractive investment opportunities, put market volatility into perspective and create an investment strategy to help you reach your financial goals.

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: kids and summer jobs: the tax rules


If your child takes a job this summer, you’ll want to know about the following tax issues.

For 2007, your child can earn as much as $5,350 and not pay a dime in federal income taxes. If your child’s earnings won’t exceed this amount, consider having the child claim “student – exempt” when completing the federal withholding allowance certificate (Form W-4). If this is the child’s only income and the total is below the $5,350 limit, he or she won’t have to file a 2007 tax return. If the child makes a maximum deductible traditional IRA contribution for 2007 ($4,000), he or she can earn as much as $9,350 without incurring any federal income tax.

Don’t overlook the fact that there will still be withholding from your child’s paycheck in the form of social security and Medicare tax. But those payments are not income taxes, and they cannot be refunded to the child. Realize also that as long as you provide more than half of your child’s support, you can continue to claim the child as an exemption on your tax return. Your child will lose his or her exemption, but that exemption deduction is typically more valuable to you than to your child.

If you own your own business, consider hiring your child for summer employment. Your business can deduct the wages you pay the child, as long as the wages are appropriate for the work performed. If your business is a sole proprietorship or family partnership, you are not required to withhold social security or Medicare taxes on your child’s wages if he or she is under 18 years of age.

Don’t overlook the benefits and opportunities for both you and your children when helping them to plan for taxes and their summer jobs.

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