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Francis Vayalumkal

With historically low rates, many homeowners are watching closely for the right time to refinance their mortgages. Those with good credit may well recall being showered with praise by a mortgage broker during the initial purchase for that solid credit score.

A few years ago, a score of 620 or higher was good enough. That increased to 680 in early 2008. Then it jumped to 720.

In the past, any score of 700 or higher would get a double thumbs-up from credit experts. Now, rate adjustments begin kicking in at 740, with every 20-point drop adding another adjustment. Many people who were taking pride in their credit habits either must pay significantly higher or try to make quick changes to nudge their scores upward.

Even with credit scores above 700, people are often affected by the rate adjustments that many times a refinance wouldn't make sense because of the slight adjustment that had to be added in.

This change didn't happen without a reason. The nation's two largest mortgage lenders, Fannie Mae and Freddie Mac, suffered major losses in the market last year and then redefined risk, announcing price adjustments for borrowers with FICO scores below 720. These fees have nothing to do with your mortgage company or its various products and cannot be negotiated away.

All mortgage bankers, brokers and credit unions must comply with the higher interest rates and delivery changes in all traditional mortgages. Only entities intending to hold the mortgages in their own portfolios can follow their own guidelines.

When a borrower sits down to discuss rates for a new loan, the quoted rate includes all the adjustments, so the borrower is not necessarily made aware of these changes.

The factors that are important to getting qualified for a loan can't be surprising. Some are:

" Good credit.

" Stable job, with a minimum of two years of employment.

" Reserves after closing, including a minimum of two to six months of mortgage principal, interest, taxes and insurance.

" Down payment from the borrower's own funds.

" Low debt-to-income ratio. The required ratio varies between banks but is generally less than 40 percent, according to many in the industry.

" Good loan-to-value percentage. It also varies, but it's often cited as less than 80 percent.

Having equity in your home is a major factor in getting approved for a refinance and in finding the best rate. The more equity in the home, the less risk there is to the lender if the home is repossessed.

What can you do about your credit score?

What can a homeowner who wants to refinance do with a good FICO score that's not good enough?

1. Find out what might have gone wrong. Applicants should know their credit score, understand what it means to their loan rates and ask their loan officers to use credit analysis on their behalf. Credit analysis tools are a simple way to identify key score influencers by scrutinizing the information contained in each of an individual's three credit reports to look for inconsistencies, errors and omissions that may artificially depress the score.

2. Correct any inaccuracies. Although consumers can improve scores on their own, credit agencies offer services to mortgage brokers to help consumers raise their credit scores if something is reported inaccurately and there is proof of a discrepancy.

3. Decrease the percentage of available credit used. This can be done by paying down balances or increasing credit limits. Ideally, this means keeping balances as close to zero as possible, and definitely below 30 percent of the available credit limit, experts say.

4. Get a rapid rescore. It's the only way to find out fast if an attempt to improve a score was successful. It's done through your lender and a rescoring company. The process takes about a week, but it can get the loan process back on track. The downside is it costs a few hundred dollars.

It is recommended that, anyone contemplating a refinance or a new mortgage anytime within the next year or so would start working on getting the ideal credit score now.

Francis Vayalumkal is a mortgage banker with Colonial Bank and can be reached at (813) 719-0303

Kamlesh Patel


Is your small business struggling in this uncertain economy? Some tax relief is now available for certain companies and other business entities. Instead of carrying back a 2008 net operating loss (NOL) for only two years before carrying it forward, you may be eligible to carry back the loss for up to five years.

This tax change was included in the new American Recovery and Reinvestment Act of 2009. It applies to NOLs incurred by a small business in a tax year beginning or ending in 2008. For example, if your company incurs a loss in the fiscal year covering July 1, 2008, through June 30, 2009, it may use the longer carryback period.

Starting point: An NOL is realized when a company's expenses for the year exceed its income. Typically, the loss may be carried back for two years and then forward for 20 years until it is used up. If you carry back an NOL, you can offset income reported in a prior tax year and receive a refund of taxes paid. Alternatively, you might forgo the carryback if you expect the next few years to be profitable.

The new law extends the carryback period for small businesses from two years to five years while keeping the 20-year carryforward period. A business qualifies for this tax break if it has average annual gross receipts of $15 million or less for the three-year period ending with the tax year of the NOL. Any other business can still carry back an NOL for two years or forward for 20 years.

The IRS has already revised the forms for claiming NOLs. Special rules apply to pass-through entities such as partnerships and S corporations.

Final point: Once you choose to carry back an NOL for five years, the election is irrevocable.


The new American Recovery and Reinvestment Act of 2009 provides a health insurance "discount" for certain employees who lose their jobs this year. Part of the burden is being shifted to their former employers, but that cost may be recouped through a new payroll tax credit or reduced deposits.

The new law changes relate to the federal law called COBRA (short for Consolidated Omnibus Budget Reconciliation Act), passed back in 1985. Under COBRA, which applies to employers with 20 or more employees, an employee who is terminated from employment may elect to pay for continued health insurance coverage for up to 18 months (or even longer in certain situations). However, the ex-employee must bear the full cost of the premiums, plus a usual 2 percent administrative fee.

Now the new law effectively subsidizes the cost of COBRA coverage for employees "involuntarily terminated" after Aug. 31, 2008, and before January 1, 2010. This includes workers who are laid off or fired from their jobs. An ex-employee can elect to pay only 35 percent of the cost of the premiums for up to nine months, while the employer is responsible for the remaining 65 percent.

If an employer is required to subsidize COBRA premiums, it can claim the new payroll tax credit. The credit is generally available to employers in the quarter for which subsidized payments are made. Alternatively, an employer may reduce its regular payroll tax deposits to reflect the subsidized payments.

Note: This benefit is phased out for high-income taxpayers. Single filers with an adjusted gross income (AGI) exceeding $125,000 and joint filers with an AGI exceeding $250,000 must repay all or part of the subsidy on their tax returns.

Both employees and employers should be aware of the new rules.

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

Seema Ramroop

As you approach retirement, you will quite likely be assessing your financial situation to determine if you have saved and invested enough to afford a comfortable future. Generally, financial professionals advise that to maintain your current lifestyle you will need approximately 70 percent to 80 percent of your current annual income each year in retirement, although your own situation may differ based on your personal goals and finances.

Taking an in-depth look at your finances and an inventory of your retirement funds about five to seven years before retiring will give you time to make adjustments to help you meet your goals when retirement time comes around.

Will I Have Enough Retirement Income?

Generally, retirees turn to these sources of income: Social Security benefits; earnings (including part-time jobs); personal savings and investments, including IRA accounts or additional employee savings plans; and company retirement plans.

According to the Social Security Administration, Social Security may account for only about 40 percent of your income in retirement ("Income of the Elderly Population Age 65 and Over 2006," EBRI Notes, Vol. 28. No. 12, December 2007). Personal investments and savings, company retirement plans and other sources will have to make up the remaining portion of your income - about 60 percent.

After calculating your projected retirement income, you also need to examine your current expenses and determine which items will increase or decrease, which will be eliminated and which will be added after you retire. By reviewing this information early on, you can develop a sense of whether you'll have the necessary income to cover your expenses once you retire.

Compare your expense calculations with your projected sources of income and determine whether you will have a surplus or a deficiency. At the same time, determine at what point in retirement you will need to begin drawing on your retirement plan assets. If, after comparing your expenses with income, you have a surplus, you are on the right track to enjoying a comfortable retirement. However, if you note a deficiency, you can make decisions now to help ensure that you will have a relatively comfortable retirement later on.

Should I Adjust My Asset Allocation Strategy?

Having a good understanding of investing becomes more important as you approach retirement. Examine all the investments available through your retirement plan and determine into which category - stocks, bonds or cash equivalents - each of them falls. Next, assess your level of risk. As people prepare to retire, they generally want less risk in their investments than in the past. Since your income from employment will have stopped or decreased considerably and your assets may be invested over a shorter period, it may be more difficult to recover from loss. Therefore, you may want a lower-risk investment strategy than before. Whether you intend to use your money over a relatively short period or spread it out through your retirement is another important factor.

Important Points to Consider

There is no set asset allocation strategy that works for everyone. Before determining which strategy best fits your personal situation, keep in mind that different people have different financial resources and expectations regarding how long they will be in retirement. Therefore, individuals have different risk tolerances and investment horizons. And remember, no matter what asset allocation strategy you choose, there is always some level of risk and no guarantee that you will not experience a loss.

Also, keep in mind that you need to look at your holdings as a whole. Consider your personal accounts, retirement accounts and any additional sources of retirement income that you may have. By planning the entire picture, you will be better able to develop a portfolio that reflects your immediate and long-term goals. Your financial adviser can help you determine if your strategies are on the right track toward a secure retirement and help you find ways to maintain your position or work toward your goals.

1. Source: "Income of the Elderly Population Age 65 and Over 2006", EBRI Notes, Vol. 28. No. 12, December 2007

Seema Ramroop, financial advisor at Morgan Stanley in Palm Harbor, can be reached at (727) 773-4629 or e-mail

Ramesh Parekh

What is "Long-Term Care?"

As we grow older, there are greater possibilities that we may not be able to perform our routine tasks such as bathing, dressing, eating, etc. Such needs generally arise because of a prolonged physical illness, a disability or a cognitive impairment (such as Alzheimer's disease). Long Term Care (LTC) is different from traditional medical care. LTC includes help with activities of daily living, home health care, nursing home care or care in an assisted living facility. The type of care can be either skilled or custodial care.

Cost of LTC

LTC costs can be high. The costs vary depending upon the parts of the country and the type of care needed. According to Genworth 2009 Cost of Care Survey, a sample of Median LTC costs in Tampa-St. Petersburg Area:

Nursing home private room - Annual ----- $82,125

Assisted living facility private one bedroom - Annual ----- $24,000

Home Health Aid Service - hourly rate ----- $17-$32

Who bears the burden of long-term care?

There are basically three sources of funds available for LTC:

1. Self-insurance - own or family and friends funds

2. Public program - Medicaid if qualified for the poverty level prescribed by the state.

3. Long-term care insurance

Reasons people buy LTC insurance:

1. Financial protection for retirement

2. Protecting families

3. Wealth and estate protection

4. Financial independence

5. Peace of mind

Recognizing the seriousness of the long-term care costs on an aging society like ours, Congress provided specific tax benefit for long-term care policy premiums. Many states, including Florida, have instituted state LTC Partnership Programs to encourage the public to get LTC coverage.

Long-term care insurance is a part of an individual's financial planning and risk management. You should consult a financial adviser for your specific needs and financial suitability.

Florida Resources for more information:

Florida Department of Elder Affairs - Tallahassee (850) 414-2000

National Association of Insurance Commissioners, Kansas City, Mont.; (816) 842-3600;

Ramesh Parekh, CPA, can be reached at (727) 461-9770 or e-mail or

Shan Shikarpuri

While the media has extensively covered the financial crisis in the banking, insurance and auto industries and other larger retail companies, etc., little or no attention has been paid to the smaller businesses (such as retail, service, etc.) who are struggling to survive during these uncertain and turbulent economic times. As businesses gauge the economic recovery plan from the Obama administration, we can be certain of new tax legislation that will contain many additional deductions and credits for individuals with adjusted gross income of $250,000 or less, as well as bonus depreciation for businesses and allowing loss carry-back for five years (currently two years) in an effort to create new jobs and jump start the economy in 2009.

The recent $787 billion economic stimulus package signed by the president contains significant tax-saving opportunities. However, this subject will be discussed in a separate column.

The purpose of this article is to make you aware of the changes that were made in 2007 and 2008 so you can take advantage of these opportunities of additional deductions and credits for both businesses and individuals for 2008 filing. Please keep in mind that a complete and comprehensive discussion of the recent tax legislations is beyond the scope of this brief article and have merely outlined the tax matters that affect businesses and individuals in our surrounding area.

The recently passed legislations are: (1) The Mortgage Forgiveness and Debt Release, enacted in December of 2007, (2) The Economic Stimulus Act of 2008 passed Feb. 13, 2008; (3) Heartland, Habitat, Harvest and Horticulture Act of 2008 enacted May 22, 2008; (4) Heroes Earning Assistance Act of 2008 passed June 17, 2008, (5) Housing and Economic Recovery Act of 2008 (July 30, 2008, and (6) Emergency Economic Stabilization Act of 2008 enacted October 3, 2008.

Some of the changes affecting individuals include:

1. Exclusion of mortgage debt relief. Up to $2 million of qualified mortgage indebtedness on principal residences is extended to the year 2012.

2. First time home buyer credit is ten percent of the purchase price up to $7,500.

3. Additional standard deduction for real estate taxes is $500 for single ($1,000 for joint filers).

4. Deductions extended through the year 2009 include: sales tax deduction, tuition and fees deduction, out of pocket educator deductions, and IRA distributions to charity.

5. Mortgage insurance premium deduction.

6. Surviving spouse sale of home (full exclusion until two years from the date of death).

Some of the changes affecting businesses:

1. Enhanced code section 179 deductions (immediate write-off of qualified equipment expense). For the year 2008, the expense limit went to $250,000 from $128,000; and asset limits went to $800,000 from $510,000.

2. The first year bonus depreciation: 50 percent of property with 20 years or less life.

3. New luxury auto first year limit is $8,000. Business mileage rate is 58.5 cents as of July 1, 2008. 4. Extension of research credit to the year 2009.

5. Extension of 15 years amortization of leasehold improvements and restaurant properties to the year 2009. 6. Extension of expensing environmental remediation costs.

7. Extension of energy conservation credits and energy efficient property credits (qualified wind turbines and qualified geothermal heat pumps) and energy efficient appliances credits.

8. Extension of deductions for energy efficient commercial buildings.

9. Bonus depreciation for re-used and re-cycled property.

Please note that the above represents a brief outline of only some of the provisions of the legislations passed in the past fourteen months. There are numerous other changes that I have not outlined, such as farmers & agricultural energy credits, tax breaks for military reservists, disaster relief provisions, and issues affecting international businesses and tax preparers, etc. If any of these affect you or your business, we encourage you to consult with your tax advisor.

Shan Shikarpuri, C.P.A., of Shan Shikarpuri & Associates, P.A. is a certified public accountants/business consultant in Palm Harbor, and can be reached at (727) 786-1800 or e-mail

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