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Archive for the ‘Money Management’ Category

Small Home Lenders Not Feeling Fed Love

February 6th, 2009 by Matthew C. Keegan | 3 Comments | Filed in Home Buying, Home Financing, Money Management

If you are in the market for a home loan, you may find it more difficult to obtain a loan through some of the smaller mortgage banks. Thanks to government support of Bank of America, J.P. Morgan Chase & Co, Wells Fargo, Citigroup and other big banks — recipients of billions of dollars in taxpayer monies — a number of smaller lenders are finding that they are being starved of credit, limiting their ability to offer loans to consumers.

puzzle houseIn yesterday’s issue of The Wall Street Journal the newspaper interviewed Jay Brinkmann, chief economist of the Mortgage Bankers Association who noted that smaller lenders have fewer loans to offer and aren’t able to match the rates of the big banks.

Some analysts say that the rate differential is one-quarter to one-half of a percent higher for small lenders, which can add thousands of dollars to consumer mortgage costs over the life of the loan — a clear disadvantage for these types of lenders.

Moreover, most small lenders are family-owned businesses who generally borrow money for the short term from what are known as warehouse lenders. Warehouse lenders get their funding from Wall Street investment banks, but these particular institutions have cut back on warehouse loans or exited the arena altogether.

For small lenders, the drop in warehouse lenders has been precipitous, a decrease of nearly 90% since 2006. During that year $25 billion in funds came from warehouse loans.

Several large commercial banks still make warehouse loans including Bank of America through its Countrywide unit and Wells Fargo. The Mortgage Bankers Association (MBA), noting that hundreds of small lenders have gone out of business in the past few years, is asking Congress to help maintain existing sources of warehouse credit and also to create new ones.

The MBA is suggesting that Congress could provide a federal guarantee of warehouse loans, which would reduce the risk for lenders. In addition, the MBA would like to the Congress give Fannie Mae and Freddie Mac temporary authority to help provide funding for warehouse lines of credit.

What does this mean for you, the home loan shopper? Not too much other than a reduced number of lenders to select from when applying for a home loan. Big banks are still lending and, as mentioned, may be lending at a lower rate than small home lenders. But, if your credit isn’t excellent, will a large financial institution take a chance on you as might a small home loan lender?

That remains to be seen!

Further Reading

How to Establish Good Credit (SayLending)

MBA’s Courson Testifies on Promoting Bank Liquidity (MBA)

Mortgage Banks Push For Federal Support (The Wall Street Journal)

Smart Financial Center (nBuy)


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Let Your Home Finance Your New Car

February 3rd, 2009 by Matthew C. Keegan | 1 Comment | Filed in Autos Express, Home Financing, Money Management

If you are in the market for a new car, then I have some great news for you: prices are being slashed and financing deals are among the best we’ve seen in some time. In fact, you may be able to save thousands on your new car while getting low interest rate financing.

home equityThough most shoppers will pay for their new car purchase by taking out a loan or paying cash, there is a segment of the car buying populace who have figured out a way to buy a new car by using the equity found in their home to pay for it. Instead of dishing out cash or taking out an auto loan, these consumers negotiate the best price for their car and finance the deal for themselves.

Certainly, anytime you borrow money against the value of your home, you are responsible to pay those funds back, just like any other loan. But, in this case, you can deduct the interest from your fixed rate equity loan on your income taxes. Try doing that with your auto loan — you cannot!

Yes, there are certain things you need to keep in mind to make this type of loan smart for you. Otherwise, you risk making the same foolish mistakes that some homeowners have made with credit over the past few years, putting themselves in financial jeopardy.

Among the things to keep in mind are:

Borrow what you need, nothing more. If you have your eyes on a car that will cost you $25,000, then borrow that amount and not a penny more. Avoid the temptation to add in other costs, otherwise your loan will be bigger than what you want it to be.

Keep it short. Certainly you can borrow for ten or fifteen years, but not too many people keep their cars that long. Besides, do you really want to pay interest on a vehicle for that long? Instead, consider a five year loan the length of loan many new car buyers select.

Choose a fixed rate. Avoid any type of loan that can fluctuate. In these challenging times, you don’t want government policy or financial conditions to determine what you have to pay each month. Pay the same amount in month sixty as you’ll pay in the first month and every month in between.

Calculate LTV. What is the value of your home today? LTV is the loan to value of your home, the higher the percentage the better loan rate you’ll be offered. Even if you are allowed to borrow more than what you need for a new car, only do so if you’ll use those monies to fund other projects.

No Restrictions. When choosing a home equity loan, make sure that there are no restrictive clauses for how you can use your money. In addition, you don’t want pre-payment penalties. Why should you be punished for paying off your loan early? You shouldn’t be!

One of the best reasons for allowing your home to finance your new car purchase is that you can claim a tax deduction as per federal and state tax guidelines. Most taxing authorities don’t care what you use your home equity loan money for, that is your business. Consult your financial adviser or tax accountant if you have questions about how this works.


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Is A Reverse Mortgage Right For You?

January 28th, 2009 by Matthew C. Keegan | 5 Comments | Filed in Money Management

Senior citizens who are living on a fixed income often wonder if they’ll outlive their savings, a very real fear in these days of declining investment portfolios.  After last fall’s financial debacle,  some people who own their homes wonder if they’ll be able to stay put or be forced to sell and move into an apartment.

Senior LadyOne option available for mature American homeowners is a reverse mortgage or a home equity conversion mortgage (HECM). An HECM allows seniors to tap the equity in their homes without selling their property, a move which could keep them in their houses for the rest of their lives.

With an HECM, your heirs would handle your estate, selling off your home and keeping the proceeds after the HECM is paid off. Of course, this option reduces what your heirs receive, but it can keep seniors in their homes for the long term.

The following advice about reverse mortgages comes from the LendingTree Smart Borrower Center:

  • Reverse mortgage candidates must be at least 62 years of age, have significant equity in their property, and be looking for a reverse mortgage on their primary residence only.
  • Anyone who intends to apply for a reverse mortgage is required by law to complete a 45-minute counseling session with a HUD (Housing and Urban Development) approved counselor*.
  • The sum from a reverse mortgage can be paid to you in a couple of different ways; all at once in a single lump sum of cash; as a regular monthly loan advance or as a credit line that lets you decide how much cash to use and when to use it; or you may have the option to choose a combination of any of these payment plans.
  • The amount of cash you can get from your home’s equity is determined by a number of factors including your age, your home’s value and location, and current interest rates.
  • Reverse mortgages may have tax consequences, could affect eligibility for assistance under Federal and State programs, and may have an impact on the estate and heirs of the homeowner.

Seek legal counsel and consult your family members before opting for a reverse mortgage. Though the guidelines are stringent, you want to make sure that what you sign passes legal muster and that your family is aware of your plans.

Certainly, a reverse mortgage isn’t for everyone and it is decision that should be well thought out with all options considered.

Source: Lending Tree

Adv. — Save money on all of your consumer spending by shopping wisely. Visit SayLowerBills.com to find ways to save on health costs, home improvement, travel, entertainment, Valentine gifts, and much more.


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Economic Recovery? Expert Says Not Before 2010.

January 15th, 2009 by Matthew C. Keegan | 6 Comments | Filed in Money Management

Taking a look back at 2008, experts now realize that the country was in a recession the entire year, possibly kicking in as early as November 2007. Some experts believe that we’ll begin to see relief later this moneyyear, perhaps as soon as June. However, there is one person, Med Yones — President of the International Institute of Management (IIM) — who doesn’t expect that recovery will begin for another year.

News like this can be disheartening, but our country has gone through economic downturns in the past, some lasting several years. The problem today is that mostly all workers who are younger than 40 have no recollection of a recession this deep with baby boomers and retirees remembering the tough economic times of the 1970s to early 1980s.

For his part, Med Yones is saying that he first called the current recession back in January 2007, following President Bush’s state of the union address.  Yones published a paper — U.S. Economic Risks and Strategies for 2007-2017 Policy White Paper – IIM Working Papers — which outlined the problems facing the US economy two years ago that have led to today’s sharp downturn.

According to Med Yones, “We warned most of them about 2 years ago, yet no one was willing to listen until the markets took their first big hit in early 2007. Since that time, the policy paper was viewed more than 250,000 times by researchers, media analysts, and investors.

The 3 most common questions are:

(1) How did we get here?

(2) Why did our top experts miss it?

(3) When do you think the economy will recover?

The short answers are:

(1) Spending on credit without enough production to pay it back

(2) Groupthink mindset, and

(3) We’ll experience more volatility in 2009 on the way to the bottom of the correction cycle. A modest recovery will start in 2010/2011.

The more detailed answers can be found at: http://www.iim-edu.org/news/topexpertswhopredicteduseconomiccrisis.htm

Though Yones’ initial prediction may seem to have been ignored, he contends that several media sources did pick up on his earlier statement. He cites Reuters, Fox News, Financial Post Canada, Handelsblatt Germany, Le Point France, China Times, Malaysia Sun, and the New Zealand Herald among the media outlets who carried his story.

So what does this mean to the average consumer in layman’s terms? Answer: expect the worse. This year, we’re likely to hear some of the most amazing promises from elected officials, people who insist that they know when the economy will rebound.

However, given the current economic climate and the lack of clarity from politicians and economists, Yones’ newest prediction is certainly worth noting.

Adv. – If you’re shopping for an auto loan, you’ll want to compare offers and find the auto protection you need to ensure that your investment lasts for many years.

Source: International Institute of Management


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