Tuesday, April 17, 2012
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All economic indicators point upward. The brunt of the economic, housing and employment crisis is behind us.
That's not to say all is well. We can't celebrate success until every person who wants to work is gainfully employed and homeowners are no longer struggling to make mortgage payments on a balance that exceeds their home's value.
But there is relief in sight. The Home Affordable Refinance Program (HARP), initiated in 2009, didn't put much of a dent in solving the foreclosure problem. Enter HARP II with some key changes and help is on the way for struggling homeowners who didn't qualify for the original program.
HARP was designed to allow homeowners to refinance their mortgage to obtain a lower interest rate, whether or not you have equity in your home.
Say you bought your home at the height of the housing boom, securing a $200,000 mortgage on a property valued at $245,000 at the time. The bubble burst. Your home is now only valued at $175,000. Your monthly payments only scratch the interest, leaving $195,000 still due on the principal. Your home is considered underwater.
If you are current on your mortgage, you are eligible to refinance that mortgage at better terms through the government HARP program. This could be a shorter term, lower interest rate or eliminating some of the closing costs.
A few other qualifiers must also be taken into account. The current loan-to-value (LTV) ratio must be greater than 80 percent. There is no maximum LTV for fixed rate loans. An adjustable rate mortgage may not be over 105 percent LTV.
The borrower must be current on the mortgage at the time of the refinance, with no late payment made in the last six months and no more than one late payment over the past 12 months. The borrower must have a reasonable ability to make the new mortgage payments. And the refinance must improve the long-term affordability or stability of the loan.
This program gives creditworthy homeowners opportunity to either increase the equity in their home or pay down their principal balance more quickly, whichever goal is in their best interest. After you submit your application, you'll receive a "Good Faith Estimate" and "Truth in Lending Statement." Review them to learn if your new interest rate, mortgage payment and loan terms are an improvement over your current terms. A refinance may not be right for you.
Refinancing under HARP will not reduce the amount you own on your home. It merely enables you to refinance to a more stable product or one with better terms.
Troubled borrowers who are unemployed have a different recourse. The Home Affordable Unemployment Program (UP) may reduce your monthly payment to no more than 31 percent of your income or suspend payments all together for 12 months. Program details are available here.
If you're not unemployed but still struggling to make your monthly mortgage payments, the Home Affordable Modification Program (HAMP) may be able to help. This program is expected to be available by June 2012. You'll be able to find details as they emerge here.
Today is the last day you can make an IRA contribution to credit against your 2011 income tax return. And since you're not likely reading this until after work or Wednesday morning, you've likely missed the window.
No need to worry. After learning your fate for the 2011 filing season, you're probably already scheming ways to soften next year's blow. Contributions you made in 2012 and didn't claim in 2011 will be ready and available for next filing season.
According to Investment Company Institute, almost 46 million Americans own an IRA as an income source in their retirement years. Withdrawals are permitted only after the owner reaches the ripe young age of 59-1/2. Penalties are assessed for early withdrawals on those who take their money too early.
But the folks who designed IRAs realize that life doesn't always go according to plan. They allowed for specific situations where early withdrawals are permitted with a limited or sometimes no penalty.
One circumstance is medical expenses. You can use IRA proceeds to pay for unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income without being assessed the 10 percent early withdrawal penalty.
If you lose your job, you may also use IRA funds to cover health insurance costs, including COBRA premiums. You must have received unemployment compensation for 12 consecutive weeks to be exempt from the penalty. You must also receive the distribution no later than 60 days after you become re-employed.
College costs mounting up? Use your IRA at any age to pay college costs for yourself, your spouse, your children or grandchildren. Don't risk retirement savings to do so, but if you're already putting enough aside this might be one option to explore.
Taking IRA distributions may impact your child's financial aid eligibility. And it counts as income on the following year's financial aid application so weigh this option carefully before tapping your fund.
First-time homebuyers may use up to $10,000 of their IRA funds as a down payment to buy, build or rebuild a primary home without penalty. Those who have not owned a home in the past two years are considered a first-time homebuyer. If you and your spouse both qualify, you can each receive a penalty-free $10,000 distribution.
Do you already have a comfortable amount stashed away for retirement? Use your IRA for estate-planning purposes. Name your kids or grandkids as beneficiaries and the money passes along tax-free.
If you become disabled and unable to work, you can tap your IRA at any time without penalty. But you have to furnish proof of your disability. It must be expected to result in your death or last for an indefinite period of time. If you qualify for Social Security Disability Insurance, you'll qualify for the disability exception.
Traditional IRA holders must pay income tax on their distributions as it was contributed on a pre-tax basis.
These options should be considered only as a last resort. The purpose of your IRA should be to supplement your retirement income. Early distributions cost you more than just the amount you withdraw. You lose the interest or dividends you would have earned on that money, too. Your financial advisor can help you decide which option is best for you.
The DJIA surged today, once again above the 13K mark amid strong earnings reports from such stalwarts as Coca-Cola, Hewlett Packard and darling of the Street... Apple, Inc. New optimism also came out of Europe, as Spain's issuance of some new debt met strong demand, albeit at very high yields. And late last week, China further reduced restrictions on the Yuan (the Chinese currency), opening the way for greater Chinese imports. All in all, the anemic world recovery slogs on...
We left our story last week at the juncture whereby Seabiscuit Owner Charles Howard made the unconventional decision to spare Seabiscuit from the almost certain fate of virtually every other broken down racehorse: euthanasia. The auto magnate simply did not care that it would cost "a small fortune" to spare his horse. Perhaps even more surprising was another decision Howard made. Unable to ride or earn a living, jockey Red Pollard was nearly destitute. Yet the always benevolent Charles Howard would have none of that, and took Pollard in as well during his extended convalescence.
With no money or visible means of support, Red Pollard joined Seabiscuit at the Howard ranch. Howard was content to allow both to live as long as they chose, relaxing together under the juniper trees. Indeed, the two soul mates spent untold hours together limping around the luxurious Howard ranch - very content in each other's company.
Charles Howard, like Milton Hershey and a few other "benevolent capitalists" of the time, believed his vast fortune was his own to spend, and often spent large sums of it to make the lives of others better. It was who he was.
Beneath the juniper trees, Seabiscuit healed faster. Under Tom Smith's careful therapy, the limp was soon gone, and Seabiscuit took to frolicking around the paddock. When often asked why he and Howard did not use whips in their stable, Smith would state that great horses responded best when "asked" to perform. Indeed, Seabiscuit had been brutally whipped by previous owners early in his career, and as a result lost more races than most other horse ever ran.
Yet Seabiscuit later became a champion under the careful nurturing of Tom Smith, Charles Howard and Red Pollard. Seabiscuit was indeed a horse who needed to be asked. And so it was, one afternoon, while Seabiscuit was playfully trotting around the paddock that a flock of birds startled him and he bolted. And there, for a brief few seconds, was that old familiar blinding speed. From his porch, Charles Howard saw it. From the stable, trainer Tom Smith also saw it, and the two exchanged a long glance. At dinner in the ranch house that evening (Howard always included all his guests and employees in his meals), Howard asked Smith, "Is it possible Seabiscuit could race again?" "Maybe," was Smith's non-committal reply.
Seabiscuit was moved to a local track away from the media and exercised. The results were promising. No sign of injury and blistering track times. With Red Pollard still unable to ride, Howard summoned George Woolf who agreed to ride Seabiscuit during his training for one last shot at the "Hundred Grander."
With the race just a few weeks away, it was clear to Howard that Pollard's leg was simply not healed enough for the jockey to ride. Yet Pollard pleaded with Howard to let him ride. He had constructed a special boot that helped brace his leg. Howard told Pollard he would let the doctor decide. The doctor informed Howard it was out of the question - the x-rays showed the bone in Red's leg was barely connected. If it broke, Red would likely never walk, much less ride again. Howard thought of Red Pollard as much a family member as a jockey, and simply could not bear the thought that Red could be crippled for life or worse. Woolf would ride.
As the race day drew near, Pollard continued to plead. It was his very last chance - the chance of a lifetime. He could do it. But Howard could not bring himself to take the risk. Looking for support, Howard visited Woolf. The selfless Woolf emphatically argued that Pollard should get the shot. Howard pleaded with Woolf, "If Red falls from that horse, he might never walk again", to which Woolf famously responded, "it is better to break a man's leg than his heart."
In a quandary Howard went to the track and sat in the empty stands. He so wanted Red to get the chance, but he couldn't stand to risk his life. Howard's beautiful young wife Marcela found Howard at the track, and argued on Red's behalf. "But Marcela," Howard pleaded, "It is too risky!"
Marcela reminded Howard of the bold risks he had taken as a young entrepreneur to build his fortune. Soon both were weeping. "Just let him do it, Howard," Marcela pleaded. And with that, auto magnate Charles Howard made the toughest decision of his life.
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