We Need To Dump The Mortgage Interest Deduction

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The Mortgage Interest Deduction has come under fire lately. And rightfully so. Over $131 billion annually is taken away from the cash registers of the Federal Government. This is money that should be going towards paying down our national debt.

Owners of high end houses are the ones that benefit from the Mortgage Interest Deduction (MID). For example, someone with a mortgage of $800,000 at 5% interest will have monthly payments of $4,294.57. In the first year the tax deduction is $39,731.95. If this individual has a federal tax rate of 33%, then his tax benefit is $13,111.54 in the first year. This is more than 3 months of mortgage payments.

For the average Joe with a mortgage of $120,000, the first year mortgage interest deduction would be $5,959.79. Our average Joe makes about $34,000 which puts him at the federal tax rate of 15%. Joe is okay because his mortgage payments each month are only $644.19. In the first year the tax benefit to Joe is $893.96 because he is a 15% tax bracket. His benefit is a little over 1 month's mortgage payments.

But the game doesn't stop here. The tax benefits decline as the mortgage gets older. So the huge benefits are in the early years of the mortgage. To continue getting his 3 free months of mortgage payments each year, the wealthy homeowner has to refinance. He refinances the mortgage back to $800,000.

The mortgage broker makes additional commission. The bank makes more profits from fees, and the closing agent gets more business.

Some would say that the system is stacked against the average Joe. Poor hard working Joe cannot afford to refinance every 3 or 4 years. The fees and refinance costs are simply too high. In addition, the benefit of only 1 month's free mortgage payments isn't worth the trouble.

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California Homeowners Facing Foreclosure: New Law Stops Them From Getting Legal Help

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The new law in California which curtails, and stops mortgage modification scams is hurting homeowners who are facing foreclosure. Modification experts, including lawyers, can not take a fee in advance when they are doing a loan modification.

The intent of the law is good. We have seen or heard cases where lawyers promised that they will get a loan modification for clients. They receive hefty fees upfront, then nothing happens. Some lawyers simply vanished, others refused to take phone calls. It makes you wonder if the file was even worked. The end result is that the bank proceeded with the foreclosure and the homeowner had to move. Refunds in these instances were unheard of.

What the lawmakers didn't realize is that the good guys, those lawyers that would go the extra mile for a client were put in the same bag as the bad guys. The good lawyers can not take money and put it in a trust account. They like all lawyers have to wait until the modification is completed to get their fees. This could be as long as one year. If the bank doesn't negotiate, and the homeowner files for bankruptcy protection, the lawyer doesn't get paid for all his work.

Many experts say that the homeowners can do the loan modifications by themselves. Some can. But the majority of borrowers find the banks too powerful and the process is very time consuming. It requires constant telephone calls, hundreds of emails and letters, not to mention faxing and re-faxing documents that were lost by the lenders. If a homeowner is working full time, where does he get the time to do all this.

The system seems to be failing these homeowners. They do need legal representation. Considering all the debates about robosigning and the mortgage mess, what are homeowners to think? Are they getting a fair deal? To find the answer they need to hire a lawyer. The banks aren't going to tell them anything.

In many states foreclosure is handled by the courts. But in California it is generally between the bank and the homeowner. Without a lawyer the homeowner is at a disadvantage. This plays into the hands of the banks. Someone said "it's like taking candy from a baby".

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Buying A House At The Right Price

Cover of Buying a Home (Essential Finance)

Buying a house is very stressful. The stress level is way up
there with job interviews, marriage proposals and IRS
interrogations. We just can't afford to make a mistake.
However, the process could be easier on our nerves if we prepare.


Select a lender and get approved.


We all deal with a bank. But do we really have a relationship
with the bank? Not really. People at the bank come and go, and
we just say "Hi", "Have a nice day". We do not know the
employees' name and they know nothing about us. So we need
to walk into two or three banks and interview the lenders. Tell them what your plans are and ask them what they have to offer you and why they are the best choice for your business.

Once you have selected a lender you should immediately ask for a
pre-approval letter. The more specific the letter the better. The letter should state the maximum loan you are qualified for based on your income, your debts and your downpayment.


Select a realtor and find a house.


The same process you used in selecting the lender use a similar approach in finding a realtor. Be wary of using a friend's realtor. What worked for your friend or for a family member might not work for you. You need a buyer's agent. This is a realtor that finds houses for a buyer. There are realtors that list houses to sell. They work on the other side of the fence and might not be too happy taking a prospect to 20, 30 or 40 houses. They might get impatient and want the buyer to sign a contract after the third house.

Be specific in selecting your home. Sit with your realtor and make a list of "must haves", "nice to have but can live without" and finally, "no, no, hell no".

Must have would be things like the number of bedrooms and bathrooms, or walking distance to a school or a garage. If you need 3 bedrooms then it would be a waste of time to look at houses with 2 bedrooms. If the school is 2 miles away then you do not want to look at houses in that community.

Your realtor should be able to help you obtain some crime reports and statistics for the community you are considering moving into.If crime is a problem, your house value could plummet in a very short time. Your safety and your family's safety is also at risk.


Get the house inspected and seal the loan.


Once you have selected your house and made the offer, be sure that your realtor protects your interest. Your offer should be subject to a satisfactory house appraisal, a house inspection and termite inspection.

At this point your realtor should be trying to get a better price on the house. At the very least, he or she, should ask for new floors, or new carpeting, or new appliances, anything to make you happier.

Now that all the bases are covered and the house is sound structurally and termite free, you have to finalize the loan. Remember, your pre-approval is not a firm commitment from the bank to lend you the money. It only states that you qualify. At this point you need to fight (negotiate) with the lender for the best rate. Don't feel that you are insulting the loan officer, he or she gets this everyday. It's expected. If you accept the first rate that is thrown at you, the lender might think at you are a bit odd.


Close the deal.


Your lawyer or closing agent will gather all the documents and close the deal. Your deposit will be put into an escrow account. All the closing costs will be itemized and verified.

When all the paperwork is done, you will go the the closing agent's office sign the documents and get the keys to your house.


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Why Mainstream Banks Are Looking At The Underbanked Market

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Do you have a bank account? In the current world of online banking and high technology it is unheard of not to have an account. How can you function without a bank account? There are millions of people that conduct their financial business every day by utilizing alternative financial institutions.

The Center For Financial Services Innovation estimated that there are over 40 million U.S. households, about 106 million Americans, that are underbanked. CFSI added that this sector of the market spends over $13 billion on approximately 340 million transactions. These consumers patronize local companies for their financial needs such as check cashing, money orders, bill payment and international remittances.

The mainstream banks have previously overlooked this market . There is a stigma or perhaps a prejudice at the root of the decision making by senior bank executives. Consumers in this market are seen as poor, immigrant, living in underserved neighborhoods, no social security numbers and no legitimate papers.

Mainstream banks have finally seen the writing on the wall. And that writing says big profits. They are examining several profit centers.

Prepaid cards.

In 2007 the Federal Reserve Payments Study estimated the over $26.76 billion was loaded onto 45 million prepaid cards in 2006. Since 2006 the prepaid card market has exploded. The Mercator Advisory Group, a leading research company in this area, released the Seventh Annual Open-Loop Prepaid Market Assessment study in August 2010. It showed that in 2009 the total load for all the prepaid card segments was $330.03 billion.

Government agencies have embraced the prepaid card market and see it as a safe channel to get money to American consumer who desperately need help. Social Security benefits are being loaded onto prepaid cards. Unemployment benefits are also loaded onto a prepaid card. In certain cases disaster and flood victims received help via prepaid cards.

Small dollar credit.

Typically loans under $1,000 that are made to consumers and businesses are considered small dollar credit. To rate the credit risk, a lender would ask for a report from a company such as RentBureau, Pay Rent or Build Credit. The borrower would most likely not have a report with any of the traditional credit bureaus. If by chance there is a credit report it might be incomplete and lacking a history, or simple derogatory. Consumers need this service to fund purchases that require more than one pay check, or to meet emergencies.

Alternative credit.

Pay day lending brings in over $2 billion in fees on loan volume of $12 billion. Add cash checking fees of about $1.5 billion and we can see how attraction this market has become.

Local and international remittances.

Remittances account for about $50 billion annually and the fees generated are about $3 billion.Visa, Mastercard and Discovery see potential in the unbanked market, specifically the prepaid cards, and have lent their brands to the cards. This is a booming endorsement. We can expect more global companies to jump on the bandwagon in the near future.Europe has shown tremendous growth in prepaid cards alone. The market is currently $22 billion annually. By 2017 this figure will explode to $156 billion according to a study by Boston Consulting Group. I might add that the study was commissioned by MasterCard Worldwide.

The concern I have is the regulation of companies offering any type of banking services.

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