Archives for 2012

Banks Will Pay You To Avoid A Drawn Out Foreclosure Process: Short Sale Incentives

Foreclosure is never going to be an easy process to go through. When you're going through it you're most likely losing your home, losing a piece of your security and it's shocking to be having to leave the place you've lived for years.

While going through foreclosure isn't an easy process, it isn't exactly an uncommon happening these days. Thousands of people are going through the same thing, and the banks are seeing a glut of foreclosed homes piling up on their ledgers.

Owners of more than 14 million homes are in foreclosure, behind on their mortgages or owe more than their properties are worth, said RealtyTrac Inc., a property-data company in Irvine, California.

Because of the large number of troubled mortgages on the books, some banks are now making moves to offer incentives to homeowners in order to get them to sell their properties for less than they owe before they go foreclose.

Short Sale Cash Incentives

Banks Offer Streamlined Process And Incentives For Short Sales

Because the foreclosures have been piling up, and because foreclosures usually result in the bank losing more money, some banks are now making moves to pre-approve short sales. In the past the short sale process could take months – or longer. In addition to pre-approvals, some banks are even offering incentives and cash payments to homeowners in order to get them to sell and move.

Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

Losses for lenders are about 15 percent lower on the sales than on foreclosures, which can take years to complete while taxes and legal, maintenance and other costs accumulate, according to Moody’s. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, said CoreLogic Inc., a Santa Ana, California-based real estate information company.

So to recap, some of the things that banks are now more willing to do in order to avoid a foreclosure include:

Pre-approving short sale deals
Streamlining the closing process
Forgoing their right to pursue unpaid debt
Providing large cash incentives

While in the past the banks may have preferred a foreclosure, now that values have dropped so much and there are so many foreclosed homes on the books, many banks want to avoid adding new ones to the books – especially when it means they'll have other holding costs associated with the properties.

Banks spend an average of 348 days to foreclose in the U.S., and then another 175 days to sell the property, according to RealtyTrac. If the banks can avoid that and sell the house at a loss, they're often more than willing.

Big Cash Incentives To Sell

While not everyone is offering cash incentives to people to do a short sale or deed in lieu of foreclosure, there are quite a few big banks doing just that. One borrower received a letter from JPMorgan offering her the chance to sell her home and get a big check.

Karen Farley hadn’t made a mortgage payment in a year when she got what looked like a form letter from her lender.

“You could sell your home, owe nothing more on your mortgage and get $30,000,” JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News.

Farley, whose home construction lending business dried up after the housing crash, said the New York-based bank agreed to let her sell her San Marcos, California, home for $592,000 — about $200,000 less than what she owes. The $30,000 will cover moving costs and the rental deposit for her next home.

While it's clear that not everyone will be getting large settlements, quite a few people will be getting notifications of cash incentives and debt forgiveness.

JPMorgan, the biggest U.S. bank, approves about 5,000 short sales a month. It generally offers $10,000 to $35,000 in cash payments at settlement, real estate agents said. Not all of the sales include incentives.

Beyond JPMorgan, some other banks like Wells Fargo, Citigroup Inc. and Ally Financial have been known to offer incentives as well. The payments are being offered in some cases as “relocation assistance” while in others people are saying that the offers are being made in order to get people to help sell the homes and keep them clean and kept up while they try to sell. Still others have criticized the banks saying that assistance is being offered in some cases where there may be faulty paperwork, as would have been covered by the recent foreclosure settlement.

So how will you know if you're eligible? In many instances you'll receive a mailing from your bank telling you about pilot programs that offer incentives – which aren't available in all areas. In other cases it may pay to contact your bank and see if they have any programs that offer “relocation assistance” or debt forgiveness on a short sale.

Beyond incentives from banks and mortgage companies, some people may be eligible to receive payments from the governments Home Affordable Foreclosure Alternatives program which supplies payments to servicers, investors and homeowners who complete short sales.

What do you think about this news? Do you think the banks should be offering these incentives, and does it make sense for them?

What Are You Doing To Make Your Money Dreams A Reality?

By Miranda Marquit 2 Comments

Many of us have money dreams. Often, these dreams focus on some point in the future, when you have more money. We think about the things that we'll do when we have more money: Go on vacation, set up a charitable foundation, get rid of debt, pay off the mortgage, or accomplish some other feat.

Unfortunately, while dreaming about what we'll do when we have more money, we often overlook the intervening step of planning to make those dreams a reality. We dream of a financially sound future, but we neglect to make any provisions for actually getting there. As a result, having more money in the future remains a dream — and the future we dream about is never realized.

What Money Realities Do You Face?

First of all, you need to recognize where you are in terms of money. Honestly look at the money realities that you face. Look into the future and consider what's next. Just as you need to consider the financial implications of marriage, having children, and other milestones, you also need to consider your current situation. Figure out how where you are right now relates to where you want to be.

Next, you need to make a list of the steps that you need to take in order to get from where you are to where you want to be. This is where many of us trip and fall. We find ourselves unhappy with the current situation, and dream of what it would be like to have more money. We use phrases like “When I have more money” and “When I get that promotion” to describe what we hope will be a profitable future. But these types of wishes skip over the realities that we face now, and the actions that need to be taken in order to achieve your financial goals.

Create a Plan to Reach Your Money Dreams

Once you know where you are, and what needs to happen in order for you to achieve your money dreams, it's time to create a plan. You can look for ways to develop multiple streams of income, you can improve your skills so that you qualify for better pay, and you can also find ways to cut the unimportant spending from your life and save more money. There are a number of ways that you can work toward your goals, and they differ according to your situation and your preferred outcome.

The common factor, though, is that you have to take action. You need to consciously set out to achieve your financial goals in a way that renders them achievable. While you might have set backs, breaking down your goals into achievable financial resolutions that you can work on each year can help. Indeed, creating a plan for your money is one of the best ways to help you finally achieve those dreams.

Eventually, if you create and stick to a plan, you won't be saying, “When I have the money…” anymore. Instead, you will have the money. But it doesn't just happen, and you can't get to that point on mere wishes.

Are You Letting Your Kids Ruin Your Retirement?

By Miranda Marquit 2 Comments

Most of us like to help others — especially if those others are our children. I know that I like to help my son. I like going places that I think he'd enjoy, and my husband thinks it's fun to shop for his Christmas presents, keeping an eye out for things he'd like. And, of course, if my son were in trouble, I'd want to help him out. But what can be really difficult is to figure out where the line is when it comes to helping or enabling. You also have to know when to say no when your own financial future is at stake.

Are You Putting Your Own Finances at Risk?

In many cases, helping your kids out occasionally with their finances won't bankrupt you, or even put your retirement at risk. Unfortunately, though, a pattern of poor financial decisions from your children can result in a situation that eventually puts your finances at risk. Even some items of financial responsibility, such as paying for college, can leave your retirement plans in ruins.

Don't Let Kids Ruin Your Retirement

It's popular to say that there are loans for college, but there aren't loans for retirement. And, in truth, there are other loans available for your children to use if they are in a tight spot and you can't help without putting your retirement at risk. And they'll have more time to repay those loans — as opposed to the situation you might find yourself in if your money is no longer working on your behalf.

Retaining financial responsibility for your grown and capable children can quickly become a double-edged sword. Your nest egg dwindles, while your children continue to think that they can make poor financial decisions while you take on all the risk. You don't want your declining years marred by inadequate funds because you have spent them all on trying to get your kids back on track. And, if your kids haven't learned anything because you've bailed them out time and again, they won't even be in a position to take care of you financially in order to repay your own efforts.

Teach Financial Skills While They're Young

One of the best remedies to the problem of having your retirement ruined by your children's financial behaviors is one of prevention. Teach good financial habits in the beginning. Encourage financial literacy early on, and focus on helping them learn to take responsibility for their own money.

Set boundaries from the beginning, making it clear what you will help them with — and the conditions for doing so. My mother has always had this rule: If you plan to live at home after you're 18, you'd better have a job, or getting an education that will help you acquire a marketable skill. She also expects anyone living with her to spend their money on paying down debt, and saving up for the future. And you'd better be ready to help out around the house.

Consider what you expect your children to do with money, and then convey those expectations to them. Teach them to manage their money wisely, and there will be a smaller likelihood that they will come looking for your nest egg.

Can You Open More Than One Roth IRA?

By Britt Gillette 2 Comments

Can you open more than one Roth IRA?

This is a good question to ask, because some people seem to be confused when it comes to this issue.

Despite the conventional wisdom, and regardless of what some people may tell you, you can only have one Roth IRA.

Some why do some people believe they have multiple Roth IRAs? The confusion stems from knowing the difference between your Roth IRA account and your Roth IRA custodian or trustee.

Roth IRA - How Many Can You Have?

Roth IRA Trustees and Custodians

Under federal law, you're required to have a “trustee” or a “custodian” to host or maintain your Roth IRA.

So what constitutes a “trustee” or “custodian”? As a general rule, a trustee or custodian is a federally insured:

Bank
Credit Union
Savings & Loan
Brokerage House, or
Other Financial Institution

For example, if you go your local bank, open a Roth IRA, and deposit $5,000 as your annual contribution, your bank is your Roth IRA custodian.

Multiple Trustees and Custodians, But Only One Roth IRA

Under the Roth IRA investment rules, you can have multiple Roth IRA trustees or custodians. But in the eyes of the IRS, you can only have one Roth IRA.

Does that make sense? For instance, you might have $5,000 in a Roth IRA account at Charles Schwab and $10,000 in a Roth IRA account at First Trade Securities. In this case, you have two Roth IRA custodians, but only one $15,000 Roth IRA as far as the IRS is concerned.

One Roth IRA Per Person

In plain terms, you can have one Roth IRA per person, or better stated…

1 Person = 1 Roth IRA

That said, you can have multiple Roth IRAs as a married couple. A married couple can have two Roth IRAs – one in each spouse's name.

But the same rules apply. Even if as married couple you have 12 Roth IRA accounts scattered among 12 different financial institutions, in the eyes of the IRS, you only have two Roth IRAs – all the accounts in your name and all the accounts in your spouse's name.

Know The Difference

Knowing to differentiate between your Roth IRA itself and your Roth IRA custodian may sound like mere semantics, but at certain times, it can prove critical.

For instance, in order to claim Roth IRA losses on your tax return, the IRS you to first close your Roth IRA – meaning you must close all of your custodial accounts. You can't claim a loss on a single custodial account in isolation. The IRS only lets you claim a loss on the sum total of your custodial accounts, which it views as your one and only Roth IRA.

Likewise, when it comes to withdraws from your Roth IRA, whether or not you have to pay taxes and/or penalties is a question subject to specific ordering rules, and those rules apply to all of your custodial accounts as a whole. Not knowing the difference can get you in trouble!

For example, under the IRS ordering rules, Roth IRA withdrawals must be made in the following order:

1) Original Contributions
2) Conversion or Rollover Contributions, and
3) Investment Earnings

Let's say you're 62 years-old and you want to withdraw funds from your Roth IRA. You have two Roth IRA accounts, one with eTrade worth $100,000 ($30,000 in original contributions and $70,000 in earnings) and a second account with Wells Fargo worth $20,000 (a recent conversion).

If you withdraw $50,000 from your eTrade account, the first $30,000 is tax-free and penalty-free because you're simply withdrawing your original contributions. The remaining $20,000 represents investment earnings, and since you're over age 59 ½, you can withdraw those funds tax-free and penalty-free as well – right?

Not necessarily. Under the ordering rules, the remaining $20,000 you withdrew does not represent investment earnings, but conversion contributions. And each conversion you perform is independently subject to the Roth IRA 5 year rule. So if you haven't yet met the requirements of the 5 year rule, then it's possible you owe a 10% penalty on that $20,000 you just withdrew.

$2,000 is an expensive price to pay for not knowing and understanding the Roth IRA withdrawal rules. So make sure you understand the difference between your Roth IRA as it relates to the IRS and your Roth IRA custodian(s)!

This is a guest post from Britt at http://www.your-roth-ira.com, the Web’s #1 resource for Roth IRA information.

Is It Hard To Get By On A Six Figure Income?

By Mr. Money 4 Comments

I feel like I've been reading a lot of stories lately about how one family or another is having a hard time getting by, on incomes that are a bit above the average. Why are they having such a hard time making ends meet? There could be any number of reasons – from gross overspending to not keeping a budget of any kind.

One particular story that I read about this week sounded interesting in that the author was talking about how she and her family felt poor despite earning a six figure income. Not only that, she asked if six figures was the “new minimum wage”. I thought that sounded a bit ridiculous, but wanted to examine why she thought those things.

six figure income

Six Figures Equals The New Minimum Wage?

Laura Cone, a contributor on Yahoo.com, talks about how despite their family income recently topping six figures, they still can't seem to find any money left over every month.

Our family income recently topped $100,000, but we aren't spending as though we make six figures. We don't sip Mai Tai cocktails at resorts or buy pricey tech toys.According to recent data, incomes are rising and consumers have more money to spend. They are also taking on more debt for the first time in three years. Financial experts say the increase in borrowing can be attributed to buying cars and paying for college . We bought a new car this past year so our son could earn money for college delivering pizzas. He may need to borrow money for grad school.

Although I admire people who live on fixed incomes or minimum wage, I have no idea how they do it. When I was younger, I got by on a salary of just $19,000 a year. At that time, I did not have a mortgage or two sons attending college. Back then, the high cost of childcare took a big chunk out of my pitiful paycheck . Still, I never thought we would have trouble living on $100,000.

The author relates how sometimes no matter what income you're at, you just don't feel secure. She then goes on to talk about what expenses the family has. Among them expenses are housing, cars, insurance and food:

Our fixed expenses include $350 a month for utilities, $300 for car insurance, $175 for Internet, cable and phone. We owe $1,222.02 a month on our mortgage and $300 on a car loan. We have no other debt. We save 10 percent of our income for retirement. We spend at least $500 a month on gasoline and an astounding $1,000 a month on food. I’d feel rich if I was eating at upscale restaurants or buying gourmet foods, but our food budget just provides the basics for four people.

Among her expenses are a few things that aren't necessarily a necessity. For example, the internet/cable/phone. I'm sure they could cut back on that expense in if they wanted to. They also in the article talk about their cars which they have loans on and the car that they bought for their son. Two more expenses that could at least be cut back – if not cut out all together (make the son buy his own car!).

A commenter on the site pointed out that the author also was spending quite a bit more on food than she was for the same family size – more than twice the amount.

Breaking Down Where Her Income Is Going

Let's make some assumptions about what Laura's family is making, and figure out where their money is going. For argument's sake, let's assume they're making exactly $100,000.

$100,000 salary – $8333.33/month:

So what fixed expenses do they have every month according to the author?

$2083.33/month federal taxes (assuming 25% 2011 tax rate for married filing joint.)
$554.17/month state taxes (assuming 6.65% NY state tax rate)
$1250/month tuition
$1222.02/month on mortgage
$1000/month food
$833.33/month on retirement
$500/month gasoline
$350/month utilities
$300/month car loan
$250/month extra on mortgage
$175/month internet

So the expenses that she mentions above by themselves come out to about $8517.85/month, more than their income. That's not even including other incidental expenses they most likely have every month like clothes, doctor visits, etc. So I'm assuming the things she's telling us aren't 100% correct, our assumptions are a bit off or something.

Looking at the expenses some of them do seem a bit high like food, phone/internet and they bought their kid a car to deliver pizzas – why not have them pay for their own car?

On the other hand this family is also paying more than their mortgage in tuition costs every month, in addition to saving 10% for their retirement and adding extra to their mortgage payment every month. So it's not exactly like they're in awful shape here. If push came to shove they could reduce contributions to retirement, and/or ask their child to pay for more of their own education (like mine did) and they'll instantly have well over a thousand dollars more in their monthly cushion.

Just Getting By, Or Doing OK?

The author of the article seems to think they're barely getting by on their six figure income, but if you really look at it they are doing things that other families can only dream of like fully paying for college costs for their child – as well as funding retirement and paying extra on the mortgage. To me, while they're not getting ahead as fast as some, there are certainly things they can do to improve their situation and save more.

So no, I don't think that six figures is the new minimum wage, and I think it is entirely possible to get by on much less than 100k. As income goes up, so do expenses in many cases, and lifestyles become inflated. If you look close at where the money is going, and cut back on the un-needed costs, you'll be doing just fine.

What do you think? Is the author of the linked article just hyperventilating, or are they correct to be worried about not making enough?

Would You Rather Live A Little More Now? Or Have A Pile Of Cash Later?

By Miranda Marquit 4 Comments

One of the more common financial moves is to save up as much money as possible, hoping to have a huge nest egg later so that it's possible to retire from work, and maybe even travel the world. Others hope that, not only can they have a little fun with the money they amass, but that they can also leave some behind for their posterity.

These are definitely admirable goals. Being able to save up money, and creating a situation in which you can leave a financial legacy to your children and grandchildren, are both things that can provide you with a sense of accomplishment — as well as acting as a testament to your level of financial responsibility. But does it have to be that way? Do you have to sacrifice everything right now so that you can save up for the future?

Live More Now Or More Cash Later

For some people, it is preferable to live a little more now, enjoying money while they are young, than to be scrimping and saving for a future they're not even sure they'll enjoy.

Mini-Retirements, Vacations, And Staycations

Instead of saving up all of your money for “someday,” you can spend some of your money now. One of the ideas that has caught on recently is that of the mini-retirement. Instead of saving up for 40 years to try and enjoy retirement later, some advocate mini-retirements. You spend between three and six months living somewhere else, or traveling around. When you return, you look for a new job.

Others make it a point to use their vacation time at work. It's possible to enjoy a vacation for one to three weeks, relaxing and taking it easy. And, many people like to spend a little extra to make the vacation particularly enjoyable or memorable. Some even decide to go on staycations, remaining within a local area, and living it up by going to restaurants and other establishments.

Spending money like this provides you with the opportunity to enjoy yourself in doses at a time, spread out over the years, while your health practically guarantees that you are able to do more. Personally, this is how I prefer to operate. I like to go on a few trips, and I like to go out to eat in nice restaurants, as well as use my money for other things. I figure we might as well enjoy the journey.

Don't Neglect The Future

Even if you decide to spend a little more money now so that you can better enjoy it, you still shouldn't neglect the future. Use tax-advantaged retirement plans that allow you save up some money for your future. Get the right insurance plans to help you prepare as well. We don't plan to need a huge nest egg, but we know that we'll need something.

Another strategy is to cultivate different income streams so that when retirement comes, you have regular income, and you don't have to rely on your nest egg alone. Being able to consult or freelance, or having a dividend portfolio, can help you earn money in retirement, and means that you aren't required to always be maxing out your retirement plans right now at the expense of living a little.

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