Avoiding Predatory Lenders in Mortgage Finance

It is safe to say that with any form of business, there are going to be scams and scam artists alike and the mortgage business is no difference. It is not your fault that there are scam artists out there but it is your responsibility to be more informed and protect yourself from these types of predators so that you do not fall victim to the scam.

First you must know exactly what you are looking for in order to identify it when you see it, so what is a predatory type lender. These are the companies that look for the naïve, desperate or both. They take you for a ride of un-kept promises and paint a picture of this great deal and then before you know it, they have not only taken off with your money, but have stolen whatever hope you had for the purchase of your home. There is little repercussion with this because they have covered all of their basis legally and how they take advantage of you is by putting everything that they do not want you to know in fine print because they know most people do not read each and everything they sign and if they do take the time to read it, they word it so that most people have a hard time deciphering what it all means.

The first thing that you should always remember when searching for the perfect lender for your needs is that, typically, the only one who has your best interests at heart is you. Not to say that there are not lenders out there that are good, reputable lenders but they are in the business of making money and that is the bottom line.

The best place to start is by looking for places that have a reputation that surpasses any short comings and also, look for a lender that has been in business for many years. The more you investigate a lenders history, the more you will discover whether or not you feel as though you can trust them.

Lastly, just make sure that before you sign anything, you completely are aware of every aspect of what the loan entails and if you do not feel comfortable ask questions. A lender worth their weight is going to be able to answer your question honestly and to your satisfaction. If they give you the run around, run away, literally. Do not argue, do not keep probing because they have been taught the fine art of manipulation and swindling and they actually take internal classes on how to weasel their way through just about any question that is thrown at them.

Financial Planning After Retirement

Once we enter middle age none of us likes too much change or upheaval – especially when it comes to finances. Retired people are often afraid to invest because they do not understand their options or they have had bad experiences. If we do invest, we tend to do so conservatively. In this article, we will explain some of your options. Bear in mind, however, that we cannot outline entire money management programs in such a brief space. Our main intent is to make you see that financial planning can be very rewarding.

Financial planning: A few easy steps

Times have changed and life has become more complicated. It’s hard to believe that in the early 1970s, a new Chevy cost $2,800 and a new house cost $26,900. Nowadays, each of us struggles to understand an embattled economy, rampant inflation, a rolling stock market and an indecipherable tax system.

To those of us who can afford to, hire a professional consultant. Even if you can afford that, you need to understand the basics of finance in order to make your assets grow. If you don’t know the rules, you can’t play the game.

Write down your goals

The most complicated of problems are easy to understand if reduced to basics. Having a hard time understanding your own and your spouse’s financial status? Make a list of your goals – both immediate and distant.

First, you will need to decide what your most important priorities are. Chances are they are among the following: savings, insurance, retirement fund, tax structure, estate planning, investments, legacy to heirs, charitable donations, personal financial security and children’s tuition.

The second step is to gather the insurance policies, tax returns, canceled checks, papers, savings book, etc that have to do with your finances. You cannot make plans for the future if you don’t know what you have.

The third step is to make a budget. A practical, realistic budget takes into account all members of the family and their various needs. The best budget encompass the following: house payments, automobile payments, upkeep and gas, food, tuition, childcare, utilities, clothing, doctors and dentists, entertainment and travel, charitable donations, savings and investments.

Most people’s budgets omit two important parts of life: whim and emergency. As you and your family draw up a plan, be sure to add money for fun (a new boat? a trip?) and a savings account. The best planners save for emergencies. Good planning seems so wise. Yet, incredibly, many people don’t bother to take the time or they only do so after they’ve made expensive mistakes. This is the best way to plan your budget:

* Determine your monthly and annual income

* Fixate your spending

* Decide what you and your family want to spend on in the future

We cannot emphasize enough the need to understand your own finances. With an investment of time on your part, you will be able to pay off debts more easily, build up your nest egg and take full advantage of tax breaks.

SR ED Financing -Canadian SRED Financing

The only thing worse , we think than not knowing about Canada’s SR ED grant program is probably the fact that Canadian business owners and financial manager don’t know that their claims can be financed immediately to access cash flow and working capital now .

Yes, SR ED claims in Canada can be financed. Clients are always asking us how these claims are financed, what amount can they receive, and how can a SR ED claim be financed when it fact it could be challenged by a SR ED reviewer. Let’s cover off some of those issues.

First of all your Sr Ed claim is generally financeable a 70% loan to value. That technical jargon of course for simply meaning that if you can receive, as an interim cash flow and working capital loan approximately 70 cents on the dollar now for your claim. You of course are fully entitled to the other 30% – we are simply saying that portion is not financed – It essentially works as a buffer for any reduction in the claim by Ottawa. Those reductions in your claim might be a simply temporary clarification that is needed by CRA in Ottawa to approve that claim in its entirety.

Clients ask us if there is a sure fire way of allowing their claim to be approved in full. Probably the best answer we can provide is simply to say that by working with a good SR ED claim preparation consultant you are of course ensured more integrity in your claim. Your accounts can in fact submit a claim on your behalf, but we caution Canadian business owners and financial managers to ensure that they have a solid understanding of their accountant’s specialization in this very boutique area of accounting and business.

Quite often if a claim is temporarily clawed back and credible and experienced SR ED advisor can submit additional proper back up on your behalf to help ensure FULL approval of the claim!

All Sr Ed claims can be financed – however it is a bit easier to obtain full financing of your claim if you have successfully filed in the past. That’s just simple logic which indicates that your firm has a higher ability of being approved. However the bottom line is that a first time SR ED claim can be financed – if properly documented and prepared it is fully eligible for the 70% loan to value – in some cases the first time claim might be financed at a lower loan to value ratio . The bottom line, cash flow and working capital are still accessible for that claim!

The total advantage of financing your SR ED claim is very simple. You have the choice of waiting for your cheque from Ottawa. (That might also involve delays in the final adjudication of the technical aspects of your claim). Alternatively, you can access cash flow and working capital now for your Sr Ed claim.

The process for financing your claim is simple. We strongly recommend you work with a trusted, credible, and experienced financing advisor. The overall process simply involves a standard business financing application, proper documentation of your claim and its filing, and then standard legal doc’s surrounding collateralization of the claim being financed.

In summary, if you are filing SR ED claims take advantage of financing those claims. Cash and working capital are available now. Monetize your claim and use that cash flow to further increase your sales and reduce business liabilities. That is a solid financial strategy!

Mortgage Rates May Be Moving to Stimulate a New Refinance Wave

The stock market turmoil of May 6 and the Greek bailout may have a positive side effect for US home buyers and homeowners … that side effect is lower mortgage rates. The upheaval in the markets led investors on a “flight to quality” as dollars flowed into Treasury bonds forcing yields higher and corresponding rates lower. The question becomes whether the market’s moves will be sustained, leading mortgage rates to remain lower or whether time settles investors’ nerves and mortgage lenders are reluctant to drop rates.

Historically, bond market rallies have led borrowers to flood the financial institutions looking to refinance their mortgages. This time, it appears that lenders are reluctant to move quickly to drop mortgage rates (http://www.americanbanker.com/issues/175_88/mortgage-refi-surge-1018849-1.html). It also appears that another quarter-point or more of rate reduction is needed to push a large number of borrowers into the refinancing pool.

Those already looking to refinance – me among them – are facing tighter underwriting and appraisal guidelines. In addition, the massive reduction in home values most of us have experienced over the past 2-3 years have left little equity in the home making refinancing an existing mortgage difficult at best.

The Federal Home Loan Mortgage Corporation or “Freddie Mac” announced that the average rate on a conforming 30-year mortgage stood at 5% on May 7, 2010. This is down 6 basis points (0.06) from a week earlier. The rate, however, is still higher than the 4.84% average a year ago.

Typically, borrowers must save at least 75-100 basis points (0.75-1.0) on their mortgage rate to have an incentive to refinance. In other words, the rate reduction and corresponding payment reduction must offset the costs of refinancing that typically include points and processing fees. That means that the rate needs to fall to somewhere around 4.75% to stimulate refinancing activity.

Mortgage lenders have reaped great benefits since the year 2000 from cycles of refinancing activity. Rates at their current level are still lower than they were in 2003 when mortgage volume hit a record $3.39 trillion (www.americanbanker.com/). While refinance activity has been light in the past year, the recent extension of the homebuyer tax credit (purchases had to be in contract by 4/30/10 to qualify) has brought volumes back to the mortgage lenders. Rate reduction might be particularly attractive to lenders who want to keep mortgage staffs busy.

There is also risk that mortgage rates rise. The Federal Reserve announced last September that it would start selling off its $1.25 trillion of agency mortgage-backed securities beginning in March of this year. Bringing more mortgage product to the market might force rates higher, but so far, that has not happened.

Finally, lenders are facing much higher costs in mortgage lending, including refinance business. Increasing paperwork and contingencies burden lenders and brokers alike. Lenders are reluctant to take any “short-cuts” or chances when it comes to underwriting and appraisals in this economic environment, particularly due to falling home values that continue in many markets. Due diligence requirements are stringent. I know in my personal experience, verifications of student loans I have co-signed for my college-age daughter were requested for the first time. The student loans are in deferment (she is a rising college senior), but the mortgage lender wanted to know what the monthly payment will be more than a year from now when the loan payments potentially commence. The student loan lender balked at the request and, after three tries, finally met the paperwork requirements of my lender.

If you are interested in refinancing your current mortgage, go to your current mortgage lender first. I have a 7/23 mortgage loan where my interest rate was fixed for the first 7 years. I am into my 6th year, and there is a strong prospect that my current mortgage rate will adjust 2% higher. With falling mortgage rates right now, a rate increase was not one that I welcomed.

My mortgage broker (who I had worked with on my original loan) found my current mortgage lender most receptive. My current lender already has my mortgage loan and knows my immaculate payment history. The lender already has me as a credit risk and lowering my monthly payments is in their best interest. I am looking at a 5/25 loan where my mortgage rate for the first 5 years is going to be less than 4% and that rate will remain fixed for the first 60 payments. I expect, as I will be an empty nester in less than 5 years, to downsize and move. If that happens, I will not experience the risk of higher rates on my current home in year 6. I expect some upward movement in home values to return in my locality over the next 3-5 years, as well. In other words, I should be able to profit more from a sale of my home 3 years out than I would now … but, that also means my next house will be more expensive too. I also hope that the tax laws will retain the one-time exclusion from tax for profits from the sale of a primary residence as I downsize. That, too, is a risk.

One prospective hurdle was the appraisal on my home. However, I was pleasantly surprised at the value and the value held up even when my lender took it to their special review committee. The recent homebuyer tax credit has opened up the housing market in my area and the appraiser was able to get strong comparable sales to support the value. A year ago, this would not have been possible.

I hope to close on my refinance in the next couple of weeks. It has been a long process, but one that is worthwhile for my personal financial picture. Refinancing your mortgage might be a good option to consider with rates pressured lower by the recent Greek bailout and financial market turmoil.

No Financial Crisis Among Lending MFIs – Lessons from the East

At at time when large and credible financial institutions valued at multi-billion dollars in assets and turnover who have lent to AAA rated creditworthy companies backed by collateral, have disappeared without a whimper owing to bad mortgages in the US, there is a contrasting story in the Indian hinterland where MFIs (Micro Finance Institutions) have been lending micro loans (not exceeding $500 per family) to ladies in rural families who were not considered creditworthy at any time in past history, have managed to record virtually zero defaults  amp; healthy credit growth at healthy interest rates !

What are the reasons for such a stark contrast ? Is there a fundamental flaw in the lending mechanism ?

* The MFI model of lending is solely based on the repaying capacity of an individual or the immediate family. Ladies of the family are considered more reliable borrowers. Hence, they are the target customers, mostly.

The contrasting model of the capital-rich billion dollar investment banks and large lending institutions has been to grow credit-offtake, thereby multiplying the credit in the system in turn increasing the risk of default which can bring an economy down to it’s knees.

* Borrowers from an MFI are divided into SHGs (Self-Help Groups) consisting of groups of borrowers belonging to a village. Any defaulting member of an SHG, automatically causes forfeiture of borrowing rights of all members of the group. Thus, there is a social mechanism of credibility built into the system which forces every individual to repay their loans.

Big lenders on the other hand, focus on creditworthy borrowers who can offer a collateral against the loan. It is this collateral, which can blind the lender against verification of cash-flow and repaying capacity of the borrower. In cases where the collateral for home loans was the home itself, the loans were waiting to be defaulted when the real-estate prices fell in a northward interest-rate regime ! Many such home mortgages were 100% of the home value. This concept is extremely fickle because assets such as real-estate and stock-market exhibit a concept called Negative Equity – wherein, the original purchase price of the asset could be significantly higher than it’s resale value at a later point in time. Collateral is not the only means of judging the viability of a loan. The borrower’s repaying power needs to be assessed thoroughly. There is no social stigma against defaulters of home loans.

* Initial loan amounts of MFIs are extremely paltry called micro loans and are subsequently increased in slabs (not exceeding $500-$600) only after the previous loan has been repaid. The interest rates of all such loans are fixed. MFI agents are trained in assessing the repaying capacity of the individuals so that loans do not exceed repaying power. High inflation in India has not caused MFI defaults.

On the other hand, the excessive exposure of global lending institutions to the real-estate market without an appropriate risk-rating for such a loan portfolio meant that the banks were incentivising home brokers based on the size and interest-rate of loans. This led to excessive lending at excessive interest rates leading to a higher probability of default risk. Instead, there are safeguards to protect such borrowers through the political system. The assumption of most home loan borrowers was the ever-increasing price of real-estate. A high interest-rate regime burst this bubble.

The MFI model is small and sound. It’s model can probably not be emulated fully on a larger scale. But, the most important safeguards of fiscal discipline and cash-flow verification by lenders are basic steps that can not be condoned for a collateral.

Single Parents Must Control Debt

At a time when the economy is in turmoil and there is constant talk of the role of debt in the finances of most Americans, single parents may be particularly vulnerable. Without the benefit of two wage-earners and the particular financial stresses of single parenting, it is imperative that single parents keep debt low and control their budgets. With an unpredictable economy, it is even more important for single parents to take control and eliminate debt.

Credit cards, loans and other high interest debts can be dangerous for single parents. It can also be tough for single parents to stay out of debt since budgets can be tight, income precarious and family needs high. Living on a tight budget can be challenging and it may seem that using credit for basic needs like groceries, bills, etc. is a way to keep things afloat. Carrying the debt, however, can be especially damaging.

So, when is debt “not debt” for a single parent? A mortgage or student loans can be viewed as investment and not debt. This doesn’t mean that you should take out abundant amounts in student loans in order to finish your education, but with low interest and long-term payment options, these can be one way of investing in your education and improving your earning potential as a single parent. It is still important to keep in mind your capacity for debt and to have a long term repayment plan.

As for credit cards, auto payments, loans and other typical debt, it is best for single parents to minimize these for the overall health and well-being of the family. Even if you have a good-paying job now, in a precarious economic climate this could change without warning and the debt could become unmanageable. Opting to live well within your means and keep the budget in control can be the best financial survival strategy for a single parent. Make a goal to eliminate debt and refrain from taking on new debt. This may mean changing holiday plans, taking a second job, or making payment arrangements with your creditors. The longer that you carry the debt, the more inhibiting it can be for your single parent family finances.

Even though it may seem like incurring debt is the only way to provide for your family as a single parent and that “everyone is doing it,” it is important to remember that circumstances change and as single parents, we need to be more conservative and consider how debt can limit our flexibility and resources.

Paying off debt can be a monstrous task. Some people suggest taking up side jobs or foraying into freelancing. One of my friends grabbed a Vulcan Welder and started MIG welding on the side and makes great money.

What is a Bridging Loan and How to Get a Bridging Finance?

Bridging loan is a short term loan which is used to pay back the long term finances or for foreclosure. It is generally taken for a period of 2 weeks to 3 years. When we sooner or later go for new finance, we pay back bridge loans.

However bridge loan is a bit expensive. The interest rate is between 12 to 15%. Bridge loans are generally used to retrieve property from foreclosure, close the real estate property quickly. You can also look for short term opportunities in order to have long term finance. In case of bridge loan to value ratio should not exceed 65% for commercial properties and 80% for residential properties.

Bridge loans are generally not given by any bank since it lacks full documentation, is risk and bankers find hard to explain it their government regulator. In fact you can get from some big investors, lenders, investment pools and businesses who are engaged in giving high interest loans.

You can take few examples. The first one is that of project. You would like to continue a new project. However you will not be able to get mortgage very soon. You can in these cases go for bridge loans and wait for the opportunities to come by. Once you are financed you can pay back the bridge loans and also the fund required for the project.

There is one more example. Let us take the case of foreclosure. As far as foreclosures are concerned you hardly get time. It takes about 20 to 28 days time in which you have to close the property. You will not be financed in this small time. You can then go for bridge loan and get the property closed. You will certainly be financed in few months and you can pay back the bridge loans and other expenses.

Bridge finance is used to pay now, enjoy the advantage and pay back later. Just think that you are a buyer. You want to buy a house now. However you will get the money after some days. You can go for bridge finance and enjoy the fruit.

There are two types of bridge financing:

  • Closed bridge financing: in this kind of financing the borrower informs the lender about the final date before which the loan will be paid back. This is safe and has low interest rate.
  • Open bridge financing: in this case the borrower is not sure about the final date to pay back the loan. The interest rate in this case is high in jobs and careers in the Music Industry.

SR ED Financing – Factoring Your Sr Ed for Working Capital in Canada

Canadian business owners and financial managers don’t find waiting productive. So why should you have to wait to finance (in effect it’s a factoring or discounting) your SR ED claim. You shouldn’t have to and we will show you how.

To be able to finance a SR ED claim you of course have to have a SR ED; claim. That makes common sense. Canadian business owners know when they have a significant investment in their research and development and commercialization projects. That is more than intuitive, because they are spending real dollars, often considerable sums, to maintain their competitive edge in products, services, and processes. That’s of course why your firm should be finalizing a claim and filing it as soon as you can in conjunction with your fiscal year end. Naturally once you have filed the claim you can wait anywhere from 3- 12 months for the refund chq to arrive from Toronto or your provincial component from your provinces capital city.

Do you have to wait to recover those funds? Of course you can if you choose, but your claim is financeable if you seek out and talk to a trusted, credible expert in this area. Why not finance your claim, recover those funds now, and continue your investment in leading edge research den processes to maintain your competitive stance within your industry and product or service sector?

So what are the basics of financing that claim . Let’s review them in detail and ensure you have the under pinnings of a successful SR ED financing strategy.

As we mentioned you have to have filed your claim to begin financing it. In our experience the whole process, we tell our clients, takes two to three weeks if your full co operation is provided. Naturally if timing is important you could start the process a little in advance of filing your claim. Any Sr Ed calim can be financed, but those that are prepared by competent parties are in effect ‘more financeable ‘as they have a credibility and experience factor attached to them.

Does your own firm’s financial status play a part in the financing of your SR ED? We can say with assurance that 90% of the SR ED financing questions rely very specifically on using the SR ED as collateral for the financing. But naturally your firm has to be able to demonstrate some sense of on going viability with respect to sales prospects, etc. However lets be honest, many firms are using SR ED tax credits because they are in growth or start up mode, so that should not deter you from contemplating and discussing the financing of your SR ED .

A normal SR ED financing application includes the usual business info data you would submit with any business financing – i.e. info on your firm, its financials, info on the owners, etc. Loans or advances against your claim are generally made at 70% loan to value; in effect you immediately receive 70% of the total amount of your SR ED tax credit calim. The balance is remitte3d to yourself, less financing fees, when you calim is approved and funded in Ottawa.

A proper SR ED financing is structured so that you won’t make any payments while you wait, so it’s a pure cash flow and working capital strategy.

In summary, utilize your tax credits to recover significant portions of all your R D; expenses if you are a privately owned Canadian company. Ensure you consider a SR ED financing strategy if you wish to accelerate SR ED spending or simply use the funds for any general worthwhile purpose. Speak to a trusted, credible and experienced SR ED financing advisor to structure a calim that makes maximum financial sense for your firm.

Interest Rate Derivatives- A Source of Credit: The Users and Providers of Derivatives are on a Two-Way Street

The global banking crisis has been a boon for providers of interest rate derivatives as an increasing number of corporations consolidate their banking and treasury services providers to secure the credit lines they need and to protect themselves from risky counterparties. The latest research from the consulting firm Greenwich Associates indicates that over 40% of the global volume in interest rate derivatives is allocated to dealers on the basis of lending relationships.

A Financial Quid Pro Quo

In seeking out providers of credit, corporations are not only consolidating relationships with existing banks but are also seeking out secondary sources of credit as well to augment their core lenders. It is interesting to note that this is occurring at the same time as banks are taking a hard look at their existing lending relationships.

Needless to say, corporations are using their hedging needs such as interest rate derivatives, foreign exchange, capital markets functions and other treasury management services as bargaining chips for their credit needs. In this quid-pro-quo the banks are finding out that they can’t have it both ways. If they want the derivatives business they will have to provide the credit.

The flip-side is that banks are taking the posture that given the increasing amount of credit (counterparty) risk, that risk premium is being built into the price charged, resulting in wider bid-ask spreads.

Reasons for Using Derivatives

The most popular reasons for the strategic use of derivatives are managing debt capacity and balance sheet restructuring or rebalancing. Following that is merger and acquisition transactions, managing credit risk and tax or accounting reasons. A small number of uses are hedging exposure to stock option plans and managing pension plan risks.


Cheers and Jeers

Regardless of where one happens to be, it seems the fear of counterparty risk is second only to pricing in the derivatives market. For example, in the same Greenwich Associates research, not quite 30% of derivative users in the United Kingdom have cut back on the volume they execute through a single dealer. In the United States, counterparty risk ranks ahead of historical measures such as speed of quoting and quality of sales coverage.

The major players in this market vary somewhat by geography but tend to be the world class commercial banks in their particular venue; North American banks in North America, German, British and French banks in Europe, Japanese banks in Japan and so forth. However, here are some banks that transcend borders and are active and effective in whatever location they have a presence.

After the number of dealer banks had shrunk due to narrow spreads and overly competitive pricing, the list is once again expanding, reflecting wider spreads and better economic potential.

Bankruptcy Laws in History

Many people see being bankrupt as a sign of someone’s financial failure. It is, however, the only option for many people to save some of their property. The problem that a lot of people face when they are filing for such a credit solution is the shame and humiliation that comes with it. Although this is perfectly understandable, the truth is, one should not feel ashamed of taking what might be their only option to save whatever they can from their property or relieving themselves of dire financial stress.

Bankruptcy Laws in Ancient Times

Upon doing some research on the practice of filing for bankruptcy, one will find that it can be traced all the way back to the Old Testament. That long ago, there were already laws the specifically stated that all debt should be eliminated after fifty years. The concepts of debt and debt elimination already existed. In fact, the Hebrew Law of Forgiveness states that all debt should be eliminated after seven years.

In more modern times, bankruptcy law was first enacted in England during the year 1542. At that time, however, the law was developed as a financial remedy for creditors and not debtors. Collusive bankruptcy did not exist and laws gave creditors the right to seize the assets of debtors who could not meet their financial obligations. Seized assets did not serve to cover existing debt. In fact, upon being stripped of all assets, debtors were imprisoned until such time that their families were able to pay their debts.

 Over time, laws in England improved but remained, for a number of years, in favor of creditors. By 1825, such a financial taking become something that was agreed upon by both debtors and creditors. Then, by 1849, voluntary bankruptcy was authorized by lawmakers.

Bankruptcy in the United States

In the United States, the subject of bankruptcy made its way to federal laws only in 1800 but it was not until the development of the Bankruptcy Code or the Bankruptcy Reform Act of 1978 did laws become what it is today. Although many changes have been made to the code since it was first enacted, it remains to be the country’s statute law that governs this legal declaration.

Among the most substantial amendments to the Bankruptcy Code is the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which was made effective in 2005. That amendment made it more difficult for debtors to qualify for debt relief and, therefore, also made it more difficult for people to game the system. Furthermore, it has made the code fair to both debtors and creditors.

Bankruptcy laws have existed around the world for centuries. While it is perfectly normal for those who have used this process as a credit solution to feel ashamed of their situation, they should also understand that laws are there to, somehow, protect them.