Archive for July, 2009



Many Buyers in my market area (Silicon Valley, CA) will research schools to decide where they want to buy. Unfortunately the Acronym Zoo makes it difficult to actually dig out the truly relevant information. In a small effort to help with this I’ve put together the following basic descriptions of each of the normal acronyms used.

APR (AccountabilityProgress Reporting) is the California State mandated system to measure current performance of schools.

API (Academic Performance Index) is the result of the measurement process and is a unique number for each school.

AYP (Adequate Yearly Progress ) and PI (Program Improvement) reports are the results of a Federally mandated program with a different focus.

API measures the performance and progress of a school based on statewide tests at grades 2 through 12. It produces a numerical rating between 200 and 1,000. Depending on the current rating, each school receives a target for improvement over the following year, expressed as a percentage. The higher the current score the lower the percentage increase required until at 800 the requirement is to maintain that score.

AYP is used to drive and monitor progress toward a common goal for all schools. This goal is that all schools must have 100% of students achieve proficiency in English-language arts, and mathematics by 2014.

To truly understand how to interpret these go to the California Dept of Education site. This will give links to details for all these and related systems.



This was originally posted June 30th, 2008. After this text I’ve added an update to Ted and Alice’s situation.

 What would you do if I offered to lend you money and charged 4% interest rate?

What if I could also show you a cast iron secure investment that would pay you a minimum 25% per year if you re-invested the money you borrowed from me?

Here is a true story.

Ted and Alice had bought their house in 1999 with 10% down, getting a 90% 3 year fixed loan, which required Private Mortgage Insurance.  ($219/m). By 2003 the value had gone up to where they could get an 80% loan with no PMI.

 When we met to discuss a possible refi I found out that during those 3 years Ted had not been able to pay in to his company 401-K program. This plan had the company match his contribution by adding 25% to whatever he put in (up to 6% of his salary). In addition, neither of them had made any contribution toward the ROTH IRA’s they were entitled to.

By refinancing into an 80% Negative Amortizing Loan with *World Savings they were able to fully fund Ted’s 401-K, AND make the maximum allowed contribution to ROTH IRA’s for both of them. They were paying $800/m less than the interest on the new loan.

What was actually happening was they were borrowing $800/month from themselves (The equity in their house) at an after tax rate of 4%, and investing most of it in Ted’s 401-K at a guaranteed 25% return. The IRA contributions were just icing on the cake.

This is not magic. It is simply making sure that your mortgage is designed to best fit your current situation, AND long term plans.

At the end of 1 year they owed $9,600 more on their mortgage BUT had accumulated $9,760 in Ted’s retirement plan, PLUS $6,000 in their IRA’s. I make that a net gain of 30% in the first year from nothing more than some intelligent Mortgage and investment planning.

This example is just the tip of the iceberg showing what can be done with a little knowledge and an open mind.

Now here’s the answer I got from Ted when I recently asked how they were doing.

 “I love my loan. Two months ago I was at 3.18% fully indexed. This month it jumped up to about 3.68%. After having this loan since March/April 2002 I have paid off about $80K in principal and well over 50% of my bi-weekly payment is going to principal reduction. I can understand how this kind of loan could be abused by people who didn’t understand it but that is the problem with THEM, NOT the Loan. For us it’s been a Blessing. Thanks a million Bill.”

The moral here is that your Mortgage is a financial planning tool. As with all tools it can be used correctly to your benefit, or incorrectly to your detriment.

* World Savings had the only intelligent Negative Amortization Mortgage. All others were ticking bombs and have been exploding all around us for the past year or so.


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In todays crazy world we all know people who are struggling to get by. Here is information about some sources of help not commonly known about.

There are many free, low cost, discount and income-eligible services offered by government agencies and trusted sources. This link will take you to many of them

You can also obtain this list from the Department of Consumer Affairs at (800) 952-5210. Visit their website for information on a multitude of programs provided by the State for all of us. 

The list of free and low cost services help California consumers save money!  Want a free or low cost hair cut, or manicure?  Looking for help paying for a Smog Check, or just some basic coupons for household products or food?  It’s all there and much, much, more.

Truth vs Perception

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Despite the doom and gloom pouring out from the talking heads and empty suits of the mainstream media we here in Silicon Valley do not inhabit a wasteland of short sales and REO’s. Yes, we do have some in a few pockets of the Valley, but they are not having much affect on the big picture.

The Pending to Listing ratios for Santa Clara Valley continues to get more favourable each month. This is the most credible statistic available for tracking market trends and is currently better than it was 12 months ago. I have seen nothing in the Murky News, or heard it mentioned on the TV or Radio.

The truth is that the current problems are concentrated geographically and have not wiped out Real Estate values all over the State.

Have prices in Silicon Valley gone down. Yes in general, but only to the extent of correcting for a out of control boom.

Is now a good time to buy. Yes, in my part of the world.

NOTE: I’ll follow up shortly with info on some super 1st time buyer programs for the Counties and Cities of Silicon Valley.  These are NOT low income programs. More to follow.

Gift Tax Myths

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From my personal experience as a Certified Mortgage Planner I would say that the Gift Tax is the most missunderstood part of the whole I.R.S. rule book.

Most people think that a gift of up to $12,000/year to a family member is free of tax to both giver and receiver. TRUE.

But there is so much more that is also TRUE.

1. In any one year both you and your spouse can make gifts of $12,000 to as many people as you wish, family or not. This can be repeated every year. NO TAX.

2. At any time each of you can make gifts of $1,000,000 to any one person or combination of people. This is a lifetime total. NO TAX.


$12,000 per person tax free in any one year.

e.g. Mother and Father each gift $12,000 to both Son and Daughter-in-Law (total $48,000) toward a down payment on their 1st house. By making one gift in December and one in January this could be $96,000.

$1,000,000 tax free, either all at once, or over a lifetime.

e.g. Mother gifts Daughter $500,000 to buy 1st house outright.

A definitive description of the Gift Tax can be found at Search for “publication 950″. I am not formally qualified as a tax advisor or accountant. Anyone wishing to utilyze these or similar strategies should consult a Licenced professional.

Kick Start The Kids

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The following quote is from The Economist Magazine


“Everybody wants it. Nobody understands it. Money is the great taboo. People just won’t talk about it, and that’s what leads you to the subprime mess. Take the greed and financial misrepresentation out of it, and the root of this mess is massive levels of financial illiteracy.”

 I’m one of the famous “Baby Boomers” (born between 1946 and 1964) who, if you listen to the mainstream media, are both the cause and the solution for everything wrong with the world. This is a very simplistic view, but it in one very important area I totally agree. PERSONAL FINANCE.

Our parents are children of two World Wars and a major depression. Personal finance was not a complicated issue. The Boomers are the first generation to grow up in a financially complex world while having more money to invest than their parents. They are bombarded with conflicting opinions on how best to spend and invest their money. The vast majority of the advice comes from sources which have more interest in how to separate you from your money than from increasing it.

How did they learn to navigate this brave new world? Some have been fortunate enough to choose parents who were knowledgeable enough to educate them. A few will have recognized the weakness and taken the time to educate themselves. Unfortunately the large majority did not even realize there was a problem. These are the “Goldfish” referred to in my earlier blog entry.

My concern is with the next generation, hence the title of this item. The Kids.

How are financially uneducated parent going to teach their kids how to survive in the increasingly complex financial water we are swimming in.

Here’s a suggested starting point for those who acknowledge the problem but need help with the solution.

Buy and read “The Only Investment Guide You’ll Ever Need” by Andrew Tobias, then try to make sure your kids read it before they ever receive a single dime of their own to spend. if necessary pay them to read it and discuss it with them.

You may well find the whole topic more interesting after this, so here are a couple of other books which will prove it can also be very entertaining.

  1. “Freakonomics” by Steven D Levitt & Stephen J Dubner.
  2. “The Undercover Economist” by Tim Harford

In addition, here is an excellent web site dealing with this topic and many other issues regarding our children

In my opinion, if your kids can both read and understand how money works you have given them the best gifts any parent could ever give.

Recommendations’ for other books etc will be welcome.

More Property Tax Relief For The Unlucky

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Many Californians who bought their home since late 2006 now find themselves facing mortgage payment shock, and are unable to refinance due to a drop in the value of their home.

This double whammy is the major cause of the increased number of foreclosures and short sales.

While there is no easy answer for many in this situation there is one thing they can do to at least reduce the cost of owning their home.

California Proposition 8 allows for a reduction in Property Taxes when the current value of the house is now lower than the assessed value (usually the purchase price in this scenario.)

For example. You paid $450,000 in December 2006 for a beautiful 4 bed 3 bath home in Elk Grove.

The Builder is now selling the same house in phase 3 of the development for $380,000.

Your property taxes are $5,628 per year.

The buyer at $380,000 is paying $4,752 per year. That’s $868 per year less than you.

Prop 8 allows you to file for a “reduction in assessed value” in the County where you live. Example: for Alameda County. There is some paperwork required but nothing you cannot handle yourself.

There is no need to fall for the flyer in the mail offering to take care of this for you at at a  price.

Simply call the County Assessors office and explain you want to apply for a “Reduction in Assessed Value” for your home. They will send you the required forms which you complete and send back. It may take a couple of months before they respond but respond they must.

Mortgage Interest Deduction – The TRUTH.

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I”m finding an increasing number of my clients are buying or refinancing homes on the basis of tax advice from a previous Realtor or Mortgage Broker, rather than the law as defined by the IRS in Pub 936.

They are told that they can claim tax relief on all mortgage interest up to $1,000,000, even when the loans are on 2 different properties.


There are 3 categories of debt involved here:

1. Home Acquisition Debt. This is defined as “the total amount of all mortgages, up to a maximum of $1,000,000, used to purchase the property. This can be spread across your Principal Residence and a 2nd home. (This does not mean a Rental House). The amount which is deductible will be reduced by any paying off of principal. Therefore, if you bought a home using a $400,000 mortgage, and have since paid it down to $250,000, your Home Acquisition debt is now $250,000. The interest on this is the amount eligible for a tax deduction. Even if you re-finance for a higher amount only the $250,000 is Home Acquisition Debt.

NOTE: This item is exempted from the Alternative Minimum Tax (A.M.T.). calculation

2. Home Equity Debt. This is a fixed amount of up to $100,000 which can possibly be added to the Current  Acquisition Debt to increase the amount allowed for tax deduction.

NOTE: This item can be paid down and re-used to the max $100,000 repeatedly. However, it IS included in A.M.T. calculations.

3. Home Improvement Debt. If incurred in order to make improvements in the house, the new debt can effectively increase the Current Home Acquisition Debt.

BEWARE. Improvements must either:

Add to the value of the home.

Prolong the useful life of the home,

Adapt the home to new uses.

Ongoing maintenance does not qualify.

Any time I have a client who plans to pay cash, or put down a large deposit we have an interesting review of these issues before proceeding.

I am not formally qualified as a tax advisor or accountant. For advice on this issue and with exceptions to the guidelines please consult a licensed professional.

FHA. The “New” Mortgage of Choice.

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An FHA mortgage has not typically been the first thing that came to mind when buying in the Silicon Valley area during the past 25 years or so.

Guess what; with the chaos in the Mortgage Banking industry FHA is now the best program in the market for anyone with less than a 20% down payment looking to buy up to the new conforming limit of $729,500.

With 30 year Fixed and Adjustable programs, as little as 3% down, and generous Seller credit provisions, this is definitely not your Grandfathers FHA Mortgage.

In addition the interest rates are typically better than those offered by the standard Banks, and qualifying parameters are stable and consistent. This can certainly not be said of the rest of the industry.

The $4,000 Question

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The following is a question posted recently by an individual on Trulia Voices


Which i am interested . I have decided and know what i want to offer. I just want a realtor to make my offer and do the paper work. I want the total commission back ( 2.5% – 3%) and I’ll pay the realtor $4000.”

(Unedited for grammar)

This has stirred up a in increasingly strident series of answers from agents, and responses from the originator.

The originator is a rather opinionated, ethically dubious, and extremely ill informed person, but is perfectly entitled to ask the question without being subject to the level of vitriol which has come back.

The question of negotiable Real Estate Commisions continues to haunt our industry. I can’t claim to know the best way to resolve the question. However, I can reliably predict that we are going to have to develop a system which supports and regulates a structured Service Model to allow Buyers and Sellers to choose from a Bundle of Services offered on a sliding scale fee system.

The best Realtors have already left the 20th Century behind and are working co-operatively with a new generation of technology savvy consumers who know that Norman Rockwell is dead.

The $4,000 question is just a request for someone to perform a finite task for a fixed fee.

Is that really such a strange concept.