Bill McCord's Blog

FICO scores measure the risk that an individual will default by evaluating their history of credit management. The exact formulas used are top secret but FICO has given the following components and the approximate importance of each:

35%- Payment History. Late payment bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score to drop. Paying bill as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a record of good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score. All such enquiries will be counted as just one.

http://www.myfico.com/CreditEducation/

There are many different Business Models in the Real Estate Industry. Here’s just a few examples:

1. Buyer Only Brokers.

2. Buyer Rebate (Kick Back) Brokers.

3. Virtual Office Brokers. No physical location.

4. Reduced Commision Brokers.

5. Fixed Price Brokers.

6. Transaction Facilitation Brokers.

Etc, etc.etc ad infinitum.

All of these and many more are proof that we have a lot of competition in our business, and that the Consumer (Buyer or Seller) has lots of choices.

I won’t try to explain the pro’s and con’s of any of these options, but will strongly suggest that whichever of them you choose you  strongly consider working with a REALTOR.

My reason for this specific advice is as follows:

1. There are more than Half a Million Licensed Real Estate Agents in California. This is the minimum required qualification for the job.

2. Only 165,000 of them are REALTORS who have voluntarily agreed to subscribe to a strict Code of Ethics, and are paying members of their Local, State, and National Associations of Realtors.

Amongst many other services Realtors provide to the public is the web site Realtor.com. the most popular of all on-line Real Estate sites. Check out http://www.realtor.com/.

There are many suggestions being made as to how best to deal with homeowners in trouble with their mortgage payment. Some are constructive and worth pushing for. Others are not.

One of these is the proposal to allow a bankruptcy judge to force a bank to reduce the Pincipal amount of the mortgage. This is called a “cram down”.

Rather than giving this power of “Cram Down” to bankrupcy courts” (most “distressed” homeowners do not, and will not want to go the bankrupcy path), I’d rather see the Real Estate and Media industries praising and fighting for the Wells Fargo strategy for dealing with their Wachovia inheritance.

They are actively using Principal Reduction “Cram Down” along with Loan Modification strategies, usually  together, to provide long term solutions to many of their defaulting loans.

With a long history of prudent and pragmatic lending policies Wells Fargo are an excellent example of what the banks could and should be doing to make it possible for responsible homeowners to stay in their homes. By lowering the loan amount and interest rate they minimize the larger loss which they would take in a foreclosure or short sale.

 the short sighted strategies being used by the majority of other banks with similar problems are best described as  re-arranging the deckchairs on the Titanic.

Some retirement decisions are irreversible. But many retirees will be happy to learn that choosing when to start collecting Social Security benefits is not one of them.

When John Rothenhoefer, 70, found out that he could increase his Social Security benefits by about $1,000 a month by taking advantage of a do-over strategy, he thought he’d struck gold. As it turns out, he might as well have won a mega lottery. Out of the 32 million retirees who collect Social Security benefits, Rothenhoefer was one of just 71 people this fiscal year to take advantage of an obscure option that lets you halt your current benefits, pay back all you have collected interest-free, and restart your benefits at a new, higher rate based on your current age.

It’s perfectly legal, says Mark Lassiter, a spokesman for the Social Security Administration. But don’t expect the claims representatives at your local Social Security office or the employees who answer the agency’s toll-free number (800-772-1213) to be familiar with the details. “Our service representatives can go an entire career and never encounter this situation,” says Lassiter. He recommends that you download Form 521 (“Request for Withdrawal of Application”) from the agency’s Web site (www.ssa.gov) and visit your local office in person.

This strategy is just one of four little-publicized ways we uncovered to help you maximize your Social Security benefits. Each tactic applies to a specific situation; if one of them is yours, you could be in the money.

A “sweet deal”

For someone like Rothenhoefer, who had been collecting monthly checks for eight years, the price of repaying Social Security benefits can be steep — $100,000 or more in some cases. But he thinks it’s well worth it. Not only will his monthly check be about 75% larger than his previous benefit, but it will also increase with inflation each year for the rest of his life. And if John dies first, his wife, Charlotte, 67, will collect the same monthly amount as a survivor benefit for as long as she lives.

Here’s how it works: Let’s say you qualify for full benefits of $1,600 a month at your normal retirement age of 66, but you decide to begin collecting your benefits at 62. Your retirement benefits will be reduced by 25% for the rest of your life — to $1,200 a month, in this example — because you’ll be collecting a smaller benefit for a longer period of time.

On the other hand, if you delay collecting benefits, you will receive an 8% credit for every year beyond your normal retirement age until you reach 70, when your maximum benefit will be 132% of what you would have received at age 66. In this example, you would receive about $2,100 a month at 70 — a $900 difference.

Maybe you decided to collect benefits early out of fear that you wouldn’t live long enough to collect the larger delayed benefit. But now that you’ve made it to 70, you may regret your decision and wish you were receiving a larger check.

In order to get one, you must first file Form 521 at your local Social Security office to request a withdrawal of your application for benefits. Your retirement benefits will stop almost immediately — and if your husband or wife receives spousal benefits based on your work record, his or her benefits will stop, too. Then the Social Security Administration will send you a letter telling you how much you need to repay (including any spousal benefits). That process may take several weeks. Once you repay the benefits, you can reapply for new, higher payments based on your current age.

If, for example, you received $1,200 a month starting at age 62, plus annual cost-of-living adjustments through age 70, you would have to repay about $130,000. That’s a lot of money, but for some people it’s worth the price to get an additional $900 a month in retirement. By comparison, it would cost a 70-year-old man about $190,000 to buy an immediate annuity that would provide $900 a month initially, plus annual inflation adjustments and a 100% survivor benefit. That’s 46% more expensive than “buying” a lifetime annuity from Social Security.

Rothenhoefer thinks it’s a “sweet deal.” He concedes the strategy could backfire if both he and his wife were to die before they recoup their investment, which will take about ten and a half years. Still, he says, “it’s worth the gamble,” particularly because his wife stands a good chance of living into her nineties, as her mother and grandmother did.

There’s another financial downside: You may have to go without Social Security benefits for a few months while the agency sorts out how much you have to repay and you reapply for benefits. When your benefits stop, so do the automatic deductions that cover your Medicare premium. You’ll have to pay the Part B premium yourself — currently $96.40 a month for most retirees — until your Social Security benefits resume.

Crunch the numbers

Boston University economics professor Laurence Kotlikoff says repaying and reapplying for Social Security benefits is a “fantastic option” for some people. But it can involve a lot of number-crunching to determine whether it’s the right decision for you. Kotlikoff offers case studies on his Web site, www.esplanner.com. For $149, you can access his sophisticated financial-planning software, which lets you create your own comprehensive retirement plan, including an analysis of the pros and cons of a decision to pay back your Social Security.

John Greaney, who started the Retire Early Web site (www.retireearlyhomepage.com), says that members of his online community were aware of the repayment strategy but treated it as an urban legend. When Greaney took the time to research it last summer, he realized that it was an even better deal than he had first thought. That’s because when you repay your Social Security benefits, you can claim either an itemized deduction or a tax credit (whichever results in bigger savings to you) for the taxes you paid on your benefits in previous years. The calculations are complicated, but you can get all the details in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits, at www.irs.gov.

Is it a good idea to pay off a mortgage as soon as possible. My answer 90% of the time will be NO. It may make you feel good but it is economically foolish for the vast majority of people.

A mortgage is the cheapest form of debt for the average homeowner. This is partly because it has a low interest rate, but also brings with it enormous tax benefits. For most people this lowers the actual interest rate by more than a third. The real after tax rate on a 5.5% mortgage is actually 3.625%.

The vast majority of consumer debt is much higher than this. It seems clear to me that no one should be trying to pay off the mortgage with money which would be far better used to pay off a credit card.

Another major consideration should be whether tying up more money in your house is good for your on-going financial security. Once you make that payment you can never get it back without either selling or refinancing the house. Unless you have enough other assetts to handle job loss or other family emergencies you would probably be better served by investing that money where you can quickly get at it in such circumstances.

For a more detailed conversation on this topic check the following link to the New York Times.

http://www.nytimes.com/2010/03/20/your-money/mortgages/20money.html?ref=realestate

Mortgage interest rate have remainded at historically low levels for longer than we can remember. This has not been an accident. The largest factor has been the Federal Reserve program under which they have bought about $1.25 TRILLION of Mortgage Backed Securities (MBS’s) on the open market.

 MBSs are simply BONDS. Their prices go up and down based on our old friends Supply and Demand. As with all Bonds,  when   pricies go up the Interest Rate on them goes down, and vise-versa.

So in order to see where Mortgage Interest Rates are going we simply track the prices of the Bonds known as MBS’s.

You can safely ignore the uninformed pundits of the media repeating the ridiculous mantra that Mortgage interes rates are driven by the 10 year Treasury. The MBS’s deal only with Mortgages. The 10 year Treasury is an indicator of the entire U.S. financial system and will often point in the opposite direction to the MBS market.

Now let’s come back to the $1.25 Trillion worth of MBS’s bought by the Federal Reserve as part of the Governments Financial Stimulus program. Having this much money looking to buy MBS’s (DEMAND) has artificially kept the price of them up, and as a result kept Mortgage Interest Rates down. As of the last day of March this program is finished. Now there is a reduced demand for MBS’s and an inevitable inrease in Mortgage Interest Rates.

This will begin to happen right away and continue until the market stabilizes at the level dictated by regular market forces. This will be at a higher rate than we are at now.

For an excellent summary of this process check out the following link 

http://www.mortgagesuccesssource.com/ezine.php?ez=1003

The lesson here is that if you want to become a homeowner it’s time to get serious before these rate increases get too far away from what you can afford.

 FICO scores measure the risk that an individual will default by evaluating their history of credit management. The exact formulas used are top secret but FICO has given the following components and the approximate importance of each:

35%- Payment History. Late payments of bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score . Paying bills as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio, and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score.

For more detail on this and other Credit Related questions the following link is a Gold Mine of factual information.

http://www.myfico.com/CreditEducation/

I won’t try to explain the pro’s and con’s of any of these options, but will strongly suggest that whichever of them you choose, you consider working with a REALTOR. My reason for this specific advice is as follows:

 

1. There are more than Half a Million Licensed Real Estate Agents in California. This is the minimum required qualification for the job.

2. Only 165,000 of them are REALTORS who have voluntarily agreed to subscribe to a strict Code of Ethics, and are paying members of their Local, State, and National Associations of Realtors.

Amongst many other services Realtors provide to the public is the web site Realtor.com. the most popular of all on-line Real Estate sites. Check out http://www.realtor.com/.

Here we are at the start of the annual self flagellation period otherwise know as Tax Preperation Time.
Given the amount of bad/wrong advice freely floating around on this topic you might find it helpfull to see what the rules really are as the I.R.S. sees it.
Check out this link: http://www.irs.gov/pub/irs-pdf/p936.pdf

Drugs, Drink, Gambling. From the clutches of these escape is possible with  sufficient help and hard work. 

From Golf,  NEVER!

Like all other forms of compulsive behaviour, for golfahlics even nine holes is too much, yet 18 holes are not enough to satisfy their insatiable craving for humiliation and self abuse.

Have you ever know a man who gave up golf?