If you’re wondering when help will arrive for your underwater home, on February 9^th, 2012, a giant step forward was taken on your behalf.

The Obama Administration announced a settlement with five of the largest banks, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, and attorneys general in all states with the exception of Oklahoma.

The $26 billion foreclosure settlement brings to a close the litigation surrounding the use of robo-signing in the foreclosure process and may provide much needed relief for many of the nation’s underwater homeowners.

Background

In the Fall of 2010, reports started to emerge about the behind the scenes process used to foreclose properties that underwater homeowners either walked away from or due to financial situations, could no longer make payments.

If you have ever purchased or sold a home, you know that the process of transferring ownership is a complicated legal endeavor that has to be done exactly as state laws dictate.  The person signing the documents has to have knowledge of what they’re signing and when the documents are signed, a notary is supposed to witness the signature.  As part of documents being signed, some states require that the signer swear that they have knowledge of the foreclosure case.

It was later found out through depositions of reported robo-signers that not only had they not read the documents they were signing, they had no knowledge of the case and often, the notary was not a witness to the signature.  Instead, they either pre- or post-notarized the documents without witnessing the signing.

This led to a large scale halt of foreclosures further hampering the real estate recovery as homes sat in legal limbo not able to be foreclosed or refinanced.

The Settlement

The new big-bank mortgage settlement can potentially help up to 2 million homeowners.

The February 9^th settlement between the attorneys general and the five largest mortgage lenders finally brings the case to a close and within the settlement, there are some customer friendly provisions.

First, $17 billion of the funds will go towards principal reduction for up to 1 million homeowners.  According to the New York Times, the average homeowner is underwater by more than $50,000, far more than a $17,000 average payout if the funds were distributed evenly.  Because of this, the fund will likely not provide relief for the 1 million people but for those who receive reduction, this may allow the home to be sold or refinanced.

Next, up to 750,000 other homeowners may be eligible for refinancing.  The settlement earmarked $3 billion that would make up for the losses that banks would face by refinancing these homeowners’ mortgages.  Although no principal reduction would take place for these loans, refinancing at today’s record low rates could drastically reduce their payment.

Another $1.5 billion of the settlement will go towards providing relief for those who were victims of robo-signers.  Those affected would receive up to a $2,000 one time payment that would not take away their right to sue the lenders if they chose to in the future.

The Impact of the Settlement

Although the deal was announced today, other lenders may join in the settlement raising the $26 billion settlement much higher providing relief for even more homeowners, but the Obama Administration was quick to say that this would not provide relief to all Americans.

Mortgages held by Fannie Mae and Freddie Mac will not receive any relief under this settlement leaving more than half of all mortgage holders in the same positions they were in before the settlement was announced.

Still, housing experts believe that even if more foreclosures take place as a result of settling the lawsuit, that may be good for the market.  As long as homes are vacant and homeowners can’t get out from under their home, there is little hope for a recovery.

This settlement provides the first steps in removing the gridlock present in the real estate market.

What do you think of the bank mortgage settlement?

sources:
http://www.nytimes.com/2012/02/10/business/states-negotiate-26-billion-agreement-for-homeowners.html
http://money.cnn.com/2012/02/09/news/economy/mortgage_settlement/index.htm
http://www.justice.gov/opa/pr/2012/February/12-ag-186.html

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Mortgage Plan to Help Homeowners – $26 Billion Settlement with Big Banks

When you sell an investment, your gains or losses depends on your cost basis.

If you sell for more than your cost, you end up owning capital gains taxes on the increase.  If you sell at a loss, you don’t have to pay taxes on the difference; instead, you might be able to claim a tax deduction for your investment loss.

What is Cost Basis?

Your cost basis is what you paid for your investment, plus costs.

If you bought 10 shares of a stock at $30 a share, and paid a $4.99 fee, your cost basis is $304.99 ($300 + $4.99 transaction fee).

That means that you don’t have to pay capital gains unless you sell for more than your cost basis.  When you sell part of your shares, you will figure your cost-basis per-share, and go from there.

Cost basis can be adjusted, as well.

Company splits and mergers can affect your cost basis, as can dividends — including “return of capital” dividends.  You will need to make sure that you understand how your cost basis is affected by these actions.

Realize, too, that you don’t have to worry about your cost basis if you are keeping your investments in your tax-advantaged account (like an IRA).  This is because you aren’t paying taxes on gains in the same way. Gains and losses in tax-advantaged retirement accounts don’t matter, so you don’t have to worry about cost basis in these situations.

Changes to Cost Basis Reporting

In the past, you were responsible for reporting what you owed in taxes, based on the information sent to you by your broker.  However, the IRS found that many people were under-reporting.

Since there wasn’t any information on cost basis offered, the IRS left it up to individuals to report their gains, if they had any.  It made it pretty easy for individuals to claim that there had been no gain.

In order to recapture some of that lost revenue, there are new cost basis reporting measures being implemented this year.

Now, when you look on the 1099-B issued by brokers showing the sales proceeds from investments, you will see that your cost basis will be reported as well.  That the IRS can see the cost basis, and see what the investment sold for, and know the amount of any gain.

The new cost basis reporting rules takes effect on stocks you purchase after January 1, 2011 (so it’s in effect for this tax season, encompassing tax year 2011), mutual funds purchased after January 1, 2012, and on bonds bought after January 1, 2013.

If you have questions about your cost basis, and how to report gains and losses, you can consult the IRS web site, or a knowledgeable tax professional.

What about Older Investments?

Understanding Cost Basis Reporting will help you in reporting your taxes.

Even though older cost basis reports haven’t appeared on tax forms in the past, you are still supposed to report your investment gains to the IRS.

However, finding cost basis can be difficult on some of your older investments — especially if you’ve switched brokers in the interim, or if something else has happened.

If you have saved your brokerage statements, you might be able to go back to when you first bought your investment and figure out the cost basis information.  Additionally, if you have kept records using financial software, chances are that you will be able to find the information that you need.

There are services that can help you figure out how much investments cost when you bought them, even if you don’t have precise records.

BasisPro and Netbasis both allow you to put information about how many shares you bought, and when you bought them, these services can help you figure out the cost basis.  You can use the information to support your cost basis reporting to the IRS.

Cost basis services are not full-proof, though.

There can be mistakes, and if you only have a general idea of when you bought, and you aren’t sure how many shares you started with, it will be difficult to reconstruct your cost basis.

In those cases, you might have to go with the “better safe than sorry” method of cost basis reporting: Assume that your basis is $0, and pay taxes on the entire gain.

Knowing your cost basis is important because it can prevent you from paying extra in taxes.

It is a way for you to subtract the costs you pay when you purchase an investment so that you are only paying taxes on your net gains.

Going forward, you are likely to have an easier time determining cost basis, since your 1099-B will include that information.  But, for investments you sell now, but bought before the reporting mandate, you will still need to be able to figure out your own cost basis.

And be able to back up your numbers in the event of a tax audit.

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Cost Basis Reporting – How it Affects Your Taxes

Groupon is at it again! 

Groupon is offering up a deal to help all those shopping for Valentine’s Day.  (They ran this deal last year too around this time).

$20 for $40 worth of flowers, gifts, and more at FTD.com!

This deal is good for online orders.  The deal will run today, February 8th, through Saturday, February 11th at 11:59pm Central.


You know how much flowers and candy go up for Valentine’s Day, right?

It’s ridiculous! 

Yeah, you can choose not to take part in the commercialism that is Valentine’s Day, but let’s face it, your significant other might not appreciate your stance.

Here’s a chance to lower your costs for Valentine’s Day (don’t worry, I won’t tell that you used a Groupon deal).

Of course you don’t have to use this Groupon deal for Valentine’s Day.  It just comes at a convenient time.  Fact is, you have until April 8th, 2012 to use your Groupon.

Sign up for the Groupon FTD.com $20 for $40 deal.

If you are new to Groupon…

Groupon is a daily deals site.

Every day a new deal is shown in your local area (and sometimes nationally) and if enough people sign up for the deal then “it’s on!”  Groupon is Group+Coupon, get it?  Deals can go up to 90% off in some cases.

They have even expanded to included getaway deals as well as deals on products.

I’m amazed at all of the great local deals they offer – restaurants, events, activities, museums, and more.  It’s a great way to explore you area and save at the same time.

And if you refer a friend to a deal and they sign up for their first Groupon you earn $10 in Groupon bucks to use towards future Groupons.

Check out my Groupon Review for more.

I’ve used Groupon a number of times.  I really like getting  good deal, especially when it’s on something I would have either used or gone to anyway.

But you have to watch out.  It’s easy to get carried away with a great deal and buy up deals that don’t get used.  Make sure you pay attention to the expiration dates.  By the way, if you don’t use your Groupon by the expiration date you only lose out on the bonus amount; you still can use the original $20 you paid (though you can’t redeem it for cash but you can get a credit to use).

Will you be getting in on the Groupon FTD.com deal?

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Groupon FTD.com National Deal – Double Your Value

My boys received a copy of the game Dominion as a Christmas present.

It’s a super game.  You acquire cards with powers.  The different powers work together in lots of interesting ways, but of course you must acquire them on a limited budget and have limited time in which to get as strong as you need to be.

Making good choices requires effective strategizing.

After playing the game two times, I wanted to learn more about how to play well.  I typed the words “Dominion strategy” into the Google search box to see what I could find.

It pained me to see what turned up.

Dominion has only been around for a few years.  And of course it is only a game.  So it wouldn’t be a big deal if there were no good materials available.  I quickly found lots of outstanding materials.  In 30 minutes, I was a much improved Dominion player.

The painful part is in considering the contrast with stock investing.

Type the phrase “How to Invest in Stocks” into the Google search box and you are going to turn up lots of articles that recommend Buy-and-Hold Investing.  My view (and I’m right!) is that Buy-and-Hold is the purest and most dangerous Get Rich Quick scheme ever concocted ny the human mind.

How can it be that as a society we are intelligent enough to figure out scores of wonderful strategies for playing a card game but cannot summon up the mental energies needed to teach people even the basics of how stock investing works?

I have come up with eight explanations.

1. The Experts Are Compromised.

The people offering advice on Dominion are players who love the game.  They have no incentive to steer people wrong.

Most of the people we think of as stock experts make more money if people buy stocks than if they sometimes go with other investment classes.

2. People Are Intimidated by Money Topics.

Middle-class people are smart when it comes to buying cars and sweaters and bananas.

We love a deal.

We trade tips with each other as to how to get the most value for our money.

When it comes to investing, though, we freeze.  We think we are not smart enough, we turn to experts.

The truth is that most expert investing advice hurts more than it helps and we would all do a lot better if we just relied on our common sense.

3. The Game Takes Too Long.

It’s possible to finish a game of Dominion in 30 minutes.  Newcomers to the game make dumb mistakes the first time they play.

They learn from those mistakes. They get better.

Investing is a game that extends over 60 years of your life (if you start at age 25 and die at age 85).  By the time we figure the game out, it’s over.

4. The Feedback Loop Is Deceiving.

Is a game more logical to play than the stock market?

Each time you play a hand in Dominion, you gain insights as to what works.

Most of us don’t learn by reading books or by thinking things through using logic.  We learn by responding to feedback.

Bull markets offer the most deceptive sort of feedback imaginable.  It makes us feel good to see big numbers on our portfolio statements.  No one lets us know that most of the gains experienced in bull markets are phony and are forsaken in coming years.  We come to believe that we must be doing something right when the reality is we are being taken for fools.

5. Pointless Information Confuses Us.

The media doesn’t tell us what we need to do to finance our retirements effectively.

It pushes what sells.  It’s the horse race stuff that sells.  What’s up?  What’s down?

That stuff is a distraction.  We would be better investors if 90 percent of the information we take in on the subject didn’t exist.

The media doesn’t report on Dominion games.  That helps people become better Dominion players.

6. There Are Too Many Dumb Players.

I mean no insult.

There is no law saying you must be smart about investing.  The reality, though, is that people don’t play Dominion unless they care enough about the game to become skilled at it.  We are all forced to invest, whether we feel any desire to learn about it or not.

The result is that the experts believe that they must not say anything that cannot be understood by people with close to zero interest in the subject.  The most important findings from the academic research are rarely mentioned.

7. It’s Too Important for Us to Test New Ideas.

Yes, it’s a paradox.

But the reality is that the best way to become good at Dominion is to play it and try out different things until you catch on to some ideas that work well for you.

If investing didn’t matter so much, we could learn through experimentation.  We are too scared of making mistakes to do that.  We fasten on to one strategy and then tune out criticisms of it because they make us feel uncomfortable about choices that we know will have a big effect on our efforts to attain financial freedom.

8. The Most Important Lessons Are Counter-Intuitive.

Dominion was developed by one man.  So it makes sense.  The guy who developed the game made sure of that.

The stock market makes sense too, once you factor in the crazy twists and turns imposed on it by the emotional humans.

But the most important truths of stock investing are counter-intutive.  The stock market often acts in ways contrary to our expectations because it is not controlled — it is the product of millions of human interactions.

In Summary

We care too much about investing.

That’s the root problem.

When you care too much, you can’t bear to acknowledge mistakes.  That means that you can never advance in knowledge.

Perhaps it would help if we tried to think of investing as just another game in which strategy matters rather than as a matter of life and death.  Perhaps by coming to care a little less we could come to learn a whole big bunch lot more.

Rob Bennett argues that the true cause of the current financial crisis was the heavy promotion of Buy-and-Hold investing strategies. His bio is here.

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Playing Dominion vs. Playing the Market

Auto insurance is a necessary expense, but one that we often spend too much for.

Many people seem to be much more likely to look for ways to save on groceries by clipping coupons or to save on gas by driving around town trying to find the lowest per gallon price rather than looking at their auto insurance.  Often people choose their auto insurer, pay their premium every six months, and don’t think about it further.

Yet why pay more than you have to? 

There are plenty of ways to trim your costs and save money on car insurance.

Consider the following easy ways to save on auto insurance:

Bundle your policies

Chances are auto insurance isn’t your only insurance expense.  You likely have homeowner’s insurance and life insurance, to name a few.  Call your insurer and see if you will get a discount on your policies if you bundle them all together.  We get a discount for bundling our renter’s insurance and auto insurance together.

Make sure to crunch numbers to see that you are getting the best deal.  You may find one insurer offers a good price on auto insurance but a much higher price than you are currently paying on life insurance.  In that case, bundling may not make sense.

Take a defensive driving course

If you take a defensive driving course, most insurers reward you with an insurance discount.  Call your insurance agency and see what program they recommend.  In my state, I can take a defensive driving course with the secretary of state and get a discount.  Because our premium is already quite low, I haven’t done this, but I would be much more motivated if I had a high premium.

Maintain an excellent credit score

You may wonder why your credit score has anything to do with how much money you pay for insurance.

Whether you realize it or not, many insurers are using your credit score to determine how much you pay for insurance.  As reported in Fox News, “’Most auto, homeowner and other property insurers use a credit-based insurance score to determine how likely it is you’ll file a claim,’ according to David Snyder, vice president and associate general counsel of the American Insurance Association.”

Your credit score is one piece of your insurance score, which also includes the state you live in and your driving record.

The better your credit score, the less you are likely to pay for insurance.  If you know you have a great credit score, make sure you bring it up to the insurer.

Look for group discounts

Often, if you can buy insurance as part of a group, you will pay a lower price.

You can see if your university alumni association offers a group insurance discount as well as a union you may belong to for work, your bank, or your credit union.  In some cases these groups actually offer the insurance; in other places, they offer a discount if you purchase the insurance by using your affiliation.

Drop coverage you don’t need

Don't pay too much. It's easy to save on your car insurance.

As your car ages and loses value, you may want to consider dropping full coverage.  Some people opt to carry coverage that only covers third parties such as damage to someone else’s car or injury to another person.  If your car was damaged, insurance would not cover the damages.  Obviously, you only want to consider carrying this type of insurance if your vehicle has very little monetary value.

Raise your deductible

Deductibles range from 0 to $1,000.  The higher you set your deductible, the less you have to pay in insurance.

However, before raising your deductible, make sure you have a healthy emergency fund.  If you have a $1,000 deductible and have an accident, you will need to pay the first $1,000 in repairs.

Don’t report small accidents

If you accidentally hit your bumper on the corner of the garage and find out it will cost $1,200 to fix, consider if you want to report this to your insurer.  If you have a $1,000 deductible, it may be better to pay the extra $200 out of pocket rather than report it.

As you make claims, your car insurance inevitably goes up.  Also, if you make too many claims within a certain time frame, you risk losing your insurance completely.

On the flip side, the longer you go without a claim, the lower your insurance will go.  Often paying for small accidents out of pocket is a smart insurance move.

Shop around regularly

Every year or two, take the time to shop around with other insurance carriers.  The insurance you have now might have been the best deal five years ago, but is it still the best deal?

Only shopping around will tell you that.  Simply take your current auto insurance policy and call other agencies asking for the exact same coverage.  This can take as little as an hour of your time, but the savings can be impressive.

See if the insurer offers a discount for good grades

Adding a teen driver to your insurance can raise the premiums significantly.  One way to help reduce this is to see if your insurer offers a good grade discount.  Many offer discounts for teen who are earnings As and Bs.

To Close

While auto insurance can be expensive, you can lower it significantly by taking advantage of available discounts.  Each of these strategies can help you reduce your insurance bill a bit.  Even if you only save $100 a year, over 30 years of driving, that can add up to $3,000.  More likely, you will save more than that, giving you a savings well into the tens of thousands over your lifetime of driving.

What is your best strategy for saving money on car insurance?

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

How to Save Money on Auto Insurance – Easy Ways to Save Money

We’re now into that time the year that accountants and other tax preparers refer to as “tax season.”

For the rest of us it’s panic season.  We scramble to get together our tax documents and hope that we won’t have to pay taxes.

How many of you have filed your return the day it was due?  I’m raising my hand (not easy to type like that).

Stressful, isn’t it?

Add to the stress the fact that not everyone files taxes the same.  Some are individual filers while others file as self-employed.  Corporations file taxes too.

But the tax deadlines aren’t all the same in every case.  It’s enough to make your head spin, wondering “when are the tax deadlines for my taxes?”

Below you will find Federal Income Tax deadlines for 2012.  Use these dates to your advantage and plan enough time to prepare your taxes before they are due.

Individual income tax filing due dates

When it comes to filing income taxes, everyone is well acquainted with “April 15”— a date in America that’s so universally recognized that it sits in a category with the Fourth of July and December 25th.

But this year as last, April 15th isn’t April 15th, if you know what I mean.  The IRS does adjust that date based on the calendar, and this is another one of those years.

This year’s due date for individual income taxes is Tuesday, April 17th.  That’s right, you get two extra days to prepare and file your taxes (of course it’s better to have them prepared as early as possible).

It’s been extended by two days because the 15th falls on a Sunday this year, and the Monday after is Emancipation Day (which is a recognized holiday in Washington, DC, and several states).

If you are really on top of your taxes, the IRS started accepting e-file and Free File returns on January 17th.

Need an extension to file?

Filing an extension moves the filing date out six months, to October 15, 2012.

The extension is automatic with the filing of Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return). You must file the tax extension form no later than the tax filing date of April 17.

It’s important to remember that the extension is NOT an extension to pay your taxes, but only to file the return.

Any tax liability required by the final return must be paid by April 17 otherwise tax penalties and interest will be incurred.

What about estimated tax payments for the self-employed?

Make sure you know the federal income tax deadlines for 2012!

Many taxpayers, particularly the self-employed, are required to make estimated income tax payments.  This is done by sending tax payments with Form 1040ES.

The due dates for estimated tax payments are:

1st payment, April 17, 2012 – For the period January 1st through March 31st
2nd payment, June 15, 2012 - For the period April 1st through May 31st
3rd payment, September 17, 2012 - For the period June 1st through August 31st
4th payment, January 15, 2013 - For the period September 1st through December 31st

Corporate income tax return (1120) filing dates

Since so many people are self-employed—many maintaining corporations in the process—it’s worth noting that corporate entities work on a different filing schedule.

The filing deadline for both corporations and S corporations is March 15.  Or rather, the 15th of the third month after the corporation’s tax year ends.  Many corporations follow the calendar year.  If the corporation doesn’t then the third month rule applies after their fiscal year ends.

If you cannot file by the due date, you can file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.  This will provide a 6-month extension of time to file (September 15, 2012).  The corporation must file Form 7004 by the regular due date of the return.

Tax estimates are also required to be paid by corporations four times per year.

The due dates for the tax estimate installments are:

1st payment, April 15, 2012
2nd payment, June 15, 2012
3rd payment, September 15, 2012
4th payment, December 15, 2012

If any date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day.

Check with your accountant or income tax preparer for these and other significant tax date, or go to IRS.gov for more information.

Remember, if you are mailing in taxes they must be postmarked by the due date.

Don’t wait until the last minute.  You never know what may come up or get lost.  Give yourself a time cushion to prepare your taxes.  It will feel SO much better to have them taken care of before their due date.

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Federal Income Tax Deadlines to File Taxes for 2012

The 46th Annual Super Bowl kicks off tonight.  Who are you cheering for?

It’s been a heck of a week: Facebook announced its IPO, the Obama administration set out new refinancing assistance, and mortgage rates hit all-time lows well under 4%.

Refinancing is a great idea right now if you have a mortgage payment at 4.75% or above because the rate on a 30 year note is about 1% less.  Even with factoring in closing costs, if you plan to stay in your home for 10 years, you’ll make your money back.  (If you aren’t planning to live in your current place for very long, what are you doing in a house in the first place?)

Before you consider refinancing your mortgage and investing your nest egg into Facebook shares, check out these articles:

Get Rich Slowly | How and Why I Sold Get Rich Slowly
Net Worth Journey | APR vs. APY
Bible Money Matters | Cutting The Cord And Getting Your TV On The Cheap (Without Using The Big Bad Cable And Satellite Companies)
Don’t Do It Yourself | Pro Blogger Tricks To Reduce Blogging Expenses
Invest It Wisely | 3 Frugal Ideas for a Romantic Valentine’s Day
Consumerism Commentary | Cash Back Rewards Stolen
Ready for Zero | How Bad Are Payday Loans?
Five Cent Nickel | Will the IRS Disallow Backdoor Roth Contributions?
NPR’s Planet Money | Blame the US for the Housing Bubble, Not China
The Simple Dollar | Figuring Out What’s Really Important as a Foundation for Your Decisions

Free From Broke was featured in the following carnivals:

Totally Money Carnival – #51 – Passive Income to Retire
Carnival of Financial Planning – Edition #220 – January 20, 2012 | Credit, Eh – The Credit Card & Personal Finance Blog of CreditCardsCanada.ca
Tax Carnival #96: Dealing With Tax Dragons – Don’t Mess With Taxes
Carnival of Personal Finance #346 | thejennypincher.com
» Carnival Of Financial Camaraderie #18 » My University Money
Yakezie Carnival – Winter Wonderings

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

The Super Bowl XLVI and Links

We Can’t Wait

That’s the new slogan that the Obama Administration is trying out, presumably thinking of the campaign as Obama approaches the full force of election season.

In Las Vegas, one of hardest hit housing markets in the United States, Obama said, “we can’t wait” for an increasingly dysfunctional Congress to do its job and provide relief for the millions of Americans underwater on their mortgages.

Obama went on to say that the housing bubble was the greatest cause of the current economy and that millions of Americans have continued to responsibly pay their mortgage even though their home is worth less than the value of the loan.  In his recent State of the Union address, Obama laid out a plan to help underwater homeowners.

Here’s how the mortgage relief plan would work.

Lower Mortgage Payments

Underwater homeowners who haven’t had more than one late payment in the last six months, would be eligible for the program.

Homeowners would be able to refinance their home and possibly see hundreds of dollars knocked off their mortgage payment.

In the past, those with underwater mortgages weren’t able to refinance because banks didn’t want to take the write down that would come with the refinancing process, but under new rules, homeowners may qualify for an FHA backed loan.  The proposal also requires banks to reduce mortgage balances for homeowners who owe more than 140% of their home’s current value.

In a bold statement, President Obama said, “It is wrong for anybody to suggest that the only option for struggling, responsible homeowners is to sit and wait for the housing market to hit bottom.”

In a housing market that has failed to gain traction since the crisis of 2008 and 2009, Obama’s statement and housing relief proposal comes at a time when homeowners are having trouble seeing a way out of their underwater mortgage.

Even worse, in order to sell their home, some homeowners have to put up a large sums of money during the closing, making selling difficult to impossible for some.

The Obama Administration estimates that the new program could benefit as many as 3.5 million homeowners.

Criticism to the Mortgage Relief Plan

The latest mortgage relief plan focuses on refinancing.

It didn’t take long for Republicans to fire back.

Republican Speaker of the House John Boehner said that this program is another in a long line of similar programs that haven’t worked, referring to a past program that attempted to provide relief that largely fell flat.

The Populist

As Obama begins to ramp up his campaign, he has taken on a more populist tone.

The mortgage relief program joins the student loan assistance program and numerous small business incentives, all aimed at helping individuals escape the crippling effects of the challenging economy.

In recent appearances, Obama has made statements like, “I’ve instructed my administration to look every day for actions we can take without the approval of Congress.” This attack on the grid lock that exists within both houses of Congress is aimed at making the administration look better equipped to make changes that will reach individual citizens.

To Sum Up

Obama’s mortgage relief proposal may provide needed relief for millions of underwater homeowners throughout the country but not all lawmakers believe that this program will provide any more relief than the less than stellar programs of the past.

On top of that, the plan is to be financed by fees charged to big banks based on the size and risk of their portfolios.  Is it a stretch to think that banks will find some way to pass these costs on to their customers (I’m looking at you debit card fees)?  The cost of this plan is somewhere between $5 billion and $10 billion.

It will be interesting to see where this goes in this an election year.  There are far too many homeowners out there that have truly been hurt due to risky financial gambles on the part of big banks and investment firms.  At the same time there are many who took on too much debt than they could afford.  Banks weren’t the only ones who took on risk.  But banks got bailouts and homeowners are still losing their homes to foreclosure.

I don’t think there’s an easy solution.

What do you think of this latest mortgage relief plan that focuses on refinancing?

Sources:
http://abcnews.go.com/blogs/politics/2011/10/obama-offers-mortgage-relief-plan-we-cant-wait-for-congress/
http://www.washingtontimes.com/news/2012/feb/1/obama-floats-latest-homeowner-relief-plan/
http://www.nytimes.com/2012/02/02/business/mortgage-plan-targets-refinancing.html

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Obama Mortgage Relief Refinancing Plan – A Tax on Big Banks and More

It’s tax season again and if you’re expecting a tax refund you’ll probably want to get your hands on it as soon as possible.

In the past, taxpayers had to wait weeks upon weeks to receive a paper refund check from the IRS, but people sought a faster alternative.

The answer for millions has been the refund anticipation loan.

This option is offered by some tax preparation firms and is essentially a short-term loan taken out against your anticipated tax refund.

How a Refund Anticipation Loan Works

The most common reason people are drawn to refund anticipation loans is that they want to receive their refunds quickly.

Basically, a person would go to a tax preparation firm, a tax professional would do the work and the preparer would receive a code from the IRS indicating whether the taxpayer would be getting the full refund or if something such as back taxes would decrease the amount.  The tax prep firm then could offer the customer a loan based on that expected refund.

For people with financial difficulties, mounting bills, medical issues or anything of the like, a quick turnaround time can make a world of difference.

However, this “convenient” option comes with a price.

Consumer advocacy groups have been decrying refund loans for years now because in addition to the administrative fees that accompany them, the loans come with APR rates that can run as high as 50% to upward of 200%.

Are Refund Anticipation Loans Worth It?

A refund anticipation loan may seem like a good idea but they are loaded with fees.

Refund anticipation loans are increasingly losing favor for many reasons.

First, the fees are steep.  Refund anticipation loans in 2009 had an average APR rate of 169%.  A study by the Consumer Federation of America showed that during that same time, more than 7 million taxpayers paid over $600 million to borrow against their own money.

These loans are often regarded as predatory because they target low-to moderate-income citizens.  Since the exorbitant fees are taken out of the refund and not straight out of the taxpayer’s pocket per se, many people look past them in order to get the remaining money faster.

Additionally, the loans are no longer as readily available because the government has stopped providing the comprehensive taxpayer information to tax preparation firms that it once did.  The government also has placed restrictions on some lenders affiliated with these loans, prohibiting them from offering the loans at all.

In fact, 2012 will be the last year you see refund anticipation loans, as the last bank that offers them, Republic Bancorp, will end their RAL program due to FDIC restrictions (they back the loans of Jackson Hewitt and Liberty Tax).  The FDIC believes that by not having the IRS code that tells the tax prep firm whether the filer has any actions against them (that would limit their refund), the loan would be too risky and unsafe.

Options to a Refund Anticipation Loan

Some tax preparation firms now offer the option of getting your refund on their prepaid debit card, but it might not be as beneficial as you’d think.  Make sure to find out if the prepaid debit card has any ATM or other fees and how quickly you’ll receive your refund.

You may also have the option to get your refund on a prepaid debit card you already own.  There are some out there that have minimal fees.  [Really, it doesn't take much to open up a checking account, especially online checking accounts which tend to have few fees.]

The IRS is continually streamlining its processing system, which has led to a much faster refund turnaround and further minimizes the need for a refund loan.

If you submit your return electronically, instead of mailing a traditional paper version, it will considerably shorten the amount of time it takes to get your refund.

In addition, selecting direct deposit will speed the process even more.  According to the IRS, those who combine an electronic submission with direct deposit could see their tax refund in their bank accounts in as little as 8 to 10 days after they file as opposed to 4 to 6 weeks for a traditional paper return.

To Summarize

Refund Anticipation Loans provide tax filers a quick way to get acces to their refund.  But there are usually relatively high fees involved.  These days you can expect a quick refund return if you file electronically and choose to have your refund direct-deposited to your checking account, essentially eliminating the need for a refund anticipation loan.

Emergencies happen and you may need your refund now.  But realize the fees you are paying for the refund anticipation loan.  Work to find ways to avoid needing a loan like this, such as building up an emergency fund.

Sources:

http://www.irs.gov/efile/article/0,,id=205563,00.html

http://www.nclc.org/images/pdf/pr-reports/ral-pr-2012.pdf

http://bucks.blogs.nytimes.com/2012/01/19/after-this-year-no-more-tax-refund-loans/

http://www.responsiblelending.org/other-consumer-loans/refund-anticipation-loans/

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

What is a Refund Anticipation Loan (RAL) and is it Worth It?

I live in the suburbs of Chicago, and recently, after 11 years in the same apartment building, my husband and I re-entered the renter’s market.

When we first began renting at our last apartment, the two bedroom apartment was a bit too big for us.  Three kids later, we were bursting at the seams.

However, we were shocked to see that 3 bedroom apartments in our location rent for $1,300 to $1,800 a month.  Houses can rent for as much as $2,500 to $2,800 a month.

Houses Are Often Out of Reach

Over the years, people have urged us to look into buying a house, but even in the current buyers’ market, homes average $300,000 in our area, and the property taxes typically run $12,000 to $15,000 a year.  With those numbers, we still consider renting to be our best bet, especially since we don’t plan to stay in the area permanently.

We ended up renting a moderately priced 3 bedroom apartment for $1,400 a month.

It definitely wasn’t the nicest apartment on the market; we couldn’t afford those!

Out of curiosity I looked at the price of 3 bedroom apartments in my hometown, where we plan to move after my husband finishes his post-doc.  My hometown is a mid-sized city about 2 to 3 hours away from two major metropolitan areas.  I was shocked to see that 3 bedroom houses rented for $900 to $1,100 a month.

Salaries Do Not Always Compensate for the Cost of Living

Understand the cost of living when you look for a new home.

When I first moved to the Chicago area immediately after graduate school, everyone told me that the cost of living was expensive, but salaries more than made up for it.

I have not found that to be true.

I began my first job here in 2000 at $31,500 a year.  I had trouble affording even a reasonable one bedroom garden apartment for $650 a month.  Now, my husband is beginning his post-doc at $35,600.  I freelance and bring home about $1,500 a month.  Between the two of us, we are able to make ends meet, but there is rarely any extra at the end of the month.

Moving Can Give You an Instant Raise

If you are struggling financially, it may be worthwhile to look at your location and the cost of living.  Using a cost of living calculator, I see that in our case, if we move to my hometown, we will essentially get a 21% raise.

In other words, it costs 21% less to live there than our current location.

While we average about $55,000 a year in income, we would only need to make $42,943 to maintain the same standard of living.  When my husband finishes his post-doc and we move, we will immediately get a raise.  Best of all, my freelance job is portable.  I can do the work where ever we move, and the pay will remain constant, so I will experience my own raise because the money will go further.

In today’s tough economic times, it may be worth considering moving out of your current town if it has a high cost of living and moving somewhere with a lower cost of living.  You may experience a pay reduction, but often, even with a pay deduction, the new locale may be more affordable.  When we visit my hometown, I notice differences not only in housing costs, property taxes and other big ticket items, but also in groceries and gas, which can add up over the course of a year.

However, make sure you are confident with the move.  I have known of two people who moved to lower cost of living areas but then decided they would like to move back to their old, higher cost of living location.  The trouble was that they were no longer able to afford to move back to the higher cost of living area and maintain the lifestyle they enjoyed in the lower cost of living area.

It is nice to be outside of a big city and benefit from all of the amenities a big city offers such as entertainment, education, and culture, but ask yourself if you are truly benefitting from these things.  In our case, we have three children who are in bed at 7 p.m.  A baby-sitter in this area runs $15 to $20 an hour, so we don’t take advantage of all of the big city offerings.

While it will be a mental adjustment moving back to a smaller area with a lower cost of living, over the long term, when we look at our lifelong financial outlook, it will be well worth it.

Copyright © Free From Broke - A Personal Finance Blog Please visit for more great content!

Don’t Underestimate the Cost of Living When Deciding Where to Live