NorCalSavant

Rewards Checking Accounts — Worth the Pain for A Lot Of Gain?

NorCalSavant — Thu, 26 Nov 2009 03:56:16 +0000

If you have cash sitting in your checking or savings account earning a measly one-half percent, you might be able to earn as much as 6% on a checking account. Unbelievable? It is true at the many so-called rewards checking accounts. These are typically offered by small community banks and credit unions trying to lure in profitable new customers with the potential to make even more money by cross selling other products later. Typically, the high interest rate only applies to balances up to about $25,000, although the limits can vary from bank to bank. For sums higher than the limit, the interest rates down to less than 1%. Another plus point of these programs is that many of these banks reimburse ATM surcharges at the end of the month when you withdraw money from other ATMs. So, cash is always conveniently available even if the bank doesn’t have many of its own ATMs spread around.

Sounds great, doesn’t it? But, remember — no pain, no gain. These accounts usually require qualifying transactions every month to earn high interest rates. Typically, you have to set up a minimum number of direct deposits, online bill payments, and ten to twelve debit card/check card transactions per month. You also have to agree to receiving electronic statements only. These requirements basically help banks cut costs and earn fees from card transactions, so they can still make money after paying higher interest rates on the balances. If you don’t meet the qualifications in any month, you don’t earn the high interest, but there is no additional penalty.

It so happens that these required debit/checking card transactions are a little too painful to manage for me. We typically charge everything on our credit card, and get 1% to 3% cash back. Many places charge fees for using debit/checking cards, which will in effect subtract from any interest earnings on the balance. And given our shopping lifestyle it will probably be hard for me to use the checking card 10 to 12 times every month.

However, if these transactions match your current needs and shopping patterns, it could help your money earn up to $1,500 in interest income over the year, while it is not locked out of reach in a CD for example. Of course, that is assuming the interest rates on these accounts continue to stay high through the year.

The Table below shows a number of rewards checking accounts with current interest rates, applicable maximum balances, and monthly transactional requirements. Many of these accounts limit customers to local state residents, but many have no geographical limitations.

Happy thanksgiving, everybody. Have a fun time with turkey or other delectable food, family, and friends. Hope you make good, carefully considered spending choices this black Friday, cyber Monday, and the holiday season. ETA: Thursday, the 26th is also the first anniversary of Islamist terrorist attacks on Mumbai. Hope you never forget the suffering brought on the innocent victims, and do what you can to strengthen security, law and order, bring justice to the culprits, and eliminate hatred of every hue wherever you are.

Rewards Checking Programs (Source: www.money-rates.com)

Institution	State	APY	APY Limit	Monthly Requirements
United Federal Credit Union Rates as of Nov. 25th	Arkansas, Michigan, Nevada, North Carolina, Ohio	6.01%	up to $25,000	Interest Plus Checking – electronic statements, 10 debit card transactions (Credit Transactions/Non-PIN based), 1 direct deposit or 1 ACH payment monthly. Credit Union members only.
Rio Bank Rates as of Nov. 25th	Texas	5.50%	up to $25,000	e-Checking Plus – 10 debit card transactions, 5 Online Bill Pay payments, 1 Direct Deposit per month, electronic statements
Goldwater Bank Rates as of Nov. 25th	Arizona	5.02%	up to $20,000	3 bill pay transactions, 1 direct deposit, 10 debit card transactions, e-statements, minimum balance of $1,000 to avoid service charge
Farmers Bank and Trust Rates as of Nov. 25th	Arkansas	5.01%	up to $25,000	True Rewards Checking – 10 check card transactions, 1 direct deposit or ACH auto debit, electronic statements, access online banking. Arkansas residents only. Must open account in person.
Southern Missouri Bank Rates as of Nov. 24th	Missouri	5.01%	up to $25,000	Kasasa Cash – Make at least 12 check card purchases and one monthly direct deposit or automatic payment, enroll in eStatements, Missouri and Arkansas residents only
Community Bank of Pickens County Rates as of Nov. 25th	Georgia	5.01%	up to $25,000	Relationship Rewards Checking – 10 check card purchases, electronic statements, 1 direct deposit or 1 automatic payment
Bank 1440 Rates as of Nov. 25th	Arizona	5.01%	up to $25,000	Optimum Checking – electronic statements, 1 direct deposit or automatic payment, 10 or more debit card transactions with Visa Debit Card (not ATM). Must finalize opening documents in person.
Bank2 Rates as of Nov. 25th	Oklahoma	5.01%	up to $25,000	Great Rate Checking – 10 check card purchases, 1 ACH or EFT direct deposit, e-Statements, access online banking
CharterBank Rates as of Nov. 25th	Georgia	5.01%	up to $25,000	10 check card purchases, 1 direct deposit or automatic payment, electronic statement
Kansas State Bank Rates as of Nov. 24th	Kansas	4.55%	up to $25,000	Free Rewards Checking – 10 check card transactions, electronic statements, 1 direct deposit or ACH auto debit, access online activity. New account documents must be signed in person.
Cross County Bank Rates as of Nov. 25th	Arkansas	4.51%	up to $30,000	10 debit card transactions, electronic statements, 1 direct deposit or one ACH auto debit. Arkansas residents only.
Bank of the Sierra Rates as of Nov. 25th	Open to all states	4.51%	up to $25,000	Sierra Reward Checking – 12 check card transactions, electronic statements, one bill pay online, one direct deposit or automatic payment. Must be opened online.
Focus Bank Rates as of Nov. 25th	Missouri and Arkansas	4.51%	up to $25,000	MAXimum Free Checking – 10 debit card transactions, electronic statements, access online banking. Limited to Arkansas and Missouri service areas.
First Clover Leaf Bank Rates as of Nov. 25th		4.50%	up to $25,000	My Great Rate Checking – 10 debit card transactions, electronic statements, 1 direct deposit or ACH auto debit, 3 online bill payments. Must come in person to open account.
The First National Bank of Wynne Rates as of Nov. 24th	Arkansas	4.33%	up to $25,000	10 VISA check card transactions, electronic statements, 1 direct deposit or ACH auto debit
Royal Banks of Missouri Rates as of Nov. 25th	Missouri	4.30%	up to $24,999	Majestic Checking – 10 Point of Sale Debit Card Transactions, 1 Direct Deposit and/or ACH Debit/Credit, E-Statement
Page Valley Bank Rates as of Nov. 25th	Virginia	4.25%	up to $25,000	10 VISA check card transactions, electronic statements, 1 direct deposit or direct debit. Geographic Restrictions – Contact bank for details.
First Community Bank Rates as of Nov. 25th	West Virginia, Virginia, North Carolina, Tennessee	4.25%	up to $25,000	Backbone High Yield Checking – 12 debit card point of sale transactions, electronic statements, 1 direct deposit
North Carolina Bank and Trust Rates as of Nov. 24th	North Carolina	4.25%	up to $25,000	Mad Money Checking Account – receive eStatements, 10 Visa Debit card transactions, 1 direct deposit or automatic draft
Greater Rome Bank Rates as of Nov. 25th	Georgia	4.15%	up to $25,000	10 debit card transactions, electronic statements, one direct deposit or ACH payment
Crossroads Bank Rates as of Nov. 25th	Illinois	4.10%	up to $30,000	Effingham First Checking – 20 VISA debit card transactions, electronic statements.Account must be opened in person in Effingham, IL.
Noble Bank and Trust Rates as of Nov. 24th	Alabama	4.05%	up to $25,000	Noble Horizons – 12 debit card transactions, electronic statements, at least one direct deposit or auto ACH debit
Progress Bank (FL) Rates as of Nov. 25th	Florida	4.04%	up to $25,000	12 point of sale debit transactions, e-statement and at least one direct deposit or ACH
Keystone Bank Rates as of Nov. 24th	Alabama	4.04%	up to $25,000	10 MasterCard Debit Card purchases, set up one Direct Deposit or Auto Debit from your account, enroll and receive your bank statements electronically
Coulee Bank Rates as of Nov. 25th	Wisconsin	4.04%	up to $25,000	10 debit card transactions, electronic statements, at least one direct deposit
Heartland Community Bank Rates as of Nov. 25th	Arkansas	4.02%	up to $30,000	Interest Plus Checking Account 10 check card transactions, electronic statements, at least one direct deposit or auto ACH debit, access online banking once
Ouachita Independent Bank Rates as of Nov. 25th	Louisiana	4.01%	up to $25,000	12 debit card transactions (not including ATM transactions), 1 recurring ACH debit or credit, electronic statements
Montgomery Bank Rates as of Nov. 24th	Missouri	4.01%	up to $25,000	Montgomery ebluechecking – 12 debit card purchase transactions, 1 direct deposit or ACH auto withdrawal, electronic statements
First Banking Center Rates as of Nov. 25th	Wisconsin	4.01%	up to $25,000	10 debit card transactions, electronic statements, at least one direct deposit
New Mexico Bank & Trust Rates as of Nov. 24th	New Mexico	4.01%	up to $20,000	Cash Rewards Checking – 12 signature-based debit card transactions, one automatic payment or direct deposit, electronic statements. Accepting accounts only from local service areas.
Rocky Mountain Bank Rates as of Nov. 25th	Montana	4.01%	up to $20,000	Cash Rewards Checking – 15 card purchases, direct deposit, electonic statements. Accounts from local service areas only.
Arizona Bank and Trust Rates as of Nov. 25th	Arizona	4.01%	up to $20,000	Cash Rewards Checking – 15 signature based purchases, eStatements, 1 direct deposit. Offer for local service areas only.
Bank of Blue Valley Rates as of Nov. 25th		4.01%	up to $25,000	Performance Checking – 12 signature-based debit card transactions, 1 direct deposit or ACH auto debit. Must open account in person.
Southeast National Bank Rates as of Nov. 24th	Illinois	4.01%	up to $25,000	Free Reward Checking – 10 debit card transactions, electronic statements, at least one direct deposit or ACH auto debit
The First National Bank of Dieterich Rates as of Nov. 24th	Illinois	4.01%	up to $25,000	Prime Rewards Checking – 10 debit card transactions, electronic statements, access online banking. Residents of local counties in Illinois only.
Opportunity Bank Rates as of Nov. 25th	Texas	4.01%	up to $25,000	10 debit card transactions, electronic statements, at least one direct deposit or ACH auto-debit, log-in at least once
Bank of Little Rock Rates as of Nov. 25th	Arkansas	4.01%	up to $25,000	Kasasa Cash – 10 debit card transactions, electronic statements, at least one direct deposit or ACH auto debit
Capital Bank Rates as of Nov. 25th	North Carolina	4.01%	up to $25,000	Smart Checking – 10 debit card transactions, electronic statements, at least one direct deposit or auto-debit
Lake City Bank Rates as of Nov. 24th	Indiana	4.01%	up to $25,000	8 POS debit card transactions, electronic statements, one direct deposit or ACH auto debit
Grand Bank Rates as of Nov. 25th	New Jersey	4.01%	up to $25,000	10 point of sale purchases, 1 direct deposit or ACH auto debit, electronic statements
First National Community Bank (FNCB) Rates as of Nov. 25th	Pennsylvania	4.01%	up to $25,000	ME – Maximum Earnings Account, 10 Visa check card purchases, electronic statements, 1 direct deposit or 1 automatic payment
AmericaNet Bank Rates as of Nov. 25th	Open to all states	4.00%	up to $10,000	Rewards Checking – 10 check card transactions, electronic statements
All America Bank Rates as of Nov. 25th	Oklahoma	4.00%	up to $25,000	Ultimate Rewards – Better Than Free Checking – 10 check card transactions, electronic statements
Southern Community Bank and Trust Rates as of Nov. 24th	North Carolina	4.00%	up to $25,000	ME Banking – 10 debit card transactions, electronic statements, at least direct deposit or automatic draft
Tioga State Bank Rates as of Nov. 24th	New York	4.00%	up to $25,000	Confirmed enrollment in TSB Online E Statements, 12 or more purchases with TSB debit card, one direct deposit or ACH debit per qualification cycle
ViewPoint Bank Rates as of Nov. 25th	Texas	4.00%	up to $50,000	Absolute Checking – 1 direct deposit or actively use free online bill pay, electronic statements, 15 purchases using Absolute Checking Visa Check Card
Peoples Bank Rates as of Nov. 25th	Tennessee	3.91%	up to $25,000	Interest Reward Checking – 10 debit card transactions, electronic statements, at least one direct deposit or ACH auto debit
MidwestOne Bank Rates as of Nov. 24th	Iowa	3.90%	up to $25,000	Power Checking – 10 debit card transactions, electronic statements, at least one direct deposit or auto ACH debit
Westbury Bank Rates as of Nov. 25th	Wisconsin	3.75%	up to $50,000	Ideal Checking – 10 debit card transactions, electronic statements, at least one direct deposit. Wisconsin residents only
Community First National Bank Rates as of Nov. 25th	Missouri, Arkansas	3.75%	up to $25,000	Free Reward Checking – 10 debit card transactions, electronic statements, at least one direct deposit or auto ACH debit
Community West Bank Rates as of Nov. 25th	California	3.75%	up to $25,000	Great Rate Checking – 10 debit card transactions, electronic statements, at least one direct deposit.
RCSBank Rates as of Nov. 25th	Missouri	3.56%	up to $25,000	e-Global Checking – 8 check card transactions, 1 direct deposit or auto ACH debit, electronic statements. Must open account in person.
Farmers State Bank Rates as of Nov. 25th	Minnesota	3.51%	up to $25,000	10 Shazam Check Card purchases (ATM withdrawals do not qualify), 1 automatic payment/transfer or direct deposit, access online banking, e-Statements
Liberty Bank Rates as of Nov. 24th	Illinois	3.51%	up to $25,000	eSmart Checking – 15 debit card purchases, 1 direct deposit or automatic withdrawal, 1 bill pay, electronic statements
Heritage Community Bank Rates as of Nov. 25th		3.51%	up to $25,000	10 debit card transactions, electronic statements, at least one direct deposit or auto ACH debit, access online banking
Bank of Ripley Rates as of Nov. 25th	Tennessee	3.51%	up to $25,000	Reward Checking – 10 Debit Card transactions, receive electronic statements, access Online Banking
1st National Bank Rates as of Nov. 25th	Wisconsin	3.51%	up to $25,000	10 check card transactions, electronic statements, at least one direct deposit or auto ACH payment monthly
First Robinson Savings Bank Rates as of Nov. 25th	Indiana, Illinois	3.51%	up to $25,000	Kasasa Cash – 10 debit card transactions, electronic statements, 1 online bill payment or 3rd party electronic payment. Account available in Illinois and Indiana market area.
Sutton Bank Rates as of Nov. 24th	Ohio	3.51%	up to $25,000	11 check card transactions, 1 direct deposit or ACH auto-debit, electronic statements
Bank of Idaho Rates as of Nov. 25th	Idaho	3.51%	up to $25,000	Kasasa Cash – 10 debit card transactions, electronic statements, 1 direct deposit or ACH auto debit, Idaho market area only
Citizens Bank Minnesota Rates as of Nov. 25th	Minnesota	3.51%	up to $25,000	10 check card transactions, receive electronic statements, at least one direct deposit or one automatic payment
Reliant Bank Rates as of Nov. 25th	Tennessee	3.51%	up to $50,000	Clearly Better Rewards Checking – 10 debit card transactions (excluding ATM withdrawals), 3 bill pay transactions, access online banking, 1 deposit or ACH debit, electronic statements
Bank of Fayetteville Rates as of Nov. 25th	Arkansas	3.50%	up to $50,000	Smart Checking – 10 VISA check card transactions, electronic statements, 1 direct deposit or ACH payment, sign on to online banking
M&F Bank Rates as of Nov. 24th	Mississippi, Tennessee, Alabama, Florida	3.50%	up to $25,000	Summit Checking – 12 debit card transactions, electronic statements, at least one direct deposit or auto ACH debit, log-in to online banking at least once
First Arkansas Bank & Trust Rates as of Nov. 25th	Arkansas	3.50%	up to $50,000	Kasasa Cash – 10 debit card transactions, electronic statements, 1 direct deposit, auto ACH debit, or online bill payment, 1 log-in to online banking. Arkansas residents only.
The Provident Bank Rates as of Nov. 24th	New Jersey	3.26%	up to $25,000	Free Smart Checking – 10 POS purchases, 1 direct deposit or 1 automatic ACH debit, electronic statements
Butler Bank Rates as of Nov. 25th	Massachusetts	3.25%	up to $40,000	Free Advantage Checking – 10 debit card purchases, 1 direct deposit or ACH debit, eStatements with online banking
Legence Bank Rates as of Nov. 24th	Indiana, Illinois	3.25%	up to $25,000	Kasasa Checking Account – 10 POS debit card transactions, electronic statements, one direct deposit / online bill payment or ACH auto debit, access online banking. Serving Southern Illinois and Evansville, Indiana Area.
Marlborough Co-Operative, A Division of Butler Bank Rates as of Nov. 24th	Massachusetts	3.25%	up to $40,000	Free Advantage Checking – monthly requirements: 10 debit card purchases, at least one direct deposit or ACH debit, receive eStatements with online banking
First East Side Savings Bank Rates as of Nov. 25th	Florida	3.01%	up to $25,000	Reward Checking – 10 debit card transactions, 1 direct deposit and electronic statements
Monroe Bank and Trust Rates as of Nov. 24th	Michigan	3.01%	up to $25,000	Performance Checking – 15 debit card transactions, electronic statements, receive e-mail reminders, at least one direct deposit of a payroll check or retirement check
Community Bank of Pleasant Hill Rates as of Nov. 25th	Missouri	3.01%	up to $25,000	10 POS debit card transactions, have at least one ACH direct deposit or ACH auto debit, receive electronic statements,
Haverhill Bank Rates as of Nov. 25th	Massachusetts	3.01%	up to $50,000	10 debit card transactions, electronic statements, at least one direct deposit or ACH auto debit. You must maintain an online account with a current e-mail address.
Premier Bank Rates as of Nov. 25th	Florida	3.01%	up to $50,000	Super Interest Checking – 12 check card transactions, electronic statements, one direct deposit or pre-authorized electronic payment
State National Bank of Texas Rates as of Nov. 24th	Texas	3.01%	up to $100,000	15 Visa Check Card purchases, 1 ACH direct deposit or debit, electronic statements, 1 online bill payment
Legacy Bank Rates as of Nov. 24th	Oklahoma	3.00%	up to $50,000	Win/Win Checking – 12 check card transactions, $100 opening deposit, electronic statements, sign up for direct deposit
Clinton Savings Bank Rates as of Nov. 25th	Massachusetts	2.76%	up to $49,999	Total Access Checking – 10 debit card transactions, electronic statements, at least one direct deposit or auto ACH debit. Market area Central Massachusetts.
Rollstone Bank and Trust Rates as of Nov. 25th	Massachusetts	2.75%	up to $100,000	All-In-One Checking – 10 debit card transactions, receive electronic statements, direct deposit either payroll, pension, or social security payments
Bank of Illinois Rates as of Nov. 25th	Illinois	2.75%	up to $25,000	VIP Elite Checking – 10 check card transactions, electronic statements, 1 direct deposit or recurring ACH
Southbridge Savings Bank Rates as of Nov. 24th	Massachusetts	2.75%	up to $50,000	Key Rewards checking – 10 debit card POS transactions, electronic statements, at least one direct deposit or ACH auto debit
BankNewport Rates as of Nov. 25th	Rhode Island	2.51%	up to $100,000	Go Checking – 12 debit card transactions, electronic statements, 1 direct deposit or auto ACH debit. For residents of Rhode Island and Southeastern Massachusetts only.
State Bank of Toledo Rates as of Nov. 24th	Ohio	2.51%	up to $70,000	Hometown Reward Checking – 10 debit card transactions, electronic statements, at least one direct deposit
NewPortFed Rates as of Nov. 24th	Rhode Island	2.50%	up to $50,000	eLoop Checking – 10 check card transactions, electronic statements, access online banking at least once, at least one for direct deposit or ACH
Home State Bank Rates as of Nov. 25th	Colorado	2.34%	up to $25,000	10 debit card transactions, electronic statements, at least one direct deposit
North Middlesex Savings Bank Rates as of Nov. 24th	Massachusetts	2.28%	up to $50,000	Max Checking – 12 debit card transactions, electronic statements, 1 direct deposit. Must live within market area to open an account.
Bank of Hiawassee Rates as of Nov. 25th	Open to all states	1.85%	up to $99,999	10 debit card transactions, electronic statements, at least one direct deposit, at least one online bill payment
Bank of Blairsville Rates as of Nov. 25th	Open to all states	1.85%	up to $99,999	10 debit card transactions, electronic statements, at least one direct deposit, at least one online bill payment
Bank of Blue Ridge Rates as of Nov. 25th	Open to all states	1.85%	up to $99,999	10 debit card transactions, electronic statements, at least one direct deposit, at least one online bill payment
Charter Bank Rates as of Nov. 25th	New Mexico	1.25%	up to $25,000	Turbo Checking – 10 check card transactions, electronic statements, at least one direct deposit, access online activity at least once

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Home Buyer Tax Credits 2009 Act 2

NorCalSavant — Tue, 24 Nov 2009 04:22:52 +0000

I am back to the blog after spending months being extremely busy looking to buy a house. We finally bought the house, and of course, soon after Congress passed the Worker, Homeownership, and Business Assistance Act of 2009, which includes a $6,500 credit for repeat homebuyers but only for those who buy their houses after November 6, 2009. We missed the opportunity to pocket $6,500, but you can still take advantage of the program.

The initial American Recovery and Reinvestment Act of 2009 provided an $8,000 credit for first-time homebuyers as I had discussed in my post here. The program was supposed to end on November 30, 2009. However, the woes that befell our economy and the housing industry in particular have shown no signs of going away easily. In response, Congress passed the Worker Homeownership and Business Assistance Act of 2009 which extends the first time home buyer credit program to April 30, 2010. In a surprising move, Congress extended a credit of up to $6,500 to even existing homeowners for buying a house.

To take advantage of the program, you have to sign a contract to buy the house by April 30, 2010 and close the deal by June 30, 2010. The repeat buyers have to have the new house as their principal residence, and should have stayed in the same principal residence for five consecutive years during the last eight years. The act also increases income limits for taxpayers eligible to take the credit under the program. The tax credits for purchases after November 6, 2009 are phased out for a modified adjusted gross income (MAGI) between $125,000 and $145,000 for single filers and between $225,000 and $245,000 for joint filers. The existing tax credits for purchases on or before Nov. 6, 2009 phase out at a MAGI of $75,000 to $95,000 for single filers and $150,000 to $170,000 for joint filers.

The complete text of the Worker, Homeownership, and Business Assistance Act of 2009 is available here. The Internal Revenue Service has information on the home buyer tax credit on its website here and here. The National Association of Home Builders also has information on the home buyer tax credits on this website. Together, these should answer most questions you might have on the credit.

One thing to note is that if you sell your existing home, the profit on the sale might be counted towards income in determining eligibility for the tax credit. However, only the profits beyond the historic exclusions (from taxes) of $250,000 for single filers and $500,000 for joint filers are counted towards income. This LA Times article explains this in more detail.

Missed the boat?

Yeah, we missed the boat on the substantial $6,500 credit. But actually it’s more like the boat missed us. We crossed the river without a boat like everyone in our shoes was supposed to. Only later, the powers-that-be decided to send a boat to provide incentives to cross the river. We had no idea that there was going to be a tax credit for existing homeowners. If we knew for sure, we would have waited.

But, no big deal. It was still a good time to buy a house. We bought the house at an almost 40% discount from the price the previous owner paid for it almost 5 years ago.

If you are considering buying a house, you should definitely consider buying within the window providing for the tax credit, especially because it is a refundable tax credit. In other words, you get paid the complete credit even if you owe no taxes or less taxes than the credit. The downside risk of substantial price decline seems minimal at this time because the house prices have stabilized or even crept up in some markets.

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New Incandescent Bulb Technology — One Last Hurrah Before Death Or the Best of Both Worlds?

NorCalSavant — Fri, 17 Jul 2009 01:06:17 +0000

As you know, the Energy Independence and Security Act of 2007 effectively outlawed incandescent bulbs as they existed at the time. Conventional wisdom from public commentators essentially called it the end of incandescent bulbs to make room for more energy-efficient lighting technology like compact fluorescent lamps (CFL’s) and light emitting diodes (LED’s). CFL’s and LED’s, while highly energy-efficient in comparison with the incandescent bulbs have their own set of problems including the color or the quality of light, management and disposal of hazardous ingredient mercury, cost, performance, and a directional spread of light from the source.

However, according to this report in the New York Times, incandescent bulbs with improved energy efficiency are making a comeback. History has it that right before its death, an old technology makes a burst of improvement to stay relevant although only for a short while. So, is this one last hurrah for the incandescent bulb technology before its imminent death or is this new technology going to give us the best of both worlds — high energy efficiency for a better environment and the favorite quality of light for comfort and familiarity with no hazardous disposal problems?

Source: http://www.flickr.com/photos/spacepleb/2060630239/

Lighting and the Energy Independence and Security Act of 2007

It is estimated that there are 4 billion incandescent bulbs lighting up the United States. According to Department Of Energy lighting accounts for about 10% of the residential electricity bill in the U.S. US homes and businesses consume about 300 billion kWh of electricity annually for lighting. It takes about hundred large power plants (with 500 MW rated capacity) to produce that much electricity per year.

There has been increasing concern about the environmental impact of greenhouse gas emissions associated with power production from burning fossil fuels. Congress passed the 2007 Act in an attempt to reduce power consumption associated with light bulbs by requiring them to be more energy-efficient. It is projected that the new efficiency standards may reduce carbon emissions by approximately 750 million metric tons and save more than $40 billion on electricity costs by the year 2030.

President Obama said recently that

The first step we’re taking sets new efficiency standards on fluorescent and incandescent lighting. Now I know light bulbs may not seem sexy, but this simple action holds enormous promise because 7 percent of all the energy consumed in America is used to light our homes and our businesses. Between 2012 and 2042, these new standards will save consumers up to $4 billion a year, conserve enough electricity to power every home in America for 10 months, reduce emissions equal to the amount produced by 166 million cars each year, and eliminate the need for as many as 14 coal-fired power plants.

The Act does not prescribe or proscribe any lighting technology. It merely sets energy efficiency standards for common household bulbs. Tier 1 standards effective from 2012 to 2014 require light bulbs to be 25% to 30% more efficient than the prevailing technology. Tier 2 standards to be defined by DOE later may require light bulbs produced in 2020 to be 60% more efficient than today’s technology. The table below shows the current light output range for 40 W to 100 W bulbs, and the required lower wattage bulbs to produce the same light output range under Tier 1 requirements.

Summary of Performance Standards for Certain Light Bulbs in the Energy Independence and Security Act of 2007

Electricity Use in Today’s Bulbs (Watts)	Light Output Range (Lumens)	Future Performance Standards (Watts)	Efficiency Improvement (%)	Effective Date
100	1,490-2,600	72	28	Jan 1, 2012
75	1,050-1,489	53	29	Jan 1, 2013
60	750-1,049	43	28	Jan 1, 2014
40	310-749	29	28	Jan 1, 2014

The good news is that incandescent bulb manufacturers are making efforts to produce more efficient incandescent bulbs to meet new efficiency requirements.

Phillips has already come out with the Energy Saver line of incandescent bulbs which are 30% more efficient than older technology. They last three times as long, but are much more expensive at five dollars a piece. Other manufacturers including General Electric, Osram Sylvania, Auer Lighting of Germany, and Toshiba of Japan are also working on bringing out more efficient incandescent bulbs to meet Tier 1 and Tier 2 requirements mandated under the Act.

One of the main efforts at improving the efficiency of incandescent bulbs revolves around applying special reflective coatings to gas-filled capsules that surround the bulb’s filament. The reflective coatings act as heat mirrors bouncing the heat back onto the filament to be converted into light again, thus improving the efficiency. Other researchers are working on modifying the filament directly to improve the energy conversion efficiency. There are no cost estimates available for the finished products right now.

Cost Savings

Let us do a rough cost comparison between a basic 100 W incandescent bulb and the Phillips Energy Saver 100 W bulb. The basic bulb costs $0.60 and lasts for 750 hours. The equivalent 70 W Phillips Energy Saver bulbs costs $5 and lasts for 3,000 hours. As such, it is basically going to take four basic bulbs to last as long as one Energy Saver bulb. Assuming the bulbs get used four hours a day, they get used or lit about 1,460 hours a year.

The basic bulb rated at 100 W would consume 146 kWh or $20.44 annually at $0.14 per kWh. The Energy Saver bulb rated at 70 W would consume 102.2 kWh or $14.31 annually at $0.14 per kWh. Over two years, the approximate life of the Energy Saver bulb, the total cost of the basic incandescent bulb would be $2.40 plus $40.88, or about $43.28. However, the total cost of the Energy Saver bulb would be $5 plus $28.62, or about $33.62. In effect, the Energy Saver bulb would be saving the buyer $9.66. That is roughly $4.83 per year per light point.

This website has a nice calculator where you can compare cost savings of different alternative bulbs based on hours of use per day and energy costs for the general location.

It is important to know that the Energy Saver bulbs, although more efficient than the current incandescent bulbs, do not come anywhere close to energy efficiency exhibited by existing CFL or LED. However, many CFL’s suffer from poor color or quality of light, and do not work with continuous dimmers. They also contain mercury, requiring careful disposal after use or in case of breakage while in use. LED’s are currently prohibitively expensive, have reliable performance problems, and produce directional light.

Conclusion

Will incandescent bulbs survive in the future? That will depend on what the 2020 energy efficiency requirements will be, whether cost effective technology will be found to further improve incandescent bulbs to meet those acquirements, and what the competition will do. In other words, will competing technologies like CFL and LED overcome their current limitations? The Act applies to bulbs from 40 W to 150 W and has exemptions for many specialized uses, making it unlikely that the current incandescent bulb technology will completely disappear.

IMHO it is more likely that there will be improved versions of many of the current technologies finding appropriate use in the broad range of home and public lighting needs.

No related posts.

Cash for Clunkers – Good for Your Personal Finances, the Environment, or the Auto Manufacturers?

NorCalSavant — Thu, 02 Jul 2009 19:25:55 +0000

On June 24, 2009, President Obama signed the Consumer Assistance to Recycle and Save (CARS) Act of 2009. It was actually included as Title XIII in HR 2346, the Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan and Pandemic Flu. The full text of HR 2346 including Title XIII is available at this website.

The CARS Act provides consumers incentives to replace an old gas guzzler with a new fuel-efficient vehicle. If you have a less than 25 years old car, and it was rated for less than 18 mpg when new, you can get a government voucher for $3,500 or $4,500 from the dealer towards the purchase of a new more fuel-efficient vehicle. The $3,500 voucher applies when the mileage improvement is between 4 and 10 mpg. The $4,500 voucher applies when the mileage improvement is more than 10 mpg.

Source: http://www.flickr.com/photos/mccaffry/3020832485/

The trade-in vehicle must be drivable, and be continuously insured and registered to the same owner for the full year preceding the trade-in to qualify for the payment. So a working clunker is okay, but a dead clunker salvaged from the junkyard to claim the voucher will not work. The dealer will be required to certify that the trade-in vehicle has been scrapped effectively taking it out of circulation. The program is only available from July 1 through November 1. However, National Highway Traffic Safety Administration (NHTSA) responsible for administering the program recommends waiting until July 23 when it will come out with the final rules and regulations for the program it calls the Car Allowance Rebate System (CARS). The Act appropriates $1 billion for the program, which translates into approximately 250,000 vouchers or new car sales.

The details of the program are available here on this webpage. The fuel economy ratings for the trade-in vehicle brands is available on this website. There is a nice table showing the eligibility requirements for different vehicles here on this website. Please note however that this table does not explicitly show the maximum allowable fuel efficiency for the trade-in vehicle to qualify. For example, purchasing a new passenger car with 31 mpg with a trade-in passenger car with 20 mpg would not qualify for the program even though the mileage improvement is more than 10 mpg because the maximum allowable mpg for the trade-in vehicle is 18 mpg.

Source: http://www.cashforclunkers.org/edmunds-dealix-webinar-recap.html

Is the Program a Blockbuster in Waiting?

The program has its obvious flaws. Those who keep and drive clunkers generally do not do it out of choice. A new car costs anywhere from $15,000 to $20,000 at the least. It also has higher insurance and registration costs. Many clunker owners would not have the cash to pay for all the costs of a new car or the financial wherewithal to qualify for a new car loan, especially in this economy. Those who could afford to pay for a new car with cash or financing, generally would not be the clunker owner/driver. It is, therefore, unlikely that we are looking at a blockbuster program ahead of us.

Is it Worth It?

Just assume, hypothetically, that you are in good financial standing and you have a gas guzzler that you have been wanting to get rid of for a long time. And, lo and behold, the government has just come out with the cash for clunkers program with its potential benefits to the consumer, the environment, and the auto manufacturer. Who is it good for?

Assuming that you drive 15,000 miles per year and you go from a 18 mpg clunker to a 28 mpg shiny new fuel-efficient car, you will go from burning about 833 gallons of fuel per year to about 536 gallons of fuel per year. That is a saving of about 297 gallons of fuel per year. Assuming the average price of gas to be $3 per gallon, the cost savings are about $891 per year. These savings continue for the life of the new vehicle. However, for a realistic comparison, you should only count the savings for the period your clunker would have continued to operate without dying.

You also have to weigh in the registration, insurance, and repair and maintenance costs. The registration and insurance costs for the new vehicle would definitely be much higher than those for the clunker. The repair and maintenance costs for the new vehicle could be low in the initial years compared with those for the clunker car. The financing costs could also be significantly higher for the new car assuming you finance your purchase, and the clunker was paid for. The sales tax on the purchase of the new car would also be substantially higher. However, fortunately the sales tax on the car is going to be tax-deductible this year.

In effect, you have to compare the total costs of ownership including registration, insurance, operating, and repair and maintenance costs for the clunker and the new car including the voucher benefit, for the period you were going to keep the clunker. It is unlikely that purely financially you will come out ahead with the new car option. However, if your clunker is only worth a couple of thousand dollars in trade-in value, and is ready to die any day now, it may be advantageous to use the cash for clunkers program to offset your total costs by the voucher amount minus the original trade-in value.

Because the trade-in car is going to be scrapped, you cannot get any additional trade-in value for it other than the voucher. If the car’s trade-in value is more than $4,500, it doesn’t make sense to use the CARS program to get just $4,500. This website here lists all the cars with a trade-in value of less than $4,500 that could qualify for the CARS program. If your car is one of those in the list, you could use it as a trade-in for the CARS program. Of course, you should ascertain the real trade-in value of your car at your local dealer. If the trade-in value of the car is just about $4,500, it makes sense to use the program and take the clunker out of circulation for the sake of the environment. However, the lower the value of your trade-in is, the more there is financial benefit in addition to the environmental benefit in using the program.

There is a benefit to the environment in reduced greenhouse gas emissions from tailpipes when a fuel-efficient car replaces a gas guzzling clunker. However, to really make it good for the environment, the CARS program should not have required the replacement vehicle to be a brand-new vehicle. Clunker owners would be more likely to use the program if the costs were not so onerous.

As far as the auto manufacturers go, any boost to new car sales from the cash for clunkers program would be highly welcomed by them given the ongoing decline in sales experienced by auto manufacturers across the board. It is unlikely in my opinion that the program will provide a significant and substantial relief to the auto manufacturers.

Total Cost of Automobile Ownership

If you are in the market for a new car to take advantage of the cash for clunkers program or otherwise, it is a good idea to compare the total cost of ownership between the different car options to chose the best option over all. A car that costs cheapest out the dealer door, may not be the cheapest car when you add up all the costs to own and operate the car.

Edmunds.com has a good explanation of cost of ownership here at this webpage. You can specify the details of your car including make, model, and year etc. on this webpage to get an estimate of the cost of ownership. You can even compare similar models for total cost of ownership. For example, even though the 2009 Nissan Ultima costs more at $22,755 than the 2009 Toyota Camry at $21,915, the total cost of ownership for the Ultima is $0.54 a mile compared to $0.58 a mile for the Camry. Over the five-year, 75,000 mile period, the Ultima is estimated to be cheaper than Camry by almost $2,500.

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Eligible Homeowner Facing Delinquency Rejected by the Bank for a Loan Modification

NorCalSavant — Sat, 13 Jun 2009 01:41:31 +0000

There was an interesting article in the New York Times detailing the plight of Eileen Ulery, a homeowner in Mesa, Arizona caught up in the delinquency/foreclosure crisis. She basically owes $143,000 on a house worth only $122,000, a loan to value of about 117%. She lost her job at Arizona State University with an income of about $26,000 per year, while her house payment has gone up to more than $1000 from about $600 per month.

She originally bought her condominium for $77,500 in 1997. As her condominium appreciated in value, she refinanced a couple of times and took out a home equity loan adding to her mortgage balance. Cashing out of her condominium as the condominium price appreciated during the inflating period of the housing bubble allowed her to retire some credit card debt, and pay for a new car and a new roof on the house.

After losing her job, she struggled hard to keep making her house payments for a while, but she pulled it off somehow. Finally, when it was clear she wouldn’t be able to do that anymore, she called the bank for a loan modification.

Even though she was eligible for it, the bank turned her down. The bank very cleverly asked her to hand over $18,000 including $5,000 in fees after which the bank would be able to cut down her monthly payment from $1046 to $967 or by $79 per month.

It appears the bank was taking the extra money, putting a large part of it into paying down the balance to bring loan to value within the 105% requirement of the Making Home Affordable Refinance Program, and then offering a refinance to Ms. Ulery. Of course, the bank’s solution doesn’t help or solve Ms. Ulery’s looming delinquency problem because the new mortgage payment would still not be affordable for her even if she could somehow find $18,000.

This example is pretty typical of how rational decisions are made by lenders and mortgage servicers. Ms. Ulery is eligible for loan modification as per Treasury’s guidelines for the loan modification program, but of course, the lender/mortgage servicer is NOT REQUIRED to offer it to her.

Offering loan modification to her would mean taking an immediate financial hit for the lender, which they could delay or at best avoid altogether. Ms. Ulery has been regular with her mortgage payments so far. She seems to want to keep her house and credit score, and might find a way to keep making those payments. If she were to stop making her mortgage payments and foreclose, then the bank would take a hit. But obviously, she is not at that stage yet.

That brings up a discussion of Ms. Ulery’s attempts to stay current on her mortgage and seek relief. The Making Home Affordable Program can help her some, but only when the lender/mortgage servicer finds helping her to be a better option (less costly) than not helping her and allowing her to foreclose on the house. It would seem the rational thing for Ms. Ulery would be to move toward foreclosing, because that could be an incentive for the lender to work with her.

It is unfortunate that the two parties seem to have to game their response to make the system work in their short and long-term benefit.

Ms. Ulery should also look into the Hope for Homeowners (H4H) Program. If she has a good credit history to qualify for a FHA mortgage, she could have her principal balance reduced to 96.5% of her home value. She will have to pay mortgage insurance, but at least in theory she could have a lower payment schedule. In practice however, looking at the history of H4H, the likelihood of her actually getting a H4H refinance are not very high.

What do you think? Should she stop paying her mortgage and then try a loan modification with the bank?

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More Federal Foreclosure Mitigation Programs for Delinquent Homeowners, but How Effective?

NorCalSavant — Fri, 29 May 2009 20:10:19 +0000

The moratoria banks had on foreclosures have expired, and a steady stream of foreclosures is expected to hit the market throughout the remaining year. As these foreclosed properties add to the supply of houses on the market, home prices are expected to continue to decline or stay declined.

Source: www.ehow.com

The Obama administration has been coming out with a slew of programs to stop the ongoing foreclosure hemorrhage in housing industry. Treasury came out with the Making Home Affordable Refinance and Modification programs earlier to help defaulting homeowners. Next came the Second Lien Program. Treasury also modified the Hope for Homeowners (H4H) program. Since then, Treasury has come out with the Foreclosure Alternatives and the Home Price Decline Protection Incentives Programs.

Foreclosure Alternatives Program

The Foreclosure Alternatives Program provides incentives to a homeowner and the mortgage servicer to pursue short sales of homes or deeds in lieu of foreclosure. Troubled Borrowers meeting the minimum eligibility requirements for a Home Affordable modification but unable to qualify for a loan modification will receive up to $1,500 to help with relocation expenses when they agree to a short sale or deed-in-lieu of foreclosure. Mortgage servicers will earn up to $1,000 for successfully completing the short sale or deed-in-lieu.

The Foreclosure Alternatives Program provides for a simplified and streamlined process, time frames, and standard documentation for short sale and deed-in-lieu. More details on the program are available here in this webpage on Treasury’s website.

Home Price Decline Protection Incentives Program

In neighborhoods where home prices are continuing to decline presenting a disincentive to the lender to do a loan modification, the Home Price Decline Protection Incentives Program provides additional cash incentives for two years after loan modification with the amount of the incentive linked to the decline in local housing prices. More details on the program are available here in this webpage on Treasury’s website.

Helping Families Save Their Homes Act of 2009

Last week on Wednesday, President Obama signed into law the Helping Families Save Their Homes Act of 2009. The Act modifies the Hope for Homeowners Program by reducing fees and providing greater incentives to mortgage servicers for loan modification. It also makes the underwriting requirements more consistent with standard FHA practices.

The Act also provides a safe harbor from liability to mortgage servicers performing a loan modification consistent with Treasury’s programs or utilizing Hope for Homeowners. Investors lobbied heavily against the provision claiming sanctity of contract law but lost in the end. Congress had earlier rejected mortgage cramdown, that is, mortgage modification by a bankruptcy judge. The safe harbor provision has been presented in as an alternative to bankruptcy cramdown.

The Impact on Foreclosures

Is the full force of the federal government as reflected in these various initiatives going to root out the drumbeat of foreclosures? I think these programs only tinker at the edges of the problem. In the end, these programs provide incentives to avoid foreclosures rather than require lenders and servicers to not foreclose. The size of the incentive is not tied to the size of the mortgage, and thus, can be relatively minor in expensive markets. Lenders and servicers have generally appeared to have chosen to not realize a quick loss on their books by loan modification or refinancing. Or maybe, they are holding out for the government to come out with even better incentives if things stay bad.

There is some hope that with the threat of investor lawsuits gone, some mortgage servicers may be more inclined to modify a loan than before. Of course, it will probably only work when the mortgage servicer is not the original lender. The safe harbor provision provides the only worthwhile ray of hope in substantially impacting ongoing drumbeat of foreclosures.

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California — Welcome to One of the Highest Sales Tax Rate in the Country, But No Sales Tax Holidays

NorCalSavant — Fri, 15 May 2009 22:10:45 +0000

With the ongoing recession things have not been looking too good for California’s budget. With politicians entrenched in Legislature and ideological camps with safe gerrymandered seats, there has been no clear solution to matching state income with state expenses. State Legislature and Governor Schwarzenegger have taken some half-hearted measures, although the problem seems far from being solved.

One of the measures state of California has adopted is to raise the sales tax by 1% starting April 1, 2009. The total statewide base sales tax is now 8.25% up from 7.25%. A breakdown of the base tax is shown here on this web page. Special taxing districts formed by cities, counties, towns and communities levy additional local sales tax of up to 1%, adding to the base statewide sales tax.

In fact, the highest sales tax rate in California is 10.250% in Pico Rivera and South Gate in Los Angeles County from multiple taxing districts levying taxes in the same location. In case you wonder why the tax rate is represented to three decimal places in California, it is because in some places the third decimal place is not zero. Sanger in Fresno County, for example, has a sales tax rate of 9.725%. Here is a California Board of Equalization web page providing current sales tax rates for all cities and counties in California.

How do these sales tax rates compare with the rest of the nation? For an individual location, 10.25% seems to be the highest sales tax rate in the nation, which is also matched by Chicago.

This web page here provides basic statewide sales tax rate and the total average combined state and local sales tax rate data for all 50 states. The total average combined sales tax in California is one of the highest in the nation. Louisiana, Tennessee, and Washington are other states topping the list with highest average combined sales tax rates. Delaware, Montana, New Hampshire, and Oregon have no state or local sales tax. The total average combined sales tax rates are as low as 5% in Maine, Massachusetts, and Virginia in the 48 contiguous states.

Sales Tax Holidays

I also came across this excellent blog post by Bargaineering about state sales tax holidays which have been in place in many states starting this decade. Thirteen states besides District of Columbia have declared sales tax holidays for 2009. Of course, California has never been one of them. The table below shows the sales tax holiday days and the restrictions applicable to the purchase.

2009 State Sales Tax Holidays

Source: Federation of Tax Administrators

State	Days	Items Included	Maximum Cost	1^st Year	2009* Dates	Information Links *
Alabama	3	clothing – $100 computers – $750 school supplies – $50 books - $30		2006	August 7-9	link to details
Connecticut	7	clothing and footwear – $300		2001	August 16-22	link to details
District of Columbia	9	clothing – $100 school supplies - $100		2004	August 1-9	link to details [2008 link]
District of Columbia	17	clothing – $100		2004	Nov. 27 – Dec. 6	link to details [2008 link]
Iowa	2	clothing – $100		2000	August 7-8	link to details
Louisiana	2	all TPP – $2,500		2007	August 7-8	link to details [2008 link]
Louisiana	2	hurricane preparedness items – $1,500		2008	May 30-31	link to details [2008 link]
Missouri	7	energy star products – $1,500		2009	April 19-25	link to details
Missouri	3	clothing – $100 computers – $3,500 school supplies – $50		2004	August 7-9	link to details
New Mexico	3	clothing – $100 computers – $1,000 school supplies – $15		2005	August 7-9	link to details [2007 notice]
North Carolina	3	clothing – $100 school supplies – $100 instructional material – $300 computers – $3,500 other comp. – $250 sports equip – $50		2001	August 7-9	link to details [2008 link]
North Carolina	3	energy star products		2009	November 6-8	link to details [2008 link]
Oklahoma	3	clothing – $100		2007	August 7-9	link to details [2008 link]
South Carolina	3	clothing school supplies computers other		2000	August 7-9	link to details [2005 notice]
South Carolina	31	energy star products		2009	October 1-31**
South Carolina	2	handguns, rifles, shotguns		2008	November 27-28	link to details
Tennessee	3	clothing – $100 school supplies – $100 computers – $1,500		2006	August 7-9	link to details [2008 link]
Texas	3	clothing and backpacks – $100		1999	August 21-23	link to details
Texas	3	energy star products air conditioners – $6,000; other – $2,000		2008	May 23-25	link to details
Virginia	7	hurricane preparedness items – $60 generators – $1,000		2008	May 25-31	link to details
Virginia	3	clothing – $100 school supplies – $20		2006	August 7-9	link to details
Virginia	4	energy star products – $2,500		2006	October 9-12	link to details
West Virginia	7	energy star products – $5,000		2008	September 1 – November 30	link to details

(updated May 4, 2009)

* dates are for calendar year 2009, as of March 19, 2009. Some state have not published 2009 information on their website; old information may be provided in the links for these states.
** Holiday will only be allowed in years where the South Carolina Board of Economic Advisors certifies sufficient revenue growth.

Are the Sales Tax Holidays Worth It?

Sales tax holidays certainly appear to be a good time to wait to shop where possible. In effect, shopping then is like shopping during sale, except every item of the kind, say clothing, would be on sale.

Talking of sales, there are sales galore all through the year. I wonder if stores also have a sale during these holidays, so it becomes a real not-to-be-missed opportunity. The sales tax holidays may not be such a good deal if you could only save on up to 10% of sales tax, but pay regular prices. Clothing sales routinely include discounts from 25% to 50%.

Of course, when talking about discounts, some percent off a jacked up full price may be no bargain at all. The only way to shop smart is to have a general idea about good price for an item before hand, and then compare the final discounted prices at different merchants to decide if the price is really a good deal.

Buying an item from an e-tailer on Internet could also be a good idea. Depending upon your and the merchant’s location, buying items on Internet may not cost you any sales tax at all.

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Is Treasury’s New Second Lien Program Going to Make a Difference to Foreclosures?

NorCalSavant — Fri, 08 May 2009 21:04:51 +0000

Last week Treasury announced the Second Lien Program to work in tandem with the primary mortgage modification under the Home Affordable Modification Program to help homeowners avoid foreclosure. Treasury also announced new lender incentives under the beleaguered Hope for Homeowners Program for underwater homeowners. Are these new programs going to make a difference in continuing foreclosures? Is there new hope for a homeowner facing foreclosure in the worst affected markets in California, Nevada, and Florida?

Second Lien Program

As I had discussed in my earlier post here, the Home Affordable Modification Program reduces mortgage payments on the primary debt for homeowners close to defaulting or foreclosing. However, the Home Affordable Modification Program did not automatically modify the payments on any secondary lien on the house.

Source - http://www.flickr.com/photos/respres/2539334956/

With the Second Lien Program, payments on the second mortgage will be sharply reduced by participating mortgage lenders according to a set formula for any customers who have modified their first mortgage. For borrowers paying principal and interest on the second mortgage, the interest rate would be lowered to just 1%. For borrowers paying interest only, the interest rate would be lowered to 2%.

If any part of loan balance was forgiven by the lender on the first mortgage, the same proportion of the second mortgage would be forgiven. The second lien can also be extinguished for a lump-sum payment according to a pre-set formula determined by Treasury. Basically for second loans due payment for more than 180 days, the lender will be paid three cents on the dollar for extinguishment. For loans past due less than 180 days, the lender would be paid anywhere from four to twelve cents on the dollar for extinguishment depending upon loan to value (LTV) and debt to income (DTI) ratios.

Besides sharing the cost of reducing monthly payments with the lender, Treasury is also offering lenders $500 cash incentive upfront and $250 a year for three years if the buyer maintains payments after loan modification.

Hope for Homeowners Program

The Treasury is also trying to revive its beleaguered Hope for Homeowners Program (H4H) by offering new incentive payments for lenders and requiring mortgage servicers participating in Home Affordable Modification program to evaluate if the borrower could qualify for H4H. Treasury will pay lenders $2,500 at the time of H4H refinance and $1,000 a year for up to three years if the borrower continues to make mortgage payments on time.

H4H refinance potentially offers a homeowner facing foreclosure a way to reduce loan balance to 96.5% of the current home value. The remaining loan balance will be written off by the lender as a loss. However, the borrower must be able to qualify for an FHA (Federal Housing Administration) loan, has to pay mortgage insurance premiums, and has to share any gains from selling a home in future at an appreciated price with the government.

The Impact on Foreclosures

So, is it all wonderful? Will these new initiatives be the last nail on the coffin burying homeowner defaults and foreclosures? Well, not quite.

Treasury itself says that the Second Lien Program will help reduce mortgage payments for one to one and a half million borrowers out of the three to four million homeowners estimated to be helped by the original Home Affordable Modification program. It is not expected to expand the pool of borrowers expected to be helped any more than the primary mortgage modification program. It will streamline the process in that the uncertainty in dealing with the second mortgage on a house will be eliminated for those qualifying for the Home Affordable Modification program.

The H4H program was launched last year amid much fanfare, and has been a miserable failure. It has helped a grand total of one homeowner avoid foreclosure so far. The lenders have opted to take the loss at foreclosure rather than take a loss by cutting some of the principal that borrowers owe.

With the new announcement, lenders could pocket up to $5,500 for modifying a loan balance down to 96.5% of the current house value. However, the H4H program does not require a lender to modify the loan balance. It is left to the lender’s fiscal interest/judgment to decide whether to modify the loan balance or not.

Simple math suggests that $5,500 is not enough of an incentive when the house value has dropped precipitously in expensive markets like California, Nevada and Florida. The new program might nudge some lenders to cut down the loan balance for some homeowners facing foreclosure, but it is not likely to help the vast majority of homeowners facing foreclosure.

The Obama administration was also trying to get legislation passed in Congress allowing bankruptcy judges to alter loan terms and shield mortgage firms from investor lawsuits when they ease loan terms. The House passed the legislation, but the Senate left out the provision to allow bankruptcy judges to modify the loan balance.

With the potential threat of mortgage reduction by a judge gone, there is little likelihood of a lender cutting down the loan balance for a foreclosing homeowner. Foreclosures, meanwhile, continue as the economy and unemployment go from bad to worse. At least 4 million homeowners are estimated to face foreclosure this year compared to about 2.2 million homeowners in 2008.

So, all in all, Treasury’s new Second Lien and Hope for Homeowners Programs are unlikely to add new foreclosing homeowners to the pool of those likely to be helped by existing programs. The programs are unlikely to substantially stop the continuing drum beat of additional foreclosures.

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Home Prices Down, Mortgage Interest Rates Down, but Buyer Beware – Mortgage Fees Are Up

NorCalSavant — Sun, 03 May 2009 20:54:01 +0000

Interest rates are low, and house prices are down, but all you eager mortgage buyers out there, beware. Mortgage fees and private mortgage insurance (PMI) have gone up, sometimes based on the credit score, and underwriting and appraisal rules have changed for the worse.

Historic Mortgage Interest Rates

Figures below show the historic conventional conforming 30-Year fixed mortgage rates from 1971 through 2009, and 1993 through 2009. Mortgage interest rates averaged the highest at over 18.5% in 1981 (along with high inflation). Mortgage rates rarely went above 7% after 2002, and averaged over 6.6% at their 2008 peak in July.

Thanks to the concerted efforts by the Federal Reserve and Treasury, mortgage interest rates have come down drastically since then. For the week ending April 30, 2009, the average interest rate for 30 year fixed-rate mortgage was 4.78% with 0.7 points in fees. This equaled the rate for the week of April 2, 2009, and is a historic low according to Freddie Mac’s survey going back to 1970.

Additional Fees

Fannie Mae and Freddie Mac have raised some of the fees charged to lenders when they buy or guarantee certain types of mortgages, most of which are going to be passed down to consumers. It will impact both — mortgages for new purchases, and refinances of existing mortgages.

Fannie Mae has revised upwards its Loan-Level Price Adjustment (LLPA) Matrix effective April 1, 2009. Depending on the borrower’s credit score and (mortgage) loan to (home) value ratio (LTV), the additional fees range from 0.25% to 3% of the loan. Refinancing with a loan bigger than the principal balance on existing mortgage for a cash-out will add another 0.25% to 3% in fees.

For example, someone with a credit score of 660 and LTV of 85% would pay 2.5% in fees instead of 1.75% prior to April 1, for a 30-year fixed-rate mortgage. Additional 2.5% fees would be tacked on for cash-out refinancing in such a case.

Condominium mortgages seem to have been hit the hardest. Refinancing a condo loan might be affected by the presence of commercial tenants or investors in the entire condo project. There is now a mandatory 0.75% fee on all condominium loans regardless of the borrower’s credit score, and other fees have been jacked up. For example, someone with a credit score of 690 and LTV of 80% on a condominium with a 30 year fixed-rate mortgage with initial payments of interest only will now pay 3.25% in fees instead of 1.25% prior to April 1.

Some lenders are going further in imposing new restrictions. For example, Wells Fargo now requires a minimum FICO credit score of 720 for loans with LTV greater than 80% instead of 620. It has also reduced the maximum total debt-to-income ratio from 45% to 41%.

The cost of private mortgage insurance, or PMI, required when LTV is greater than 80%, is also going up for those with lower credit scores under the new “risk-based pricing” by mortgage insurance companies.

Appraisal Rule Changes

Under Fannie Mae and Freddie Mac’s new Home Valuation Code of Conduct, effective May 1, mortgage brokers can not order appraisals directly, and lenders can not select or communicate with appraisers. Lenders must use third-party “appraisal management companies” to assign the job to appraisers in their networks. If the appraisal comes lower, the loan may not go through. As a consequence, borrowers will probably have to pay appraisal fees upfront whether the loan goes through or not.

Appraisers are also being required to include a “market condition” report providing statistical analyses of local sales and pricing trends. It is expected to add to the cost of preparing an appraisal report, which is sure to be passed down to the borrower.

Each point in extra fees is equal to 1% of mortgage loan. For an average $200,000 mortgage, each point in fees equals $2000. An increase of three points in fees means additional fees of $6,000. In the more expensive neighborhoods with higher home prices, the additional fees could amount to two to three times as much.

It would make sense to ask your lender or mortgage broker if your loan will be sold to or insured by Fannie Mae or Freddie Mac to see if you would be liable for these higher fees. It could be worth a lot of money to compare independently or with a mortgage broker, the interest rate and total fees charged on loans sold/insured by Fannie Mae/Freddie Mac as well as other lenders before selecting a loan package for your new home mortgage or refinance.

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FICO’s MortgageReliefOnline.com for Free Credit Counseling and Assistance with Making Home Affordable Program

NorCalSavant — Sun, 19 Apr 2009 20:11:14 +0000

In my earlier post here, I had discussed the details of President Obama’s Making Home Affordable Program. The program has two components — Home Affordable Refinance program for solvent homeowners with a loan-to-value as high as 105%, and Home Affordable Modification program for delinquent or nearly-so homeowners unable to pay their mortgages.

As I had described, Treasury has a comprehensive self-assessment tool provided on this website to determine eligibility for the Making Home Affordable Refinance and Modification Programs.

Now, there is another option, thanks to Fair Isaac Company, the company that created and computes the FICO credit score significantly affecting the credit transactions for all consumers. Fair Isaac has launched MortgageReliefOnline.com.

It is a free service designed to help you find out if you qualify for mortgage relief under the Government’s Making Home Affordable Program. If you qualify, this site provides free access to HUD-approved certified professional counselors at Money Management International. If you qualify for free mortgage counseling, Fair Isaac also gives applicants a free credit report and credit score.

To use the free service, you have to fill out a form on the web site. A word of caution here — it is an educational web site. It won’t actually refinance or modify your loan. You will ultimately need to work with your mortgage servicer for loan refinancing or modification.

Lately, there has been a spate of complaints by homeowners trying to stave off foreclosures about delays and frustrations in dealing with lenders. This site can help with determining eligibility for the Making Home Affordable Program.

Have you had to deal with your lender and/or mortgage servicer to refinance or modify your mortgage? How satisfied have you been with your experience? What did you learn that could help others going through the process, or help improve the process?

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