At the end of May 2008, I was laid off from my job of 4 1/2 years due to the company’s inability to maintain it’s then-current employee base. I wasn’t too worried, as I had plenty of savings to cover almost 6 months worth of expenses in my HSBC Direct Online Savings account, plus I had been working on building GreenBridge Advisors, which hopefully was going to start to take off soon. And, to be quite honest, I thought that I wouldn’t have that much trouble finding a replacement job (didn’t we all). Well, as it turns out, it took me almost 8 months to find a steady gig (although there were some temporary projects in between that helped), but as many people out there can attest to, I needed to swallow my pride a bit and take somewhat of a pay cut. Then the Obama Administration’s “Making Homes Affordable” program came to pass, which was supposed to help the millions of people in trouble with their mortgage situations, so on September 19th, I finally decided to check it out.

Since Chase is my mortgage servicer, I started there, going to their page outlining the steps to take. This was a bit confusing to say the least. Step one was to call to discuss your situation, which on its own made sense. However, the second and third steps were to explain what had happened and gather the information, respectively, which made little sense. I would tend to thing that gathering the information would be the most important step in the process, since being organized and having all the pertinent information ready would be necessary to complete the other step. Then, you should call the service center and discuss your situation, having the ability to reference the information you gathered to best provide the representative with anything they may need. The last step was to download and complete the documents, which seemed like an entirely new mortgage application with a personal information sheet, employment verification, personal financial statement, statement of monthly expenses, summary of the circumstances surrounding your request, as well as all of the prerequisite pay stubs, bank and investing statement and anything else that supported your valuations on the financial statement.

Well, I did things my own way by filling out the document package first, figuring that if I had everything all completed and organized in front of me, that I would be in a much better place to provide the representative with anything they may need. So, after spending quite a bit of time filling out everything and completing the summary as best I could without writing a novel, I made the call. As it turns out, the woman who answered my call (after only a few seconds, which was a welcomed surprise!) informs me that there is no phone call necessary, and that there is no”pre-screening” process by which any of your information is put into a database or an account agent assigned to your particular case. All you have to do is complete the paperwork and submit it to them, plain and simple.

She was very knowledgeable, I must say, as I asked a variety of question that didn’t necessarily apply to my situation but which I was curious about nonetheless. One of my main concerns for my own situation was the use of an appraisal in determining worthiness of any kind of assistance. I found it particularly interesting that among several sites, my residence could be valued anywhere between $72,000 and $219,500 which is quite a spread, so that is what lead to my curiosity. I know for a fact that there have been many foreclosure sales in my area, and judging by some of these websites that “value” properties on the internet (including Chase’s own estimator), that they are taking these sales into consideration when valuing a property. I also know that appraisals are generally supposed to exclude distressed sales such as foreclosures, so I wanted to know what I had to look forward to. She informed me that there was no appraisal, since I was only looking at a rate adjustment, and therefore, there would also be no fees or closing costs unless I went with a straight refinance.

After everything was said and done, I took my packet, walked over to my fax machine, and sent it on its merry way over to Chase, as I was told that when using this method, the application gets logged within a few hours. I also sent another set via FedEx the following Monday morning just to be sure that they would receive the entire package since I have plenty of experience with not getting faxes, or having the recipient’s machine have difficulty. Now, for the worst part of the whole process: I have to wait 6-8 weeks for the application and documents to be reviewed and processed and for them to notify me of any decision! That seems like a very long time considering the goal of this program is to help people in need. I mean, in 2 months, someone can go from being current with their payments to delinquent and get disqualified from this particular aspect of the program, thereby having to switch to one of the other options, and starting all over again. Then again, at least the government is doing something to help the people it serves, rather than just the companies this time.

While it may be a little early in the year for tax talk for some, I personally believe that it is never a bad time to plan or even talk about taxes. Today, I happened to see a tweet linking to an article on Kiplinger’s Website for a section called 10 Ways To Lower Your Taxes. I read it and was left wondering, first if the editors fact check this information since the author, Kimberly Lankford does not have anything regarding an accounting or tax background on her mini-bio (and no, I am not taking a shot at her personally) and secondly, why the entire story is not told about such deductions. Articles like these, whether in financial magazines or on blogs geared toward personal financial topics seem to be guilty of stating a deduction, and then summarizing them without going into full detail including the drawbacks and limitations. Below, I will mention just a few of the most common deductions that are mentioned which I feel need to be explained a bit further, and not all simply from a tax standpoint .

• Selling off investments that have lost value: This is a very bad idea right from the start. The first reason is that you can only offset $3,000 of income after countering capital gains with the losses. It would make sense if the advice was to sell enough losers to first wipe out any gains you may have had, and then just enough to reach the $3,000 limit. You get no bonus points for carrying a loss forward, and there is no guarantee that you will even have any gains in the following years in order to use up and loss carry-forwards. Simply because you want to save a little bit on your tax bill now is a terrible reason to sell stocks or funds that are down. The second reason why it is a bad ideas is because there was a purpose behind investing in certain fund or individual stocks, and unless that purpose has changed, there is no need to dump it for a small benefit today. If the purpose of the purchase was because of the high dividend yield, then you will be giving up an even higher yield since the price is now lower but the rate is either the same or higher.

• Giving to charities: This is another one that confuses me. To begin with, you can only take a deduction if you itemize, and that is a fact that escapes many people. If you are looking to lower your tax bill, especially if it is due to the fact that you need the extra money in the refund, then why would you spend money to save even less on your return? It is counter-intuitive. It is one thing to donate because you want to and can afford to, but if you are in such dire straits that you need to scratch and claw for every penny you can get back on your return then donating to charity is not the way to go about finding those extra pennies. Also, what many advice articles do not mention is that the IRS has established guidelines for what are reasonable amounts of donations based on income levels, and anything above those figures may flag the return for a potential audit. All will be fine if everything you reported is on the up and up (and not just when it comes to the donations), but if not you better be able to come up with a pretty good rationale for why you did report what you did or else face not only paying the tax that would have been due had the correct numbers been used, but also penalties and interest are attached. Worse yet, once you are audited and found to be guilty of falsifying your return or abusing certain privileges, you will then be on the IRS watch list, and no one wants to be in that position.

• Prepaying mortgage : This is a simple one to explain. Very plainly, the IRS has established guidelines that state that a deduction can only be claimed for the portion of the expense that was allocated to the current year. In plain English that means if you pay your January mortgage in December, the 1098 will only contain the interest that was paid and applied up until December 31. If you report more and try to justify that you are including it due to the fact that you made the payment in the current year, guess what: you’re wrong. Since the interest portion of your payment was originally allocated to the next year, you are disallowed from claiming it early.

• Real estate taxes: Another pretty simple one. You cannot claim any deduction unless it was paid in the current year. Everyone knows that the assessments are sent out in August or September and that the bill goes out in November, but just because you were issued a bill does not allow you the right to claim the deduction. You must have physically paid the taxes by December 31 of the current year in order to get the deduction. There is a bright side, however, and if for some reason you do not have the ability to pay that bill in the current year, you are permitted to claim the deduction in the following year when you do finally pay it.

• Buying a home is a great tax write-off: I’m not sure where to even begin. Many people, particularly the frugal will tell you that buying a home simply for the mortgage and real estate tax deduction is a horrible idea. Beside the fact that you will generally take on a great deal of debt, certain other factors come into play. If you happen to buy into an area that has a homeowners association, or if you purchase a condo, you will have to pay association fees which are not deductible. Then you have guidelines by which you must follow in regard to upkeep and appearance such as: lawn maintenance, cleanliness of the sidewalks and roof, replacing damaged portions of the visible domicile (ie: driveway and roof). And, in order to even receive the deduction for the real estate taxes, you must (as was mentioned previously) actually pay them, and this is one of the top areas in which people underestimate or even exclude from their budget when considering a home purchase. If you can afford to do so, then a home certainly does provide many tax breaks, although the breaks alone do not justify making such a large investment.

• College/post-secondary expenses: This may be one of the more difficult deduction to figure out, especially since there are multiple deductions to choose from and the rules are about to change. But one thing is very clear: not every expense is allowed in the calculation of qualified expenses. Tuition and associated fees are the only costs that are deductible, or to put it another way, only those costs that you pay to matriculate and sit in a class are deductible. So what does that leave as non-deductible? Well, pretty much everything else: Room and board (including meal plans even though most freshman are required to buy them) or costs of living (if off campus); transportation fees; student life fees (sports and activities fees); books, supplies and lab fees, insurance and medical expenses. Unfortunately, that is the way it is, and equally unfortunate is the fact that this distinction is often left out of the discussion on the topic giving taxpayers false hope for a large deduction.

Again, this is just a list of the more common deductions that are not often fully explained. Almost every deduction has limitations of some sort, but many of the other major ones get full attention when it comes to their discussion. The only thing you can do is to educate yourself to the best of your ability on the ones that apply to you, or pay an experienced professional to prepare your taxes and know that in most instances, they have a much better understanding of the tax code and will get you the deductions that you truly qualify to take and save you the risk of being audited by ignoring the ones that you have no business even going near.

Dear credit provider,

In light of the housing and credit crises of the past few years, I am left wondering about some of your practices in regard to the way you choose how to extend credit lines and how you deem certain applicants to be worthy of receiving a line of credit. In the past, I have been a very big proponent of using credit as a financial tool, and of people taking responsibility for their financial situation, not blaming credit providers. While I haven’t necessarily changed my views entirely, I have begun to question whether or not the credit industry deserves the support it has been receiving from not only myself, but others as well.

Seeing as there are so many homeowners in foreclosure proceedings or facing the inevitable event of being foreclosed upon, one has to wonder how you chose the recipients of the funds you lend and the mortgages you underwrite. Did you not think that anyone who needed 100% percent financing or more-up to 125% in some instances as I have seen- was going to struggle keeping their loan repayments current, or even being able to make the payments at all? How about those people who were so risky that they were required to accept double-digit interest rates in order to secure a loan while standard rates were no where near such figures? And what about the potential home buyers whose mortgage payments figured to be more than half (or even a greater percentage) of their gross incomes, let alone home much of their net income it would consume considering net income is a much more accurate figure to use? All of these situations were contributing factors to both the housing and credit problems facing the American public, yet seem to be almost entirely born out of short-term vision, with a blind eye toward the long-term effects of such deals.

I am also curious about how you go about choosing who you market your products and services to such as credit cards. Is it simply sending out pre-approval letters to anyone whose name appears on a purchased marketing list? It’s pretty interesting how many people report receiving pre-approval letters in the names of children (particularly babies), family pets, and even the deceased! I mean, really, do you verify any of the information you purchase from data collection firms say, by doing credit checks or some other verification method? Perhaps if the focus were to shift from the quantity of pre-approvals you can send out to the quality of the recipients, the risk involved in extending credit to these people would be reduced significantly. By shifting that focus, maybe, just maybe, you would be able to bring about a rebirth of credit as a beneficial tool rather than an abused and overused component of the financial landscape.

Speaking of credit cards, perhaps you can also enlighten me as to why it is that you would simply increase a cardholder’s credit limit out of the blue. Actually, how do you even come up with credit card limits to begin with? Wouldn’t it make more sense to start cardholders off with a reasonably low credit line, thereby putting the onus on the cardholder to prove their creditworthiness and make them ask for an increase should the so desire? I cannot even begin to recall the number of times I have read or heard about people in financial distress who said that they got deeper in the red because of the additional credit that was extended to them unrequested, and which they used simply because it was there. Why not follow this strategy to avoid such further stories, and save yourself quite a bit of trouble all while leaving no one for the credit abusers to point fingers at other than themselves?

As I have stated ,I am a staunch supporter of credit as a financial tool, but you are making it difficult to continue defending you from all of the detractors. Most businesses find it beneficial to be consumer-friendly and provide value to their customers, but in recent years you have only shown a propensity for greed and disregard for the consumers. All that has been displayed is an interest in increasing profits and padding your bottom line, no matter what the end result of your reckless actions may be or who gets stepped on in the process, as long as you benefit. Hopefully, you have seen the error of our ways and are prepared to start putting the sonsumers first, considering that without people to borrow money, you would be out of business.

Nothing insightful or thought-provoking today. Simply a remembrance of a tragic time and a small way to pay respect to the families that lost friends and loved ones.

The latest buzz has been all about the first wave of credit card reform laws to have taken effect. On August 20, 2009, credit card issuers must give cardholders 45 days notice before making any significant changes to the terms of the cardmember agreement, and must mail out bills 21 days before the due date. This gives cardholders an extra 15 days notice of any such changes to the agreement as well as an additional 7 days of knowledge as to what the final monthly bill is. Under the act, the customers also have the right to reject any proposed changes made by the card issuers and in turn maintain the current terms while paying off the balance over the following 5 years. That is all well and good, but as a result of the Obama Administration’s credit reform act, many (if not most) credit card holders are seeing significant reductions in credit lines as well. What does that mean? The answer is simple: lowered credit limits paired with sustained usage equals higher credit consumption rates, which is a negative mark on your credit report.

The percentage of credit used compared to the credit limits is a part of a major piece of the credit reporting equation used my Fair Isaac in its Fico Scores/Reports. 30% of your credit score comes from the amounts owed classification of the credit score, which is quite substantial. The thing that nobody is particularly addressing when discussing credit reform is the impact on credit reports and subsequently, credit scores. Even without having any additional credit usage, any of us could see our credit scores plummet simply because credit issuers are tightening the purse strings and reducing the available credit to millions, regardless of prior history. Yes, there are no doubt people reading this thinking to themselves that if you don’t carry a balance then it wouldn’t make much of a difference, and you would be right in most situations. But what about timing issues, people taking advantage of 0% interest offers, and home equity lines (among others)? Not everyone who carries debt is doing something wrong is is out of control with their spending. I have stated on numerous occasions that credit can be a very useful tool if used properly.

It’s not simply an issue of credit scores for the sake of obtaining new credit lines alone. With all that has happened in the credit markets over the past couple of years, and even with TARP money, lenders are making less money available. People trying to take advantage of low interest interest rates in order to lower their mortgages, or even save their homes are getting the short end of the stick. People who are out of work are suffering due to the hits their credit scores are taking in conjunction with the increased use of credit evaluations when it comes to the hiring process. Then you have those who are looking to rent living spaces who could be negatively impacted as well. Even insurance companies are using credit scores to come to a final figure when quoting insurance rates.

The overriding issue is that people in general are not educated enough on the topic of credit. Many view credit reports and scores as nothing more than something that is affecting people looking to borrow money. They do not realize that it also impacts the previous scenarios: landing a job, finding a place to live, insurance rates, even being able to hook up utilities or a cell phone without putting down a security deposit. I am left to wonder if anyone took the time to consider the broader-range effects of forcing such change so quickly. It seems that almost every fiscal policy decision is intended to put out the immediate fires, but lacks the forethought to make a point of trying to prevent the fires from flaring up again in the future.

Perhaps now people will take financial and credit education a little more seriously and make an effort to learn about these subjects, if not to recover from a disastrous situation, then at least to protect themselves (as much as one possibly can) from getting into financial trouble down the road.