Many borrowers pay a premium to refinance

It is unusual to have a refinance boom in the middle of a foreclosure crisis. In the 1930s, which was the last time we had a foreclosure crisis comparable in magnitude to this one, lenders were so spooked by the foreclosures that there was almost no refinancing. That changed only after the creation of the Home Owners Loan Corp. in 1933, which refinanced many borrowers at the government's risk.

The refinance boom today is also fueled by government. With few exceptions, refinanced loans are either being sold to Fannie Mae or Freddie Mac, or insured by FHA. The requirements of those agencies largely dictate who can and cannot profit from a refinance.

The refinance decision involves a comparison of what a borrower has with what he can get. If he is paying 5 percent and can refinance at 4.5 percent and no fees, he will profit from the refinance. If he is paying 7 percent but the best he can get in the current market is 7.5 percent, he can't.

Borrowers with fixed-rate mortgages usually know what they have, but borrowers with adjustable-rate mortgages, or ARMs, often don't. I have received letters from borrowers in a state of high anxiety because their ARM faced a rate reset and they felt they had to refinance before that happened. In some cases, a close look revealed that their rate was probably going to drop sharply, making it unnecessary to refinance quickly - if ever.

Readers who ask me whether they should refinance usually tell me what they have but seldom tell me what they can get. They expect me to know that, but I don't because it depends on so many factors specific to them that they haven't told me about.

Borrowers in the best position to refinance profitably have loan balances of $417,000 or less secured by a single-family house in which they reside, have a credit score of 800 or more, and have equity in their property of 20 percent or more. The interest-rate premiums associated with deviations from this standard are larger today than I have ever seen them. Note: The premiums reported below are those being quoted by large wholesale lenders on 30-year fixed-rate mortgages, and are reflected in the retail rates quoted by mortgage brokers and many if not most lenders. They may not apply to smaller credit unions or community banks.

Loan size: Borrowers with loan balances above $417,000 up to $625,500, who live in higher-cost areas where Fannie and Freddie are authorized to buy loans up to $625,500, will pay a rate premium of about 1 percent. These are "conforming jumbo," meaning they can be purchased by the agencies but are priced higher than non-jumbo loans.

Borrowers with balances in excess of $417,000 who do not live in a high-cost area, or who have balances in excess of $625,500, will pay a premium closer to 2 percent. These are "nonconforming jumbos" that cannot be purchased by the agencies.

• Type of property: On loans secured by condominiums, figure on paying a rate premium of 0.75 percent, and on 2- to 4-family homes the premium can be twice that large.
  
• Loan purpose: If a loan is secured by an investment property, figure on paying a rate premium of about 1.375 percent. Those refinancing who borrow more than their loan balance will pay a premium of about 0.25 percent. However, they can finance settlement costs without it being considered "cash-out."
  
• Credit score: Shortfalls from excellent credit, defined as a FICO score of 800, have become very expensive. Even a score of 780 can cost a rate premium of 0.125 percent. The premium on a score of 700 is about 1.125 percent, and on a score of 600 it can be a prohibitive 2.625 percent.
  
• Equity: If a borrower has equity of less than 20 percent - meaning that the loan balance exceeds 80 percent of current property value - he will pay a mortgage insurance premium. This can make refinance a loser for borrowers whose recently purchased homes have declined in value. For example, if Jones borrowed $160,000 to purchase a home for $200,000 in 2005, still owes $158,000 and the house is now worth only $180,000, a refinance will require mortgage insurance where the original loan did not. If the house is worth only $150,000, the loan can't be refinanced at any price.
  
• Approval: On loans that will be sold to Fannie and Freddie, increased risk premiums have been accompanied by tougher approval standards. In particular, documentation of income, which had grown lax and sloppy during the go-go years, is now rigorously enforced. Approval is also dependent on a satisfactory combination of all the risk factors discussed above. For example, a FICO of 650 might be approvable if all other factors are favorable, but a 650 score on an investment property with only 5 percent equity will be rejected.
  

Loans that won't be approved by the agencies might past muster with FHA, whose requirements are more liberal, but FHA loans carry higher rates and insurance premiums. I will have an article on who should take an FHA in the near future.

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Duncan Grilled About Obama’s Student Loan Proposals

Education Secretary Arne Duncan ran into some pointed questions on Capitol Hill Thursday about much of President Obama’s higher education agenda.

Obama’s budget blueprint proposes eliminating subsidies to private lenders who make federally guaranteed student loans. Instead, the government would make such loans directly, with banks and other financial companies merely servicing the loans.

Both Democrats and Republicans on the House Budget Committee questioned whether the Education Department has the capacity to originate all federally backed student loans. Ranking Republican Paul D. Ryan of Wisconsin denounced what he called a “government takeover” of the lending system. Under the president’s proposal, the government would stop providing subsidies to private lenders in mid-2010.

Thomas P. Skelly, director of the Education Department’s budget service, said the department could handle a significant increase in the direct lending program, in part because it still would use private lenders to service those loans.

“The main difference is with direct, the interest borrowers repay comes back to the government,” he said. Under the subsidized private system, “interest stays with the banks. The programs are really very similar.”

Ryan and other Republicans also objected to Obama’s proposal to transform Pell grants for low-income college students into an entitlement, so the funding would not fluctuate according to the annual congressional appropriations process.

Ryan objected to Obama’s plans to make Pell grants another “autopilot entitlement immune from congressional oversight.”

The president proposes increasing the maximum Pell grant to $5,550, indexing the grant to account for inflation and making the spending mandatory, not discretionary — all at a cost of $116.8 billion over the next 10 years.

Duncan said that increases in Pell grant maximums, combined with other higher education initiatives in the budget and the economic stimulus package, would amount to the “biggest boost in higher education funding since the GI bill.”

http://www.cqpolitics.com

Student loan repayment rate to be cut to 1.5%

Further cut in student loan repayment rate  

Reduction in interest rate from 2.5% to 1.5%

Students and recent graduates will again benefit from recent cuts in Bank of England Base Rate as the interest charged on student loans, which was cut from 3.8% to 3.0% in December 2008, and 2.5% in January, will be further reduced to 1.5% from 6 March 2009. 

Unprecedented reductions    

Interest on student loans (income contingent loans from the Student Loans Company) is normally fixed in September each year, according to the rate of inflation as measured by the retail prices index (RPI) in March. In 2008 the new rate was 3.8%, which marked a welcome reduction from the previous year's rate of 4.8%.

Exceptionally, the rate was further reduced in December 2008 in response to a big cut in Bank of England Base Rate. This fell from 4.5% to 3.0% in November 2008 and to 2.0% in December. The December rate cut prompted the Student Loans Company to revise the interest rate it charges as this cannot be more than 1% higher than Bank of England Base rate. This was the first time that this formula was lower than RPI. In January a further cut in Base Rate, to 1.5%, caused the rate charged to graduates to fall again, to 2.5%. Further reductions in Base Rate, which fell to 0.5% on March 5th, have caused a new cut in the rate charged on student loans- to 1.5% from 6 March 2009.          

Not all loans to be cheaper    

While current students and recent graduates will benefit from the recent cuts, student loans taken out earlier than September 1998 are not affected. The interest rate for these is simply based on RPI in March, so will stay at 3.8% until 31 August 2009.

Competitive Student Loans

Re “Helping Students, Not Lenders” (editorial, March 4):

While you praise the proposal to eliminate the Federal Family Education Loan Program, you do not factor in the choice and valuable services offered to student borrowers that are a product of the competition between the Federal Family Education Loan Program and the government’s direct loan program. The nationalization of student lending would eliminate those benefits and hurt the very students the proposal intends to help.

The claim that the direct loan program is “less expensive” is tenuous at best, as originating all loans through the direct loan program during the next five years would require roughly $500 billion in new Treasury borrowing.

In the end, we’re confident that federal policy makers will closely scrutinize this proposal, as well as potential alternatives, before terminating a successful 40-year-old program with proven results in providing college access and opportunity for millions of students.

Peter Warren 

President, Education Finance Council

Washington, March 5, 2009

•

To the Editor:

Why do you not support free-market principles in student loans with the same tenacity that you support them in other areas? You endorse a proposal by the Obama administration to abolish guaranteed loans, thereby eliminating all consumer choice and competition in federal student loans.

In an editorial about the airline industry in 2007, you wrote that the government “could have gone further and opened up the American market to more competition, and the superior service and lower prices that come with it.” You also said, “We hope that politicians will embrace the free-market principles they so frequently tout.”

Your support of a government monopoly in student loans — which could eventually have the Department of Education managing $1 trillion in loans — is irreconcilable with your embrace of competition elsewhere.

Competition in student loans has created significant consumer benefits: free delinquency and default prevention services, increasingly important in this economy, as well as better terms, college access programs and consumer-friendly processes.

http://www.nytimes.com

Details are vital in president’s mortgage relief proposal

Last week we talked about the apparent winners and losers in the president’s plan to help

homeowners. Now we have the details we’ve been waiting for — information on who gets what and how lenders will be encouraged to participate.

One of the early surprises was the scope of the refinancing plan. In case you haven’t been paying

• Attention, this part of the program is aimed at responsible homeowners who would like to refinance to today’s low interest rates but are prevented from doing so due to falling home values.
  

We had originally been told that only “conforming” loans would qualify for this departure from conventional “loan to value” guidelines. In other words, the benefit would only be available to borrowers whose loan balance was less than the Fannie Mae maximum loan amount of $417,000.

I was particularly pleased to see that the details of the plan allow refinancing up to a current balance of $729,750. This part of the plan makes good sense, and here’s why:

• The program is only available to owner-occupants who are current on their existing loans. Borrowers in this group are statistically least likely to default.
  
• The program is only available for loans which are owned or guaranteed by Fannie Mae or Freddie Mac. Since the government is already on the hook for these loans, it makes sense to make them affordable, thus slowing down the foreclosure rate.
  

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Who qualifies for Obama’s mortgage refinance plan?

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Q. I have been reading about Obama’s new housing bailout, and they say that homeowners who are “underwater” will still be able to refinance if their home loan was backed by Fannie Mae or Freddie Mac. 

Immediately, I started thinking, “do I qualify?” I’ve asked friends and have searched the Internet and have found varied responses to the one question I have — how do you find out if your loan is backed by Fannie Mae or Freddie Mac? 

We write our (whopping) mortgage check to Wells Fargo every month, and it’s not like the bank teller has that information readily available. I can’t find a straight answer anywhere. And if I do find out my loan is backed by Fannie or Freddie, what do I do next?”

A. Regarding not being able to get a straight answer, don’t feel like the Lone Ranger. But I do have good news for you. 

• If your loan servicer won’t or can’t tell you, you can still find out. To see if Fannie Mae owns it, go to www.fanniemae.com/homeaffordable. For Freddie Mac the website is www.freddiemac.com/avoidforeclosure/.Fill out their forms. Make sure your name and address are exactly the same as on your loan coupon. Just for fun I filled out the forms at each Website to see which one owns my loan. I am still awaiting a response.

1. If the loan is owned by either Fannie or Freddie, then you would qualify for the recent initiative for reducing the rate on loans that are between 80 to 105 percent loan-to-value (LTV) without mortgage insurance (PMI). 
2. If the loan required PMI initially, the lender can use the existing PMI contract.
   

The catch on this for Orange County owners is that any home bought in the last few years has likely dropped 20 to 30 percent, maybe more, and would be over 105 percent LTV. However, people who bought in the early 2000s might still be in that bracket and certainly can benefit.

• REALITY: this program has just been announced and it is highly likely that servicers have not yet developed their own policies and procedures and have not yet trained the staff on how to respond to inquiries. 
  

Danny in Corona asks:

Q. I purchased a condo in Oct. 2005 and financed both first and second mortgages at Chase. The first mortgage is a deed of trust (fixed rate) and the second mortgage is a California close-end deed of trust (a balloon note, but fixed rate). 

I have been unemployed since Oct. 2007 and all of my savings and emergency funds have been exhausted. I’m two months behind on both mortgages and approaching three months behind. I listed my condo for sale for over a year. Unfortunately, I had no luck. I also consulted with real estate brokers about doing a short-sale. However, they didn’t want to take it. 

I have no clue why. Anyway, if I successfully negotiate with Chase to have deed-in-lieu of foreclosure on my property or if Chase forecloses on my property, may Chase seek delinquent judgment on the second mortgage (closed-end deed of trust)? I have not refinanced since I purchased my condo.

A. First, I’m am sorry to hear about your situation and you have my prayers and good thoughts for a better outcome. You really need to ask a lawyer because technically that is a legal question. I think you will feel better informed if you look at a Website www.foreclosure.com/statelaw_CA.html, which summarizes current law. Frankly, I think that lenders have their hands full today and that they rarely go after defaulting borrowers, so I wouldn’t worry. Best of luck to you.

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If you deduct mortgage interest, be careful -- IRS may be ramping up audits

Recently a business owner asked TaxMama to review his personal tax return for 2007, which included income from several businesses. The return had just been targeted for audit. Despite several business-related red flags on the return, that wasn't what triggered the audit. The auditor said the return was pulled for audit specifically due to the high mortgage interest deduction. This taxpayer is not alone.

Did you know there are limits to the mortgage interest that you can take? Most people don't realize they may be deducting more than they're entitled to use.

Reports from tax professionals indicate that they are starting to see audits on tax returns with high mortgage interest deductions, specifically Schedule As with mortgage interest deductions of over $50,000. The IRS has not yet had time to respond to our specific questions about this audit program.

If your interest deduction is less than $50,000, can you breathe easy? Well, not exactly. If you're audited for any other reason, IRS will look at your mortgage interest deduction, too. So be sure to heed the rules.

Rules of the mortgage-deduction road

We're only going to talk about laws in effect right now. We're not getting into laws that might take effect later, such as President Obama's proposal to reduce the value of the mortgage deduction for those earning $250,000 or more.

The overall limit on the mortgage interest deduction is the interest paid on mortgages of up to $1 million used to buy or fix up the house, plus another $100,000 of debt used for any other purpose. In other words, the maximum limit is interest on up to $1,100,000 of mortgage debt. Your mortgage balance is higher than these numbers? Too bad.

• There is one exception. If your loan was originated before October 14, 1987 and it's higher than $1 million dollars, you can deduct all the interest. So, if you've never refinanced, be sure you have proof of the original note.
  
• If you have refinanced that loan, you may still deduct the interest on the balance of the original debt at the time of the refinance. In other words, let's say you had a pre-October 14, 1987 loan with a balance of $3,500,000 and you refinanced it in 2007 for $4 million and a lower interest rate. You may still fully deduct the interest on the $3,500,000 balance. In other words, you'll be able to deduct 87.5% of the interest (3.5 divided by 4 = 0.875).
  

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Bad Credit Mortgage Refinance

If you are sick with your finances, scared to deal with your bad credit situation and would like to somehow get out of this and start all over again keeping your credit score perfect, then there is one easy way to go about it. The simplest thing for you to do would be to go for a bad credit mortgage refinance. Now you might wonder who is going to refinance your mortgage when you have only very bad credit records to show. In this article you will find information on why it is possible for you to get refinance and also how you will have to approach lenders to get it done.

Bad credit mortgage refinance is not a big deal these days. Bad credit itself is not something to be ashamed of but simply a financial phase which anyone can overcome as there are any numbers of loans you can have to deal with it. The competition in the lending market is so high that financiers, banks, credit unions etc are coming up with new and new schemes designed to meet any financial problems you may have. There are lenders who have solution for just any financial problems or situation.

The first thing you have got to do to get a refinance for your mortgage would be to analyze your financial situation. Get to know where you stand with your credit records, how bad is it, what is the amount required to keep your credits clean, how much is your debt etc. This way you will have a better understanding of your finances and will let you look for refinancing which will cover all this, and still have amount left to let you get on with life.

Now you will have to do some home work to find lenders perfect for your situation. The best place to start will be to go online and look for lenders who provide bad credit mortgage refinance. Then do some comparison shopping by getting quotes from some of the lenders you would prefer aligning to. Weigh all the pros and cons to know which lender will be most beneficial to you. Remember to consider the interest rate, fees, cost, other charges etc while calculating the final amount.

Best way to go about it would be to look for a bad credit mortgage refinance plan for which the monthly payment would come within your monthly budget. You may use a mortgage calculator to easily get the various possibilities with your refinance plan. This will help to also decide on the term or period to choose for your loan. The longer the period of loan the lower your monthly payment will be but you will end up paying more for your loan than shorter term loans. All these factors considered do not expect to get a bad credit mortgage refinance with as low an interest as for good credit holders. The higher cost on your refinance is what you will have to pay as penalty for letting yourself into a bad credit situation.

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Paying Your Credit Cards With Student Loans

Student loans are supposed to be earmarked for academics, but can they also pay your Visa bill (Stock Quote: V) ? The answer is yes.

After covering $2,500 each semester for tuition at Baruch College in New York City, Jorge Bautista, 26, uses about $3,000 left over from his student loan to buy food and pay off some of his $10,000 in credit card debt.

It is no surprise Bautista is an accounting major: One of his credit cards has a 31% APR. The interest rate on Bautista’s $10,500-per-year federal Stafford loan is 6%.

And his payment strategy is perfectly legal, according to experts.

While federal student loans are limited to the cost of attendance, students get to use the money for living expenses once tuition and fees are taken care of, and college financial aid administrators have little oversight of how that money is spent, says Mark Kantrowitz, publisher of the financial aid site Finaid.org.

Generally what happens is that the proceeds from a student’s loan are sent to their school, and any money beyond tuition and fees (and room and board, if the student lives on campus) is refunded to the student.

“While that money is supposed to be used to further their education, there really aren’t any requirements or controls that prevent a student from using their aid to buy a music CD, for example,” says Kantrowitz. “So long as the student is actually attending classes and actually making progress toward a degree, there is little that can be done to deny those students of those funds.”

The definition of “cost of attendance” is pretty flexible and includes books, supplies, transportation, computers and even child care.

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Long term bad credit loans: Helps to recover lost credit score

Bad credit score often acts as a dilemma for the borrowers especially when they are looking for loans. But, now bad credit borrowers can surpasses their dilemma and get the required amount by considering long term bad credit loans. The financial market is flooded with various banks, financial institution, leading online and conventional lenders. The procedure for applying these loans is easy and hassle-free.

Long term bad credit loans are tailored for borrowers who possess bad or low credit score. These loans are categorised into secured and unsecured. In the secured option, borrowers are required to place their valuable asset against the loan amount. The borrowers can avail large amount ranging from $10,000 and $75,000 for the period of 25 years. On other hand, unsecured loans are free from collateral possession. Therefore, the borrowers can avail the amount ranging from $1,000 to $25,000 for 1-10 years. The loan terms and conditions are flexible in nature.

Keeping in mind financially unfavourable situations, the lenders offer the amount at competitive rate of interest. But, if you are interested to procure the low prevailing rates then you must compare and contrast the loan quotes. Moreover, to have a preview of the monthly instalments then you must consider online loan calculator. Such services in the internet are offered without any cost.

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Home loan approvals up 3.5pc

The number of home loans approved for owner occupiers has risen as lower interest rates and improved housing incentives flow through to the market.

Official figures show almost 56,000 loans were granted to owner occupiers in January, in seasonally adjusted terms.

That is 3.5 per cent more than the previous month but below economists' expectations of a 4 per cent rise.

Westpac economist Andrew Hanlan says the rise has been driven by first home buyers, with lending up 60 per cent since August.

"It's certainly clear that housing demand, or demand for housing finance has been in recovery now for five months," he said.

"That comes as no surprise given the change in interest rates and the Federal Government's incentive for first home buyers."

Source

When Banks Say No, Microlenders Say Yes

WHEN banks say no, owners of cash-starved small-businesses aren't giving up on finding loans. Many are turning to microlenders for the money they need to meet the payroll, buy supplies, pay the rent and keep the lights and heat on.

These microlenders — community-based nonprofit lenders that draw on a varying mix of financing from the Small Business Administration; other federal, state and local government agencies; and some philanthropies — say small businesses and entrepreneurs are increasingly seeking financing as home equity loans, credit lines and other loans have all but evaporated.

Adding to the pinch, credit card companies are slashing spending limits for many cardholders, including some longtime small-business customers who have relied on their credit lines as a source of ready cash.

Even profitable small businesses that once relied on banks for financing are depending more on microlending, a resource that was originally intended to be a lifeline for women, low-income and minority entrepreneurs.

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Foreclosure Filings in U.S. Jump 30%, Thwart Prevention Effort

March 12 (Bloomberg) -- Foreclosure filings in the U.S. climbed 30 percent in February from a year earlier as the worsening economy thwarted efforts by the government and lenders to prevent homeowners from losing property,RealtyTrac Inc. said.A total of 290,631 homes received a default or auction notice or were seized by the lender, the Irvine, California-based seller of default data said in a statement today. It was the third-highest monthly total in RealtyTrac records dating to 2005. 

February filings increased 6 percent from January.“More people have lost their incomes or are underwater on their mortgages, so a new housing plan won’t change those facts by itself,” Barry Eichengreen, professor of economics at the University of California, Berkeley, said in an interview.The U.S. housing crisis is deepening as President Barack Obama attempts a $275 billion rescue to help borrowers with sinking home values or unaffordable loans. 

Declining prices sapped $2.4 trillion in value from the nation’s residential market last year, according to First American CoreLogic. Prices in 20 U.S. cities have fallen every month since January 2007, the S&P/Case Shiller index shows.Rising unemployment also is making it harder for homeowners to keep up with payments. 

The U.S. jobless rate rose to 8.1 percent in February, the highest in more than 25 years, according to the Labor Department.Wait and SeeSome of the top U.S. lenders own as many as 700,000 foreclosed homes they have yet to offer for sale, said Rick Sharga, executive vice president for marketing for RealtyTrac.The banks may be waiting to see how U.S. government plans develop before selling the properties, Sharga said. 

The lenders and government-owned Fannie Mae and Freddie Mac, the two biggest U.S. mortgage financing companies, have already extended temporary foreclosure moratoriums.The combined percentage of loans in foreclosure or at least one payment past due in the fourth quarter was 11.18 percent, the highest on record, according to the Mortgage Bankers Association in Washington. 

The percentage of loans 60 days past due and 90 days or more late also were at record levels.“Many elements are lined up to suggest we’ll have more foreclosure activity in the future, maybe an all-time high,” Sharga said.

Obama introduced a plan Feb. 18 to use $75 billion of public funds to entice lenders to modify or refinance home loans, stem foreclosures and rescue delinquent homeowners. The president also said the Treasury Department would provide as much as $200 billion in additional backing for Fannie Mae and Freddie Mac to free up funding for new mortgages.

Re-Financing PlanTo qualify for a refinanced loan, applicants will have to fully document incomewith pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to Treasury.One in 440 U.S. housing units received a foreclosure filing last month, andNevada, Arizona and California had the highest foreclosure rates, RealtyTrac said.

Idaho, Illinois and Oregon joined the list of top 10 states with the highest rates, a sign that rising unemployment is now pushing defaults, Sharga said. Florida, Michigan, Georgia and Ohio were also in the top 10.

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Greenspan Forgets Where He Put His Asset Bubble: Caroline Baum

March 12 (Bloomberg) -- “Counterfactuals from such flawed structures cannot form the sole basis for successful policy analysis or advice, with or without the benefit of hindsight.”

Even if one missed the headline (“The Fed Didn’t Cause the Housing Bubble”) and the byline (Alan Greenspan) on theop-ed in yesterday’s Wall Street Journal, there could be no confusion over authorship: That “Master of Garblements” and former Federal Reserve chairman was back to defend his legacy.

Greenspan lays out his case that the Fed’s easy money policies can’t possibly be to blame for “the U.S. housing bubble that is at the core of today’s financial mess.” It is long-term interest rates that determine “the prices of long-lived assets,” such as housing, he writes. And those rates, which stayed low as a result of a “global savings glut,” are out of the Fed’s control.

Control, yes. Influence, no.

“Why not try raising short rates if long rates are too low?” asks Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago. “The recession was over in 2001. Why did he take so long to start to raise the funds rate?”

Greenspan is selective in arguing his case. By any measure, the overnight fed funds rate was too low earlier in the decade. The real funds rate, which is the nominal rate adjusted for inflation, was negative for three years, from October 2002 to October 2005, a longer stretch than in the mid-1970s. And we know how well that turned out.

Now we have additional evidence of the effect of negative real rates. When financial institutions are being paid to borrow, borrow they will.

Free-Money Policy

Banks and other mortgage lenders were happy to arbitrage the spread between the free money provided by the Fed and the rate they charged for an adjustable-rate mortgage. The share of ARMs as a percentage of total mortgage loans averaged 10 percent in 2001; by 2004, it was 32 percent, according to the Mortgage Bankers Association. The dollar volume swelled to more than 50 percent that year.

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Govt introduces ailing commercial project support bill

The Federal Government has introduced a bill to Parliament to set up a special fund to help commercial property projects struggling to refinance their loans.

The $4 billion partnership between the Government and the four major banks aims to help projects with liquidity, if foreign banks will not refinance loans.

But Opposition Leader Malcolm Turnbull says the draft legislation is much more expansive than the Government led everyone to believe.

"It can refinance any commercial property syndicate and, I might add, it's not limited to commercial property," he said.

"It can extend to any other form of commercial finance that the banks and the Government agree.

"So what Mr Rudd has done has gone way beyond what was originally announced."

Source

Margot Bai's strategy for getting – and staying – out of debt

Writer Margot Bai says Canadians have embraced the idea that shopping is a form of entertainment. (White Knight Books)Margot Bai knows something about owing and saving money. When the Markham, Ont.-based author married her husband, James Bai, in 1998, they shared a tiny one-bedroom apartment and $18,000 in student loans. To realize their dream of buying a house, they had to hunker down and focus on their financial goals.

Many Canadian consumers are facing a situation similar to that of the Bais in these rocky economic times. But instead of formulating a sound financial plan and sticking to it, they're see-sawing between saving and spending.

Case in point: Canadians queued for Boxing Day electronics sales, and according to Interac, on December 23 (its busiest pre-Christmas shopping day), they upped debit card usage to 15.9 million transactions from 15.6 million for December 21, 2007. Meanwhile, 62 per cent of 1,000 Canadians recently polled by the Boston Consulting Group said they plan to start living more frugally and skip big-ticket items such as travel, cars and electronics.

In her book Spend Smarter, Save Bigger (Toronto, White Knight Books 2006), the 35-year-old Bai says, "Canadians have embraced the idea that shopping is itself a form of entertainment."

The trouble is, those shopping sprees are leaving many saddled with growing debt loads.

John de Wit, president and chief executive officer of Abbotsford, B.C.-based DebtManagers, Canada's largest independent credit counselling firm, says his clients range from recently graduated students to individuals earning six figures. They have debts ranging from $1,000 to $50,000, with some reaching $100,000 or more, and the number of people on the higher end of that scale is rising.

"We started to notice it [increasing numbers of people with higher debt] first in B.C. with the reduction of labour with the forest industry, then in Ontario with the layoffs in the auto industry," de Wit says. Lately, he adds, debt loads are increasing in affluent provinces such as Alberta as the global downturn in oil prices drives the oil industry to cut jobs and backburner development projects.

Margot's Story

Margot Bai learned frugal living from her family. Her father, nearly 30 years older than her mother and a retired Stelco professional engineer, started up a home-based tax-return business; mom taught piano. Dad's thrifty modus operandi included saving energy, driving one used car, seldom dining out and vacationing in a camper in provincial parks (free then to seniors).

But the heart of the family's control of finances was "the budget." Everyone recorded personal expenses in a budget notebook. Dad added the amounts and compared them to the annual family budget. Margot and her sister were paid an allowance for household chores (teenage Margot discovered she could make more money cleaning houses than flipping burgers). Dad contributed to the Canadian Scholarship Trust Plan. When he died (Bai was 17), to supplement her widow's pension, mom continued teaching piano and rented out the basement of the family home. When Margot moved to Guelph for university, she took a page out of dad's budget book — keeping track of spending, first in longhand and then on a computer.

Discretionary Savings Tips

• Don't eat out; hold potluck dinners.
• Attend free or inexpensive entertainment, e.g., city festivals, movie matinees.
• Bring coffee in a thermos to work.
• Borrow library books and read periodicals online.
• Do basic mending and clothing alterations.
• Launder your shirts instead of dry cleaning.
• Do your own housecleaning.
• Plant a vegetable garden in spring.
• Find energy/money-saving tips here.
• Find grocery shopping saving tips here.

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