Law School Discussion

Home Ownership and Wealth Building

Re: Home Ownership and Wealth Building
« Reply #190 on: June 03, 2005, 07:33:25 AM »
Ways & Means: Getting Rid of Your Student Loan Debt Part II

Each year millions of cash-strapped, student-loan payees consolidate in hopes of getting a better grip on their debt. Basically, loan consolidation consists of bunching all your separate student loans into one payment. So, rather than having three different types of loans for $300 each and paying close to a grand each month, you may be able to consolidate your loans and owe only $300 a month.


If you havenít done so already now may be the time to consolidate. The interest rate on such loans is scheduled to rise 1.5 percent to 2 percent after July 1, 2005. Furthermore, part of President Bushís budget proposal calls for changes to student loan consolidation. For starters, the terms could switch to a variable interest rate instead of the fixed rate now available to borrowers. Federal law currently mandates your new loan feature the combined balance of your previous loans, as well as a weighted average of the interest rates of all your loans adjusted up to the nearest one-eighth percent. This rate cannot exceed 8.25 percent.


The presidentís proposal also calls for cuts in the amount of government money going into student consolidation loans by more than half, forcing more borrowers to turn to private lenders. One positive change is that the proposal seeks to allow borrowers to reconsolidate after paying a 1 percent fee. As it stands now, once you refinance your student loan thatís it -- you donít get a second chance to consolidate. But none of this is likely to happen before July 1, 2006.

Whether you are in college, just graduated or graduated a while ago, you can consolidate. Start at the U.S. Department of Education, www.loanconsolidate.ed.gov Also, call a few private lenders to see if they can offer a lower rate. The biggest downside is that it will take you longer to pay off your consolidated loan. If you plan to eventually go back to school and take out more student loans, consolidation could mess up your chances for interest subsidy benefits on future loans.


Are you having a hard time making your monthly payments no matter how small? Consider temporarily postponing repayment through deferment or forbearance.

Defer Your Payments
Deferment allows borrowers to stop paying on their student loans for specified periods of time under certain circumstances such as re-enrollment in school, unemployment or economic hardship. You must formally request a deferment from your loan holder and show documentation that you are eligible. There is a three-year limit for deferring loans for those having economic hardship or full-time unemployment. There is no limit if youíre going back to school.


Ask For Forbearance
Letís say youíre getting pulled in different directions -- trying to put a down payment on a new house, paying for your youngest childís surgery, planning a wedding, and so on. You can just call up your lender, state your case and request forbearance. This way you can suspend or reduce your student loan payments for specified periods, typically three months. Youíll have a better shot getting forbearance if you can show that you will be unable to meet monthly payments because of financial hardship.


During deferment and forbearance periods, interest continues to accrue on your loans. It will be added to the amount you owe and must be repaid when payments resume. With forbearance, any unpaid interest is added to your principle balance only four times that year (quarterly) rather than monthly. Contact your lender directly or the Department of Education at 800-4FED-AID or visit www.studentaid.ed.gov.


If you canít make your make payments on time, seeking deferment or forbearance are better alternatives to defaulting. Often when some people fall on hard times, they opt not to pay certain bills, hoping that credit card companies, for instance, will eventually write them off and take the loss. That's not going to work with the government. Not only won't you get a sympathetic ear from Uncle Sam, you might even get sued. The government is currently trying to collect about $31 billion in defaulted loans. Bear in mind that delinquent borrowers are charged the government's legal fees, which can add 25 percent to 30 percent to the amount already owed.


Still not concerned? Once the government has a judgment against you, it can seize your assets. The Internal Revenue is not the only agency to wield such power. The U.S. Department of Education also can garnish your tax refunds, wages, bank accounts, stock and mutual funds or even seize your car without a court order. You have 270 days of nonpayment before the government pronounces you in default and youíll have to suffer the consequences.

Re: Home Ownership and Wealth Building
« Reply #191 on: June 06, 2005, 11:59:21 AM »
Understanding interest-only loans

In the movie ``Field of Dreams,'' an Iowa corn farmer kept hearing whispers of ``if you build it, they will come.''
     
I think of that famous line when I see advertising for interest-only loans. All the financial institutions have to do is build a loan product and people will come -- even when they shouldn't. Interest-only loans are just that -- loans in which at first you pay only the interest on what you borrow. An interest-only payment option can come with a 30-year fixed loan or an adjustable-rate mortgage (ARM). The length of the interest-only loan can vary from three years to 10 years.
     
The rates on interest-only loans can change as often as every month or be fixed for periods of three years to 10 years. Without a doubt, an interest-only loan has a great selling point -- you can qualify for a higher-priced home. For instance, let's say that under a traditional mortgage product where you pay interest and principal you would only qualify for a $250,000 loan. With a 30-year mortgage at 5.72 percent (the weekly average as of May 26, according to Bankrate.com) your payment would be $1,454 (excluding taxes and mortgage insurance). But with a 5-year interest-only ARM at 4.68 percent, you could get a $350,000 mortgage and your monthly payment would be $1,365.
     
In heated housing markets people are doing whatever they can to get into a house. They fear that if they wait, homeownership will escape them. That's one of the reasons interest-only loans have become extremely popular in the last several years. Here's how one lender advertised interest-only loans: ``You won't build equity in your home during the interest-only period, but it could help you afford to buy the home you want instead of settling for the home you can afford.''  But you have to ask yourself if it is worth it to buy a home that could put you in the poor house.
     
``Interest-only loans, while a wonderful product, need to be used judiciously,'' said Morris Armstrong of Armstrong Financial Strategies, a fee-only planning and asset management company based in Danbury, Conn. ``Because they allow you to effectively borrow more money than under a conventional loan, they can create situations where the borrower is in over their heads which can lead to financial difficulties including foreclosure.''



So who are interest-only loans good for?
     -- If you don't expect to stay in your home long, say five to seven years.  For example, an interest-only loan might make sense for single people with the hopes that they will get married, move up, or relocate due to a job, said Colleen Sargent, owner of F&M Mortgage Corp. in Fairfax Station, Va. ``If none of these things happens to the borrowers then they always have the ability or option to make principal and interest payments.''
     -- If you're in an upper income tax bracket and want the highest amount of home-interest deductibility possible.
     -- If your income fluctuates during the year. Interest-only loans can make sense for people who are paid on commission or receive bonuses as part of their annual compensation. If that is the case, you can make interest-only payments when your income is low, but then when more money is coming, you have the ability to pay something on the principal, Sargent said.
     -- You expect a large expense to go down or your income to significantly go up in the future. ``Imagine if you are paying $12,000 a year for child care and that in three years those payments will cease,'' Armstrong said. ``When the payments cease, then you can apply that to housing payments, either paying down principal or refinancing.''
     
There's another group of home buyers that are opting for interest-only loans -- people looking for the lowest mortgage payment possible and probably wouldn't qualify for the house they want with a loan payment that included the interest and principal. It's that last group of people that worry me the most -- home buyers who are just barely squeezing into a house with an interest-only loan.
     
``I am not sure that any loan which enables someone to dig their financial grave is good and I wish that underwriters would realize that,'' Armstrong said.
     
What happens when reckoning day comes -- the day you have to make interest and principal payments? If you can barely afford an interest-only payment, what will you do? Get another interest-only loan? Sell? What if housing prices take a tumble and you have to move? If you are forced to sell your house and it hasn't appreciated -- and you haven't built up equity by making payments toward the principal -- you could end up having to bring money to the settlement table. Money you likely don't have.
     
Borrowers with interest-only loans that convert to a variable rate after the fixed term is over need to be particularly careful, especially since interest rates have been rising, cautioned James R. Cotto, director of investments at Cotto & Padovani Financial Strategies Group in Mount Kisco, N.Y. What if you can't refinance into another interest-only loan or any loan? If interest rates have jumped significantly, you'll be stuck with a mortgage payment you can't make.
     
Before you listen to whispers of the lending industry that an interest-only loan is your home-owning salvation, make sure you understand the pros and cons of this product.

smujd2007

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Re: Home Ownership and Wealth Building
« Reply #192 on: June 06, 2005, 12:07:26 PM »
thanks for the post blk.  though i am at least two years from considering home buying, its nice to get good info.

_BP_

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Re: Home Ownership and Wealth Building
« Reply #193 on: June 06, 2005, 12:10:53 PM »
Yeah, great info for everyone.  Good looking Blk.

elegantpearl01

Re: Home Ownership and Wealth Building
« Reply #194 on: June 08, 2005, 04:40:04 AM »
That's good information, I'm thinking about buying something here in Tallahassee, I only hesitate because I don't see myself here for 5-10 years.

dbgirl

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Re: Home Ownership and Wealth Building
« Reply #195 on: June 11, 2005, 01:01:19 PM »
OK so maybe you real estate experts will have some ideas here.
I'm interested in trying to buy a duplex/triplex with my grandmother.
I live in the Bay Area CA.

My grandmother's current house is worth at least $500k and she probably owes around $25k. So, I saw a duplex that cost $700k.
I was thinking that somehow grandma could sell her home, put that $500k as a downpayment and my boyfriend and I could somehow take out a mortgage for the rest of the $$.

*How much money do you have to make to qualify for a $200k mortgage?

*How would we work out ownership, since clearly she has the bigger interest in the house?

Ideas, suggestions?
Thanks!

twarga

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Re: Home Ownership and Wealth Building
« Reply #196 on: June 11, 2005, 02:12:33 PM »
My grandmother's current house is worth at least $500k and she probably owes around $25k. So, I saw a duplex that cost $700k.
I was thinking that somehow grandma could sell her home, put that $500k as a downpayment and my boyfriend and I could somehow take out a mortgage for the rest of the $$.


Start smaller and do it on your own.  There's no reason to live in a $700K home when you're so young and broke, and you certainly don't want granny calling the shots (and she probably won't cosign anything if you aren't married to this guy).  Hubby and I got our home for $98K back in 1997.  When we sell it after law school (in 2008), we hope to get $175K for it (the other houses in the neighborhood are going for $160K right now).  We started small and we're going to move up to the big leagues when we can afford it.  It feels good to know we did it on our own.

dbgirl

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Re: Home Ownership and Wealth Building
« Reply #197 on: June 11, 2005, 02:46:29 PM »
Thanks for responding Twarga.
Granny already calls the shots -- we rent from her.

And there is no such thing as a $98,000 house out here.
Even condos are in the mid $300s to start. A mobile home can even reach almost $200k out here. That's why I had the duplex idea. I'm just trying to own something, anything  :'(

I understand the concern though about buying more house than you can afford. My brother and his wife did this and now they live in a big house but are stressed out about money.

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Re: Home Ownership and Wealth Building
« Reply #198 on: June 13, 2005, 11:29:37 AM »
Thanks for responding Twarga.
Granny already calls the shots -- we rent from her.

And there is no such thing as a $98,000 house out here.
Even condos are in the mid $300s to start. A mobile home can even reach almost $200k out here. That's why I had the duplex idea. I'm just trying to own something, anything  :'(

I understand the concern though about buying more house than you can afford. My brother and his wife did this and now they live in a big house but are stressed out about money.


It is possible to set up ownership so that granny owns 5/7ths of the house while you and your boyfriend are the only ones named on the loan, BUT this would be a VERY risky deal for granny.

Why?  Because even though granny's name is not on the loan, if--for some reason, any reason--you and your boyfriend are unable to make the monthly mortgage payments, granny will lose not only her 5/7ths but her home as well.

Such an ownership structure is possible, but it exposes granny to more risk than most seniors are comfortable with--and that you should be comfortable with too...

I have read that you are going to Hastings--that's great. But that also means you are going to stop working to go to school.  Who will be paying the mortgage then?  Your boyfriend, right?  What if things don't work out with him?  What if he stops paying the mortgage?  Where is the money going to come from? Granny?  Are you going to stop school to pay the mortgage?


It would basically work one of two ways:

(1)
Owner(s): Granny (5/7), You (1/7), BF (1/7)
People responsible for the loan: You, BF
Losers in case of foreclosure: ALL THREE--but particularly Granny

(2)
Owner: Granny (100%)
People responsible for the loan: You, BF
Losers in case of foreclosure: ALL THREE--but particularly Granny

Either way, GRANNY is potentially the big loser.  Don't subject your granny to risk.  It's ok to take on your own risk because you're young, but don't subject her to it as well.  She's too old to have to worry about starting over.

My opinion: If you can't do it on your own right now, you can't do it right now. Period.  Wait until you graduate and have a job. 

Getting your foot in the door is NOT more important than protecting Granny from risk.


Omegaman

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Re: Home Ownership and Wealth Building
« Reply #199 on: June 21, 2005, 03:24:59 AM »
Seeking More Than Apologies for Slavery
Activists Hope Firms' Disclosure of Ties Will Lead to Reparations

By Darryl Fears
Washington Post Staff Writer
Monday, June 20, 2005; A01

It was a brief mea culpa, a few short paragraphs typed on a sheet of paper. "On behalf of Wachovia Corporation, I apologize to all Americans, and especially to African Americans and people of African descent," Chairman and chief executive G. Kennedy Thompson said after a study found that his company had purchased two banks that exploited slaves.

Wachovia revealed on June 1 that one of the banks put hundreds of slaves to work on railroads and another accepted more than 100 more as collateral on defaulted loans in the 1800s. Wachovia, one of the nation's largest banks, was required by the city of Chicago to investigate its past to participate in the redevelopment of a housing project on the city's South Side.

Chicago's law is the result of a campaign by a network of black politicians, lawyers, professors and reparations activists who say they want Americans to know that slave purchases were often financed with bank loans and insured.

Since 2000, when the first disclosure law was enacted by the state of California, similar laws have been passed in Los Angeles, Detroit and Philadelphia. New Orleans is considering a version of the law, and numerous other city lawmakers have expressed interest, said Dorothy J. Tillman, the Chicago alderman who sponsored the ordinance.

Disclosure laws in the past have required companies to reveal their ties to the Holocaust and South Africa's former apartheid government. Tillman said Americans deserve to know that companies they rely on for mortgages, credit cards and insurance supported the slave trade with similar loans.

"We have a history that's not being told," she said. "We want our history to be told in every book and every school -- our true history."

The activists see the apologies, in some cases, as possible preludes to reparation payments. But Wachovia, and every other company that has acknowledged ties to slavery, has declined to make any such payments. A spokesman for Aetna, which had a reparations lawsuit thrown out, said the insurance company believes that no court would grant reparations for a crime, no matter how tragic, that occurred so long ago.

Reparations to African Americans are extraordinarily rare. The $1.8 million award in 1994 to victims of the riot and massacre in Rosewood, Fla., is one of a few.

In that 1923 incident, white authorities and citizens killed 26 black men, women and children and buried them in a mass grave. About 355 black residents were driven from their homes as the community burned.

The U.S. government has never apologized or paid reparations to the descendants of slaves. Other groups, such as Japanese Americans who were forced into camps during World War II, have been more successful. Swiss banks paid reparations to Holocaust victims after the banks acknowledged they had accepted money and goods stolen from Jews by Nazis during World War II.

A CNN/USA Today/Gallup poll in 2002 showed that nine out of 10 white Americans said the government should not make cash reparations payments, while half of black respondents said it should.

Sixty-two percent of white respondents also believed that the government should not apologize to African Americans for underwriting slavery, while 68 percent of African Americans said it should.

But as corporate leaders have come under pressure from some state and local governments, and the extent of their companies' participation in slavery is revealed, they are feeling compelled to apologize.

"We know we can't change the past, and we can't make up for the wrongs of slavery," Thompson, the Wachovia chairman, said in his statement. "But we can learn from our past and begin a dialogue about slavery and the experience of African Americans in our country."

Wachovia spokesman Scott Silvestri said the company is talking to the NAACP, the Urban League and other civil rights groups about how to proceed. "We didn't want to have a donation or gift right out of a gate," he said. "We wanted to think about what's the best way to address that."

Charles Ogletree, a Harvard University law professor and reparations activist whom Tillman consulted to help craft the Chicago ordinance, said research required by the law has revealed involvement in slavery by companies that have historically denied it. "Investigations are turning up substantial evidence of connections between their corporate success and their exploitation of slaves in the 18th and 19th century," he said.

Ogletree said the disclosures and apologies could be a turning point in convincing the courts and average Americans that reparations are warranted.

A 111-page report released by Wachovia along with its apology showed that a bank it acquired, the Georgia Railroad and Banking Co., put 529 slaves to work on railroads. Another, the Bank of Charleston, accepted 162 slaves when clients defaulted on loans. Wachovia contracted a group in Chantilly, Va., called the History Factory to search its records.

In 2002, Aetna was forced to acknowledge its role in insuring slave owners in the 1850s against the deaths of slaves after Deadria Farmer-Paellmann, a reparations activist, discovered the policies.

Through the mid-1800s, insurance companies often paid claims when slaves escaped, then would place ads in publications offering rewards to bounty hunters to track them down and bring them back, even if they had escaped to free states. The slaves would be resold.

In January, J.P. Morgan Chase, the nation's second-largest bank, apologized for the role its subsidiaries played in using more than 10,000 slaves as collateral for loans and accepting more than 1,000 slaves when their owners defaulted. J.P. Morgan's apology also was prompted by the Chicago disclosure law.

Bank of America Corp. is fighting accusations at Chicago City Hall that it did not disclose its ties to slavery on a sworn affidavit. The city is reviewing evidence showing slave ownership by John Brown -- a former director of Providence Bank, which became Fleet-Boston, a bank later acquired by Bank of America.

A host of other companies fought the lawsuit, filed in 2002, after investigations found links to slavery. They include investors Lehman Brothers Holdings Inc. and Brown Brothers Harriman; insurers American International Group Inc. and Lloyds of London; tobacco makers R.J. Reynolds Tobacco Holdings, Brown & Williamson Tobacco Corp., and Liggett Group Inc.; and the railroad firms Union Pacific Corp. and Norfolk Southern Corp. A similar lawsuit against the federal government seeking $100 million was dismissed in 1995 by a federal appeals court.

No dollar figure was mentioned for the 2002 lawsuit, but an estimate of the value of work provided by slaves was placed at $40 million, which today could amount to more than $1 trillion, according to the lawsuit.

A judge for the U.S. District Court for the Northern District of Illinois threw out the complaint, saying it was brought "more than a century after the end of the Civil War and the formal abolition of slavery." But the judge, Charles R. Norgle Sr., dismissed the lawsuit without prejudice, meaning it could be amended and filed again.

Reparations activists say that former slaves and their descendants sought restitution years ago but were turned away by hostile courts.

I.H. Dickerson of Nashville founded the Ex-Slave Mutual Relief, Bounty and Pension Association in 1897. His quest for reparations ended when the federal postal service accused him of receiving a money order under false pretenses. He was convicted and sentenced to 12 years in prison in 1901. His assistant, Callie D. House, was later tried, but the outcome is unknown.

Today's activists are more influential. In addition to Tillman and Ogletree, they include Rep. John Conyers Jr. (D-Mich.), who sponsors legislation to study reparations proposals for African Americans during each Congress, and a host of other public officials, groups and historians.

The National Coalition of Blacks for Reparations in America, or N'COBRA, was formed a year after the United States acknowledged wrongdoing and paid reparations to Japanese Americans.

Farmer-Paellmann, a former N'COBRA law clerk, is credited with the idea of challenging such corporations as Aetna and J.P. Morgan Chase to expose their ties to slavery. In the mid-1990s, she began researching the companies' pasts and publicized her findings.

Aetna Chairman John W. Rowe responded in April 2000. "The fact that Aetna had written policies on slaves more than 140 years ago was brought to the attention of Aetna's management. They were deeply disappointed and embarrassed."

Farmer-Paellmann said the apology was worth her work then and now.

"It's to get them to apologize and also ask them to pay restitution," she said. A trust fund was established at Carver Federal Savings Bank in Harlem, but attracted few donations, she said.

"Why is it important to pay restitution? Historically, the lack of financial capital has been a barrier to black progress," she said. "It's harder for us to get bank loans, and red lining is a vestige of slavery. It's about them helping us to heal the wounds they historically caused."