Let's mix tax and mortgage fraud and see how bad that can be.

The latest: People are amending their 2008 tax returns to show that they've bought a home and are entitled to the $8,000 first-time homebuyers tax credit.

But they haven't bought a home.

They did, however, get a big fat check, because that tax credit is refundable.

A local mortgage processor tells me she seen loan applications from five families that have done this.

The first-time homebuyers tax credit covers any home purchased by Dec. 1 this year. So these families could indeed get a home by the deadline and everything would be OK. But I have a feeling that wasn't the point.

If they don't, they probably would have to repay the tax credit. And, they could be in legal trouble, too, for filing a false tax return.

Meanwhile, some of these folks have such poor credit, they're not going to qualify for a mortgage. Now or in December.

Dangerous game they're playing.

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How does an exceedingly rich person, one whose assets may have a net worth of $1 billion, end up $500 million in debt?

The answer, for Michael Jackson as much as for any of us, is more than likely, bit by bit.

I have seen it with rich people as well as the non-rich. The amount of money you have really doesn't matter when it comes to debt.

What makes a difference whether you can arrange your life around the amount of money you have. Or less than what you have.

What works is having an idea of where you want to go in your life and sticking to that plan, not letting every temptation that comes along divert your money away from your goal.

You want something you don't have the cash for, you borrow. It's the same proposition at $1,000 or $1 million.

You can do it in small amounts, with credit cards or home equity loans, or in large amounts, if your name is Michael Jackson.

You can make bigger mistakes when you're richer. But that's no advantage, as I see it.

He should have gotten help, real help, with money issues.

Where were his financial advisors, as he sank into debt?

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I'm always wary when someone says, "It's different this time."

But maybe it is.

The National Foundaiton for Credit Counseling says one-third of Americans think they'll never be able to afford a home.

Even more telling results from its recent poll: Almost half don't believe owning a home is a good way to build wealth.

What a change that would be from the basic message politicians and the tax code have been sending for years.

What could replace a home as a way to build wealth?

What do you think? Owning a home, does it make sense? Will it ever?

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The Federal Deposit Insurance Corp. says some funky things are happening with certificates of deposit.

The FDIC says there’s a game going on at some companies that can’t actually deliver an insured CD, but they’re selling them anyway.

The game goes like this: The company advertises high-rate, insured CDs. But you have to visit the office to get one. Then you find out that a minimum deposit is required and you may have to endure a sales pitch for other products. If you actually want the CD, you are then sent to a terminal to buy the CD over the Internet from the bank that’s actually FDIC-insured.

Protect yourself. Always check to see if the bank where you are buying the CD is FDIC-insured, really. And if the rate is far higher than normal (you can find normal at www.bankrate.com), ask why.

To read more, go here:
http://tr.im/pkI6

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Don't think too much about your retirement.

I know that's the opposite of what most financial advisors say. But I think most people's retirement plans work the other way, surviving on neglect. Which saves them in troubled times, when any pot of money might get raided.

Summertime is the time to set up your account and, well, here's the rest. My most recent commentary from The Nightly Business Report on PBS...

http://tr.im/p3Qf

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Florida’s recession is worse than anything this state has seen in more than a half century, when it comes to money in your pocket.

The Bureau of Economic Analysis said Thursday that Florida now has had three consecutive quarters -- a total of nine months -- in which the personal income of state residents has declined.

That hasn’t happened since the BEA began keeping records in 1948. Florida hasn’t even had two consecutive quarters of falling income until now.

Personal income is a measure of all the income to residents of the state. BEA said job losses, low interest rate payments and cuts in dividend income, plus direct pay cuts are to blame for the decline.

“Salaries have taken a drastic hit,” said Jorge Roca, a recruiter for Spherion in the Miami Office. He says it’s not uncommon to see a candidate in a sales position who was making $150,000 in salary plus commission now be offered a position that offers total compensation of $60,000 to $70,000.

The worst period for Floridians’ income in 61 years could have been even worse, had it not been for Social Security, unemployment and other so-called “transfer payments” that held steady.

“Those are very important in all the states because that’s really the only thing supporting personal income these days,” said BEA economist David Lenze.

Florida recorded a 0.9 percent fall in personal income in the first quarter of this year, compared to the fourth quarter of 2008.

The nation as a whole saw personal income fall 0.5 percent. In the fourth quarter, U.S. personal income fell 0.4 percent.

Florida’s first-quarter decline was larger than income cuts in all but seven states.

Expect more of the same for the remainder of this year, experts say. Roca, the recruiter, says the number of jobs to be filled has been growing, but pay levels remain depressed because employers have so many candidates to choose from in the ranks of the unemployed.

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Don’t know why so many people don’t seem to know this, but let me correct a misperception.

You may believe that if you sell your home in a short sale, you could be in for a big tax bill – as if getting out from under your old mortgage is the same as actually making some money.

That’s not true, at least when it comes to taxes.

There’s a two-year-old law that allows you to avoid federal income tax on forgiven mortgage debt, such as what you’d have in a short sale or a loan modification, under certain conditions.

The IRS says the Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude from your taxable income:

-Up to $2 million in mortgage debt

-If it’s forgiven between 2007 and 2012

-If the debt t is discharged due to a decline in the home’s value or the taxpayer’s financial condition

-If it was for your principal residence

It’s a break, for those in dire distress.

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President Obama’s financial reform proposal, what do you think?

I am all for the Consumer Financial Protection Agency in concept, but the list of what it might do seems weak. I want this board to have true power to shake down financial products and let consumers know what they are and what dangers they pose. From what I see, it looks like this board will primarily require mortgages to be simpler. Not enough consumer protection for me.

I do like that the Securities and Exchange Commission is told to hold stockbrokers to a fiduciary standard when they give advice. That means, brokers would have to put your interests ahead of their own. Right now, under SEC rules, brokers need only recommend something suitable for you. And who defines suitable? If two products are suitable, why not recommend the one that pays the higher commission? Suitability is squishy. A fiduciary standard is a much higher standard. I’d like to see it be the rule, for everyone who dispenses investment advice.

But then again, I come at this from a perspective of people making long-term plans to accomplish their own financial goals. I’m not the take-the-money-and-run type.

To read the Obama adminstration's proposal, go here:
http://www.treasury.gov/news/index1.html

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Some thoughts on loan modifications, which I wrote about on Monday and today's Wall Street Journal covered.
There's a huge logjam, borrowers say they're not getting any results, and from the street level. everyone's frustrated, including some bankers.

We're not hearing anything from Washington, either. The Obama Administration set up a program to pay lenders to modify mortgages. So far, few have been done. When I called Treasury to ask for some specifics about how the program is working and whether banks are required to report back on how many loans have been changed, I didn't get an answer or a promised call back with the information.

-Take One: A reader responding to my last story said she put her paperwork in with Chase in December and still hasn't heard back. Another said he waited seven months for word from Wells Fargo. Paperwork got lost. Misinformation was on the application. He was denied.

-Take Two: Chase this morning tells me they have modified 15,000 loans naitonwide since last October using the Obama administration's new plan. This is both a good and a bad number, It's a good number, for one lender (even though Chase now includes Washington Mutual), considering that it's a big chunk of the 55,000 loans nationwide that the administration says have been modified under its plan. But in the overall picture, there are millions of loans in trouble. The proportion of those getting help remains small.

-Take Three: John Ulzheimer, president of consumer education for Credit.com, points out in an email that you don't have to pay anyone to get your loan modified. Sure, some law firms and companies that advertise will handle your modification, but for a fee. It's not necessary. You can do it yourself. But as my story pointed out, it takes a lot of effort.

-Take Four: Ulzheimer points out that modification, if you can get it, won't damage your credit the way a foreclosure or a short sale would.

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In case you didn't see it, my latest story, about modifying your mortgage....

If you know you’re headed for trouble with your mortgage or you already are there, brace yourself.

It’s a mess for borrowers trying to re-negotiate the terms of their mortgages right now. That’s despite a highly publicized, $75 billion, Obama Administration program that pays lenders to modify loans.

If you need to get a new deal on your mortgage – as millions of people do -- the best thing you can do is to arm yourself with information, about the problems you’ll face and what you can do to get around them.

“People are confused,” said Kevin Walker, president and chief executive officer of MortgageReport.com, a new website that helps borrowers learn if they’re e eligible for loan modifications. “Frankly lenders are still trying to figure out the procedures they’re supposed to follow to implement these programs.”

Not many loans are being modified under the Making Home Affordable program, which was announced in February.

By mid-May, the Treasury Dept. reported that the program had resulted in 55,000 loan modifications so far. Lenders can modify loans on their own, not using the program. Hope Now, an industry coalition that’s trying to combat the flood of foreclosures nationwide, said its members had independently modified 127,000 loans in April and made 143,000 new repayment plans, a record number.

But even those figures combined are a drop in the bucket against the Obama program’s stated goal of helping up to 9 million homeowners refinance or modify their loans.

Nothing has turned back the tidal wave of foreclosures sweeping Florida and the nation. Between January and the end of May, the Center for Responsible Lending estimates that 1 million new foreclosures were filed nationwide. Moody’s Economy.com expects 1.54 million new foreclosures this year, on top of 1.44 million foreclosures last year.

Still, the program is new and some lenders appear to be still kicking its tires.

In South Florida, Allen Robinson, managing partner of First Trust Mortgage Corp., said lenders don’t seem interested in drastically altering mortgages. They aren’t reducing the principal owed, he said, but are cutting rates or extending terms.

And there’s the problem of loan servicers handling a flood of applications. Jessica Cecere of the Consumer Credit Counseling Service of Palm Beach said she thinks fewer than 2 percent of loans are being modified.

“We haven’t necessarily seen a lot of denials, just not a lot of answers,” she said.
Lenders say they’re trying to keep up with the demand, but the number of troubled borrowers is huge and still growing. In April, almost 3 million home loans nationwide were 60 days or more delinquent, according to the Hope Now alliance.

“The pipeline of people requesting loan modifications has grown tremendously since March,” said JP Morgan Chase spokeswoman Nancy Norris.

Lenders and services are making some efforts to meet the demand.

Chase has opened five offices in Florida devoted only to loan modifications, including one in Aventura and one in Miami. Norris said Chase can modify loans from Chase, Washington Mutual and a small lender named EMC. Those loan offices are open evenings and weekends.
Wells Fargo, which owns Wachovia, has put details of the program on a special website devoted to mortgages, www.wellsfargo.com/homeassist.

What can you do if you need to rework your mortgage loan? Here’s some advice:

Get informed

This is easier than you think. Start off at www.makinghomeaffordable.gov, the official Treasury Department web site for the program.

You’ll find such details as you can refinance your loan using the program if you are current on your payments, but if you’ve fallen behind, you’ll need to seek a loan modification.

The site points out that loans that are “underwater” – where the value of the home is less than the current mortgage – can qualify, for loans that are up to 105 percent of the home’s current value. Moody’s Economy.com estimates that up to 15.9 percent of all home loans are “underwater” to some degree this year.

Seriously underwater loans – those where the home’s value has dropped more than 20 to 25 percent – won’t qualify.

Lenders will be given financial incentives to modify loans.

The Treasury says it will share the lender or servicer’s cost of reducing payments to some borrowers, plus it will pay up-front fees of $1,000 for each loan modification and up to $3,000 for
three years for successful modifications

Borrowers have the potential to gain, too. The Treasury can make payments in loan modifications that would reduce the principal owed by up to $5,000 for borrowers who make timely payments for the first five years.

Get Help

Some web sites will show you the terms of the loan modification program and figure out whether you qualify.

One is MortgageReport.com, which comes from the same firm that created SimpleTuition.com, a student loan comparison tool. MortgageReport.com gives borrowers a “diagnosis” for their loans. There is no charge to borrowers, who input their loan amounts and other debts. But users who do qualify for a modification will be provided with a list of lenders. Borrowers can then decide whether to send on their own information.

Another site has the advantage of providing borrowers with a free credit score. Fair Isaac, the company that produces the FICO credit score that is commonly used for mortgages, launched Mortgage ReliefOnline.com in April. The site, which is also free to users, allows you to see if you qualify and then refers you to mortgage counselors

You can also get help the old fashioned way -- by talking to someone.

You can find thousands of U.S. Department of Housing and Urban Development-trained counselors by calling the local consumer credit counseling service or through the federal Hope Now program, 888-995-Hope (4673).

Get your documents together

“Be prepared,” said Dale Vermillion, a mortgage industry consultant and author of Navigating the Mortgage Maze. “Have your credit report available and know your credit score.”
Expect to be asked for copies of recent tax returns or pay stubs, information on your loan and any other loans, including a car loan, student loans and personal debts.

Don’t give up

“The first three or four people (you speak to) don’t have any power at all,” said Ryan Smart, vice president of RightTrack Financial Services, a Delray Beach firm that negotiates loan modifications. “The whole system exists to keep people away. They give you “negotiators” who have no power to negotiate the loans.”
Keep going until you get to someone who does have the power to change your loan.

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Students, burdened with big college loans, will be very glad to see June end.

Because starting July 1, there’s a new repayment option on federal student loans that will allow some borrowers to reduce their monthly payments.

According to the Project on Student Debt, the new income-based repayment option pegs what you must pay to income and family size – and cuts debts for those in the lower-income brackets.

“For example, a single person earning $30,000 a year with $30,000 in debt could cut her or his standard monthly payment amount in half. All federal loans made to students are eligible for this program, regardless of when they were taken out, from which lender, whether for graduate or undergraduate study," the Project’s web site reports.

The new provision is part of a 2007 law that will be effective next month.

Another part of that law, already in place, wipes out student debt for many borrowers who have full-time careers in public service and who have been repaying the loan for 10 years.

The public service professions that qualify include: military service, public safety and law enforcement, public health, social work, librarians, college faculty and public defenders.

Debts to those borrowers, when they are wiped out, won’t be taxable, FinAid.org says.

Unfortunately, the income-based repayment option is only available for direct federal student loans, not for the federal student loans made to parents and for private student loans.

You can find more details at:

http://projectonstudentdebt.org/july1-2009.vp.html

and at:
http://www.finaid.org/loans/ibr.phtml

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The way I read it, the Obama administration is indeed cracking down on executive pay, but only on the companies or banks that have received TARP money. Those folks can only receive a bonus of up to one-third of their salaries.

But for the rest of the public corporations, the administration is planning to introduce a bill allowing a non-binding shareholder vote on compensation.

So, there’s not much there, is there? Nonbinding votes, saying please don’t hand out millions in bonuses, sent to compensation committees that hand out millions in bonuses?

I don’t think this pay debate will ever go anywhere. Big bonuses will go on.

What do you think?

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Got an extra $100,000?

You may need it in retirement to cover health care costs.

Today, the Employee Benefit Research Institute put out some numbers on that pricetag, which many people overlook when planning their retirement.

For a man, retiring in 2009 at age 65, EBRI’s low estimate is between $68,000 and $173,000, depending upon his health needs. For a woman, same situation, the number is $98,000 to $242,000 (they live longer).

If you (or your friends or relatives) are age 55 now and will retire in ten years at 65, the estimates are higher. EBRI projects the savings a man will need will be between $114,000 to $634,000 and a woman, $164,000 to $754,000.

As any senior will tell you, Medicare (for which seniors pay premiums) takes up the bulk of the costs, but all those out-of-pocket expenses for supplemental insurance, co pays and prescriptions add up.

You might think you’ll just ignore this if you’re working and retirement is a distant goal, or even something you think you’ll never reach.

Well, this matters to working people, too. EBRI notes that the main Medicare trust fund is heading toward insolvency in 2017. To address than, one proposal is to raise the payroll taxes workers and their employers together pay to support this fund, from 2.9 percent to 6.78 percent.

And that would make it more difficult to save for your own health care trust fund for retirement.

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I'm back from vacation and....

Ready to hear what you think. The issue at hand: The SEC charged Andrew Mozilo and other former high-ranking Countrywide Financial executives with fraud.

What exactly is the alleged fraud? Making subprime loans with a wink and a nod and no attention to what would happen to the borrowers in the end? Not somehow mentioning how loose the lending standards had become? Making so many shaky loans that eventually credit markets blew up? Giving false hope to those who should never have been homeowners? Leaving neighborhoods riddled with foreclosures?

Yes, a list of frauds. Do you have one to add?

All this wasn't exlcusive to Countrywide, of course. And courts will sort it out.

Meanwhile, if you’re interested in catching my next speech about personal finance, it’s at noon tomorrow.

Join me at the Hollywood Chamber of Commerce’s Women Owners, Managers, Executives Network luncheon. .

It’s at Memorial Hospital South, 3600 Washington St., Hollywood. Tickets are $20 for members, $30 for non-members and $40 at the door. 954-923-4000 or www.hollywoodchamber.org.

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In case you missed it, here's my column from Sunday:

http://www.sun-sentinel.com/business/yourmoney/sfl-sfl-harriet-bank-safety-0531sbmay31,0,41551.column

Don't know why the subject of FDIC insurance brings up so many questions and calls and confusion. But it does.

So, here is a simple, easy to understand fact sheet, for those who want more:

http://www.fdic.gov/deposit/deposits/DIfactsheet.html

I'll be away the rest of this week, celebrating a few graduations. I'll be posting again next week.

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