Marc's Mortgage Matter's

Cinco de Mayo does not mark the discovery of tequila, but instead celebrates the legendary Battle of Puebla on May 5, 1862, in which a Mexican force of 4,500 men faced 6,000 well-trained French soldiers. The 4-hour battle ended in a victory for the Mexican army under Gen. Ignacio Zaragoza. But the other, tragic, fabled story of this date can be found at the end of this post.

What is the "False Claims Act?" Besides "you look good in that dress" and "I think you look just as handsome without hair," there are other false claims, and financial services industries are often accused of them. The U.S. attorney who sued Deutsche Bank used the False Claims Act in going after the bank's alleged practice of making federally insured mortgage loans without actually checking, as it repeatedly claimed, on whether the borrowers actually had jobs or incomes or bank accounts that would allow them to repay. After being passed in 1863, the government has collected $27 billion in False Claims Act recoveries since the law was strengthened two decades ago. FalseClaimsAct

Last month marked the 151st anniversary of the Pony Express, the communications link from St. Joseph to San Francisco. News and mail took 11 days (with 75 horses and 20 riders), 10 days faster than by stagecoach. The Pony Express system lasted only last 18 months, until it was replaced by the telegraph in October of 1861. I mention this, not because my great-great-great uncle was a rider (nicknamed "Deafy" after being kicked in the head by a horse), but because we seem to become aggravated when an e-mail takes more than 60 seconds to go from New York to Los Angeles, or from New York to Paris.

Occasionally I receive e-mails that are worth saving. Like the one where someone wrote, "Your vocabulary is as bad as, like, whatever." And some websites are worth saving, like this one that tells the viewer what states/counties have been declared disaster areas by our government: FEMAUpdates.

The Fed is ending its intervention in the market (Quantitative Easing, or QE2), having purchased $548 billion in Treasuries, and that’s on top of whatever they bought in QE1. These purchases represented 85% of all securities the U.S. government sold between November of last year and this March, so you have to worry about what will happen when such a huge buyer exits the market. Simple supply and demand economics would indicate a rise in rates till new buyers are lured by the higher rates. This is the QEII (Queen Elizabeth II), not to be confused with Bernanke’s Quantitative Easing II.

If you like baseball, watch the first 20 seconds of this guy scoring at the plate. Pretty amazing: http://biggeekdad.com/2010/04/baseball-leap.

With people challenging dictators in Tunisia , Egypt , Libya and Syria and throughout the region, has anyone wondered why this hasn’t happened in Cuba ? The answer is that Cuba is more of a police state than any Middle East country. Block captains are responsible for reporting anyone who even hints at dissatisfaction with the government, and the slightest grumbling leads to a midnight knock on the door. With a snitch on every street, Castro runs a police state that Stalin would have admired.

How do the words "Deutsche Bank" and "slumlord" wind up in the same sentence in the LA Times? The Los Angeles city attorney's office filed a civil lawsuit against the world's fourth-largest bank, seeking hundreds of millions of dollars in penalties and restitution and an injunction forcing it to clean up its LA foreclosed properties saying they breed crime.

Watching a few minutes of the Royal Wedding, it seemed that there’s much more dignity and true majesty in how we treat our leaders in the U.S. After seeing all the fancy (and silly) military uniforms in Britain , it made me proud that we have no royalty and that at our most important function, the Presidential inauguration, the President wears a business suit. We Americans would not do well if we had a royal family.
 

A frequently-asked question is whether a mortgage borrower receives any benefit from paying before the due date. In most cases, the answer is “no”, but there are a few exceptions. With simple interest mortgages, including HELOCs, it does pay to pay early and, under some circumstances, paying early in order to shift next year’s interest into this year could reduce taxes.

The Rules When Payments Are Late

On a standard monthly payment mortgage, the payment is due on the first day of the month, and will be credited to the borrower on that day, regardless of when it is received. If the payment is received within the grace period, customarily the first 10 or 15 days, the borrower receives a free ride – no interest accrual – for those days. If the payment is received after the grace period but within the month, the borrower is subject to a late charge. If the payment is not received until the following month, the borrower incurs a late charge and is reported to the credit bureaus as a 30-day delinquency, but the payment is credited as of the first day of the previous month.

When Payments Are Early

Payments made before the due date are also credited as of that date. This gives the lender free use of the borrower’s money for that period. The borrower who consistently pays two weeks early, for example, is in effect providing the lender with a two-week grace period comparable to that provided by the lender to borrowers who pay late. There is no benefit to the borrower.

Simple Interest Mortgages Are Different

On simple interest mortgages, interest accrues daily rather than monthly, which changes the rules significantly. As with standard mortgages, payments are due on the first day of the month and late fees are charged on payments received after the grace period. On simple interest mortgages, however, interest is due every day. This means that a borrower who pays one day late pays additional interest for that day, and the borrower who pays one day early saves a day’s interest.

The bottom line is that a borrower who consistently pays 2 weeks early will save money on a simple interest mortgage. That doesn’t bother the lenders because they know that those are rare birds. Most borrowers pay late.

Borrowers don’t get to choose between standard and simple interest mortgages; I have never heard of it being offered as an option. Most have standard mortgages, and those with simple interest mortgages typically didn’t know what they were getting. Borrowers need to adapt their payment habits to the kind of mortgage that they have.

I should note that HELOCs are simple interest and most HELOC borrowers do understand that they accrue interest daily. It pays to pay early on a HELOC.

Making Advance Provision For Future Payment

Early payment should not be confused with making advance provision for future payments. When I took my family on an around-the-world tour some time ago, I left a set of checks with the loan servicer dated at monthly intervals. This assured that each payment would be made on time, but I was not giving the servicer the use of my money because only one check at a time became negotiable.

A Potential Tax Benefit in Paying Early

In December, some borrowers who itemize their deductions make their payments for the early months of the following year. This shifts the interest deduction in those months from next year to this year. This can be especially advantageous if the borrower expects to be in a lower tax bracket, or expects the tax rate to be lower, next year.

For this to work, however, you need the servicer to agree in advance to credit your account this year for the payments due next year. The end-of-year statement will then show the interest as having been paid this year.

If you want to see what dominating a market looks like, take a look at the market shares of various search engines:

	Market Share
Google	65.7%
Yahoo	15.7%
Bing	13.9%

There is an old saying that good judgment comes from experience, and experience comes from bad judgment. Isn’t this true in business as well as in life? And aren’t we all stronger from the lessons we learned along the pathways of life and career?

Concerns about the recent pattern of economic growth intensified this week, as several key indicators moved abruptly in the wrong direction before a better-than-forecast employment report and a plummet in oil prices restored some optimism about the strength of the recovery.

The drop in oil to below $100/bbl followed a bit of a bubble pop in silver, which had tracked all the way to $50/oz in recent weeks. Gold's less-lustrous cousin lost 27% for the week, and other commodity prices turned downward as well. Whether a speculator turnabout or simply a market overdue for a correction, the drop in oil comes at a very fortuitous time, since prices of energy and fuels were getting to the point where they might break the economy, as they did in 2008. It's worth noting that by one estimate, every penny of a payroll-tax reduction enacted in January to spur economic growth has been absorbed by the increase in gasoline costs this year.

Of course, a slowing economy generally benefits those looking to borrow money, and mortgage-seekers are numbered among them.

The availability of credit to small and mid-sized businesses continues to improve, according to the latest survey of Senior Loan Offices polled by the Federal Reserve. In the late April period, lending standards eased, which should probably promote some additional borrower to help power the expansion forward. A credit crunch of tightening requirement persisted for a couple of years, but the trend has been one of loosening for some six quarters now. Standards for auto and credit cards were eased somewhat during the month, perhaps prompting some of the consumer borrowing noted above.