Home to Loan

How often is best for compounding interest?

Mikael — Wed, 04 Apr 2012 19:48:49 +0000

Dear Jan,
With all else being equal, the more frequent the compounding, the better the return on your savings. More frequent compounding has interest being credited to your principal balance more often, allowing the interest to start earning its own interest sooner. The miracle of compounding is all about interest earning interest. The “all else being equal” just means that we’re comparing accounts with the same nominal yield and the same term, or time period, on the deposit.

The nominal yield is the stated yield on the deposit and is used to compute the interest earnings. It’s not to be confused with the annual percentage yield, or APY, on the deposit, which takes into account how more frequent compounding increases the effective yield. By comparing APYs, you can find the financial institution offering the highest effective yield on the deposit. The Truth in Savings Act (Federal Reserve Regulation DD) requires that financial institutions provide the APY on deposits, so savers can make easy comparisons.

You earn a yield on your investments, but you pay a rate on your loans. That’s how you differentiate between an APY and an annual percentage rate, or APR, on a loan. You can sort deposit yields by APY using Bankrate’s Compare Rates feature.

APYs assume you’re reinvesting the interest earnings. If you have those earnings transferred to your checking account, you won’t see the interest compounded there — at least not at the yield on the original deposit.

Stanley to reimburse borrowers

Tim Hill — Wed, 04 Apr 2012 19:48:48 +0000

Morgan Stanley must review foreclosures that took place in 2009 and 2010 and reimburse borrowers who were victims of its illegal foreclosure practices — or so the Fed says.

The Fed issued a consent order against Morgan Stanley “to address a pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing” at its subsidiary, Saxon Mortgage Services.

Saxon started more than 60,000 foreclosures from January 2009 through December 2010. The Fed has ordered Morgan Stanley to hire an independent consultant to review foreclosures that took place during that period. The company has 45 days to hire the consultant. It’s not clear how long the review will take but once completed, Stanley must send the report to the Fed along with an action plan that will include reimbursing borrowers who were charged excessive fees during the foreclosure process.

This order is similar to what other large servicers have received. But will it really work? It remains to be seen, but I have yet to meet a borrower who got reimbursed in one of these cases.

Saxon was the 34th-largest mortgage servicer in the United States. It sold most of its assets this week to Ocwen Financial, and it will stop servicing loans.

But Morgan Stanley won’t get rid of its problems by selling the business, the Fed says.

The company remains on the hook for its “unsafe” and “unsound banking practices,” according to the consent order.

Morgan Stanley “allegedly” filed affidavits in court asserting ownership of the mortgage note, amount owed on the mortgage and fees charged to the borrower without properly verifying the information — a practice known as robosigning.

Stanley also is accused of not hiring enough staff to properly handle the increased volume of delinquent mortgages and foreclosures and didn’t have adequate audits, training and oversight of the foreclosure process. The list goes on, but it’s much of the same of what you’ve already heard about other mortgage servicers.

So what happens now? The consultant will review these cases and look for flaws, including potential cases where the borrower lost the home to foreclosure while working on a loan modification with the lender.

Once Morgan Stanley submits the report with the results to Fed, we’ll know more about a supposed plan, which according to the consent order will “remediate” the errors and reimburse borrowers for “any impermissible” or “unreasonable fees.”

Can’t wait!

And while you wait, please follow me on Twitter @Polyanad

Should you trade for a fuel-efficient car?

Mikael — Wed, 22 Feb 2012 14:23:35 +0000

2. Assess how expensive gas is in your area. Gasoline prices vary dramatically depending on where you live. On national average, there’s about a 50-cent difference from the cheapest parts of the country to the most expensive. The more expensive the gas is in your area, the more you’ll save by driving a fuel-efficient car. Assess the average price you pay per gallon of gas and use that number in your calculations. If you’d like more specific numbers, check out the “Weekly U.S. Retail Gasoline Prices” or “U.S. Retail Gasoline Historical Prices” Web pages from the Energy Information Administration website.

3. Determine the fuel economy of your car and the one you may buy. Next, compare the miles-per-gallon rating of your car and any possible replacement car. For your car, you can use the rating from the Environmental Protection Agency or the number from your car’s trip computer. The most accurate option is to start with a full tank and, at the next fill-up, divide the miles driven by the gallons of gas used to get your mileage number.

For cars you are considering, use the EPA rating, which is located on the cars’ window stickers or can be found at FuelEconomy.gov. If you are considering purchasing an older car, the site is especially helpful because it features new, more accurate numbers for 2007 model year cars and older. The EPA changed the way it calculates its miles-per-gallon ratings for the 2008 model year to put them more in line with real-world estimates.

4. Calculate your savings. Once you’ve calculated your personal mileage, the typical gasoline prices for your area and the fuel economy of your current car and the cars you are considering, you can determine your savings if you were to buy a more fuel-efficient car. Calculating your potential savings is easy with the U.S. Department of Energy’s calculator at FuelEconomy.gov. Simply select the button that calculates costs using “separate city and highway mpg,” and enter your numbers for your current car and the cars you are considering to see the cost difference.

The likelihood is those numbers are surprisingly low. But even if you think it’s worth it, assess other costs of ownership, such as monthly payments, insurance, maintenance and repairs before deciding whether to take the plunge and buy a new car.

Ask the adviser

If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

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Foreclosure, Beverly Hills style

Tim Hill — Wed, 22 Feb 2012 08:23:23 +0000

It’s often said that the rich are different, but maybe not in the way you’d think. They’re suffering foreclosures at a faster clip than the rest of the nation, even though more of them can afford to pay their mortgage.

Reuters news agency compiled figures from RealtyTrac and found that 180 homes In tony Beverly Hills, enclave of the rich and famous, have been foreclosed on, scheduled for auction or served with default notices. The majority of delinquent homeowners owe more than $1 million on their homes and only 12 of them are up for sale, leaving a backlog of foreclosures in the pipeline.

Aside from the size of the delinquent mortgage, there’s another major difference among wealthy homeowners: The number of strategic defaults, where the owner can afford the mortgage but decides to walk away, is higher in Beverly Hills than in the rest of the country, according to one Los Angeles agent specializing in high-end properties. “It’s a business decision, not an emotional one, which it is for normal people,” Deborah Bremner, owner of the Bremner Group at Coldwell Banker told Reuters.

There’s an extra benefit to support this tactic in California: A primary mortgage is considered non-recourse, which means that it is secured by the property alone. So the owner’s wages and other assets are safe if he walks away from a home loan.

Nationwide, Lender Processing Services, Inc. reports that the default rate on jumbo mortgages, those too large to be insured by Fannie Mae and Freddie Mac, is up 579 percent since 2008. And JP Morgan Chase says that homeowners with jumbo mortgages are more likely to strategically fault than any other type of loan holder.

What do you think of the rich walking away from mortgages they can afford to pay?

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Yes, you can fire your agent — maybe

Mikael — Mon, 20 Feb 2012 12:12:42 +0000

Yes, it’s not uncommon for certain agents to stretch the truth to acquire a listing — or potential double listing in your case — and such folks can make it difficult for all the aboveboard agents out there to earn client trust. But I can’t totally dump on your agent without knowing more details. There’s always the chance that she felt your initial desired price was unreasonably high, and she may be right. In that case, she could argue she was looking after your interests.

By the way, I strongly suggest that sellers not sign a listing contract for more than 90 days, regardless of the enthusiasm or reputation of the agent. Six-month contracts, in my opinion, are too often counterproductive no matter what your market’s DOM, or days on market, average is, with the exception of extremely expensive, isolated or otherwise hard-to-sell properties. That’s because listings, buyer interest and the marketing efforts behind them tend to go stale after a few months, particularly in the perception of buyer’s agents. If you do go under contract toward the end of a 90-day listing, you can always extend the listing.

From the sound of things, your agent wants to be the listing agent for your present home and the buyer’s agent for your replacement home. Bad idea. What you really need is a dedicated buyer’s agent who has an exclusive fiduciary duty to you and only you in the buying leg of your plan. Interview at least three before you commit, ask for references and be sure to check with local real estate boards to see if any complaints have been lodged against them.

Most times, real estate agents will take the path of least resistance and recede when you find their representation inadequate. But not always! Before you hire another agent, take a long and realistic look at sale prices of recent home sales in your market to get a feel if your asking price is in step with reality.

Good luck!

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Delinquencies and foreclosures drop

Tim Hill — Mon, 20 Feb 2012 06:07:49 +0000

The percentage of delinquent mortgages declined and fewer loans were in foreclosure in the last quarter of 2011, says the Mortgage Bankers Association.

About 7.58 percent of outstanding mortgages were past due in the fourth quarter, a decline of 41 basis points on the seasonally adjusted delinquent rate. When compared to the first quarter of 2010, when the delinquency rate peaked at 10.1 percent, it is a significant improvement.

But we’re still only halfway through the problem, says Jay Brinkmann, MBA’s chief economist. Prior to the recession, the delinquency rate was about 5 percent, according to the MBA.

Another good sign is the combined percentage of loans that were in foreclosure or at least one payment past due was 12.63 percent, a 10 basis point decrease compared to the third quarter.

Lenders also started fewer foreclosures in the last quarter. Foreclosure actions were started on 0.99 percent of loans, down 9 basis points compared to the third quarter and 28 basis points lower than the fourth quarter of 2010.

“Mortgage performance continued to improve in the fourth quarter, reflecting the improvement we saw in the job market and broader economy,” Brinkmann says. “The total delinquency rate and foreclosure starts rate decreased and are back down to levels from three years ago.”

Delinquency rates and foreclosure starts fell in almost all types of loan, including prime, subprime and ARMS. The exception was FHA loans, which saw an increase in delinquency and foreclosures

“Part of the reason is that the FHA book of business has shown rapid growth,” he says. “And purchase loans originated in 2008 and 2009 are only now entering the peaks of a normal delinquency curve.

Before the crisis, FHA-insured loans accounted for about 3 percent of all mortgages. These days, FHA loans account for about 30 percent of the market, the MBA says.

More than half of all mortgages in foreclosure are concentrated in a handful of states: California, Illinois, New York and New Jersey.

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3 additives a well-maintained car doesn’t need

Mikael — Sat, 18 Feb 2012 10:14:51 +0000

Those designed to reduce knocking may actually do so, but using them simply masks a problem. It doesn’t fix it. Engine knocking is a sign that your car needs a repair, so make a trip to your mechanic to rectify the problem instead. Tests on additives designed to clean your fuel system have not been shown to make any significant difference in reducing corrosion or deposits and don’t improve performance, while tests on additives that claim to improve gas mileage never have shown significant improvements, the Environmental Protection Agency says. The only gas additive that has proven useful is a stabilizer, but this should only be used in cars that aren’t driven very often.

Extended-life radiator coolants

The proper mix of radiator coolant and water is essential to keeping your engine cool in both hot and cold temperatures as well as to prevent corrosion. Some coolants are promoted as extended life, and they use a different type of corrosion inhibitor.

While the claims are valid, automakers designate their cars for one type or the other, so don’t assume extended life coolant is best for your car, and never mix the two types as that affects the corrosion inhibitors.

Check your owner’s manual to see which type is recommended. You can confirm the proper fluid has been used by the color. Green or red is regular coolant and orange is extended life coolant. Follow the manufacturer’s schedule for draining and replacing the coolant as well. More frequent coolant flushes are a waste of money.

Oil additives

With an older, high-mileage car, it’s easy to believe the engine is getting tired and needs an additive to improve performance or reduce wear. But oil additives simply don’t work and may actually harm your engine, according to numerous independent testing agencies.

In fact, the Federal Trade Commission has gone after several companies that sell these additives for false advertising. The dreaded engine sludge that causes an engine to run poorly or even seize is a rare occurrence and typically happens only when oil changes have been neglected or if the car has been driven a lot with an extremely low oil level.

Delinquencies and foreclosures drop

Tim Hill — Sat, 18 Feb 2012 03:49:29 +0000

The percentage of delinquent mortgages declined and fewer loans were in foreclosure in the last quarter of 2011, says the Mortgage Bankers Association.

But we’re still only halfway through the problem, says Jay Brinkmann, MBA’s chief economist. Prior to the recession, the delinquency rate was about 5 percent, according to the MBA.

Another good sign is the combined percentage of loans that were in foreclosure or at least one payment past due was 12.63 percent, a 10 basis point decrease compared to the third quarter.

Delinquency rates and foreclosure starts fell in almost all types of loan, including prime, subprime and ARMS. The exception was FHA loans, which saw an increase in delinquency and foreclosures

Before the crisis, FHA-insured loans accounted for about 3 percent of all mortgages. These days, FHA loans account for about 30 percent of the market, the MBA says.

More than half of all mortgages in foreclosure are concentrated in a handful of states: California, Illinois, New York and New Jersey.

Follow me on Twitter @Polyanad

Figuring credit card promo rates

Mikael — Thu, 16 Feb 2012 07:34:39 +0000

In other words, if you have two different promo balances on the same card, with both at zero percent currently, is the bank required to apply the payment to the balance that has the promo ending first?

– Dorothy

Dear Dorothy,
The scenario you’re describing involves a key provision of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Credit CARD Act. This provision, which took effect in February 2010, says a credit card issuer must apply the portion of the payment in excess of the minimum required first to the card balance bearing the highest rate of interest and then to each successive balance bearing the next-highest rate of interest until the payment is exhausted.

This rule is easy to understand if you have two balances on one credit card with different interest rates, but it’s not so clear when it comes to having two balances that have the same promotional interest rate but different expiration dates.

Unfortunately, the law doesn’t specify what credit card issuers must do in the latter situation. According to the Federal Reserve’s official staff interpretation of Regulation Z, which implements the Credit CARD Act:

“(The relevant section of Regulation Z) generally does not require that any particular method be used when allocating among the balances with the same annual percentage rate.”

In other words, don’t bank on the issuer applying payments in the way you’d prefer.

However, once the first promotional period ends in February 2012, the rate on that balance would increase. At that point, the issuer would have to apply the portion of the payment over the minimum amount to that balance first because it would have a higher interest rate than the balance transfer debt.

Before doing a balance transfer, try to pay down the existing balance as much as possible. Ideally, you’d pay off the debt completely or do the transfer through a different credit card with a zero percent interest rate on balance transfers.

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To ask a question of the Credit Card Adviser, go to the “Ask the Experts” page and select “Credit Cards.” Read more columns by the Credit Card Adviser. Follow Leslie McFadden on Twitter.

Military gets foreclosure deal

Tim Hill — Thu, 16 Feb 2012 01:18:59 +0000

Members of the military who were victims of wrongful foreclosures will receive substantial compensation from their mortgage servicers.

The U.S. Department of Justice has reached an agreement with four large lenders — JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — to provide “any service member who was a victim of a wrongful foreclosure a minimum payment of $116,785 plus the service member’s lost equity,” says Assistant Attorney General Thomas E. Perez.

“To ensure consistency with an earlier private settlement, JP Morgan Chase will provide any service member who was a victim of a wrongful foreclosure either his or her home free and clear of any debt or the cash equivalent of the full value of the home at the time of sale,” Perez said in a speech Friday.

The individual agreements are in addition to the $25 billion mortgage settlement announced last week.

Under the agreement, the lenders will review files dating back to Jan. 1, 2006, to determine whether any service members were foreclosed on in violation of the Servicemembers’ Civil Relief Act, or SCRA. The act prohibits foreclosure on a service member’s property without a court approval. When the servicer files a foreclosure suit in court, it is required to notify the court that the homeowner is on active duty. The act also specifies that a service member cannot be charged more than 6 percent in interest on a mortgage loan if the borrower is on active duty and requests a lower interest rate.

Citi, Wells and Ally also will review files going back to January 2008 to determine whether any service member was charged more than 6 percent in interest after requesting a lower rate. Those who had that right violated will receive three times what they paid in excess interest, or $500, whichever is larger. Chase has already compensated members through an earlier private settlement.

Now that is what I call a settlement. It’s certainly much better than the mere $2,000 that nonmilitary borrowers may receive under the $25 billion federal-state mortgage settlement.

The Department of Justice says military members who are eligible for compensation will be contacted. Keep in mind it will take time to review files and identify eligible members. If you have questions, you may call the DOJ at (800) 896-7743.

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