Wednesday, April 24, 2013

Tax Time Promises to Keep

Do you end up filing your income taxes on the last possible day, sometimes even at the last possible hour each year? If so, it's time to clean up your act. Why put yourself through the stress of last-minute filing when you can make a plan now, follow through with it, and be happily spending or saving your refund next year when April 15th rolls around?

Start by asking yourself what goes wrong or delays you. Are your tax papers scattered around your home? Have you moved? Have you held several jobs and found it hard to obtain all your W-2s? Do your living circumstances change frequently? Has your marital status changed? Does a family member refuse or forget to give you important information or documents? Is a daycare provider or religious institution lax in giving you a written yearly accounting? All these can affect getting organized in advance.

Or is your problem finding the time in January, February, or March to go to a tax preparer? Although there are long waiting times in certain volunteer tax preparation spots, others take appointments. A little digging can put you in contact with whatever agency runs each site and you can learn where your most efficient tax prep venue will be.

Accountants of course will take appointments. Get recommendations and look for an accountant in the summer, once they've filed their on-time returns and taken a vacation, and aren't yet working heavily on the automatically extended returns due in October. Then agree on an appointment date for next year and mutually generate a list of items you will bring with you when you do meet with the accountant.

If you do your taxes yourself, get into the habit of paying attention to announcements of new tax rules, so you'll be prepared for them come next January. Download any new forms and instructions and read up on changes. File change of address forms if need be. Get disability letters and divorce decree information about dependency and the Earned Income Credit organized. Determine if your projected income for the year qualifies you for free filing by a commercial tax preparer, and if the complexity of your return next year will require a professional.

If the reason you edge up to the tax deadline each year is that you're very busy, make an appointment with yourself. Block out the time in advance. In fact, make two appointments. The first is for locating all your documents, buying tax software, or downloading tax forms and instructions from and from your state tax department website. You also should determine how much time you need to do the basic work of filling in the blanks, calculating the dollar figures, and checking your accuracy and completeness. The second appointment with yourself is to do the actual tax returns.

What about all those papers that must be organized before you can even start your tax return? Start organizing them now, when they haven't yet grown to be a huge stack. As I've described in a prior post, Record-Keeping Tips, any organization method that works for you is the right method, as long as you use it consistently.

Although many of the tax documents you'll need for your tax return will be received next January or February, you can prepare for them now. You can create a folder or large envelope in advance for all employment documents such as W-2s and 1099s, or for retirement documents such as 1009-Rs or 1099-SAs. Then, when the annual statements arrive, you'll know exactly where to put them.

Do the same thing for any other kinds of receipts you'll need, such as real estate bills and proof of payment, personal property and local fire and ambulance taxes, medical bill copays, and more. Remember that if you plan to claim mileage for medical, charitable, or self-employment travel, you need to keep a notebook in your car and enter the details of each trip on the day the trip happens.

Of course, you might just hate taxes and always want to put them off until the last minute. Even though taxes don't take any less time to do in April than they do in March, some people procrastinate out of sheer cussedness. It's our way of shaking our fists at the governments that tax us. But if that attitude leads to a pressured April next year, ask yourself if a little advance planning and organizing will make your next tax day more pleasant.

Wednesday, April 17, 2013

Mortgage Loan Doubletalk

As you may know from reading this blog for the past year, because mortgage rates are significantly lower today than they were when we bought this house, we've been trying to get a mortgage refinance loan. "Trying" is the operative word, because when a home has lost value, what started as 20% equity becomes far less. We put a 20% down payment on this house when we bought it, and we've been reducing the principal for nine years. Of course in the first years our mortgage payments mostly went to interest, not principal, but the loan amount did edge down by thousands of dollars. Not enough. In the recent catastrophic freefall of real estate, the value of our home declined by about 20%. Whoops.

Our original lender turned us down for a conventional refi that was advertised as a "no closing costs" loan, citing the loan-to-value issue after generously paying for a new professional appraisal. We proceeded to a HARP 2.0 loan, but found it very difficult to locate anyone in our area willing to do such a loan. Then we tried online, but looking for a loan online is like jumping into a shark tank without armor. We took the plunge anyway, and found a plausible enough credit union to broker the loan. Then we encountered massive delays from Fannie Mae, a nongovernmental agency that acts in a red-tape style that would make any federal bureaucrat proud. Delay, delay, delay. Some of the delay was caused by an incompetent loan processor, but most was caused by Fannie Mae over a paperwork issue that I've previously detailed. Finally, we cleared that hurdle, but then had to redo all our paperwork. This is not fun if you don't own a bulk scanner. Living out in the country as we do, we calculated that the gas cost of going to the nearest copy shop was far more than the aggravation cost of scanning and uploading forty-plus pages ourselves. Even though we had to do it several times.

But still there were delays. The lender wanted explanations in writing. The lender wanted new documents. The lender wanted documents redone. And the cost of the loan was so wrapped in obfuscatory language that we did not know the actual cost. Yes, the Good Faith Estimate is required by law, but is it required to be confusing? Why was the origination charge listed as $8,387, but a credit shown for $9,155? Why was the adjusted origination charge then a negative number? How was this company getting paid? Numbers like this created great uncertainty for us. And don't get me started on the Itemized Fee Worksheet. We're reasonably intelligent people, but these numbers never made any sense. Even with the company loan processor on the phone explaining them one by one.

Have you ever been to a doctor who says you have some complex medical condition, and then you've gone home and tried to explain it to a family member and been unable to? Because, basically, the doctor's explanation did not make sense to you? Well, these loan pages are like the doctor experience. They make sense at the time only as the mortgage professional cites them, because that person uses a convoluted system that does not correlate to how we ordinary people understand and conduct monetary transactions.

Frustrated by the endless delays and the confusion, we decided to check out an alternative, a direct mortgage lender that advertises heavily on television and online. By contrast with what we had experienced so far, their charges and process could not have been clearer. They offered to charge $1,500 as an origination fee, $500 of which we'd have to pay up front to them as earnest money, but which gets credited at the time of closing. And that's it. This might not be a universal fee for all the loan products they offer. I'm not claiming that I understood exactly what got credited at closing. I didn't. But it was a clear fee.

I talked to them again a couple days later and they explained that the $500 earnest money is either credited in full at closing or $250 of it is refunded to the customer at closing and the rest of it is credited. The customer's choice. One would think that learning this would have cleared everything up, but then this lender introduced a confusing new wrinkle. They offered to do our loan for only $250.


I thought I understood a clear fee amount. But now I see that if I had accepted their first offer, I would have overpaid $1,250 for this HARP 2.0 loan. Sure, they gave me some doubletalk about rates falling in the past two days, but I can check the rates online myself, and they fell .01 % the first day and .01% the second day. This is not a drop big enough to explain why the lender would suddenly be willing for forgo $1,250 on this loan. All it does is tell me that if I had agreed to the first offer, I would have been a sucker. I'm not trying to pillory the lender here, which is why I have updated this post to remove their name. But that second offer cut the land right out from under my feet.

So I'm back to comparing apples and oranges, and pondering what I am missing in all these figures. This latest lender's fees are refreshingly openly stated, but the way in which they make a profit sufficient to pay for the time of the three people who tried to sell me their loan is still unclear to me. It is equally unclear to me how my first lender and my second lender planned to make a profit. I feel as if I have wandered into a car dealership, where the sticker price is not the real price, and the dealer price is not the real price, and so on and so on, ad infinitum. I'm trying very hard to grasp where these financial companies make their profit. According to what I've found from SF Gate online, here are the possibilities:

1. Yield Spread Premium. The lender buys the money at a rate cheaper than it lends it out, thus potentially making a profit of hundreds or thousands of dollars, depending on the size of the loan. This seems most likely.

2. Mortgage Backed Securities. The lender bundles many types of loans together, some high-risk and some low-risk, and sells them as investments, at a profit. Maybe.

3. Loan Servicing. Separate from selling the loan to Fannie Mae or Freddy Mac, the lender either retains or sells the right to service the loan, which is a profitable business because the dollar amounts involved in home mortgages are so large. The loan servicer gets to keep all the late fees, after all.

4. Discount points. The loan customer buys the right to a lower rate by paying points when closing on the mortgage. None are listed on any of the loans we've been offered, but this is a clear cost to the borrower.

5. Loan Closing Fees. These include junk fees and overpriced fees such as charging $75 for a closing day credit check that only costs the lender $25, and also title fees and attorney's fees and others that can add up to a lot of money. These fees ordinarily are paid by the borrower. But if a lender has said there are no closing costs on a loan, obviously this is not where the profit lies.

Undoubtedly, as a customer's circumstances vary, so will loan offers. Some loans might cost many thousands more. At first, $1,500 was a clear, precise number, until it became $250. It wasn't huge numbers and then subtracting other huge numbers and then adding in more fees and yet subtracting some of them, too. But then it was another version of the same. I am disappointed.  

This stuff makes my head spin, and we're not done yet.

Friday, April 5, 2013

The Easy Way for a Hoarder to Empty a Room

 How to empty (NOT SORT) a room:

This is what you do before a mover comes to move the heavy furniture.

Get thin cotton or plastic gloves, markers, packing tape and regular tape, packing paper, bubble wrap, and labels. Obtain a large supply of cartons, all in one or at most two sizes. Set up each carton as you need it. 

1. Fill a carton by placing everything from one area inside it, working from top to bottom until all furniture is empty. Use packing paper or bubble wrap as necessary to cushion items but do NOT attempt to group like items. Keep everything together that was together in the room. Wear the gloves so you do not get distracted by the texture of the items to be packed.
2. Label each carton with the name of the room and the piece of furniture:, e.g., "Mom's room, top dresser drawer," or "Top of bureau, right side." This creates a record of where the items were visually.
3. Repeat for the closet. If the hanging clothes will not fit in a carton, put them in large plastic bags and tape on a label identifying the origin closet, e.g., "Mom's closet left side" or "Mom's closet middle."
4. Remove and carefully wrap all photos, paintings, and wall decorations. Put into cartons and label the cartons describing which wall or surface the items came from.
5. Do NOT attempt to "sort" or "go through" or "organize" any items.
6. Do NOT attempt to throw anything out, separate anything out for donation, or hold anything aside for any reason. Pack everything.
7. Even if an item is trash, pack it and label where it was found, e.g. "Mom's room, east windowsill."
8. Do not leave anything in the room. Empty all drawers, closets, walls, and surfaces.
9. Check behind and under the bed and other furniture for stray items.
10. Remove and pack bedding.
11. Move all cartons to a previously determined storage area.

You're done!

This method will work best if you can still see furniture. If you can't, modify the labels to reflect exactly where in the room the contents of each carton came from, e.g., "Mom's room, top of pile of papers on her bed, near foot."

The idea behind this technique is to empty a room without engaging any sorting or organizing, thus without overwhelming yourself. The labels should describe exactly where in the room a carton's contents come from, so that you can visualize the room and know which carton has which items. 

Visual memory is very strong. It is NOT necessary to GO THROUGH, SORT, or ORGANIZE items if all you want to do is remove them from one place and put them somewhere else. Do not destroy your visual memory of how the items were placed before they were moved. Embrace it and use it to keep your items organized the same way now that they are inside cartons. There will be some other day when sorting happens. Today your goal is to empty a room.

Monday, April 1, 2013

Our Bank's Wily New Game with Mortgage Bills

Ordinarily, when a bank wants its customers to do something, it makes the desired action appealing. If the bank wants more CDs purchased, it offers competitive rates and time periods to encourage people to buy them. If it wants more checking account customers, it offers free checking, free checks, free overdraft coverage, or a host of other amenities.

But what if a bank wants you to pay your mortgage automatically online every month? But does not want to offer any positive incentives? Our bank has thought of a clever way to drive traffic to online mortgage payments: Send the mortgage invoice so late in the month that you'll chance a late payment if you don't mail your check the very day after you receive your invoice. Create stress, so customers try to relieve that stress by agreeing to online automatic payments. No need to make online automatic payments appealing except as a safer bet than waiting all month for an invoice to arrive by mail.

In February, our mortgage invoice had a statement date of 2/21/13, but arrived in the mail on 2/27/13. According to the person I raised on the phone after waiting half an hour because of call volume, the bank had accidentally mailed the statements a bit late because of the President's Day holiday. Plausible answer.

In March, our mortgage invoice had a statement date of 3/15/13, a week earlier, but arrived in the mail on 3/28/13. I did not bother to call and ask what important holiday in mid-March mysteriously made it impossible for our bank to mail its mortgage invoices promptly. The only March celebration this year was St. Patrick's Day and I don't like the idea that my bank was too hung over to mail the bills on time.

Mortgage invoices state a due date of the first of the month. As far as I know, legally, anyone sending a bill has to give the receiver two weeks to pay it. Our bank has obviously decided that those two weeks should be after the invoice is due, just to rattle as many of its customers as possible and send them in the direction of skipping the hassle and just signing up to pay online.

This is sheer genius, although of course it's also pretty rotten to send bills deliberately so they arrive almost late. The U.S. postal system has fewer pieces of mail to move these days and so I can't ascribe these late-arriving invoices to the mail moving slowly. There was no cancellation on the envelope to prove my supposition that the mortgage invoices are deliberately being mailed very late in the month to push its customers to pay online instead of stressing out over a situation our bank has created itself. This is all my guesswork. Perhaps in March our bank simply could not get its newly redesigned mortgage invoice (which now uses TWO pieces of paper instead of ONE--way to save the planet!) into the mail at the proper time because of a printer delay.




Why would a bank want online automatic payments?

1. It can lay off people who currently monitor its snail mail and send the checks through the check machines.
2. It can stop mailing paper invoices, thus saving itself postage and printing costs, and again, making it possible to lay off the staff that handles the outgoing mail function.
3. It can take the money on a set day of the month every month, instead of waiting for the checks to arrive and then having to ask another bank to make good on a paper check and possibly wait an hour or two. (Yes, interbank business is that fast these days.) Again, fewer staff positions are needed.
4. If a bank gains control of millions of dollars even two or three days earlier than it usually does each month, it can manipulate that cash to earn itself lots of money. You and I can't make any money that way, but a bank can.
5. By making it almost impossible to respond to the mortgage invoice on time unless you pay very good attention and send the check the day after the invoice arrives, our bank also is deliberately encouraging its customers to pay late and incur penalties. Some people don't sit down and pay their bills the very day each bill arrives; they wait a week or so until they get their next paycheck. If a customer sees the bill and tosses it on a pile, the chances of the payment not being made on time increase dramatically. In the past, other banks have been convicted of deliberately holding mailed payments, sometimes without even opening the envelopes, until the payments are late. In this situation, our bank has created a scenario for easy abuse. Does it really take the Post Office six days to get a letter from one state to the contiguous state? I have a feeling some people could end up arguing about this with our bank. Meanwhile, our bank pockets many late payment fees from low-risk customers who actually do have the money to pay their mortgages but simply got caught by this late-arriving invoice game.
6. Finally, if a mortgage payment posts late, it can create negative credit information that will lower your credit score, thus making the cost of banking services such as consumer loans more expensive. Why would our bank want that to happen? Well, why not? Banks are in business to make as much profit as they can.

Could I be wrong about this? Could our bank simply be incompetent about getting its mortgage invoices in the mail by the middle of the month? Am I merely fantasizing that this is all a very clever and nasty method of wringing more money out of mortgage servicing? I don't think so.