Home equity is the difference between the property value and what you owe on your mortgage. For example, if your property value is $2,50,000 and your mortgage balance is $1,50,000, then it means that you’ve a equity of $1,00,000 in your property. As you pay off the mortgage every month, your home equity will get increased.

Why is home equity tapped?
Home equity loans as well as home equity lines of credit have been used by the borrowers to fund property improvements. Such improvements include remodels and additions. A large number of people also tap their home equity in order to pay off their bills or consolidate their unsecured debts.

How can tapping equity affect the borrower?
Most of us find it very appealing to tap the equity in our homes to pay off other debts. Such loans are available at a lower interest rate compared to a credit card. Moreover, unlike credit cards, home equity loans are tax deductible. However, tapping home equity loans may have a negative impact on the borrower. It won’t help you in eliminating your debt. Rather, you’re jeopardizing your home for paying off the unsecured debts. Unlike credit card debts, a home equity loan will put your house at risk as it is a secured loan.

Thus, you should only go for a home equity loan to pay off your unsecured debts when you’re sure that you’ll be able to pay off your equity loan. If you’re unable to do so, your property will be foreclosed which will have greater negative impact on your credit report compared to credit card debts.

In a recent announcement, the IRS has announced that it will reduce the number of liens that it would place on property which are owned by people who are unable to pay their taxes. The IRS will also make it easier for taxpayers to get their existing liens withdrawn.

What is a tax lien?
A tax lien can be defined as a lien which is placed by law on a property in order to obtain the payment of delinquent taxes. A federal tax lien helps the IRS to claim a taxpayer’s property for the amount of an unpaid tax debt. A tax lien will reduce the taxpayer’s credit score significantly. It will be difficult for the person to sell the home unless the lien is paid off.

Why has the IRS become lenient on liens?
Since the start of the recession, tax liens have become very common. It has been increased by 60%. The IRS has decided to go lenient as it makes it quite difficult for any person to find a job, or get a mortgage or buy insurance if they have a tax lien on their property.

What changes have been introduced by IRS?
The changes that have been introduced regarding the lien filing practices include the following:

• Easy to obtain lien withdrawals after paying the delinquent taxes.
• Increase the dollar threshold when liens are issued leading to fewer tax liens.
• Easy access to Installment Agreements for small businesses.
• Remove the liens when the taxpayer enters into a Direct Debit Installment Agreement.
• Expand the streamlined “Offer in Compromise” program to include more taxpayers.

This is an important step in the right direction taken by the IRS. Let’s hope that these steps finally have a positive impact on the economy.

The year 2011 is already 2 months old now. Many of us have taken a resolution of building up some wealth this year. Most of us now agree that it is very important to get rid of our debt and increase our income or build some financial security.

Here are 5 ways in which you’ll be able to build up your credit:

1. Get rid of high interest credit cards: In order to build wealth, you should make sure that you reduce the money that you pay off as interest payments. Thus, you should get rid of your high interest credit cards. You should draft your own personal spending plan with the help from a certified credit counselor. If you’re able to stick to that plan, it will be easier for you to begin the process for building wealth.
2. Fund your retirement: If you save 2% of the money which you pay in Federal Insurance Contributions Act. You should use this extra money to fund your 401k account. You can speak to your human resource department and change the deductions. Thus, you’ll be able to save a little more than you normally do.
3. Invest money in mutual funds: Investing money in low-cost mutual funds is considered to be one of the best ways to build wealth. However, there is always a risk of losing money in stocks. So, you should take professional help in order to invest money in mutual funds.
4. Take out a mortgage: Buying a home is also a good way of building wealth. Mortgage is known as good debt. The mortgage rates are going quite low. You can invest your money in it and also live in the property. You won’t have to rent a property and drain your money as rental payments. Moreover, with time, you will build up equity in your property. Thus, you can cash in the equity in the form of cash out refinance whenever you require it.
5. Start a business of your own: Using your free time to start a side business will help you in building your wealth. You should choose such a field which you’re passionate about so that you can give time to it after your job gets over. This is a good option for the unemployed people as well.

The Treasury and the Department of Housing and Development have finally come up with some straight talk regarding the mortgage system of the nation. The Obama Administration has finally gone on record to say that Fannie Mae and Freddie Mac should go out of the mortgage business. As per the Obama Administration’s proposals, Fannie Mae and Freddie Mac should wind down within the next five to seven years.

How will it affect our lives?
It is not clear how such a move will affect our lives. Though it is a sensible move, no one is sure whether or not it will be enough to prevent taxpayers from having to bail out institutions who will back mortgages in the future. It should be noted that our financial services industry is used to taxpayers ride to the rescue when it gets into trouble.

There are some important groups which are lining up against significant reductions in the government’s role in the mortgage industry. These include the likes of:

• Mortgage Bankers Association
• The Financial Services Roundtable
• The Center for American Progress

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Anti-government protests are increasing in Egypt day by day. However, the outcome of the bloody demonstrations in Egypt remains unclear. In the meantime, the United States is condemning the violence and has urged Hosni Mubarak, the present President of Egypt, to step down.

Can Egypt’s political situation affect the U.S. economy?

The turmoil in Egypt has already affected the U.S economy. Oil prices have been increasing in the past two weeks. Rising in oil prices will hold back the economic growth of the country. Apart from this, the bloody demonstrations in Egypt has increased risk premiums on shipping insurance which will in turn further increase the cost of oil and gas imports.

The political unrest in Egypt has increased the concerns about the operations in the region of Suez Canal. This is an important point between the Mediterranean and the Middle East and Asia for petroleum products and other types of cargo.

Could the US military get involved in this turmoil?

It is quite unlikely that the US military will get involved in the political unrest. The present protests in Egypt will not pose any direct threat to the United States. Also, it has been noted that the United States does not want to interfere with the democratic aspirations of the common people.
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In order to trim down the debt of $3.8 trillion dollars, National Commission on Fiscal Responsibility and Reform is thinking of reducing income tax deduction for mortgage interest payments. The Commission is planning to eliminate second homes, mortgages of more than $500,000, and home-equity loans from receiving any kind of tax deductions.

If thus new rule is passed into law, it will affect the mortgage market in a negative way. Lets take a look:

• With an unemployment rate of 21%, the new rule will lead to a further downfall of the housing market.

• Reducing or ending deductions may further lower the home prices leading to an increase in number of underwater properties.

Most experts are concerned about the federal deficit but also believe that reducing or ending mortgage interest deductions will have negative affect on the consumers. Most of them believe that limiting deductions is a good idea but it will result in lower home prices. Thus, it’s better to not implement this new rule unless the market becomes stable.

In an attempt to reduce scams and frauds, the Federal Trade Commission (FTC) is making stricter rules for companies and attorneys who help borrowers to get loan modification or other foreclosure-rescue services.

The new rule…
The highlights of the new FTC rule are as follows:

Fees: According to the new rule, mortgage-relief companies won’t be able to collect fees from consumers until they have a written offer from the lender and decide that the offer is acceptable to them.

Restrictions for attorneys: Henceforth, even attorneys won’t be able to collect upfront fees from the consumers. Rather, the attorneys will have to create client trust account and place the advance fees in it. This will help the attorneys to keep their business finds and the clients’ funds as separate.
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The U.S. Department of Veteran Affairs has come up with special mortgage programs and refinance deals on Veterans Day. Any veteran can take help from VA mortgage programs more than once in his or her lifetime. Moreover, VA loans are charging low rates at present. It is available at an interest rate of around 4.25% - 4.50%. So, it’s even worth a refinance as well.

The government also prefers giving out VA loans because it has the second-lowest default rate, second only to USDA farm loans.

Positives of VA mortgage:

• Automatic approval: Qualified veterans who wish to refinance a previous VA mortgage will receive automatic approval from the lender if they had made all the payments till date on time.

• Credit score: In order to get a new VA loan or refinance the existing mortgage, the borrowers should have a credit score of around 620 to 640 which is quite low compared to conventional loans.

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While participating in the forum discussions, I find that a large number of people face financial dangers due to various decisions they take. However, women are more prone to these dangers.

Let’s take a look as to why they are more prone to such dangers.

1. Less knowledge about finance: In a recent research, it has been found women are less likely to understand the stock and bond markets and risk diversification than men. As a result, they are unable to invest in stocks and bonds in order to take advantage of the benefits and earn profit.

2. Women earn less than men: It is a fact that women earn about a third less than men. As a result, they make smaller contributions toward Social Security and pensions. Also, they have less cash available to put in their 401(k) accounts.

3. Motherhood and care giving: Many women leave jobs in order to take care of their children or aging parents. As a result, it interrupts their contribution to their Social Security and pension accounts. Thus, they save less for their retirement.

4. Pensions: There are very few women who get pensions. The number is as low as 29%. This is one of the major reasons why women are more prone to financial dangers as they do not have any retirement savings to fall back on.
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Due to the crisis in the real estate market, foreclosures have increased manifold. As a result, title insurance has suddenly become a hot topic, especially for the mortgage lenders. Whether you’re buying a new property or a foreclosed property, the lenders will require title insurance to issue a mortgage. Due to the increase in foreclosures, the title insurance companies are re-examining if they should cover homes or how they should cover homes that have gone through foreclosure.

Let’s take a look at what title insurance is all about.

Title insurance: What does it do?
This is a type of insurance which will safeguard your claim to a home. When you go for a title search, the title company will actually search to find out if anyone else has any claims over the property. Problems related to the title are normally resolved before the closing of the loan. If you’re purchasing a foreclosed home and if the title company is not satisfied with what it sees, then you may not get an insurance policy.
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