7 New Year's Resolutions to Get Your Finances in Shape in 2018

New Year offers the chance of a fresh start, and one of the most positive changes you can make is to get your finances into shape. When your money's under control, life's less stressful in most other ways as well. Here are seven New Year's resolutions which will help smooth your financial path through 2018.

 

Stop One Bad Habit

The path to a better budget is easier when you take it one step at a time. This New Year, think of one bad financial habit you have and aim to eliminate it as soon as you can. Whether this is online impulse shopping you later regret or a weakness for eating out when you can't really afford it, making one single change is more achievable than trying to change your whole financial life around.

But what's more, once you're comfortable with losing one bad habit, you can move on to the next. Over the course of a year, many small efforts will build up to excellent results.

Promise to Check Your Statements

When your credit card or bank statement comes through your door (or into your email inbox), it's tempting to ignore it. This is especially true in January, when your spending over the holidays can make for painful reading. However, leaving your statements unopened is a fast track to financial uncertainty.

Carefully reviewing your transactions list can alert you to patterns of unnecessary spending you can cut back on, as well as possibly showing up subscription payments still being made for accounts and services you no longer really need.

Check Your Credit Report

In the same way, making a pledge to regularly check your credit report can pay excellent dividends. It may be daunting to do this if you suspect your credit rating is less than perfect, but until you know your real situation you can't begin to deal with it.

Also, regularly checking your credit file will give you a chance to spot any fraud attempts before they wreak havoc on your financial status.

Prioritize Your Debts

Paying down debt is always an excellent resolution to make, but for best effect, you need to go about it with proper planning. It may be tempting to try and clear your smaller debts first so that you feel like you're making progress instead of throwing spare cash at a large debt which doesn't seem to get any smaller. In fact, the better option is to focus your efforts on whichever account has the highest interest rate, reducing this largest drain on your finances as quickly as possible.

However, if you value the psychological boost of clearing small balances, make sure you redirect payments on newly cleared accounts toward your next most expensive debt, to set a snowball effect rolling.

Pay More Than the Minimum

No matter which other kinds of debt you have, if you have credit cards in the red you should always try to pay more than the minimum statement amount. If you stick to the required amount, almost all of it is swallowed up by interest and charges, leaving your actual debt largely untouched. Every dollar extra you can pay will have more effect than you might think.

Start Saving

Even if you can only put aside a small amount each month, getting into the savings habit is a good idea. Also, it's easier to take saving more seriously when you see an amount start to pile up rather than putting it off because you think you can't afford a worthwhile amount. Ideally, consider starting a retirement plan, but if you can't stretch to that, squirreling away a few dollars a month into an easy access account is a start. You can always invest the proceeds in a more formal plan later on.

Spring Clean Your Accounts

Lastly, take the New Year as an opportunity to give your finances a spring clean. Do you have any old bank accounts which are open but not used? Or cleared credit cards you've been keeping in reserve? If these accounts are attracting charges, then it's essential to close them. Even if they're not costing you anything, formally closing them will simplify your financial landscape, reduce the amount of mail you get, and make it easier to concentrate on your active accounts.

If you've ever imagined what life would be like with smoother finances, then the New Year is an ideal time to start taking action, and every little step will take you nearer to your goal.

Proposed Tax Changes Could Mean a Change in the Real Estate Market

Details about the Tax Cuts and Jobs Act were released on November 2, 2017, and though it was promised that mortgage deductions would not be affected, there have been several noticeable changes. The bill is still in its early stages, but it is important to know how it could affect your home buying decisions in the future.

Here's What Could Change:

•   Under current law, homeowners can deduct mortgage interest on home values up to $1 million. The proposed bill would cut this in half, to $500,000. What this means is that under current law,  if you buy a house with a $1 million mortgage your deductible interest would be $50,000. Under the new law, you would only be able to deduct $25,000 on that same $1 million mortgage. The reduced cap would only apply to new homeowners. Existing homeowners will be able to continue to deduct on values up to $1 million. The bill also limits the deduction to your primary residence, no longer allowing a deduction for a second home.

•   The new tax bill plans to double the standard deduction. For married couples, this means that the deduction would increase from $12,700 to $24,400. The Tax Policy Center estimates this will drop the number of taxpayers itemizing from 21% to 4%. 

•   Property tax deductions will still be allowed, but they will be capped at $10,000.

•   Current law allows homeowners to forego paying capital gains tax on the sale of their house as long as they have lived in their home for two of the last five years. The new law would increase that to five of the last eight years. Homeowners would also be limited to using the exemption once every five years instead of once every two.

How Does this Affect the Home Buying Market?

The proposed changes will affect buyers, sellers, and real estate professionals across the board. Sellers will be less likely to sell and buyers will find it harder to buy or find little reason to do so. Builders and realtors will also feel the effects of a less active market. With these changes, it is very likely that homeowners will be less likely to move. Anyone with a home worth more than $500,000 will lose money if they go to move. While they are grandfathered into the $1 million cap with their current home, once they go to move they drop down to only being able to deduct interest on the first $500,000 of their loan. This could cost them well over $10,000, depending on the price of their home. The changes in the capital gains laws will also decrease motility. While the average homeowner stays in their home ten years, homeowners looking to upsize or downsize sooner may find it's best to wait.

Though it may seem that only those in the higher end of the market will be affected, the changes will affect everyone else as well. The increased standard deduction will make it harder to be able to itemize your return. Buyers frequently factor in the savings they will see in mortgage interest when determining how much they want to spend on a house. In order to deduct your mortgage interest, you must itemize your returns. By doubling the standard deduction the law would drastically reduce the number of people that itemize. Losing the ability to write off mortgage interest will likely cause many buyers to consider buying a less expensive home. The tax plan is still in its early stages and right now homeowners just have to wait and see. That being said, it may be smart to consider these possible changes if a move is in your near future.   

Facetime with your banker

The times have certainly changed! Just a few short years ago no one would even have thought of applying online for a mortgage. A recent study by the American Bankers Association showed that 60% of real estate borrowers today prefer to apply in person for their mortgage instead of applying online.  I’m not surprised that it’s 60%, I’m surprised that 40% of today’s borrowers would choose NOT to be face to face with their banker. That same survey revealed that 66% of today’s borrowers are not confident with their knowledge of the mortgage process. Could be a fairly strong correlation and the reason the borrower would want a ‘real’ person helping them.

What’s in your wallet (or home equity)?

CoreLogic recently showed that the value of home equity has doubled in the past five years. Most of that is not from borrowers paying down on the principle but in the added value of real estate. The value has gone from $6 trillion five years ago to $13 trillion this year. Not only that, but CoreLogic is predicting another $1 trillion additional being added to the equity side in this year alone! Now there is a wide variation depending on what part of the country you are in, but everyone has gained equity.

Property taxes to high?

Are your property taxes too high? If you think so, you’re standing with some pretty high rollers. Walt Disney Parks (Magic Kingdom, Epcot and Hollywood Studios), along with SeaWorld, Universal Orlando, and other commercial property owners have filed over 100 lawsuits against the Orange County Appraiser Rick Singh. But believing that their properties assessments are exceeding fair market value and proving it in the Orange Circuit Court will be two different things!

The county assessor (Singh) valued Epcot at $446 million, Magic Kingdom at $437 million and Hollywood Studios at $339 million. There are other lawsuits for quite a few hotels that are not just owned by Disney, but by other corporations.

Household debt

The New York district Federal Reserve came out with a very interesting report, household debt has hit a level that is above the peak level of 2008! Does this mean we’re in trouble? I don’t think so. Household debt level includes credit cards, consumer loans (such as autos), student loans and also real estate (or home loans).

Real Estate loans have dropped from a 2008 high of 73% to 68%, and with the tougher lending requirements since 2008, those real estate loans are in good position credit wise. The real difference in credit from 2008 is student loans and auto loans. Those categories are significantly higher.

Total delinquency for all loans was flat for the last quarter at 4.8%. This is the lowest since the recession. Student loans represent the highest delinquency rate at 11%. The growing household debt shows that most of those people who struggled through the ‘Great Recession’ have reestablished their credit and are borrowing again. That’s good! 

Feds close Wisconsin Bank

The week after Comptroller of the Currency closed First NBC Bank of New Orleans another billion dollar plus bank was closed, Guaranty Bank of Milwaukee, Wisconsin.

Bad loans seemed to be the primary cause but Guaranty Bank also had an insane number of branches located in grocery stores. Out of 119 branches, 107 were located in grocery or similar retail outlets.

I have often discussed Efficiency Ratios (non-interest expense/net income) and how important it is for a bank’s profitability. A strong cost foundation is the most significant influence on sustained profitability. The best performing banks run around 52% efficiency ratios, while medium performing banks run around 75%. That’s a large difference and I bet Guaranty Bank with all of their overhead was running significantly higher.

One benefit of a community bank working with SAMCO is lowering a bank’s non-interest expense, thus improving their efficiency ratio. The lower the ratio the more profit a bank will generate. Call us if you would like to know more. 

Wow! What a hit!

In April one of the largest bank failures in years occurred. State regulators shut down First NBC Bank, New Orleans. The FDIC was appointed the receiver and they promptly sold a small part of the assets (about 1 billion) to Whitney Bank. The December total assets of NBC were 4.74 billion. Of course, no customers lost money, but the FDIC really took a hit to its Deposit Insurance Fund.

A combination of aggressive lending and bad timing led to their downfall. That’s where sound appraisals help protect the community bank.

This is the largest failure in years, and you have to go back to 2008-2009 to find a closure of this size. It can still happen though. But the banking industry has come out of the woods and grows healthier every year.

Ohio House Bill # 463 Plywood vs. Polycarbonate Sheeting

Ohio recently enacted a ban on the use of plywood when boarding up vacant properties. Ohio is also the first state to enact a ban of this type. Property preservation has been a significant issue for many states that have areas of abandoned properties. To see a neighborhood of boarded-up houses creates a neighborhood blight issue that is hard to overcome.

Polycarbonate clear boarding is the board up the material of choice. While it resembles glass, It is also extremely hard to break and secures property without standing out, which creates less of an abandoned look. The cost is a key factor of polycarbonate vs. plywood. The cost of a typical 4 x 8 sheet of plywood is usually $ 20.00 to $30.00, while a polycarbonate sheet is closer to $115.00 - $150.00 a sheet.

Fannie Mae was an early adopter of this home preservation method. In the last several years they have retrofitted over 4,000 houses and over 11,000 properties with this type of home preservation. The official start date for Fannie Mae’s use of alternatives to plywood was November 9, 2016.

There is some opinion that the cost of polycarbonate alternative is prohibitive to lenders with REO / Banked owned properties. The other side of the argument is that this solution presents a more amenable, aesthetically pleasing option to controlling neighborhood blight. As an appraiser, a lender, or just a neighbor, what are your thoughts? Should other states be looking at this option? Is this a viable way to offset the issue of neighborhood blight that every state seems to be battling?

 

Video: Product Demonstration-City of Warren Oh

Source: DSNews.com – "Ohio Governor Signs Plywood Ban Into Law."

Source: Dayton Daily News – " Ohio’s new plywood ban on vacant houses could change Dayton’s blight."

March 2017 Origination Insight Report - EllieMae

Ellie Mae recently provided information on the loans flowing through their platform. They are a software provider that was founded in 1997 that many community banks utilize. Right now, they are handling almost a quarter of the loans made in the United States. That’s a decent % and the data they provide is a good reflection of the actual mortgage market.

The March data looks like this: 63% of their mortgages were purchase, and 37% were refi, a significant change from the past nine months. Refi’s had been running in the mid to high 40’s. The time to close (all days) was an across the board 43 days.

What I found really interesting was the FICO scores. The average score on all closed loans increased slightly in March to 721. Below are graphs of the average FICO score distribution for All Purchase, Conventional, Refinance, and FHA.

So compare this info to what your bank is doing. In my experience community banks tend to lead on performance for closing days. Service, like SAMCO, is what they provide and sell!

 

See full reports from EllieMae: Origination Insight Reports

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About Us

In everything we do, we believe in open and honest relationships. In knowing our client, the community banker, the way they know their customers and community. 

The way we achieve that client relationship is by always being available, improving our client's service to their customer, providing regulatory compliance, and saving our client actual dollars. This is accomplished through working together as a team, being completely open and frank to our SAMCO teammates/clients, and by taking personal responsibility. 

 

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