For details and rate information, call (813) 758-1786 or e-mail [email protected]

	Francis Vayalumkal

GET A BETTER UNDERSTANDING OF THE MORTGAGE LOAN MARKET
By Francis Vayalumkal

The mortgage business is an ever-changing industry. It is important that you understand how the mortgage market works and how the lenders make their profit. In doing so, you will gain an appreciation of loan programs and the reason certain loans are offered by certain lenders.

Institutional Lenders

Institutional lenders include commercial banks, savings and loans, credit unions, mortgage banking companies, pension funds and insurance companies. These lenders generally make loans based on the income and credit of the borrower, and generally follow standard lending guidelines. Private lenders are individuals or small companies that do not have insured depositors and are generally not regulated by the federal government.

Primary vs. Secondary Market

Do not confuse these with first and second mortgages. Primary mortgage lenders deal directly with the public. They �originate� loans, i.e., they lend money directly to the borrower. Often referred to as the �retail� side of the business, lenders make a profit from loan processing fees, not the interest paid on the loan.

Primary mortgage lenders generally lend money to consumers, then sell the mortgage notes (in large packages, not one at a time) to investors on the secondary mortgage market to replenish their cash reserves.

The largest buyers on the secondary market are the Federal National Mortgage Association (FNMA or �Fannie Mae�), the Government National Mortgage Association (GNMA or �Ginnie Mae�) and the Federal Home Loan Mortgage Corp. (FHLMC or �Freddie Mac�). Private financial institutions such as banks, life insurance companies, private investors and thrift associations also buy notes.

Mortgage Brokers vs. Mortgage Bankers

Many consumers assume that �mortgage companies� are banks that lend their own money. In fact, a company that you deal with may be either a mortgage banker or a mortgage broker.

A mortgage banker is a direct lender, such as the company I work at; it lends you its own money, although it often sells the loan to the secondary market. Mortgage bankers (also known as �direct lenders�) sometimes retain servicing rights as well.

A mortgage broker is a middleman; he does the loan shopping and analysis for the borrower and puts the lender and borrower together. Many of the lenders through which the broker finds loans do not deal directly with the public.

Using a mortgage banker can save the fees of a middleman and make the loan process easier. A mortgage banker can give you direct loan approval, whereas a broker gives you information second-hand.

Conventional vs. Non- conventional

�Conventional� financing, by definition, is not insured or guaranteed by the federal government. Conventional loans are generally broken into two categories: �conforming� and �non-conforming.� A conforming loan conforms or adheres to strict Fannie Mae/Freddie Mac loan underwriting guidelines.

Conforming loans are a low risk to the lender, so they offer the lowest interest rates. Conforming loans also have the strictest underwriting guidelines.

Conforming loans have three basic requirements:

1. Borrower must have a minimum of debt: Lenders look at the ratio of your monthly debt to income. Your regular monthly expenses (including mortgage payments, property taxes, insurance) should total no more than 25 to 28 percent of gross monthly income (called �front end ratio�). Furthermore, your monthly expenses, plus other long-term debt payments (e.g., student loan, automobile, alimony, child support) should total no more than 36 percent of your gross monthly income (called �back end ratio�). These ratios can sometimes be increased if the borrower has excellent credit or puts more money down.

2. Good credit rating: You must be current on payments. Lenders also will require a certain minimum credit score called a �FICO� (http://www.myfico.com).

3. Funds to close: You must have the requisite down payment (generally 20 percent of the purchase price, although lenders often bend this rule), proof of where it came from, and a few months of cash reserves in the bank.

Non-Conforming loans

Non-conforming loans have no set guidelines and vary widely from lender to lender. In fact, lenders often change their own non-conforming guidelines from month to month.

Non-conforming loans also are known as �sub-prime� loans because the target customer (borrower) has credit and/or income verification that is less-than-perfect. The sub-prime loans are often rated according to the creditworthiness of the borrower � �A,� �B�, �C� and �D.�

The sub-prime loan business has grown enormously over the past 10 years, particularly in the refinance business and with investor loans. Every lender has a criteria for sub-prime loans, so it is impossible to list all loan programs available on the market. Suffice it to say, the guidelines for sub-prime loans are much more lax than they are for conforming loans.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at [email protected]

	Nitesh Patel

PREPARING FOR THE �NEXT GENERATION� OF A FAMILY BUSINESS
By Nitesh Patel

Many business owners harbor a dream that the company they built and nurtured from the ground up will succeed beyond their own lifetime. In passing on their legacy, they hope their own children will reap some of the financial and emotional rewards they enjoyed as their business grew. In reality, only one third of America�s family enterprises are likely to succeed to the next generation.

It is common for family and business issues to collide head-on when planning for the next generation of a family-owned business. Many owners, for example, in an attempt to be fair, may desire to give each of their children an equal portion of the business. But fairness does not always mean equality and while one child may have a high level of interest in the family business, another may have none.

For parents who have spent a lifetime convincing their children that they love all of them equally, this hurdle can be tough to overcome. In successful succession planning, the challenge for the business owner is to separate family and business issues and focus on the main objective of preserving the business.

The succession planning process begins by answering three important questions:

Who? Consider who might be best suited for the job before factoring in any emotional issues. A fundamental question facing a business owner is whether the business can survive a transition to family members. If only family members are considered, who has the most aptitude and interest? If a surviving spouse would be considered, how active has he or she been in the business? Are there key employees � non-family members � to consider?

When? Does the owner plan to retire or does he or she simply want to be prepared in the event disability or death forces the issue? Does the owner want to gradually cut back on any or all aspects of the business?

How? Will ownership in the business be transferred through a gift or a sale in accordance with a business purchase agreement? How will it be funded and where will the money come from? Can the new owner or owners finance the transfer without negatively impacting the business? Is a steady stream of income needed to fund the owner�s retirement?

The earlier the planning process starts, the more time and thought the owner can put into answering these questions and testing some options. It requires thoughtful planning and some time to get a chosen successor up to speed. Giving one employee additional responsibilities, for example, might help in gauging his or her readiness for a top slot.

Once the business succession plan is defined, it should be written down and discussed with everyone involved, especially if they have not been a part of its preparation. While frank discussions about succeeding control and eventual mortality can be difficult, family members are generally reassured when they understand the reasons behind those decisions.

The issue of financial fairness for all family members also can be addressed after the framework for a succession plan has been laid. Preferred stock plans, life insurance and the sale, gift or bequest of other assets are just some of the tools that can be used to balance the amount left to each surviving heir.

Financial professionals can be invaluable in sorting through the possibilities. Oftentimes insurance, tax and/or legal professionals familiar with the business but not immersed in the day-to-day operations can provide good, unbiased opinions. They can help the owner overcome some of the obstacles the plan might create, such as finding ways to minimize the tax liability. Additionally, once objectives and motives are fully understood, financial professionals can usually find ways to develop a plan that all family members will find to be fair.

Whether you plan to retire early or work until the day you die, pass your business on to family members or sell it outright, succession planning is an important and ongoing process that should be started early. If you want to help ensure your business and family will be taken care of in a way you have always dreamed of, you owe it to yourself and to them to make adequate plans.

"Passing on the crown-Family Business: Family businesses, How a family firm can avoid a succession crisis," The Economist, Nov. 6, 2004.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail [email protected].

	Brian Stephens

WISH YOU HAD MONEY FOR YOUR OWN BUSINESS?
By BRIAN STEPHENS

Since over half of this country�s working population wishes they could be their own boss, it is interesting to note that so few ever cross over to the world of entrepreneurship. There are a few main reasons, but one of the most common obstacles is the challenge of funding a business.

Whether one is starting from scratch, buying a franchise or investing in an ongoing enterprise, people need money to get started. Fortunately, there are several avenues to pursue, though almost all require persistence and ingenuity. While most people know about conventional loans and SBA financing, we listed a few other popular, yet less formal ways of funding your business investment.

Savings � Yes, the good old-fashioned way. Save up for your dream and cut back everyway possible in the meantime. This has a few advantages. First, you take some of the challenge on opening a business upfront, thus lightening your load when you are up and operating. Second, you can choose whether to pay yourself back. Third, if you sacrifice now, you will learn a value every good entrepreneur comes to know � frugality.

Credit cards � We hate to see this one, especially because of high interest rates and the increasing level of debt in America. However, sometimes the right opportunity comes along and your choices of financing are otherwise limited. Some people believe they can make enough in their business ventures to pay the debt off quicker than the credit card interest rates can add up. People do it but it should only be done as one of your last resorts (some time just before selling your blood or first born).

Family loans �If you are fortunate enough to have a rich uncle or enthusiastic parents, this might be a great avenue. If you are so fortunate, respect the opportunity. Put the re-payment proposal in writing even if your rich uncle or parents say it is not necessary. Living up to your commitment will not only keep you focus properly on profitability but may make way for a source of funds for future locations.

Family gifts - Remember, family members can gift $10,000 each in a given tax year. If you get this deal, you are lucky.

Partnerships � Sometimes a partner, silent or otherwise can be found. Network, read the newspaper, check the classifieds, and share your interests with others. Also, talk to people who are already doing what you wish to do. If you are not going to be in direct competition with them, you may find they are looking to extend their empire and might partner with you. Be prepared to adapt your business concept to the requirements and philosophies of your partner�s.

1031 Exchanges � This is a way to hold off on tax payments when you sell land. Sometimes, people can invest funds from selling revenue generating real estate. Check with your accountant and 1031 specialist for details.

Seller financing � One of the best ways if you can get it. It indicates that the seller believes the business they are selling you will be able to pay back the loan. Common seller financing formulas include 50 percent financing or one year�s profit as a down payment.

ERSOP � Do you have a 401(k)? ERSPO programs have allowed businesses to invest retirement funds, such as 401(k)s, without penalty or high taxes. This program is growing in popularity. Remember that owning your business is one of the few investments you can directly influence.

Whether you are going to a bank, calling up that rich uncle, or using your own funds, always start out with a great, well-researched business plan. Do your homework and don�t scrimp on this. If you need help, seek advice, but never, ever pay someone to create it for you. Creating your own business plan will help you better run your own business.

Last, always have plenty of working capital. Most startups and franchises are cash lean the first year or two and many have surprise cash demands. Be prepared in order to be successful.

Brian Stephens of Empire Business Brokers in Tampa can be reached at 813 571-7700 or via e-mail at [email protected].

	Rupa Mehta

NON-QUALIFIED DEFERRED COMPENSATION PLANS: HELPING BUSINESSES ATTRACT AND RETAIN KEY EMPLOYEES
By RUPA H. MEHTA

In today�s job market, a good salary may no longer be enough to lure or retain key employees. In many cases, it comes down to what �extras� a company has to offer.

Some companies focus on helping their employees balance personal and professional responsibilities by offering such perks as flex time, on-site daycare, dress-down work attire, gym membership, personal concierge services and the like. Other companies focus on financial incentives, like stock options or pension plans. However, when it comes to the competitive market for high-level employees and executives, companies might have to go even further.

A non-qualified deferred compensation agreement may be the right incentive for joining a company or staying with a company in the face of another offer.

What is a non-qualified deferred compensation plan?

Simply put, a non-qualified deferred compensation plan is a written legal agreement between an employer and employee(s) in which an employee benefit is provided that generally supplements or substitutes for the retirement benefits available under qualified plans such as pensions or 401(k)s. Unlike qualified plans, there are limited government regulations involved with non-qualified deferred compensation plans, which means that such agreements can be extremely flexible �� with regards to money amounts, payment triggers, etc. �� and advantageous to both employer and employee.

Some non-qualified deferred compensation agreements allow for an employee or owner-employee to defer a portion of current compensation �� either as a reduction in current salary or a deferral of a raise or bonus, both of which could lower the employee�s tax bracket. In exchange, the employer provides an unsecured promise to pay compensation at some predetermined date or event, such as retirement. Other types of non-qualified deferred compensation agreements are called Supplemental Employee Retirement Plans (SERPs). In a SERP, the employer agrees to provide retirement, disability or death benefits to a key employee in addition to current compensation.

Who benefits from the plan?

Actually, both employer and employee can benefit from a non-qualified deferred compensation plan. For the employer, the greatest benefit is that it can help recruit, retain and retire key people. Next, unlike qualified plans, a non-qualified deferred compensation plan allows the employer to pick and choose participants, which means it may discriminate in favor of highly compensated executives (including the owner-employee). There also is minimal IRS, ERISA and other government regulatory requirements, and the employer receives a tax deduction when the benefits are eventually paid. Not only are non-qualified deferred compensation plans flexible, they are flexible with controllable costs. And they can help augment existing qualified retirement plans.

Similarly, there are many benefits to the employee. An offer of a non-qualified deferred compensation plan to an executive shows recognition and appreciation for his or her contributions to the success of the business. Furthermore, a non-qualified deferred compensation plan can help supplement existing retirement benefits or provide for family if death occurs before retirement. Perhaps the greatest benefit, though, is tax deferral. Employees offered non-qualified deferred compensation plans are usually highly compensated �� which means that they are near or at the top of their tax bracket. A properly constructed non-qualified deferred compensation plan may allow an employee to pay lower income taxes on current compensation, because the deferred compensation is not counted in current income. And when the deferred compensation is paid, the employee will probably be in a lower retirement tax bracket.

Using life Insurance to fund the plan

To achieve these intended tax results, a non-qualified deferred compensation plan must be �an unsecured and unfunded promise to pay benefits.� That means that no corporate assets can be tied directly to the plan or put beyond the reach of the employer�s creditors. There are several ways to fund non-qualified deferred compensation plans; many companies �informally� fund through the vehicle of company owned permanent life insurance. A policy is bought on the life of the employee, but the policy is paid for and owned by the company, and all benefits would be payable to the company. The company could access the policy�s cash values to provide some of the retirement benefits to the employee during his or her lifetime, or use proceeds from the policy to pay a death benefit to the employee�s family (if those were the terms of the non-qualified deferred compensation plan).

Consult your advisors

To receive the greatest tax benefits from a non-qualified deferred compensation plan and ensure its legality, it is crucial that such a plan is designed by an attorney. When used properly, a non-qualified deferred compensation plan could be a useful tool in a company�s hiring and retention strategy. Such plans are flexible, easy to understand and administer, and can be beneficial to both employer and employee.

Rupa H. Mehta, Agent, New York Life Insurance Company, can be reached at (813) 281-0100.