Demystifying insurance policies

MUMBAI: Rajesh Sinha, a 30-year-old marketing professional had five insurance policies where he was paying a premium of Rs 50,000 against each of the policies. With such a huge premium outgo, he was under the impression that he was more than adequately insured.

But little did he realise that his actual insurance need was 10 times his annual salary which was over a crore of rupees. Against this each of his unit-linked policies (Ulip) schemes offered protection for only Rs 2.5 lakh i.e. a total cover of Rs 12.5 lakh.

The proliferation of Ulips has taken away the focus from insurance. Buying insurance needs a staggered approach and one has to review/expand the cover as s/he assumes more responsibilities such as marriage, having children or dependent parents.

HOW TO REVIEW YOUR COVER

Today single-income families are making way for more double-income families. But that doesn’t reduce the financial responsibility for either of the spouses.

“The need for insurance emanates from the various obligations that the breadwinner is expected to fulfil such as children’s education, retirement, health and savings. These change with the changing life stages and are driven by the individual’s specific needs. Thus, each individual should put a rupee value to each need and thereafter conduct a self-risk assessment,” Leena Dhankher Joshi, AV-P, life, accident & health profit centre, Tata AIG Life Insurance.

This may sound very complex, but is quite easy. Assume a complete discontinuation of your income and evaluate the implications of that on your family.

This self-assessment coupled with the current life stage and the responsibilities towards the family. For example, children’s education, marriage, retirement plans and various liabilities such as home loans will help you asses your insurance needs. A ball-park figure is 10-15 times your salary, which should be the size of your insurance cover.

INSURE YOUR HOME LOAN

If you have a large home loan, it’s a wise option to cover the liability. A borrower wouldn’t want to pass on the financial burden to his spouse or dependent parents in case of an unexpected demise or even a disability and hence a job loss. Life insurance companies have designed home loan insurance covers in alliance with banks to cover this risk. However, a simple term plan could be a better back up than these home loan insurance cover, financial advisors say.

“Let us assume a borrower has opted for a home loan of Rs 30 lakh. Now, in case of a term cover, an individual of 35 years can opt for a term cover of Rs 30 lakh and pay an annual premium of around Rs 8,000. If an individual would have opted for home loan insurance, he would have had to pay an upfront amount of Rs 1.52 lakh as an insurance cover on the Rs 30 lakh home loan.

Now, this could prove to be loss to a customer if he prepays the loan within 10 years. Secondly, the insurance amount is calculated on a reducing balance basis. So the value of the cover falls with every passing year,” Suresh Sadagopan a certified financial planner, Ladder 7 Financial Services.
http://economictimes.indiatimes.com/personal-finance/insurance/analysis/Demystifying-insurance-policies/articleshow/5197966.cms

Cut your home loan rate

Stick with one institution for all financial services and you can vault your savings into the fast lane.

Home-loan packages that bundle together a mortgage, credit card and transaction account are a good deal, according to the banking industry researcher Canstar Cannex.

Financial institutions use measurements such as "cross-sell" (how many of the institution's products each customer uses) and "share of wallet" (how much of the customer's banking business goes to the institution) to determine the effectiveness of their retail banking operations.

Customers with lots of products generate more revenue for the bank and they are less likely to go through the bother of moving their banking business. Financial institutions are prepared to offer a discount on the standard home loan if the borrower will take the extra products with it.

Canstar Cannex says this is a good deal. The package discount on a variable home-loan rate is usually between 0.5 of a percentage point and 0.7 of a point (50 basis points to 70 basis points).

It is less common to find a discount on a fixed-rate loan and those that are available are smaller than discounts on variable-rate loans. Canstar found that of the 37 home-loan packages it reviewed, eight offered a fixed-rate discount and the range was between 10 basis points and 45 basis points.

The big trade-off is that package loans come with a large annual fee. The fee can be as much as $395 a year (charged by St George, National Australia Bank, Westpac and BankSA) and as little as $25 (charged by Suncorp on its My Home Package).

Taking the example of a $350,000 loan, a consumer with a typical variable-rate loan at 5.78 per cent (the average of the big four) would pay $20,230 of interest each year, a standard $100 mortgage servicing fee, a $50 credit card fee and $60 in transaction account fees. The total cost is $20,440.

A consumer who chooses the package at a discount rate of 5.08 per cent pays $17,780 of interest each year plus a $350 average package fee. The total cost is $18,130 and the saving over the stand-alone option is $2310.

Even borrowers who might be considering a cheaper basic home loan would save some money using a package, according to Canstar's calculations.

Other benefits cannot be measured in dollar savings, such as the convenience of managing your banking through one financial institution.

Canstar says there is quite a bit of competition in the package banking market. Some institutions waive the annual fee on credit card reward programs. Some discount premiums on home and contents and other general insurance products. Others discount financial-planning fees.

http://www.smh.com.au/news/business/money/property/cut-your-home-loan-rate/2009/09/02/1251570744215.html

Home Loan Rate - How Do Closing Costs Affect Home Mortgage Rates?

First time home buyers or borrowers are often rather unpleasantly surprised at the time of closing or just prior when the good faith estimate of closing costs is received. These closing costs can sometime add a significant cost to the dollar amount that the borrower is expected to provide to clear the escrow account at the time of closing or shortly thereafter. The home loan rate is not directly tied to each of the closing costs, but indirectly, you will pay the closing costs. You should make sure you realize and understand each of these costs and how they impact your total cost of the loan.

Definitions

'Closing costs' is just one of the definitions that you should understand when considering obtaining a home loan. The 'home loan rate' is another. Closing costs are expenses related to the obtaining of the loan, such as document preparation, title search, appraisals, and various other expenses. These costs are typically listed as part of the closing process on the loan. The closing of the mortgage at the title company or with the loan officer will spell out each of these costs and who is responsible for payment of the cost at closing.

Title search

One of the responsibilities that must be met is a search by a title company of court records to insure that the ownership or title to the home in question is clear. They will be looking at sales and deed records to determine that the sellers actually have the legal authority to sell the property. There is a fee charged by the title company to conduct this search. The clear title means that the title company can guarantee the title is correct and that you will have a clear title to the property in question after closing. The title company actually provides a type of insurance, known as title insurance. The cost of the title insurance is one of the closing costs built into the home mortgage rates.

Origination fees

Another factor in the home loan rate is that of origination fees. These are costs associated with the work the lender or broker does in opening an application file and working to collect and pass on all the necessary documentation required to complete the loan according to the contract. These fees can be sizable or modest, depending upon the broker, but in most cases are negotiable also that fact is not commonly known.

Points

The borrower may be required to pay 'points' as part of the loan fees. There are two types of points that you may be asked to cover. Origination points are the fees you pay your broker or lender to secure the loan while discount points are essentially interest that you prepay in order to manage the best interest rates on your loan. Both types of points are usually paid at the home of closing. Payment of the discount points can significantly lower your home mortgage rates meaning thousands of dollars less in cost over the life of the loan.

http://ezinearticles.com/?Home-Loan-Rate---How-Do-Closing-Costs-Affect-Home-Mortgage-Rates?&id=1389414

Spring clean your finances and save £5,000 in a year

Brits waste £243 billion by not changing to more competitive deals

With bank holidays around the corner, many people will be busily contemplating their next home improvements and how to fund them.

Calculations from moneysupermarket.com show a family with a typical basket of financial products1 could save £5,185.852 over a year if they took time out to review their finances and transfer their existing financial products onto more competitive deals, leaving them with more hard-earned cash to splash on themselves.

Stuart Glendinning, managing director at moneysupermarket.com, said: "A family with a typical financial portfolio could save a staggering £5,185.852 over a year by moving away from uncompetitive products.

Simply by reviewing their existing finances - mortgage, credit card, personal loan, savings, home insurance and motor insurance (amongst other things) and searching for better deals they can make considerable savings.

This would take only moments on moneysupermarket.com's website.

"Many people look to make home improvements over the bank holidays weekends and it can end up a costly exercise.

However, sorting out their finances first means they can make some significant savings which could really boost renovation plans." Examples of the savings that can be made: Mortgage With so many low fixed rate mortgages on the market homeowners can reduce their monthly payments considerably by remortgaging to a better deal, especially if they are languishing on the Standard Variable Rate (SVR).

For example, if they move from the Woolwich SVR rate at 7.39 per cent, paying £1,097.78 a month, to a more competitive lender, such as Yorkshire BS, offering 4.79 per cent on a two year fixed rate, they would only pay £869.36 a month.

A saving of £228.42 a month or £2,401.04 a year.

Personal loan Despite a few recent base rate rises, there are still some good deals to be had on personal loans.

There are still six personal loans on the market at less than 6.5 per cent APR.

Based on taking out £7,000 over five years a typical family could save ?168.60 in interest payments in just one year, if they change their personal loan with Lloyds TSB with a typical APR of 10.9 per cent to the Moneyback Bank loan at 6.4 per cent APR5.

Credit card There are still some very competitive 0 per cent deals on both balance transfers and purchases on the market.

Those who make the effort to choose the best deal to suit their needs will be rewarded.

If a £2,000 debt on a Natwest Classic Card at 16.9 per cent APR is switched to one of the 50 credit cards offering 0 per cent interest on balance transfers for the introductory period, such as the Virgin Credit Card (at 0 per cent until for 13 months and 1.2408 per cent per month thereafter), there would be no interest payments in the first year, making an annual saving of ?305.36 including the balance transfer fee.

Motor and home insurance There are some great savings to be made if people make sure their insurance is up to scratch.

By switching motor insurance provider on a Land Rover Freelander S 3Dr from Endsleigh, paying £31.36 a month, to Esure, paying £24.45 a month, they will save £105.95 a year6.

For a four bedroom detached house in St Albans over £135.32 can be saved a year by switching home and contents insurance from a provider such as Legal and General to Budget7.

Savings Savings that languish in poor paying accounts with the 'Big Five' banks could be a costly waste.

An individual with £10,000 in the Royal Bank of Scotland Instant Access Savings account paying 1.85 per cent AER would receive £185.04 in interest over a year.

However, if they swapped to the Alliance and Leicester Direct Saver account paying 5.8 per cent AER, they would earn £579.86 over the same period - an additional earning of £394.82 over the year.

Utilities Utilities have been the talk of the town of late, but customers should assess the deal they are on and not get scared into price protection deals.

For example, Powergen's price protection deal until 2010 would cost, on an average bill8, £1,029.21.

However by transferring onto British Gas Click Energy 2 deal, for the same energy consumption and you would see £265.24 shaved off the average householder's bill.

Other ways people can mop-up their finances is to review other areas such as their current accounts, overdrafts, travel insurance, store cards and new car finance.

Moving these products onto more competitive deals means someone could save a further £1,408.21.2 All these saving equate to a total saving of £5,185.852 in a year.

Stuart continued: "These savings can be made without changing your lifestyle or spending any less - all it costs is a little time to find the best deals for you and your family.

And if you kept these changes up for a year the savings are over £5,000 - enough to persuade the most reluctant saver to make the effort.".

http://www.insidemoneytalk.com/news/mon/mon131.html

5 costs of buying a home

The conditions seem ripe to become a first-time homeowner.

Real estate prices are tumbling, mortgage rates are at record lows and there are big tax credits on the table. All that might have you scrambling to assess whether you can afford to make the leap into homeownership.

That was the situation for 28-year-old Holly Dewar and her boyfriend last winter.

“We really wanted to get the most for our money, and the market timing seemed right,” said Dewar, who works in public relations. Her boyfriend, 29-year-old Kurt Spring, works in real estate finance, which helped facilitate the purchase.

They closed on a three-bedroom, one-bathroom home just outside Boston for $340,000 in January. But that price didn’t include a host of other of costs, such as $4,000 in closing fees and $700 for a home inspection.

Before considering such details, find out whether the mortgage down payment is a deal breaker; lenders are requiring more money upfront as they tighten standards. For the less-than-ideal borrower, an array of new loan fees could be another hurdle.

So if you think it’s time to stop renting, here are some costs to consider.

Cost 1: Getting ready

Start the process by polishing your credit report. Banks are being more selective about making loans.

The Federal Reserve says a March survey found half of U.S. banks tightened lending standards on prime mortgages in the previous three months, up from 45 percent in February.

“We’re in very uncertain times, and you’re asking for a very big amount of money. The lender is going to be looking very closely at the credit report,” said Jed Smith, a spokesman for the National Association of Realtors in Washington, D.C.

A higher FICO score also gives you greater negotiating power over the terms of the mortgage and, ultimately, the total cost of the loan. A stellar score ranges from 760 to 850, while scores below 640 might mean you have to pay a significantly higher interest rate. You are entitled to a free annual credit report from each of the three major credit bureaus. Getting your FICO score costs $15.95 at www.myFICO.com.

Cost 2: Down payment

More lenders are demanding bigger down payments of 20 percent or more, Smith said.

The upside of making a bigger down payment, of course, is that you’ll owe less money and get better terms on your mortgage. If your down payment is less than 20 percent, however, you generally need to pay for mortgage insurance, which could cost $100 or more a month depending on your loan.

Cost 3: Adding up fees

New fees introduced by Fannie Mae and Freddie Mac in the past year will likely push the price of a mortgage higher for many people. The fees are based on credit profiles, the amount of the loan in relation to property value and the type of home.

As such, they’ll vary greatly depending on your personal situation, but could total as much as 3 percent of the mortgage.

In that case, you’d be paying another $3,000 for a $100,000 loan.

There are also standard closing costs to consider. These are service fees charged by the lender and could cover items such as credit reports, appraisals, documentation and administrative costs. According to Bankrate.com, the national average last year was $3,118 for a $200,000 mortgage.

Lenders are required to itemize all closing fees, so review them carefully. Some of the more standard fees might be negotiable.

Cost 4: Inspections

Your inspection costs will depend on the checks you want and whether your inspector offers comprehensive packages.

The seller might pay for inspections in some cases, but it’s more common for the buyer to foot the bill.

Other inspections might be for lead paint, pests or radon gas. Some of these checks might be required by the lender and included in the closing costs.

Cost 5: Maintenance

A common mistake for many new home buyers is focusing on the monthly mortgage alone. It’s easy to forget all the maintenance costs that come with owning a home.

To start, your utility costs will likely go up significantly. As a renter, you might not even pay for water, heat or electricity. But they could be a big drain if your home is large or you have a pool or other feature that drives up utility bills.

There are bigger maintenance matters to consider as well, such as repainting the house periodically. You’ll also be on the hook for any repairs for your home.

http://www.ajc.com/services/content/printedition/2009/05/17/pfhomebuying0517zh.html

Home Equity Loan Advice for People With Bad Credit

Home equity loans are a type of loan that places a second lien on a property. Thus, these are commonly referred to as second mortgages. There are certain benefits and disadvantages to these loans. For example, it is easier to qualify for a home equity loan with bad credit, and the money can be used for expenses such as home improvement or debt consolidation. Some home buyers use a home equity loan to avoid private mortgage insurance or jumbo loans. The negative aspect is that a second mortgage uses your home as collateral. Non-payment on the loan may possibly initiate a foreclosure.

Here is some advice for people looking for a home equity loan.

1. Avoid Negative Amortization on the First Mortgage

To qualify for the first mortgage, a borrower with bad credit may have chosen a loan program that resulted in negative amortization. On these loans, the monthly interest payment is less than the interest due, and the mortgage balance rises over time.

When a borrower wants to keep their payments low in the beginning, a lender may recommend a negative amortization adjustable rate mortgage. Before a home equity loan is approved, the mortgage lender closely assesses the first mortgage. Many lenders instinctively reject a home equity loan if the first mortgage is a negative amortization.

2. Don't Count on Home Appreciation

Several home equity loans allow homeowners to borrow more than their home's equity. This is dangerous because borrowers place all their confidence in the likelihood of fast home appreciation. Regrettably, home market values can shift unpredictably, wherein some properties may experience a slight decrease in value. As a result, borrowers may owe more than their home's worth, and they are obligated to stay in the home. Selling a property under these circumstances means the homeowner will encounter a considerable loss, and end up owing the mortgage lender a ton of money.

http://ezinearticles.com/search/?q=Insurance+Home+Loan+

Grant drives home loans to record levels

Renters have the best chance in a decade to upgrade to home ownership, as the cost of servicing a mortgage falls and first time buyers benefit from government grants, a leading mortgage insurer says.

QBE Lenders' Mortgage Insurance Ltd chief executive Ian Graham said the federal government's boost to the first home owners grant and 45 year low interest rates had made buying a home more attractive than renting.

"While there is significant uncertainty in relation to employment, an increasing number of first home buyers who are confident about the future have decided the time is right to take advantage of government incentives, low interest rates and attractive housing prices," Mr Graham said.

Conditions supporting a jump from renting to owning a home are the best since the late 1990s, according to QBE LMI April half year property research, conducted by residential property forecaster BIS Shrapnel.

The research shows that by June this year, the cost of renting in Sydney and Melbourne will be more than half way to the cost of paying off a median priced home.

Median weekly rents in Sydney and Melbourne relative to mortgage repayments will rise to 66 per cent, from around 40 per cent in 2008.

In Canberra, Brisbane and Perth, weekly rents will account for 80 per cent of a mortgage repayment and in Adelaide just over 75 per cent.

During the late 1990s, median rent were at or above 80 per cent of the weekly cost of buying a home in Brisbane, Adelaide, Canberra and Perth and above 60 per cent in Melbourne and Sydney.

In calendar 2008, rents rose 8.4 per cent - the fastest annual pace since 1989 - recent Australian Bureau of Statistics (ABS) data show.

But house prices fell by an average rate of 3.3 per cent across Australia in the year - the biggest annual fall in 23 years.

Mr Graham said first home owners had great incentives to buy property.

"The first home owner buyers grant scheme has helped first home buyers to get over the deposit hurdle and is driving new lending enquiry/home loan approvals to record numbers," he said.

Last October, the federal government doubled the first home owners grant to $14,000 for established dwellings and tripled it to $21,000 for newly built homes.

Between September and February, the Reserve Bank of Australia (RBA) cut the cash interest rate by four percentage points to 3.25 per cent, a 45-year low, while commercial banks lowered their standard variable mortgage rates by 3.75 percentage points.

Mr Graham said the market for investors was also improved.

"Conditions for investors are at their best since the late 1990s with a differential between yields and interest rates estimated at two per cent in the March quarter 2009," he said.

"Our report shows that through 2009 and into 2010, investor sentiment toward residential property is expected to increase significantly."

http://news.brisbanetimes.com.au/breaking-news-business/grant-drives-home-loans-to-record-levels-20090403-9m2r.html

Credit crunch: Insurers refuse coverage of some home loans, in areas

Just when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow -- even for those with good credit.

Mortgage insurers, whose backing is required for borrowers who can't afford the traditional 20 percent down payment on a home, have already flagged nearly a quarter of the nation's ZIP codes where they refuse to insure some home loans.

That encompasses a wide variety of neighborhoods: McMansions in Scottsdale, Ariz.; luxury Miami condos; 1960 ranch houses in Flint, Mich.; and early 20th century kit homes in Metuchen, N.J. -- and houses in Utah's St. George.

The entire states of California, Florida, Arizona, Michigan, Ohio and Nevada -- which have seen the highest foreclosure rates and the worst price declines -- are blackballed on some mortgage insurers' lists. Twenty-two zip codes in the St. George area were included on lists this month from AIG United Guaranty and Radian Guaranty that flagged "declining markets."

Banks that have lost billions because of bad bets during the housing boom are now reverting to strict lending standards not seen in nearly 20 years, according to industry data and interviews with lenders.

For new homebuyers and those seeking to refinance, it can mean higher down payments and a higher bar for credit scores, among other requirements. The toughest restrictions are in markets where home prices are falling, though regions where property values are rising are not immune.

"We're in the midst of an epic, broad, sweeping change in the mortgage industry," said Chris Sipe, a loan officer with America East Mortgage in Frederick, Md.

The reluctance to extend credit comes despite a flurry of government initiatives, including steady interest rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their mortgages.

Lenders' growing leeriness threatens to dampen sellers' already soggy prospects for the spring homebuying season -- and that means more pain for the already battered housing sector and the broader economy.

In recent weeks, mortgage insurers have flagged more than 9,600 ZIP codes in at least 34 states where they won't insure certain types of home loans -- those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making down payments of less than 3 percent.

With banks and mortgage insurers pulling back, state and federal programs for first-time buyers and people with poor credit are attempting to fill the void.

Don Brekke, an equipment operator from Colorado Springs, Colo., tried to buy a bank-owned 1950s ranch home for $113,000. At first, he couldn't get a loan because the house was in a potentially declining market and lenders required a 10 percent down payment, more than he could afford.

Ultimately, he was able to qualify for a 100 percent loan from Colorado's state financing authority, and he plans to close in the coming days.

"It was a bunch of headaches -- going around and around to get this done," Brekke said.

The combination of sinking home prices and tighter lending standards has been a major aggravation for Ron Broussard, a 38-year- old sales representative for a home builder.

Broussard took advantage of soaring Southern California property prices three years ago to refinance a loan on a house he had owned since the late 1990s. Today he's still stuck with a $720,000 mortgage and has been renting it out since moving with his family to Texas a year ago. Once appraised for $1.1 million, Broussard's lender now says it's worth about $300,000 less.

He does not yet owe more than the property is worth, but Broussard worries that is a possibility.

"The way the market's going, you know, who knows?" he said.

Broussard has found little sympathy from his lender, Countrywide Financial Corp. While Broussard accepts responsibility for taking out a mortgage whose monthly payments are due to skyrocket once the unpaid principal exceeds the home's value by 15 percent, he feels betrayed by the lender's unwillingness to negotiate better terms.

The stinginess of banks is showing up in home loan statistics: The value of all new mortgages plummeted to $450 billion in the fourth quarter of 2007, down 38 percent from a year earlier, according to trade publication Inside Mortgage Finance.

Subprime loans, made to borrowers with poor credit, virtually disappeared from the market, plummeting 90 percent to $13.5 billion in the October-December quarter.

There is a silver lining: The Federal Reserve has repeatedly cut interest rates, helping borrowers whose mortgages were just about to reset to higher rates and people with student loans. Reflecting the Fed's efforts, rates on 30-year mortgages dropped below 6 percent this week for the first time in more than a month.

http://findarticles.com/p/articles/mi_qn4188/is_20080321/ai_n24957060?tag=content;col1

Cat Fund a threat to home insurance

Months before hurricane season, Florida faces an unprecedented threat to its fragile home insurance market, again risking price spikes and policy shortages.

The threat comes from the state's primary tool to prevent such a mishap: the Florida Hurricane Catastrophe Fund.

In an effort to stop rate increases, Gov. Charlie Crist and lawmakers two years ago doubled the size of the fund to sell $29 billion in storm protection to Florida insurers, at prices far below the private market.

Insurers, in turn, were to pass the savings on to homeowners.

But since last fall, Cat Fund advisers have warned that Florida cannot borrow enough money to make good on its promise to pay hurricane claims.

The shortfall is an estimated $18 billion.

Now, two key financial rating agencies, A.M. Best and Demotech, say the state must shore up the fund or they will be forced to downgrade the financial ratings of dozens of insurance companies that rely on state coverage.

If that happens, millions of policies could immediately be deemed worthless, triggering banks to invalidate mortgages that require qualified insurance coverage.

Scott Jenkins, senior vice president for the Florida Bankers Association, calls the resulting scenario "a nightmare."

State leaders are scrambling to find a solution.

But in the current global recession, almost every path leads to further rate hikes in a state already swooning from record foreclosures and unemployment rates veering toward 10 percent.

"We've got to go where we can and find what we can, because we have a pretty serious problem," said Cat Fund Executive Director Jack Nicholson.

The gap in the Cat Fund appeared during hurricane season last year.

Lawmakers in 2007 sought to thwart post-Katrina insurance rate increases by doubling the fund to add $12 billion of hurricane risk.

Florida did not have the cash to pay such losses; lawmakers presumed the state could borrow the money if there was a hurricane.

That borrowing ability evaporated last year with the global credit crisis.

Fund underwriters estimate Florida could raise at most $10.6 billion — more than $18 billion short of the fund's full liability.

Next week, Cat Fund director Nicholson intends to recommend a combination of possible solutions, including seeking financial backing for the fund or reducing the amount of coverage Florida provides.

Nicholson proposes that the governor approve soliciting Wall Street investors to guarantee a loan that might never be needed, a promise that would cost hundreds of millions of dollars.

To straddle part of the gap last year, the Cat Fund paid billionaire Warren Buffet $224 million for the option to borrow $4 billion if needed.

This year, with financial conditions even worse, Buffett has said no.

Twice since December, Nicholson has approached Ajit Jain, reinsurance manager for Buffett's Berkshire Hathaway.

"Their capacity is hurt," Nicholson said. Even if Buffett would recommit, Nicholson said, the price would be higher and the terms "above our resources."

Cat Fund advisers warn that even if a similar guarantee is found elsewhere, it is bound to cost even more.

Hence, Nicholson also wants to ask the U.S. Treasury for a federal guarantee on Florida's hurricane debts or an outright promise to give the state a loan.

Fund advisers acknowledge the quest comes "at a time when many voices are competing for federal money."

Finally, the Cat Fund director believes Florida needs to consider selling less hurricane coverage.

That prospect would force Florida insurers to buy protection elsewhere at much higher rates or reduce their exposure by dropping policies.

The potential hit to consumers is large: insurers get their top layer of hurricane coverage from the Cat Fund at two cents per dollar of protection.

Private reinsurers charge an estimated 25 cents per dollar.

Reducing the Cat Fund by $5 billion would cost insurers — and therefore Florida homeowners — an estimated $1 billion more.

Scaling back the Cat Fund also carries political cost.

Approval would be required not only by the Florida Legislature, but also by Crist, who has made lowering home insurance rates a tenet of his administration.

State Farm's withdrawal from Florida complicates any effort to shrink the Cat Fund.

Hurricane coverage for its policies — one out of five homes insured by the private market — came through State Farm's parent corporation.

Companies picking up State Farm's jettisoned business would be buying reinsurance for those new policies at the same time they would be attempting to replace a portion of the Cat Fund.

The notoriously volatile reinsurance market likely would answer that increase in demand by raising prices.

There is also the risk that private reinsurers could not fill the demand for capital, pushing Florida insurers onto even thinner ice.

Nevertheless, a smaller Cat Fund has strong political supporters, among them Senate budget chief J.D. Alexander.

He plans to use his committee next week to vet the Cat Fund's shortfall.

"My problem is, if you can't write the check you shouldn't write the insurance," said Alexander, R-Winter Haven.

"It's legitimate for Florida to take on some of the insurance risk, but we have taken on so much it sinks the boat."

Rating agencies have made clear they will not wait for a hurricane to expose the Cat Fund's shortcomings.

A.M. Best gave credence to its threat last fall, when it put the ratings of seven major Florida insurers under review, including Allstate Floridian.

The watch was lifted only after hurricane season was over.

Demotech, which examines more than 60 Florida insurance companies that comprise the majority of the market, said it would withdraw its ratings entirely if the Cat Fund shortage is not addressed by May 15, the end of the legislative session and two weeks before the start of the 2009 hurricane season.

The mortgages on most homes require that property be insured by a rated insurer.

Loans backed by Fannie Mae and Freddie Mac must have an A.M. Best rating.

Without the ratings, most home mortgages would go into default, forcing a scramble for coverage in a pinched market.

"From first glance, this would be a concern for us," said Jenkins, the Florida Bankers Association senior vice president. "It could be a headache and a nightmare."

Demotech President Joseph Petrelli — engaged in his own flurry of meetings with Florida politicians, regulators and insurers — said he believes Florida officials will find a way to prevent dozens of insurance companies from losing their ratings.

"We know that May is around the corner in terms of hurricane season, but .?.?. I think the state of Florida is doing as much as it can," Petrelli said.

Meanwhile, he said, many private insurers are arranging a third layer of protection, backup plans to the backup fund.

These range from lines of credit at banks to bridge loans from other reinsurers.

All come with a cost, Petrelli said, and are accompanied by the question of whether there will be rate hikes to pass that cost to consumers.

http://www.ocala.com/article/20090209/ARTICLES/902090992/1402/NEWS?Title=Cat_Fund_a_threat_to_home_insurance

What are rich men's home loans good for?

We are still waiting for the lending squeeze to relax its grip so that those of us with average salaries, average credit reports and average deposits can borrow money for property again. We could be waiting a long time, but in the meantime, lenders are coming up with ways to bargain with us over our financial needs.

The latest trend is the tie-in mortgage, where providers will consider you for a loan if you are an existing current- or savings-account customer or are willing to become one.

Last week, the Halifax joined the swelling ranks of those offering tie-ins with a fixed, two-year deal at 2.99 per cent interest, its lowest rate ever, available only to those who already hold a current account with the branch, or are prepared to switch to it. The move follows the launch of HSBC's two-year discounted mortgage for members of its Premier banking service, also at 2.99 per cent. And Royal Bank of Scotland will offer its packaged current account customers up to 30 per cent off mortgage fees on its new, fixed-rate range.

At first, it seems a good way to get round the credit crunch, but having so much of your day-to-day money held by just one organisation has a whole host of implications, while the conditions on the lending offers are limited to say the least. The Halifax rate is only available for those with a 40 per cent deposit or higher and the fee is a huge 2.5 per cent. Meanwhile, to be a Premier customer at HSBC, and so qualify for its special mortgage deal, you must have at least £50,000 in savings with the bank or a minimum salary of £75,000 and, curiously, a mortgage worth at least £250,000.

"This move towards tie-ins simply underlines the fact that lenders are looking for gold-plated customers," says Louise Cuming, the head of mortgages at price comparison site Money-supermarket.com. "If they can tie a mortgage to a current account, they can cherry-pick the customers they want. It also makes it difficult for a customer to compare the best rates and deals for their needs."

Even if you do fit the bill, these are not necessarily the cheapest deals out there. "They may have a market-leading mortgage rate but the catch is with the other products," notes Melanie Bien, a director of broker Savills Private Finance. "And it is hit and miss whether these will be as attractively priced. In most cases, you would have got a better deal if you had shopped around."

The Halifax current account pays only 0.1 per cent on credit balances, rising to 2.5 per cent for its high-interest account, which doesn't compare favourably with the market-leading 6.5 per cent offered by Alliance & Leicester's free-to- use Premier Direct current account. This means that if you consistently have £500 in your current account, you'd get £32.50 interest a year from A&L but as little as 50p from the Halifax.

Worse still, HSBC offers no interest at all on its current accounts, after recently removing the tiny 0.1 per cent it had been paying on the grounds this would make it easier for customers to calculate their tax return. (It also happens to save the bank an estimated £7m a year.)

A considerably cheaper mortgage rate would easily offset the effect of losing a high rate on the current account. But tie-ins are unlikely to offer you that either. The headline 2.99 per cent rate offered by the Halifax on its fixed, two-year deal is one of the best out there right now, but if you aren't prepared to pay that 2.5 per cent fee (equating to a staggering £3,750 on a £150,000 loan), the rate rises to 3.99 per cent for a £995 fee, or 4.19 per cent for a £495 fee. Alliance & Leicester is offering a two-year, fixed deal for 3.19 per cent at a 2 per cent fee (saving you £750 on the same loan) but is still at a better rate than the 3.99 per cent offer with the lower fee.

Likewise, HSBC's two-year mortgage, set at a discount to its standard variable rate, seems an unbeatable deal at 2.99 per cent for a £999 fee on a maximum loan-to-value of 60 per cent. But again, A&L can do a two-year tracker mortgage at 3.29 per cent with a 2 per cent fee, and you don't need a salary of £75,000 or £50,000 in the bank to do it.

Nor do these products compare well with offset mortgages, which won't demand a tie-in but will offer big discounts on your interest rate. "With offset you are not compelled to opt for other products linked to the mortgage, but it is in your interests to go for them to make the mortgage element cheaper," says Ms Bien. "This is a real benefit to the customer that is not there with tie-in accounts."

Also bear in mind that signing up for one of these deals will mean you have a current or savings account, as well as debts, with one financial company. The money you have in savings with a bank is protected up to £50,000 by the Financial Services Compensation Scheme if that institution goes bust. But if you also owe the same bank money, in this case your mortgage, those savings will be used to pay off your debt first. The chances are that if a bank holding both your mortgage and your savings goes under, you won't see any of your money again.

But if you do go for a tie-in mortgage, it's not just from low interest on savings and high interest on debts that banks will make money.

"As far as they are concerned, the driving force for tie-ins is usually to get hold of your current account because it gives them so much information about your money and spending habits," warns Ms Cuming. "If the bank knows when, how much and to whom you pay your home insurance, for example, they can easily try to sell you products and get more of your money. There is also the question of selling your information on to third parties."

Current accounts also have one of the highest rates of customer loyalty. Lenders are banking on the chances that once your account is with them, you won't leave.

"A year ago, tie-ins were looked on as the unacceptable face of mortgage lending," says Francis Ghiloni at mortgage comparison site mform.co.uk. "But nowadays, almost anything goes and borrowers have to jump through more and more hoops."

It isn't as if this type of mortgage will do anything to alleviate the wider lending crisis, either. "It adds to the development of two distinct groups of borrowers: the cream of the crop with perfect credit scores and plenty of savings, and the rest of us," adds Ms Cuming. "The Government wants to free up money for lending, but all the banks are doing is lending to the upper echelons of society. If we are to have any hope of getting the market moving, lenders must do business with first-time buyers who need to borrow 95 per cent of the value of a property."

http://www.independent.co.uk/money/mortgages/what-are-rich-mens-home-loans-good-for-1515006.html

Citi reaches deal with lawmakers on home loans

WASHINGTON (AP) — Democratic lawmakers have reached a deal with Citigroup Inc. on a plan to let bankruptcy judges alter home loans in an effort to prevent foreclosures and urged other lenders to follow suit.

The lawmakers aim to attach the plan to President-elect Barack Obama's economic stimulus legislation, and said Thursday the change in bankruptcy law could ease the foreclosure crisis that has dragged the economy into the worst recession in decades.

The compromise between Citigroup and Sens. Richard Durbin of Illinois, Charles Schumer and Christopher Dodd of Connecticut, would be limited to loans made before the bill is signed. Obama has said he backs the concept.

Schumer said he received calls Thursday from several banks — which he did not name — indicating their potential interest in supporting the idea.

"This is a breakthrough day," the senior senator from New York said in a news conference on Capitol Hill. "We've been stymied because the banking industry opposed this simple provision, which is key to getting a floor to the housing market."

In a letter to lawmakers, New York-based Citigroup's chief executive, Vikram Pandit, said the change to bankruptcy law "will serve as an additional tool to the extensive home-retention programs already in place to help at-risk borrowers."

The so-called "cramdown" proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis. Consumer advocates and Democrats say it would prod the lending industry to be more aggressive about modifying loans because of the looming threat of having a bankruptcy judge involved.

But the lending industry has battled fiercely against the idea, arguing it would force lenders to hike mortgage rates because they would have to charge more for loans that could be altered later by a judge.

"This would hurt the housing market at the exact time we're trying to stimulate it," said Scott Talbott, chief lobbyist at the Financial Services Roundtable, which represents large banks and insurance companies.

To qualify, borrowers would need to demonstrate that they have asked their lender for a loan modification before filing for bankruptcy.

Currently, a 1993 Supreme Court decision bars judges from altering first mortgages on primary homes, though such changes are allowed on loans for vacation homes, motorcycles, boats and other kinds of property.

Consumer advocates say that is unfair, while mortgage lenders contend it benefits the vast majority of borrowers who don't fall into bankruptcy because it keeps mortgage credit for primary residences cheap.

Other attempts by the government to deal with the surge in foreclosures over the past two years haven't made much of a dent in the problem.

A federal program, dubbed Hope for Homeowners, was intended to let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed-rate loans with lower rates. But the early results have been disappointing, with fewer than 400 applications since the program's launch on Oct. 1.

In an interview earlier this week, a lobbyist for the mortgage industry vowed to keep the bankruptcy judge plan out of the economic recovery bill.

"We think that's an unwise move that could delay the stimulus package," said Francis Creighton, the Mortgage Bankers Association's chief lobbyist.

In a speech Thursday at George Mason University outside Washington, Obama asked Congress to work with him "day and night, on weekends if necessary" to pass an economic revival plan within the next few weeks so that it can be ready for his signature shortly after he takes office on Jan. 20

Obama promised to rewrite financial regulations and pledged to launch "a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes."

http://www.google.com/hostednews/ap/article/ALeqM5jlW27DGaQ3AJv88EMr-WcK37-55AD95J9LE80