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Source: thepointsguy.com

Will 2021 Be the Year for Value Stocks?

Over the last decade, value stocks have underperformed when compared to growth stocks. However, several signs point to this long-term slump coming to an end.

Value investing has seen better days. The alluring returns of growth stocks, particularly concentrated in the tech sector, are far more enticing to institutional investors and retail investors alike. There’s no shortage of investors ready to call the time of death for value investing — but 2021 could be the year that proves them all wrong.

In fact, we might be looking at an extended period of time in which value investing will make a big return. And this isn’t just idle speculation: Well-established, respected names in the financial space share this sentiment, including Vanguard. 

But we don’t have to take their word for it. While the numbers clearly suggest that value stocks will make a strong comeback, a large part of that process will be driven by common-sense investing in the months to come.

Let’s jump into precisely what that means.

Why Value Stocks Have Underperformed

First, let’s deal with the performance of value stocks in recent years. Looking at data from the last decade, it is apparent that growth stocks have outperformed value stocks by quite a large margin. And although that fact has caused many to declare that growth stocks are intrinsically superior, this is a narrow and shortsighted approach.

Let’s take a look at the data. Vanguard’s Russell 1000 growth index (VRGWX) has seen returns of 16.36% when looking at a 10-year period, while the Russell 1000 value index (VRVIX) has netted investors returns of 10.32% in the same timeframe.

Although returns of 10.32% are below the 13.6% current 10-year average of the S&P 500, it is clear that value stocks are far from a thing of the past. In fact, this level of performance is encouraging, considering that market conditions have been very unfavorable toward value stocks in the past decade.

What market conditions, you may ask? It’s simple — portfolios that focus on value stocks frequently overweigh industries that haven’t fared so well in the past 10 years, such as energy, utilities and the financial sector. On top of that, it has been demonstrated that low interest rates have a negative effect on value stocks while bringing a positive effect to growth stocks at the same time. 

Growth and Value Cycles

We’ve established that growth stocks have outperformed value stocks in the last decade, but don’t let that fool you. Historically, value stocks have netted investors far greater returns over the long run.

Does this mean that value stocks are always the right call? Well, no. An individual investor’s own investment timeframe is much more important than long-reaching historical data. Up to this point, investing mostly in growth stocks was the better option, but only because we’ve been in a growth cycle.

Much like the market has bullish and bearish cycles, it also has growth and value cycles. As we’ve discussed, the last 10 years have been part of an (admittedly long) growth cycle, driven primarily by tech stocks. However, the conditions that lead to this aren’t set in stone.

In fact, the current growth cycle might be at an end. Although tech stocks may continue to rise, it is uncertain if they can retain their current rate of growth. The largest cause of their meteoric rise, by far, is the monopolization of services. 

With Google, Amazon, Netflix and others like them having already carved up impenetrable economic moats, whether or not they will see a continued rise in share price is an entirely valid question. 

The possibility of higher interest rates and inflation also brings another element of uncertainty to the future of tech stocks.

Stimulus Payments, Reopening the Economy and Value Stocks

The single most important event that will accelerate the return of value stocks is the stimulus in the U.S. and the eventual reopening of the economy after the COVID-19 pandemic.

Although stimulus payments likely won’t cause as much inflation as the most pessimistic among us think, inflation will occur, thereby curbing the returns of growth stocks and increasing the returns of value stocks. 

As the economy reopens, sectors that have been hit hard by the pandemic will likely see a rapid recovery. Reopening the economy will lead to a much larger cash flow for currently undervalued businesses, which will allow them to invest in further growth. This, in turn, will lead to a renewal in investor confidence, culminating in a domino effect of rising stock prices.

If, in fact, the Biden administration passes the sweeping infrastructure bill that it has promised, you should also keep in mind that infrastructure stocks could be poised to see a large increase in price. Many see the industry as undervalued as of late, which can add to the appeal of Biden’s agenda.

What to Keep in Mind Amid Rising Tides

The old adage of rising tides lifting all boats hasn’t fared all too well when it comes to the economy. The expected recovery of the U.S. economy will certainly have a very positive effect on a lot of businesses — perhaps most businesses, even. However, this doesn’t mean that value investing will suddenly become a foolproof silver bullet.

Growth stocks certainly have a place in portfolios, and any warning with the tech sector doesn’t mean that growth should be avoided. In fact, the tech industry is a prime candidate for value investing. However, you should keep an eye out and avoid tech industry value traps — innovative companies that attract a lot of venture capital without actually bringing a product to market.

Look for companies that have intrinsic value, and that you truly believe in. While that may seem like generic advice, something tells me that this year, it could become a lot more profitable than it has shown to be in years past.

Founder, Lakeview Capital

Tim Fries is co-founder of Protective Technologies Capital, an investment firm focused on helping owners of industrial technology businesses manage succession planning and ownership transitions. He is also co-founder of the financial education site The Tokenist. Previously, Tim was a member of the Global Industrial Solutions investment team at Baird Capital, a Chicago-based lower-middle market private equity firm.

Source: kiplinger.com

Ditching United? Here Are 3 Solid Airline Credit Card Alternatives

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Backdoor Roth IRA – Definition & How to Make These Contributions

Saving for retirement is important for everyone. It’s difficult to live off Social Security benefits alone, so most people will need to supplement their retirement income with their own savings.

Many people have access to retirement plans like 401(k)s through their employers. If you don’t have access to a 401(k), or simply want to save more or have more control over your retirement savings, you might consider opening an Individual Retirement Account (IRA).

An IRA is a special type of account that is designed for retirement savings. You can open IRAs at many banks and with most brokerage companies. If you put money in an IRA, you can receive tax benefits, but you also restrict your ability to withdraw that money.

One drawback of traditional IRAs and Roth IRAs is that they limit the amount that you can contribute and exclude some people from contributing based on their income. However, there are ways to get around these limits.

What Is a Roth IRA?

For Roth IRAs, you pay taxes as normal when you contribute money to the account. However, withdrawals from the account are completely tax-free. That means you don’t have to pay any tax on your investment gains or dividends you receive in the account.

This can save you a lot of money in taxes compared to investing in a taxable brokerage account.

For comparison, a traditional IRA lets you deduct your contributions from your income, reducing your income tax bill immediately. However, you have to pay income tax on all the money you withdraw, including earnings, meaning you are deferring your taxes to a later date.

Roth IRAs are designed for retirement savings, so there are rules about withdrawing from the account.

Because you’ve already paid taxes on the money you contribute to a Roth IRA, you can withdraw contributions without penalty or taxation. However, the earnings in the account — the gains from your investment activities — are subject to penalties if you withdraw them before you turn 59 ½.

If you’ve had the account open for fewer than five years, you have to pay a 10% penalty and income tax on any earnings you withdraw. If you’ve had the account open for at least five years, you may be able to avoid taxes but will have to pay the 10% penalty on early withdrawals.

In some situations, such as paying for a first-time home purchase or paying for medical expenses, you may be able to avoid these taxes and penalties.

Once you turn 59 ½, you can make withdrawals from the account freely as long as it has been open for at least five years.


Roth IRA Contribution and Income Limits

The government places limits on the amount of money that you can contribute to a Roth IRA each year. The limits are based on your age and your income.

In general, for 2020, you can contribute up to the lesser of your taxable income for the year or $6,000. If you are age 55 or older, you can contribute an additional $1,000.

If you have a high enough income, the amount that you can contribute will begin to decrease until it reaches $0. The income maximum varies depending on your filing status.

Full Roth IRA Contribution Allowed Partial Roth IRA Contribution Allowed No Roth IRA Contribution Allowed
Single or Head of Household tax filing status Earned less than $124,000 Earned $124,000 to $138,999 Earned $139,000 or more
Married, filing separately tax filing status, did not live with spouse during the year Earned less than $124,000 Earned $124,000 to $138,999 Earned $139,000 or more
Married, filing separately tax filing status, did live with spouse during the year Earned less than $10,000 N/A Earned $10,000 or more
Married, filing jointly, or qualified widower tax filing statuses Earned less than $196,000 Earned $196,000 to $205,999 Earned $206,000 or more

These income limits use your modified adjusted gross income (MAGI), which is your gross income minus certain deductions such as contributions to employer retirement plans and student loan interest.


What Is a Backdoor Roth?

A backdoor Roth is a strategy people use to get around the income limits on Roth IRA contributions by contributing to a traditional IRA and then converting the balance to a Roth IRA.

Imagine that you’re fortunate enough to have an income of $150,000 as a single person. You probably have a good amount of money to invest for retirement, but the government won’t let you contribute to a Roth IRA.

You can use a backdoor Roth to get funds into your Roth IRA without breaking the income maximum rules. Traditional IRA contributions, unlike Roth IRAs contributions, are not limited by your income.

That means that you can contribute money to a traditional IRA no matter how much you make, and then roll those funds into a Roth IRA.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up, you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals.


How to Make Backdoor Roth Contributions

Making a backdoor Roth contribution is relatively easy.

1. Contribute to a Traditional IRA

To start, contribute the amount that you want to put in your Roth IRA to a traditional IRA.

When you contribute money to a traditional IRA, you can usually deduct those contributions from your income when you file your tax return. However, like Roth IRAs, there are income maximums for deducting traditional IRA contributions.

If you make more than the maximum allowed, you can still contribute to a traditional IRA, but you cannot deduct that contribution from your income when filing your tax return.

Because you’re rolling your money into a Roth IRA anyway, you’ll have to pay taxes, meaning you don’t have to worry about making too much to take the deduction.

2. Roll Your Traditional IRA Into a Roth IRA

Once you’ve contributed to an IRA, you want to roll that money into a Roth IRA.

A rollover lets you convert some or all of your traditional IRA balance into a Roth IRA balance. In effect, you can completely dodge the income limit for Roth IRA contributions using this strategy. Your broker can typically help you with the rollover process, making it relatively easy.

When you roll your traditional IRA’s balance into a Roth IRA, you pay income taxes on the amount you roll over.

The Pro-Rata Rule

Before you make a backdoor Roth contribution, you need to keep in mind one rule surrounding traditional IRAs and rollovers: the pro-rata rule.

To understand the pro-rata rule, picture your traditional IRA as having two buckets. One bucket includes money you deducted from your income and thus haven’t paid taxes on yet. The other includes money you contributed that you could not deduct from your income, possibly because you made too much money that year.

You need to track the buckets separately because although you have to pay income tax on pre-tax contributions when you withdraw them, you don’t have to pay them on post-tax contributions. If you did, you’d be paying taxes on the same income twice.

The pro-rata rule states that you must roll a proportional amount of each bucket into a Roth IRA when performing a rollover, meaning you can’t choose which bucket of money to roll over. This can have significant tax implications depending on how much pre-tax money you already have invested.

Avoiding the Pro-Rata Rule

The only way to avoid the pro-rata rule is to roll over your entire traditional IRA balance. If you make too much to contribute to a Roth IRA in the first place, you’re in a high tax bracket, resulting in a large tax bill as part of the rollover if you already have funds in your traditional IRA.

Keep in mind, the pro-rata rule looks at all of your IRAs and other pre-tax accounts, even if you keep them at different brokerages. You can’t open accounts in different places to dodge the rule.

3. Pay the Taxes Owed

When you roll money from a traditional IRA, you have to pay income tax on the money you roll over, unless the rollover is entirely composed of nondeductible contributions. If you’re rolling a large amount, you’ll want to have some money set aside to cover this cost.

To keep costs low, it might be worth timing your rollover for a year where your income is low, which means you’ll be in a lower tax bracket when you owe the tax on the amount rolled from your traditional to your Roth IRA.

Ultimately, backdoor Roth IRA contributions work best if you have little or no money in your traditional IRA. Asking a tax professional or a financial planner is a good idea if you want help with the process.


Advantages of Backdoor Roth Contributions

There are a number of reasons to consider backdoor Roth contributions.

1. Avoid Income Limits

The obvious benefit of backdoor Roth contributions is that they let you get around the income limits imposed by the IRS.

If you make too much to contribute to a Roth IRA, you probably have some extra money to save for the future. A backdoor Roth lets you get all of the advantages of a Roth IRA despite the income limits.

2. Tax-Free Growth

Money in a Roth IRA grows tax-free. You don’t pay taxes when you take money out of the account and the money you earn from your investments isn’t taxed either.

If you’re planning to invest the money anyway, by putting it in a Roth IRA, you’re getting the benefit of tax-free growth and only losing the freedom to withdraw earnings before you turn 59 ½.


Disadvantages of Backdoor Roth Contributions

Before using a backdoor Roth, consider these drawbacks.

1. Complexity

Making backdoor Roth contributions involves a few steps. You have to put money into a traditional IRA, then initiate a rollover to a Roth IRA.

If you have your traditional and Roth IRAs at the same company, your brokerage can probably help with the process, but there are a few moving parts.

You also have to make sure you submit the correct forms when you file your taxes to indicate your contributions and rollovers.

2. Combining Pre- and Post-Tax Money Is Messy

The pro-rata rule for rollovers means that backdoor Roth contributions work best if you don’t have any money in a traditional IRA.

If you do have some funds in your traditional IRA and don’t want to move the full balance of the account to your Roth IRA, you’ll be rolling a combination of pre- and post-tax funds into your Roth and leaving a combination of both in your traditional IRA.

This means you have to be diligent with your recordkeeping to make sure you don’t pay taxes on your post-tax traditional IRA funds when you withdraw money from the account in retirement.

You also have to pay taxes on any money rolled from a traditional IRA to a Roth IRA in the year you perform the rollover, which you need to plan for.


The Mega Backdoor Roth

Related to the backdoor Roth IRA is the mega backdoor Roth IRA. In rare cases, people can use a quirk of their 401(k) plan to get past the Roth IRA contribution limit, putting tens of thousands of dollars into their Roth IRAs each year.

401(k) Contribution Limits

A 401(k) is a retirement plan provided by employers as a benefit for their employees. One of the advantages of 401(k)s is their much higher contribution limits compared to IRAs.

For 2020, the individual limit for a 401(k) is $19,500 when it comes to deducting contributions from your taxes.

However, the true limit for 401(k)s is triple that number, $58,500. This limit includes all contributions made by the individual and their employer. Employees can deduct the first $19,500 they contribute and employers can contribute another $39,000 without the employee paying taxes on those employer contributions.

A small number of employers allow their employees to make post-tax, non-Roth contributions to their 401(k)s. This is like making nondeductible contributions to a traditional IRA.

You put money into the 401(k) but still pay taxes on the contributions. If your employer allows these types of contributions, you can add your own post-tax money to the account up to the $58,500 limit.

Typically, when you leave an employer, you can roll the balance of your 401(k) into your IRA. Most employers don’t let you roll your 401(k) into an IRA or make withdrawals from the account while you’re still employed. However, a small number of employers do allow these in-service distributions.

Performing a Mega Backdoor Roth Rollover

If your employer lets you make both post-tax, non-Roth contributions and allows in-service distributions, you have access to the mega backdoor Roth IRA.

To make a mega backdoor Roth contribution, contribute post-tax, non-Roth funds to your 401(k), then perform an in-service rollover of that money from your 401(k) to your Roth IRA.

Using this strategy, you can put as much as $39,000 extra into your Roth IRA each year, increasing your tax-advantaged investments by a huge amount.

Unfortunately, 401(k) plans that allow both post-tax, non-Roth contributions, and in-service distributions are incredibly uncommon, meaning that most people won’t be able to use this strategy.

However, if you run your own business or are self-employed, there’s nothing stopping you from designing your retirement plan to offer these options.


Final Word

Roth IRAs are one of the best ways to save for retirement, but if you make too much money, the IRS won’t let you contribute to the account.

For those with incomes high enough that they can’t contribute to a Roth IRA but who want to save more toward retirement, a backdoor Roth IRA contribution can help get around the limits.

If you’d rather keep the money out of retirement accounts and easy to access, you can always consider opening a taxable brokerage account. If you’re a hands-off investor, you can also think about using a robo-advisor to manage your portfolio.

Source: moneycrashers.com

Tips to Help You Get Out of Debt Quickly

Getting Out of DebtGetting Out of Debt

Getting out of debt doesn’t happen overnight, but that doesn’t mean there aren’t steps that you can take to get out of debt fast. With the right determination and dedication, you cannot only learn how to conquer your debt but create positive habits that keep you out of debt along the way.

No matter where your finances are or what your circumstance is, getting out of debt can feel overwhelming. But it doesn’t have to be that way. In fact, there are just as many people taking responsibility and control of their debt as there are people getting into debt. Not only that, but they are putting tried and true methods to use to get out of debt in a short period of time.

Are you struggling with a cycle of debt? Follow these simple steps to start eliminating your debt and take control of your finances today.

1. Stop borrowing money.

It may seem like a no-brainer, but a significant number of people fall into the habit of using debt to fund their lifestyle. If you want to get out of debt fast, the first step is avoiding any and all situations that put you in debt. This means no more applying for credit cards, financing furniture, and test driving cars that you can’t afford to pay in cash. Removing the possibility of putting additional strain on your finances will help you focus on your financial responsibilities at hand. Borrowing can also lead to a lower credit score which can make it even more difficult to get out of debt as your interest rates and payments will be much higher.

2. Start an emergency fund.

Most people are surprised that one of the first steps to get out of debt doesn’t have anything to do with making a payment to their creditors. Getting out of debt starts with making smart financial situations. “Why do I need an emergency fund?”, you might be wondering. Well, if an emergency occurs in your life where are you going to get the money to pay for it? In many cases, credit card debt begins as funding for unexpected emergencies. If you are going to get yourself out of debt, you need a safety net in case something goes wrong – emergencies funds give you the buffer you need between you and your debt.

3. Create a realistic budget

Creating a budget around your income and expenses is key to getting out of debt quickly. Having a realistic picture of your finances and what you might be able to manage concerning a payment every month can help you conquer your financial goals. The goal of creating a budget is discovering if you have a surplus (money left over) or deficit (in the negative) based on your income and bills. Over time, you want to increase your surplus to pay down your debt. There are several ways to do this, such as finding a way to earn some extra cash or eliminating unnecessary bills.

4. Get organized.

There are several approaches you can take when paying off your debt. The first is making a list of your debts from smallest to largest and paying off your lowest obligations first. This is an excellent way to start eliminating your debts and reduce the number of payments you are making each month, and therefore simplifying your financial life.

The second method is known as laddering. This method is favorable because it saves you the most money over time. Start by making a list of your debts, beginning with the highest interest rate and ending with your lowest interest rate debt. Paying off your debts with the highest interest rates first makes sense financially because it saves you in costs yet to be incurred.

Regardless of the method of debt repayment you choose, or if you decided to create a systematic hybrid between the two, it’s important to stick to your commitments. Before you know it, your debt will start reducing and you will be one step closer to your financial goals.

Source: creditabsolute.com

The Best Restaurant Neighborhoods in Philadelphia

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Should I Install a Low-Flow Showerhead to Save Water?

From your cable and Internet bill to utilities like heat and electricity, there are a lot of costs that must be added into your monthly budget (as I discovered upon moving into my first apartment). There are always ways, however, of cutting back on those expenses. You can save water and lower your water heating costs by installing a low-flow showerhead.

What is a Low-Flow Showerhead?

In short, a low-flow showerhead is one that comes with a flow rate of 2.5 gallons per minute or less. While this still seems like quite a bit of water, these showerheads can actually decrease your shower water usage by about half.

A regular showerhead has a water flow of about 3.8 gallons per minute, so if you took an eight minute shower, you would be using approximately 30 gallons of water. But with a low-flow showerhead, you would only use about 20 gallons.

With this fixture, you’ll also need less energy to heat your shower, reducing your power bills.

How do Low-Flow Showerheads Work?

With a low-flow showerhead, it may not feel like you’re using less water, but you are. The showerhead restricts water flow while still maintaining a strong pressure, giving you the experience of a normal shower.

Aerating showerheads mix air in with the water stream. This maintains strong water pressure while still using less water than a traditional showerhead. However, because there is air combined with the water, the temperature may not stay as hot for as long as traditional showerheads.

A non-aerating showerhead doesn’t use air; instead, it pulses to keep the pressure strong. The water with a non-aerating showerhead tends to be hotter because there is no introduction of air.

How to Measure Your Current Flow Rate

In order to discover whether you would benefit from a low-flow showerhead, it’s important to figure out the flow rate of your current fixture. Turn on your shower and let the water run into a bucket for 10 seconds, then turn it off.
Measure the amount of water that’s in your bucket, then multiply that figure by six. The number you end up with will be your water flow per minute, or gallons per minute. If your shower is releasing about 3.8 gallons or more per minute, think about replacing your current showerhead with a low-flow fixture.

Here’s another helpful rule of thumb: If it takes fewer than 20 seconds for your showerhead to fill up a 1-gallon bucket, you could benefit from installing a more environmentally friendly fixture.

Which Low-Flow Showerhead is Best for Your Bathroom?

If you’ve chosen to get a low-flow showerhead for your bathroom, then you must decide which type you would like. You could opt for the traditional stationary model or a handheld showerhead that’s attached to a flexible hose.

While handheld models may offer convenience, they’re typically a bit more expensive than the stationary fixtures. However, a handheld showerhead may be slightly more environmentally friendly than the traditional model because there is less distance between the showerhead and your body.

Other Green Bathroom Ideas

Installing a low-flow showerhead isn’t the only way you can go green. Here are a few other bathroom ideas that may lower your overall energy costs:

Use Green Cleaning Products: Some bathroom cleaners contain harsh chemicals, which is why it’s more environmentally friendly (and often cheaper) to just make your own.

For instance, a tub cleaner can be made using 2/3 cup baking soda, 1/2 cup vegetable oil-based liquid soap, 1/2 cup water and 2 tablespoons vinegar. Mildew can be removed by mixing 1/2 cup vinegar with 1/2 cup borax.

Rethink Your Towels: Think about swapping your current regular cotton towels for towels made from organic cotton. This material requires the use of fewer pesticides, natural dyes and softeners, making it better for your skin and for the environment.

Bamboo towels are another eco-friendly choice, as bamboo is a fast-growing sustainable alternative to cotton, not to mention it has antibacterial properties.

Fix Leaks: A simple leak in your tub or sink might not seem like a big deal, but you may actually be losing a lot of water. Talk to your landlord about the problem and get it fixed as soon as possible. In the meantime, you can put a bucket under the leak and use the collected water to hydrate your houseplants.

Replace Your Shower Curtain: Many shower curtains are made of polyvinyl chloride, otherwise known as PVC plastic. The material actually releases chemical gases, and it can’t be recycled. Instead, opt for a PVC-free shower curtain. Hemp shower curtains, for instance, are resistant to mold and mildew.

Take Shorter Showers: A low-flow showerhead can only do so much to save water when you’re taking extremely long showers. Do your best to cut back on your bathing time by creating a five-minute playlist of a song or two. This way, you’ll know exactly how long you have before you should turn off the water.

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Source: apartmentguide.com

New Refinance Program Probably Won’t Mean Much

Last updated on January 9th, 2018

refinance

During President Obama’s speech to the nation last week, he mentioned that the White House would be working with the federal housing agencies to help more homeowners refinance their mortgages at today’s low rates.

And on Friday, the Federal Housing Finance Agency (FHFA) released a statement, noting that it “has been reevaluating an existing program, the Home Affordable Refinance Program (HARP), to determine if there are ways to extend the benefits of this refinance product to more borrowers.”

Currently, in order to be eligible for a HARP refinance, a borrower must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, be current on mortgage payments, and have a first mortgage that does not exceed 125 percent loan-to-value.

That last bit seems to be the issue at hand, as there are scores of borrowers who meet the first two guidelines, but not the third.

To give you an idea, 85 percent of the Miami and Orlando MSAs were underwater as of last year, with average LTV’s of 150% and 140%, respectively.

In Riverside, California, the average LTV was around 164 percent last year, and has probably worsened since then.

So pretty much all of the hardest-hit borrowers haven’t been eligible for HARP.

LTV Ceiling Lifted?

Under the new refinancing plan, the LTV ceiling would be lifted or possibly removed, allowing these types of borrowers to refinance to take advantage of the record low mortgage rates currently available.

But it’s very likely that you would still need to be current on mortgage payments to qualify.

And while the new proposal sounds decent in theory, many of these borrowers have been grappling with a lack of home equity for years now.

So if they were going to walk away, they probably would have by now. Or they would have at least missed a payment or two.

If payments are lowered for the select few who have stuck it through, but are deeply underwater, they’re still left holding onto a house worth much less than the mortgage.

How much better off will someone be paying $200 less per month on a $300,000 mortgage worth just $150,000?

Even if it does make a big difference, the program still banks on mortgage rates remaining low and home prices reversing course in a major way, as it doesn’t address principal forgiveness.

Targeting the Wrong Group?

Then there are the homeowners with mortgages not backed by Fannie and Freddie, which while far fewer in number, account for a huge chunk of the problem loans.

A few years back, former FHFA director James B. Lockhart noted that these private-label securities accounted for 62 percent of all seriously delinquent mortgages, and thus, were the root of the problem.

These have yet to be addressed on a large scale, and probably won’t be, aside from on a case-by-case basis.

And so there may be some economic stimulus associated with this program (more money in some pockets), but it certainly won’t be a silver bullet.

Perhaps only time will sort things out, as impatient as we are.

Concrete details of the program should emerge later this month…

Read more: Can I refinance with negative equity?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com