Congress makes ‘jumbo’ mortgages easier

Mortgages are often divided into two types – “conforming” and “jumbo.” For some time, a “conforming” mortgage has been any loan up to $417,000, and a “jumbo” mortgage has been any loan over that amount.

The reason? Fannie Mae and Freddie Mac, the two quasi-governmental mortgage-buying agencies, could only repurchase loans up to $417,000. Because lenders could not re-sell a loan over $417,000 to these agencies, they often charged a higher interest rate for them.

To help borrowers, Congress recently raised the “jumbo” amount. The new limit is $417,000 or 125 percent of the median price for houses in a geographic region, as determined by HUD, up to a limit of $729,750.

This should make it easier to take out or refinance a large mortgage.

This new limit will be in effect until the end of this year, although many people expect Congress will extend it further.

In the past, many people avoided jumbo mortgages by splitting their loan in two. They took out a conforming mortgage and a home equity line of credit to finance the

difference. But you might want to look carefully at whether this is still the best bet now that rates for loans over $417,000 could be coming down. Some people might be better off consolidating their mortgage and their credit line into a single loan.

Doctor can be liable for reducing patient’s chance of survival

A doctor can be liable for negligently reducing a patient’s chance of survival, even if the patient’s prospect for recovery was already less than 50 percent, according to a recent ruling by the Massachusetts Supreme Judicial Court.

The court recognized a legal doctrine known as “loss of chance,” which allows a patient whose odds of recovery are 50 percent or less to receive damages for any negligence that reduced those odds.

Massachusetts joins 20 other states that recognize “loss of chance” recovery. Ten other states have refused to allow the cause of action.

In the Massachusetts case, a doctor overlooked a 46-year-old man’s stomach cancer. The man had repeatedly complained to the doctor about stomach pains. The doctor diagnosed gastrointestinal reflux disease and recommended over-the-counter medications. The doctor four years later eventually ordered diagnostic tests. After the testing, the man was diagnosed with gastric cancer and died five months later.

The court said where a physician’s negligence reduces or eliminates the patient’s prospects for achieving a more favorable medical outcome, the physician has harmed the patient and is liable for damages.

New rules for home mortgages will protect consumers

The Federal Reserve Board has issued a number of new rules for home mortgages designed to protect consumers.

The rules apply to “subprime” mortgages and to some “Alt-A” mortgages. “Alt-A” mortgages are for borrowers whose credit is less than ideal but better than the credit of borrowers getting subprime mortgages.

Below are highlights of the new rules.

* Lenders cannot offer a mortgage unless they first verify the borrower’s income.

* Lenders must assure themselves a borrower is likely to make the mortgage payments for at least seven years, even if the interest rate adjusts upward during that time.

* “Prepayment penalties” – essentially a fine borrowers must pay if they refinance or pay off the mortgage within a certain period – will be prohibited on loans where the interest rate can adjust within the first four years. For other loans, prepayment penalties can be imposed only if the mortgage is refinanced or paid off within the first

two years.

* Lenders’ advertising must include additional information about rates, monthly payments and other features. In addition, certain required disclosures must now be made earlier in the transaction.

* Lenders cannot advertise a mortgage interest rate as “fixed” if it is fixed for only part of the loan period and can change afterward.

* Borrowers who want to sue a lender for issuing an improper loan will be able to do so without having to show that the borrower had a regular practice of issuing improper loans to other customers. However, lenders will be able to defend themselves from such claims in court by showing they followed certain steps in verifying the borrower could repay the loan.

The new rules go into effect Oct.1, 2009, and will apply only to mortgages issued after that date. And starting in 2010, lenders will be required in all first mortgages to establish an escrow account to pay property taxes and insurance.

Age bias suits now harder to defend

The U.S. Supreme Court recently made it easier for workers to win age bias lawsuits.

The court ruled employers must prove it didn’t violate age discrimination laws related to job actions that affect groups of employees – so-called “disparate impact” cases. The court said companies must prove “reasonable factors other than age” were the basis for an

employment decision having an adverse impact on workers protected by the Age Discrimination in Employment Act – those 40 and older.

This decision means employers will have to explain to juries all the factors involved in making personnel decisions, which isn’t always easy to do.

The tough economy could lead to the filing of more age bias lawsuits.

Pre-paid funeral plans can be risky business

Many people like the idea of pre-paid funeral plans because they allow funeral services to be locked in at today’s prices, and save family members the trouble of selecting caskets and attending to other matters at a time of great sadness and stress.

But if you’re thinking of such a plan, be cautious.

After you’ve paid, there’s always a risk the funeral home will go out of business, or the owner (or a new owner) will abscond with the money.

A well-known mortuary in Memphis was in the headlines recently when the new owner announced he had no intention of honoring some 13,500 pre-paid funeral contracts. The owner now faces criminal charges that he effectively stole the funds.

While this case is unusual, it’s not unique. Funeral homes in general are regulated by the Federal Trade Commission, but pre-paid burial plans are regulated by individual states, and many state regulations are very lax.

In addition, pre-paid plans may make it hard to change your mind. In some states, if you’ve paid for a casket and later decide you want to be cremated, the funeral home can simply keep the money you paid for the casket even though you won’t use it.

A number of alternatives to pre-paid funeral plans are available. One is simply to buy life insurance to cover the funeral costs. Another is to use a “pay on death” bank account earmarked for funeral expenses, with instructions to the beneficiary on how to use the money.

Some people buy single-premium life insurance and put the policy into a “funeral trust.” This can provide tax benefits, and can also shelter the funds from Medicaid requirements.

One advantage of this type of planning is that you can set aside funds not only for the funeral itself, but also for travel and lodging expenses for family members.