The Act requires originators of residential mortgages to disclose any conflicts of interest and compare costs and benefits of mortgages offered to a potential borrower. Lenders also will be required to verify whether, based on income, credit history, and other data, a borrower has a reasonable ability to repay a loan plus its associated taxes, insurance, and other costs. This could mean that self-employed people and others whose income is undocumented or irregular will need better documentation to qualify for a loan.

Lenders will no longer be able to give loan officers financial incentives that induce them to steer customers to a mortgage with a higher interest rate simply to increase their own commission. Their ability to impose prepayment penalties when a borrower repays a loan early also will be more limited, and a holder of a hybrid adjustable rate mortgage must receive notice of any change in the interest rate six months in advance.

Lenders are prohibited from refinancing an existing mortgage unless the new mortgage offers a net benefit to the borrower, and they may not coerce or induce an appraiser to make a faulty appraisal of a property’s value. Loan applicants must receive a copy of the appraisal on the property no later than three days prior to the closing.

High-cost mortgages are subject to special regulations. Any balloon payments on high-cost mortgages cannot be more than twice as large as the average of earlier payments, and a borrower must receive qualified counseling on the advisability of a high-cost mortgage before credit can be extended.

Homeowners who are unable to make mortgage payments as a result of losing their jobs or because of a medical condition may now qualify for up to $50,000 in assistance loaned through HUD’s existing Emergency Mortgage Assistance Fund.

Increased protection of bank deposits becomes permanent

During the financial crisis, the Federal Deposit Insurance Corp. (FDIC) temporarily increased from $100,000 to $250,000 the amount it will insure on deposit accounts in FDIC-insured banks. The $250,000 limit is now permanent. That means that a couple who each had separate deposit accounts as well as a single joint account could qualify for up to $750,000 worth of protection on those accounts.

Greater transparency and accountability for investments and related services

Institutional investors’ inability to determine the amount of global financial exposure to derivatives–investments based on the value of other investments–contributed to the panic at the height of the financial crisis. Over-the-counter derivatives must now be traded on a public exchange, and trades must be cleared through a registered clearinghouse. Nonstandard derivatives can still be traded privately, but must be reported to a central authority in order to increase regulators’ ability to monitor the overall level of activity.

Hedge funds and private-equity advisors will be required to register with the Securities and Exchange Commission (SEC) and disclose to the commission information such as investment positions and the amount of leverage involved. Also, the $1 million minimum net worth required to be an accredited investor eligible to invest in such funds will no longer include a principal residence, and that $1 million threshold will be reviewed every four years.

Credit rating firms, which were criticized for being too lax in their evaluations of securities based on subprime mortgages, will be subject to oversight by the SEC, which can fine those that issue too many faulty ratings over time. Also, investors will now have the right to sue an agency for issuing ratings it knew or should have known were flawed.

Shareholders of public companies will have the right to a nonbinding vote on compensation for the company’s executives. Also, protections for people reporting securities law violations have been enhanced. Whistle-blowers with information that leads to monetary sanctions of more than $1 million will be eligible for 10 percent to 30 percent of the funds collected from the offender; if an employer retaliates, a whistle-blower can sue without waiting until administrative remedies have been exhausted.

An Investor Advocate office will be established within the SEC to help individual investors resolve significant problems and to promote investor interests.

Risky banking practices are addressed

Banks will be required to hold additional capital to cover potential losses, and some securities are no longer acceptable as vehicles for capital reserves held by large banks. Banks also will be required to retain at least 5 percent of a loan on their books if the loan is sold and/or repackaged with other loans and securitized. (However, some relatively low-risk mortgages, such as fully documented loans with a fixed interest rate, are exempted.)

Banks also will be more limited in their ability to engage in proprietary trading in their own accounts, which could represent a conflict of interest with their responsibility to their clients. They also will have to set up separate operations to handle their most risky derivative trades, such as swaps. A bank will not be permitted to invest more than 3 percent of its core capital in hedge funds and private equity, but it may still organize and offer them as long as certain conditions are met.

A Consumer Financial Protection Bureau overseen by the Federal Reserve will be created to regulate consumer financial products and services.

Systemic risk will be monitored, and liquidation of large banks will be overseen

A new Financial Stability Oversight Council is charged with assessing and managing risks that could threaten the entire U.S. financial system. Also, the FDIC will manage the liquidation of a bank whose failure the Treasury Secretary determines would disrupt the stability of the nation’s financial system. That will include firing corporate management responsible for the failure and prohibiting any payments to shareholders until all other claims are paid. The FDIC may borrow from an Orderly Liquidation Fund to pay for a liquidation, but those costs must be replenished not from taxpayer funds but from claims on the bank and, if necessary, assessments on large financial institutions. The Act does not permit the Federal Reserve or the FDIC to lend to or provide a guarantee for individual or insolvent companies or banks, but both may lend funds to provide liquidity.

Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources.

You may find this complementary guide useful:

A Comprehensive Reference Guide to Your 2009 Tax Information Statement

http://www.mytaxhandbook.com

Investor benefits include:

• Safety and security: Going paperless reduces the risk of identity theft and protects personal information by eliminating paper delivery of sensitive financial information.
• Anytime, anywhere access: Clients can enjoy instant access to their documents from any computer, at any time, anywhere.
• Centralized recordkeeping: Clients can reduce clutter at home and view account statements, trade confirmations, and tax documents together online.
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The site is self service. Investors can register themselves and reset a forgotten password online. Investors will receive HTML e-mail notifications containing a click-through link when a document is ready to view online. It is easy to view, print, or download statements and confirmations. Investors can access statements for 10 years, tax documents for 7 years, and trade confirmations for 3 years.

Investors can visit www.myedocumentsuite.com and click “register now” to start “going green.”

Length:60 min

My thanks to Jill Hurst-Wahl at Hurst Associates for creating the Syracuse Talking Business Series. Here’s how they described the event:

Bernadette Mroz (Small Business Development Center), Ron Ehrenreich (Cooperative Federal), Jason Eaton (Social Thread) and Joe Anderson (SCORE) were the speakers at very interesting Talking Business event in February. 

The economy is indeed on everyone’s mind.  The economy is in one of the worst slumps in anyone’s memory.  While we can argue whether or not this is as bad as the Great Depression, it is clear that some businesses and employees have nothing to compare this to.  For them, this is their first crisis and they are unsure about what to feel or how to respond.

The panel discussed a wide range of topics on business and the economy including:

• Advise for employees who are in their 20s and early 30s
• What every business needs to know about its own situation
• Who isn’t being affected as drastically by the economy (and the answer may surprise you)
• Whether to take money/work from economic stimulus package
• Available resources

The opinions were diverse and the conversation was non-stop.  This was one event that could have continued for two hours and kept everyone engaged.

No summary of this event would do it justice, so be sure to watch the video.

If you hold (or held) Central Fund of Canada (Ticker: CEF ) IN A TAXABLE ACCOUNT  you will need to file a special tax form in the first tax year which you own it (it is possible to file it late, but you need to ask the IRS for a waiver). At the time of writing, you need not it file each year.

You must file IRS Form 8621 which is available here: http://www.irs.gov/pub/irs-pdf/f8621.pdf

The information to fill it out for the 2008 tax year is here: http://centralfund.com/pfic/PFIC2008.pdf

On the IRS form most people will want to have the PFIC treated as a Qualified Electing Fund (QEF).

There are other options available to you including another method known as Mark-to-Market. I advise you to seek the council of a qualified tax professional, attorney or CPA in determining which would be most suitable for your situation.

The consequences of failing to file this form in the first year you own this security include, but are not limited to, paying a higher tax rate on your gains (assuming you have gains) when you sell this holding.

The issue is explained in detail in the prospectus for the fund:
http://centralfund.com/prospectus/2008%20Prospectus/CFOC%20Cdn%20Supplement%20and%20Base%20prospectus%20Sep%2024%2008.pdf

Please take this letter and the above forms to your tax preparer and ask them to provide you with individualized advice on the matter.

To aid you and your advisors in understanding the issue these links may help:
http://en.wikipedia.org/wiki/Passive_foreign_investment_company
http://www.altassets.net/casefor/countries/2002/nz3254.php
http://www.rpifs.com/offshoretax/otpfic.htm
http://www.intltaxlaw.com/OUTBOUND/PFIC/frontpage.htm
http://www.centralfund.com/Financials.htm
http://www.goldenqueen.com/PFIC.htmn
www.ftb.ca.gov/aboutFTB/manuals/audit/water/ch10.pdf

¹Article I, Section 8, Clause 5: The Congress shall have Power To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures. Article I, Section 10, Clause 1: No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt.  

These are general comments and ideas. This should not be interpreted as individual advice. Ask your advisor.