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Stephen Harper wants to add another 700,000 homeowners in Canada. Is that what we really need?

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0923harperhousePrime Minister Stephen Harper and the Conservatives say they have primed the housing pump enough that Canada is now set for all-time home ownership record.

Canada Prime Minister Stephen Harper vows limit on foreign home buyers if needed

Prime Minister Stephen Harper promised new measures to track foreign home ownership in Canada and even hinted at restrictions on buying, during a press conference in Canada’s most expensive housing market

Read more The party boldly predicted the country will add another 700,000 homeowners and increase the percentage of Canadian households that own their property from 70 per cent to 72.5 per cent.

But the question some critics are quick to ask is whether we actually want so many people owning their homes, with some pointing to the housing crash in the United States that happened almost a decade ago as home ownership rates there soared to all-time highs just below 70 per cent before dropping to about 63 per cent earlier this year.

“The home ownership rate has been rising and it could go higher,” said David Madani, an economist with Capital Economics. “The problem is the only real two markets that are holding up are Vancouver and Toronto. Do you want home ownership to go up in those two markets? These are the markets that are the most overvalued.”

Affordability concerns have dogged those markets and the Tories once again promised Tuesday to investigate whether foreign ownership has been fuelling the housing markets in Toronto and Vancouver where the average detached homes sell for about $1 million and $1.4 million respectively.

Related If Stephen Harper has his way, 72.5 per cent of Canadians will be homeowners by 2020 ‘Playing with fire’: How the Tories’ renovation tax credit promise may affect Canada’s hot housing markets Harper promises to introduce permanent home renovation tax credit if he is re-elected But the Conservatives say the policies they are proposing in the election are actually helping with affordability. Changes being proposed are a permanent renovation tax credit and increasing the amount Canadians can withdraw without penalty from their registered retirement savings plans from $25,000 to $35,000. Annual contributions limits to tax-free savings accounts were already bumped from $5,500 to $10,000 and some of that money is expected to go into housing.

Harper calls the Tory measures a “plan for affordable, responsible home ownership in Canada” but the latest announcement does not offer any specific new program, just a new target.

Not surprisingly, organized real estate loves everything the Conservatives have done to boost housing and believes the government can reach the goals it has set.

“We need to have strong policies in place to meet that target,” said Kevin Lee, chief executive of the Canadian Home Builders’ Association, about the goal of reaching a 72.5 per cent home ownership rate.

Lee says comparisons to the U.S. market are not valid, even as our home ownership rates soar past its highs. ‘The American situation and the way mortgages were handled and the stringency were entirely different than (Canada today.).”

THE CANADIAN PRESS/Nathan Denette THE CANADIAN PRESS/Nathan DenetteConservative Leader Stephen Harper, centre, and candidate Julian Fantino, right, look over a new home construction site while making a campaign stop in Kleinburg Ont., on Tuesday, September 29, 2015. From the CHBA point of the view, the concern should be on jobs. The Ottawa-based group estimates real estate directly and indirectly supports 90,000 jobs and contributes $125 billion annually to economic activity.

Gregory Klump, chief economist with the Canadian Real Estate Association which represents about 100 boards across the country, says the Tory targets are achievable. He adds low interest rates and income growth are probably just as big a factor as any new policy measures being proposed.

In terms of whether the proposed Tory changes could be inflationary, Klump said there really isn’t any “evidence to show current policies” have impacted Toronto and Vancouver. “There is just a shortage of single family homes in those markets,” he said.

The goal the Conservatives hope to attain almost seems to fly in the face of some of the measures Ottawa has instituted over the last four years to slow the market, the most prominent being a reduction in maximum amortization lengths from 40 to 25 years.

“There is no question that policies until now have worked to reduce the home ownership rate,” said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce. “The home ownership probably would have been higher without (regulatory changes).”

Tal says there is nothing wrong with seeking a higher home ownership rate but it can’t come with increased risk to the market. “We’ve been through this game in the U.S.,” he says.

gmarr@nationalpost.com

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Banker buys ex-boss’s house only to raze it and build huge mansion in act of ‘revenge’

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imageWASHINGTON — An American hedge fund billionaire bought the home of a former boss who passed him over for promotion — then tore it down and built a mansion twice as big on the exact spot.

David Tepper paid the ex-wife of Jon Corzine, the former CEO of Goldman Sachs, US$43.5 million for the summer home in Sagaponack, Long Island, in 2010 and flattened it.

Ordering the building of a new property, he seemed intent on creating something bigger and better. Five years later, the full extent of the 58-year-old hedge fund manager’s “revenge” seems complete. The new 11,268 sq ft mansion is almost exactly twice the size of his one-time boss’s property. The estate includes a giant outdoor swimming pool and pool house, three-car garage and tennis court.

The completion of the beachfront house, in an area of the Hamptons that has long been a playground for the wealthy, may bring closure to a feud that began more than two decades ago.

Related Park the yacht — this ‘private floating habitat’ just upped the ante on billionaire toys Whoever buys this $12.25-million ‘Manor House’ in Calgary won’t be worried about the oil crash After reportedly playing a critical role in protecting Goldman Sachs from a financial crash in the late Eighties, Tepper assumed that he would be made a partner. When he was not chosen, he blamed Corzine, the head of his division, with whom he was said to have had a fractious relationship.

Tepper left to start hedge fund Appaloosa in 1993 and became a billionaire in 10 years. He is one of the highest-paid fund managers in the U.S., earning $3.5 billion in 2013, according to Forbes magazine.

But Tepper, who is described by colleagues as having a loud, sometimes brash demeanour, appeared not to have forgotten Corzine’s alleged slight. After buying the home from his 68-year-old former boss’s ex-wife in 2010, he told New York Magazine: “You could say there was a little justice in the world.”

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Bank to create more-powerful road reps

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imageOne major bank is working on a strategy that will see mobile advisors provide more than just mortgage advice – should brokers be worried that their competitive advantage is disappearing? “We’ve been focusing on processes and simplifying,” David Williamson, CIBC senior executive vice president, said during the bank’s recent quarterly profit call. Also CIBC is investing in “mobile mortgage advisers, which were changing to mobile advisers generally, so (they will) not just focus on mortgages.” CIBC’s shift to having its mortgage specialists become more generalist could see commissions, and so earnings, broadened and supported by other revenue streams. Ostensibly that could create greater income security for those brokers prepared to head back to the bank. But industry players may view this initiative as a play to earn a larger share of clients’ wallet, rather than an increased focus on holistic financial advice. “I think it’s the bank acknowledging (the mortgage specialists) aren’t doing a good enough job handing the client off to the branch,” Steve D’Souza, a broker with Client First Mortgage Solutions, told MortgageBrokerNews.ca. “It’s a way for the bank to push more lines of business and sell more products.” And while the model may up the utility of mortgage specialists, not all brokers see it as an incentive to make the move to the banks anytime soon. “Newer brokers may be enticed to make the move but I don’t see high producing brokers deciding to go to the banks,” D’Souza said.

Canadians’ mortgage debt ramping up fast as cheap money fuels leap in luxury home prices

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houseA new report from the Canadian Imperial Bank of Commerce says prices for the country’s most expensive high end homes are rising much faster than the overall market, skewing average values.

Canada’s housing bubble: As Alberta’s market tumbles, the rest of us wonder who’s next

Some of the more bearish economists think Alberta’s malaise may spread to other parts of the country, but there are some things the rest of Canada can learn from Alberta’s troubles. Read on The report from deputy chief economist Benjamin Tal was released Wednesday and shows the top 10 per cent of detached homes in Vancouver, in terms of price, have risen between 200 per cent and 250 per cent in value over the last decade. The bottom 10 per cent of detached homes, by price, have only risen about 50 per cent during the same period.

“There are two markets and they are not even talking to each other,” said Mr. Tal, in an interview, referring to the differences between the high end of Vancouver’s housing market and the low end.

He also waded into the controversial issue of foreign ownership by saying the most expensive end of Vancouver’s detached home market is likely being driven by overseas buyers. “They’re not just buying condos. I think this is where you are seeing the foreign investor.”

The issue of foreign ownership has even caught the eye of Prime Minister Stephen Harper during the election campaign. He vowed last month do something if “foreign ownership non-resident buyers” are found to be driving up the cost of housing.

There are two markets and they are not even talking to each other Tal noted that Toronto market has slightly different characteristics than Vancouver because price gains start to decline among the 10 per cent most expensive homes in the city. By comparison, the bottom 10 per cent of homes in Toronto have actually outpaced a similar subset in Vancouver with about a 75 per cent increase in price over the last decade.

“The average price in Vancouver is almost meaningless,” said Tal, adding affordability might not be as stretched on the lower segments of market as imagined based on the mean price of homes.

Canada Mortgage and Housing Corp. recently took the same stance on Vancouver’s homes, during a conference call in August to discuss the risk in the city’s market. CMHC’s chief economist Bob Dugan noted “ in the first quarter of 2015 the top 20 per cent of houses in Vancouver sold for an average of $2.2 million, while the other 80 per cent had an average price of $550,000.

Related Low interest rates trump cheap oil in Canadian housing market as prices forecasted to keep rising Canadian seniors racking up debt to fund bigger homes, glitzy lifestyles Toronto detached homes climb back over $1 million as prices keep rising in seller’s market Tal says the risk in the market is not so much default and notes in his report that mortgage arrears were just 0.3 per cent of all outstanding mortgages in June.

“The issue is that if you have 25 per cent or 30 per cent down payments, those people will not walk away from their assets,” said Tal, referring to what might happen to those consumers if interest rates start to rise. “But you might have reduced economic activity. If you are stretched, you spend less. That’s the risk (to the economy), those people don’t spend on anything else.”

But he leaves no doubt that mortgage debt is rising fast and reached $1.2 trillion outstanding in the second quarter of 2015. Five years earlier it was only $923 billion. But the low interest rate environment that has seen variable rate mortgages drop below 2 per cent has consumers actually paying less interest.

Tal’s own calculations are that interest payments were only $78 billion in the second quarter of 2015, a third consecutive quarter that payments have declined.

“That’s why it’s an interest rate insensitivity story,” said Tal, adding it’s not something that is affecting all Canadians. “The home ownership rate is no longer rising but those who take debt are taking more debt because of the increase in house prices.”

Toronto Real Estate Board seeks to prevent judge from hearing competition case

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toronto-housing-marketTORONTO — The Toronto Real Estate Board is seeking to remove a Federal Court judge who is hearing the Competition Bureau’s challenge of a board policy against the online publication of house sale data.

A lawyer for the real estate board says Federal Court Chief Justice Paul Crampton was involved in a similar case more than a decade ago while he was a lawyer, and that there could be a perception that he is biased.

The motion has stalled a drawn-out battle over the board’s refusal to publish the data online. The real estate board has argued the privacy of home buyers and sellers would be invaded if the data was published.

Related Canadians’ mortgage debt ramping up fast as cheap money fuels leap in luxury home prices The Competition Bureau has argued that the board’s restrictions make it more challenging to make real estate transactions without hiring a real estate agent.

The case is expected to have reverberations throughout the country, and could affect how other Canadian real estate boards provide services to their customers online. LATEST PERSONAL FINANCE VIDEOS

What Amortization Should I Have On My Mortgage?

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7_mort_gage-290x300What Amortization Should I Have On My Mortgage? What Amortization Should I Have On My Mortgage?Short answer: the longest possible amortization you can get! However, the goal is to get the longest amortization possible, but then increase the payment or make lump sum payments to move the amortization to the lowest possible and therefore be mortgage free faster. I will explain more later. Amortization is the total authorized repayment period of a mortgage. If you have a hi-ratio mortgage, by law – government guidelines, the maximum is 25 years. However, if you have a conventional mortgage or, in other words, at least 20% down or 20% equity, then you can amortize up to 30 years and in some cases with some of our lending partners, 35 years. Question: Why would you want a longer amortization?

Well qualifying is based upon the payment. So it is easier to qualify with a longer amortization as a longer time frame means a lower payment. For example, you could qualify at 30 years amortization, but elect to pay bi-weekly accelerated based upon a 25 year amortization (an effective amortization of 22 years). The benefit of this strategy is that you can go back to the original amortization, less time elapsed, should you ever need to. Let’s look at an example: Mortgage of $300,000.

Payment of $1,200/month based on a 30 year amortization. However, you elect to pay bi-weekly accelerated based on a 25 year amortization (effectively an amortization of 22 years – amortization is a function of payment). So bi-weekly is $680. However, 10 years into the mortgage you suffer a set back and are temporarily out of work. Only your spouse continues to work. You can approach the lender to “re-amortize” your mortgage, meaning 30 years less time elapsed, so effectively 20 years.

However, in the 10 years that have elapsed, you have been making accelerated payments so your mortgage balance is lower than it would have been otherwise. The result is that your re-amortized payment is $1,000/month! Effectively built-in payment reduction insurance at no cost! Note: you could also use this strategy if rates were to rise substantially and you want to lower your payment! Another reason to opt for longer amortization: Rentals, longer amortization means better cash flow!

With a rental property, cash flow is King! If it pays for itself every month and the interest is tax deductible, who cares how long it takes to repay the mortgage? Every month it is building equity and eventually you will have enough equity you can refinance it to get a down payment to buy the next property and build up your rental property portfolio! As always, get independent professional advice on which strategy and options are right for you. .

The Truth About the Cash Back Mortgage

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The Truth About the Cash Back Mortgage

The Truth About the Cash Back MortgageWe often see ads from the major lenders offering cash back incentives on their Mortgage products.

Gone are the days where a Cash Back Mortgage could be used to facilitate a purchase without the required minimum of a 5% down payment. Cash Back incentives are now made available for other enticing uses; New Furniture and Appliances, Renovations and the other great hook…..Apply the cash back portion directly on your Mortgage for a better effective rate!

Just a few weeks ago, I was emailed an offer from a major lender who shall remain unnamed;

“NEW PROMO … Cash back for purchases. Effective 5 year Rate as low as 2.62%….”

First off, the Cash Back Mortgages are offered at a premium (higher) compared to other standard rates available. The ploy suggested by the lender here is pay it straight down on principle and lower your effective interest rate over time.

READ THE FINE PRINT

The kicker here and warning to all….there IS a catch! If you are to break the mortgage midterm, whether to sell your home or refinance, you not only have to pay the interest penalty, you also have to return the Cash Back portion to the bank. Even if you used it to pay down your Mortgage. This is in the fine print on the websites and in your contract for you to see.

I have seen this happen to a few people that I know and it ended up being a $10,000 – $20,000 factor in their decision not to move or change careers!

There are other more cost effective ways to obtain financing in better programs such as Purchase Plus Improvements, or Home Equity Lines of Credit (HELOC), that expose you to less future risk and still provide you with flexibility to accomplish your goals.

 

WHY BANKS WANT YOU TO SIGN THE RENEWAL AGREEMENT THAT THEY MAIL OUT TO YOU

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WHY BANKS WANT YOU TO SIGN THE RENEWAL AGREEMENT THAT THEY MAIL OUT TO YOU

Why banks want you to sign the renewal agreement that they mail out to youMost banks boast a higher than 90% renewal rate on their mortgages (some even higher than 95%). Since it costs them a lot more money to acquire a new client vs. keeping an existing one, banks love the savings of a simple renewal. So you would think that they would offer you the best rate up front on your renewal as it’ll save them money in the long run? Well…not necessarily.

imageWith renewal rates being as high as they are, there is not much incentive for banks to give their clients the best rates up front. They know that most people will stay as they know it’s easier to just sign a form as opposed to applying for a mortgage at another bank. Hence the dreaded renewal letter that gets mailed out automatically prior to your renewal date.

The banks would love nothing more than for you to just pick the term, sign the document, and send it back to them. It costs them relatively little to process it and they don’t have to follow up with you after that (other than sending you a new copy of the agreement).

Since the renewal documents are printed automatically (and yes they may include a “preferred rate” which makes it even more tempting to sign) they don’t factor in any rate specials that may occur after they’re printed.

Recently a client’s mortgage was coming up for renewal and they received the automatic renewal letter. Just calling the 1-800 number saved them an extra .10%, which on a $500,000 mortgage was an extra $500 per year in interest. Not bad for a 5 min phone call.

There are also some important questions to answer:

-are you planning on selling your home anytime over the next 5 years?

-do you need to access any equity from your home for renovations, children’s education, etc.

-what are your long term goals with the property?

These are important questions to ask as they help us suggest the right product for you.

So it’s important to treat your renewal as if you’re obtaining a new mortgage and spend some time researching your options. When I worked at the bank I was always shocked at the number of people that just signed the form and sent it back.

 

Canadian mortgage expert reacts to Fed plans

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imageThe Fed’s recent announcement keeping the overnight rate unchanged should reassure Canadian brokers, says one industry expert here.
 
“This is good news for Canada, where the economy is much weaker than in the U.S. and where the Bank of Canada is at least a year away from tightening,” says Dominion Lending Centre’s Chief Economist Dr. Sherry Cooper. “Chairman (Janet) Yellen mentioned Canada specifically in her press conference, suggesting that the slowdown in Canada arising from the oil price rout is important as Canada is ‘an important trading partner’ with the U.S.”
 
Clearly, says Cooper, interest rates will remain low for a long time and when they do rise, they will do so only gradually.
 
Currently, inflation in the U.S. over the past 12 months is only 0.3%, well below the Fed’s target of 2%. Much of this is owing to the strengthening in the U.S. dollar and falling commodity prices. Also, despite tightening labour markets, wage gains have remained extremely muted.
 
By holding the benchmark federal funds rate at zero to 0.25%, policy makers revealed their continuing uncertainty that inflation has not moved back to their 2% target, despite gains in the labour market.


Recent losses in China’s equity markets reflect deeper worries over growth prospects for the world’s second largest economy, says Cooper.
 
“Slowing growth in China has helped to trigger a dramatic drop in commodity prices, especially oil, which has put further downward pressure on U.S. inflation,” she says.

Federal Open Market Committee (FOMC) members revised down their expectation of unemployment this year a few basis points below the current level of 5.1%. Inflation expectations were revised down, as were projections of the federal funds rate, even though growth is expected to perform well.
 
Most participants expect the Fed to raise interest rates this year, although four Committee members expect the first increase to be delayed to 2016. Richmond Fed president Jeffrey Lacker dissented with the Committee’s decision, saying he preferred to raise the target rate by 0.25 percentage points now.

This pair bounced back after bankruptcy – can they afford a condo?

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face-lift19rb1In 2010, John and Olivia were in dire financial straits mainly because of the economy. They lost their house, John lost his business and they declared bankruptcy.

“We’ve slowly rebuilt over the past five years, with 2014 being a turning point for us,” Olivia writes in an e-mail. “We both got jobs with much higher salaries,” she adds.

Faced with an unexpected financial event, 55 per cent of people in retirement cut household spending, 30 per cent cashed in savings or investments, and 14 per cent borrowed money. PORTFOLIO STRATEGY It’s time to get real about retirement planning

MULTIMEDIA A hot real estate market can be a retirement windfall Together, they bring in $144,000 a year before tax.

“Our debt is more under control, but we really don’t know what our financial priorities should be.”

They are in their mid 40s and have one child living with them; John has four grown children from a previous marriage. Olivia has a pension plan, but John has none.

They’d like to buy a home of their own, a condo, but real estate is expensive in British Columbia and their rent is relatively cheap. They fear it might rise substantially soon. If they can’t afford a condo, they’d at least like to buy a modest cottage.

“Being able to escape once a month [to a cottage] makes our 50-hour work weeks bearable and our lack of true vacations tolerable,” Olivia writes. “When might we be able to buy a $160,000 vacation property – a simple cabin on a piece of land on a Gulf island?”

We asked Calgary-based Morgan Ulmer of MeVest, a financial literacy and counselling firm, to look at Olivia and John’s situation.

What the expert says

John and Olivia have made excellent progress over the past few years, Ms. Ulmer says. They have a budget surplus of about $1,600 each month and are wondering how best to use the money. They have student and personal loans totalling $83,600.

If they keep their payments as is, the loans will be paid off in slightly less than seven years at an interest cost of $11,177. If they add $1,350 of their monthly surplus to their loans and put the remaining $250 into an emergency fund, they’d have the debts repaid in two-and-a-half years at a much lower interest cost of $3,924. If their rent rises, they would have that much less money to put toward debt repayment.

Next, the planner looks at the prospect of Olivia and John buying a condo or a vacation property.

“Until the couple submits a mortgage application, it is difficult to know whether a traditional lender will approve them at standard rates,” Ms. Ulmer says. Most lenders like to see at least two years of strong credit history as well as stable jobs and incomes, she says. Because of their previous bankruptcy, they might have to look at an alternative lender where rates would be higher.

Suppose Olivia and John bought a condo for $300,000 with 10 per cent down. The $276,500 mortgage, which includes Canada Mortgage and Housing Corp. insurance costs, would be amortized over 20 years, so they could pay it off before she retired. At a 4-per-cent rate, the mortgage would cost $1,670 a month. This would give them a total debt service ratio of 27 per cent, including their student loans ($886), personal loan ($280), mortgage ($1,670), heat ($175) and property taxes ($200), for a total of $3,210. Their gross income is $12,000 a month. Condo fees, hydro, home insurance and maintenance would add to their costs.

While buying a condo is doable, Olivia and John would need to keep their budget low.

“With significant student loans, low retirement savings and a child to put through school, they have multiple priorities for their money,” Ms. Ulmer says. “A home is only one of them.”

They would be better off waiting to buy until their loans have been repaid. This would allow them to save up a bigger down payment on a more expensive property. They might also be able to negotiate a better mortgage rate because they would have a longer credit and work history, she adds. By saving up a larger down payment, they would save on CMHC insurance costs, which run about 2 per cent or 3 per cent of the mortgage amount.

“This is thousands of dollars in savings,” Ms. Ulmer says.

Buying a cottage is more of a luxury because they would still have to pay rent. If they bought one for $160,000 with 10 per cent down, they would have a mortgage of $147,856, including CMHC insurance. At 4 per cent amortized over 20 years, their mortgage payments would be $893 a month.

Add in rent and their debt-service ratio would be 31 per cent. “Olivia worries their rent will go up, so the number may get even higher,” Ms. Ulmer says.

Add in other costs of owning and their monthly surplus would be wiped out, leaving them “absolutely nothing” for rent increases, extra loan payments, emergencies or retirement, the planner says. “It is, unfortunately, not a feasible option at this time.”

+++++++++++++++++

CLIENT SITUATION

The people: John, 47, Olivia, 45, and their daughter, 12

The problem: Can they afford to buy a condo or a cottage?

The plan: Pay off the loans first then save a 20 per cent down payment for a condo. Forget about the cottage for now

The payoff: A home of their own and a road map to financial security

Monthly net income: $8,200

Assets: Cash in bank $3,500; market value of her defined contribution pension plan from previous employer $15,744; value of her hybrid pension current employer $46,524; RESP $5,000. Total: $70,768.

Monthly disbursements: Rent $1,246; insurance $15; hydro $88; maintenance $30; transportation $418; groceries $700; child care $450; clothing $150; loan payments $1,166; gifts, charity $95; vacation, travel $100; other discretionary $50; eating out, drinks, entertainment $570; grooming $73; clubs $42; pet $50; sports, hobbies $200; subscriptions $23; dentists $75; drugstore $72; life insurance $21; disability insurance $128; telecom, TV, Internet $228; RESP $20; TFSA $200; pension-plan contributions $390. Total: $6,600. Surplus: $1,600.

Liabilities: Student loans $63,600 at 5.5-per-cent floating rate; interest-free personal loan $20,000. Total $83,600.

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Want a free financial facelift? E-mail finfacelift@gmail.com. Some details may be changed to protect the privacy of the persons profiled. Follow us on Twitter: @GlobeMoney

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