Archive for July, 2008

Inside Congress’s housing repair kit

Posted on July 31, 2008 by admin

The Boston Globe – July 31, 2008


The sweeping housing legislation signed yesterday by President Bush provides a tax credit for first-time home buyers, higher mortgage allowances for expensive markets such as Boston, property tax breaks, and a variety of other benefits.


Although the main thrust of the legislation was to shore up the nation’s primary mortgage providers, Freddie Mac and Fannie Mae, and stem the onslaught of foreclosures, the new law has numerous tax breaks and incentives for homeowners and buyers aimed at repairing the damaged housing market.


“There’s enough for some, but not for everybody,” said Representative Barney Frank, the Newton Democrat who sponsored the legislation. “If we had more money, we could do more.”



Tax relief

  • First-time buyers can receive a $7,500 tax credit for buying a home by next July 1, a provision aimed at recharging sales in slumping markets. Eligibility requirements include that a buyer has not owned a home within the past three years. The credit is effectively a no-interest loan since the taxpayer must pay it back at a rate of $500 a year over 15 years. The credit begins to be phased out for single taxpayers earning $75,000 and ends at $95,000, and for couples earning $150,000 to $170,000, said Linda Goold, lawyer for the National Association of Realtors.



  • Homeowners who elect to claim the standard deduction on their tax forms can receive a property tax break of $500, or $1,000 for couples filing jointly.



  • Taxpayers subject to the alternative minimum tax will no longer have to pay taxes on the interest they earn from housing-related bonds sold by state and municipal governments. Lawmakers said this will lower the cost of building affordable housing by making the bonds more attractive to investors.



  • Owners of vacation homes, however, will be limited in the amount of capital gains tax deductions they get when selling the second property, if they’ve used it as a primary residence during a certain period prior to selling it.



    New disclosure requirements

  • Lenders will have to provide copies of mortgage documents to borrowers at least seven days prior to the loan closing.



  • Mortgage documents must completely disclose the full costs of the loan over its lifetime, including future increases in payments, for subprime or other types of adjustable-rate mortgages.

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    Private Lenders Provide Option for Borrowers

    Posted on July 31, 2008 by admin

    The Wall Street Journal – July 31, 2008


    As lending standards have become tougher, a rising number of people and businesses are turning to an unlikely source for money: private lenders.


    In recent years, the practice of borrowing money from private parties was rare, except among those who were unable to qualify for traditional loans. Banks were flush with cash and eager to lend, meaning even people with a tarnished credit history often could find quick sources of cash.


    Now, even those with good credit are bypassing banks to borrow money — despite interest rates that can reach 20% or more, and down payments of 35% or more.


    These private funds — which aren’t from banks or credit unions — are being used for everything from second homes to apartment construction. Many borrowers have excellent credit, but they are trying to avoid the added time, scrutiny and uncertainty of a conventional bank loan. Such transactions are “not as publicly available as one might expect,” says Ron Phipps, a real-estate broker in Warwick, R.I., “but there is definitely money available.”


    Arrangements for such loans are equally low-key. While hedge funds and high-net-worth investors are providing cash, it isn’t unusual for a private lawyer to get five friends to each throw in $100,000 for a home loan. Wealthy investors, hedge funds and private-equity firms are lending money in pursuit of consistently higher returns. The bear market for stocks may make alternative investments such as this type of lending more attractive.


    Typically, borrowers hear about private loans from lawyers, mortgage brokers and real-estate agents. Borrowing and lending opportunities are even sometimes posted on Web sites or in newspapers.


    For investors, well-structured deals could reap significant returns, because private lenders typically charge much higher closing costs and interest rates than traditional lenders. They also require a much higher loan-to-equity ratio. So if the borrower falls behind, the lender potentially could resell the property at a profit.


    “For the investors, there’s an opportunity,” says Scott Haislet, owner of LEC Mortgage in Lafayette, Calif. “But you better know who is in charge and who’s making the decisions about the property.”


    Borrowers “need to make sure they understand the way the loan works,” says Allen Fishbein, director of housing for the Consumer Federation of America. Mr. Fishbein recommends that borrowers “seek out independent professional advice before committing themselves.”


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    Social Security Benefits Don’t End With Divorce

    Posted on July 30, 2008 by admin

    The Wall Street Journal - July 26, 2008


    A divorced spouse can collect a Social Security retirement benefit based on the work record of an ex-husband (or ex-wife), and it won’t affect the latter’s retirement benefit — or the benefit of that person’s current spouse, if he or she has remarried. In fact, the Social Security Administration won’t even notify a person if an ex-spouse collects a retirement benefit based on that person’s earnings record.


    In general, a divorced spouse who has never worked is allowed to claim Social Security based on the record of a “working” ex-spouse, according to a Social Security spokesman. For the divorced spouse to collect on that record, the worker must be at least 62 years old and collecting, or be eligible for, Social Security retirement benefits. The divorced spouse also has to be at least 62 and unmarried.


    One important requirement: A couple must have been married for at least 10 years before the divorce became final for the divorced spouse to collect Social Security based on the other spouse’s work record. And note: Social Security is gender-neutral. So, it matters not whether we’re talking about an ex-husband or ex-wife. What matters is that the divorced spouse hasn’t remarried and that he or she earned a smaller paycheck, if any at all. (A divorced spouse, of course, is always entitled to claim benefits based on his or her own earnings history — if that results in a higher payout.)


    The size of the divorced spouse’s benefit will depend on the age at which he or she first files for Social Security, as well as the size of the worker’s benefit at his or her full retirement age. To get the largest monthly check possible, the divorced spouse should wait until his or her own full-retirement age to start collecting. (Full-retirement ages are listed at ssa.gov/retire2/agereduction.htm.)


    The divorced spouse also is eligible for widow’s benefits after the worker dies. (Social Security calls those “divorced survivor benefits.”) Your current spouse also can claim Social Security based on your work history, along with widow’s benefits.


    In a situation where the divorced spouse would be collecting survivor benefits, he or she could qualify as early as age 60 — or age 50 if he or she qualifies as having a disability.


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    How to Financially Cope With Being Suddenly Single

    Posted on July 30, 2008 by admin

    US News & World Report – June 12, 2008


    Widowhood poses special challenges in retirement.


    When Elaine Williams became a widow four years ago at age 47, she took on extra data-entry work to help make up for the loss of her husband’s income. She also learned how to make myriad financial decisions, including those related to their three sons, now ages 15, 22, and 23, without his input. “Suddenly, everything is on you,” says Williams, who runs a lawn maintenance company in Jewett, N.Y.


    Like Williams, widows and widowers often face financial challenges, including sharp drops in income and managing money on their own for the first time. Women are particularly vulnerable to money problems. More than 4 in 10 women 65 and over are widows. And because they have often earned less than their husbands, they may experience a larger income decrease in widowhood. But financial advisers say that smart advance planning can go a long way toward easing many of those hardships. Here are six ways to relieve the financial pressures of widowhood:


    Replace lost income. Pension, Social Security, and salary losses can be offset with life insurance proceeds or other sources of money, says Sri Reddy, head of retirement income strategies for ing U.S. Wealth Management. He suggests taking out insurance worth between 10 and 20 times the income that needs to be replaced to make sure the insurance payout after the policyholder’s death can generate enough income. A person earning $100,000 a year, for example, would need at least a $1 million policy, an amount that would be unlikely to fully replace the lost income. Of course, taking out insurance earlier in life tends to be cheaper; Reddy estimates that the average industrywide premium on a 20-year, $1 million term life policy on a healthy 30-year-old is around $500 a year.


    Some pension plans allow employees to opt for lower payouts while they are living in exchange for higher survivor’s benefits after death, which leaves more for the surviving spouse. Mary McGrath, executive vice president at Cozad Asset Management, a financial planning firm in Champaign, Ill., says even couples with other assets should consider selecting an option that allows benefit payments to the surviving spouse after death, because suddenly losing all income adds unnecessary stress to the grieving process. “It’s too upsetting to the survivor to have all of the income cease when you die,” she says.


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    How Wall Street Wrecked Your Retirement

    Posted on July 28, 2008 by admin

    CBS NEWS – July 28, 2008


    Our disfunctional financial system hit a new low last week when Citigroup, the hopeless wreck of Wall Street, announced it had lost $2.5 billion in the past three months — a cheer went up, and so did the Dow. Only $2.5 billion; people were afraid the losses would be much higher. Happy days are here again.

    There are no happy days for the millions of Americans who have been trying to put away some money for their retirement in tax-sheltered entities like IRAs, Roth Accounts and 401(k)s. For them, the market’s downward slope has been harrowing and frightening. When will the steady erosion of their savings end? And when it does, what will be left of their future financial security?

    Many of the millions suffering through these worrisome months didn’t buy a house they could not afford, didn’t speculate on their homes, didn’t let greedy impulses lead them to the edge of foreclosure or bankruptcy. Nevertheless, the excesses of their neighbors and the criminal folly of American finance is destroying their plans for retirement. It is dragging down much of the value of their homes, on which they have never missed a payment, homes on which they were counting on selling at retirement to help finance their last years in comfort.

    For years, the privatization propagandists have been telling people that when the time comes, Social Security will not be there for them. Now many are learning that it’s their private savings that may not be there. They are discovering they have been forced into a system in which other people have, in effect, been allowed to gamble with their retirement savings and have lost it.

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    Seniors Considering Reverse Mortgages to Benefit Greatly from Housing Legislation

    Posted on July 28, 2008 by admin

    NRMLA -    July 28, 2008


    Washington, D.C. – Landmark housing legislation (H.R. 3221) passed by Congress this weekend will make substantial improvements to the federally-insured reverse mortgage program and greatly benefit senior homeowners who may want to utilize home equity to help finance their retirement years.

    “Instantly, reverse mortgages have become a more viable retirement finance option for a broader audience of seniors who could receive higher benefits at a lower cost,” said Peter Bell, president of NRMLA. During the last federal fiscal year, ending September 30, more than 107,000 homeowners took out a reverse mortgage, compared to 76,351 the year prior and 7,781 in 2001.

    Improvements to the Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgage (HECM) program, which will take approximately 60-90 days to implement, will include:



    1. A single national loan limit of $417,000 that can increase up to as much as $625,500 in high cost areas. (Currently, limits vary by county and range from $200,160 to $362,790.)
    2. Ability to use FHA-insured reverse mortgages to purchase homes.
    3. Ability to get a HECM on a co-op property.
    4. Reduced origination fees of 2% on the initial $200,000 of maximum claim amount (lesser of the home value or county lending limit) and 1% on the balance thereafter with a cap of $6,000. (Lenders’ fees are currently capped at 2% of maximum claim amount.)
    5. Prohibitions on requiring the purchase of annuities and other financial products.
    6. Restrictions around cross selling financial products.
    7. Requirements on counseling protocols, funding and practices that promote independence and quality in counseling.

    “Seniors recognize the value of using reverse mortgages to access the wealth they have accumulated in their homes to pay off existing mortgages and other debts (thus avoiding foreclosure in some situations), pay for healthcare, make needed repairs, or to supplement retirement income,” added Bell.

    Reverse mortgages are becoming a more mainstream financial planning tool for older homeowners. A reverse mortgage enables older homeowners (generally age 62+) to convert part of the equity in their homes into income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes either one or more payments to the borrower. The loan is repaid when the borrower moves out of the property.


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    Housing Bill Has Something for Nearly Everyone

    Posted on July 27, 2008 by admin

    The New York Times – July 25, 2008


    If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.


    The bill, expected to be passed by the Senate in the next few days and then signed by President Bush, does offer incentives to certain overextended borrowers and their mortgage lenders.


    But it also includes many handouts to first-time homebuyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit in some way.


    Huge numbers of people buying homes for the first time, for instance, will be eligible for what amounts to an interest-free loan from the government. Meanwhile, older Americans will now be able to borrow more and possibly pay less for reverse mortgages that allow them tap the equity in their homes.


    Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to.


    Here are some of the new benefits:


    RENEGOTIATING MORTGAGES Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.


    So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.


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    Gender Split on Retirement Worries

    Posted on July 27, 2008 by admin

    The Wall Street Journal - July 27, 2008


    The complexity of preparing financially for retirement can make anyone nervous — but a new survey finds women are more worried than men about the challenges ahead, particularly inflation, health-care costs and outliving retirement savings.


    Eighty-three percent of women surveyed are very or somewhat concerned about how inflation will affect their ability to pay expenses in retirement, compared with 69% of men, according to the survey of about 1,200 pre-retirees and retirees, ages 45 through 74, all of whom had some retirement savings.


    Eighty-seven percent of women are worried about the rising cost of health care, versus 77% of men, and 64% of women are concerned about outliving their retirement assets, compared with 46% of men, according to the survey by Hartford Financial Services Group, an insurance and financial-services company, and MIT’s AgeLab, a research group focused on the older population.


    Thirty-six percent of women are concerned about managing their nest egg in retirement, compared with 19% of men.


    The only area where more men than women said they’re worried was related to retirement activities, with 19% of men worried about not having enough to do in retirement, versus about 17% of women.


    “The greatest disparity we found between genders was along financial matters,” says Stephanie Chappell, corporate financial gerontologist with Hartford.


    Women have good reason to be worried, she says. Thanks in part to lower pay and less time in the work force — women work an average of 12 fewer years than men, according to the study — women’s median retirement income is just 58% of men’s.


    Women also often outlive their husbands.


    Yet it’s valuable, financially speaking, to be married: Among those 65 and older, 28% of single women and 23% of single men are poor or close to poor, compared with just 8% of married people in that age group, according to the study, which cites data from 2004 from Boston College’s Center for Retirement Research.


    Women are more likely to be single: Among those 65 and older, 60% of women are single, compared with 29% of men. When a woman’s husband dies, her income drops 50% on average, while expenses decrease only 20%, Ms. Chappell says.


    The survey did not assess whether women are worried because they are aware of these specific challenges or for other reasons.


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    Social Security Unveils a New Online Calculator

    Posted on July 24, 2008 by admin

    US News & World Report - July 21, 2008


    It’s difficult to plan for retirement when you can’t predict the precise amount of your Social Security checks. A new tool is available to more accurately estimate what your Social Security benefits will be.


    Social Security Commissioner Michael Astrue unveiled a new online calculator yesterday. The Retirement Estimator allows you to test out retirement options such as various retirement dates or expected future earnings. You can also calculate what your benefit will be if you begin collecting at age 62, wait until your full retirement age, or further delay claiming until age 70. The future benefit amount is adjusted for inflation.


    The online Social Security benefit estimates are tied to your actual earning record, so you have to enter a little bit of personal information. But the calculator replaces an older online calculator that required the user to type in a large portion of their earnings history, which was time consuming and difficult to do if accurate records of income were not kept. The new tool also one-ups the annual paper Social Security benefit estimate you receive in the mail, which is also based on your prior earnings but assumes that your salary stays the same until retirement. Benefit estimates will be more accurate for people closer to retirement age who can better predict their future earnings.


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    Next IndyMac Task for FDIC: Find Buyers

    Posted on July 24, 2008 by admin

    Financial-Planning.com – July 23, 2008


    A week after opening IndyMac Federal Bank to worried customers and a media frenzy, John Bovenzi sat in his sixth-floor chief executive’s office laying out what the battered mortgage lender can still offer potential buyers.

    The lines of depositors were gone, though customers continue to show up at the main office and 32 satellite branches, some for prescheduled appointments to discuss the status of their funds.

    Despite the return to a comparative normality, the Federal Deposit Insurance Corp.’s stewardship of the failed IndyMac Bancorp has only begun.

    In an interview in the office formerly occupied by CEO Michael Perry, Mr. Bovenzi, the FDIC’s chief operating officer and chief executive of IndyMac Federal, counts off the thrift’s advantages: an established branch network, a large servicing portfolio, and a reverse mortgage business.

    “The loans may not get full value, but they’re still going to get value,” he said. “Some parts of the portfolio may not get 100 cents on the dollar, but we’ll see the best way to market and try to get that value back.”


    The more money the FDIC realizes from the sale of IndyMac — either as an entity or in pieces — the less its failure will cost the Deposit Insurance Fund. The greater the hit to the fund, the higher premiums banks will face.

    Obtaining a good price will be difficult because IndyMac’s specialty, alternative-A mortgages — including a chunk of payment-option, adjustable-rate mortgages — are fetching low prices during the housing crisis.


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