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Reverse Mortgages Get Popular; Rule Changes Enhance Appeal

Posted on January 16, 2009 by admin

Investors – January 15, 2009


New federal rules, a tough housing market and devalued retirement investments will likely spur more seniors to consider reverse mortgages.


They’ll get some welcome financial flexibility, but with some risk.


These Federal Housing Administration-backed loans let people 62 and older tap their home equity for an income stream without selling. In November new rules on the loans took effect, capping fees and raising lending limits. Another rule change Jan. 1 lets seniors buy a new property while simultaneously getting a reverse mortgage.In the 2008 calendar year the number of federally insured reverse mortgages issued rose 6.4% to 115,176, according to U.S. Department of Housing and Urban Development data on the Home Equity Conversion Mortgage (HECM) program. On a fiscal-year basis, 2008 marked a decade high at 112,154.


“We think the new rules will spur a lot of activity,” said Peter Bell, president of the National Reverse Mortgage Lenders Association, in Washington, D.C. He says some interested seniors held off until the new rules took effect.


That’s exactly what 66-year-old Mike Alcorn did. She loves her home in Rancho Bernardo, Calif., but couldn’t make the hefty mortgage payments after her husband died in late 2007.


Savings Found


She started looking into a reverse mortgage in 2008. But her mortgage broker told her to wait until November’s rule changes, which are part of a stimulus package passed over the summer, the Housing and Economic Recovery Act of 2008.


The result? Because of new higher lending limits in her area, Alcorn’s reverse mortgage paid off her entire mortgage and put $14,000 in her pocket. Prior to the rule change, the reverse mortgage would have cost her $22,000, what with the required fees and lower lending limits.


Now, she can stay in the home as long as she lives, paying just taxes and insurance. “Every month when it comes time for the (old) payment, I just giggle,” she said.


Not all brokers think the reverse mortgage market will boom in 2009.


“As values have receded, a lot of seniors do not qualify anymore,” said Eric Jacklin, a reverse mortgage specialist with Senior Living Funds in Riverside, Calif.


And private reverse mortgages, ones not government-backed, have vanished from the marketplace amid the credit crunch, brokers say.


Steps Toward Safety


To curb predatory lending, the housing stimulus law stipulates that people getting federally backed reverse mortgages can no longer be required by the lender to also buy financial or insurance products such as annuities.


Still, seniors and their families need to be wary. Reverse mortgages are very expensive compared to other loans. And they’re complex, so they can be difficult to understand.


To ensure understanding, borrowers are required to meet with an independent mortgage counselor, which can cost up to $125.


High fees scare away some borrowers. Under the new reverse mortgage rules, for the first $200,000 borrowed, seniors can only be charged a 2% origination fee (figured on the house’s value, not the borrowed amount), and 1% for any amount borrowed beyond that, up to a cap of $6,000.


But that’s not all. Seniors who take out a reverse mortgage also must pay 2% of the house value in mortgage insurance. And they must pay for an appraisal, typically $300 to $500. They’re also paying interest on the loan, and a monthly loan servicing charge of $25 to $35.


The new FHA national lending limit for a reverse mortgage is $417,000, or up to $625,000 in areas with high housing costs. The loan amount is determined by the home’s value and location, home equity and interest rates, and the borrower’s age. If a married couple is borrowing, both spouses must be 62 or older, and the loan amount is figured using the younger’s age.


The high fees are the hardest part of the loan for borrowers to understand, says Kate Williams, vice president at Money Management International, a Houston-based firm that does mortgage counseling.


Some fees borrowers pay “come off the top and that decreases their cost basis — the amount of money they can get,” she said.


Tax-free reverse mortgage payouts can be a lump sum, line of credit, monthly payments or a combo.


A Jan. 1 rule change affects the federal HECM program. It lets seniors buy a new home while getting a reverse mortgage and is “great for people who want to downsize,” said Alcorn’s loan broker, Jack McKenzie, of General Mortgage Corp. in San Diego. It means with a large down payment a senior can buy, “but then with a reverse mortgage doesn’t have any payments for the house.”


What About Heirs?


If a reverse mortgage’s lifetime income stream tops the house value, when the senior moves out or dies, Bell says, it’s a “no-recourse loan” — the estate and heirs owe nothing.


A reverse-mortgaged home still passes to heirs. The bank takes it over then, if it’s worth less than the loan. If it’s worth more, heirs typically sell the home, pay off the mortgage and split the remaining value.


Reverse mortgages help seniors make ends meet. Most proceeds bolster retirement income or pay unexpected costs, says mortgage broker John Holmgren of Holmgren & Associates, in Oakland, Calif.


“We’ve seen clients using reverse mortgages to pay for in-home care over the past six years,” said Tony Bonacuse, president of Senior Helpers, a franchised non-medical in-home care business in Baltimore.


See the full article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

Swindlers Find Growing Market in Foreclosures

Posted on January 16, 2009 by admin

The New York Times – January 14, 2009


As home values across the country continue to plummet, the authorities say a new breed of swindler is preying on the tens of thousands of homeowners desperate to avoid foreclosure.


Until recently, defrauders tried to bilk homeowners out of the equity in their homes. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” that charge upfront fees to modify loans but often do nothing to stave off foreclosure.


The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more. In Florida, Attorney General Bill McCollum recently sued a company that he said had more than 600 victims.


“There’s no way for the consumer to sort out the legitimate companies,” said Mr. McCollum, who added that he had limited resources to fight what he called “a sheer volume question.”


The companies under suspicion typically charge an upfront fee of up to $3,000 to help borrowers get lower rates on their mortgages from their lenders. But borrowers often cannot afford the fees, the service can be bogus and, in the worst cases, the homeowners lose their chance to renegotiate with their bank or to file for bankruptcy protection because of the time wasted.


There are companies that provide legitimate foreclosure services, but the industry is largely unregulated, making it difficult for homeowners to separate the good from the bad. Some of the fraudulent companies — often run by former real estate agents or mortgage brokers — are local; others are national. Many have official-looking Web sites that suggest that the companies have government affiliations and give homeowners a false sense of security.


“That’s all I’ve been doing for the last year,” said Angela Rosenau, a deputy attorney general in California, citing more than 300 complaints about fraudulent companies last year, not counting those made to local prosecutors.


Experiences like those of Maria Martinez, of Stockton, Calif., are playing out with greater frequency across the country, the authorities say. Ms. Martinez struggled to pay her mortgage last summer. She had no shortage of people offering to help. Fliers for rescue companies filled her mailbox.


At a seminar for troubled borrowers near her home, one company offered a service that promised just what Ms. Martinez needed: for $1,000, the company said it would negotiate with her mortgage company to lower her interest rate.


“I was desperate,” said Ms. Martinez, 57, a clerk at the San Joaquin County Jail. She made an initial payment of $500 and paid another $500 a few weeks later.


Now the house is in foreclosure, and Ms. Martinez is waiting for the sheriff to evict her. She cannot reach the man she paid to modify her loan.


In California and 20 other states, including New York, companies are prohibited from collecting payment until they have completed their services, something Ms. Martinez did not know. In Colorado, the attorney general’s office has closed 15 mortgage rescue companies that charged fees up front.


Carol McClelland, 46, fell into foreclosure on her Chicago home when she lost her job as a waitress in two restaurants. She received a call from a company called Foreclosure Solutions Experts, promising to stop the foreclosure and lower her mortgage payments to around $550 a month, from $1,056, Miss McClelland said.


“She showed me other clients’ files, and they were paying $650 a month,” she said. The charge for the service was $1,300, which Miss McClelland paid in installments, borrowing the money from friends and relatives.


When the loan servicer notified her that the house was still in foreclosure, Miss McClelland said, the representative from Foreclosure Solutions Experts told her that the matter had been taken care of.


“She told me everything was all settled; I don’t have to worry about anything,” Miss McClelland said. “All I had to worry about was getting the rest of the money to her.”


According to a suit brought by the Illinois attorney general in November, Foreclosure Solutions Experts does little or nothing to help consumers, and when it does take action, the result is often a repayment plan unsuited to the borrower’s ability to pay. The suit alleges that the company never contacted Miss McClelland’s lender, HSBC.


Illinois is one of the states that bans upfront payments to foreclosure rescue companies. The attorney general’s office has received “thousands” of complaints about such companies, said Michelle Garcia, an assistant attorney general, and the suit against Foreclosure Solutions Experts is one of 22 filed by the state.


Stacy Strong, who runs Foreclosure Solutions Experts, did not return calls for comment.


Advocates say foreclosure rescue scams are particularly insidious because they prey on people’s desperation and because they victimize those who can least afford it.


Borrowers seeking loan modification are often frustrated that they cannot reach the right people at their lender or that the lender insists on a repayment plan they cannot keep, said Ira Rheingold, executive director of the National Association of Consumer Advocates.


“When you’re desperate, that’s when the crooks come out,” Mr. Rheingold said. “You’ve tried everything, and a guy calls you up on the phone or there’s an ad on TV, and you have no other options, what do you do? You go to those guys.


“People probably know in their heart of hearts that they may be getting ripped off, just like most people understood on their mortgages that they were getting in too deep, but bankers said yes, so it must be O.K. It’s the same thing. The real problem is that we continue to fail to have systems in place that help people.”


Ms. Rosenau, the California prosecutor, said that even when she told people that they had been swindled, “they don’t believe it, because they want it not to be true.”


“And any money they had to possibly work with the lender is now gone to the scam,” she said.


In Baltimore, where neighborhoods have been buffeted by successive waves of mortgage scams, Ann Norton, director of foreclosure prevention at the nonprofit St. Ambrose Housing Aid Center, said companies promising loan modifications started to multiply last summer.


“It’s the same people that joined the industry during the refinance boom, and now they’re making fees for submitting loan remediation forms,” said Ms. Norton, whose agency provides free help to borrowers.


Although Maryland was among the first states to enact legislation defining mortgage rescue fraud, Ms. Norton said, “it’s a growing industry, and it’s under the radar.”


Often the scammers represent themselves as having connections to government groups, or copy the name and typography of the Hope Now program, an alliance of nonprofit, government and lending agencies, said Marietta Rodriguez, director of national homeownership programs at NeighborWorks America, a nonprofit group that provides free government-certified foreclosure counseling through 235 local organizations.


“Several took the Hope Now Web site and just reskinned it with their own information, or they use government seals,” Ms. Rodriguez said. “They’re very crafty, and their marketing strategies are aggressive.”


Peggy L. Twohig, associate director of the financial practices division at the Federal Trade Commission, said consumers should be wary of companies that promise results, charge upfront fees or tell them not to contact their lender on their own. Ms. Twohig said consumers could get the same help free from nonprofit housing counselors.


“Our advice to consumers is to contact their loan servicers directly or to call Hope Now or HUD-approved housing counselors,” she said.


Last year, Congress approved $180 million in grants to nonprofit housing counselors.


As Ms. Martinez awaits eviction, the temptation to try another foreclosure rescue specialist remains. “There’s other agencies that say they can help,” she said, “but I’m scared that I can’t trust them.


“One man said, ‘You have to be persistent,’ ” she said. “But I’m scared to get someone else, because they probably won’t help me, or can’t.”


See the full article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

Rebuild your nest egg – 17 moves to secure your future now

Posted on January 13, 2009 by admin

Consumer Reports - January 2009


When bad investments happen to good people, there’s only one thing to do short of weeping: Turn to Plan B. That’s where most of us are now. We’re viewing the shards of our broken retirement nest eggs and making choices we’d hoped to avoid. We might have to work harder to slash debt, cut spending, and save more.


We also might need to continue working longer than we had expected and to change our living situation. Plan B means seizing the reins in every area of our finances over which we have control.


Most investors can take some of those steps, and many already have, according to a survey of our online subscribers, ages 55 to 75, by the Consumer Reports National Research Center. Half of survey respondents close to retirement said they’re eating out less, and almost half said they have cut back on entertainment. About a third have used their credit cards less and cut spending on groceries and household goods. About 20 percent have paid off most or all of their credit-card debt.


And no wonder. Fifty-one percent of retired readers and 55 percent of those just short of retirement reported investment losses of 20 percent or more between November 2007 and November 2008. Most of those losses occurred last fall. Two-thirds of respondents were pessimistic about the prospects of recovery in the next 12 months. Two-thirds said they were worse off financially than they had been a year before.


Brittney Saks, a personal financial specialist and partner with PricewaterhouseCoopers Private Company Services practice in Chicago, says she tries to give her clients advice on dealing with worst-case scenarios. “Ninety-five percent of the time, you’ll be fine,” she says. “But right now we are in that 5 percent.”


No doubt stocks will come back. People who held on to their investments after Black Monday in 1929 and through the Great Depression did recover their money, but it took about 25 years. No one can accurately predict whether the current financial funk will be as dire or last as long.


So in this report, we outline 17 actions you can take now, whether you’re already retired or are close to retirement, or you have decades to go. And we pinpoint the best places to stash a cash cushion against more bumps in the road.


See the full article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

Gadgets for Growing Old at Home

Posted on January 13, 2009 by admin

The New York Times - January 13, 2009


At the International Consumer Electronics Show in Las Vegas, I stepped onto an ordinary-looking white bathroom scale. The scale sent a signal via Bluetooth to a control box, which read my weight aloud.


It was my first time on the scale. We had no relationship. I was just data. The machine was just a disembodied voice.


Then Mikael Hvid, application manager at Tunstall Healthcare A/S, which makes the box, stepped onto the scale. After telling Mr. Hvid his weight, the voice compared the figure with previous readings.


Then it got inquisitive.


“Are you more tired than usual?” it asked.


Mr. Hvid was. (This was Las Vegas, after all.) He pressed a “yes” button.


“Are you having trouble sleeping at night?” Ditto.


Mr. Hvid’s weight and answers were all harvested by the box’s software, which stood ready to make them available electronically to whomever he gave access: his primary care doctor, family members, perhaps a pulmonologist, maybe the administrators at his assisted living community.


The control box also works with gadgets measuring blood pressure, oxygen level, activity level and other markers of health. If the person on the scale were my mother, I might instruct the box to alert me if her weight rose or fell by a certain amount, or if her answers to questions suggested trouble. Other devices in the exhibition hall tracked whether a user fell, opened a pill bottle, made coffee, used the bathroom excessively at night or wandered out of the home.


In a nutshell, this was the big idea about aging at this year’s C.E.S.: how to use mostly simple technologies to gather information and detect warning signs, thereby allowing older people to remain in their own homes with fewer trips to the doctor’s office and less need for supervision in a skilled nursing facility.


I imagined my mother’s doctors all having a single report that showed how a change in her medication coincided with changes in weight, blood pressure, mood, sleep pattern and gait, then being able to discuss that information with one another, family members and my mother. That would be a big step forward for her and for many like her.


But then I imagined my mother living with a half-dozen electronic boxes beeping for attention and me getting alerts every time one of the measurements was skewed — me, without the medical expertise to sort the blips from the real problems. I’d call her doctor and become ensnared in a voicemail loop that asked if I was more tired than usual and if I was having trouble sleeping at night.


Yes, and heck yes. With technology like this, I might never sleep again.


These devices were unveiled at a day-long program called the Silvers Summit, the first forum at the C.E.S. dedicated to aging. Participants included hospitals, nonprofit groups, retailers, insurers and dozens of entrepreneurs, many of whom got involved after personally experiencing what it is like to care for an elderly relative in decline. Presenters said the technology is aimed not at old people but at their children.


“The fact that we’re in C.E.S. and we’re not just one booth means we’re getting somewhere,” said Eric Dishman, the global director of product research and innovation at the Intel Digital Health Group. “Seven or eight years ago, no one even talked about aging. Something tipped.”


Topics ranged from mental exercise programs for fending off dementia to phones for people with diminished hearing and dexterity. Most of the devices shown were not covered by insurance, and either in prototype or not widely used.


“Our society does not reimburse for prevention,” said David Stern, chief professional officer for Living Independently, which produces a home monitoring system called QuietCare that is used in assisted living communities. “But there’s a recognition now that people need technology and that if you can keep someone living at home, it costs a lot less than having them in a nursing home.”


Mr. Stern could not say how much QuietCare cost because each facility programs different features into it. Another system on display, GrandCare, costs $2,300 for the basic equipment, then $25 to $50 a month for the company to manage the flow of data. With GrandCare, relatives can upload photographs, appointments or messages to a device in an elder’s home that looks like a television with a touchscreen.


Mr. Stern said the home monitoring technology answered competing needs: “An older person in assisted living wants to maximize independence. But the expectations of family members and state regulators are that she is going to be made secure 24/7. How do you do both? Technology is the answer. It’s the only way they can be secure and independent without someone coming in and checking up on them.”


All vendors said their products were not meant to replace human contact with doctors or family members. But technology has unintended consequences. For some older people, the experience of having blood pressure checked can be the only human touch of the day. An automated home device can take the blood pressure and save the health care system hundreds of dollars, but it does not replace a living, breathing visitor or conversation with fellow patients during otherwise annoying doctor visits.


At one of the forum presentations, Dr. Hyung Tai Kim, a vice president of research at Ascension Health, a Catholic hospital system, identified two potential stumbling blocks for the devices. They called for doctors trained to treat patients in person to make judgments based on data gathered remotely. And current insurance programs do not compensate the doctors for these analyses.


Some of these gadgets will prove useful. Many others will become the home treadmills of the future — developed and purchased in good faith, but in practice unused. Mr. Dishman of Intel described a pillbox that alerted users every day at the same time that they needed to take a pill, even if they had already taken it. As a result, people didn’t use it, he said.


“No one wants to be nagged or be embarrassed by something that makes them look like they can’t take care of themselves,” he said. “We switched to one that was more responsive to whether you already took the pill, and we quadrupled compliance.”


“Those little tweaks go a long way,” he added.


The prototypes are now out there. Let the grumbling and tweaking begin.


See the full article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

CR Retirement Survey: Planning ahead may be just as risky as rewarding

Posted on January 13, 2009 by admin

The Press - January 12, 2009


In the wake of big investment losses, many Americans have turned to “Plan B” to strategize and rebuild their retirement nest egg, according to Consumer Reports’ latest retirement survey.
 
There is a lot of ground to recover – 51 percent of retired readers and 55 percent of those just short of retirement are facing investment losses of at least 20 percent in the past 12 months.
  
The Consumer Reports National Research Center surveyed more than 19,000 Consumer Reports online subscribers between the ages of 55-75 and found about half have already made strides to generate more cash, including eating out less and cutting back on entertainment. About one-third have cut their credit card use and spent less on groceries and household goods.   


“When bad investments happen to good people, they have to work harder to slash debt, cut spending and save more. Switching to Plan B means seizing the reins in every areas of your financial life over which you have control,” said Noreen Perrotta, Consumer Reports Money editor.
 
The Consumer Reports Retirement Survey also found that consumers who planned ahead were more satisfied with their retirement prospects, even in the current economic climate. Among pre-retirees, 90 percent planned ahead by reading books or articles, consulting professionals, using online software, taking courses or conversing with family and friends. The more planning methods used, the more satisfied the respondents were.
 
However, pre-retirees who had done more planning reported worse losses, on average, than those who hadn’t planned. Retirement planning strategies encourage investors to diversify beyond safe vehicles such as bonds and CDs. Respondents who had planned were less conservative, in general than those who didn’t. Before the meltdown, this strategy was much more beneficial according to Consumer Reports’ 2007 Retirement Survey. However, it proved punishing during the unusually severe market downturn of recent months.
  
The 2008 report also found that using financial pros gave planners no edge. Unlike last year’s survey, those who reported using financial planners this year said they were no more satisfied than those who educated themselves. Both groups said they lost money at about the same rate. Respondents who had financial planners had a net worth that was about $230,000 greater than those who didn’t. But CR doesn’t know if they were wealthier to begin with.
 
Forty-three percent of respondents that did four or more planning activities said they would now delay retirement a year, compared with 28 percent of those who had done nothing. Greater losses might have forced the decision.
  
Consumer Reports February issue offers a complete guide with 17 moves to help retirees, pre-retirees and younger workers rebuild the nest egg and secure their financial futures in the wake of a down-turn economy. Here are some of the highlights:
 
Retirees:


 •.Consider your withdrawal rate. In general, financial planners say an annual withdrawal rate of about 4 percent from your total investments is optimal to ensure the money lasts as long as you do. However, when your assets fall in value, you’ll have to withdraw at a higher rate to have the same income. The alternative is to withdraw and live on less or invest more conservatively, risking that you will run out of money sooner.
  
• .Pick up extra money by working. For those with the ability, working even part-time can help mitigate a financial burden. Twenty-two percent of CR’s respondents said they’re working part-time, and 22 percent of those who are fully retired said they wish they could work again. Employers might be willing to hire experienced older workers.
  
•.Don’t abandon moving plans. Your $400,000 home may have lost $100,000 in value, leaving you with less to spend on housing elsewhere. But values are down in many areas, and moving to a lower-cost area might still be worth that trade-off.
 
Pre-retirees:


 • Reset your retirement clock. If you’re eligible for a pension, and assuming your employer’s plan is healthy, working more years can add to your payout, which is often based on salary and number of years worked. Even those without a traditional pension can use that time to shore up the nest egg. If you’re 50 or older, you can contribute up to $22,000 this year to tax-deferred accounts such as 401(k) plans.
  
•.Keep on contributing. At the least, put enough in to get the full employer match. If your employer no longer matches, try to contribute at least as much as before. If you’re able, make up for the match with a higher contribution.
  
•.Borrow with caution. If you are eligible for a reverse mortgage, even stronger caution is urged for younger eligible homeowners. If you live long enough to spend the loan—a possibility if you’re in your 60s—you could be back at square one but with far less home equity. Another option, borrowing from your 401(k), if possible. This also has pitfalls. For one, if you leave your job or lose it, the loan must be repaid in full or it becomes a taxable distribution.


Younger workers:
 
• Start early and diversify. Survey respondents who said they started saving in their 20s and 30s were far more satisfied with their retirement prospects than were those who started later. They also reported higher net worth. Diversifying savings vehicles also affected satisfaction with retirement plans. Those who used six or more—401(k)s, IRAs, taxable accounts, home equity, CDs, and real estate, for instance—were more satisfied than those who used three or fewer ways to save.
 
• Stay in the market. With time on their side, young workers can afford to allocate stocks more heavily, ratcheting slowly downward as they age. Indeed, with stocks at their lowest levels in years, long-term investors with guts can bag some bargains now.  • Fund retirement before college. It’s never too early to begin saving for your children’s education, but you shouldn’t put all available cash there. Experts recommend giving priority to retirement saving. You can always borrow to pay for college, but not for retirement.
  
For the complete story including helpful advice for retirees, pre-retirees and younger employees, pick up a copy of Consumer Reports’ February issue, on newsstands now. The full guide is also available at www.ConsumerReports.org.


See the full article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

U.S. reverse mortgages rising but some view warily

Posted on January 13, 2009 by admin

Rueters UK - January 8, 2009


The market for reverse mortgages, which allow older Americans to borrow against their homes while living in them, is growing fast but advocates for aging Americans say they should only be used in specific instances.


While still small in number compared to traditional mortgages, a weak economy and declining investment income has spurred many elderly people to use reverse mortgages in recent years.


Federal Housing Administration data shows it insured 112,014 reverse mortgages in fiscal 2008 that ended Sept. 30, up from 107,368 in 2007 and 76,282 in 2006. It insured just 157 in fiscal 1990.


“We’ve increased our volume by over 50 percent since October,” said Bank of America (BAC.N) spokesman Terry Francisco, whose aunt took out a reverse mortgage after her husband died and her income dropped.


This growth may accelerate because of recent rule changes. In November, FHA raised the reverse mortgage limit to $417,000 from $362,790 and capped fees.


“In some cases, we have seniors trying to subsidize their monthly cash flow because they’ve lost dividend income. Some financial planners are encouraging taking a reverse mortgage rather than selling off a distressed stock portfolio,” said Jeff Taylor, vice president of Wells Fargo’s (WFC.N) senior products group.


Wells Fargo tops the reverse mortgage field while Bank of America is No. 2.


Gail Hillebrand, senior attorney for Consumers Union, urged caution before signing on the bottom line. “We’ve said they’re not for everyone. They can be a good choice if they’re the only choice.” 


The product can be lucrative for banks seeking new business as an alternative to traditional mortgages.


“It’s a very safe product for a bank. They get a house and they see up front how much it’s worth,” said Hillebrand.


David Certner, legislative policy director for the elderly advocacy group AARP, said that on a $300,000 loan, costs for borrowers could be $15,000 at closing and another $15,000 over the life of the loan.


Certner said reverse mortgages themselves were a “clean product” but he worried about people tapping their home equity too early and running out of cash.


AARP had also seen instances of the now-illegal practice of the reverse mortgage lender convincing the borrower to put the money into an expensive financial instrument. “Maybe the one who gave them the (reverse mortgage) loan will turn around and try to sell them an annuity,” Certner said.


NOT FOR MOST SENIORS


Hillebrand warned against taking out a reverse mortgage if seniors do not plan to stay in the home more than three years or if a less expensive home equity loan would be enough. “We’ve certainly seen people who were put into reverse mortgages who should not have been,” she said.


The loans are taken out by borrowers typically in their mid-70s. More than 40 percent are single or widowed women, according to FHA figures.


Meg Burns, the FHA’s top official on reverse mortgages, said that sometimes seniors took out reverse mortgages they did not need in order to have the peace of mind that money in the bank can bring. 


“One of the standard pieces of advice is that you shouldn’t borrow money to make an investment. If someone thinks that they want to take out a reverse mortgage and invest in the stock market or gamble in Las Vegas, that’s not a good use of the funds,” added Burns.


Burns and bank officials stressed that any FHA-insured reverse mortgage required third-party counseling before the final papers were signed, and Hillebrand said Consumers Union was pleased by the counseling requirement.


“The counselors are the best thing going,” she said. “(But) counseling is not required in all reverse mortgages.”


“If what you need it for is to fix your roof, then you’re better off with a home equity loan,” said Hillebrand. “If you’re already 85, you may not live long enough to amortize those costs.” (Reporting by Diane Bartz; Editing by Tim Dobbyn)


See the full article…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement Calculator

401(k) match cut? No need to stop saving

Posted on January 12, 2009 by admin

Chicago Tribune – January 11, 2009


With more companies cutting their retirement plan matches and implementing pay freezes, 2009 is shaping up to be a bad year for the nest egg.

The Pension Rights Center counted about 20 major corporations in December that publicly announced changes (mostly negative) to their 401(k) matches. Many others have discontinued or downsized their traditional pension plans or announced salary freezes, experts said.

At least to this point, however, savers don’t seem to be bailing out.

Just 3 percent of 401(k) plan savers stopped their contributions in 2008, according to a survey of plan administrators by the Investment Company Institute, a mutual fund industry association. The survey covered administrators representing 22 million retirement-account holders.
Contribution rates to 401(k) plans dropped by less than half of 1 percentage point, according to a separate study by Hewitt Associates, a Lincolnshire-based benefits consulting firm.


Hardship withdrawals are up, according to Hewitt, but, overall, the surveys failed to detect an investor stampede away from workplace retirement plans.


So what can investors do if they want to keep a retirement-savings game plan going?


Calculate any loss. Most employer-matching contributions amount to a few thousand dollars a year at most—significant but not enough that their absence will break a retirement plan, said Morris Armstrong, a financial planner with Armstrong Financial Strategies.


“Losing the match is not going to be the end of the world, particularly for people who are over 50″ and have accumulated the bulk of their retirement savings, Armstrong said.


Financial planners often consider the company match free money that makes the case for saving in a 401(k) before an individual retirement account.


Losing that money should be cause for re-evaluating whether you would be better off saving in an IRA, particularly for people in workplace plans that charge relatively higher fees or offer less-desirable investment options. Keep in mind that you can generally sock away more money in a 401(k) than in an IRA, however, and your IRA contributions can lose their tax deductibility depending on your tax status and coverage in an employer plan.


Budget it into savings. If you have some slack in your budget, it would be ideal to make up for the shortfall from discontinued matching funds with additional savings.


Armstrong encourages clients to redouble their efforts to create a meaningful budget that will help make up for paychecks that don’t stretch as far as they used to and for any missing match money. Or you could pick a specific percentage goal, say cutting 15 percent out of last year’s expenses, he said.


Add to taxable accounts. Losing an employer match in a tax-deferred account is painful, but a lot of savers are so enamored by the deductions that they neglect saving long-term money in regular, non-retirement accounts as well.


“You’re going to want assets in retirement that you don’t owe taxes on,” Armstrong said, so consider taking an amount equal to your lost 2009 match, if you can muster it, and socking it away in the emergency fund.


Remember other deductions. Don’t overlook legitimate deductions that can decrease your tax bite. Armstrong encourages clients to use flexible spending accounts, for example, to lower adjusted gross income as much as possible, an area some affluent clients haven’t bothered with in the past, but that might be helpful when they are trying to boost savings any way they can.


He’s less enthusiastic about deferred-compensation plans offered at some workplaces, however, because the funds aren’t guaranteed, a risky prospect in an uncertain economy.


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Baby Boomers Who Planned for Retirement Suffered Worse Losses

Posted on January 11, 2009 by admin

US News & World Report - January 9, 2009


Conventional wisdom holds that the retirement we will have is a function of how well we planned for it. But a new survey found that Americans who have done some planning for retirement reported worse losses, on average, than those who didn’t plan.


Many retirement planning strategies encourage workers to diversify beyond completely safe vehicles such as bonds and CDs. A Consumer Reports National Research Center poll of over 19,000 online subscribers between ages 55 and 75 on November 6, 2008 found that respondents who had planned for retirement were generally less conservative than those who didn’t. Before the financial crisis this strategy was beneficial, but it proved punishing during the current meltdown.


The survey also found that using a financial pro gave retirement savers no edge last year. Consumer Reports online readers who reported using financial planners lost money at about the same rate as those who didn’t.


But, even though they suffered bigger losses, those who planned ahead by reading books or articles, consulting professionals, using online software, taking courses, or conversing with family and friends are feeling more upbeat about their future retirement prospects than those who didn’t. The more planning methods used, the more satisfied the respondents were.


It could have something to do with the fact that respondents who consulted financial planners have a net worth about $230,000 greater than those who didn’t. But Consumer Reports doesn’t know if those people were wealthier to begin with.


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Your Company’s Fund Is Bruised, but Don’t Worry

Posted on January 11, 2009 by admin

The Washington Post – January 11, 2009


The miserable stock market has wreaked havoc not only on your personal portfolio but also on your company’s pension fund. The pension plans of the companies in the Standard and Poor’s 500-stock index were underfunded by about $362 billion in 2008, according to David Zion, an analyst at Credit Suisse. Of the 500 companies in the index, 360 had plans that were underfunded.


Are the weakened pension plans yet another reason to fret about your financial future? If the retirement experts who track the numbers are right, the answer is no. Your pension is most likely still better off than your 401(k) account.


Both 401(k)s, which are managed by individual workers, and pensions, which are managed by plan administrators, have exposure to the stock market. But if your 401(k) loses value, which many have in the past year, you have to take the loss and hope that the market will recover over time.


If your pension loses its value, you are covered in a number of ways, said Alan Glickstein, retirement consultant for the consulting firm Watson Wyatt Worldwide.


If a plan is underfunded, Glickstein said, “the benefit that’s been earned to date is protected.”


That said, a company can freeze a pension, which means some or all of the employees covered stop earning some or all of their benefits. Lately, more and more companies have been doing that.


If your company goes bankrupt, most plans are covered by the government-funded Pension Benefit Guaranty Corporation. Check with your plan administrator to make sure your plan is among them.


When the PBGC takes over a pension plan, it guarantees individual benefits up to a certain limit, which depends on when the worker retired and other factors. If you are under a single-employer pension plan, which most pensioned workers are, you could receive up to $51,750 if your plan was terminated in 2008 and you were 65. If you are under a multi-employer pension plan, which typically combines employers around a specific trade such as plumbing, you would get less coverage. Because multi-employer plans have so many different contributing employers, the bankruptcy of one company is unlikely to disrupt the entire pension plan, said Rebecca Davis, staff attorney at the Pension Rights Center.


“It may be quite likely that you work for someone that has an underfunded pension plan, but if I was in that situation, would that worry me? Not as long as I was under that maximum annual guarantee of the PBGC. The vast majority of people are,” said Jack L. VanDerhei, research director for the Employee Benefit Research Institute.


Finding out whether your pension is underfunded isn’t hard but takes a little digging. If you work for a publicly traded company, you can look at your employer’s annual report, also known as a 10-K, which it is required to file with the Securities and Exchange Commission. Look for a line that gives the company’s benefit obligation and another that lists the plan’s assets. Let’s say the assets amount to $90 million and the obligation is $100 million. That means your pension is 90 percent funded.


Next you can look at a financial report called a Form 5500 that private pension plans are required to file each year with the federal government. As a pension participant, you have the legal right to request the most recent Form 5500 from your plan administrator. You can also find a less recent copy of the Form 5500 on a Web site called http://FreeERISA.com. Look at Schedule B of the form. There will be a line item showing the current value of assets and another showing the total benefits. If the benefits are greater than the assets, your plan is underfunded.


The problem with this form, however, is that companies are not required to turn it in until about 10 months after the end of the year, said R. Evan Inglis, chief actuary for strategic retirement consulting at Vanguard. “It’s the best information and the most complete information, but it is going to be a year old,” he said.


There is another option. Starting with the 2008 plan year, the Pension Protection Act will require plan administrators to send participants an annual funding notice within 120 days of the close of the year. But Glickstein pointed out that the Department of Labor has not yet fleshed out the exact format and content.


What can you do if your plan is underfunded? You just have to hope that the market recovers, retirement experts said. But you can cushion your retirement savings in other ways, financial advisers said.


Continue contributing as much as you can to your 401(k) and Individual Retirement Account, even if they, too, have been bruised by the market turmoil, said Bruce K. Sneed, president of BK Sneed Financial Planning in Woodbridge. With companies increasingly freezing their pensions, you might have no other choice.


Cut back on unnecessary spending, and make sure you have an emergency fund. Finally, be prepared to generate more income. Yes, that means be ready to work longer.


“I think this concept of retiring at 65, that paradigm has shifted,” Sneed said. “People have to think in terms of taking care of themselves so that they have the health to work until maybe 72, maybe 75.”


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Survey finds older Americans cutting spending

Posted on January 11, 2009 by admin

Reuters – January 6, 2009


Older Americans are spending less on entertainment and restaurant meals as the recession forces them to focus on paying for essentials such as food, gas and medicine, a survey released on Tuesday said.


A survey of Americans aged 45 and older conducted for the AARP, an influential advocacy group for people over 50, found many had suffered savings and investment losses and planned to postpone retirement.


About 57 percent of people aged 45-54 and about 63 percent aged 55 to 64 who suffered investment setbacks said they expected to work longer because of their losses.


The survey of 1,097 people aged 45 and older was conducted in December by Woelfel Research. About 91 percent of those surveyed said the U.S. economy was in bad shape, compared to 81 percent the previous April. The recession officially began in December 2007.


About 68 percent of those surveyed last month had cut entertainment spending and 64 percent were eating out less.


About 52 percent had difficulty covering basic expenses like food, gas and medicine last year.


“However, reports of such challenges were less common in December than in April, which most likely reflects the recent slowdown in inflation, including declining energy prices, during the second half of 2008,” AARP said.


Thirty six percent of those surveyed stopped putting money into a 401K or other retirement saving account while 17 percent prematurely withdrew retirement funds.


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