Tuesday, June 30, 2009

GAO Report on Reverse Mortgages

Reverse Mortgages: Product Complexity and Consumer Protection Issues Underscore Need for Improved Controls over Counseling for Borrowers, GAO-09-606 June 29, 2009

Highlights Page (PDF)   Full Report (PDF, 80 pages)     Recommendations (HTML)

From Summary

Reverse mortgages--a type of loan against the borrower's home that is available to seniors--are growing in popularity. However, concerns have emerged about the adequacy of consumer protections for this product. Most reverse mortgages are made under the Department of Housing and Urban Development's (HUD) Home Equity Conversion Mortgage (HECM) program. HUD insures the mortgages, which are made by private lenders, and oversees the agencies that provide mandatory counseling to prospective HECM borrowers. GAO was asked to examine issues and federal activities related to (1) the potential benefits and costs of HECMs to borrowers, (2) misleading HECM marketing, (3) the sale of potentially unsuitable products in conjunction with HECMs, and (4) oversight of HECM counseling providers. To address these objectives, GAO reviewed program rules; examined HECM advertisements; analyzed consumer complaint data; performed limited tests of HUD's internal controls; and interviewed HECM borrowers and agency, industry, and nonprofit officials.

The report contains examples of misleading statements made by HECM lenders.


See also Reverse Mortgages: Product Complexity and Consumer Protection Issues Underscore Need for Improved Controls over Counseling for Borrowers, by Mathew J. Scire, director, financial markets and community investment, before the Senate Special Committee on Aging, in University City, Missouri. GAO-09-812T, June 29.  Highlights

Monday, June 29, 2009

Getting a Little Help From Your Friends (Parents)

Susann Rohwedder in a report from Rand, Helping Each Other in Times of Need, documents who is giving and who is receiving aid in the current financial crisis. As probably expected, the principal givers are parents helping  out adult child households.

Key findings:
• The economic crisis in the United States has affected a large majority of American
• Many more households are giving financial help than receiving it.
• Help most frequently flows from parents to children.

Thursday, June 25, 2009

Students May Pay for a New Computer with the American Opportunity Tax Credit

From IRS.gov.

Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

Read more.


Historic Downturns in Housing Prices

Downturns in housing prices are not new. The Federal Housing Finance Agency (FHFA) has issued a report , A Brief Examination of Previous House Price Declines. which reviews previous downtowns. This report lists the duration of downturns by metropolitan area.  The primary observations are as follows.

First, house price downturns have tended to be long. The median time required to return to prior peak prices was 10½ to 20
years. Second, it tends to take longer for prices to rise from the trough to their former peak than it takes prices to decline from peak to trough. While the difference is small for Census Divisions and states, FHFA’s Metropolitan Statistical Area and Division (MSA) indexes suggest that the time from peak to trough tends to be about 3¾ years, whereas the median recovery period (from trough to prior peak) was 6⅔ years.

Cash for Clunkers

Congress has passed the cash-for-clunkers bill and it will be signed by the President. CNNMoney reports that it will have little impact on new car sales. The vouchers are in replacement, rather than in addition, to the value of your trade-in. NADA has published a chart that summarizes eligibility requirements (Cash for Clunkers Program Eligibility Chart).

If you are thinking of buying an old car in order to get the voucher for a new car, forget it. The law requires that you owned the clunker for more than a year and the offer expires on November 1, 2009. Go to Cars.gov.

The State of the Nation's Housing 2009

The Joint Center for Housing Studies at Harvard has issued The State of the Nation's Housing 2009. The report takes a pessimistic view of the housing market. The website provides  a link to Excel tables containing current and historic data on the housing market.

(New York) The worst housing downturn in generations continues to grind on, finds a study released today by the Joint Center for Housing Studies of Harvard University. Despite some stabilization in homebuilding and home sales in the spring, real home prices continued to fall and foreclosures mount in most areas in the first quarter of the 2009.  With mortgage interest rates heading higher in June and the economy still contracting, a sustained recovery for housing still faces an uphill climb. “Although there are some signs of improvement or at least steadiness in new construction and sales,” says Nicolas P. Retsinas, Director of the Joint Center, “housing starts stand near 60+ year lows and any life in home sales is coming from distressed foreclosure sales, temporary first-time buyer tax credits, and low interest rates that moved higher in recent weeks.”

Tuesday, June 16, 2009

Special Tax Break on New Car Purchases Available in States With No Sales Tax

IR-2009-60, June 10, 2009

WASHINGTON —The Internal Revenue Service and Treasury Department today announced that a tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.

Read more.

Wednesday, June 10, 2009

Microsoft to Discontinue MS Money

This was just reported on CNet News.

Medical Expenses are Major Cause of Personal Bankruptcy

A recent study published in the American Journal of Medicine, “Medical Bankruptcy in the United States, 2007: Results of a National Study,” finds that a majority of bankruptcies were medically related.

Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of these medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%. In logistic regression analysis controlling for demographic factors, the odds that a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001.

Read more.

Tuesday, June 9, 2009

Bankruptcy Filings Continue to Rise

From the U.S. Courts website:

June 08, 2009 — Bankruptcy filings for the 12-month period ending March 31, 2009, were up 33.3 percent over bankruptcy filings for the 12-month period ending March 31, 2008, according to statistics released today by the Administrative Office of the U.S. Courts. March 2009 bankruptcy filings totaled 1,202,503, compared to the total 901,927 bankruptcy cases filed in the 12-month period ending March 31, 2008. The largest percentage increase occurred in Chapter 11 filings, a 69.1 percent increase over March 2008 Chapter 11 filings.

Read more.



Do Your Emotions Influence Your Savings?

Gergana Y. Nenkov, Deborah J. MacInnis, and Maureen Morrin examine feelings about savings in a recent paper from the Center for Retirement Research at Boston College, “How Do Emotions Influence Saving Behavior?”.

Monday, June 8, 2009

FTC Warning on Scholarship Scam

College funding is likely to be a lot tighter for the coming academic year. Before contacting any service that claims to help you obtain a college scholarship, you need to consider this warning from the FTC.

The FTC cautions students to look for tell tale lines:

  • "The scholarship is guaranteed or your money back."
  • "You can't get this information anywhere else."
  • "I just need your credit card or bank account number to hold this scholarship."
  • "We'll do all the work."
  • "The scholarship will cost some money."
  • "You've been selected by a 'national foundation' to receive a scholarship" or "You're a finalist" in a contest you never entered.

Information for Students and Parents

Public Service Messages List of Defendants in Project $cholar$cam

Thursday, June 4, 2009

Chrysler Car Owners Still Covered Under Lemon Laws After Bankruptcy

As reported by FindLaw

Chrysler car owners will still enjoy legal protections from serious vehicle defects - rights that are guaranteed under their states' "lemon laws" - even after the car giant re-emerges from bankruptcy under new ownership. That's the not-so-sour result of an agreement reached this week between the new Chrysler LLC and state attorneys general

Read more.

Kaiser Commission Policy Brief on Long Term Care Insurance

From website

This policy brief from the Kaiser Commission on Medicaid and the Uninsured examines the fundamentals of private long-term care insurance.  It describes the results of a study exploring how consumers buy policies, how much policies cost and how they work, and what regulations exist to protect consumers.  It also discusses some key challenges that policymakers face when considering whether to enlarge the role of private long-term care insurance in financing long-term care.

See Closing the Long-Term Care Funding Gap: The Challenge of Private Long-Term Care Insurance

The Poor Don’t Have Adequate Information on the Benefits and Costs of a College Education

This is the basic finding of a recent PEW Foundation study examining upward mobility among the poor. The report examines the benefits and costs of a college education and presents an overview of government funding programs.

See Misperceptions of Cost, Complexity of Aid System, Keep Low-Income Students Out of College

GAO Issues Report on Regulation SHO

From the Highlights of Regulation SHO: Recent Actions Appear to Have Initially Reduced Failures to Deliver, but More Industry Guidance Is Needed
GAO-09-483 May 12, 2009

The Securities and Exchange Commission (SEC) adopted Regulation SHO to, among other things, curb the potential for manipulative naked short selling in equity securities. Selling a security short without borrowing the securities needed to settle the trade within the standard 3-day period, can result in failures to deliver (FTD), and can be used to manipulate (drive down) the price of a security. To further address this concern, SEC recently issued an order amending Regulation SHO. This report (1) provides an overview of Regulation SHO and related SEC actions, (2) discusses regulators’ and market participants’ views on the effectiveness of the rule, and (3) analyzes regulators’ efforts to enforce the rule.

Read more.

Congress Extends FDIC $250,000 Insurance Limit

The temporary increase on the FDIC insurance limit from $100,000 to $250,000 was set to expire at the end of this year. The higher limit has now been extended to last until the end of 2013.

News article at MSNBC

Wednesday, June 3, 2009

Bankruptcy Court OKs Funds for Honoring GM Auto Warranties

The LA Times reports you should not worry if you have a GM warranty.

Read article.

Here is a brief video on bankruptcy and warranties from the AP Personal Finance Editor

Tuesday, June 2, 2009

GM Dropped from the DJIA

Few of us ever thought we would see the day when GM would no long be included in the Dow Jones Industrial Average. On June 8 two new components will be added to the DJIA: The Travelers Companies Inc. (TRV) instead of Citigroup Inc. (C), and Cisco Systems Inc. (CSCO) instead of General Motors Corp. See the WSJ, Here's Why We Changed The Dow.

The DJIA includes 30 large capitalized stocks selected by the editors of the Wall Street Journal. The prices of the 30 stocks are added and then divided by the Dow divisor. The divisor is continually modified to account for stock splits. The DJIA is one of more than 13,000 market indicators published by Dow Jones. You can find information on all of the indexes at the DJIndexes.com.

The Economics of a Claim and Suspend Strategy For Social Security Benefits

The Center for Retirement Research at Boston College has issued a brief explaining the economics of a claim and suspend strategy.

Strange But True: Claim and Suspend Social Securityby Alicia H. Munnell, Alex Golub-Sass, and Nadia Karamcheva May 2009

Unlike past recessions, the labor force participation rate of older men has increased during this financial crisis. This pattern suggests that some people are re-entering the labor force as they find their retirement resources to be inadequate….

Those over the Full Retirement Age who go back to work have a much more flexible option. As a result of the Senior Citizens’ Freedom to Work Act of 2000, they are no longer subject to the annual earnings test but rather can voluntarily “claim and suspend.” That is, they can either work and receive full benefits or voluntarily suspend payments. If they choose to suspend, they forfeit current benefits but earn delayed retirement credits (DRCs) for a permanent increase in their future monthly benefits. This strategy is very helpful to those who earn enough to support themselves, because it allows them to increase the amount of future monthly Social Security benefits – a special kind of income that is fully inflation-adjusted and payable for life.

CFA Reports on Fake Check Scams

CFA Task Force Aims to “Tear Up” Fake Check Scams
Source: Consumer Federation of America

The telephone survey of 2,000 adults conducted for CFA by Opinion Research Corporation December 4-8, 2008 revealed that the most common fake check scams are those involving sweepstakes/lotteries (66 percent), grants (36 percent) and work-at-home opportunities (35 percent). In the sweepstakes and grant scenarios, the consumer receives a check or money order with instructions to wire a portion of the money to pay taxes or administrative fees. In the phony job offers, consumers are asked to process payments for a foreign business or make purchases as a mystery shopper and wire the remaining money to their employer minus their “pay.” Another popular variation of the scam is the “overpayment,” where the scammer offers to buy something the consumer has advertised for sale, sends a check or money order for more than the asking price, and tells the consumer to wire the extra to someone who will arrange for shipping.

Do You Have Online “Mystery Charges” on Your Credit Card?

Senator Jay Rockefeller is launching an investigation into mystery charges that have been appearing on credit cards. Apparently, Internet users have been unwittingly signed up for monthly fees when clicking a web offer. This is another good reason for reviewing your monthly statement.

• The source of these puzzling monthly fees appears to be from a group of marketing companies that acquire consumers’ billing information through agreements with popular online retail sites. 

• On many well-known websites, including Fandango.com and Orbitz.com, after consumers make a purchase, a hyperlink or “pop up” window appears and offers consumers a cash back reward if they sign up for a company’s online membership service.  If consumers accept the offer by providing an e-mail address and clicking a “yes” button, their credit card or debit card account information is automatically forwarded to the company and they are automatically enrolled in the service.  And unless the consumer cancels this online membership service, their credit card or debit card is indefinitely charged $9-$12 on a monthly basis.   

• These deceptive online “mystery charges” have generated thousands of complaints from internet consumers who were unaware they were signing up for a monthly service that charged a fee. 

• Examples of the “pop up” or hyperlinked windows that appear on well-known websites can be found attached below.

Additional information can be found at Senator Rockefeller’s website.

Here is one example.


Fee-based Credit Cards Gaining Market Share

Synovate Mail Monitor reports that consumers are receiving fewer credit card offers these days and the offer is more likely to carry an annual fee.


Monday, June 1, 2009

The Importance of Fringe Benefits

Fringe benefits currently account for about 30 percent of total compensation. Because these benefits are typically tax advantaged they have an even larger impact on our standard of living. A recent report by the Bureau of Labor Statistics highlights the recent growth in employer provided fringe benefits.

See:   Beyond Basic Benefits: Employee Access to Other Types of Benefits, 1979-2008 by John E. Buckley, Bureau of Labor Statistics