October 27, 2016
Should Seniors Pay Off Their Mortgages?
TheStreet.com quoted me in Should Seniors Pay Off Their Mortgages? It opens,
Increasingly, seniors are going against the conventional retirement wisdom about mortgages which, always before, preached that a cornerstone of a good retirement was to enter it debt free. That meant without a mortgage.
And yet about one-third of homeowners 65 and older have a mortgage now. That’s up from 22% in 2001. Among seniors 75 and older, the rate jumped from 8.4% to 21.2%.
The appeal, of course, is that home mortgages are cheap; 30-year fixed-rate loans are going out under 3.7%, and 15-year fixed rates can be had for 3.1%.
That puts the question in sharp focus: is this good financial planning or is it reckless?
Understand: age discrimination is flatly illegal in home loans. But law does not dictate financial prudence and the question is: is it wiser to pay off a home mortgage if at all possible – which used to be the prevailing wisdom? That still brings a sense of relief, too. Tim Shanahan of Compass Securities Corporation in Braintree, Mass. said: “It’s a great feeling to have no debt and a significant accomplishment to be able to tear up the mortgage.”
True.
But is this still the smartest planning? As more seniors take on home mortgages, experts are re-opening the analysis.
“The short answer to the question is it depends,” said certified financial planner Kevin O’Brien of Peak Financial Services in Northborough, Mass. O’Brien is not being cute. So much of this is individual-centric. O’Brien continued: “It depends on how strong the person’s cash flow is or not. It depends on how much liquid savings and investments they have after they might pay it off. It also depends on the balance they need to pay off in relation to their sources of cash flow, and liquid assets.”
Keep in mind, too: today’s retirement is not yesteryear’s. About one senior in four has told researchers he plans to work past 70 years of age. That means they have income. Also, at age 70, a person has every reason to claim Social Security – there are no benefits in delaying – so that means many 70+ year-olds now have two checks coming in, plus what retirement savings and pensions they have accrued.
That complexity is why Pedro Silva of Provo Financial Services in Shrewsbury, Mass offered nuanced advice: “We like to see clients go into retirement without mortgage debt. This monthly payment can be troublesome in retirement if people are using pre-tax money, such as IRAs, to pay monthly mortgage. That means that they pay tax on every dollar coming from these accounts and use the net amount to pay the mortgage.”
“If clients will carry a mortgage, then the low rates are a great opportunity to lock in a low payment,” Silva continued. “We encourage those folks who don’t foresee paying off their home in retirement, to stretch the payments as long as possible for as low a rate as possible.”
David Reiss, a professor at Brooklyn Law and a housing expert, offered what may be the key question: “I think the right question is – what would you do with your money if you did not pay off the mortgage? Would it sit in a savings account earning 0.01% interest — and taxable interest, at that? Paying off your mortgage could give you a guaranteed rate that is equal to your mortgage’s interest rate. So if you are paying 4.5% on your mortgage and you take money from your savings account that is not spoken for — like your emergency fund — you would do way better than the 0.01% you are getting in that savings account, even after taxes are taken into account.”
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October 27, 2016 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- Although home prices are increasing, the housing market in the U.S. is exhibiting some “cracks” in the housing market that could set the market back.
- The First American Title Insurance Company released a recent report detailing the current trends within the housing market in Fort Collins housing market.
- U.S. News released a report about the September housing trends. The report found that August was not a good month for the U.S. housing market; however, September surprised the nation with their monthly home sales in the U.S.
October 27, 2016 | Permalink | No Comments
October 26, 2016
High Times for New REIT
Realtor.com quoted me in Could This Marijuana REIT Make Millions, or Are They Just High? It opens,
Investing in real estate just got waaay more interesting, dudes! That’s because amid all that stuffy stock-market buzz, a wacky new REIT (real estate investment trust) has just gone public—and it’s the first in the country to focus on funding marijuana growers.
REITs, for you rookies out there, are funds that specialize in real estate. So, they use their investors’ money to build shopping malls, hotels, and condo complexes with the hope that their value will rise over time. This new pot-friendly REIT, owned by San Diego investment firm Innovative Industrial Properties (IIP), works exactly the same way, only by investing in facilities that grow, store, and distribute cannabis.
Granted, IIP is concentrating exclusively on medicinal marijuana facilities—so no one’s getting high for fun off investor money.
Nonetheless, this REIT could provide a much-needed infusion of capital for marijuana growers. Currently, although cannabis is legal for medicinal purposes in 24 states and for recreational use in four (which could rise to nine after Election Day), under federal law, marijuana is still illegal—and that keeps most banks from loaning these companies money.
REITs, however, aren’t bound by the same strict principles as big banks. So, IIP can shower ganja growers with cash—and could stand to make huge piles of money for its investors, right?
It could … but this whole scheme could also implode in a funky cloud of smoke.
“With limited information due to the newness of cannabis legalization, there’s not much of a track record or history to determine a cannabis REIT’s future performance,” says real estate and economic advisor Jack McCabe of McCabe Research & Consulting. McCabe also concedes that he hasn’t scrutinized this particular firm’s investment criteria, methodology, or fees.
“The early results show a new and flourishing industry,” McCabe says. “My opinion is that marijuana REITs and investors could see triple-digit profits and growth that could be historic and surpass profits generated by most all established industries.”
Whoa, triple-digit returns! That’s pretty impressive performance for any investment.
“A typical REIT is viewed as a fixed-income vehicle that competes with bonds,” says Paul Habibi, a real estate entrepreneur and professor at UCLA. “The range of REIT dividends are in the mid-single digits, like 5% to 6%.”
But there’s another caveat: No one knows how the federal government might decide to deal with semilegal cannabis down the road.
“Given medical-use marijuana is illegal under federal law, how could that play out with federal regulation of IIP?” points out David Reiss, a professor of Law at Brooklyn [Law School] and editor of REFinBlog.com.
The IIP (which could not comment), admits that much is still unknown in one of its SEC filings:
“Although the federal government currently has a relaxed enforcement position as it relates to states that have legalized medical-use cannabis, it remains illegal under federal law, and therefore, strict enforcement of federal laws regarding medical-use cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans.”
October 26, 2016 | Permalink | No Comments
Wednesday’s Academic Roundup
- Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credt Reports, Dobbie,Mahoney, Pinkham, & Song
- Reverse Mortgage: An Empiracal Study in Indian Perspective, Pahuja & Sanjeev
- The Neighborhood Impact of Airbnb on New Orleans, Dicle & Levendis
- Home Price Expectations and Behavior: Evidence from a Randomized Information Experiment, Armona, Fuster, & Zafar
- Can Learning Explain Boom-Bust Cycles in Asset Prices? An Application to the U.S. Housing Boom, Caines
October 26, 2016 | Permalink | No Comments
October 25, 2016
The Mortgage After a Spouse’s Death
BeSmartee.com quoted me in What Happens to My Mortgage When My Spouse Dies? It opens,
We would like to help by answering the question of what happens to your mortgage when your spouse dies, and we’ve asked several experts to chime in.
It’s bad enough when your spouse dies, but to also worry about what will happen with your mortgage only adds to the turmoil. We would like to help by answering the question of what happens to your mortgage when your spouse dies, and we’ve asked several experts to chime in.
When You Are on the Deed
If you and your spouse took out a mortgage loan together, you would then be responsible for paying the mortgage by yourself if your spouse dies. ”If the surviving spouses’ name is on the mortgage, they are now responsible for the entire mortgage,” says Randall R. Saxton, a Madison, MS, attorney. But you have inherited your spouses’ half of the home, which typically means you don’t need to change the title.
Your partner’s passing doesn’t disqualify the mortgage or let the lender call it in immediately, using a ”due-on-sale” clause. Such clauses let mortgage lenders demand the entire mortgage be paid if a new owner assumes the mortgage, or they take the house back. But the Garn-St. Germain Depository Institutions Act of 1982 prohibits lenders from using the due-on-sale clause when your spouse dies. But you would need to be able to handle the mortgage payments on your own to keep the house. ”While the lender cannot automatically foreclose due to the death of the mortgagee, they will be able to foreclose if the surviving spouse is unable to pay,” says Saxton.
Saxton has a suggestion: ”I always recommend life insurance policies, which would enable the surviving spouse to either pay off or maintain the payments of the mortgage.”
When You Are Not on the Deed
If you are not on the mortgage deed and your partner dies, your partner’s will should determine whether you get the house. If your partner didn’t have a will, your spouses’ assets will be distributed according to your state’s intestate laws.
Typically you, as the surviving spouse, will get your spouses’ assets after all expenses, such as funeral expenses and other debts, are paid. If there are enough assets in the estate, the mortgage will be paid. ”The estate will pay off the mortgage during probate,” says Aviva S. Pinto, CDFA, a wealth advisor at Bronfman E. L. Rothschild in New York City. ”If there are not sufficient assets to cover all debts, the house will have to be sold to pay off the debt,” says Pinto.
If you have children, your share is split with them. ”For example, if there is only one child of the deceased, the surviving spouse will own 50 percent of the property, and the child will own 50 percent of the property,” says Saxton. ”If neither [of you] pay the mortgage, the lender will be able to foreclose.”
Your Mortgage Lender Should Offer Help
No matter your particular situation, if your partner dies, you should contact your mortgage lender as soon as possible. They can help guide you on what will happen and your options. ”The Consumer Financial Protection Bureau has recently issued a rule to provide more protections to the survivors of a homeowner,” says David Reiss, professor of law at Brooklyn Law School. ”The rule gives widowed spouses some help in dealing with mortgage issues at a difficult time.”
Here are some specifics on how your mortgage lender can help, according to Reiss:
1. Mortgage servicers have to tell the widowed spouse about the documents that are necessary to confirm his or her status as a successor in interest to the deceased spouse.
2. Servicers are also required to provide many of the same notices and documents to the surviving spouse who is a successor in interest that the deceased spouse would have received.
October 25, 2016 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- Governor Cuomo returned 250,000 dollars to Brooklyn residents. The state found that overall 52,000 tenants were overcharged roughly 2.8 million dollars.
- The U.S. Department of Housing and Urban Development created a new rule to protect victims of sexual assault, domestic violence, and dating violence. The department determined that many of the people protected by this rule often times experienced higher rates of eviction or coercion to leave the premises.
October 25, 2016 | Permalink | No Comments
October 24, 2016
Home Equity Loan Resets
Newsday quoted me in Know What To Do When Your Home Equity Loan Resets (behind paywall). It opens,
Whoever said what you don’t know can’t hurt you, was wrong. Take for example the 43% of U.S. homeowners polled by TD Bank, who over the next couple of years will have their Home Equity Lines of Credit (HELOC) reset. More than a quarter of them don’t know when their draw period ends.
People use HELOCs for things like home renovations, medical bills and college tuition. With HELOCs, you borrow — often for 10 years — and make interest-only payments. When that “draw period” ends, you pay principal and interest. Monthly payments can jump significantly.
However, only 19% of those polled understood that a reset would increase their monthly payments and 34% thought they would decrease.
Confusion is costly.
- Understand the terms
What is the current interest rate? When does it reset? When it resets, how is the new interest rate determined? When are principal payments first due? What will the new payment be? Can the HELOC convert to a fixed interest rate? Know the answers to these questions, says David Reiss, a Brooklyn law school professor, specializing in real estate.
- Come up with a game plan
“Don’t wait until the final month of the interest-only period to evaluate the impact the payment has on your budget,” says Chuck Price, vice president of lending at NEFCU in Westbury.
October 24, 2016 | Permalink | No Comments
