Tag Archives: thestreet.com

Low, Low, Low Mortgage Rates

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TheStreet.com quoted me in Top 5 Lowest 15-Year Mortgage Rates. It opens,

U.S. mortgage rates have continued to decline in the aftermath of the Brexit vote, low Treasury rates and the stagnant economy, giving potential homeowners an opportunity to save money because of the dip.

The current market conditions give homeowners in the U.S. an opportunity to take advantage of the continuation of low mortgage rates since the Federal Reserve has not increased interest rates.

But, how do you snag the absolute lowest rates?

How to Get a Low Rate

Low mortgage rates can play a large factor in homeowners’ ability to save tens of thousands of dollars in interest. Even a 1% difference in the mortgage rate can save a homeowner $40,000 over 30 years for a mortgage valued at $200,000. Having a top notch credit score plays a critical factor in determining what interest rate lenders will offer consumers, but other issues such as the amount of your down payment also impact it.

A high credit score is the key to ensuring that borrowers receive a low mortgage rate. Here’s a quick rundown of what the numbers mean – a score of anything below 620 ranks as poor, 620 to 699 is fair, 700 to 749 is good and anything over 750 is excellent. Think carefully before canceling a credit card with a long, positive history, but decrease your debt. One of the biggest factors which impact your credit score is your credit utilization rate.

Many potential homeowners focus only on the interest rate or the monthly payment. The APR or annual percentage rate gives you a better idea of the true cost of borrowing money, which includes all the fees and points for the loan.

The origination fee or points is charged by a lender to process a loan. This fee shows up on your good faith estimate (GFE) as one item called the origination charge. However, the origination fee can be made up of a few different fees such as: processing fees, underwriting fees and an origination charge.

Homeowners who are able to afford a 20% down payment do not have to pay private mortgage insurance (PMI), which costs another 0.5% to 1.0% and can tack on more money each month. Having at least 20% in equity shows lenders that there is a lower chance of the individual defaulting on the loan.

Choosing Between 15-year and 30-year Mortgages

Obtaining a 15-year fixed rate mortgage instead of a traditional 30-year mortgage means homeowners can save thousands of dollars in interest. One drawback of a 15-year mortgage is that consumers will be locked into higher monthly compared to a traditional 30-year mortgage or a 5-year or 7-year adjustable rate mortgage, “which could put the squeeze on homeowners when times are tight,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

Many households would not benefit from a 15-year mortgage because it “does more to limit their financial flexibility than to enhance it,” said Greg McBride, chief financial analyst of Bankrate, a North Palm Beach, Fla.-based financial content company.

“Locking into higher monthly payments makes the household budget tighter and for what?,” he said “So you can pay down a low, fixed rate loan? On an after tax, after-inflation basis you’re essentially borrowing for free.”

McBride suggests that this strategy does not bode well for homeowners, especially if they are not paying down their higher interest rate debts and maximizing their tax-advantaged retirement savings options such as IRAs and 401(k)s.

“Even then, you might be better off investing your money elsewhere than tying up more of your wealth in the most illiquid asset you have – your home,” he said. “Just 28% of American households have a sufficient emergency savings cushion, so why the hurry to pay off a low, fixed rate, tax deductible debt. Money in the bank will pay the bills, home equity will not.”

The current economic situation has pushed down rates with 15-year mortgages becoming “relatively more attractive” than even 5-year adjustable rate mortgages (ARMs) over the last year, said David Reiss, a law professor at the Brooklyn Law School in New York. Last week Freddie Mac announced the average 15-year mortgage rate was 2.74% and the average for the 5-year ARM was 2.75%.

“These rates are virtually the same,” he said. “A year ago, the 15-year was relatively more expensive than the 5-year by about 0.16%. If you can swing the higher principal payments for the 15-year mortgage you will be getting about as good an interest rate as you could hope for.”

Millennial Homeowners Following ‘Rents

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TheStreet.com quoted me in Potential Homeowners Follow in Footsteps of Parents. It opens,

Consumers tend to follow the strategies of their parents when they are faced with whether they should stick with renting or buying their first home.

Potential homeowners, including both Gen X-ers and Millennials, are influenced by the decisions made by their parents. As homeownership rates in the U.S. have fallen to a 51-year low, one reason Gen Y-ers tend to skip homeownership is due to the choice made by their parents while others are faced with mounting student loans and higher costs to purchase a house.

Consumers are nearly three times as likely to purchase a house if their parents were homeowners compared to parents who rented, said Felipe Chacon, a housing data analyst at Trulia, a San Francisco-based real estate website, which analyzed over four decades of data from the University of Michigan in Ann Arbor.

 “What the analysis in the report suggests is that people who grew up in rented homes are less likely to own their own home, even after you exclude those who have gotten financial help from their folks or their spouse’s folks,” he said.
As Millennials are heading toward their 30s, the impact of their childhood is taking effect as ones which grew up in homes the parents owned were 2.8 times more likely to seek the same goal, the researchers found. The trend of home ownership has declined among Millennials and part of the reason could be that people who are 19 to 34 years are less likely to have been raised in homes where their parents owned the homes compared to Gen X-ers or those who are 35 to 45 years old.
“It could simply be an issue of values, where those from owned homes make homeownership a more urgent priority and strive to reach it sooner simply because it is familiar and comfortable to them,” Chacon said.
Consumers are probably more likely to buy a house if their extended family can explain how the process works and what criteria should be prioritized from improving their credit score to saving for a down payment.
“It probably helps to have parents and relatives around who can help you navigate the system as a first time homebuyer,” he said. “Since Millennials, especially younger ones seem to be slightly less likely to be raised in owned homes, there could be a long term cooling effect on the ownership rate among this group.”
The attitude of Americans owning their homes and pursuing the traditional “American Dream” has remained pretty steady over the past five years. In fact, more Millennials are eager to purchase a home and 80% expressed this sentiment in 2015 compared to 71% in 2010, according to a Trulia survey. The overall population mirrors this belief with 75 % who agree in 2015 from 72% in 2010.
One of the hurdles to homeownership is accruing enough money for the down payment. Millennials who grew up with parents who owned a home received more help financially with 11.4% who were given money compared with 2.6% of those who grew up in mostly rented homes.
“The American homeownership rate carries a lot of political and social significance with it and for many, it is seen as a marker of the health of American society,” said David Reiss, a law professor at Brooklyn Law School in New York. “The significant dip in the homeownership rate that has occurred since the financial crisis has shaken the confidence of many that the nation’s households are on solid footing.”

 

Bringing Debt Collectors to Heel

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TheStreet.com quoted me in Debt Collectors Hounding You With Robo Calls? Here’s What To Do. It reads, in part,

Mike Arman, a retired mortgage broker residing in City of Oak Hill, Fla., owns a nice home, with only $6,000 left on the mortgage. He’s never been late on a payment, and his FICO credit score is 837.

Yet even with that squeaky clean financial record, Arman still went through the ninth circle of Hell with devilish debt collectors.

“The mortgage servicer would call ten days before the payment was even due, then five days, then two days, then every day until the payment arrived and was posted,” he says. “I told them to stop harassing me, and that my statement was sufficient legal notice under the Fair and Accurate Credit and Transaction Act (FACTA). But they said they don’t honor verbal statements, which is a violation of the law. So, I sent them a registered letter, with return receipt, which I got and filed away for safekeeping.”

The next day, though, the mortgage servicer called again. Instead of taking the call, Arman called a local collections attorney, who not only ended the servicer’s robo calls, but also forced the company to fork over $1,000 to Arman for violating his privacy.

“That was the sweetest $1,000 I have ever gotten in my entire life,” says Arman.

 Not every financial consumer’s debt collector story ends on such an upbeat note, although Uncle Sam is working behind the scenes to get robo-calling debt collectors off of Americans’ backs.

The latest example of that is a new Federal Communications Commission rule that closed a loophole that allowed debt collectors to robo call people with impunity.

Here’s how the FCC explains its new ruling against robo calls.

“The Telephone Consumer Protection Act prohibits most non-emergency robo calls to cell phones, but a provision in last year’s budget bill weakened the law by allowing debt collectors to make such calls when the debt is owed to, or even just guaranteed by, the federal government,” the FCC states in a release issued last week. “Under the provision passed by Congress, debt collectors can make harassing robo calls to millions of Americans with education, mortgage, tax and other federally-backed debt.”

“To make matters worse, the provision raised concerns that it could lead to robo calls not only to those who owe debt, but also their family, references, and even to someone who happens to get assigned a phone number that once belonged to another person who owed debt,” the FCC report adds.

Under the new rules, debt collectors can only make three robo calls or texts each month per loan to borrowers – and they can’t contact the borrower’s family or friends. “Plus, debt collectors are required to inform consumers that they have the right to ask that the calls cease and must honor those requests,” the FCC states.

That’s a big step forward for U.S. adults plagued by debt collection agency robo calls. But the FCC ruling is only one tool in a borrower’s arsenal – there are other steps they can take to keep debt collectors at bay.

If you’re looking to take action, legal or otherwise, against debt collectors, build a good, thorough paper trail, says Patrick Hanan, marketing director at ClassAction.org.

“Keep any messages, write down the phone number that’s calling and basically keep track of whatever information you can about who is calling and when,” Hanan advises. “Just because you owe money, that doesn’t mean that debt collectors get to ignore do-not-call requests. They need express written consent to contact you in the first place, and they need to stop if you tell them to.”

Also, if you want to speak to an attorney about it, most offer a free consultation, so there isn’t any risk to find out more about your rights, Hanan says “They’ll tell you right off the bat if they think you have a case or not,” he notes.

*     *      *

Going forward, expect the federal government to clamp down even harder on excessive debt collectors. “The Consumer Financial Protection Board takes complaints about debt collector behavior seriously, and has recently issued a proposal to further limit debt collectors’ ability to contact consumers,” says David Reiss, professor of law at Brooklyn Law School. “In the mean time, one concrete step that consumers can do is send a letter telling the debt collector to cease from contacting them. If a debt collector continues to contact a consumer — other than by suing — it may be violating the Fair Debt Collection Practices Act.”

The Looming Housing Crisis for Seniors

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Senior Housing in Seattle

TheStreet.com quoted me in Inside the Nation’s Looming Senior Housing Crisis. It opens,

Every day, 10,000 Americans turn 65. That will be true for the next 15 years as the Baby Boomers slide into retirement. Here’s the question: where will they live?

Know that the Social Security Administration said that if you turn 65 today, you will live to 84.3 if you are a man. If you are a woman, it is 86.6. Added SSA: “And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of ten will live past age 95.”

Our retirement savings also are paltry. A Government Accountability Office 2015 study said that average Americans between 55 and 64 had about $104,000 in savings. Many have nothing saved.

In 2015 SSA said the average monthly check it issued was for $1,335.

Will there be enough housing to put a roof over every gray head? How will they pay the rent?

When the Bipartisan Policy Center, a Washington, D.C. think tank, recently looked at senior housing, it said in a detailed report: “The current supply of housing that is affordable to the nation’s lowest-income seniors is woefully inadequate. As more low-income Americans enter the senior ranks, this supply shortage — currently measured in millions of units — will become even more acute.”

The good news: many are scrambling to meet the need. There are efforts to provide low income public housing, private affordable housing, and many companies are engaged in developing senior housing for the affluent.

Public housing has been the traditional go-to for those lacking means, seniors included, and many big cities – such as New York, Philadelphia and Chicago – have extensive inventory of income tested senior housing. But there is nowhere near enough. In much of Chicago, the waiting list for senior public housing is over two years. In New York, it is over four. In Philadelphia the public housing waiting list is presently closed, and said the housing authority, it has 104,000 on the wait list. The Philadelphia Housing Authority added: “Due to low turnover, applicants may not reach the top of the waitlist for ten years.”

“Public housing continues to have extremely long waiting lists, so it is not a practical option for many seniors,” said David Reiss, a professor at Brooklyn Law and an expert on housing.

Chances of Negative Mortgage Interest Rates

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TheStreet.com quoted me in Odds of Negative Interest Rates in the U.S. Are Slim. It reads, in part,

The odds of the U.S. lowering interest rates to negative levels remain low, because other forms of monetary policy such as quantitative easing could be adopted first.

The odds of utilizing quantitative easing are “quite high” or policies such as the use of repurchase agreements and the term deposit facility, said Michael Kramer, a portfolio manager on Covestor, the online investing marketplace and founder of Mott Capital Management, a registered investment advisor in Garden City, NY.

Choosing a negative interest rate policy (NIRP) in the U.S. would also affect the stock markets immensely and hinder bank profits.

“Due to the size of treasury and money markets, it could have some very severe ramifications,” he said. “In my view, our treasury markets are the safest and most liquid in the world.”

Investors would seek a higher return on capital elsewhere such as higher paying bonds which carry more risk, Kramer said.

“This could become problematic for the US government which is dependent on issuing debt to fund the government operation,” he said.

Negative rates in the U.S. would result in too much risk and backlash and would only occur if all other attempts by the Fed failed.

“At this point, the Fed has a few other tools it can use before it has to use the tool of last resort,” Kramer said.

The use of negative rates remains divisive despite the growing adoption of them in the central banks of the Eurozone along with Denmark, Japan, Sweden and Switzerland. In countries such as Japan and Germany, investors are forced to pay a fee instead of earning interest.

Lowering current interest rates to negative ones “would not be a panacea,” said former Federal Reserve Chairman Ben Bernanke, now a distinguished fellow in residence at a meeting hosted by the Hutchins Center on Fiscal and Monetary Policy at Brookings last week. He also said the effect on consumers would be nominal.

During periods of low inflation, negative interest rates are now a more likely option to policymakers, but they have not proved to be a solution to boosting lackluster economies. The use of negative rates has not proven that they are an effective monetary tool, said Torsten Slok, chief international economist for Deutsche Bank, at the meeting.

Negative rates have produced anxiousness among investors who are seeking greater yield.

*     *     *

The probability of U.S. banks paying consumers interest on their mortgages even though Danish banks are paying borrowers interest on them remains scant, said David Reiss, a law professor at the Brooklyn Law School. The interest rates of adjustable rate mortgages (ARM) are typically set for the first five or seven year and resets to a new rate. The new interest rate is the combination of an index and a spread with the index often being the London Inter Bank Offered Rate (LIBOR), which has flirted with 0%.

The majority of ARMs have a clause which limits the amount the interest rate can be changed annually, including ones offered by Fannie Mae.

Tax Refunds Into Mortgage Payments

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TheStreet.com quoted me in Investing Your Tax Refund Instead of Spending It Boosts Retirement Savings. It opens,

Ramping up your emergency cash fund or IRA with your tax refund is a better option than spending it on a new smartphone or vacation.

Three out of four taxpayers received a refund of $3,000 in 2015. Although many consumers look forward to this windfall each year, it is not a “cause for celebration,” said Joe Jennings, a wealth director for PNC, a Pittsburgh-based financial institution.

“If you are receiving a large refund check, it actually means that you have loaned money to the government throughout the year and the next year the government is paying you back without interest,” he said.

Adjusting your withholdings is a good strategy if your refund exceeds $1,000. Changing the number of exemptions on your W-4 means you will net more income from each paycheck.

Bankrate.com, a North Palm Beach, Fla.-based financial content company, found that 31% of Americans who receive a tax refund this year plan to save or invest it. The survey revealed that 28% will use the funds to pay down debt, 27% will spend it on necessities like food/utility bills and 6% will splurge with a shopping spree or vacation.

Some consumers view the refund as a method of forcing them to save money each year or a way to pay down existing debt such as credit card balances with high interest.

Pay Off Existing Debt

Use your refund check to pay off as much as your credit card or student loan debt as possible since the amount of interest you are paying each month adds up quickly, said Jonathan Bochese, director of resolution services for Tax Defense Network, LLC, a Jacksonville, Fla.-based tax resolution company.

“The best use for any tax refund is to use it to pay off high interest revolving debts,” he said.

With the current low interest rate environment in money market funds and CDs, paying down debt is a no-brainer.

“If you can only make 3% on your investment and your debt is at a higher rate, pay off the debt,” said Carl Sera, a portfolio manager with Covestor, the online investing marketplace and managing principal of Sera Capital Management, a registered investment advisor in Annapolis, Md. “Don’t make it a habit to receive a tax refund, because it is money you have lent the taxing authority at a zero interest rate.”

Homeowners who do not have any other debt should pay down their mortgage by making an extra payment or two instead of stashing the refund in a savings account that is only receiving minimal interest, said David Reiss, a law professor at Brooklyn Law School.

“By doing so, you are making the equivalent of a pre-tax return of the interest rate on your mortgage,” he said. “If your mortgage has a 5% interest rate and your savings account has a 0.1% interest rate that is like getting a 4.9% higher rate of interest without taking any risk at all.”

Keeping Cash on Hand

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1127px-American_CashTheStreet.com quoted me in Why Some Investors Are Keeping Large Sums of Money in Cash. It reads, in part,

Investors are still holding large positions in cash amid the continued volatility in the stock market since they remain uncertain about the outlook of the economy.

After being spooked by the markets this year — evinced by the 21 times the Dow gained or lost 200 or more points through March 1 compared to only nine in 2015 — investors are finding a large cash reserve to be a reassuring cushion.

A report by Capgemini and RBC Wealth Management in 2015 cites the total cash held by high net households or those who have $1 million or more investable assets in North America as $3.8 trillion. Out of that total, $3 trillion to 3.5 trillion of those assets are estimated to be in the U.S., said Gary Zimmerman, CEO of MaxMyInterest, a New York-based company that maximizes cash balances for savers.

One reason cash remains popular among all age groups is because the sentiment of the economy, job growth and markets is viewed unfavorably. Data on the amount of cash that consumers keep in checking or savings accounts or CDs are not tracked.

“Cash is still a favored asset for investors, because frankly, people are nervous about the economy,” said Sean Stein Smith, a CPA in Hackensack, N.J.

Even wealthy people are allocating large sums of their assets in cash, with 23.7% of high net worth people keeping their portfolios in cash in 2015, according to the report.

 *     *     *

Homeowners should also consider starting a repair fund in addition to having emergency savings to cover household expenses, said David Reiss, a law professor at Brooklyn Law School in N.Y. Some repairs need to be made immediately such as a roof leaking during the rainy season or the boiler during winter months.

“A homeowner who wanted to be conservative could put an amount equal to 10% of his or her mortgage payment into a comparable fund for home repairs,” he said. “There is probably not one right answer for everyone. Some people are handy and can do all sorts of repairs themselves, others can’t.”