Mortgage Rates Climb; Gas Prices Still Climbing; Americans May Never Retire
Millions of Mortgages Will Ratchet Upward Soon
June 12, 2009MoneyNews - Zacks Research analyst Dirk van Dijk warns that another major mortgage crisis lies ahead as huge numbers of homeowners who have been making only minimum payments on their “pick a payment” mortgages have to start paying in full.
This can cause huge jumps in the monthly payment, with increases of over 50 percent not uncommon, van Dijk says, making these the ultimate “exploding mortgages.”
The number of these recasts is relatively small right now at $1 billion per month but will grow dramatically over the next few years, exceeding $8 billion per month in the fall of 2011.
“If the equity in your house is gone and your monthly mortgage payment suddenly jumps from $2000 per month to over $3000 per month, what do you think is going to happen?” van Dijk asks.
The next wave of foreclosures is going to have much higher average loan balances, so each foreclosure will hurt banks more than subprime foreclosures did...
Mortgage Rates Climb
June 11, 2009CNN Money - Home mortgage rates jumped in the most recent week, pulled higher by skyrocketing Treasury yields. The average 30-year fixed rate soared to 5.95% from 5.45% last week, according to a weekly national survey from Bankrate.com.
The 30-year rate is often influenced by the benchmark 10-year bond's yield, which has increased steadily to hover around 4% recently. The yield was 2% just six months ago. Investors worry that this has re-ignited inflation fears and threatens the potential for economic recovery.
In an effort to cap mortgage rates, the Federal Reserve in March revealed a campaign to buy back $300 billion in Treasurys in hopes that it will spark demand and keep yields -- and therefore, mortgage rates -- in check.
Mortgage rates fell as refinancings abounded. But those benefits seem to have worn off, as rates have been on a tear in recent weeks. Although mortgage rates continue to rise, they remain much lower than last year, when the average 30-year fixed mortgage rate was 6.48%.
Adjustable-rate mortgages: Those rising rates have made it difficult for many homeowners to refinance, but ARMs are an option, the Bankrate report noted. Adjustable-rate mortgages were higher last week, with the average 1-year ARM rising to 5.16% and the 5-year ARM jumping to 5.49%.
"Bankers say ARMs got a bad rap in the mortgage debacle," the report continued, adding that the riskiest loans in the housing bubble --"subprime, low down payment, interest-only, negative amortizing and stated income" -- tended to be adjustable-rate mortgages.
But the meltdown happened "because those loan features were layered on top of ARMs," the report said, meaning that it was not the adjustable rates that caused people to default. Rather, home buyers put no money down and "exaggerated their earnings when they applied for stated-income loans."
A few months ago, only about 1% of mortgage applications were for ARMs. Last week, it was 3.4%, the report added. Other rates: The average 15-year fixed rate mortgage jumped to 5.37% from 5.06% the week prior. The average jumbo 30-year fixed rate ticked up to 6.96% from 6.68%. Loans are considered "jumbo" when they are too large to be purchased or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). They carry higher rates than smaller "conforming" loans, which do have guarantees.
Tough Workouts for Mortgage Borrowers
CNN Money - Lenders all say they want to help mortgage borrowers stay in their homes. But when homeowners contact lenders in search of mortgage modifications, they often find getting help very difficult. Here are some stories from readers who struggled to find solutions...Gas Prices Still Climbing
June 17, 2009Richmond Times-Dispatch - Gas prices have climbed nationally for almost 50 straight days as speculation about an economic recovery seems to have trumped market fundamentals. The national average rose a half-cent yesterday to $2.674 per gallon, according to auto club AAA, Wright Express and the Oil Price Information Service
The average price for regular self-serve in the Richmond area was $2.53 yesterday morning, according to a daily survey of retailers by AAA. That is up from $2.18 a month ago but far below the $3.98 average from a year ago.
Nationally, gas prices have jumped about 65 percent this year. In the Richmond area, prices are up nearly 69 percent. They have risen about 66 percent in Virginia...
Dream Deferred: Americans May Never Retire
June 15, 2009Live Science - The retirement plans of many Americans went out the window in the past year due to the economic downturn, a new survey finds. A lot of folks now are looking at Plan B, and Plan B means working more and working later in life.
It's not unlike what our great-great grandparents planned for, back before the concept of retirement came into vogue...
No surprise, but about three-quarters of adults in the so-called threshold generation (ages 50-64) have seen the value of their investments — mutual funds, individual stocks or retirement accounts such as 401(k)s — decline in the past year, according to the national survey of 2,417 Americans conducted Feb. 23 to March 23 by the Pew Research Center's Social & Demographic Trends Project.
About half of all working adults in this age group say they may delay their retirement, and 16 percent say they expect to never stop working, the survey found.
Overall, some 37 percent of all full-time working adults of all ages say they have thought in the past year about postponing their retirement. Women are more likely to feel this way (46 percent) than men (31 percent). And whites have thought about delayed retirement (40 percent) more than blacks (32 percent) and Hispanics (34 percent), the Pew survey found.
Investment advisor Art Dinkin sees this trend, too. His clients at retirement age are not retiring.
"No one says it's their ideal solution," said Dinkin, CFP®, an investment advisor representative of Ameritas Investment Corp., member FINRA/SIPC. "We've all bought into this dream of retire at 65, get your gold watch and then living the life of leisure. But the dream isn't as strong as we thought it was..."
Nowadays, workers hang on like a dog to a bone to the concept of retirement. Meanwhile, each of the three legs of the retirement stool — pensions and/or 401(k)s, social security and personal savings — are getting wobbly.
In fact, the only true security for a retiree today is their own savings and investments, Dinkin said. Neither the government nor corporate pensions can be relied upon as the foundation of a stable retirement, he adds...
Stimulus Watch: $25 Check May Cost You Food Stamps
June 15, 2009AP - When President Barack Obama increased unemployment benefits as part of his economic stimulus, he also made some Americans ineligible for hundreds of dollars a month in food stamps.
Under the economic recovery plan, laid-off workers have seen a $25 weekly bump in their unemployment checks as part of a broad expansion of benefits for the poor. But the law did not raise the income cap for food stamp eligibility, so the extra money has pushed some people over the limit.
Laid-off workers and state officials are only now realizing the quirk, a consequence of pushing a $787 billion, 400-page bill through Congress and into law in three weeks.
And for people hurt by the change, there's no way around it.
"Everybody tells you, 'Yeah, I can understand why you're frustrated. It doesn't sound right.' But nobody knows where to go," said Mark Milota, 47, of Marietta, Ga., who was laid off in November from his job at a medical billing company.
The Georgia Department of Human Resources explained in a letter to him last month that, because of the stimulus, he was ineligible for food stamps. He now makes $1,538 a month — $21 too much for a family of two to qualify.
"We have to pay him that $25 a week," said Brenda Brown, assistant commissioner at the Georgia Department of Labor. "And he doesn't have the option not to accept it."
Milota said he was told that, without the stimulus money, he would have received about $300 a month in food stamps.
"I'm doing things I've never done before: I'm going to food pantries. I've gone to places for assistance on bills," Milota said. "Some bills are just not being paid. I'm three months behind on my mortgage."
Unemployment benefits vary by state and the income cap for food stamps also varies based on family size, so it's impossible to say for certain how many people are hurt by the change. Government officials believe it is only a small fraction of the record 6.8 million people on unemployment. Many more people will benefit from a stimulus law that expanded unemployment and food stamp benefits.
"We've gotten some questions about this. Not tons and tons, but we have been getting questions about this," said Jean Daniel, a spokeswoman for the Department of Agriculture, which overseas the food stamp program now known as the Supplemental Nutrition Assistance Program.
When cases like Milota's began popping up in Iowa recently, officials called Washington, asking what to do.
"We were told we were interpreting the food stamp regulations correctly," said Roger Munns, spokesman for the Iowa Department of Human Services. "Once you're over the income limit, regardless of the reason, you're no longer eligible."
Once handed out as paper vouchers, food stamps are now delivered to people near the poverty level through debit cards that they can use to buy food. A record 32.5 million people participate in the program. Once the government determines someone is eligible, officials use a formula to calculate the monthly benefit, which ranges from $16 to $588. The average is about $111.
Because those close to the income limit tend to get less money in food stamps, Munns said most people who are bumped out of the program by the extra $100 in unemployment benefits each month will break even or fare just slightly better. But the stimulus checks were intended to ease the effects of the recession, not simply cancel out another government assistance program.
Lawmakers crafting the stimulus knew this would become a problem, said Stacy Dean, director of food assistance policy at Center on Budget and Policy Priorities, a liberal think tank. They could have headed it off by raising the income tax or declaring that the $25 stimulus checks would not affect food stamp eligibility. Both were expensive options that could have forced states to reprogram their computer systems.
But more importantly, hashing out those details would have taken time.
"People were aware of this but, as you recall, the stimulus was moving along and then it was passed in about a day," Dean said. "There was not a lot of policy discussion on this."
Milota said he had never been on food stamps before and resisted applying for months, believing he would find a job. But that has proved difficult. When he applied for a customer service job recently, he said the company told him there were 1,000 applicants.
The stimulus law was intended not just as a jolt to the economy but also to ease the burden on people in Milota's situation. Besides unemployment benefits, the law also increased food stamp benefits — just not the income cap. "I truly believe when it came out, they felt it was to help people, and they never wanted to hurt people," said Milota, who says he leans Republican but voted for Obama.
Officials in Washington say they're aware of stories like this. Changing things, however, requires changing the law. States could do this one by one, or Congress could do so.
"This is not something the president or this agency could do independently," Daniel, the Agriculture Department spokeswoman, said.
Homes: Almost 20% Cheaper
May 26, 2009CNNMoney.com - The home price slide accelerated during the first three months of 2009, according to a report issued Tuesday. The S&P/Case-Shiller National Home Price index, a bellwether of real-estate market direction, plunged a record 19.1% during the quarter compared with the first three months of 2008. That followed an 18.2% drop last quarter.
The Case-Shiller 20-city index dropped 18.7% year-over-year, also a record. It fell 18.5% during the last three months of 2008. This index has plummeted 32.2% from its July 2006 peak and has fallen 32 straight months.
The national index covers almost all homes sold throughout the United States and is reported quarterly, while the 20-city index reports sales in 20 major metro areas and represents a cross section of the national market. The 20-city index comes out every month.
"Declines in residential real estate continued at a steady pace into March," said David Blitzer, chairman of the Index Committee at Standard & Poor's in a prepared statement. "All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the metro areas having record annual declines."
The ugly report was somewhat unexpected, according to Mike Larson, a real estate analyst for Weiss Research. "The market was anticipating better results," he said. "There had been some signs of increased sales in post-bubble markets."
But that sales increase has not translated into higher prices. Bargain hunting - bottom fishing really - for foreclosures and other distressed properties has driven sales volume up while further depressing prices.
The foreclosure sales, which many appraisers used to ignore when they evaluated home prices because they represented outliers rather than typical sales, now have to be accounted for.
"These used to be anomalies," said Larson. "Now, when sales are dominated by foreclosures, where they represent 50% or more of [transactions], they are the market."
The market plague has burst far beyond its Sun Belt epicenter, as the latest month's data reveals. In March, Minneapolis recorded the largest monthly price loss of any metro area in the 20-city index, losing 6.1% compared with February. That is the biggest single-month decline for a city in index history.
Sun-Belt cities still had the largest year-over-year declines in March, with Phoenix prices down 36%, Las Vegas off 31.2% and San Francisco dropping 30.1%.
Two cities have now have fallen more than 50% from their peak prices: Phoenix is down 53% since June 2006 and Las Vegas is off 50.4% from its August 2006 high. Dallas prices suffered the smallest loss from peak, just 11.1% since June 2007...
Early Retirement Claims Increase Dramatically
May 24, 2009Los Angeles Times - Instead of seeing older workers staying on the job longer as the economy has worsened, the Social Security system is reporting a major surge in early retirement claims that could have implications for the financial security of millions of baby boomers.
Since the current federal fiscal year began Oct. 1, claims have been running 25% ahead of last year, compared with the 15% increase that had been projected as the post-World War II generation reaches eligibility for early retirement, according to Stephen C. Goss, chief actuary for the Social Security Administration.
Many of the additional retirements are probably laid-off workers who are claiming Social Security early, despite reduced benefits, because they are under immediate financial pressure, Goss and other analysts believe.
The numbers upend expectations that older Americans who sustained financial losses in the recession would work longer to rebuild their nest eggs. In a December poll sponsored by CareerBuilder, 60% of workers older than 60 said they planned to postpone retirement.
Goss said it remained unclear whether the uptick in retirements would accelerate or abate in the months ahead. But another wave of older workers may opt for early retirement when they exhaust unemployment benefits late this year or early in 2010, he noted.
The ramifications of the trend are profound for the new retirees, their families, the government and other social institutions that may be called upon to help support them.
On top of savings ravaged by the stock market decline and the loss of home equity, many retirees now must make do with Social Security benefits reduced by as much as 25% if they retire at age 62 instead of 66.
"When the recession ends and the economy bounces back, there may be a band of people for whom things will never be the same again. They'll still be paying the price for 10, 20, 30 years down the road," said Cristina Martin Firvida, director of economic security for AARP, the nation's largest membership organization for people 50 and older.
For Herman Hilton, 66, of Jacksonville, Fla., a lean 6-foot-2 electrician with a bushy gray beard, the decision to lay down his pliers and screwdriver was born of frustration. For at least the last 10 years, as he wired new buildings, he was looking toward retiring as soon as he hit 66 and qualified for full benefits. And last fall, like millions of other older workers, Hilton put his "golden years" plan on hold when his 401(k) lost more than a third of its value.
Then last month, his life took another unwelcome turn: Hilton's foreman pulled him aside to tell him that he was being laid off. For several weeks, Hilton collected unemployment insurance. But he soon decided to call it quits and file for Social Security. "I can live on what I have," Hilton said. "But it's not what I planned on. I won't have the comfort factor of as much of a safety cushion."
That cushion is important. As Americans live longer, the elderly are increasingly at risk of outlasting their financial assets. That's a serious problem for them and their families, who are often called upon to provide assistance.
Because benefits are reduced for people who retire early, the surge in retirements should not have any long-term effect on the solvency of the Social Security system, although it will probably add to the near-term budget deficits confronting the Obama administration, Social Security's Goss said.
The full consequences of retirement decisions made in hard times will become apparent when people who retired early begin to exhaust their savings. "As they get into their 70s and 80s, it will be increasingly inadequate," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College.
The most severe effect will probably fall on the unemployed widows of workers who retire early, Munnell said. Survivors' benefits also take a deeper cut when people retire early -- reduced as much as 30% for retirement at 62. Because women tend to live longer than men, that leaves them more vulnerable to running out of money as expenses for assisted living and other costs rise in advanced old age.
Significant numbers of workers have long chosen to retire early. In 2007, the most recent year for which statistics are available, 42% of men and 48% of women began collecting Social Security retirement benefits at age 62, the first year of eligibility.
The current recession, the worst since the Depression, is striking when older workers are by historical standards unusually vulnerable. Though older workers in previous recessions were less likely than their younger counterparts to be laid off, that advantage has eroded in recent years, said Munnell, who analyzed more than two decades of Labor Department data on layoffs.
Fewer workers are now protected by union contracts that require newer employees to be laid off first. And older workers now typically have less of a seniority advantage in a workforce that more frequently switches jobs...
