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Debt in Washington/Debt on Main Street October 13, 2013

Posted by forwardfinancialplanning1 in Real Estate, Retirement Savings, Retirement Spending.
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As the battles over increasing the debt ceiling continue in Washington, it’s easy to point fingers at our elected officials “for spending money we don’t have.” But, some recent figures from the AARP indicate a similar financial performance from baby boomers as a group.

AARP found that 53.6% of homeowners aged 55-64 carried a mortgage balance in 2010 compared to only 37% for this same age group in 1989. Further, among households aged 65-74, the percentage holding a mortgage nearly doubled to 40.5% from only 21.7% in 1989. The median mortgage balance of the 55-64 group reached $97,000 in 2010 compared to a 1989 figure of $33,800. The comparable figures for the 65-74 group are substantially more depressing as their median balance soared from $15,400 in 1989 to $70,000 in 2010.

While some of this can be explained by inflation and an increase in the length of many workers’ careers, it appears to suggest that many boomer households have lived well beyond their means. Perhaps we have a truly “representative” government in Washington that has manifested itself with its $16+ trillion national debt.


Please don’t try to be so helpful…………… September 4, 2013

Posted by forwardfinancialplanning1 in Personal Budgets, Real Estate.
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A friend of mine is fond of saying, “The most dangerous words in the English language are, ‘I’m from the government and I’m here to help.'” While my friend has a definite tendency towards sarcasm, I often see examples of the accuracy of his statement.

Many observers have noted that one of the causes of the financial debacle of 2007-2009 was a system-wide deterioration of mortgage underwriting standards. This was the case for private lenders, but was true in spades for the Government-Sponsored-Entities (GSE’s) known as Fannie Mae and Freddie Mac. Many argue that these two bowed to Congressional pressure from the liberal/progressive side of the aisle to expand home ownership %, especially among lower income groups. The congressional pressure worked. We expanded home ownership with all sorts of questionable loan practices (Alt-A, “liars loans” etc.) and caused a near melt-down of the mortgage and mortgage backed securities markets. We, as taxpayers, are still paying for this mess.

So in keeping with their theme of “never letting a good crisis go to waste” our Congressional leaders spawned the legislative monster known as Dodd-Frank. This bill adds an enormous number of regulations and creates the Consumer Financial Protection Bureau (CFPB). As its name implies, the CFPB is charged with protecting consumers and obviously, predatory mortgage lending is at the heart of much of their activity.

So now, five years after the mortgage fiasco, the CFPB is introducing a whole new series of regulations in the area of mortgage loan approval and origination. One of the many new rules that goes into effect in 2014 limits people from taking out a mortgage or refinancing an existing one that puts their overall household borrowing at more than 43% of their income. This new debt cap includes all sorts of common forms of debt including student loans, most fees and points related to a home purchase and property taxes. It also tightens rules on loan documentation, and lenders who “flex” in order to provide customers with easier credit terms, will be open to consumer lawsuits if loans go bad. (You were stupid to make this loan to me, so now I’m suing you…)

Lending experts predict that the new rules may make mortgage loans much more difficult to obtain for some classes of borrowers. And who are these borrowers? The SAME PEOPLE who weren’t qualified to borrow in the first place prior to the aforementioned relaxation of lending standards.

I hope others see the irony here———–the same group (Congress) who brought us the “pain” is going to “fix things”. And, the new rules are going to lock out the same constituency that they were supposedly trying to help in 2004-2007. While I can agree that solid lending standards are a necessity, the higher standards were there all along prior to 2004-07. Wouldn’t we have been a lot better off if Congrss hadn’t meddled in the mortgage markets in the first place?

Be suspicious of the real estate “spin” May 28, 2013

Posted by forwardfinancialplanning1 in Real Estate.
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If one believe the recent headlines and hype about real estate, one might conclude that the real estate crash is behind us. Housing starts and sales of existing homes are clearly better than during the severe slump of 2008-2010. However, readers are encouraged to be skeptical of all the optimism being produced by industry cheerleaders such as the National Association of Realtors.

Much of the demand can be traced to institutional buyers such as private equity funds and hedge funds who are scooping up bargains, often from distressed sellers. And while this demand does have a positive effect on home values, a recent statistic released by the US Federal Reserve puts this all in perspective. According to the Fed, the overall value of real estate owned by US households fell to $17.65 trillion in 2012 from $22.7 trillion in 2006. Doesn’t sound like a booming housing market to me…………….