Reverse Mortgages Backfiring on Seniors

As America's population ages, the hard sell is on for reverse mortgages. Promising happier days ahead, the former "Fonz," actor Henry Winkler, is giving the hard sell in relentless television ads. But the housing crash and the fiscal state of today's seniors are causing many of these loans to backfire.

Reverse mortgages were originally designed for seniors who wanted to take out their home equity to spend during retirement. Unlike a regular mortgage, they require no monthly payments, and the borrower can take out a lump sum or receive regular payments.

"The wealth in the home is, in most cases, wealth that is sitting idly when people have a hard time making ends meet on a day-to- day basis, so having access to that allows people to basically tap that cash to pay needs or to do more comprehensive financial planning," said Peter Bell, of the National Reverse Mortgage Association. Read more >>

Surging Student-Loan Debt Is Crushing the System

Student-loan defaults surged in the first three months of 2013, while efforts to collect bad loans are faltering, according to credit analysts and government audits. It is the latest twist in a college debt crisis that is hanging over recent graduates and dragging on the broader economy.

Credit-rating firm Equifax said $3.5 billion in government and private student loans went bad in the first three months of 2013, the most since the company began keeping track. The U.S. Department of Education said 6.8 million federal student loan borrowers are now in default, representing $85 billion in debt. And the department's systems for collecting the bad loans are struggling to keep up.

The Department's Office of Inspector General found in December that more than $1.1 billion in defaulted student loans were stuck in a sort of computer limbo. Read more >>

Young adults too broke to get loans

It's not because legions of Americans under age 35 have suddenly become fiscally responsible. It's more likely that their shaky economic foundations either prevent them from qualifying for a loan or even thinking about applying for one, according to those studying the trend.

"It's a sign of economic struggle, not economic success," said Richard Fry, senior economist at the Pew Research Center. "They don't have the mortgage, but they don't have the house."
The center found that young adults' debt levels dropped nearly 14% between 2001 and 2010, while rising 63% for those age 35 and older, according to a recent Pew study.

The real-world ramifications are eye-popping. The share of younger households owning their primary residence fell to 34% in 2011, down from 40% in 2007. Only 66% owned or leased at least one vehicle in 2011, down from 73% four years earlier, as car loans plunged. Credit card balances have also fallen.

The only debt on the rise is student loans. In 2007, just over a third of young households had outstanding student debt. That jumped to 40% in 2010. Read more >>

Reverse Mortgages Costing Seniors their Homes

The very loans that are supposed to help seniors stay in their homes are in many cases pushing them out. Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or die, have long been fraught with problems. But federal and state regulators are documenting new instances of abuse as smaller mortgage brokers, including former subprime lenders, flood the market after the recent exit of big banks and as defaults on the loans hit record rates.

Some lenders are aggressively pitching loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance. Others are wooing seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks. Some widows are facing eviction after they say they were pressured to keep their name off the deed without being told that they could be left facing foreclosure after their husbands died.

Now, as the vast baby boomer generation heads for retirement and more seniors grapple with dwindling savings, the newly minted Consumer Financial Protection Bureau is working on new rules that could mean better disclosure for consumers and stricter supervision of lenders. More than 775,000 of such loans are outstanding, according to the federal government. Read more >>

Americans Are Carrying More Credit Card Debt

Americans are carrying more credit card debt than a year ago, yet the late-payment rate for card holders remains near an 18-year low, an analysis of consumer-credit data shows.

The average credit card debt per borrower in the U.S. grew about 6 percent in the second quarter from a year earlier, credit reporting agency TransUnion said Tuesday. At the same time, the rate of payments at least 90 days overdue inched higher to 0.63 percent from 0.60 percent in the same period last year, when the rate hit the lowest level in 18 years. Card delinquencies sank to 0.56 percent in the third quarter of 1994, the firm said.

The April-to-June figures reflect how consumers have been managing their credit card use since the start of the last recession toward the end of 2007. Many borrowers have taken steps to save money and whittle down their debt. Among homeowners with a mortgage, many have made credit card bills a priority over their home loans and other financial obligations. Read more >>

Many Use Payday Loans to Cover Food, Rent

Many people think of payday loans as a way to cover an unexpected emergency – such as a car repair or medical expense – until your next paycheck comes in. But nearly seven in 10 people who use the short-term, high-fee loans rely on them for recurring, everyday expenses such as rent, food, utilities or car payments, according to a report published Wednesday.

And instead of using them for one quick fix, many are either seeking extensions or borrowing similar amounts again and again. That’s putting many people in debt to payday lenders for months at a time, at very high cost. “It’s not because of some unusual need that people are turning to payday loans. It’s because of some regular need,” said Nick Bourke of the Pew Center on the States, which published the report.

Payday lenders defend their industry, saying today's economic  reality is that many people regularly need a financial bridge to their next paycheck. “Of course there’s recurring use for this product. It’s often the best option for millions of Americans that are looking to manage their financial obligations,” said Amy Cantu, spokeswoman for the Community Financial Services Association of America, a trade group for payday lenders.

The Pew researchers found that parents are more likely to use payday loans than people without kids, especially if the household income is less than $50,000 a year, about the nation's median. In addition, people who are separated or divorced are more likely to use them than those who are married or single. Read more >>

FHA's Mortgage Delinquencies Soar

The mortgage market appears to finally be stabilizing -- as long as you ignore loans backed by the Federal Housing Administration. Increasingly, FHA-insured loans are falling into foreclosure or serious delinquency, moving in the opposite direction of loans guaranteed by Fannie Mae and Freddie Mac or those held by banks, which are all showing signs of improvement. And taxpayers could ultimately be on the hook for FHA's growing number of troubled mortgages. The agency's finances are already on shaky ground, and additional losses from loans going sour could prompt the need for a federal bailout, experts said.

"We can't escape this one," said Joseph Gyourko, a real estate professor at the University of Pennsylvania's Wharton School. "This is an arm of the U.S. government." The share of government-guaranteed loans, a majority of which are backed by FHA, that were 90 days or more delinquent soared nearly 27% during the year ending March 31. Foreclosures jumped nearly 17%, according to a report published recently by federal regulators.

At the same time, bank loans saw a dramatic improvement, with delinquencies shrinking by 39% and foreclosures declining by nearly 10%. Fannie and Freddie's portfolio also improved as delinquencies dropped by nearly 15% and foreclosures slid by more than 6%, the quarterly report issued by the Office of the Comptroller of the Currency said. Read more >>

Wells Fargo To Send Jobs to India, Philippines

Wells Fargo, the lender looking to trim more than $1.7 billion in quarterly expenses between the first quarter and the end of this year, may move some jobs overseas.

Roles in technology, the retirement division and other business lines may go to India and the Philippines as part of a companywide review, Bridget Braxton, a bank spokeswoman, said today. News 14 Carolina reported a review for the retirement business earlier, citing an internal memo from a Wells Fargo executive it didn’t name. Braxton, who declined to make the memo available, said it alerted employees that the bank was undergoing “an assessment” of the idea. She wouldn’t say how many jobs may be moved.

Wells Fargo has had employees in India since 2006 when it opened a so-called technology resource center in Hyderabad. The bank cited a “growing need” for talent that couldn’t be met by U.S. workers, according to a statement in August, 2006. The move wasn’t made to cut costs, Wells Fargo said at the time. The lender started a Philippines-based unit in November, Braxton said. Many jobs in the Philippines are “customer- service” roles, while those in India involve technology functions as well as functions for many business lines across the bank, she said. Read more >>

One in Five U.S. Households Have a Negative Net Worth

About one in five U.S. households owe more on credit cards, medical bills, student loans and other debts that aren't backed by collateral — so not including car loans — than they have in savings, checking accounts and other liquid assets, according to a new University of Michigan report.

"Some families have not been able to make substantial headway," said Frank Stafford, an economist at the U-M Institute for Social Research and co-author of the report, in a statement.

Average savings levels have gone up since 2008. But the U-M research showed that there had been no improvement in financial liquidity between 2009 and 2011 — except among families with more than $50,000 in savings and other liquid assets. Families who could afford to save more money often did so because they feared the worst. More...

More Than 1 Million Americans Underwater on Home

 (Photo credit: Wikipedia)

More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.

That figure, provided to Reuters by tracking firm CoreLogic, represents about one out of 10 home loans made during that period.

It is a sobering indication the U.S. housing market remains deeply troubled, with home values still falling in many parts of the country, and raises the question of whether low-down payment loans backed by the FHA are putting another generation of buyers at risk.

As of December 2011, the latest figures available, 31 percent of the U.S. home loans that were in negative equity - in which the outstanding loan balance exceeds the value of the home - were FHA-insured mortgages, according to CoreLogic. More...

Mortgages Now On Sale at Costco

costco feeding frenzy (Photo credit: jovino)

Not only can Costco shoppers find bulk-packs of chicken wings, 24-rolls of toilet paper and large-screen TVs at a discount, they can now land themselves a mortgage.

After a year of testing, Costco is rolling out a full-service mortgage lending program on its website in partnership with First Choice Bank, a New Jersey-based community bank, and 10 other lenders.

Costco's partners have issued more than 10,000 mortgages to members under the program. But Lauren Kutschka, Costco's manager of financial services, expects that number to swell as the warehouse retailer markets the service more aggressively to millions of members in its stores and in its weekly publication Connection. More...

Student Loans: The Next Bailout?

Here’s what we do know about student loan debt: it’s roughly $1 trillion in size, greater than either auto or credit-card debt and second only to mortgage debt in the U.S.

Borrowers in their 30s today owe $28,500, on average. The debt burden has soared just as — and partly because — the recession hit, so younger graduates carrying the highest balances are hit with the double whammy of a weak job market (that still isn’t showing any sign of rapid improvement).

And this all comes as globalization and technological change have upended once-reliable career paths, wiped out many mid-level professional jobs and leave low-paying fields in health, food and beverage services, and retail as among the fastest growing job markets over the next decade. More...

Consumer borrowing surges in November

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Consumer borrowing surged in November by $20.4 billion, the Federal Reserve said Monday. That's the largest monthly gain in a decade.

Consumers took out more loans to buy cars and swiped their credit cards frequently to purchase holiday gifts.

The Fed's category that measures credit card debt rose by $5.6 billion, the most since March 2008. Its gauge that tracks auto loans increased $14.8 billion, nearly matching July's gain that was the biggest since February 2005.

The third straight monthly increase in overall borrowing marks a departure from the more thrifty habits practiced during and immediately after the recession, when credit tumbled and the savings rate climbed. More...http://www.usatoday.com/money/story/2012-01-09/November-consumer-credit-surges/52469942/1

Bank loans to small business fall to 12-year low

New federal data show that the number of small bank loans to business has fallen to the lowest point in more than a decade, cutting the flow of money to a sector that's usually a job-creation powerhouse.

"It's usually the smaller business that is more able to bounce back and take advantage of different opportunities faster than a middle-market company," said Linda O'Connell, manager of small business research at Barlow Research Associates, a Minneapolis market research firm that focuses on the financial industries. "We haven't seen that."

An analysis of recently released Federal Deposit Insurance Corp. data by the Investigative Reporting Workshop shows that overall commercial and industrial lending by banks has increased for five straight quarters, but small loans to business of $1 million or less have been shrinking consistently since June 2008. As of Sept. 30, total outstanding loan volume was down 14.7 percent from its peak. More...

Nation’s biggest banks and mortgage lenders acquire a glut of foreclosed homes

Image by Getty Images via @daylifeThe nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months. More...

Stingy megabanks swimming in cash

Image by Rainforest Action Network via FlickrIf the megabanks are so big on lending, why do their loan books keep shrinking?

The biggest U.S. banks tell us they have spent the past quarter writing loans, renewing credit lines and generally being upstanding economic citizens. Bank of America (BAC) says it provided consumers and businesses with $144 billion in credit in the first quarter, Wells Fargo (WFC) ponied up $151 billion and JPMorgan Chase (JPM), swinging for the PR fences, claims to have lent out an improbable-looking $450 billion.

Yet loan balances actually shrank from a year ago at all three banks in the first quarter, just as they did at their old pal Citi (C). This at a time when the too-big-to-fail four are being drenched with new deposits (see chart, right).

All told, average loans outstanding at the fearsome four dropped 7% from a year earlier – a decline of $210 billion -- even as deposits rose 5%.

If this is what the bailed-out captains of the financial sector call supporting the recovery, no wonder the economy is going nowhere fast. More...

Banks slashed small business lending by $43 billion

The numbers back up what small business owners have been saying for two years: Main Street suffered a brutal credit crunch.

The total value of outstanding loans to small businesses plunged by $43 billion, or 6.2%, between June 2009 and June 2010, according to a report released this week by the Small Business Administration. That's a drop of $59 billion, or 8.3%, from June 2008.

The drop-off in small business loans came against an overall backdrop of reduced lending. Lending to large businesses -- measured by commercial loans of more than $1 million -- dropped by $156.2 billion, or 8.9%, between 2009 and 2010. Read more...

FDIC says list of 'problem' banks grows in Q3

The number of banks on the Federal Deposit Insurance Corp.'s "problem" list grew over the summer...The number of troubled banks rose to 860 in the July-September quarter from 829 in the previous quarter. That's the most since 1993, during the savings and loan crisis.

The FDIC also said banks earned $14.5 billion during the third quarter. That was a decrease from the previous quarter's result of $21.4 billion, but well above the $2 billion banks earned a year earlier. The troubled banks were smaller, on average, holding $379.2 billion in assets. That's down from $403.2 billion in the April-June quarter. More...

Home Loan Demand Drops, Refinancing Loses Luster

U.S. mortgage applications for home loan refinancing fell for a second straight week, dropping to its lowest level since early August, as rock-bottom interest rates failed to boost demand.

While historically low mortgage rates have been a glimmer of hope for a housing market that has struggled to find footing in the absence of government support, it failed to foster demand for loans to purchase a home last week.

The Mortgage Bankers Association on Wednesday said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Sept. 10 decreased 8.9 percent.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 0.8 percent.

The MBA's seasonally adjusted index of refinancing applications decreased 10.8 percent, reaching its lowest level since the week ended August 6. More...

One in 10 mortgage holders faces foreclosure

Image via WikipediaOne in 10 American households with a mortgage was at risk of foreclosure this summer as the government's efforts to help have had little impact stemming the housing crisis.

About 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said Thursday.

That number, which is adjusted for seasonal factors, was down slightly from a record-high of more than 10 percent as of April 30.

In a worrisome sign, the number of homeowners starting to have problems with their mortgages rose after trending downward last year. The number of homes in the foreclosure process fell slightly, the first drop in four years.

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

The number of Americans missing payments and falling into foreclosure has followed the upward trend in unemployment, which has been near double digits all year and has shown no sign of dropping soon. More...