Hidden Danger in Public Pension Funds
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In terms of popularity, Elmer Frank adds, Retirement accounts have become one of the most frequent sources of pledged collateral for our firsttime buyers. We don't even require that the account belong to the buyers. We'll accept funds from any close family member. On no-down-payment mortgages, we usually like to see 30 percent, but for good customers, we've gone as low as 20 percent.
Division of HUD) oversees all aspects of housing in the country and is designed to protect you, the homeowner. When HUD and Congress developed the HECM, their goal was to help people over 62 live comfortably without the fear of going broke from medical bills, not to mention an economy that encourages inflation rates that escalate faster than most people's pensions and retirement funds can grow.
For years people were skeptical about the reverse mortgage because there was an underlying myth and fear that once you signed the papers, the bank owned your home. Seniors were afraid that if they moved to an assisted-living or retirement home and their home had gone down in value, they would owe ridiculous amounts of money on their loan (remembering that the loan comes due if you move out permanently). Adult children worried that if their parents should die, they would be left with the burden of coming up with the cash to pay back their parent's loan. The FHA thought of all that, too, and created Mortgage Insurance Premiums (affectionately called MIP) as a protection for you, for your heirs, and for itself.
You may want to use this extra boost to buy a lovely little retirement home, or go all out and get the most house for your money. Either way, remember that if you get the loan when you're relatively young and have to throw a significant portion of your existing savings into a down payment, you're going to be hard-pressed when it comes time to put food on the table since the Home Keeper for Purchase does not continue to pay you over the life of the loan it lives up to its name and is for purchase only. People are making a habit of living beyond their means these days, but you can control your future finances by declining to buy a home that you really can't afford. A good counselor and or originator will help you sort out your finances so that you can clearly see what you can reasonably afford.
There are a number of reasons why further theoretical and empirical work on amortisation behaviour would be of benefit. There is the issue of the optimal mortgage contract designs that lenders should offer and the risk sharing arrangements between borrowers and lenders. Amortisation is implicitly about mortgage demand in situ, and has effects upon the demand for housing. The build up of housing equity by some groups of borrowers, and the extension of mortgage maturity by others, has implications for the form and distribution of wealth for households in later life, and even across generations (e.g. inherited wealth). Housing equity may be increasingly called upon to finance retirement. A study of the implications of partial prepayment, that is facilitated by flexible mortgage instruments, for cash flows to the secondary mortgage market and MBS valuation, would be useful. How far the requirements of the secondary mortgage market and information problems have inhibited the spread of...
By the middle of this decade, the world was awash in cash. The International Monetary Fund (IMF) estimates that over 70 trillion of global savings in fixed-income securities, more than double the amount in 2000, was held by sovereign wealth funds, endowments, pension funds, insurance companies, central banks, and
Seniors, especially those who have gone through hoops trying to get their fair share of Social Security, pensions, Medicaid, and various other programs, are often concerned that a reverse mortgage may cancel out those benefits. People often ask us if they have to choose between those programs and a reverse mortgage. You should be glad to know that the answer is no. The income from a reverse mortgage has no bearing on your current benefits. What's better, it has no effect on your taxes because equity isn't considered income by the IRS.
Why would they do this In part, institutional fixed-income managers didn't know any better. What chance does the treasurer of a small city or the manager of a small union pension fund have against a smooth-talking Merrill Lynch salesperson saying, This CDO has an AAA rating from Moody 's, so it's totally safe and it yields 50 basis points over Treasuries But it also has to do with the way these managers are evaluated and compensated. If they stuck to safe investments like Treasuries, their returns would trail those of their peers quarter after quarter, which is a good way to lose one 's job. As Jean-Marie Eveillard once noted, It 's much warmer inside the herd. 6
Each housing finance system has its own developmental issues. In the UK the debate is in terms of obtaining the benefits of the US model with its prevalence of long-term fixed rate debt, leading to a less volatile housing market. There is an existing basis for securitisation in the UK, which might facilitate the supply and adoption of long-term fixed rate instruments. The adoption of the FRM might also be encouraged by some implicit or explicit FRM subsidy, as in the US. One suggestion has been changes in the funding arrangements of lenders, to achieve a better matching of assets and liabilities. This could be assisted by making fixed rate mortgage-backed bonds of interest to pension funds (Maclennan et al. 1998). Discussion in this book has noted reasons why we might observe a variety of mortgage contracts, so that long-term fixed rate debt might not suit all. Defining the issue in terms of encouraging borrowers to adopt a long-term perspective on financial planning might lead to...
Lenders who don't sell their mortgages to Fannie, Freddie, or other players in the secondary mortgage market are called portfolio lenders. Portfolio lenders include many banks, savings institutions, credit unions, pension funds, and life insurance companies. Although Fannie Freddie-affiliated lenders may exercise flexibility if they choose to, portfolio lenders can design any type of loan they like.
Social scientists have confirmed time and again that people generally overestimate their abilities and knowledge. More than 80 percent of drivers think they 're among the safest 30 percent of those driving. When asked at conferences to write down how much money they will have at retirement versus the amount the average person in the room will have, money managers and business executives consistently judge that they'll end up with about twice the average also an impossibility, of course.
If you don't have enough money for a big down payment, and you can't (or don't want to) buy mortgage insurance or obtain a second mortgage, you've got another possibility. It's called pledged collateral. We don't care where the collateral comes from, says Elmer Frank of First American Savings. As long as we feel secure, we'll consider the loan. We've taken stocks, bonds, mortgages, retirement accounts, and once a Mercedes 300 SL Gullwing. We did, though, refuse to accept a racehorse.
For many long-term investment funds, like pension funds, which normally hold some long-term bonds, the norm for judging their bond performance should not be cash but rather the level (price and yield) of the long-term bond market itself. A profitable swap gains against the market whether the latter is advancing or declining. In summary, for a tax-free fund which, to meet its own liabilities, is normally invested in some long-term bonds, relative performance in terms of principal plus fully compounded income is the best norm for good management.
When we move from the PV, which declines with higher discount rates, to the RFV, which increases with higher reinvestment rates, another volatility measure becomes important. The reinvestment volatility (RFV-VOL) is rarely characterized in the same quantitative way as the Duration concept, but doing so leads to some interesting results that should be more widely appreciated and that may be particularly useful for long-term holders of fixed-income exposures such as insurance companies and pension funds.
If you read those personal finance articles in magazines and newspapers, you've seen articles that tell you to exclude home equity from your projected net worth at retirement. Financial planners or the journalists who quote them say that homes make for relatively poor investments and because you will still need a place to live after you retire, money tied up in a house won't add to your spending power. other tax-deferred retirement accounts at your highest marginal ordinary income tax rates, even if a large part of those funds actually accrued through capital gains such as stock price appreciation. Most retirees have gained greatly from the increased value of their property equity, but most of them haven't had to tap into it. Today's retirees still draw substantially from social security, company pensions, and, yes, the historically unprecedented bull run in stocks of the past two decades. You, though, can't count on the same degree of income support from social security, pensions, or...
One of the most common reasons not to get a reverse mortgage is age. When they made the minimum age 62, the reverse mortgage bigwigs meant it in the truest sense of minimum. The very least allowed. It's a pretty standard retirement age most people would consider someone who's 62 to be a senior. It doesn't mean that the day you turn 62 you need to run out and get a reverse mortgage.
Once you get a reverse mortgage the assumption is that you are going to live in your home. That's why you would get a reverse mortgage in the first place. To prove this reasoning, reverse mortgages prohibit you from moving out of your home for more than 12 months at a time. This is how much the reverse mortgage lenders want you to stay in your own home into your retirement If you move out for whatever reason, you end the loan and it must be repaid. To take it one step further, even if you don't sell the house if you still own it, but decide to rent it out to someone else and stay with your family or live somewhere cheaper instead your loan will be
For years, seniors who planned to use the equity from their house to get some ready cash through reverse mortgages were essentially forced to stay in their current homes, even though their lifestyles warranted a change. Many people were understandably unsatisfied with this arrangement. After all, the way you live in your retirement can be drastically different than your working lifestyle, and your home will probably reflect that. If you've been thinking about getting a reverse mortgage because you want to take advantage of your equity, but you'd rather live somewhere else, the Home Keeper for Purchase may be for you.
The net cash value of pension funds, such as individual retirement accounts (IRA) or 401-K accounts, are acceptable sources of funds. Instead of cashing these retirement accounts, however, applicants are often allowed to borrow against the current cash value of these accounts. Even if no loans are made against these retirement accounts, the vested balance can still be used to satisfy reserve requirements.
It has not been possible to explore or even mention all possible mortgage designs and their specific purposes. For example, an important mortgage instrument in the US is the reverse mortgage that can generate additional income in retirement. In the UK home income plans and equity release schemes are designed to release housing equity to supplement retirement income. These schemes have been criticised for poor performance and have raised issues relating to mis-matching of products to consumers needs ('mis-selling'). Demographic changes, radical changes in pension systems and concerns over household savings behaviour also make this a pressing research issue. The economics of discrimination in mortgage markets is another area that continues to develop. The organising principle of this book was the key areas of household decision making relating to mortgage choices.
Whether it appears clear which home you actually live in, or you do truly spend your time exactly equally between homes, the originator and lender will base their loan assessment on the address found on your driver's license or other legal identification. Since no one can hold more than one valid driver's license or other similar identification, it will become clear very quickly which house you actually call home. If you want to use what was your secondary home as a retirement residence and get the reverse mortgage on that property, you'll need to update your identification (it's easy, just call your department of motor vehicles).
Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year's report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at year-end 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering. . . .
A more generalized form goes beyond the problems of a single payment at a point in time to the immunization of a stream of liabilities that stretch out over time. Many pension liabilities have this form.14,15 An analogous approach to the zero-coupon bond solution is to find a cash-match portfolio that provides a cash flow that coincides with the specified liability schedule.16 However, this cash-matching technique is a rather restrictive approach. A more general and more optimal solution is to achieve an immunization where changing interest rates affect both the fixed-income portfolio and the liability flows in approximately the same way (see Technical Appendix). Redington addressed this more general immunization problem and found that the same basic technique worked once again Construct a fixed-income portfolio so that its Duration matches the Duration of the liability stream.171819 (As always, although this is the basic idea, there are second-order conditions and complications that...
His position for many years prior to retirement was special litigation counsel for the division's Housing and Civil Enforcement Section, where he investigated and prosecuted matters involving a pattern or practice of discrimination in home mortgage and consumer lending. Mr. Ross was the division's lead lawyer in several landmark fair-lending cases.