Posted: March 17th, 2009 | Author: Joe | Filed under: Real Estate, Scam | Tags: Bad deal, Reverse Mortgage, Scam | 12 Comments »
Reverse mortgages have gotten a lot of buzz over the past 6 years or so, but are reverse mortgages a good thing?
First of all, to answer that question, you need to know exactly what a reverse mortgage is. A reverse mortgage is a home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can then be paid to you.
Sounds great, right?
Well, maybe not.
There’s the little matter of paying this money back. You see, it’s not truly the reverse of traditional mortgage. If it were, you would “loan” the bank your equity stake in the home in exchange for monthly payments to you until that equity “loan” was paid off. At that time, the bank would lay claim to the full value of the home. But in a reverse mortgage, you get to live in the home as long as you can make tax and insurance payments on the home. When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.
There are literally hundreds of disreputable individuals and companies who use reverse mortgages as a scam. They load them up with so many fees, that you really end up with very little left in payments and you or your heirs may even owe more once the home is sold!
One such company, Financial Freedom Senior Funding Corporation, was hit by a lawsuit for their hard-sell tactics. The suit essentially alleges that they scammed seniors out of their homes and equity, pushing them to use the money for the “special things you’ve always wanted to do, such as travel or hobbies.” Financial Freedom Senior Funding Corp. also encouraged seniors to take out the maximum allowed under the law, regardless if it was wise, and even engaged insurance agents to sell insurance products on top of the reverse mortgage, tacking on more fees.
Despite this, the company sports a rating of C from the BBB and has 0 complaints in the past 36 months.
It sounds like reverse mortgages are not such a good deal. I suppose they would be for seniors who have no heirs and don’t plan on ever selling their home, but that may not be the most responsible thing to do.
For more info on Reverse Mortgages, head over to the U.S. Department of Housing and Urban Development website.
Photo by docsplatter
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Posted: March 12th, 2009 | Author: Joe | Filed under: Scam | Tags: foreclosure, scams | 3 Comments »
Do you know how to spot a foreclosure scam?
When a public notice of impending foreclosure of your house is released, this can generate unwanted solicitations from unscrupulous agencies that promise to help you avoid foreclosure.
Sometimes these scam artists can take the guise of a mortgage restructuring firm, and often times promise their “clients” they have received a high success rate of stopping foreclosures.
If some one contacts you offering foreclosure assistance, chances are they do not have your best interest at heart. This is especially true if any of the following apply:
- They require an up front fee.
- They tell you to stop communicating with your bank or mortgage company.
- They press you to transfer the title to your home to them.
The problem is that most of these scammers are either looking to bilk you with extra fees, or take your house out from under you!
As a general rule of thumb, don’t trust anyone contacting you. A better solution if you find yourself in such dire straights is to contact a housing counseling agency certified by HUD (Department of Housing and Urban Development) There you should find free or low-cost foreclosure assistance.
Photo by respres
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Posted: March 11th, 2009 | Author: Joe | Filed under: Investing, Retirement | Tags: 401(k), Retirement, stock | 1 Comment »
It’s not surprising that there are many people who are wondering: What should I do with my 401k in this market? One day the DOW (DJIA) is up 200 points, the nest it may be down 300. More often than not, a good day is a mixed market – maybe the DOW is off by less than 100, the NASDAQ is up a couple points and the S&P 500 is relatively flat.
In fact, a reader of this blog, Danny, recently left a comment along these lines. In writing my response to his comment, I realized that I had more to say than would fit in the comment box. I wanted to go into some detail of what I did just the other night to give my poor 401k some TLC.
In my initial response, I broke my action up into 2 basic actions:
1). Evaluate your options (and their performance).
2). Up your contribution rate through work.
I should point out that both Danny and I are many years from retirement, and as such this post is really geared toward the individual who still has a decade or more of employment ahead before their target retirement date.
Evaluate your options.
It may seem comforting to just ignore your portfolio and hope you haven’t lost much, but that won’t change the fact that your portfolio has lost value – and you won’t be able to retire on hope alone. Here’s what I did.
Gather the data.
You’ll need a list of the investment options available in your plan. Often times this is available on the quarterly statement you get in the mail, or on the 401k plan website. Make sure it has the following information: performance, expense ratio (cost), style and category.
Compare performance.
I went category by category and compared all of the options by return over a 1 year period and return compared to the bench mark index.
I had done the same thing when I initially selected the funds in my portfolio, and not surprisingly every fund I had initially chosen had held up better than their peers over the last year. In fact, some even out performed the index. Don’t get me wrong, my portfolio is not more valuable than it was a year ago, but most investments have lost value over the past year. The point is to minimize those losses and make the best use of what’s available to you.
It’s important to make sure you compare similar categories and styles. For instance, my small cap fund was down roughly 40% over that past year, while my bond fund was up 1%. You may be tempted to cash out the small cap and let it all ride on the bond fund, after all a 1% gain beats a 40% loss, right? Well, yes, but this is a very narrow slice of time. Over the long term (i.e.: your working life) the chances are much higher that the small cap stock fund will vastly outperform the bond fund. It’s similar with large cap value vs. large cap growth. Both funds will have companies of similar size, but different styles and so perform better at different times.
Performance of the options available in my 401k plan differed wildly in some cases. Some small cap funds were down more than 50%. That over a 10% difference between the best performing and worst performing for my plan!
Compare expense ratios.
Expense ratios are the cost of the fund, and usually fall between .25% and 4%. In my opinion, anything over 2% is too expensive. Most of my funds are in the .75 – 1.5% range. Again, it is important to compare similar categories since small cap stock funds tend to be more costly than large cap value funds for instance.
All other things being equal, you want the fund with the lower expense ratio. But what about when things aren’t equal? Well, there are a few funds in my plan that are have expense ratios quite a bit lower than the ones I chose. One example is a small cap fund that has half the expense ratio of the one I currently hold in my portfolio. The problem is that the lower expense fund also lost 5% more than my fund. Since the difference in expense ratio is less than 1%, this 5% trade off is clearly not worth it.
Increase your contribution rate.
Stocks right now are cheaper than they have been in a very long time. The recent plunge in stock prices is disastrous for recent or soon to be retirees who held too much of their retirement savings in stocks, but for those with many years of work ahead of them it is a once in a lifetime buying opportunity.
As I said to Danny, if you can spare the cash, bump up your contributions. I personally think the stock market is not likely to experience significant, long term growth for quite a while but eventually the stock market as a whole will rebound and grow. It make take 4 months or 4 years but the more you buy when prices are cheap, the faster your portfolio will rise when the market rises.
In the meantime, taking action on the things you can control will give you a greater peace of mind.
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Posted: March 5th, 2009 | Author: Joe | Filed under: Reviews, spending | Tags: Book Swim, Review | 6 Comments »
I’ve seen ads for Book Swim, and frankly, I’ve always thought it was a pretty dumb idea. Then I thought about it a little more, and I’ve decide there is one scenario where it would be beneficial…
The whole idea behind Book Swim is that it is an online book rental club that advertises itself as Netflix® for books. The idea is simple. You create an account, request a book or two and they arrive in the mail within a couple of days for you to read at your leisure and you never have to pay late fees.
The frugal side of me thinks, “Hello… ever heard of a Library?” but alas, my library doesn’t often have new releases I want. I am content to wait until I can get the books I want through inter-library exchange, but I’m the first to admit that while I enjoy reading, I am not the kind who needs a new book every 3 days. I’m happy to get lost on the Internet for the time it takes to get a new book. My frugal side is just stronger than my book loving side.
They offer 4 plans:
Light Reader
This level costs $19.98 per month and lets you have up to 3 books at any given time for as long as you’d like.
Casual Reader
The casual reader costs $24.97 and lets you have 5 book out at a time.
Avid Reader
This level allows 7 books at a time and costs $29.96 per month.
Devout Reader
The big daddy level gets you 11 books out at any time for $39.94 per month.
YIKES!
Sorry. That was my frugal self again. But seriously, even the cheapest level is $20 a month!? I’d be hard pressed to be able to rationalize this one. And what’s with those odd dollar amounts: $19.98, $24.97, $29.96 and $39.94 ?? It must be some kind of code, but I digress…
Still, I know there are people out there for whom reading is like breathing, and so it may be a viable service in the end. I suppose much of the benefit rests in how poor your local library system is and just how addicted to reading you truly are. If you can’t get anything newer than a Gutenberg bible or it’s all encyclopedia’s from the Eisenhower years, this is probably the service for you. I’ll stick to my local library though.
Just for kicks, I checked their BBB (Better Business Bureau) info for complaints. They have a rating of A- with 2 complaints, both marked resolved. It doesn’t look like they’re a scam or shady business venture, you just need to decide if they’re worth the price.
If you’re interested in trying them out, head on over to the BookSwim website.
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