Photo: Mortgage signing

Mortgages: the Closing Cost Minefield

When my new partner and I bought a condominium last month to accommodate our combined stuff, I remembered that borrowing so much money can be an emotional, even terrifying, ordeal.

It’s difficult to think clearly.

But attention should be paid to closing costs, which add to the cost of buying a house. So I decided to apply my skills as a veteran newspaper reporter and grilled my lender, attorney and real estate agent about these costs.

Despite my diligence, I was only modestly successful at reining them in. But I stepped on a few land mines that might help other homebuyers:

The HUD-1 matters:

Federal law requires prospective mortgage lenders to provide loan applicants with a “good faith estimate” of the closing costs within three days after they submit the application. This “GFE” is your lender’s best guess of the final fees they’ll charge for originating your loan.

My lender promptly sent the GFE. But the bank’s salesman promised to reduce the closing costs shown on the GFE, and I had to repeatedly nudge him to provide the more important document: the HUD-1 statement of my actual closing costs. …Learn More

Photo: Folders of insurance, medical, and bills

Healthcare Credits Reach Middle Class

Individuals earning nearly $46,000 a year and families of four earning $94,000 may be eligible for federal tax credits under the new health care law.

Tax credits are the mechanism by which the federal government caps how much people pay for health insurance premiums, which are set by the private market. The premium caps are based on how much someone earns, relative to the federal government’s definition of poverty.

Here’s an example of how premiums are calculated for, say, young, single workers who earn between $17,236 and $22,980 per year, which is between one-and-one-half and two times the poverty level. The premiums, which range from 4 percent to 6.3 percent of their income, start at about $57 a month for those at the low end of this income range and up to $121 at the high end.

In the following charts, Squared Away converted into dollars the income and premiums that the Henry J. Kaiser Foundation, in its brief on the healthcare law, has expressed as percentages of the U.S. poverty thresholds: …Learn More

Affordable Care Act: Who Gets What

The Henry J. Kaiser Family Foundation just released an excellent interactive slide show explaining how the Affordable Care Act addresses the various health insurance and financial challenges facing 47 million uninsured Americans.

Kaiser divided the uninsured into 10 groups – 28 million part-time workers, 8 million adults in their early 20s, and 3.5 million self-employed people, among others – with details about the specific provisions pertaining to each.

There’s a lot of detail here, so focus on the profiles that interest you most. Advance through the slides by clicking the arrow at the bottom of the screen. To return to the home page, click the “house.” …Learn More

Graphic: Happy Halloween!

Fraud Scares Off Stock Investors

The evidence is clear: fraud causes investors to shed their shares of stock.

When the stock market is booming, fraud swirls unnoticed beneath the frothy surface. Only when the market busts, as it did in the fall of 2008, are allegations of fraud and financial shenanigans exposed to the public.

When they are, and rattled investors realize what has taken place, they decrease their stock holdings – whether they own shares in any of the fraudulent companies or not – according to researchers in Stockholm and at the University of Minnesota.

Their study analyzed changes in equity holdings among U.S. households in response to more than 700 Securities and Exchange Commission charges and other reports of fraud from 1984 through 2009. The researchers focused on investors state by state, based on the assumption that allegations of fraud at local companies were more visible and would be more likely to affect an investor’s decisions. They also controlled for economic effects, which can influence investors’ decisions.

Their findings are:

  • Reports of fraud in a given state made investors in that state less likely to hold stocks. …
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Homes More Affordable – For How Long?

There was a silver lining in the recent housing market collapse: prices dropped to more affordable levels for American families who didn’t already own.

Buying still isn’t easy. It’s become more difficult to qualify for a mortgage from banks and other lenders that have tightened up their credit qualifications. But the following chart, which also appears on page 11 of a chartbook released by the Urban Institute’s new Housing Finance Policy Center, shows the dramatic improvement in home affordability in the wake of the market’s recent downturn.

The blue line shows actual house prices over time – that’s the median, or middle, price for every single home sold nationwide in a given year. The red line shows the maximum a typical family can afford, assuming they put down 20 percent and get a 30-year mortgage at the prevailing interest rate, which is currently about 4.1 percent.

During the credit bubble, the blue price line surged above the maximum, putting a new house out of reach for many more families. Post-crash, that relationship reversed, making homes more affordable again.

But affordability still varies greatly, depending on where you live. … Learn More

Photo: Vintage of buy war bonds

Oldest Americans Are Lucky Generation

Americans in their 70s and 80s have earned more and are wealthier than the baby boom generation – for the simple reason they were born at the right moment in history.

It was easier for members of this older generation to get ahead, because they came of age in the aftermath of World War II, when economic and demographic trends were strongly working in their favor, contends new research by William Emmons and Bryan Noeth of the Federal Reserve Bank of St. Louis. The emergence of a modern social safety net and the rise of unions may’ve also contributed to their relative prosperity, they said.

Baby boomers born after about 1950 do not seem to have the same income and wealth over their working and retired lives that their parents have enjoyed, even after the research takes into account numerous things that determine an individual’s prosperity, such as their level of education. If the current trend continues, these younger boomers just won’t be as lucky.

Birth year “comes up as a significant variable in terms of influencing income and wealth,” Emmons, a senior policy adviser, said about the study, which analyzed decades of U.S. data on household finances. …Learn More

Food Stamps Need Rises in Good Times

Enrollment in the federal food stamp program, known as SNAP – for Supplemental Nutrition Assistance Program – has more than doubled over the past decade to 47 million.

What’s remarkable is that for the first time the number of Americans receiving food stamps increased even in a period when the economy was growing. During the 2003-2007 expansion, the SNAP case load, in a break with historic trends, rose 24 percent.

One explanation is the change in the longstanding correlation between the unemployment rate and poverty, according to research findings by economists Matt Rutledge and April Yanyuan Wu of the Center for Retirement Research, which were presented at the Retirement Research Consortium meeting in August.

Poverty used to fall in tandem with the jobless rate, reducing the need for food stamps. But the researchers found that the mid-2000s expansion was different: poverty did not decline as the economy grew.

In the recovery that has followed the Great Recession, the number of people receiving food stamps continued to rise, according to federal data.

The assumption has always been that a stronger labor market will reduce the need for food stamps. But this new trend suggests rising employment might no longer be enough. Reducing the food stamp rolls may require a broader recovery or initiatives to reduce poverty and provide more jobs for the marginally employed.

Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed do not represent the opinions or policy of SSA or any agency of the federal government.Learn More

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