Posts Tagged "mortgage"
January 14, 2021
Boomers Repairing their Mortgage Finances
The housing market collapse more than a decade ago inflicted a lot of financial damage on baby boomers nearing retirement. But a new study finds that some have been trying to make up for lost time by rapidly reducing their mortgage debt.
Since the Great Recession, the boomers who were born in the 1950s – they are now in their 60s – have paid down more than 40 percent of their remaining mortgages and home equity loans, on average – a much faster pace than their parents did at that age.
Not all the damage from the Great Recession can be repaired, however, because many people lost their homes in the wave of foreclosures. For example, the homeownership rate for the boomers born in the early 1950s quickly dropped slightly more than 10 percentage points after the housing crisis, to 67 percent, where it remained until 2016, the last year of data in the study.
Since then, the U.S. homeownership rate has increased but is still below the pre-recession peak.
The impact of the housing crisis was far less dramatic for Americans born in the early 1930s. Their homeownership rate dipped 2 percentage points right after the crisis, to a relatively high 76 percent, according to Jason Fichtner of Johns Hopkins University.
The decline in boomers’ homeownership leaves fewer of them with housing wealth to fall back on when they retire.
They have also fallen behind in fully paying off their mortgages, which would eliminate their monthly payments and make the house a low-cost place to live. Just half of the boomers born in the early 1950s who held onto their homes during the Great Recession own them outright – two-thirds of the people born in the early 1930s had paid off their mortgages by that age. …Learn More
July 9, 2020
A Downwardly Mobile Boomer Survives
The unemployment rate has rocketed to double digits. But older workers’ struggles in the job market are not new.
An Urban Institute study, reported here, estimated that about half of workers over age 50 left a job involuntarily at some point between 1992 and 2016 – a period that included strong economic growth and two recessions. After the workers found new employment, their households were earning just over half of what they earned in their previous jobs, researcher Richard Johnson told PBS’ NewsHour.
The baby boomers being laid off now might relate to Jaye Crist, who was featured in this NewsHour video last February when unemployment was still at record lows. He had been a manager at a national printing company for three decades – until his 2016 layoff. Through sheer determination, he found a full-time job packing and delivering printed materials to customers for a print shop in Lancaster County, Pennsylvania. But his income dropped sharply.
“It’s frustrating that, in my mind, somebody who has done the things you were told as a kid you need to do – stay at a job, work, learn, be helpful, get promotions – and then you find yourself, at this point, that your career doesn’t mean [anything],” Crist said in the pre-pandemic video.
“You just do whatever you have to do to keep everything else afloat,” he said.
With the country now in a recession, I checked in with Crist to see how he’s doing. His financial situation deteriorated further after Pennsylvania shut down the economy to contain the virus. He briefly lost his three jobs – at the printing company and two part-time jobs, at a local brewery and a workout gym.
He was relieved when the printer brought him back in April from a three-week furlough after the company received a stimulus loan under the federal Paycheck Protection Program. But business is slow, and Crist worries he might lose the job again. “Knowing that you’re almost 60 years old,” he asked, “now what do you do?”
The gym is also reopening, but it’s unclear how much he can work since he used to be on the night shift and the gym will no longer be open 24 hours a day. He also returned to the brewery to handle takeout orders but it, like many eating establishments, is struggling to make it at a time of social distancing.
Prior to the pandemic, Crist had already gone through many of the financial struggles boomers are facing today. With his wife unable to work, he said he depleted his 401(k) after his 2016 layoff. He was having difficulty keeping up his mortgage payments and paying part of his daughter’s college loans, and now it’s even harder.
He said he can’t imagine being able to retire. “I’ll be working and paying for stuff until I can’t.”Learn More
May 19, 2020
The Profound Financial Pain of COVID-19
It was hard to miss the news last year that four out of 10 people couldn’t come up with $400 if they had an emergency. The coronavirus is that emergency – on steroids.
A wave of new surveys asking Americans about their personal finances reveal the depth of a crisis that has suddenly befallen untold numbers of people. And the worst, economists say, is probably still ahead of us.
As of last week, 36.5 million people had filed for unemployment benefits, and that doesn’t include some workers who were furloughed or have not yet been able to file their applications for benefits. The Federal Reserve said nearly 40 percent of people living in households earning less than $40,000 have lost their jobs.
As the virus tore through the country in April, most adults cited a lack of savings as the reason for their financial stress in a survey by the National Endowment for Financial Education.
What many people have, instead, is debt. In recent years, consumers loaded up on credit card and other debt – for bigger houses, new cars, vacations. This is what people do when the job market is strong and confidence is riding high. …Learn More
April 28, 2020
Fintech Lenders Discriminate Less
Do online financial companies give minorities a fair shake?
Researchers and consumers have found some early evidence that this fast-growing segment of the financial industry – Fintech – may be mitigating, though not eliminating, the legacy of discrimination that has been widely documented in the brick-and-mortar mortgage industry.
First came bank redlining, a conceptual line lenders drew around black neighborhoods. In a famous study, banks rejected black loan applicants more often than white borrowers with the same incomes. Lenders have also been found to discriminate by charging black borrowers higher interest rates for their mortgages.
Discrimination took a different form when subprime lending invaded the mortgage market prior to the 2008 financial collapse. Commissions to subprime loan brokers gave them an incentive to make as many loans as possible, and the high-interest-rate mortgages more often found their way into minority communities, even to the high-income people who could have qualified for regular mortgages.
But Fintech’s algorithms have improved the dynamics of lending for minority borrowers. The danger now is that the progress they have seen might be reversed as the pandemic batters the mortgage industry and loans dry up.
A November study by the Federal Reserve Bank of Philadelphia found that Fintech lenders have made more loans in under-served minority and rural neighborhoods. The theory behind this is that old-style bankers discriminated against minorities because they met loan applicants face-to-face. Fintech’s computer algorithms, the argument goes, are blind to race, and loan approvals are more anchored in a borrower’s creditworthiness.
Economists at the University of California at Berkeley found more mixed but still promising results. FinTech lenders “do not discriminate at all in the decision to reject or accept a minority loan application,” the researchers concluded from an analysis of lending patterns.
But the other common form of discrimination against minority borrowers does exist: they are charged interest rates that are about one-tenth of a percentage point more than the rates charged to white borrowers. These higher rates cost African-American and Hispanic borrowers an estimated $765 million in extra interest annually. …Learn More
March 3, 2020
Pre-Retirement Debt is Rising Over Time
Baby boomers have a lot more debt than their parents did.
By all accounts, the parents were in pretty good shape for retirement because they held their debt levels down to a mere 4 percent of their total assets in the years immediately before retiring – ages 56 to 61 – according to a new study.
At those same ages, the typical baby boomers’ debt has ranged from 19 percent to 23 percent of their assets, thanks in large part to the 2008 drop in stock portfolios and in the housing market.
Generational trends in debt levels are difficult to analyze, and the issue is far from settled among researchers. This study notes, for example, that the situation might not be as grim as the rising debt indicates.
The broad numbers hide the positive step boomers have taken – just as earlier generations did – to reduce their debt as they moved through their 50s. And although the younger boomers have fewer assets than older boomers had at that stage of life, the younger boomers are also working to improve their finances by paying down their mortgages at an accelerated pace.
But the analysis also uncovered another troubling trend for the baby boomers born in the middle of the demographic wave: about 10 percent of them had more debt during their late 50s than their assets were worth. When their parents were that age, some of the most indebted of them still had more assets than debts.
In his study, Jason Fichtner of Johns Hopkins University compared debt-to-asset ratios for five different age groups, starting with the boomers’ parents, who were born during the Great Depression, and running through the people who were born toward the tail end of the baby boom. The chart above is a financial snapshot of rising debt-to-asset ratios for each group when they were between ages 56 and 61. …Learn More
February 11, 2020
Most Older Americans Age in their Homes
Retirees are apparently unpersuaded that it’s a good idea to convert their substantial home equity into some retirement income.
One way to tap this home equity is through state programs that defer older homeowners’ property taxes. The programs are offered in many states, but very few people take advantage of them. Retirees are also skeptical about the benefits of converting their equity into income using a federally insured reverse mortgage: only about 50,000 older homeowners, on average, get them every year.
A big concern is that if they ever sell the house, the back taxes or the reverse mortgage must be paid back – with interest.
But a new study by the Center for Retirement Research finds that this is an unlikely scenario for the majority of retirees, because they rarely move or don’t move at all.
The researchers constructed a picture of how Americans’ living situations change between their 50s and the end of their lives by combining the data for two separate age groups. They matched the households in one group, who were between age 50 and 78, with similar but much older households in the second group and then followed the second group through most of their 90s.
The researchers found that 53 percent of this constructed sample of homeowners never moved out of the house they owned when they were in their early 50s.
Another 17 percent relocated around the time they were retiring and then generally stayed put. Although the households in this group tended to be more educated and better off financially than the people who never moved, both groups ended up with substantially more housing wealth than the people who moved frequently. …Learn More
January 7, 2020
Credit Cards are the Most Stressful Debt
Debt is stressful. But did you know your stress level depends on the type of debt you have?
Credit cards cause far more stress than first mortgages and lines of credit, a study by Ohio State researchers finds. The more striking finding is that reverse mortgages, which allow people over age 62 to tap the equity in their homes, may reduce stress – at least temporarily.
The researchers used a simple example to illustrate the magnitude of credit card stress. Charging $640 on a card is as stress-producing as adding $10,000 to a mortgage. Credit cards are more stressful than home loans, because the balances on high-rate cards increase quickly when they’re not paid off, and the debt is not backed by an asset.
The researchers considered households to be debt-stressed if they said in a survey that they have had recent difficulty paying bills or have generally experienced financial strains.
This study focused on people over 62. As the share of older Americans carrying debt into retirement has increased, so have the amounts they owe. Debt arguably is very stressful for older workers, who have a dwindling number of years to get their finances under control before retiring, and for retirees, who have to live on fixed incomes.
The findings for reverse mortgages were nuanced – and interesting. Reverse mortgages create less stress than a standard mortgage and are much less stressful than consumer debt. On average, four years after taking out a reverse mortgage, the household’s stress level is 18 percent lower than it was at the time of the loan’s origination, according to the researchers, who did the study for the Retirement and Disability Research Consortium.
But things can change over time. Retirees often use federally insured reverse mortgages to pay off debt or as a regular source of income. But the amount owed on a reverse mortgage increases over time, because retirees do not have to make payments, and the interest compounds. (The loans are paid off when the owner either sells the house or dies.) …