The federal reserve controls short-term interest rates through buying and selling Treasury notes. These rates determine how much interest people earn in savings accounts, the asset class favored by senior citizens. The federal reserve lowered interest rates to zero to force money out of savings accounts in hopes this money would seek out riskier asset classes and stimulate the economy. Since seniors are risk adverse, most have left their savings in place, and those that need those savings to survive — which is most seniors — are depleting their savings accounts to make ends meet.
When many seniors planned their retirement, they counted on a certain amount of interest income to survive. The federal reserve has instead diverted this money to its member banks to help them earn their way back to solvency. In other words, the federal reserve has taken food out of the mouths of seniors so bankers can continue to make money, earn bonuses, and otherwise rape and pillage the American economy.
One of the reasons the federal reserve recently began buying more mortgage-backed securities is to lower home mortgage rates to stimulate housing. The collapse of the housing bubble is causing a general economic malaise, and both the lowering of Treasury rates and mortgage rates are intended to lift housing and the overall economy.
Although the federal reserve ostensibly wants to keep loanowners in their properties, their policies are having a broad but unintended side effect. By taking away income seniors were counting on in their retirement, many lifelong homeowners are finding themselves unable to make their mortgage payments. These seniors are probably going to lose their homes in foreclosure. Many of these wounds are self-inflicted, but at their age, seniors have little chance of recovery.
MIAMI – Marie Ginise thought she and her husband, Joseph, had prepared well for retirement. They worked hard to build up their asphalt driveway business, saved a few pennies and eventually moved to Florida from Connecticut to enjoy their golden years.
But when Joseph got sick and died, Marie, 75, realized she could not afford the two-bedroom manufactured home the couple bought in Deerfield Beach, Fla., in 2005. Now, instead of enjoying shuffleboard and card games in her senior community, she’s fighting off foreclosure.
“I cry every night when I go to bed,” Ginise said. “You work for something your whole life, and then it doesn’t turn out like that at all. I don’t know if I’m here or there.”
Her circumstances are very sad. At her age, she shouldn’t be worried about losing her home. However, she probably also shouldn’t have created the circumstances where she could lose her home.
For example, my parents own a very modest manufactured home in Bradenton, Florida. They actually own it. There is no mortgage. They could have taken the $60,000 they paid for that property and put 20% down on a much more comfortable $300,000 McMansion on a golf course in a high-end senior community. If they had done that, they too would be underwater, stressed out, and facing possible foreclosure. Instead, they have a stress-free retirement and money to travel.
The decisions we make have consequences. Many of the seniors profiled in this news article made bad choices. However, some were counting on interest income they are no longer getting. It’s those seniors who are being screwed by the federal reserve.
Marie Ginise is among the older Americans who owe more on their homes than they’re worth after the real estate crash – but with less time to make up the financial loss than those who are younger. An AARP report released this summer, “Nightmare on Main Street: Older Americans and the Mortgage Market Crisis,” revealed that:
- About 3.5 million loans held by people older than 50 (or 16 percent of all loans for that group) were underwater as of December.
- The percentage of seriously delinquent mortgage loans increased from 1.1 percent in 2007 to 6 percent in 2011 for people 50 and older.
- The foreclosure rate for people 50 and older also increased, from 0.3 percent in 2007 to 2.9 percent in 2011.
“It’s like the end of the American Dream for them,” said Gladys?Gerson, a supervising attorney for Coast to Coast Legal Aid of South Florida. “They’re very embarrassed that they can’t maintain their own home.” …
Older Americans are struggling to make ends meet on nest eggs that are earning paltry returns, but the underlying factors of the mortgage crisis began long before the Great Recession.
The fact that seniors are earning such low returns is a direct result of federal reserve policy. In a free market, their savings would command a premium today. Instead, the federal reserve has made their savings earn almost nothing.
As housing prices soared, older homeowners took home equity loans and second mortgages on their houses, just as their younger counterparts did – but with less time to weather the financial storm if the monthly payment became unaffordable.
“If you’re 65-plus, it’s not like you can take a second job to make the payments,” said Debra Whitman, AARP’s executive vice president for policy. “Your income just doesn’t change much. You have a lot fewer options.”
Seniors are generally retired and past their prime earning years. They don’t have the time, the energy, or the ambition to go back to the daily grind to make more money to pay off their mortgages.
The AARP report noted that older Americans are carrying more mortgage debt than ever before. This spells trouble because home equity has often been used to help pay for medical bills or supplement fixed incomes later in life. …
“There are limited things they can do” in the case of a foreclosure, Gerson said. “If they’re lucky, maybe they move in with a relative or rent a room somewhere. But most fear that they’re going to be stuck in some institution at the end of their years.”
… “I live one day at a time,” she said, her voice wavering with emotion. “I never thought I would end up this way. I’ve lost everything.”
Debt is nothing to fool around with, particularly for seniors. Beyond age 50, most people should be focused on paying off debts in preparation for a debt-free retirement. Very few actually do this. One of the fallacies that was widely embraced by seniors was that rising house prices can fund a comfortable retirement. It can’t. Those that embraced that foolish idea are doomed to spend an impoverished retirement full of stress and disappointment.
The federal reserve set out to make the lives of homeowners better. What they have accomplished is to impoverish seniors who were counting on interest income on their savings, and in the process, the federal reserve caused many seniors to lose their homes because they couldn’t keep up on their mortgage payments without that interest income.
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Proprietary Irvine Housing News home purchase analysis
$789,000 …….. Asking Price
$440,000 ………. Purchase Price
7/9/2001 ………. Purchase Date
$349,000 ………. Gross Gain (Loss)
($35,200) ………… Commissions and Costs at 8%
$313,800 ………. Net Gain (Loss)
79.3% ………. Gross Percent Change
71.3% ………. Net Percent Change
5.2% ………… Annual Appreciation
Cost of Home Ownership
$789,000 …….. Asking Price
$157,800 ………… 20% Down Conventional
3.44% …………. Mortgage Interest Rate
30 ……………… Number of Years
$631,200 …….. Mortgage
$154,425 ………. Income Requirement
$2,813 ………… Monthly Mortgage Payment
$684 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$197 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$295 ………… Homeowners Association Fees
$3,989 ………. Monthly Cash Outlays
($623) ………. Tax Savings
($1,004) ………. Equity Hidden in Payment
$170 ………….. Lost Income to Down Payment
$119 ………….. Maintenance and Replacement Reserves
$2,651 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$9,390 ………… Furnishing and Move In at 1% + $1,500
$9,390 ………… Closing Costs at 1% + $1,500
$6,312 ………… Interest Points
$157,800 ………… Down Payment
$182,892 ………. Total Cash Costs
$40,600 ………. Emergency Cash Reserves
$223,492 ………. Total Savings Needed