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.
Seniors increasingly are facing foreclosure
By Ana Veciana-Suarez — Miami Herald
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
17 WATERWAY #10 Irvine, CA 92614
$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
The property above is available for sale on the MLS.
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Home Prices Forecast to Weather Winter, but Will Congress Ice Gains?
Home prices continued to reclaim lost ground in September with increases recorded for every corner of the country, Clear Capital reported Tuesday. Improvements have been so strong, in fact, the real estate valuation firm says yearly growth is forecast to shake off winter’s chill and continue through the first quarter of 2013.
That is, if federal lawmakers can keep from squashing consumer confidence, and before coming head-to-head with the end-of-year deadline, can agree on a resolution for the $500 billion in tax increases and spending cuts scheduled to take effect—a looming cloud of financial uncertainty that pundits have dubbed the “fiscal cliff.”
National home prices closed out the third quarter 3.6 percent higher than the previous year, according to Clear Capital’s latest Home Data Index (HDI). If the fiscal cliff is averted, the company projects a 2.2 percent gain nationally through the first quarter of next year with home prices defying the typical seasonal trajectory that follows the thermometer’s mercury lower.
Clear Capital’s Dr. Alex Villacorta says housing is making notable progress, with enough momentum to carry improvements well into the new year, but he warns it could all be undone by the 535 delegates representing the American people that sit atop Capitol Hill.
“[W]e’ve turned our focus to the impending fiscal cliff,” said Villacorta, Clear Capital’s director of research and analytics. “With forecasted gains of 2.2 percent over the next six months, the threat of the fiscal cliff could throw a wrench into the recovery.”
Even if Congress grinds out a fix as the curtain falls on 2012 and the cliff is avoided, Villacorta says they run the risk of damaging consumer confidence—particularly among potential homebuyers—if a resolution fails to materialize until just before the year-end deadline. “Confidence is key to turning the recovery’s near-term sprint into a marathon,” Villacorta said. “The sooner businesses and consumers are reassured, the more likely they are to build, purchase, or loan on a house.”
According to Clear Capital, the housing recovery now lies in Congress’ hands. The company draws parallels between recent bouts of economic uncertainty and declines in both consumer confidence and home prices in its latest report.
Consumers reacted negatively to the debt ceiling spectacle last summer with a 14.3 percent drop in sentiment—the largest since the end of the recession—and concurrently, home prices experienced their worst annual declines since the bottom of the market in 2009, Clear Capital reports.
The company also points to May 2011, when the debt ceiling debate really began to intensify and consequently, when home prices dropped 6.8 percent year-over-year. Annual home price declines persisted through 2011, until finally finding some relief in early 2012, coinciding with recorded improvements in consumer sentiment.
Clear Capital’s data indicates strength in consumer sentiment also corresponded with the only two notable housing improvements since 2009. The company says between March 2009 and June 2010, consumer sentiment rebounded 32.6 percent. Over the same period, home prices went from seeing yearly declines of 22.7 percent to yearly growth of 4.0 percent. Similarly, between December 2011 and September 2012, consumer sentiment gained 12.0 percent, and home prices moved from yearly losses of 2.3 percent to gains of 3.6 percent by Clear Capital’s assessment.
Now, the valuation company says, economic and housing improvements are priming pent up homebuyer demand for a breakout. Consumer sentiment has finally rebounded from the debt ceiling debate lows of last year, up 31.8 percent, and homebuilders are echoing consumers, with confidence at a five-year high.
While the Federal Reserve’s recent announcement of QE3 should further improve housing affordability with lower mortgage rates and boost expectations for the market, Clear Capital contends it might not be enough to overcome “fear of the cliff.”
Recovery continued to take hold in September at the national and regional levels, according to the company’s report. The West continued to dominate with 9.4 percent in annual gains — the highest yearly gain the region has recorded since the second quarter in 2006.
Clear Capital says what it calls the “first in, first out recovery” has been driven by harder hit markets, many of which reside in the West. Projected gains of 5.3 percent over the next six months in the West are expected to drive a sustained recovery at the national level through the winter months, the company explained.
The South and Midwest saw yearly gains in September of 3.2 percent and 1.5 percent, respectively. Clear Capital expects the South to see further price advances of 1.9 percent through March 2013 and the Midwest to post a 0.8 percent rise in home prices.
The Northeast continues to see annual gains soften, with prices in September rising just 0.9 percent over the previous year. Home prices in the Northeast are expected to do more of the same and remain relatively flat, growing 0.9 percent over the next six months, according to Clear Capital’s forecast.
The good news, Clear Capital says, is that far more markets are improving than are declining. The company’s forecast shows the recovery will sustain the typically slow winter, and start the spring buying season strong.
But as we approach the end of 2012, will fear from the impending fiscal cliff sway consumer confidence and discourage potential homebuyers?
“We say yes, it can,” Clear Capital stated. “Congress must make tough decisions before the 11th hour.”