NewRetirement Retirement News Digest : Debt and Debt Management

Ways to Ease the Pressure of a Cash Crunch

jberman — Thu, 05 Nov 2009 10:21:00 GMT

The New York Times, October 16th, 2009

MANY retirees are in a cash crunch — with a lower income stream from their investment portfolios, personal expenses that are higher than expected, or both.

While most assets can be used to generate liquidity, deciding what to do requires careful deliberation; there are many pitfalls. Here are the most commonly used approaches for people who find themselves coming up short during retirement, and an analysis of their pros and cons.

CASH FROM YOUR HOME Mortgage rates are so low that many financial planners say the best way to raise money is to take out a conventional mortgage or a home equity line. But reverse mortgages, which allow homeowners who are at least 62 to borrow against the equity in their homes and receive regular monthly payments, are often seen as a last resort. Some financial planners even advise retirees to sell their investment portfolios or cash in their life insurance policies before taking out a reverse mortgage.

Unlike traditional mortgages or home equity lines, a reverse mortgage requires no payments until the borrowers die or no longer use the home as their primary residence. Then the mortgage must be paid in full. Closing costs, fees and interest rates are also generally high, reducing the amount of money that borrowers can leave to their heirs. Yet if retirees have exhausted other options, a reverse mortgage may be worth considering, especially for those with high medical expenses, said Alicia H. Munnell, the director of the Center for Retirement Research at Boston College. “If you’re not planning on leaving your house to a child, then this is an option, rather than depriving yourself during your lifetime,” she said.

TAPPING LIFE INSURANCE Retirees often decide that they no longer need life insurance once their children are grown. If they own whole-life policies, which have an investment component, and want to drop them, they can either cash them in with their insurers or sell them to investors, who will pay the premiums until the policyholders die. An advantage of dealing with investors is that you can sometimes get a better deal than from the insurance company.

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Ways to Ease the Pressure of a Cash Crunch

jberman — Thu, 15 Oct 2009 08:30:00 GMT

The New York Times, October 14th, 2009

MANY retirees are in a cash crunch — with a lower income stream from their investment portfolios, personal expenses that are higher than expected, or both.

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Professional Financial Advisors: Find out what a financial advisor can do for you at NewRetirement.com.

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Five ways to make your nest egg last a lifetime

jberman — Tue, 22 Sep 2009 07:15:00 GMT

Marketwatch, September 17th, 2009

Back in the good old days, before the crisis of 2008-09, many experts suggested that all you needed to do was withdraw 4% per year, adjusted for inflation, from your nest egg. That strategy, experts said, was a near guarantee that your nest egg would last a lifetime.

Well, go tell that to the guy selling apples and pencils on the street corner.

Yes, conventional wisdom has proven to be more conventional than wise. And now everyone is trying to figure out the best way to turn a nest egg into an income stream that will last throughout retirement. And that includes AARP, which this week released two tip sheets that "challenge conventional thinking and offer general guidance about how to make the best decision for you and your circumstances."

One of the tip sheets, "Making Your Nest Egg Last a Lifetime," which was written by Anthony Webb of the Center for Retirement Research at Boston College, suggests the following:

1. Delay claiming Social Security

Retirees and would-be retirees need to consider matching their fixed and, best-case, inflation-adjusted sources of income against their fixed expenses. And one way to create the best inflation-adjusted source of income at the moment is to delay taking Social Security for as long as possible, certainly at least until your full retirement age if not longer, said Janet McCubbin, director of financial security at AARP's Public Policy Institute.

At the moment, many people claim Social Security -- even though it means a reduced benefit -- at age 62, using the faulty logic that they may not live past the so-called break-even point. The break-even point is the date at which the sum of your reduced early benefits no longer exceeds what you would have drawn with the heftier, delayed benefits. (There are plenty of Wed-based calculators to help you figure your break-even age.)

The Greenback Effect

jberman — Thu, 20 Aug 2009 00:37:00 GMT

The New York Times, August 18th, 2009

In nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

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Credit Bailout: Issuers Slashing Card Balances

jberman — Wed, 17 Jun 2009 02:21:00 GMT

The New York Times, June 15th, 2009

The banks were bailed out last fall, the automobile companies last winter. For Edward McClelland, a writer in Chicago, deliverance finally arrived a few days ago.

Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

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America’s Sea of Red Ink Was Years in the Making

jberman — Tue, 16 Jun 2009 01:07:00 GMT

The New York Times, June 9th, 2009

There are two basic truths about the enormous deficits that the federal government will run in the coming years.

The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested.

The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it.

Mr. Obama — responding to recent signs of skittishness among those lenders — met with 40 members of Congress at the White House on Tuesday and called for the re-enactment of pay-as-you-go rules, requiring Congress to pay for any new programs it passes.

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

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2 Firms Accused of Fraud in Debt Settlement

jberman — Fri, 22 May 2009 01:16:00 GMT

The New York Times, May 19th, 2009

The New York attorney general, Andrew M. Cuomo, sued two large debt settlement companies Tuesday, saying they had engaged in fraudulent and deceptive business practices and false advertising.

The suits seek to enjoin the companies, Nationwide Asset Services and Credit Solutions of America, from many of their business practices, including charging customers before any settlement work is done. They also seek restitution and damages for dissatisfied customers.

“These companies claim to be the light at the end of the tunnel, but time after time they have shown that they only add to the burdens of Americans dealing with debt,” Mr. Cuomo said in a statement.

Credit Solutions enrolled 18,000 customers in New York State in the last five years, earning $17 million in fees, but settled the debts of fewer than 2,000 of them, the attorney general said.

Nationwide signed up 1,981 New York residents in three years, the suit against it says, but only 64 completed the program. Twenty-seven of those ended up paying more than they originally owed because of Nationwide’s fees, the suit alleges.

Mark Walling, a lawyer for Phoenix-based Nationwide, said he had not seen the suit. “My client denies any wrongdoing,” he said.

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If you prepare, you can keep your retirement hopes alive

tsaleen — Tue, 24 Mar 2009 21:47:00 GMT

NewsOK - March 22, 2009

In a recent column I talked about the positive reasons for postponing retirement. But to a lot of folks today, merely postponing retirement now seems like a pipe dream. As they’ve watched their net worth decline, some are convinced they’ll never be able to retire at all.

Is there anything you can do to keep your retirement dreams alive? I say yes. Just keep doing much of what you’ve been doing to prepare for retirement — only with more effort and for a longer period of time. Whether you’re concerned about watching your retirement savings dwindle or you’re behind and need to catch up, I believe these steps will help you focus today so you can still think about retiring.

Take a fresh look

To determine how close you are to your retirement goals, first tally your assets (what you own) and your liabilities (what you owe) to come up with a net worth statement.

Create a budget

Take a hard look at what you earn and what you spend. If you’ve let your budget lapse, bring it back into focus by following this simple formula:

→Divide your expenses into two categories, nondiscretionary (the must haves) and discretionary (the extras). Put debt reduction and savings at the top of your nondiscretionary expense list.

→Track your spending for 30 days, comparing your projected expenses with what you actually spend.

Get out of debt

Non-deductible consumer debt such as credit card balances can really hinder your ability to save. Try to eliminate any balances as quick as you can.

Emergency fund

Generally speaking, it’s good to have three months’ expenses handy in case of emergency. Today it might be wise to raise that amount.

Save

→Keep contributing to your 401(k) at least up to the company match. If you’re 50 or older, you can make a catch-up contribution ($5,500 in 2009).

→If you don’t have a 401(k) or similar plan, contribute to a traditional or Roth IRA, and make catch-up contributions if you’re eligible.

→When you get a raise, save it in a personal taxable account or increase the percentage you put in your 401(k).

→Put all or part of an annual bonus toward your retirement.

→Invest your tax refund in your IRA.

Rethink your options

→Spend less in retirement.

→Postpone retirement.

→Work part time.

→Tap into home equity.

My advice is to keep doing the right things in good times and bad. Today’s uncertain economy might make it more difficult to achieve your retirement goals, but the good news is the things you can do right now to achieve them have more to do with your prudent management than the economy. So be positive and stay focused. You’ll feel more comfortable about today — and still be able to contemplate a comfortable tomorrow.

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When credit card debt ruins retirement

tsaleen — Mon, 02 Mar 2009 08:45:00 GMT

CreditCards.com - March 2, 2009

Are Social Security and private pensions exempt from garnishment?

Dear Credit Guy,
I have recently retired and have only my Social Security and a private pension. If I quit paying my credit cards, can my Social Security and private pension be garnished? I live in Arkansas and have a homestead that protects me from creditors except for taxes and credit for work done on my home. I do not have any credit on work for my home, nor do I owe any back taxes. If I die in the next few years, can the proceeds on the sale of my home -- if any -- be attached by the credit card companies? Thanks. -- Lorene

Dear Lorene,

Congratulations on your retirement. I wish it was working out better for you. From your letter it sounds as if now that you are retired and living on a fixed income, the payments on your credit cards have become overwhelming. Before you stop paying on those accounts, I'd like you to consider several things.

First, the collections process can be stressful and unpleasant. If you can avoid it, I would -- at all costs. Depending on how much you owe, it is unlikely that your creditors will simply accept that you are not going to make payments, charge off the balances and leave it at that. What is more likely is that the original creditors will turn over the balances to collectors, and they will work hard to collect what is owed. After numerous phone calls and mailed correspondence, you may wish for a way to make it all go away.

Second, your Social Security income is exempt from garnishment, unless you owe the government, and your private pension is most likely protected as well. However, you will need to notify your bank that all money in your account is from exempt sources. I would also suggest you check with your state's attorney general to assure that your pension income is indeed protected.

Third, if a judgment is granted by the courts to satisfy your debts, yes, the creditor can place a lien on your home that would be paid if and when your home is sold. The creditor cannot force the sale of your home, but with a judgment lien in place, the creditor would receive the amount owed, assuming the home sold for more than what was owed on any mortgage loan.

Fourth, I recommend you speak with a Certified Housing Counseling Agency that is able to explain what a reverse mortgage might do for you. Reverse mortgages are becoming more popular for people over the age of 62, and are a safe option for either taking a lump sum of money or a monthly amount given to you from the equity you have in your home. This money does not have to be paid back by you and might allow you a higher standard of living in those golden years you worked hard to achieve.

Last but not least, rather than stop paying on your credit card accounts, I would recommend that you at least visit with a qualified credit counseling agency to determine if you have the resources available to repay your debt. If you do not have enough income to repay, then you may qualify for Chapter 7 bankruptcy. Filing bankruptcy is not something that I normally recommend, but in your case, it may make the most sense.

There are two large, respected accrediting agencies that offer credit counseling. I am a member of the board of one, the Association of Independent Consumer Credit Counseling Agencies, and I hope you use its services. The other major accrediting agency is the National Foundation for Credit Counseling.

Take care of your credit!

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Credit bill would protect consumers from hikes

tsaleen — Mon, 02 Mar 2009 08:41:00 GMT

Post-Tribune - March 2, 2009

Unnoticed among the bigger pieces of economic legislation in Congress this year is a bill that promises to help rewrite the relationship between consumers and their credit card companies.

The proposal -- the Credit Cardholders' Bill of Rights -- would restrict when and how a company can raise its interest rates and how it does its billing.

The bill's sponsor, Rep. Carolyn Maloney, D-N.Y., introduced identical legislation last year, which passed the House of Representatives but stalled in the Senate. Better success could come this year if the bill is not lost amid a more crowded legislative agenda.

Rep. Pete Visclosky, D-Merrillville, voted for the bill last year and said he is considering joining the more than 50 co-sponsors of the legislation this year.

"At nearly every one of my 24 town forums, people asked me about what is being done to stop predatory practices by credit card companies," Visclosky said. "(This) bill would provide much-needed protections to consumers against unjust, unfair, and anti-competitive practices that credit card companies routinely employ."

Practices targeted by the bill, H.R. 627, include double-cycle billing (where the balance subject to interest charges is calculated using the average of the past two months) and "universal default" (where an interest rate on one credit card is increased because of a late payment on different card or on a home mortgage). The bill also gives cardholders three billing cycles to opt out of an interest rate hike that is unrelated to a late payment or expiration of an introductory interest rate.

Seth Buitendorp, a bankruptcy attorney with the Merrillville law firm of Genetos, Retson, Yoon & Molina LLP, describes himself as a libertarian when it comes to contracts between parties, but he supports the legislation.

"I am generally for the bill, because in most other contracts, one side does not have the power to modify the terms of the contract after the contract is in effect," Buitendorp said. "(For example), my mortgage company cannot decide to increase my interest rate because I missed a utility bill, or I have reached a certain threshold of debt versus my credit line."

All walks of life need help

Bankruptcies have been rising steadily in Indiana the past few years. The nearly 11,000 bankruptcies in the state in the third quarter of 2008 were 30 percent higher than in the third quarter of 2007, and 70 percent higher than the same period of 2006.

The state stands out nationally. While making up 2.1 percent of the U.S. population, it saw 3.7 percent of all its bankruptcies.

Buitendorp counsels his clients to avoid credit cards altogether, since just having the credit available entices many people to use it and use it unwisely.

Linda Shedrow, a debt management counselor at Consumer Credit Counseling Service of Northwest Indiana, gives similar advice.

Shedrow has been helping people get a handle on their debt and come to terms with their creditors for years. Her first piece of advice? Cut up the credit cards.

She isn't convinced the proposed legislation will be a huge step forward for consumers, though she says it's a needed start.

She sees a lot of people who are hammered by $39, $49, even $59 late fees and over-limit fees, which, combined with the monthly interest, make the card exceedingly difficult to pay off.

"Yes, OK, charge somebody some fees, but they're hurting already. Make it reasonable," Shedrow said.

The deepening recession has brought a flood of people to the Consumer Credit Counseling office in Gary, which serves seven counties in Northwest Indiana. Agency numbers show that in January 2008, it assisted 90 people with various financial problems, from debt counseling to reverse mortgages. One year later, in January 2009, the agency helped 369 people, including 165 who were refered to them from the state's home foreclosure help line, (877) 438-4673.

The people are from all walks of life.

"It's got nothing to do with race, creed, color, education, everything," said Darrolyn Sharp, executive director at the credit counseling center. "You've got six-figure people losing their job down to minimum wage. It includes everybody."

While staff is currently stretched thin, Sharp wants to reach the many more people she's convinced would seek her agency's help if they knew it existed and weren't too ashamed to ask for the help.

"It's OK to come out to the professionals and ask for help," she said. "We can help you save your home. But we can only help if you come to us."

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Credit card perks to enhance retirement savings

tsaleen — Mon, 19 Jan 2009 17:52:00 GMT

Chicago Tribune - January 18, 2009

Typically, credit cards aren't the first things that leap to mind when you think about retirement.

But many people saving for retirement are cutting back on contributions to their accounts these days. And many retired Americans are carrying more credit card debt than they'd like.

So which are the best cards for retirement?

A pair of new cards allow users to direct rewards points into retirement accounts.

And rewards for retirees aren't limited to heavy travelers or those who spend big money gassing up their recreational vehicle. Some cards help pay for prescription drugs and other health-related items.

The trick to finding the best card is to size up your spending but not to fall too hard for a card gimmick. Depending on your spending patterns, it may make more sense to stay flexible with a good card that offers flexible perks.

Mutual fund giant Fidelity Investments last month launched the Fidelity Retirement Rewards card, an American Express card that offers two points for every $1 in spending. After users accumulate 5,000 points, Fidelity will deposit $50 into a Fidelity retirement account.

From there, you earn 2 cents for every dollar you spend for your individual retirement account. There is no limit on the number of points you can earn for a traditional, Roth or SEP-IRA, though you still are subject to regular contribution limits for the retirement accounts.

"A 2 percent rebate in this environment is unheard of," said Curtis Arnold, founder of CardRatings.com. "It's a great way to supplement savings."

You may want to consult a tax professional about the deductibility of the contributions coming from your rewards points, said Bill Losey, a financial planner and author of "Retire in a Weekend: The Baby Boomers Guide to Making Work Optional." The IRS has not ruled definitively on whether rewards are taxable income.

Another card, called NestEggz Visa (www.nesteggz.com), offers 1 percent back that can be directed to any retirement or investment account. The card offers a lower fixed interest rate on balances, about 14 percent compared with Fidelity's nearly 17 percent, though company officials said the card is moving to a variable interest rate in February. And you can link the cash back to any IRA.

For taxable accounts, Schwab recently launched a Schwab Bank Invest First Visa Signature card, which deposits 2 percent of purchases into a Schwab brokerage account.

But other cards may be appealing to you.

Some of the large, general rewards cards, including American Express Blue Cash, offer 1.5 percent back on overall purchases and bump up the rebate to 5 percent for purchases at drugstores and gas stations.

If you're retired and spending a small fortune on prescriptions, you may do better with one of these cards, Arnold said.

Another worth checking out, particularly for retirees, is the Aetna Healthy Living Card from Bank of America, which pays one point for most purchases, but three points for every $1 spent on hospital treatments, physician and dentist charges, vitamins and other items. Rewards can be redeemed as credits toward medical co-payments or as cash rewards that can be deposited in a health savings or checking account.

"The key is to be strategic based on your spending habits and lifestyle," Arnold said.

But don't get so carried away with the rewards that you spend more than you otherwise would, which often happens, he said.

In particular, if you are transitioning into retirement, it might not hurt to look beyond rewards cards. While you can, Arnold said, grab the lowest-rate, non-rewards card you can find, just in case you hit a patch where you can't pay off your balance every month.

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Consumer credit counseling services merge

tsaleen — Fri, 16 Jan 2009 21:39:00 GMT

Orlando Business Journal - January 16, 2009

Consumer Credit Counseling Service of Greater Atlanta and Consumer Credit Counseling Service of Central Florida & The Florida Gulf Coast have merged.

The agencies provided credit, housing and bankruptcy counseling and education services, as well as debt repayment plans, to about 550,000 during 2008. The combined organization will have about 300 certified counselors and 33 counseling offices in four states.

The merger enables the Atlanta-based group, which has offices in West Palm Beach, Boca Raton, Stuart and Port St. Lucie, to expand its service area. After the merger, the Atlanta-based agency will reach an additional 8 million Florida residents in Orlando, Tampa, Tallahassee, Fort Myers, Naples, Clearwater, Daytona Beach and several other Florida communities.

Clients of Consumer Credit of Central Florida & The Florida Gulf Coast, are served by 15 offices and will gain access to the 24-hour toll-free telephone and internet counseling offered by the Atlanta-based group.

Both agencies are certified by the U.S. Department of Housing and Urban Development, help staff the national foreclosure prevention hotline and provide reverse mortgage counseling. They are both also certified by the Executive Office of the United States Trustees for pre-filing bankruptcy counseling and pre-discharge debtor education.

Established in 1974, Consumer Credit Counseling Service of Central Florida and the Florida Gulf Coast is a HUD-approved, nonprofit human service United Way agency. It is accredited by the Council on Accreditation, is a Central Florida WAGES partner and a member of the National Foundation for Credit Counseling.

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Swindlers Find Growing Market in Foreclosures

tsaleen — Fri, 16 Jan 2009 21:30:00 GMT

The New York Times - January 14, 2009

As home values across the country continue to plummet, the authorities say a new breed of swindler is preying on the tens of thousands of homeowners desperate to avoid foreclosure.

Until recently, defrauders tried to bilk homeowners out of the equity in their homes. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” that charge upfront fees to modify loans but often do nothing to stave off foreclosure.

The Federal Trade Commission brought lawsuits last year against five companies representing 20,000 customers, and state and local prosecutors have brought dozens more. In Florida, Attorney General Bill McCollum recently sued a company that he said had more than 600 victims.

“There’s no way for the consumer to sort out the legitimate companies,” said Mr. McCollum, who added that he had limited resources to fight what he called “a sheer volume question.”

The companies under suspicion typically charge an upfront fee of up to $3,000 to help borrowers get lower rates on their mortgages from their lenders. But borrowers often cannot afford the fees, the service can be bogus and, in the worst cases, the homeowners lose their chance to renegotiate with their bank or to file for bankruptcy protection because of the time wasted.

There are companies that provide legitimate foreclosure services, but the industry is largely unregulated, making it difficult for homeowners to separate the good from the bad. Some of the fraudulent companies — often run by former real estate agents or mortgage brokers — are local; others are national. Many have official-looking Web sites that suggest that the companies have government affiliations and give homeowners a false sense of security.

“That’s all I’ve been doing for the last year,” said Angela Rosenau, a deputy attorney general in California, citing more than 300 complaints about fraudulent companies last year, not counting those made to local prosecutors.

Experiences like those of Maria Martinez, of Stockton, Calif., are playing out with greater frequency across the country, the authorities say. Ms. Martinez struggled to pay her mortgage last summer. She had no shortage of people offering to help. Fliers for rescue companies filled her mailbox.

At a seminar for troubled borrowers near her home, one company offered a service that promised just what Ms. Martinez needed: for $1,000, the company said it would negotiate with her mortgage company to lower her interest rate.

“I was desperate,” said Ms. Martinez, 57, a clerk at the San Joaquin County Jail. She made an initial payment of $500 and paid another $500 a few weeks later.

Now the house is in foreclosure, and Ms. Martinez is waiting for the sheriff to evict her. She cannot reach the man she paid to modify her loan.

In California and 20 other states, including New York, companies are prohibited from collecting payment until they have completed their services, something Ms. Martinez did not know. In Colorado, the attorney general’s office has closed 15 mortgage rescue companies that charged fees up front.

Carol McClelland, 46, fell into foreclosure on her Chicago home when she lost her job as a waitress in two restaurants. She received a call from a company called Foreclosure Solutions Experts, promising to stop the foreclosure and lower her mortgage payments to around $550 a month, from $1,056, Miss McClelland said.

“She showed me other clients’ files, and they were paying $650 a month,” she said. The charge for the service was $1,300, which Miss McClelland paid in installments, borrowing the money from friends and relatives.

When the loan servicer notified her that the house was still in foreclosure, Miss McClelland said, the representative from Foreclosure Solutions Experts told her that the matter had been taken care of.

“She told me everything was all settled; I don’t have to worry about anything,” Miss McClelland said. “All I had to worry about was getting the rest of the money to her.”

According to a suit brought by the Illinois attorney general in November, Foreclosure Solutions Experts does little or nothing to help consumers, and when it does take action, the result is often a repayment plan unsuited to the borrower’s ability to pay. The suit alleges that the company never contacted Miss McClelland’s lender, HSBC.

Illinois is one of the states that bans upfront payments to foreclosure rescue companies. The attorney general’s office has received “thousands” of complaints about such companies, said Michelle Garcia, an assistant attorney general, and the suit against Foreclosure Solutions Experts is one of 22 filed by the state.

Stacy Strong, who runs Foreclosure Solutions Experts, did not return calls for comment.

Advocates say foreclosure rescue scams are particularly insidious because they prey on people’s desperation and because they victimize those who can least afford it.

Borrowers seeking loan modification are often frustrated that they cannot reach the right people at their lender or that the lender insists on a repayment plan they cannot keep, said Ira Rheingold, executive director of the National Association of Consumer Advocates.

“When you’re desperate, that’s when the crooks come out,” Mr. Rheingold said. “You’ve tried everything, and a guy calls you up on the phone or there’s an ad on TV, and you have no other options, what do you do? You go to those guys.

“People probably know in their heart of hearts that they may be getting ripped off, just like most people understood on their mortgages that they were getting in too deep, but bankers said yes, so it must be O.K. It’s the same thing. The real problem is that we continue to fail to have systems in place that help people.”

Ms. Rosenau, the California prosecutor, said that even when she told people that they had been swindled, “they don’t believe it, because they want it not to be true.”

“And any money they had to possibly work with the lender is now gone to the scam,” she said.

In Baltimore, where neighborhoods have been buffeted by successive waves of mortgage scams, Ann Norton, director of foreclosure prevention at the nonprofit St. Ambrose Housing Aid Center, said companies promising loan modifications started to multiply last summer.

“It’s the same people that joined the industry during the refinance boom, and now they’re making fees for submitting loan remediation forms,” said Ms. Norton, whose agency provides free help to borrowers.

Although Maryland was among the first states to enact legislation defining mortgage rescue fraud, Ms. Norton said, “it’s a growing industry, and it’s under the radar.”

Often the scammers represent themselves as having connections to government groups, or copy the name and typography of the Hope Now program, an alliance of nonprofit, government and lending agencies, said Marietta Rodriguez, director of national homeownership programs at NeighborWorks America, a nonprofit group that provides free government-certified foreclosure counseling through 235 local organizations.

“Several took the Hope Now Web site and just reskinned it with their own information, or they use government seals,” Ms. Rodriguez said. “They’re very crafty, and their marketing strategies are aggressive.”

Peggy L. Twohig, associate director of the financial practices division at the Federal Trade Commission, said consumers should be wary of companies that promise results, charge upfront fees or tell them not to contact their lender on their own. Ms. Twohig said consumers could get the same help free from nonprofit housing counselors.

“Our advice to consumers is to contact their loan servicers directly or to call Hope Now or HUD-approved housing counselors,” she said.

Last year, Congress approved $180 million in grants to nonprofit housing counselors.

As Ms. Martinez awaits eviction, the temptation to try another foreclosure rescue specialist remains. “There’s other agencies that say they can help,” she said, “but I’m scared that I can’t trust them.

“One man said, ‘You have to be persistent,’ ” she said. “But I’m scared to get someone else, because they probably won’t help me, or can’t.”

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CR Retirement Survey: Planning ahead may be just as risky as rewarding

tsaleen — Tue, 13 Jan 2009 22:43:00 GMT

The Press - January 12, 2009

In the wake of big investment losses, many Americans have turned to “Plan B” to strategize and rebuild their retirement nest egg, according to Consumer Reports’ latest retirement survey.

There is a lot of ground to recover - 51 percent of retired readers and 55 percent of those just short of retirement are facing investment losses of at least 20 percent in the past 12 months.

The Consumer Reports National Research Center surveyed more than 19,000 Consumer Reports online subscribers between the ages of 55-75 and found about half have already made strides to generate more cash, including eating out less and cutting back on entertainment. About one-third have cut their credit card use and spent less on groceries and household goods.

“When bad investments happen to good people, they have to work harder to slash debt, cut spending and save more. Switching to Plan B means seizing the reins in every areas of your financial life over which you have control,” said Noreen Perrotta, Consumer Reports Money editor.

The Consumer Reports Retirement Survey also found that consumers who planned ahead were more satisfied with their retirement prospects, even in the current economic climate. Among pre-retirees, 90 percent planned ahead by reading books or articles, consulting professionals, using online software, taking courses or conversing with family and friends. The more planning methods used, the more satisfied the respondents were.

However, pre-retirees who had done more planning reported worse losses, on average, than those who hadn’t planned. Retirement planning strategies encourage investors to diversify beyond safe vehicles such as bonds and CDs. Respondents who had planned were less conservative, in general than those who didn’t. Before the meltdown, this strategy was much more beneficial according to Consumer Reports’ 2007 Retirement Survey. However, it proved punishing during the unusually severe market downturn of recent months.

The 2008 report also found that using financial pros gave planners no edge. Unlike last year’s survey, those who reported using financial planners this year said they were no more satisfied than those who educated themselves. Both groups said they lost money at about the same rate. Respondents who had financial planners had a net worth that was about $230,000 greater than those who didn’t. But CR doesn’t know if they were wealthier to begin with.

Forty-three percent of respondents that did four or more planning activities said they would now delay retirement a year, compared with 28 percent of those who had done nothing. Greater losses might have forced the decision.

Consumer Reports February issue offers a complete guide with 17 moves to help retirees, pre-retirees and younger workers rebuild the nest egg and secure their financial futures in the wake of a down-turn economy. Here are some of the highlights:

Retirees:

•.Consider your withdrawal rate. In general, financial planners say an annual withdrawal rate of about 4 percent from your total investments is optimal to ensure the money lasts as long as you do. However, when your assets fall in value, you’ll have to withdraw at a higher rate to have the same income. The alternative is to withdraw and live on less or invest more conservatively, risking that you will run out of money sooner.

• .Pick up extra money by working. For those with the ability, working even part-time can help mitigate a financial burden. Twenty-two percent of CR’s respondents said they’re working part-time, and 22 percent of those who are fully retired said they wish they could work again. Employers might be willing to hire experienced older workers.

•.Don’t abandon moving plans. Your $400,000 home may have lost $100,000 in value, leaving you with less to spend on housing elsewhere. But values are down in many areas, and moving to a lower-cost area might still be worth that trade-off.

Pre-retirees:

• Reset your retirement clock. If you’re eligible for a pension, and assuming your employer’s plan is healthy, working more years can add to your payout, which is often based on salary and number of years worked. Even those without a traditional pension can use that time to shore up the nest egg. If you’re 50 or older, you can contribute up to $22,000 this year to tax-deferred accounts such as 401(k) plans.

•.Keep on contributing. At the least, put enough in to get the full employer match. If your employer no longer matches, try to contribute at least as much as before. If you’re able, make up for the match with a higher contribution.

•.Borrow with caution. If you are eligible for a reverse mortgage, even stronger caution is urged for younger eligible homeowners. If you live long enough to spend the loan—a possibility if you’re in your 60s—you could be back at square one but with far less home equity. Another option, borrowing from your 401(k), if possible. This also has pitfalls. For one, if you leave your job or lose it, the loan must be repaid in full or it becomes a taxable distribution.

Younger workers:

• Start early and diversify. Survey respondents who said they started saving in their 20s and 30s were far more satisfied with their retirement prospects than were those who started later. They also reported higher net worth. Diversifying savings vehicles also affected satisfaction with retirement plans. Those who used six or more—401(k)s, IRAs, taxable accounts, home equity, CDs, and real estate, for instance—were more satisfied than those who used three or fewer ways to save.

• Stay in the market. With time on their side, young workers can afford to allocate stocks more heavily, ratcheting slowly downward as they age. Indeed, with stocks at their lowest levels in years, long-term investors with guts can bag some bargains now. • Fund retirement before college. It’s never too early to begin saving for your children’s education, but you shouldn’t put all available cash there. Experts recommend giving priority to retirement saving. You can always borrow to pay for college, but not for retirement.

For the complete story including helpful advice for retirees, pre-retirees and younger employees, pick up a copy of Consumer Reports’ February issue, on newsstands now. The full guide is also available at www.ConsumerReports.org.

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5 mistakes you don’t want to make in a bad economy

tsaleen — Sun, 11 Jan 2009 16:42:00 GMT

ABC15 - January 9, 2009

Have you thought about taking cash from your credit cards or home equity? How about liquidating your retirement savings?

According to Bankrate.com, these are all bad decisions people are most likely to make in 2009.

The website is warning consumers about the top five financial mistakes and how to avoid them.

1. Relying too much on credit cards. Whether you are out of a job or just tight on cash, Bankrate.com said you should use credit cards as little as possible. Try tracking your spending for 30 days to see where your money is being spent. Cut back on “extras” like text messages and premium cable channels you never use.

2. Taking cash out of your retirement savings. If you feel there is no other option, then you need to know the penalties associated with cashing out any of your retirement accounts. If you are younger than 59 and taking money out of a traditional IRA, the IRS can hit you with a 10 percent penalty and tax you at least 25 percent.

3. The third mistake is for those of you who don’t send in your free application for federal student aid. You could be missing out on free money or at the very least, cheap money.

4. Don't ignore your investments. Meet with your financial advisor at least twice a year to keep yourself on track and your options open.

5. The fifth mistake is obtaining a reverse mortgage without knowing all the facts.
A reverse mortgage means you basically get paid monthly for giving up your house when you die. The idea of a reverse mortgage may be appealing to those over the age of 62, but it is expensive and not for everyone.

See the full article...

About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

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