Cheapest college towns for retirees

Retiring to a leafy college town is a fantasy shared by many people I know, me included. We envision good, cheap restaurants; abundant movies, lecture series, and book stores; a happy, youthful vibe in the air— and no requirement that we do any actual school work.

So it was interesting to see real-estate giant Coldwell Banker’s new survey of 120 college markets
across the U.S., ranked in terms of affordability. (The survey uses a 2,200-square-foot, four-bedroom, two-and-a-half bath home for comparison purposes, and while that may be bigger than many of us will need, it’s probably a pretty good proxy for housing prices generally.)

My own alma mater came in near the bottom, with an average house in excess of $663,000, which makes it unlikely I’ll be heading back there, older and wiser, when the day comes. But many other places on the list had average prices well under $200,000.

The three most affordable college towns were: Akron, Ohio, home to the University of Akron (house price: $122,000); Muncie, Indiana, with Ball State University ($145,000); and Ann Arbor, Michigan, with the University of Michigan ($148,000).  In case a Midwestern winter isn’t your idea of retirement bliss, three Texas cities also made the top 10: Fort Worth, Denton, and Houston. You can read the full list of 120 college towns by clicking on the link above.

We have other advice on this site that may help in making your “where to retire” decision, including:

• A blog post with links to two recent lists of best places to retire.
• Our own retirement readiness quiz. 
• Retired readers talk about their best (and worst) planning moves in an exclusive Consumer Reports survey.
• An overview of places to retire, including college towns, with tips on how to compare them.

— Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

CFPA: Much consumer financial regulation under 1 roof

Here's a potent illustration, provided by the Consumer Federation of America, of one benefit of the proposed Consumer Financial Protection Agency, which was approved by a House panel today by a vote of 39-29. What's that benefit? Simplicity.

The CFPA would consolidate much of the regulation of consumer financial products and services under one agency, rather continuing with the convoluted system that exists today. One regulator handling many functions could better ensure a more efficient, less redundant regulatory system.

As proponents such as Harvard Law Professor Elizabeth Warren have noted, today's rat's nest of regulators has allowed many financial companies to cherry-pick for the least restrictive overseer. Other financial companies have escaped any meaningful regulation at all. Those situations helped contribute to the unbridled marketing of dicey consumer financial products that led many families astray in the last couple of years. 

Report: Mortgage foreclosures more profitable than workouts

We’ve previously warned consumers to avoid foreclosure rescue scams and seek help from legitimate sources instead.

But now there’s new evidence that even alternatives promoted by the federal government, such as the Home Affordable Modification Program, aren’t providing the help struggling homeowners need because many large banks and other companies that service mortgages find it’s better for their own bottom line to foreclose rather than offer loan modifications that would benefit both homeowners and the economy overall.

After homeowners sign all of those stacks of paper at closing on a new home, the original lender or investment group that purchases the mortgage on the secondary market typically hires another bank or financial company to serve as the mortgage servicer, which then collects monthly payments and administers the loan.   The problem is that unlike homeowners or the investors backing the mortgages, these mortgage servicers don’t risk losing money on foreclosures, and the system actually has built-in incentives that allow them to profit when consumers lose their homes, according to a just-released report from the National Consumer Law Center. 

“Foreclosures are a costly ordeal for the homeowner, the lender and the community.  Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes,” says Diane Thompson, an NCLC attorney who is the author of the report.  As a result, Americans who might be able to stay in their homes under a modification plan are unnecessarily being moved right past that option and on to foreclosure.  

The report charges that Congress, the Obama Administration, the Securities and Exchange Commission--as well as credit rating agencies and bond insurers who set the terms in the mortgage market--have all failed to provide mortgage servicers with the necessary incentives to reduce foreclosures and increase loan modifications. “What is lacking in the system is not a carrot; what is lacking is a stick. Servicers must be required to make modifications where appropriate and the penalties for failing to do so must be certain and substantial,” the report concludes. In addition to documenting how the system is failing, the report offers recommendations on specific steps that could be taken to correct the problem.–Andrea Rock

 

Report: Reverse mortgages could be next financial fiasco

As we reported recently, reverse mortgages have the potential to become the next financial fiasco. Our assessment of the risks posed by abusive sales practices and misleading marketing of these loans for consumers 62 or older is supported  by the findings in a  new report from the National Consumer Law Center:  “Subprime Revisted:  How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk.”

Many of the same players who fueled the subprime mortgage boom have migrated to the reverse mortgage market, which is viewed by lenders as a source of profits that have dried up elsewhere. Predators who once reaped their rewards from exotic loans are now focused on wresting wealth from vulnerable seniors, the report concludes.  

“We’ve seen this movie before and it didn’t have a pretty ending,” said Sen. Claire McCaskill at a news conference announcing the release of the new report.  “Abuses in the subprime lending market almost brought down our economy. Now we’re seeing similar abuses with reverse mortgage lending—something needs to be done before more lifesavings are depleted and more tax dollars are drained.”  McCaskill plans to introduce new federal legislation to improve government oversight of reverse mortgages and further strengthen consumer protections.

Sadly, reforms will come too late to help  Ernest Minor, a Marysville, Calif. senior who was featured in our story because he is  facing foreclosure as a result of taking out a reverse mortgage.  According to this local press account, Minor and his family are about to join the ranks of the homeless if they are evicted as they anticipate on Oct. 15.

More than 110,000 federally-backed reverse mortgages worth a total $17 billion are originated annually. The number one lender in that market is Wells Fargo Bank, followed by Bank of America, which enjoyed a 37-percent increase in reverse mortgage sales volume for the 12 months ending Sept. 30,  a record year for the reverse mortgage industry,  according to industry trade publications.–Andrea Rock

 

Hail Columbia (S.C.): Best of the ‘best places’ to retire?

We rate many things around here, but so far, places to retire isn’t one of them.

A major reason is that deciding where to retire is a very subjective business. The huge majority of us (80 percent or so in every survey I’ve seen) tend to stay where we were before we retired. We may trade down to a smaller home, but we aren’t likely to require a long-distance mover.

Still, it’s always interesting to see other publications and Web sites take a shot at it—especially because their lists are often so different.

As it happens, two such lists came out just recently: Money magazine’s “25 Best Places to Retire” and the U.S. News Group’s “America’s Best Affordable Places to Retire,” with 10 entries.

So, how many places do Money and U.S. News agree on? Just one, it seems: Columbia, South Carolina.

Sorry, Columbia, but it looks like your secret is out. —Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.

Reports on failed banks show shoddy oversight

As was widely reported Tuesday, Federal Deposit Insurance Corp. officials announced that U.S. banks must ante up $45 billion to replenish the insurance fund that protects bank depositors against loss when banks fail. The fund began the year with $34 billion, which has been depleted more quickly than expected by the steady stream of bank failures this year. The total hit 95 on Sept. 26 with the failure of Atlanta-based Georgian Bank, which is expected to drain $892 million from the FDIC fund.

Though the drumbeat of bank failures is expected to roll on, FDIC Chairman Sheila Bair has publicly reassured depositors that they should have no qualms about the insurance fund’s ability to protect them.  Though that safety net for depositors is financed by annual and special assessments that banks are required to pay, the FDIC can also turn to the U.S. Treasury to borrow additional funds if need be.  As we reported previously, FDIC insurance coverage for deposits has been boosted from $100,000 to $250,000 per depositor through the end of 2013.

Nevertheless, recently released audit reports by the U.S. Treasury Dept.’s Office of the Inspector General provide an eye-opening, behind-the-scenes view of what prompted at least two of the bank failures that were among the first to begin draining money from the FDIC fund early this year. Both are cautionary tales that underscore the need for more stringent banking regulation that puts consumers’ needs and the nation’s economic health above bankers’ self-interest. All details in the following accounts of banks that went under are drawn from the Treasury Inspector General’s audit reports.

•Ocala National Bank of Ocala, Fla. failed in January 2009, resulting in an estimated loss of $99.6 million to the FDIC insurance fund. 

The bank failed because of significant losses within its construction and land-development loan portfolio, which grew rapidly from 2004 through 2006, largely due to 400-percent growth in construction loans.  In 2005, the bank owner’s son became chief executive officer of Ocala National, even though he had no previous experience running a bank. The bank pursued aggressive growth through high-risk products, but did not adequately control risk or credit underwriting, according to the OIG report.

New and current homebuyers: Check your homeowners coverage!

News today that pending sale figures on existing homes were above expectations is a welcome development for the economy. Buyers have apparently been taking advantage of relatively low mortgage rates, a federal tax incentive and lower prices.

Whether you're one of those lucky buyers or a current homeowner, it's a good time to review your homeowners insurance. Our recently-published survey of readers found more than half of those who'd been with their insurer for four years or less found less expensive coverage with their new carrier.

But new buyers may be surprised at what's covered and not covered. You're not likely to get coverage anymore for dog bites or mold. And you may be on the look for a larger deductible in the event your home is hit by a wind storm. Click here for more on the coverage quagmire, and for our Ratings of 16 homeowners insurance groups.–Tobie Stanger

By the numbers: Economic indicators hit 50-percent benchmark

In money news, 50 is the magic number today. First, the Institute of Supply Management (ISM) announced that for July, its manufacturing index increased to 48.9 percent, which puts it on a pace to cross 50 percent this month. The ISM's index measures economic activity in the nation's manufacturing sector. A reading above 50 would indicate an overall expansion.

Also, today the S&P 500 surpassed 1,000, which is a 50-percent rise in value from its low of 666 in March. (The tech-heavy Nasdaq Composite Index today passed 2,000.)

Market historians point out that this is exactly how we would identify the end of this miserable recession. The ISM figure is usually coincident with economic recovery, and stocks, almost magically, tend to anticipate the recession’s end by running up in price.

The big question going forward is the unemployment rate, which, unfortunately, tends to lag the economic cycle. Unemployment peaks just after the end of most recessions, but the Obama Administration isn’t anticipating the fever to break before the middle of next year.–Chris Horymski

The Fed's improved truth-in-lending proposals: Too little, too late?

The Federal Reserve's proposed changes today to Regulation Z, which focuses on truth in lending, include needed improvements to the disclosures consumers slog through when shopping for mortgages and home-equity lines of credit (HELOCs). The Fed says its proposals involving closed-end mortgages would:

• Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs;
• Require lenders to show how the consumer's APR compares to the average rate offered to borrowers with excellent credit;
• Require lenders to provide final Truth in Lending Act disclosures at least three business days before loan closing; and
• Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.

There's lots more to the Fed's offering, including rules making it harder for mortgage brokers to steer consumers to bad loans, and simpler and more timely disclosure of HELOC terms.

All of that is a good start toward preventing the outrages that led millions of homeowners over the precipice in recent years. But one has to ask: Why were these better disclosures proposed now? Why not years ago? More to the point, is disclosure, the theme of many of these proposed changes, really the best type of consumer protection?–Tobie Stanger 

 

Should retirees pay off the mortgage?

It's a question many new retirees face: Pay off the mortgage and be done with it, or keep it and invest the money instead?

In fact, even more people seem to be in that situation these days, either because they're retiring earlier, moved around, or refinanced fairly recently. 

I've looked at the question a bunch of times in the past and come to the conclusion that it's often close to a toss-up in purely financial terms. However, the peace of mind many retirees get from not having that big debt hanging over their heads can be a powerful argument for paying it off. Today's scary thrill ride of a stock market might be another one.

More support for that point of view appears in a new paper, "Should You Carry a Mortgage into Retirement?" by Anthony Webb, a research economist at the Center for Retirement Research at Boston College. He concludes that virtually all retirees who have the money to pay off their mortgage would be better off if they just sat down and wrote a check.

If you're facing that decision now or will be soon, Webb's very readable, five-page paper would be worth a look. --Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.