Six top money tips for parents-to-be

Here are six things to think about when planning for your new arrival.

Having a baby can be one of the most daunting experiences of person's life, with money concerns being one of the biggest worries for most parents-to-be.

As most new mothers are being forced to cut maternity leave short due to the financial strain of a new arrival and a decreased salary from a parent staying at home, here are a few things to consider to financially plan for your new arrival.

Top things to consider when financially planning for a baby

1. Work out what your essential weekly expenses will be when the baby is born e.g. nappies, baby food and how you will afford them.

2. Rising costs: calculate how much more you think household bills such as heating and groceries will rise by with an extra person in the house.

3. How much can you comfortably save every month to deal with any unexpected surprises?

4. Reduction in income: Yours or your partner's income will fall especially if one is on maternity leave. Assess how much your income will fall by and how you will juggle your finances around this.

5. If you plan to pay for childcare arrangements, start looking into how much you will have to pay per week and what percentage of your salary you will need to put by to cover these costs.

6. Be realistic. Of course you want your baby to have the best of everything, but many new parents find that they wind up buying lots of things they don't actually use in the end.

See if friends and family have baby items they're no longer using or hit eBay to bag a bargain - you'll be amazed at how much this can save you.



Source: Your Money / http://www.yourmoney.com/your-money/news/2257533/top-tips-to-financially-plan-for-a-baby

Money Talks to Have With Your Spouse

When you say “yes” to tying the knot, you’re doing more than joining hearts and lives, you’re also joining finances. Gulp. For better or worse, if you don’t communicate openly about money matters, your marriage can end up in hot water.

Estate planning attorney Ann Margaret Carrozza suggests that the key to avoiding these issues is to work as a team. "When you're in a partnership it's so important to set goals together, and gain knowledge to create financial security going forward. This way you have common goals and there's never any confusion about how to invest financially."

Whether you’re married or about to walk down the aisle, Carrozza says these are five money conversations you should have with your spouse:

1. Create your personal financial blueprint: Few newlyweds are fortunate enough to have significant assets to invest and plan for. But with a relatively blank financial slate, two people can chart their vision; make concrete goals, and together gain knowledge to create financial security going forward.

Initiate the discussion by throwing an acquaintance or neighbor under the proverbial bus: "Mark and Pam sure have beautiful cars/clothes/jewelry etc. Kind of makes me think that they will be forced to work forever to keep up with the interest payments alone!" Newlyweds should seek to educate themselves on financial matters by attending area adult education courses (preferably free ones) and reading financial books (borrowed from the library). Saving and investing that first $10,000 will provide a calm far greater than any 10-day cruise ever could.

2. Before the stork arrives, create a will: A will is needed to name a guardian of your minor child. It is often this difficult decision that causes people to put off creating a will. Without a will, the court will have the final say as to who raises your child in the event of your death.

Initiate the discussion by asking your spouse for their opinion on choosing a guardian. Try not to react negatively if you disagree with his response: "Your mother? That is a lovely thought - she certainly did a fine job with you (psst…go for bonus points). Do you think though, that it might not be an imposition on her because of her health issues, etc." If you hit an impasse, you can punt by naming co-guardians.

3. How should we grow our savings?: Ideally, this endeavor becomes a hobby for you as well as a goal-oriented pursuit. Investigate the retirement planning options that your employer may offer. Don’t have that option? Sit with a knowledgeable financial professional who will discuss various investment class options with you.

Initiate the discussion by saying something like, “We work hard for our money and I’d like to brainstorm with you and a financial advisor as to how we can make the most of it.”

4. Long term care planning: A slower than expected economic recovery coupled with increased life expectancies and ever-increasing costs of medical care has made relying on government funded long term care resources unrealistic.

Initiate the discussion by encouraging your spouse to sit down with a long term care insurance professional. What you are looking for here is a maximum daily benefit that coincides with the cost of care in your area. Don't be seduced by the 5 percent inflation protection, because the actual cost of care increases approximately 12 percent per year.

5. Insure your estate planning: You've done your will, powers of attorney, and health care advance directives, but how can you be sure that your surviving spouse won't remarry and potentially lose those assets in a subsequent divorce?

Initiate this conversation by pointing to a real life example, if possible: "Isn't it tragic that Marvin (widower friend) disinherited his adult children in favor of his home care companion? Yes, dear, I know that you would never do this, but what if either one of us developed a dementia-related illness down the road? All bets are off at that point.  Let's at least sit down with an attorney and see what the options are (i.e. post-nuptial agreement or trust) before we make any decisions.” 

Read more: http://www.foxbusiness.com/personal-finance/2013/03/21/money-talks-to-have-with-your-spouse/#ixzz2OqKd9rcP

Cyprus Leaders Under Pressure to Avoid Debt Default

Cypriot leaders scrambled Thursday to raise $7.5 billion to avoid a debt default for the island nation, but the European Central Bank warned it would cut off emergency funding Monday if the country cannot resolve its financial crisis.

In Moscow, Cypriot finance officials continued negotiations with Russian leaders over possible new funding.  Meanwhile, in Nicosia, the Cypriot capital, officials discussed restructuring the country's debt-ridden banks and raising money from domestic sources, such as pension funds and the subsidiaries of foreign banks operating on the island.

Several lawmakers said they have abandoned the idea of taxing bank deposits, the controversial measure that was part of the $13 billion Cyprus rescue plan agreed to by the country's international lenders.  After depositors angrily protested the proposed tax, the Cypriot parliament overwhelmingly rejected it this week.

But with that action, Cypriot leaders were faced with finding other ways to secure the emergency funding from the International Monetary Fund, Europe's central bank and the island's neighbors in 17-nation euro currency bloc.

One leader of the country's ruling Democratic Party, Averof Neophytou, said he thinks a solution will be reached.

"We are working very hard. There is only one target, to save our economy and our country," Neophytou said. "I believe that the political parties will show the necessary responsibility for the survival of the Cypriot economy."

Cypriot banks are closed until Tuesday to prevent panicked investors from withdrawing large sums. But anxious depositors lined up outside automated teller machines to take out limited amounts.

If it eventually secures a bailout, Cyprus is planning on using much of the money to refund its beleaguered banks that have been weighed down with losses on Greek government bonds that were reduced in value to help resolve the Athens debt crisis. 

Source: Voice of America / www.VOANews.com/content/cypriot-leaders-continue-debt-negotiations/1625742.html

Lending bill seen thwarting S.A.

HOUSTON — On the heels of a new campaign finance report demonstrating the political muscle of the payday loan industry in the Texas Legislature, consumer advocates expressed collective dismay that an effort to compromise with the industry has produced a tepid reform bill.

The compromise proposal, sponsored by Sen. John Carona, R-Dallas, drew criticism Tuesday from San Antonio City Council member Diego Bernal because it would pre-empt stronger restrictions in the ordinance adopted by the council last year.

“The spirit of our effort was to create a safety net,” Bernal testified. “I'm not sure that what has been proposed will keep (consumers) out of the cycle of debt.”

Instead, Bernal argued, the proposal would “significantly weaken” the ordinance that went into effect in San Antonio on Jan. 1.

The ordinance limits debt to 20 percent of a borrower's income. The Carona proposal allows loans of up to 40 percent of a person's gross monthly income and more loan extensions than ordinances passed in San Antonio, Dallas, Austin and El Paso.

Carona said the industry should be regulated at the state level because mobile phone applications soon will allow payday lenders to circumvent local ordinances by steering borrowers to store fronts outside municipal jurisdiction.

While Carona acknowledged his legislation disappointed consumer activists, he said he hoped to “strike a balance” in order to win passage and avoid a gubernatorial veto in a Capitol where the payday loan industry has enormous influence.

Deborah Reyes, director of government affairs for payday lender Advance America, defended the compromise.

She noted the bill would for the first time limit loans based on a borrower's income and require lenders to accept partial payments to reduce a loan's principle.

But the compromise reached with industry groups may have cost Carona his House sponsor. Rep. Mike Villarreal, D-San Antonio, said he does not believe “the version presented in the Senate committee today provides adequate protection for consumers.”

He left open the possibility that further negotiations would produce a stronger version.

A coalition of consumer organizations, church groups and charities is seeking reform of an industry they say preys on low-income Texans by locking them into a “cycle of debt” by charging sky-high interest rates and fees to “roll-over” loans that a borrower can't pay off.

Many Texans are “pushed into almost indentured servitude” because they are trapped in an-open-ended contract they cannot escape, testified Rhonda Sepulveda of Catholic Charities of the Archdiocese of Galveston-Houston.

A study issued Monday by Texans for Public Justice found the payday loan industry donated nearly $2.3 million to the campaign treasuries of Texas lawmakers and statewide public officials during the 2012 election cycle.

House Speaker Joe Straus led the pack with $360,000 in donations to his account and his Texas House Leadership Fund.

Lt. Gov. David Dewhurst received $200,000 from the industry while Gov. Rick Perry received more than $100,000, according to the TPJ report.

“Such huge political paydays constrain what if anything will be done to protect the neediest of Texans,” the report concluded.

“This is purely a special interest issue,” Bernal said. “There are no pockets of constituents anywhere who are pro-payday lenders. It is about an industry's ability to buy influence.”


Read more: My San Antonio /  http://www.mysanantonio.com/news/local_news/article/Lending-bill-seen-thwarting-S-A-4368331.php#ixzz2OH3N6AmP

With payday loans in decline, MoneyTree seeks OK for new high-interest loans

In 2009, Washington’s Legislature passed tough reforms on the state’s fast-growing payday lending industry. The law -- the first of its kind in the nation -- restricted the number of payday loans that each borrower was able to take out during one year to eight.

Supporters said the law was needed to put the brakes on predatory lending practices that were trapping poor people in as many as 50 high-interest payday loans at the same time.

Since then, the state’s payday lending industry has declined dramatically, going from making $1.4 billion in payday loans in 2007 to $327 million in 2012.

The rapid decline of the payday lending industry is certainly not lost on Dennis Bassford, founder and CEO of Seattle-based MoneyTree Inc., a major player in the state’s payday-lending industry.

Bassford has come back to the state Legislature this year seeking approval of a new type of short-term loan — one that’s not tied to paychecks and would carry limits for borrowers — that has skeptics worried about high interest rates and fees. Critics see the move as a step back, toward potentially abusive loans, but Bassford says a new loan product would allow MoneyTree to respond to demand from customers eager for an alternative to payday loans.

My article in this week’s print edition of the Puget Sound Business Journal (subscription required) focuses on Bassford’s political efforts.

Bassford also said the current state law rations credit and is driving business to unscrupulous payday lenders who have set up shop on the internet.

“I believe it’s driven consumers more and more to unlicensed online internet lenders who are operating from all over the world in an unregulated and potentially illegal fashion,” Bassford told me.

It’s unclear what has been the biggest factor behind the decline of payday borrowing in Washington. Certainly the reforms have played a big role.

The state Department of Financial Institutions acknowledges that out-of-state lenders are a large source of complaints. Of the 286 complaints the agency received about payday lending in 2011, 145 were about online lenders. In October, the agency fined a South Dakota-based operation $669,300 for making online loans with interest rates as high as 1,825 percent.

Deb Bortner, DFI’s director of consumer services, said unregulated online lenders will continue to be a problem, despite crackdowns.

“This is kind of like Whac-A-Mole,” she said. “You shut one down and another one pops up.”

    Greg Lamm covers banking & finance and law for the Puget Sound Business Journal.



Source: BizJournals / http://www.bizjournals.com/seattle/blog/2013/03/with-payday-lending-in-decline.html?page=all

Going Beyond Interest Rates

WASHINGTON -- Another legislative deadline for federal financial aid is looming in this town of perpetual crisis: the interest rate on subsidized student loans will double July 1, from 3.4 percent to 6.8 percent, if there is no Congressional action.

Last year, when loan rates were scheduled to double, President Obama seized on the issue in his re-election campaign, and Democrats and Republicans in Congress quickly agreed that the interest rate for subsidized loans (a need-based program under which the government pays the loan interest while students are enrolled in college) needed to be kept down. Student activists jumped into the argument, and Congress found a one-year fix to keep interest rates low at a cost of $6 billion.

This year, the situation seems different. A hearing Wednesday indicated that members of Congress from both parties are interested in thinking bigger when looking at the federal student loan programs -- either in a bill to avoid the interest rate hike for subsidized loans, or when the Higher Education Act is (eventually) renewed. The House Committee on Education and the Workforce hearing was billed as a broader look at changing the federal student loan programs, and few members of Congress chose to focus on the July 1 interest rate deadline in a wide-ranging discussion that lasted two hours.

The hearing was also the first concrete example of the influence the Bill & Melinda Gates Foundation’s project on redesigning financial aid (see related article) might have on Capitol Hill: Three of the four experts were from organizations that received grants to reimagine a financial aid system geared to college completion, and most of the proposals under discussion were recently put forward as part of that project.

Two of those proposals from witnesses at the hearing focused on setting the interest rates for student loans based on market rates. One recommendation, to set the interest rate at the 10-year Treasury borrowing rate plus 3 percent, was from Jason Delisle, director of the Federal Education Budget Project at the New America Foundation and originally included in the think tank’s report for the Gates project. Justin Draeger, president of the National Association of Student Financial Aid Administrators, also called for a “long-term, market-based solution” basing the rate from year to year on the cost of capital, servicing and loan counseling, and financial risk.

Unlike earlier hearings on direct lending, which often led to Republicans calling the program a government takeover and Democrats characterizing it as a boon for students, this one featured relatively few overt clashes between the parties, and few attacks on student aid.

Instead, the parties focused on different issues within the loan program -- Republicans were more concerned about interest rates and accounting, while Democrats wanted more protections for borrowers. (The exception was Scott DesJarlais, a Tennessee Republican, who suggested that loans were making students lazy and disinclined to work, and suggested shifting some Pell Grant money to federal work-study. “You’re poor in college, and that’s actually part of the fun of it,” DesJardins said, pointing out that he graduated from medical school in 1991 with more than $100,000 worth of loan debt.)

House Republicans in particular seemed to favor a switch toward an interest rate that can vary with market conditions. But the hearing’s focus quickly expanded, including the possibility of a switch to “fair value” accounting, which alters how the government accounts for risk in lending and makes student loans look less profitable for the federal government than they appear under current accounting rules. (Democrats pushed back against the proposal, as well as, in some cases, the premise that student loans should be profitable for the government at all.)

Senate Democrats, including Rep. George Miller, the committee’s ranking member, suggested they would favor additional loan counseling requirements. Draeger argued that colleges should be able to limit borrowing for students, perhaps those in specific majors and programs. On the Senate side, Senator Tom Harkin, chairman of the Appropriations Committee, introduced a bill Wednesday that would add new loan counseling requirements.

Groups that pushed to keep the interest rate at 3.4 percent didn’t like the focus of the hearing Wednesday, arguing that subsidized interest rates should stay low -- meaning the issue could still heat up between now and July 1.

“Last summer, Democrats and Republicans came together to prevent student loan interest rates from doubling, and this year, students can no more afford to have those rates double,” said Jen Mishory, deputy director of Young Invincibles, in a statement Wednesday, adding that the organization “is looking forward to working with all stakeholders to make sure this doesn’t happen, and that Congress takes long-term action to create a more effective and more affordable student loan system.”

Read more: http://www.insidehighered.com/news/2013/03/14/house-holds-hearing-student-loan-interest-rates#ixzz2NiEDS0LO
Inside Higher Ed

The Best Way To Get Out of Debt

It takes dedication and commitment to gain out of debt. It also requires a plot. If you can only afford to make minimum payments on your credit cards and other loans, then save at it. But if you have any cash -- even a little amount -- after paying all critical monthly expenses, it is a wise idea to apply it toward paying down debt.

Several schools of thought exist on the best way to pay off debt. Two of the most popular methods are nicknamed the "snowball" and the "avalanche" methods. To determine which path is best for you, check out these pros and cons.


The Snowball Method

Think about how one makes a snowball: begin with a little amount of snow and then add more to it. The snowball method of debt payment takes a similar approach: begin little and end big.

First, make a list of outstanding debts, including credit cards and student loans, and the minimum monthly payment owed for each. Rank these in order from smallest to largest debt. Next, pay the monthly minimum balance on all debts except for the smallest one. Each month, apply as much extra money to the smallest debt as possible.

Once the smallest balance is eliminated, use the same approach to tackle the next smallest balance. Continue this way until all is paid off.


The Avalanche Method

Avalanches begin at the summit and work their way to the bottom. The avalanche method of debt repayment focuses on how much interest each creditor is charging. First, create a list of outstanding debt including credit cards and student loans, and the interest rate charged for each. (Find your interest rate on your monthly statement, your online account information or by calling the creditor to ask.)

Rank the debts in order from the highest to lowest interest rate, regardless of sum amount owed. Then pay the monthly minimum balance on all debts while applying as much extra money as possible to the debt with the highest interest rate. Once that balance is eliminated, move on to the balance with the next highest interest rate. Continue until every balances are gone.


Which method is right for you?

There is no right or wrong choice. What is important is that you are making at least the minimum payments required and taking action to knock out every debt.

In the long run, the avalanche method will acquire you out of debt quicker while saving more money. That is because high interest rates compound quickly and can sustain you in debt for a very long time.

Paying more upon the highest interest debt reduces the amount spent upon interest charges every month. This frees up cash to chip away at the rest of your debt. Federal government sources recommend the avalanche method because it makes the most economic sense.

On the other hand, a 2012 study published in the Journal of Marketing Research found that more people actually succeed in eliminating debt when they use the snowball method.

Findings recommend that the fast win of paying off a debt -- no matter how little -- motivates people to stick to their plans and withhold chipping away at the rest of their debt. While the method costs more in the long term (due to compounded interest), it increases the probability of reaching the ultimate goal, which is paying down every debts.

This research suggests that the concept of getting out of debt is as much a psychological fight as it is a financial one.

Regardless of which approach you take, maintain in mind several things. The goal is to acquire out of debt, and then to stay debt-free. Cut up or store your credit cards if necessary to sustain discipline. Do not gain lured in by special offers or discounts that tempt you to open new accounts. Establish a budget and stick to it. Learn to live within your means, buying only what you can afford using cash or debit, and preserve for bigger purchases. Finally, savor your debt-free status. You will have earned it.



Source: CBS8 / http://www.cbs8.com/story/21572226/the-best-way-to-get-out-of-debt#.UT8e0enTx4Y.twitter

Our View: California must crack down on payday lenders

In theory, any entity that lends money to a California resident -- whether operating from a storefront or online -- has to be licensed and follow California laws. In theory, too, the state Department of Corporations and state attorney general can shut down unlicensed lenders.

In practice, however, as the New York Times reported Sunday, payday lenders are operating online -- sometimes from foreign countries or on Indian land -- to evade state laws. And they're aided by large banks.

Certainly, limits on payday lending are needed. In California, the average payday borrower pays $450 in fees to profit $255 in cash.


Other states are better. Some states limit annual interest rates to 36 percent -- following the federal limit for payday loans to people in the U.S. military. Sixteen states and the District of Columbia ban payday lending.

State limits are thrown to the wind, however, with unlicensed online payday lenders. That is the new frontier that state and federal regulators must address. Unlicensed online payday lenders require borrowers to give their bank account information, so they can withdraw from the borrower's account to pay back the loan.

The banks processing these transactions -- including Wells Fargo, Bank of America and JPMorgan Chase -- are licensed and regulated. Regulators should aggressively pursue banks that let unlicensed online payday lenders to plunder customer bank accounts.

The state and the federal government also should do more to educate the public. Consumers don't often know who is licensed in California. And when unlicensed online lenders take customers to court to collect on usurious loans, judges may not be aware they are dealing with an unlicensed entity that has no right to collect upon an illegal transaction.

Assembly Member Roger Dickinson, D-Sacramento, is chairman of the Assembly Banking Committee. He will retain a hearing Monday to shed light upon payday lending practices. That hearing should question: What are the obstacles to shutting down unlicensed online lenders? What tools do state regulators need? We should not toss up our hands and say, "Borrower beware." Online lending must be brought to heel.

 

Read more here: Merced Sun Star / http://www.mercedsunstar.com/2013/02/28/2849262/our-view-california-must-crack.html#storylink=cpy

New California school law that bans fees causes confusion

A new state law banning public school fees has teachers scrambling for supplies, parents in a tizzy over suddenly unaffordable activities and PTAs confused about how to help families.

At Fairlands Elementary in Pleasanton, the fourth-grade visit to Mission San Juan Bautista was nearly canceled. At Oak Grove High in San Jose, math teacher Kim Schaupp printed paper protractors for her geometry students because she was told she couldn't ask them to bring real ones to class. In Pleasant Hill, middle-school band trips are at risk.

With few exceptions, state law now prohibits schools from charging fees for classroom items and activities and from requiring students to bring materials needed for school. It covers everything from 25-cent pencils and $5 binders to $350 field trips and $500 football uniforms.

Resulting from the settlement of a lawsuit against the state, the law reinforces what the California Constitution has guaranteed for nearly 140 years: a free public education.

"The court said free means free," said Brooks Allen of the American Civil Liberties Union, which brought the suit. And "free" does not mean charging a fee and asking students to apply for a waiver or financial aid.
As the gap between government funding and education costs has widened over the years, campus charges for necessities and extras have proliferated. Many districts eliminated fees soon after the ACLU suit was settled in 2010. Now, AB1575, effective 

Jan. 1, bans nearly all of those fees.
Yet confusion remains, and interpretations range from near-indifference to the new law to near-paralysis over it.
"We're not sure what we can and can't say," said Marilyn Weinstein, a volunteer at Fairlands Elementary, where a last-minute scramble saved the fourth-grade mission trip. Previously, parents simply paid about $35 per child. Now, she said, "we can't tell them if you can't afford to pay, the PTA has money for you," because they were told that would single out low-income families. The fee has been replaced by a call for donations -- which fell short.
The state and the ACLU have issued advice on compliance, such as schools may charge for dances and food but may not waive fees based on need. But in education's trenches, the foot soldiers of fundraising are confused.
It's at high schools where the new law poses the greatest challenge.
At Oak Grove High, the math department has $2,500 for supplies for the year, barely covering copy paper and pens for white boards. Teachers can't ask students to bring protractors and compasses, said Schaupp, the department head. Purchasing class sets would be prohibitive.
The battle to get students to bring basic supplies is difficult when some respond -- technically correctly -- "I don't have to bring anything to class," Schaupp said.
That's not the view at the top of the East Side Union district. "We expect kids to bring their supplies to school and to be ready to learn," said Superintendent Chris Funk. Now it's a fine line between conveying that expectation while obeying the law, which says students may not be graded down for not providing their own materials. 

Rita Russom, a junior at East Side's Silver Creek High, said she and other students who bought graphing calculators for Algebra II share them with students who are without.
Still, she believes students shouldn't have to pay for such things. "It's not really fair," she said, noting many parents are struggling to feed families and can't afford a $100 calculator or other supplies. She applauds the new law and hopes it will be enforced on extracurricular activities -- which it covers -- because she knows classmates who are shut out of athletics and the annual student dance show because they can't afford the fees.

And while teachers applaud the spirit of the law, they feel stuck in enforcing it, many already spending hundreds of dollars of their own money in a year when they've lost 6 percent of their paycheck to furloughs.
Oak Grove science teacher Emanuel de Sousa said he'd like to teach a biotech course but has doubts about getting supplies like enzymes and DNA. As it is, he can't afford to buy slides of small organisms for students to examine, with a supply budget of $5,000 for the entire 13-teacher science department.

The squeeze appears to be less tight in the Jefferson Union High School District in Daly City. The district seeks donations, Superintendent Thomas Minshew said, and fundraisers, such as the home economics department's sales to pay for baking supplies, are ubiquitous. Yet in the PTA trenches, details of the new law aren't clear. A fund for Pleasant Hill Elementary to attend a fifth-grade outdoor education camp in the Santa Cruz Mountains is short $6,000.

"We don't want to exclude anyone," said volunteer Mary Gray, but parents had to solicit donations rather than fees, and they couldn't tell families to ask for financial aid.
News of the fee ban hasn't reached all schools. This school year the Palo Alto High math department continued to insist Texas Instruments-89 graphing calculators were mandatory for an honors math analysis class; likewise nearby Jordan Middle School put out a list of nearly two dozen items required for sixth-graders.

Friday was the deadline for schools to set up procedures for filing complaints about suspected violations of the new law.

Parents simply wish for clarity. "This is causing a lot of upset among parents, because our hands are tied," Weinstein said. "Where did we go so horribly wrong that all of a sudden we're not making sound decisions?"  



Source: Inside Bay Area /  http://www.insidebayarea.com/breaking-news/ci_22702204/new-california-school-law-that-bans-fees-causes

Protecting Consumers and Preserving Lending Programs

The Center for American Progress, Center for Responsible Lending, Consumer Federation of America, and the National Council of La Raza recently submitted comments to the Consumer Financial Protection Bureau on the Ability to Repay Standards under the Truth in Lending Act (Regulation Z). These comments respond to the bureau’s proposed amendments to the Ability to Repay Standards, which it issued alongside the qualified mortgage rule in January. In particular, the comments addressed two concerns: defining mortgage-lending compensation in a way that protects consumers; and preserving lending programs that offer a gateway to safe and affordable credit. Read the full comment letter here.
Alongside its final qualified mortgage rule—which aims to insure that mortgage originators issue quality loans, and certify that borrowers have the ability to repay the loans they receive—the Consumer Financial Protection Bureau solicited comments on questions that were not resolved by the rule. This document, known as the concurrent proposal, addresses two issues that we believe are critical to the future of safe, sustainable, and affordable access to mortgage credit:

• First, it considers how to define compensation for the purpose of calculating the points and fees cap contained in the bureau’s final qualified mortgage rule. (Under this rule, borrowers who receive mortgages whose points and fees exceed 3 percent of the price of the loan will receive extra legal rights. Therefore, lenders have an incentive to originate mortgages with lower points and fees.)
• Second, it proposes a series of exemptions for specialized mortgage-lending programs and financial institutions that play an important role in ensuring broad access to safe and affordable credit.

Our concerns about defining mortgage-lending compensation arise from the danger of yield spread premiums, or YSPs. A yield spread premium is a method of payment in which the consumer pays a mortgage broker’s fee over the life of the mortgage through an increased interest rate, presumably instead of paying fees to the broker in cash upfront. Yield spread premiums were often abused, and as a result borrowers ended up with higher-cost mortgages. The use of yield spread premiums to push borrowers into higher-cost mortgages was a key part of the subprime crisis that stripped wealth from many lower-income borrowers and borrowers of color.

Because transactions using yield spread premiums are more complex and, therefore, less transparent, borrowers found themselves in loans where they essentially paid the broker twice—first through upfront fees and then through an increased interest rate that provided the funds for the lender to make a backend payment to the broker. Providing vulnerable borrowers more expensive loans may have resulted in greater returns for mortgage brokers, but it left many homeowners with mortgages designed for failure.
Currently, the Consumer Financial Protection Bureau is at risk of defining mortgage-lending compensation in a way that would encourage lenders to make opaque transactions that double-charge consumers. There are steps, however, outlined in the full comment letter, which the bureau can take to instead protect consumers.

Additionally, we strongly support the Consumer Financial Protection Bureau’s proposed exemptions for community-focused lenders, targeting rescue and refinance programs, and small entities as they will provide access to credit for borrowers without unnecessarily adding risk to the system. Because a full exemption from the ability-to-repay standards for some community lenders provides borrowers with very little recourse, however, we support loan limits for these entities as described in detail in the official comment letter.

Source: American Progress / http://www.americanprogress.org/issues/housing/news/2013/03/01/55192/protecting-consumers-and-preserving-lending-programs/

Worst income dip in 20 years doesn’t stop spending

Consumers increased spending in January for the third straight month, suggesting that a big drop in income and a tax hike at the start of the year only exerted a mild drag. 

Consumer spending advanced a seasonally adjusted 0.2% last month, the Commerce Department said Friday. That matched the estimate of economists polled by MarketWatch.

Americans continued their spending ways despite an increase in their taxes and the biggest plunge in income in 20 years.

A two-year law that reduced payroll taxes by 2% expired in January and the government also raised rates on the very rich. For people earning $1,000 a week, the payroll tax hike takes an extra $20 out of their paychecks.

Incomes, meanwhile, sank 3.6% in January after spiking 2.6% in December. Companies accelerated the payment of rewards for workers and investors in December to avoid higher tax rates in January, accounting for the big swing. 

Consumer spending represents as much as 70% of the economy. When Americans buy more goods and services, businesses generate higher sales and profits and can afford to hire extra workers. Less spending results in slower economic growth.

In Friday trades, U.S. stocks SPX +0.23%  zig-zagged from losses to gains amid a raft of economic data. Read Market Snapshot.

A survey of consumer confidence rose slightly and a U.S. manufacturing gauge climbed to nearly a two-year high. Read: Manufacturing sector revs up in February.

 

Danger signs?

Although spending largely held up in the first month of the tax increase, many analysts think it will exert some downward pressure on the economy in the next few months. Consumers don’t always change their behavior immediately after a tax increase. 

In one potentially troubling sign, spending on durable goods such as appliances, furniture, or consumer electronics fell 0.8% in January to mark the first drop in three months. Consumers tend to cut back on big-ticket items if they feel more economic stress.

What’s more, higher gasoline prices and sharp cuts in federal spending could also apply the brakes to the economy in the coming months. 

On Friday, the government is supposed to begin the process of slashing federal outlays by as much as $85 billion over the next six months under the rules of a so-called sequester. Top Democrats and Republicans were scheduled to meet at the White House to discuss the matter, but no breakthrough was expected.

Economists say the spending reductions could hamper the ability of the U.S. to grow any faster than the 2.2% rate by which it expanded in 2012. The economy needs to grow much faster to quickly reduce the nation’s 7.9% unemployment rate. 

“One thing is perfectly clear — most American will remain cautious in their spending habits,” said Chris Christopher, director of consumer economics at IHS Global Insight.

The incomes of earned by Americans, meanwhile, posted the biggest drop since January 1993. Economists polled by MarketWatch had expected incomes to shrink 2.6% because of sharply lower dividend and bonus payments last month. 

Personal income derived from assets such as stocks, for example, plunged by $365.5 billion last month after jumping $273.8 billion in December, according to Commerce data.

Adjusted for inflation, income after taxes slumped an even larger 4%. Yet excluding special factor such as the accelerated dividends, real disposable income rose 0.3% in January and matched December’s increase. 

Still, the combination of modest rise in consumer spending and a steep drop in income reduced the savings rate of Americans to 2.4% from 6.4% — the lowest level in more than five years.

Households typically work to rebuild savings when they fall to such low levels, but rising home values and the surging stock market is making Americans feel a little bit wealthier. What’s more, a slowly improving labor market is giving more people the hope of finding a job or getting a better one. That might make them less inclined to sock more money aside. 

Wages, on the other hand, are still not growing very fast. Incomes after taxes, adjusted for inflation, rose just 1.5% in 2012 after a 1.3% increase in 2011. And even those meager gains could be largely eaten up by the price at the pump if gasoline continue to advance. The average cost of a gallon of gas has jumped 14% since the beginning of the year. 

Yet overall inflation is still relatively tame. The PCE price index was flat in January, putting the 12-month increase at 1.2%. The core rate, which excludes food and energy, edged up 0.1% in January and is up 1.3% in the past year.

Source: MarketWatch / http://www.marketwatch.com/story/worst-income-dip-in-20-years-doesnt-stop-spending-2013-03-01?link=MW_Nav_FP