What can you buy for $300,000? Vacation homes to escape from the Beltway

This article was originally published by the Washington Post on Wednesday, February 22, 2012.

By Katherine Reynolds Lewis

Interest rates are still at historic lows. Real estate prices remain depressed in many areas. As you look forward to summer, you may be wondering whether this would be an opportune time to get a bargain on a vacation property that you could enjoy with your family while earning some rental income.

To answer that question, we looked at popular vacation destinations within a reasonable drive of Washington, D.C., to see what kind of escape from the Beltway you could purchase for $300,000. In some areas, sellers are stubbornly hoping that the market will rebound enough to reap the high prices they’ve set for their beach and mountain homes. In others, lower rental volumes and the tough economy have left property owners with limited resources for fixing up properties enough to make them irresistible to prospective buyers.

D.C. area housing market feels the pinch from lower jumbo mortgage limits

This article was first published on Saturday, November 5, by the Washington Post.

By Katherine Reynolds Lewis

Srinivasan Soundararajan and Jennifer Nordin have been thinking about selling their Potomac townhouse and moving into a detached house for some time. With two small children, 1 and 3 years old, they are beginning to outgrow their three-bedroom house.

This past summer, the couple stayed out of the market because of Congress’s gridlock over the U.S. debt ceiling; they feared that a spike in interest rates could disrupt a pending house purchase. Once lawmakers agreed to raise the ceiling, they started looking at houses again.

Now that they’re close to making an offer on a property, a change in federal housing policy has hampered their plans.

On Oct. 1, Fannie Mae and Freddie Mac lowered the maximum size of so-called jumbo mortgages that they would back to $625,500. Before Oct. 1, Washington-area mortgages as big as $729,750 could be purchased by Fannie and Freddie and repackaged to sell to bond investors, or guaranteed by the Federal Housing Administration. The change was the result of a law Congress passed in 2008 to stimulate the housing market in the depths of the crisis.

As a result, the upper end of the Washington real estate market is feeling the pain as buyers have fewer options to finance the purchase of a house. And sellers, like Soundararajan and Nordin, feel the change constrains the pool of potential buyers for their townhouse, which they expect to list at $725,000.

“It would definitely affect the ability of someone to buy our house,” said Soundararajan, a 43-year-old attorney, noting that his sale price equals the new cap plus a down payment of $100,000. “That’s not a first-time buyer. We’re going to lose that market.”

4 Reasons the Mortgage Mess Won't Get Fixed

This article was originally published by the Fiscal Times on Friday, Oct. 14, 2011.

By Katherine Reynolds Lewis, The Fiscal Times

Every day seems to bring fresh bad news about the housing market. Sales are down, foreclosures are up, mortgages are harder to obtain. Americans had better get used to it -- the housing mess is unlikely to see a near-term fix.

Since taking over mortgage giants Fannie Mae and Freddie Mac in the heat of the 2008 financial crisis, the government now stands behind about 95 percent of U.S. residential mortgages. Without any policy changes, this course will push the national debt to $30 trillion in ten years, according to Peter J. Wallison, a fellow at the American Enterprise Institute.

It could get even worse. CoreLogic estimates that 10.9 million homeowners owe more on their mortgages than the property is worth, or 22.5 percent of all outstanding loans. Amherst Securities Group projects that without further policy changes, 10.4 million additional borrowers are likely to default on their mortgages.

Policy experts agree that the situation poses unacceptably high risks to taxpayers and that private investors must eventually replace the federal government in housing finance -- but they disagree on both the path forward and how the future system will be structured.

"It certainly feels as though we are stalled," said Susan Wachter, professor of financial management at the University of Pennsylvania's Wharton School, before testifying to Congress on housing finance on Thursday morning. "The most important thing that has to happen is that there needs to be consensus."

Unfortunately for U.S. taxpayers and homeowners, there's little hope that the deadlock will break. Here are four reasons that the mortgage mess won't get fixed any time soon.

Congressional Reform is for Dreamers: When Congress passed comprehensive financial reform last year, the future of Fannie and Freddie was the biggest piece that lawmakers failed to address, largely for lack of political will. But with presidential election season in full swing, experts predict housing finance legislation will have to wait at least until 2013, at the earliest.
"Ultimately you need legislation to have a defined role for the future of Fannie and Freddie," said Phillip Swagel, public policy professor at the University of Maryland. "I don't see that happening in 2011 or 2012."

Protect your home (and finances) from disaster

This article was originally published in the August 2011 issue of Money Magazine.

By Katherine Reynolds Lewis

(MONEY Magazine) -- The season for natural disasters, it seems, is now year-round. Floods and a record number of tornadoes have already caused billions of dollars of property damage across the nation in 2011. Come fall, forecasters expect an unusually active hurricane season. Moreover, experts believe crazy weather is here to stay.

"Climate change is intensifying the extremes of rain and snow as well as drought," says Robert Henson of the University Corporation for Atmospheric Research.

Think homeowners insurance will cover your tab if your property is walloped by Mother Nature? Think again.

A 2008 study found almost two-thirds of homes were under-insured for disasters. Worse, about a third of homeowners have recently lowered their home or auto coverage to save money, according to a 2011 survey by the Insurance Information Institute. Finally, even if your insurance is adequate it may not have the right coverage for the risks you face. Below, key steps to limit the damage.

Shore up your property

For earthquakes. The roof is a key vulnerability. You'll spend 2% to 3% of your home's value to firmly strap down the roof to the walls and foundation, says Timothy Reinhold, senior vice president of research for the Institute for Business and Home Safety.

For tornadoes. Again, your roof is at greatest risk of being damaged by high winds, says Robert Schneller, a risk-management expert at the University of Houston. Spend $50 to $100 per hour to have a roofer secure loose shingles or flashing that a gust of wind could pull loose. Also install roof clips to better attach your roof to the walls ($1 per clip, plus labor).

The garage door is another weak spot. An impact-rated pressurized door will run you $1,300, but you can also retrofit your existing door with pressurized equipment, which will cost just $450 and provide reasonable protection, says Reinhold.
Worried about your finances? Send the Help Desk your questions.

The ‘Warren Report’ - GOP Attacks Consumer Agency

This article was originally published by the Fiscal Times on Thursday, May 19, 2011.

By Katherine Reynolds Lewis

Even before it formally opens its doors this summer, the new federal agency created to protect consumers from unscrupulous financial industry practices is coming under withering attack by Wall Street and Republican lawmakers. And despite a months-long charm offensive by Elizabeth Warren, the former Harvard professor and chief architect of the new agency, Warren has been unable to win over many of her critics on Wall Street and within the GOP.

Bills pending in the House would curb the power of the Consumer Financial Protection Bureau, while 44 Republican senators have promised to block confirmation of a director for the new agency unless those restrictive measures are approved.

With Democrats in control of the White House and the Senate, but not of the House, the legislation is unlikely to become law. But between the Senate GOP ultimatum and financial industry criticism of Warren, few believe she could be confirmed if President Obama nominates her as the director.

As a result, Obama may have little choice but to name Warren as director during a congressional recess in order for the agency to have someone at the helm when it begins to wield regulatory power this summer. Warren currently is overseeing the creation of the consumer protection bureau as a special assistant to the president. If she is made director through a recess appointment that would all but assure a politically bumpy future for the agency.

The Senate GOP pledge "creates a climate that is ugly. That is an in-your-face kind of attack that I haven't seen in 20 years in Washington," said Ed Mierzwinski, director of the consumer program at the advocacy organization U.S. PIRG. "Elizabeth Warren wants to come in and make that marketplace fair. Wall Street would prefer to decide on their own how to make money."

Economy Grows, But Jobs Don’t

This article was originally published by the Fiscal Times on Thursday, March 24, 2011.

By Katherine Reynolds Lewis

Of all the woes of the Great Recession, one anomaly is the most troubling: How can the economy be growing while unemployment remains so high? The breakdown in the historic relationship between GDP growth and jobs has confounded experts ranging from White House Chief Economist Austan Goolsbee to Cato Institute scholar Mark Calabria.

Under the principle known as Okun's law, named for Arthur M. Okun, an economist who worked for Presidents John F. Kennedy and Lyndon Johnson, a 3 percent increase in U.S. gross domestic product should lead to a 1 percent drop in the unemployment rate. Yet as the U.S. economy rebounds from the latest downturn, the jobless rate remains stubbornly high — as much as 2 percentage points higher than economic theory predicted. Possible explanations include overly cautious employers, a lack of worker mobility and simple measurement error.

Homeowners Exhale as Fed Reverses Course on Mortgages

This article was originally published by the Fiscal Times on Tuesday, Feb. 15, 2011.

By Katherine Reynolds Lewis

Millions of homeowners facing foreclosure dodged a bullet when the Federal Reserve Board changed course on proposed changes to mortgage rules, instead deferring to the nascent Consumer Financial Protection Bureau in the first skirmish over regulatory authority under last year’s sweeping financial reform legislation.

A coalition of consumer groups took the unprecedented step of asking the Fed to withdraw two sets of rule proposals on consumer mortgages and turn them over to the new bureau created by the Dodd-Frank Act. In a brief statement this month, the Fed cited more than 5,000 comments received on the matter and said it plans to wait for the bureau, which will take over authority on consumer mortgage rules in July 2011.

If the Fed had finalized the rule proposals, it would have eliminated a longtime consumer right to void a mortgage under certain circumstances, one of the best tools homeowners have to halt foreclosure. Consumer advocates say the rule also would have opened the door to risky reverse mortgages, and would allow changes in advertising that would permit false statements.

Nearly 11 million Americans owe more on their homes than the properties are worth, and 3.4 million homes have been lost to foreclosure since the recession began, according to CoreLogic. The foreclosure crisis has spawned accusations that lenders used improper documentation and procedures to seize homes, prompting investigations by state attorneys general and members of Congress, as well as lawsuits estimated to end up costing banks as much as $52 billion.

The Fed’s proposed rules "would have been disastrous for homeowners … At the time of the worst foreclosure crisis in anyone's memory, they were pulling the rug out from the most vulnerable consumers this law intended to protect," said Nina Simon, director of litigation at the Center for Responsible Lending, which filed joint comments with the National Consumer Law Center, the National Fair Housing Alliance, Consumers Union, the National Community Reinvestment Coalition and other consumer groups.

Treasury Plan to Wind Down Fannie and Freddie

This article was originally published by the Fiscal Times on Friday, Feb. 11, 2011.

The Obama administration released a white paper proposing the gradual winding down of Fannie Mae and Freddie Mac and overhauling the mortgage securities market.

By Katherine Reynolds Lewis

The Obama administration Friday laid out an ambitious vision for U.S. housing finance reform, in which the government gradually diminishes its role and private investors return to the mortgage securities market.

But the plan doesn't specify how to overhaul or eliminate Fannie Mae and Freddie Mac, instead setting out three possible options for the mortgage giants, which have been operating under government conservatorship since September 2008. Under the landmark Dodd-Frank financial overhaul legislation approved last year, the Treasury Department was supposed to present to Congress by Jan. 31 a report on the government-sponsored enterprises (GSEs) to help lawmakers write legislation to reform the agencies.

"This is a plan for fundamental reform — to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it," said Treasury Secretary Timothy Geithner in a statement. "We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."

At stake are the health of the real estate market, economic growth and, some argue, the future of the 30-year fixed-rate mortgage. The challenge for policymakers is to attract private investors back into the mortgage market while retaining the benefits that Fannie and Freddie established — a liquid secondary mortgage market and greater access to homeownership. The administration and lawmakers are also attempting to prevent a repeat of the excessive risk-taking and inadequate supervision of the housing market that led to the 2008 financial crisis, while reassuring foreign investors in housing bonds and U.S. government debt.


Use the Web to save $8,000 a year

This article was originally published by MSN Money on Monday, Jan. 31, 2011.

Smart shoppers use the Internet to save a bundle through comparison sites, coupons and online services. Just be sure you're not wasting time and money to save a buck.

By Katherine Reynolds Lewis

Savvy Internet users can save nearly $8,000 a year through smarter shopping, online discounts and Web-based services such as bill paying, according to a report compiled for the Internet Innovation Alliance.

Gale Swanson, 53, can attest to the value of an Internet connection. Since her children gave her a computer in 2009, her Web usage has saved her more than $5,000 on gifts, entertainment, food and travel purchased through the Internet -- and ended her weekly trips to Big Lots and Wal-Mart.

"Because I'm on a fixed income and a budget, I have to make sure I don't spend my money frivolously," said Swanson, a retired office manager in Van Nuys, Calif. "The ease of being able to find things that are discounted is great."

Reforming Fannie and Freddie: a $6 Trillion Dollar Problem

This article was originally published by the Fiscal Times on Sunday, Jan. 23, 2011.

As the administration prepares its proposals for overhauling Fannie Mae and Freddie Mac, the housing industry and public interest groups are floating ideas of their own.


By Katherine Reynolds Lewis


As the Obama administration struggles to draft a report to Congress on how best to overhaul Fannie Mae and Freddie Mac, industry and public interest groups are promoting plans of their own for the two mortgage giants.

The proposals range from replacing Fannie and Freddie with new, chartered private firms to gradually shrinking and privatizing them. After the housing bubble burst, leading to the worst recession since the Depression, the government stepped in to secure the companies’ $6 trillion worth of U.S. mortgages in order to avoid an even worse financial calamity.

The Treasury faces a Jan. 31 deadline under the Dodd-Frank law to make recommendations on the future of Fannie and Freddie, although the Fiscal Times reported last week that they may miss the deadline because of sharp divisions within the administration. The stakes are high: Economic growth, return of private capital to the housing market, resilience in the event of future crises and continued consumer access to 30-year fixed-rate mortgages all hinge on the right strategy.

Most interested parties agree on the basic outline of a new structure that would divide the functions of Fannie and Freddie between government and the private sector in order to shift the mortgage securities market back to private investors while ensuring Americans' access to affordable housing and credit.

Administration Split Over Fannie Freddie Strategy

This article was originally published by the Fiscal Times on Thursday, Jan. 20, 2011.

With a Jan. 31 deadline looming for making recommendations, the Obama administration is badly divided over how to reform Fannie Mae and Freddie Mac, the financially strapped and controversial mortgage giants.

By Katherine Reynolds Lewis

The Obama administration is sorely divided over how to reform Fannie Mae and Freddie Mac, the controversial mortgage giants. Sources familiar with the discussions raise the possibility that the White House will miss its statutory deadline for submitting recommendations to Congress.

The dispute pits White House economic advisers, who favor merely offering lawmakers a menu of possible next steps without committing to a specific direction, against officials at the Treasury and Department of Housing and Urban Development, who want to endorse an explicit federal guarantee for the mortgage companies and throw the administration's support behind it, the sources said.

The controversy is as much over strategy as substance. White House advisers aren’t certain whether going out on a limb with a specific plan will drive reforms of the federal housing finance program in a constructive way, or present an easy target for opponents. Administration officials who object to offering an explicit guarantee so early in the process say it would make it harder to negotiate a compromise. Instead, they argue, the administration would be better off laying out a range of options, to give them maximum flexibility in talks with Democratic and Republican lawmakers and industry officials.

The government currently supports 97 percent of the mortgage market, and the two entities own or guarantee nearly three quarters of that amount, or $6 trillion in debt, which policy experts and stakeholders agree can’t be indefinitely sustained.

Virginia farm supplies D.C. eateries despite animal-care violations

This article was originally published by TBD.com on Thursday, Nov. 18, 2010.

By Katherine Reynolds Lewis

Mie N Yu, Potenza, Zola -- they're all among a movement in Washington culinary circles toward locally grown, all-natural ingredients.

Another thing they have in common: dealings with Black Eagle Farm, a producer in rural Virginia that was found to have violated animal-care statutes and that lost its organic and humane certifications. Last December, a Virginia state veterinary inspector found that many of the animals at the Nelson County farm were emaciated and in need of veterinary care; the farm's working dogs ate raw meat rather than appropriate food; and one hen house contained eight chicken carcasses.

"The place was completely filthy," said Karen Davis, president of United Poultry Concerns, a Machipongo, Va.-based animal rights group that reviewed state records and photographs of the farm. "The company just stopped feeding the birds."

The state investigation was sparked by "numerous complaints" about maltreated dogs, livestock, and poultry on the farm, which is about 45 miles southwest of Charlottesville. A dead goat was tied to a fence, according to the records, and six dogs were allegedly being locked in a trailer full of feces for four days without water, and at least one was dying. The allegations and findings are spelled out in state records obtained through a Freedom of Information Act request by Gina Schaecher, general counsel for the Appalachian Great Pyrenees Rescue, based in Richmond, Va., which tried to rescue dogs on the farm.

The Other Real Estate Crisis — Commercial Property

This article was originally published by the Fiscal Times on Saturday, Sept. 18, 2010 and the Washington Post on Sunday, Sept. 19, 2010.

The landmark Mayflower Hotel in Washington, D.C. has been a watering hole for presidents and pundits alike. But like other commercial real estate properties throughout the country affected by the mortgage crisis, the Mayflower is under water.

By Katherine Reynolds Lewis and Jonathan O'Connell

It was dubbed Washington's second best address by Harry S. Truman, and it has hosted events for every presidential inauguration since Calvin Coolidge. Franklin Roosevelt used it as a retreat to work on his 1933 inaugural address. And FBI Director J. Edgar Hoover was a lunchtime regular.

The elegant Renaissance Mayflower Hotel, a Washington landmark since 1925, was considered a hot property when Rockwood Capital of San Francisco acquired it for $260 million in March 2007. Then, practically overnight, the real estate market collapsed and credit evaporated in a historic global financial meltdown. The new hotel owners, saddled with $200 million in debt, watched as the value of the property tumbled. By August, credit agency Realpoint estimated its value at $128 million.

The Mayflower loan was underwater, the plight of hundreds of billions of dollars' worth of commercial properties across the nation that are worth less than their mortgages. If the hotel's owner couldn't find a way to restructure the debt, it could lose the property.

A staggering $1.4 trillion of commercial real estate loans will come due nationwide in the next four years, forcing borrowers such as Rockwood to refinance or default on their obligations. Trouble lingers even at doorsteps in Washington, one of the strongest markets in the country thanks to a broad employment base, a sound infrastructure and a massive government presence.

This is happening at a time when the capacity to absorb such debt has been slashed, following the bankruptcies of financial firms such as Lehman Brothers and the collapse of the commercial mortgage-backed securities issuance down to a tenth of its peak size. The thought of a string of commercial real estate defaults walloping the barely recovering economy and jeopardizing the stability of still-tottering banks is enough to keep analysts up at night.

"It's a very tricky time right now," said Geoffrey DiMeglio, director of consulting at Market Outlook, a consulting firm. "Even in a weak recovery, I don't see employment improving the fundamentals in real estate fast enough to get these properties out of default."

Are There Still Banks Too Big to Fail?

This article was originally published by the Fiscal Times on Friday, Sept. 3, 2010.

Fed Chairman Ben Bernanke told the Financial Crisis Inquiry Commission that federal regulators must be ready to close down the largest banks and financial institutions if they once again threaten to bring down the global financial system.

By Katherine Reynolds Lewis

Two years after Washington had to spend hundreds of billions to bail out much of Wall Street, members of a Financial Crisis Inquiry Commission said Thursday the country still has a problem with financial institutions that are "too big to fail."

Federal officials and most financial experts agree that so-called too-big-to-fail-institutions like AIG and Citigroup helped cause the crisis and were a huge drain on the Treasury and Federal Reserve.

The major financial overhaul legislation pushed through by President Obama this year put in safeguards to try to avoid a repeat of the crisis in which federal officials were forced to decide which firms would go under or be auctioned off and which had to be propped up because of their importance to the financial world. But commissioner Byron Georgiou, a skeptic, noted that the six largest financial groups in 2009 constituted 63 percent of gross domestic product, an increase over the 58 percent of GDP they represented in 2007, at the height of the housing bubble, and both up from a mere 17 percent in 1995.

“Given their increasing size, do you really believe these institutions would be allowed to fail today?” said Georgiou, a personal injury and financial fraud lawyer. “Are we really in any better shape today to avoid the bailouts that have been so criticized in the last few years?”

Down Payments are Back

This article was originally published by Interest.com in October 2008.

If you're buying a home this fall, you'll need a down payment of anywhere from 3% to 25% of the purchase price, depending on your lender, your credit score and where you're buying.

Just a couple of years ago, almost anyone could get 100% financing. Down payments were a relic of the '80s and '90s, sort of like Pac-Man and grunge rock.

But such irresponsible lending is why foreclosures are at a record high, the banking industry is collapsing and the economy is headed for a serious recession.

Major Changes Needed in U.S. Spending Habits

This article was originally published by Newhouse News Service on Thursday, July 7, 2005.

By Katherine Reynolds Lewis
c.2005 Newhouse News Service

We, the people of the United States, spend nearly every dollar we make.

The national savings rate -- personal savings divided by disposable income -- routinely dips close to zero, while consumer and mortgage debt spiral ever upward. A majority of Americans have less than $25,000 stockpiled for retirement, while many experts say a healthy nest egg is more than $500,000.

Some say we're a country of spendthrifts, splurging on designer clothes, Starbucks coffee and cable TV. But we're also spending dramatically more on the essentials of living than a generation ago.

"It's not about lattes and sneakers; it's about health care and housing," said Elizabeth Warren, Harvard University law professor and co-author of "All Your Worth: The Ultimate Lifetime Money Plan."

"It's not about pennies; it's about the big dollars," Warren said. "That's what's blasting the hole in the American family budget."

To really save enough for old age, experts say, we will have to buy smaller homes, make our cars last longer, take public transportation and adopt other radical lifestyle changes. And it wouldn't hurt to brew that coffee at home.



Compared with a generation ago and in dollars adjusted for inflation, Warren said, the average family of four spends 69 percent more on a mortgage, 90 percent more on health care, 100 percent more on child care and 38 percent more on taxes. Families actually spend 21 percent less on clothing than in the 1970s, 22 percent less on food, 44 percent less on appliances and 30 percent less on furniture. Even though families spend 20 percent less per car, the need for a second vehicle has boosted overall car costs by 58 percent.

While family income has climbed nearly 75 percent -- thanks to the great increase in the number of working mothers -- people have more than spent the extra money and gone into debt besides, Warren said. The situation has worsened dramatically in the past five years as wages and job growth stagnated while housing costs soared.

"We have overconsumed, and we have not prioritized retirement savings for a generation," said Dan Houston, a senior vice president at the Principal Financial Group in Des Moines, Iowa. "By the time you really get the wake-up call, it may be too late."

Nicole DelBuono, 35, a computer technician New Jersey, knows she should be saving more for retirement.

But after paying for utilities, the mortgage on her new home, two car loans and food, there isn't much left at the end of the month. DelBuono once took a class on budgeting and found it overwhelming.

"I wrote everything down and I hated seeing it; it stressed me out," she said. "I worry a lot about Social Security ending like they talk about. I just want to be sure that my children aren't stuck taking care of me."

She and her husband, Dan, have about $40,000 between their two 401(k) plans and a couple of thousand in the bank for emergencies. They owe about $29,000 on their automobiles, $2,800 in student loans and $5,000 on four credit cards. A home equity loan last year boosted their mortgage to more than they paid for the house.

Houston advises setting aside the necessary retirement savings each month -- 15 percent of income is frequently recommended -- and only then seeing what's left for housing, transportation and other necessities. You may find it's not enough for the house you want, or the one the realtor thinks you can afford.

Seventy percent of Americans expect to work into retirement to make up the shortfall in their savings, according to a survey by Prudential Financial Inc. in Newark, N.J.

But an injury, illness or layoff can cut short a career and force drastic spending cuts. Four in 10 retirees surveyed by Prudential said they were forced to stop working. Nearly half of them were younger than 60.

Marilyn Brenden, 56, was diagnosed with breast cancer shortly after being laid off as director of a homeless program. Cancer treatment left her too weak to take a new full-time job, and she couldn't risk losing her health insurance if she missed a payment.

"I wasn't worried about whether I would survive the cancer," said Brenden, who lives with her mother in Silverton, Ore. "The big question was whether I was going to survive the financial crisis."

She eliminated hair perming, coloring and cutting -- that is, when chemotherapy ended and her hair started growing back. She stopped buying makeup and clothes, relying on freebies and hand-me-downs from friends. She wore pants to avoid purchasing pantyhose.

"You have to learn to distinguish between things that are true needs and things that you just want that you don't need," Brenden said. "What's just an ordinary decision for other people, for someone who's poor becomes a major, major decision."

Susan Hand suddenly became the breadwinner when her husband decided to retire early from Motorola Inc. rather than be transferred by the company to Texas from North Carolina, where his children live. It was daunting to be in charge of three mortgages -- two homes and a boat -- and to need to save enough for her own pending retirement.

"What we were told at the time was, it's possible but it's going to be a stretch," said Hand, 52, a senior project manager for IBM Corp.

So, the couple made some major changes: They sold their house in Raleigh, thanks to IBM letting Hand telecommute from their Outer Banks home. They plan to make do with their cars for a decade or more instead of replacing them every two years. Both are on a monthly allowance.

It's hard to predict what might change to bring more American budgets into balance. One thing is clear: The current situation is unsustainable.

"Consumption as a share of income will be much lower in five years, but when the break turns, and how abruptly, is anyone's guess," said Lee Price, research director at the Economic Policy Institute, a labor-backed Washington think tank.

One likely scenario is an increase in interest rates, which have been near record lows for years. Then, people with credit-card debt, or adjustable rate or interest-only mortgages, will have trouble making higher monthly payments and will start to default on their obligations.

Nicole Lowe, credit education specialist at TrueCredit.com, a subsidiary of the credit-reporting firm Trans Union LLC, said it would be smart to refinance to a fixed-rate mortgage now, and pay down as much credit card debt as possible. Focus on your net worth, making sure your assets exceed liabilities. A small savings account doesn't do much good if you have a huge credit-card balance.

An abrupt shift could be catastrophic, experts said.

People in their 30s and 40s, the prime spending years, haven't experienced a serious economic downturn, said Dennis Jacobe, chief economist for the Gallup Organization in Princeton, N.J. Only 41 percent of those surveyed in June have an emergency fund, and 31 percent of those said the money wouldn't last as long as three months.

"There are not a lot of Americans who could afford to be out of a job for a long time," Jacobe said. "If we do at some stage have a significant recession, the pain is going to be a lot greater."

Banks Find Mortgage Clientele in Undocumented Immigrants

This article was originally published by Newhouse News Service on Monday, March 14, 2005.

By Katherine Reynolds Lewis
c.2005 Newhouse News Service

Dalila and William Timal look like any other couple signing a home mortgage. They've picked out paint colors for their new four-bedroom house in Indianapolis and can't wait for their 18-month-old son to play in the yard.

But they differ in one way from many others you'd see at a loan officer's desk: Neither is a U.S. citizen or legal resident. The Timals came to this country from Guatemala in the late '90s and illegally overstayed their visas.

They're the beneficiaries of a new program by Cincinnati-based Fifth Third Bank, basing mortgages on an individual taxpayer identification number, or ITIN.

Nationwide, increasing numbers of financial institutions offer such loans. They view customers like the Timals as part of their communities, not to mention a critical business opportunity. Just among the nation's roughly 6 million undocumented Latinos is a potential $44 billion market for homes, according to the National Association of Hispanic Real Estate Professionals.

"People need somewhere to live," said Ann Baddour, senior policy analyst with Texas Appleseed in Austin, a nonprofit group that uses volunteer professionals to solve social problems. "It's not new that people are buying homes; what's new is that banks are financing it."

Appraisers Cite Pressure to Inflate Home Values

This article was originally published by Newhouse News Service on Monday, June 23, 2003.

By Katherine Reynolds Lewis
c.2003 Newhouse News Service

Real estate appraisers -- the professionals who certify what a house is worth -- say they are pressured more and more to exaggerate values in order to smooth the way for a refinancing or sale.

Yielding to such pressure not only contributes to an artificial bubble in real estate prices, but it can leave homeowners in the lurch when they discover their appraisal was inflated. Consumers have lost homes and been forced into bankruptcy due to faulty appraisals.

But with interest rates at 40-year lows, the demand for soaring appraisals is at a fever pitch, experts say.

"It's putting a squeeze on the professionals in the appraisal business who truly do conduct themselves with integrity and professional standards," said Anne Petit, superintendent of Ohio's Division of Real Estate and Professional Licensing.
Appraisers worry that they'll be blamed if the booming property market collapses and their lofty valuations suddenly look as worthless as all those "buy" ratings on stocks in the late 1990s.

"It's coming quickly, the day of reckoning," said appraiser Robert Ipock, owner of Bob Ipock & Associates in Gastonia, N.C. "If the economy does not get going pretty damn fast, we're going to breach the bubble and prices are going to start dropping. I fear that the same thing will happen to real estate that happened to the stock market, where people lost faith in it. That would be devastating to the whole country."

Smart Money Moves Are Easier in Hindsight

By Katherine Reynolds Lewis
c.2008 Newhouse News Service

Ready to scream if you hear one more can't-lose stock tip or secret for making a fortune in real estate? Who can truly say whether popular investment advice will leave you richer or poorer a year from now?

Hindsight is an easier game, and it can sometimes inform your future decisions. Let's look back over the past year at the financial moves that turned out to be brilliant.

Reverse Mortgages Should Be Last Resort

By Katherine Reynolds Lewis
c.2008 Newhouse News Service
Photo by B.K. Angeletti

Diane and Peter Carrara moved into their dream house in Chepachet, R.I., in 1958. It was an unfinished shell — no doors, bathtub, heat, or even finished flooring — but it was near a lake and nestled in the woods, just like they wanted.

They talked the owner into accepting $50 a month the first year, while Peter finished enough of the house to qualify for a mortgage. They pinned blankets across the kitchen doorway to keep in the stove's heat, and slept on the floor "with all the clothes we owned on our back" and their 2-year old son between them, Diane said.

Over the next half-century, they finished the basement and the walls, added a deck, and landscaped the property, with Peter doing most of the work.

So when the medical bills started piling up a few years ago, they weren't about to sell their home. They signed up for a reverse mortgage that gave them $20,000 up-front, a line of credit, and $400 a month for as long as one of them lives in the house.

"I've been here 50 years, sweetheart," said Diane Carrara, 72. "If I have to take an ambulance out of the hospital to die here, that's what I'll do."

This determination to leave your home feet first, or not at all, is part of what prompted 107,367 government-insured reverse mortgages in 2007 — a 41 percent jump from the previous year, according to the National Reverse Mortgage Lending Association.