Reuters Money

How parents of multiples tackle financial challenges

Kevin O’Reilly spends his life dispensing financial planning advice. But he wasn’t exactly fiscally prepared when his wife Rebecca had triplets more than six years ago after spending close to $20,000 on fertility treatments. At the time she was earning a substantial salary as a project manager.

The plan was for his wife to return to work not too long after the delivery. That pretty much went out the window once they found out she was carrying triplets because of the extra care they required.

Although the loss of one income was the biggest financial challenge the couple faced, there were others.

“We had to buy a minivan because we needed a vehicle that could fit three car seats,” says Kevin, a Scottsdale, Arizona-based financial adviser. “That set us back about $30,000. Then there’s the cost of diapers, formula and everything else you need.” While they have set up college savings plans for each of the children, the family has had to cut back substantially on retirement plan contributions.

As the media continues to follow Kate Gosselin and Nadya Suleman, thousands of families with twins and triplets quietly struggle with unique financial issues that most singleton parents don’t face, or encounter more gradually. With the use of fertility drugs more than doubling the rate of multiple births since 1980s, many families now grapple with these issues.

In the scheme of things having to buy two or more of everything at once or the absence of hand-me-downs may seem like fairly minor inconveniences. But adding multiples children to the mix can have more serious financial consequences when premature deliveries and related health complications, which are more common with multiple births, lead to exorbitant hospital bills.

Research shows that the financial stress of multiples takes a real toll on families, according to a study released last year from the University of Birmingham in the UK. It found that 62 percent of multiple birth families reported being financially worse off after their babies were born, compared to 40 percent of other parents. Families with a multiples birth were more than twice as likely as others to categorize their financial problems as “quite difficult.”

CORRECTED: Who benefits from student loans and educational tax benefits?

On Wednesday, we looked at mortgage debt and the home mortgage interest deduction, based on new data released in a Joint Committee on Taxation report. Today, we’ll look at student loans and their corresponding interest deduction.

The numbers here are far, far smaller, and therefore less likely to be a meaningful target in the ongoing budget discussions in Washington: The amount of student loans out, $33 billion $330 billion, represents a sliver of total household debt of $13.4 trillion, and is dwarfed by the $10.2 trillion in home mortgage debt. While the ever-rising cost of higher education is an enormous issue for anyone who’s facing those college costs, as a country we’re more indebted for our cars.

The reasons for providing tax benefits for education are clear: More education results in higher wages, higher productivity and, even, studies show, improved health. Academic studies show that an extra year of education increases wages by between six percent and 13 percent. Also, importantly, government intervention can help reduce the inequalities in access to education between low-income and high-income families.

Yet, it’s tougher to know precisely what the right policy should be. Over the past 25 years, the tax treatment of student loan interest has flip-flopped (at times allowing unlimited deductibility, at times prohibiting it, and at times limiting it for higher-income taxpayers). The tax code offers a variety of other educational tax benefits — including tax credits that are generally more valuable than deductions — that are extremely complicated to sift through.

Who gains from the student loan deduction? According to the JCT report, the total cost of the student loan interest tax deduction is $801 million, all of which goes to families earning under $200,000 a year. Nearly half of the benefit (47 percent) goes to families that earn $75,000 or less. The average amounts per return are relatively small: $180 for those who earn between $100,000 and $200,000 and $133 for those who earn between $50,000 and $75,000.

But the issue with the deductibility of student loan interest is more complicated than this data makes it seem because there are so many — overlapping and sometimes conflicting — tax benefits for education. The bigger issue is not this one tax break, but that morass.

As National Taxpayer Advocate Nina Olson testified before the Senate Finance Committee in late June: “The tax code contains at least 11 separate incentives to encourage taxpayers to save for and spend on education. The eligibility requirements, definitions of common terms, income-level thresholds, phase-out ranges, and inflation adjustments vary from provision to provision. The point of a tax incentive, almost by definition, is to encourage certain types of economic behavior. However, taxpayers will only respond to incentives if they know they exist and understand them. Few, if any, taxpayers are aware of each of the education tax incentives and familiar enough with the particulars to make wise choices. Moreover, some who try to make informed choices will be overwhelmed by this complexity.”

Golden Girls 2.0: Shared housing as a retirement strategy

Those Golden Girls may have been on to something. Alternative living arrangements — like the group house featured in the popular 80′s sitcom — are gaining steam among retired women, affording them a higher standard of living, in-home support services and companionship while aging in place.

Want to employ that personal chef you’ve always dreamed about? What about a pool and a view of the 18th hole? With women living at least five years longer than men on average, home sharing — which is dominated by women — helps them maintain or even elevate the quality of life in retirement.

Homesharing allows participants to continue a certain kind of lifestyle that they may not be able to afford when they are out of the workforce, single or widowed. That’s really the most compelling reason to share a home, but companionship is a big draw, says Nancy Thompson, AARP spokesperson. “It’s nice to have company, to remark about something to someone, or to share your interests,” she says.

“I’ve often said I wanted to live like the Golden Girls,” says Marianne Kilkenny, home share advocate and founder of Women for Living in Community. Kilkenny, 61, shares an Ashville, North Carolina home with four other renters — two women and a married couple — ranging in age from 58 to 71. “For boomer women, we’re the first generation that has had the financial means to be able to live on our own for any length of time and are finding that it gets really old because you have to count only on yourself,” she says.

A sense of belonging and peace of mind is integral, says Kilkenny, adding shared housing has allowed her to live in a nicer home with better appliances in a swankier neighborhood. “One of the oldest human needs is having someone to wonder where you are when you don’t come home at night,” she says, quoting Margaret Mead. “For those of us who have been single, these are the things you don’t know you are missing.”

In 2010, there were approximately 480,000 baby boomer women living with at least one female non-relative roommate and no spouses, according to an AARP analysis of population survey data. That’s approximately 130,000 Golden-Girl type households across the country.

The home share trend is so popular that match-up services are springing up around the country.

Is real estate for suckers?

Are you a dope for buying a home in the U.S. right now?

If you need and want one, there’s no harm in that. Yet if you think it’s an investment that will actually appreciate, you’re taking a sucker’s bet.

During the bubble years, the “greater fool” theory prevailed. When you bought a home, you were confident that someone would buy it for a higher price than you paid. “Flippers” prospered from this mass psychology.

Right now, it’s a “lesser fool” market: You’re hoping that you’re not foolish for buying a depreciating asset in a troubled economic climate. Millions stay out of the market just to avoid the feeling of doing a fool’s errand.

Home prices are still dropping in many areas with no real bottom in sight. Zillow, the real estate tracking service, recently reported that first quarter prices were approaching the declines last seen in the Great Depression.

The U.S. home market is no longer in triage mode. It’s a train-wreck. Zillow said home prices “are no longer due to bottom out” this year. When will they, then? It may take years, and here’s why.

Anyone who bought during the bubble may never see any appreciation. Since most of them are “underwater” — the mortgage is more than the home’s value — they have no economic stake in the house. They may join a growing wave of “strategic defaults.” At least one quarter of the entire market is stuck in this way.

House-hunting? Don’t buy until you read this

By Jennifer Merritt

Spring is home buying season, so the common wisdom says. In the winter, fewer homes go on the market and fewer buyers trudge out in chilly temperatures to look. Summer is filled with vacations, keeping would-be buyers away. And the fall, well for families, is the start of school and not the time to make a big move. That makes spring the sweet spot for finding a home and closing on it before summer vacation or the new school year.

Hampered by two-plus years of falling home prices and ultra-tight mortgage lending, spring has begun to live up to its reputation as prime home buying season. While still in the shadow of pending foreclosure and short sales, home prices are still depressed, and, in some areas, have begun to stabilize. Mortgage rates remain near record lows. Altogether, these factors contributed to a rise in homes in-contract to be sold; the National Association of Realtor’s pending home sales index rising two percent in February and 5.1 percent in March.

But don’t let the warmer weather and those heightened senses of sight, smell and feel that come with spring cloud your judgment. In addition to the usual checklist items on your home buying list — like getting pre-qualified for a mortgage or observing the upkeep of homes and streets around the one you want to buy — keep these five less obvious items in mind when you house hunt.

The seller’s disclosure offers false comfort. These disclosures were meant to protect buyers from hidden problems and to protect sellers from lawsuits after a sale. But real estate experts say the biggest problem with the disclosure sheet is that a homeowner isn’t an architect or an engineer. A homeowner is unlikely to be able to answer questions about, say, cracks in the foundation. Disclosure forms also often ask about issues on or “affecting” their property, but most sellers won’t know if a pipe under a neighbor’s yard is corroding and about to cause thousands of dollars in damage to both properties. In some states, like New York, a loophole in the state law allows sellers to give a $500 credit at closing instead of handing over a disclosure sheet. Most sellers opt to hand over the cash, say agents. Bottom line: Order up — and be present for — a thorough inspection before signing a contract.

Sure, you can buy more house, but can you afford the heating bill? Soaring entryways, open floor plans and walls of windows might be visually appealing and pleasant to live with, but they come with bigger heating and cooling bills. “A home is a consumer of energy,” says Peter Miller, publisher of ourbroker.com. “If you buy a bigger house, you are also buying higher utility costs.”

Older, less energy-efficient appliances and outdated windows also contribute to the costs. Even careful observation won’t tell you everything you need to know about a home’s energy costs. Miller suggests asking for copies of recent gas, oil, water and electric bills from a seller — a year’s worth is best. In some areas, this information is publicly available from local utilities. If the seller agrees, just keep in mind differences in your use of the home. An owner with a big family or kids at home all day is bound to have a higher bill than a couple who both work all day.

Spouses of reverse mortgage borrowers get foreclosure relief

The U.S. Department of Housing and Urban Development (HUD) has reversed itself on a rule that was forcing some spouses of reverse mortgage borrowers into foreclosure.

For years, HUD has described reverse mortgages insured by the government as non-recourse loans.

Those loans, known as a Home Equity Conversion Mortgage (HECM), are designed so that borrowers could never owe more than the value of their homes, even though the loan balances rise over time. The intent was to assure elderly borrowers that HECMs were safe.

But a lawsuit filed last month by the AARP Foundation seeks foreclosure relief for spouses of deceased reverse mortgage borrowers. It charges that HUD illegally implemented two important rule changes in 2008. The first stated that the non-recourse provision would apply only when properties are sold. That means that if the spouse dies, the surviving non-signing spouse would have to repay the full outstanding HECM balance, even if the home’s value had dropped.

Second, HUD changed a rule stating that a borrower could sell a secured property for 95 percent to 100 percent of its appraised value. The new rule stated that only “arm’s length transactions” would be allowed under that range of prices. That effectively meant that a non-signing surviving spouse could retire a HECM only by repaying the full loan balance, but that a third-party buyer could purchase the property for as little as 95 percent of appraised market value.

The AARP lawsuit alleges that, as a result of the rule, many spouses or heirs who want to purchase the property have been unable to do so because they cannot obtain financing that exceeds the current value of the property. The federal lawsuit argues that the rule violates other HUD rules and existing contracts between reverse mortgage borrowers and lenders, and that it negates a key purpose for which borrowers had been paying insurance premiums.

Homeowners, don’t be fooled by this foreclosure scam

Looming foreclosure can be one of the scariest times for any family down on its luck. So, it stands to reason that crooks would design scams to target that vulnerability and try to squeeze whatever money these people who can’t pay their bills can scrape up.

The state of California has issued a warning about a scam that involves getting these vulnerable homeowners to pay fees up front with the idea of winning a lawsuit that will get them their homes free and clear. The cost to participate in this heavily marketed scam is $5,000.

The scam is particular elaborate since a federal ban went into effect earlier this year against requiring up-front payments to those offering mortgage relief. Rules being what they are, there is an exception to it — for lawyers. While the terms are a bit more specific than that, it opened the door to people supposedly working on behalf of lawyers to still preying on those whose homes are being foreclosed.

“Those who continue to prey on and victimize vulnerable homeowners have not given up,” the warning by Wayne S. Bell, chief counsel of the California Department of Real Estate, says. “They just change their tactics and modify their sales pitches to keep taking advantage of those who are desperate to save their homes. And some of the frauds seeking to rip off desperate homeowners are trying to use the lawyer exemption above to collect advance fees for mortgage assistance relief litigation.”

Those running the scam are making claims across the country, using the web as their vehicle in many instance, to try to sell these folks on the idea they will not only not lose their home to the bank, they’ll win full ownership.

The scammers try to convince their targets that they will be participating in a “mass joinder” or class-action lawsuit. Here are a few of the claims being made that were highlighted by California officials:

• If you join in the suit, you can remain in your home and stop paying your mortgage.
• When the lawsuit is filed, your obligation to the bank ends.
• Lawyers are “turning the tables on lenders and getting cash settlements for homeowners”.

Real estate now: Buy here, rent there

It’s now cheaper to buy a home than it is to rent one in 72 percent of major American cities, reports Trulia.com, a real estate research and shopping website.

It’s typically cheaper to buy than to rent when the median home price is less than 15 times the current median annual rent. (In Trulia’s parlance that would be a price/rent ratio of 15.) Put another way, 15 years or less of stable rent payments would cover the purchase price of a house in the vast majority of the cities studied by Trulia.

The biggest bargains are in those areas that have been hit hardest by the housing downturn: In Miami and Las Vegas, it would only take six years of current rent payments to pay for a home. That’s not just because home prices in those areas have fallen, says Tara-Nicholle Nelson of Trulia. It’s because rents tend to rise in foreclosure-heavy areas, as former homeowners must find rental housing.

Of course, there are no guarantees that home prices won’t fall further in those hard-hit areas. Experts at Standard & Poor’s/Case-Shiller home price index suggested home prices could drop further on January 25.  But “the lower the ratio, the less likely the house is to continue to decline,” said Nelson in an interview on her findings.

The only places on the list with extremely high price/rent ratios were New York (at 31); Seattle, Washington (24); Kansas City, Missouri (24); and San Francisco, California, (21). Of perennial hot spots New York and San Francisco, Nelson said: “It will never be less expensive to own a home than to rent in these places. There are enough affluent families and households that homes there will always be in demand.”

As for the most affordable homes, they are all in areas that have taken a price hit: Three are in Texas: Arlington (with a price/rent ratio of seven) , San Antonio (11), and El Paso (11); two are in Arizona: Mesa and Phoenix, (each with a price-rent ratio of eight) and two are in California: Sacramento (10) and Fresno (11). The other city in the top ten is Jacksonville, Florida, with a price-rent ratio of eight).

Not everyone should run out and buy a house just because they live in one of those relatively cheap housing markets, though. The decision to buy is more personal than market-driven, and unless you’re really ready to buy a home –- with a good credit score, some solid savings, and the commitment to stay put for a minimum of five years — you should keep renting, says Nelson. Judging from other prognostications, such as the one from Standard & Poor’s David Blitzer that “a double dip could be confirmed before spring,” it doesn’t seem as though home prices will run away from you any time soon.

Lenders, feds move to address reverse mortgage defaults

Reverse mortgage loans, which allow seniors to convert home equity into cash, have become more popular in recent years. But now the reverse mortgage industry and government regulators are dealing with a potential nightmare: a growing number of loan defaults that could lead to foreclosures, and even evictions of elderly homeowners in some cases.

Non-performing loans represent a small share of overall reverse mortgages, but their number has grown quickly in the past two years.  (Borrowers aren’t required to make monthly mortgage payments, but can end up with a loan in default if they fall behind on their property taxes and insurance payments.) The spate of non-performing loans has raised concerns about the prospect of seniors losing their homes, and also about the risk of losses for the Federal Housing Administration Insurance Fund, which insures the loans.

Reverse mortgages are available only to homeowners over age 62. They allow seniors who need cash to tap home equity while staying in their homes. Unlike an equity line of credit, repayment of a reverse mortgage typically isn’t due until the homeowner sells the property or dies. Reverse mortgages have been criticized for high upfront fees, which can total five percent of a home’s value.

The most popular loan type is the Home Equity Conversion Mortgage (HECM), which is administered by the U.S. Department of Housing and Urban Development (HUD); the current loan limit on a standard HECM is $625,500, although a new “saver” HECM was introduced last fall with lower loan limits and fees.

HECMs have no monthly loan payments, but it’s still possible for borrowers to default, because loan terms require them to continue paying property taxes, hazard insurance and any required maintenance on their property. About five percent of the 550,000 loans outstanding are non-performing under those terms, according to Barbara Stucki, vice president of home equity initiatives at the National Council on Aging (NCOA).

Reverse mortgage lenders typically advance tax or insurance bill payments in cases where borrowers haven’t tapped their maximum loan amounts, adding those costs to the loan balances. But in cases where loan amonts are exhausted, borrowers have been falling into a limbo of sorts, due to a lack of clear guidance from federal regulators on how lenders should handle defaulted loans. The number of loans in limbo rose 173 percent between May 2009 and March 2010, according to an audit by the Inspector General’s office of the U.S. Department of Housing and Urban Development (HUD).

The prospect of foreclosure and possible evictions of seniors has made HECM default a political hot potato for the federal agencies involved, which include HUD, the Federal Housing Administration and Fannie Mae. Until last year, Fannie purchased most HECM loans from issuers, but it has exited the market for reasons unrelated to defaults.

How many kids are too many?

Carl Friedrich and his wife were perfectly happy – and busy – running a wealth management practice with a bustling household of four daughters. Then a bouncing baby boy arrived.

“For us, that was the tipping point,” says Friedrich, the managing principal at Friedrich Wealth Management in Syosset, New York.  “Four kids was a do-able, and five kids…it’s a stretch.”

Anyone with kids knows that growing a family is an emotional decision fraught with financial considerations – and limitations.

With the average cost of raising a child estimated at more than $220,000, one family’s “tipping point” is another’s happy medium. So how do you know how many kids are too many?

Start by taking a cold, hard look at these five key costs, Friedrich suggests.

College Sending your kids to college may seem far off, but it’s one of the biggest expenses you’ll incur raising a child  – and the sooner you start planning, the better. “With college inflation outstripping consumer inflation by 3 percent to 4 percent annually, that’s no small fee,” Friedrich says.

Saving for college in a 529 plan is a good option, so long as you’re aware of some of risks involved. For example, Friedrich feels the age-based allocation plans often have too much exposure to equities and, as such, are risky for parents who are late to the college savings game.