Over the past year, my Aetna health Insurance premiums have gone up three times.  Not because I or my wife incurred any illness or started taking new prescriptions.  They just went up. 

Aetna gave several reasons - Our age (turning 64), etc.  Everytime this happened, I got on the phone and lowered our benefits so that the premium could stay around $650 monthly...and the coverage got pretty skinny as time went on.  Recently, we moved 34 miles in preparation for retirement.  When I submitted a change of address to Aetna, they raised our premiums by $150 monthly due to our having moved to a "new servicing area."

This is total bulls#*t!  What I have concluded is that health insurance companies blatantly squeeze Baby Boomers on the premium during the last year they have them on the hook before Medicare kicks in.  An Aetna rep I talked to more or less confirmed this.  They are shameless about it.

And they have no fear of repercussions because they own the Congress.  Wouldn't it be great if our representatives in Washington had to endure the same health insurance abuse we do instead of having privileged coverage?  That's the only way we'll ever see reform among these monopolistic insurers.

Thoughts anyone?

        

As the likelhood of continuing waves of foreclosures in 2010 increases, America is seeing a dramatic increase in the rise of strategic mortgage defaults.  That is, homeowners who make a conscious decision to walk away from their homes.  They arrive at this juncture for a variety of reasons - financial survival, inability to continue paying the mortgage, or even a flat business decision that their "upside down" home has become a bad financial investment. 

Whether to walk away from your home has become a burning issue among many Baby Boomers whose savings have been hit hard by the recession and equity evaporation.  If you are contemplating a strategic mortgage default, it is best to learn as much as possible and weigh the consequences - both pro and con - of such a decision before taking that step.  A list of current articles is provided here to help you in that task:

• Understanding Strategic Defaults
• Demanding that Homeowners Make Good on Underwater Mortgages Is the Height of Moral Hypocrisy
• No Help in Sight, More Homeowners Walk Away
• Duplicity in mother-of-all mortgage walkaways

Are strategic defaults a moral issue or a business decision?  You decide.  Walking away, however, does carries repercussions:

• It's a black mark on your credit score for seven years.
• In many states, first mortgages are "non-recourse" loans, so the lender cannot get a deficiency judgment against you for the unpaid balance on the note.  However, home equity loans (HELOCs) are almost always recourse loans.  If you have a second mortgage on your home and walk away, the second lender could (but may not) pursue a deficiency judgment or turn the unpaid amount over to a collection agency.
• There are tax consequences for loans if the proceeds were not used for home improvement, repairs, etc.  So, if you used a 2nd TD to buy a car or boat, you owe taxes on that portion of the proceeds.

My advice for Baby Boomers?  Talk to a CPA and/or attorney before making the decision to walk away from your home.  DO NOT talk to the lender(s), as this will just raise a red flag and add to your stress.  Understand your options and consequences.  Then make the best business decision for your circumstances. 

        

Baby Boomers concerned that retirement home bargains are disappearing need have no fear.  There are - and will continue to be - many areas of the country where nice retirement homes can be purchased at a significant discount, including sunshine states like Florida and California.

Based on my research, I expect this year to see additional waves of foreclosures and home price reductions in many pockets hard hit by the economy.  Some areas, like Las Vegas, are even undervalued at the present.  Other markets may bottom out, but you will rarely see price increases in 2010.

What are the areas to investigate?  Here are some of my personal favorites:

• Condos in San Diego County, CA (some real bargains here that are scooting under the radar)
• All of Riverside County, CA (houses, condos and manufactured housing)
• Tucson and Phoenix, AZ (lot of empty homes and McMansions)
• Las Vegas (in the burbs)
• Just about anywhere in Florida (especially for condos!)

Some advice - stay away from short sales UNLESS you are working with an expert Realtor and the property has already been pre-approved by the lender(s) who is (are) taking it in the shorts.  Watch out for liens on short-sale properties that may become your responsibility!  Bank-owned properties that being marketed by a Realtor, on the other hand, can be outstanding buys.  Thinking about buying a foreclosure?  Well, be prepared to pay all cash and then go through several rounds before you win a bid.  And even then, you get the property "as is," so be sure to have a professional inspection before placing a bid. 

Also, loans are hard to get these days, so clean up your credit and talk to a mortgage professional about qualifying ratios before doing anything. 

Let's face it - Fate has crapped on the retirement savings of Baby Boomers, but there are still abundant opportunities to retire in a nice place if you make lemonade out of lemons.

        

Many Baby Boomers are in a situation where they can struggle and continue to make payments on an upside down home, but does it make sense? 

For example, if the value of your home has dropped by fifty percent and your mortgages exceed current market value by $100,000, it could take 5, 8 or 10 years or more to recover enough value just to sell your home and break even.  For Baby Boomers, time is the enemy.  Most will not want to postpone their retirement or re-arranging their lives that long just to benefit a lender.  And they certainly are reluctant to tap their savings just to stay afloat in what has become a financial albatross.

So what can they do?  Many are biting the bullet and letting the houses go into foreclosure.  But this carries severe penalties, foremost among which is the inability to purchase a new home for 7-10 years and a major ding on your credit report. 

An alternate is a strategic short sale...if you can pull it off.  It depends on the lender and who is on your team.  Whatever you do, never contact the lender directly to discuss a short sale - work with an expert and understand the tax consequences before you do anything! 

Lenders don't give a !*#% about your situation.  But, given the right argument by a knowledgeable person, they may see the light and accept that agreeing to a short sale payoff is economically better than having the property go into foreclose.  Here's a good example of the resources that are out there to help Baby Boomers who want a short sale but can't prove a hardship to the degree that normally satisfies lenders.

The message to Baby Boomers is "don't give up...and don't play the lenders game!"  Any American with half a brain now clearly understands that the lending institutions will gladly take our tax dollars, continue to make risky decisions knowing we have to bail them out and pay their executives huge bonuses no matter that the rest of us are suffering.  They are not on the public's side.  Screw em!  Fight back and salvage your senior years.

        

Those of you who have been following this blog and reading the useful information on www.BabyBoomerLifeboat.com have often heard us urging you to re-position yourself for retirement by leveraging the economic resources you have left after being beat up by the Great Recession.  I have now taken this advice myself.

Just as we were looking forward to retirement, the recession hit my wife and I hard.  Half our savings disappeared overnight and the equity in our home vanished.  In fact, we are now upside down on our mortgages.  And no one in the government is coming rescue Baby Boomers in our situation.  We are on our own.

So, we took the chips we have left and came up with a Plan B for eventual retirement.  There are no jobs to be found in California, so going back to work is not a real option.  Besides, my home-based marketing consultant business still has a pulse and is poised to take advantage of an eventual recovery.  So, our strategy is focused on re-positioning ourselves for retirement within our remaining financial assets and anything beyond that is gravy.

First, we had to get out from under a home that was once a big contributor to our retirement planning, but is now a financial albatross.  One option was to just walk away, and this is a good plan for some people.  However, it makes it is almost impossible to get a new loan for several years, and key to our plan is purchasing a new home.  So, we are renting a temporary home in an area where we want to retire and getting our old home ready to rent out.  Fortunately, we can get a positive cash flow.  So after a year we'll qualify for a loan to buy a new home at a depressed price in the area where we want to retire.  Moreover, we'll continue to enjoy income from our rental property.  In short, we're trying to make "lemonade out of lemons." 

The point is, we're taking positive action by implementing a plan that works for us.  Those of you who are ignoring the economic reality of the recession and it's long-term impact on your retirement plans are likely to be in a for a rude awaking.  Doing nothing is equivalent to sticking your head in the sand.  There are opportunities amongst the ruins.  Put together a plan that works for your situation and then do it...NOW! 

        

For Baby Boomers, this is both enlightening and presents opportunities:

Voluntary Loan Defaults Are on the Rise
Voluntary foreclosures are challenging the government’s $75 billion effort to keep troubled and underwater borrowers in their homes.

About 588,000 borrowers walked away in 2008, twice the number in 2007, according to a study by credit management firm Experian and management consultants Oliver Wyman. Many more are expected to walk away, hampering the real estate recovery, economists say.

The mortgage unit of Citigroup says one in five borrowers defaults willingly, even though they're able to pay the mortgage.

"It's increasingly a more important factor driving the foreclosure crisis," says Mark Zandi, of Moody's Economy.com. "As we move forward, the job market will stabilize, and the big thing will be strategic defaults. People are going to determine it doesn't make financial sense to hold on to their homes. That's going to be a significant problem. Strategic defaults mean foreclosures could be high for a long time."

Source: USA Today, Stephanie Armour (11/3/2009)

If you are upside down on your mortgage and decide to walk away, you are not alone in making this tough decision.  On the other hand, this means there will be plenty of retirement home bargains for the foreseeable future...

        

A lot of Baby Boomers are reluctant to walk away from an upside down mortgage.  Deep down, we feel a moral obligation to live up to our financial responsibility.  And there's the negative impact on our credit score, plus the inability to get another home loan for seven years in most cases.

Maybe your home value will increase during the next year or so, and you can wait it out.  Home sales are up in a lot of markets.  But if you live an area where the housing market is depressed, such as many counties in California, Detroit, etc; then waiting just might mean pouring good money after bad. 

For a generation that has already been hard hit by banking and stock market fiascoes which wreaked havoc with our retirement savings, waiting may not be an option.  For some...many, I believe...it has become a matter of survival.  If they ever want to be able to retire (or even semi-retire), then they must downgrade expectations and salvage what's left in their "golden years kitty."

I have suggested that Boomers consider the option of "walking away when" it no longer makes any rational sense to spend what's left of hard-hit retirement savings on a bad investment.  Remember, the banks and brokerages weren't considering your welfare when they came up with exotic derivatives based on high-risk subprime loans.  Nor did they stop to think about devastated Boomers when recently handing out million-dollar bonuses to tone-deaf executives.  In my book, there is no shame or guilt in salvaging what you can and giving the financial industry a little taste of what they gave us.  Apparently, others are reaching the same conclusion (see blog entry on "strategic defaults"), as indicated by this article:

Default Mortgage? Professor Says Get Out

“Fear, shame, and guilt” are preventing Americans from walking away from homes when their mortgages are underwater, even when walking away is the best decision, says a University of Arizona professor of law who studied the issue and wrote a paper on managing the crisis.

“Home owners should be walking away in droves,” writes Brent T. White, an associate professor of law at the University of Arizona.

“The real mystery is not – as media coverage has suggested – why large numbers of home owners are walking away, but why, given the percentage of underwater mortgages, more home owners are not,” the professor says.

White proposes “leveling the playing field” between bank and borrower by amending the Fair Credit Reporting Act to prevent lenders from reporting mortgage defaults to credit bureaus.

“It is time to put to rest the assumption that a borrower who exercises the option to default is somehow immoral or irresponsible,” White writes.

Source: The Wall Street Journal, James R. Hagerty (10/30/2009)

In short, look after yourself, Boomers.  No one else will.  Baby Boomers aren't even on the government's radar scope as they try to dig the economy out of the hole dug by the financial sector.  It's a time for hard choices.

        

As one who is currently consolidating my life for retirement, let me share with you some things I've learned.  If you are considering renting a retirement home, either permanently or temporarily, here are some words of wisdom learned from my own experience:

• Beware of using online agencies like leasein[city].com, apartmenthunterz.com, etc., as they charge around $40 monthly just to get the complete information (like the address!) for enticing rentals.  Moreover, their information is often out of date.  I discovered several promising rentals that had been sold or already leased.  You are much better off working with a local Realtor who has access to the MLS...and it won't cost you a cent!
• Leverage your age to focus on 55+ communities.  Because there is less competition form the general population, you can get a lot more bang for your buck!  And there are some nice developments out there, typically associated with a golf course and community center with pool, etc. - all included in the rent.

Renting is a good way to find out if you like a community enough to retire there.  It gives you a local base to learn about surrounding home values, the people and amenities.  Financially, renting instead of buying retains liquidity, a consideration in these uncertain times.  And don't worry that all the hot real estate values are going to disappear in the next year or so.  As a real estate broker, I can tell you that in many areas of the country we are going to see continuing waves of foreclosures for the foreseeable future.  This economy has got a long ways to go - years in fact - before it gets healthy again.

        

For you Baby Boomers out there who are wrestling with your diminished retirement situation, it's interesting to see that many are making a business decision to walk away from upside-down mortgages:

Guess Who's Ditching Their Mortgages?
 
A study of 24 million credit files by national credit bureau Experian and consulting company Oliver Wyman has shown that home owners with high credit scores are 50 percent more likely to deliberately walk away from a mortgage than lower-scoring borrowers.

The industry calls these “strategic defaults” and their numbers grew to 588,000 in 2008, double the total in 2007, and well beyond most earlier estimates.

The study determined:

Strategic defaulters tend to go straight from paying their mortgages dependably to not paying at all. Strategic defaulters are heavily concentrated in negative-equity markets like California and Florida. Two-thirds of strategic defaulters have only one mortgage.  Most likely to default are home owners with large balances and the highest credit ratings.

Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters "are clearly sophisticated” and look on the decision to default as a business strategy. "Well, I'm $200,000 in the hole on my house, and yes, I'll damage my credit," Tantia says of defaulters.

Source: Washington Post Writers Group, Kenneth R. Harney (09/27/2009)

I don't know why everyone is surprised.  After all, our generation has been left hanging in the wind.  There is no economic help headed our way.  We've seen our home equity evaporate and our savings slashed...all through no fault of our own.  And we are completely on our own.  You have to make the best decision for your circumstances.

Just a word of advice - be aware that you will not be able to get another home loan for as long as seven years if you ditch your current mortgage. And it will severely impact your credit score.  So the lesson is, do everything you need to do (like buying or renting another home) before defaulting on your mortgage!

        

I recently discovered an intriguing blog created by a young woman in Canada, Layla Morgan, who is a writer/photographer.  Her entries regarding cats and other creatures of nature are an art form that touch the hearts of cat lovers everywhere.  For Baby Boomers who falls into this category, I suggest you visit her "Boomer Muse" blog and then click on the "Cats" category.  You won't regret it  ;~)