<![CDATA[Townsend and Halbrook Mortgage Corporation              301-838-5500 - T&H Blog]]>Fri, 04 May 2012 10:32:00 -0800Weebly<![CDATA[The Perfect Loan File]]>Tue, 03 Apr 2012 12:05:41 -0800http://www.townsendhalbrook.com/1/post/2012/04/the-perfect-loan-file.htmlMark Greene, Forbes.com Contributor

The media has it all wrong – securing mortgage approval and satisfying credit
underwriting guidelines are not the difficulties plaguing mortgage consumers.
It’s in meeting the rigorous documentation requirements that most people fall
flat. The good news is, the fix is simple. Just scan, photocopy, fax, and
deliver every aspect of your financial life. Then, shortly before closing, check
everything again.  

Mortgage consumers who enter the mortgage approval process ready to battle their chosen
mortgage lender will come out with a nightmare story to tell. As the process,
requirements, and guidelines are the same for everybody, your mindset is the
game-changer. Accepting the redundant documentation necessary for lender
approval will make everyone’s life easier.

 When I was a kid, my father occasionally issued directives that I naturally thought
were superfluous, and when asked why I needed to do whatever it was he wanted me
to do, his answer was often: “Because I said so.” This never seemed to address
my query but always left me without a retort, and I would usually comply. This
is exactly what consumers should do during the mortgage approval process. When
your lender requests what seems to be over-documentation and you wonder why you
need it, accept the simple edict – “because I said so.” You will find the
mortgage approval process much less frustrating.

So, what’s the perfect loan? Well, it’s one that (a) pays back the lender and (b)
pays back the lender on time. Underwriting the perfect loan is not the goal that
mortgage lenders aspire to today.

The real goal is the perfect loan file.

Mortgage lenders have suffered staggering losses and gone out of business because of the
dreaded loan repurchase. As mortgage delinquencies increased, FannieMae and
FreddieMac began to audit mortgage loans they had purchased and discovered
substandard and fraudulent underwriting practices that violated representations
and warranties made, stating these were high quality loans. Fannie and Freddie
began forcing the originating lenders of these “bad” loans to buy them back. So
a small correspondent mortgage lender is forced to buy back a single mortgage
loan in the amount of $250,000. This becomes a $250,000 loss to a small mortgage
business for a single loan, because it will never be repaid.

It doesn’t take many of these bad loan buybacks to close the doors on many small
mortgage operations. The lending houses suffered billions of dollars of losses
repurchasing loans from Fannie and Freddie, and began to do the same thing for
loans they had purchased from smaller originators.

The small and medium sized mortgage originators that survived created underwriting
guidelines and procedures to eliminate the threat of future loan repurchase
losses. The answer? The perfect loan file.

It’s no longer necessary to have excellent credit, a big down payment and stable
employment with income sufficient to support your debt service to guarantee your
loan approval. However, you must have a borrower profile that meets the credit
underwriting guidelines for the loan you are requesting. And, more importantly,
you have to be able to hard-copy-guideline-document your profile.

 Every nook and cranny of your financial life has to be corroborated, double- and
triple-checked, and reviewed again before closing. This way, if the originating
lender has created a loan file that is exactly consistent with published
underwriting guidelines and has documented while adhering to those guidelines,
the chances are that your loan will not be subject to repurchase.

 Borrowers also need to prepare for processing and underwriting. Processors and
underwriters are the people trained and charged with gathering (processors), all
of your required-for-approval financial documents, and then approving
(underwriters), your loan. You can assume these people are well trained and very
experienced, as they are tasked with assembling and approving a
high-quality-these-people-will-pay-us-back loan file. But just how do they go
about that?

The process begins with the filter – the loan originator (a.k.a loan officer,
mortgage consultant, mortgage adviser, etc.) – tasked to match the
qualifications of a particular mortgage deal to the appropriate underwriting
guidelines. It is the filter’s job to determine if a loan scenario is approvable
and to gather the documentation to support that determination. It is here, at
the beginning of the approval process, where the deal is made or broken. The
rest of the approval process is just papering the file.

The filter determines whether the information provided by the borrower can be
validated and documented. This is simple, since most mortgages are approved by
automated underwriting engines such as Desktop Underwriter, and the automated
approval generates a list of the documents needed to paper the loan file. An
underwriter can, at this stage, request additional supporting documentation
evidence at their discretion, as not all circumstances neatly fit into the
prescribed underwriting box. If the filter creates a loan file with accurate
information, then secures the documentation resulting from the automated
underwriting findings, the loan will close uneventfully.

So, let’s begin with the pre-approval call. Mortgage pre-approval is typically
accomplished with a telephone interview. A prospective borrower calls a mortgage
rep (filter), and the questions begin. There will be lots of questions as this
critical phase of the process is akin to the discovery period in a trial –
you’ll need to disclose everything. Expect to answer queries on what you do for
a living, how long you’ve been employed in your current field, and what your
salary is. If there is a co-borrower, they will have to answer the same
questions.


Every dollar in checking, savings, investments and retirement accounts, also known as
assets to close, as well as gifts from relatives and non-profit grants, has to
be accounted for. Essentially everything appearing on a borrower’s
asset-radar-screen has to be documented and explained.


If you were previously a homeowner and sold your home in a short sale, or if you
own a home now and plan to keep it as an investment or rental property, there
are new and specific underwriting guidelines created just for you. In these
cases, full disclosure of your credit and homeownership past can potentially
eliminate unforeseen mortgage approval woes. For instance, FannieMae has a new
underwriting guideline called “Buy-and-Bail,” for current homeowners’ planning
on keeping their existing home as an investment/rental property. Properties not
meeting the 30% equity test for “Buy-and-Bail” result in additional asset
requirements to purchase a new home. Buyers with a short sale history may have
to wait two to three years before they are eligible for mortgage financing
again. Full vetting of your previous mortgage life will save you the dreaded
we-have-a-problem call from your mortgage lender.


It all comes down to your proof. If the lender asks for a specific document, give
them exactly what they are asking for, not what “should be OK,” – because it
won’t be.  This is where the approval process tends to go off the rails,
when the lender asks for specific documentation and the borrower supplies
something else. Here, too, is where both sides get frustrated. So if the lender
asks for a bank statement and there are 5 pages for that bank statement, send
them all 5 pages, and not just the summary. If you send them the summary page
and they ask again, don’t complain that the lender keeps asking for the same
thing when you never sent it in the first place. This may sound elementary, but
the vast majority of mortgage approval process woes stem from scenarios just
like this.


The reason the mortgage approval process is now so rigorous is simple. Avoiding
defaults and loan buybacks has become the primary goal of mortgage
lenders.   Higher standards are reducing loan defaults,  which
should mean fewer foreclosures in the future. Government data shows that
 less than 2% of loans originated in 2009, that were resold to Freddie Mac and Fannie Mae went
into default after 18 months, down from more than 22% default rates for 2007
loans.

 So when your lender requests specific documents from you, give it them just
“because they said so.”

You can thank my dad for that.

Original Article: http://www.forbes.com/sites/moneybuilder/2012/03/09/the-perfect-loan-file-2/3/


]]><![CDATA[In the News: Brice Halbrook]]>Tue, 13 Dec 2011 08:56:38 -0800http://www.townsendhalbrook.com/1/post/2011/12/in-the-news-brice-halbrook.htmlPicture
Halbrook volunteers to serve on
Poolesville Town  Commission
Vote is Monday on replacement to fill Hoewing’s term
by Susan Singer-Bart, Staff Writer
(Article from Gazette.net)

Brice  A. Halbrook is the only candidate to offer to fill the vacancy left on the
Poolesville Town Commission by the resignation of Link  Hoewing.

If the four remaining commissioners agree unanimously at Monday night’s meeting to appoint Halbrook, he will serve out the last year of the term.

Commissioners interviewed Halbrook in closed session following  their Nov. 21 meeting.


 “I would have no problem serving with Brice,” said Paul “Eddie” Kuhlman II, president of the Poolesville Town Commission, after the meeting. “I’ve worked with Brice quite a few years on the Poolesville Day committee. I found him to be open-minded and willing to listen and to make a decision.”

Halbrook, 56, moved to Poolesville almost 12 years ago. A mortgage banker, Halbrook was working with builder D.R. Horton and drove out to look at a development under construction in Poolesville.

He and his wife, Michelle, liked the small-town feel of the community and the schools, and decided to sell their house in Montgomery Village and buy one of the D.R. Horton houses in the Woods of Tama community.

Their children, Julia, 17, Pete, 23, and Zac, 26, were in elementary, middle and high school at the time, he said.

Michelle Halbrook works in the main office at Neelsville Middle School in Germantown.

“It was a good move for us,” Halbrook said.

Halbrook coached his children’s youth athletic teams and served as chairman of the Poolesville Day committee for  five years. He stepped down from the chairmanship this year, but still serves on the committee and expects to stay involved with the September event.

“I’m not coming with an agenda,” he said. “I want to learn more about the workings of the town, where the issues are.”

He would be the first commissioner from the 75-house Woods of Tama community.

“I thought it would be a good idea to have someone from our part of the town there bringing concerns of our community,”
Halbrook said.

He was not aware of any particular issues brewing in the community, but expects once his neighbors know he is on the commission, they will seek him out.

Halbrook grew up in Havre de Grace and graduated from the University of Maryland, Baltimore County, where he majored in economics. As a businessman, someone with an interest in government and someone who works in finance, Halbrook thinks he has the right background for the job.

“I focus on budget and money in my daily work,” Halbrook said. ”I’m looking forward to working on that [for the town].”

He  plans to become involved with the town’s economic development committee.

“The town needs to have more support for their local businesses and new homeowners who will be moving into the two new subdivisions,” he said.

Poolesville commissioners, who are not paid for their service, have 30 days from the time Hoewing resigned to appoint someone to serve the remainder of his term. If commissioners cannot agree unanimously on a replacement by Dec. 7, the town will have to hold a special election.

ssingerbart@gazette.net




]]><![CDATA[Housing Recovery in 2012]]>Fri, 18 Nov 2011 10:38:12 -0800http://www.townsendhalbrook.com/1/post/2011/11/post-title-click-and-type-to-edit1.htmlNAHB:  Solid Housing Market Recovery to Begin to Take Hold in 2012
Thu, 2011-11-17 13:14

Single-family housing starts rose 3.9 percent to a seasonally adjusted annual rate of 430,000
units in October, according to newly released data from the U.S. Commerce
Department. This improvement was somewhat masked by an 8.3 percent decline in
multifamily starts that kept the combined number for nationwide housing
production virtually flat at 628,000 units in October. Meanwhile, single-family
permits also posted a measurable gain of 5.1 percent to 434,000 units in the
latest report, which is their fastest pace since December of 2010.


"The government's numbers for October housing production are very much in keeping
with what home builders have been telling us in our recent surveys," said Bob
Nielsen, chairman of the National Association of Home Builders (NAHB) and a home
builder from Reno, Nev. "While we still have a long way to go toward a recovery,
some signs of hope are emerging in certain markets where economic and job growth
is occurring and where foreclosures have not been an overwhelming obstacle."


While combined housing starts in October declined by a barely perceptible 0.3 percent
to a rate of 628,000 units, the single-family sector posted a 3.9 percent gain
to 430,000 units. Meanwhile, the more volatile multifamily sector posted an 8.3
percent decline to 198,000 units following an unsustainably large gain in the
previous month. Combined starts activity was up in three out of four
regions in October. Gains of 17.2 percent, 9.7 percent and 1.6 percent were
registered in the Northeast, Midwest and South, respectively, while the West
posted a 16.5 percent decline.


"The three-month moving averages for both housing production and permitting activity
have been gradually rising since this spring, which is consistent with our
forecast for slow improvement in market conditions through the end of this year
and a positive sign that a more solid recovery will begin to take hold in 2012,"
said NAHB Chief Economist David Crowe. "That said, the improvements we are
seeing are still limited to scattered local markets where economies are
improving, and obstacles such as tight credit conditions for builders and
buyers, appraisal issues stemming from new homes being compared to distressed
properties, and consumer concerns about job security are definitely slowing the
progression of both a housing and economic recovery."


Permit issuance, which can be an indicator of future building activity, rose 10.9
percent to a seasonally adjusted annual rate of 653,000 units in October on
gains in both the single- and multifamily sides. Single-family housing permits
rose 5.1 percent to 434,000 units—their highest level since December of
2010—while multifamily permits rose 24.4 percent to 219,000 units—their highest
level since October of 2008.


On a regional basis, combined permitting activity was down 1.6 percent in the
Northeast and 3.7 percent in the Midwest, but up 21.5 percent in the South and
5.4 percent in the West.
]]><![CDATA[Why It's Time To Buy]]>Mon, 06 Jun 2011 12:19:00 -0800http://www.townsendhalbrook.com/1/post/2011/06/why-its-time-to-buy.html Why It's Time To Buy The Clouds Haven't Quite Parted, But the Long-Term Case for Home Ownership Is Looking Stronger By RUTH SIMON and JESSICA SILVER-GREENBERG Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

April Home Prices See the change in home prices from April 2010 to April 2011, state by state.

Home Prices, by Metro Area See data from the 20 metro areas Case-Shiller tracks.

 Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

Lending

As rates hover near historic lows, experts expect banks to ease borrowing standards over time.

 Getty Images Greenwich, Conn.

 Psychology

If prices stabilize, it could tip the balance away from fear and pull more buyers back into the market.

 Getty Images Chicago

 Affordability

In several markets, it's becoming cheaper to own than to rent.

 ASSOCIATED PRESS Cleveland Heights, Ohio

 Demographics

The rate of "household formation" is expected to climb in coming years.

 Reuters Providence, R.I.

 Employment

The strength of the housing recovery depends on job growth.

 Associated Press Dallas

Journal Community The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.

"The regular marketplace is hanging tough," says CoreLogic chief economist Mark Fleming.

Here is a look at five key factors that will govern local markets over the next several years:

DemographicsHousehold formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody's Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.

But household formation increased to nearly 950,000 last year, says Moody's, and should average 1.2 million over the next decade.

Worksheets That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody's says.

"Whatever the excess supply of housing is, it is shrinking pretty fast," says Thomas Lawler, an independent housing economist.

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

The portion of people moving across the country has fallen to the lowest level since World War II, he adds. That is a sign that many people have put their lives on hold because of the weak economy.

"When things do pick up, there will be this pent-up demand for everything involved with starting a household," Mr. Frey says.

Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

There also are some powerful demographic cross-currents worth considering. The first baby boomers turned 65 in January, an age when demand for new homes falls and many begin to think about downsizing. "The baby-boom generation pushed prices up as they got older," says Dowell Myers, a professor of urban planning and demography at the University of Southern California. But in the coming years, "boomers will start flooding the market on the supply side" with larger homes, while fueling new demand for smaller properties with more services and amenities.

AffordabilityRising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody's Analytics.

Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won't be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody's Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.

In Ann Arbor, Mich., where home prices fell 11.2% between 2007 and 2010, according to Fiserv Case-Shiller, housing affordability has risen well above historical levels, according to Moody's Analytics.

That is good news for home buyers such as Steven Upton, a 42-year-old photographer, who in June will close on four-bedroom brick house on 10 acres in an upscale community in Ann Arbor. Mr. Upton paid $400,000 for the home, which previously listed for $600,000. "It's a tremendous deal," he says.

Before buying a house, it is wise to compare rental prices for similar properties. To be ultraconservative, wait until the monthly outlays, including taxes and insurance, are equal. You also could factor in the tax savings of owning, which would make buying more attractive even if the gross monthly outlay is slightly higher.

EmploymentThe strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.

But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April—the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

The opportunities for a job with more responsibility drew Duane and Linda Elmer to Dallas from Des Moines, Iowa, where Mr. Elmer was a banker for nine years. The couple has agreed to pay $415,000 for a four-bedroom, four-bath house with a Jacuzzi and pool. Their Des Moines home, purchased nine years ago for $410,000, is on the market for $390,000. "We are willing to take the loss for the opportunity to live in a more diverse community and to take a job with greater breadth of responsibilities," Mr. Elmer says.

Borrowers like the Elmers who are relocating for job opportunities are a big driver of home sales in nearby Plano, Texas, says Harry Ridge, a real-estate agent. He says such sales accounted for 20% of his business last year.

A similar influx of job seekers is fueling housing demand in the Washington area, where 25,700 new jobs were added in the 12 months since April 2010. Washington was the only one of the 20 cities tracked by Standard & Poor's and Case-Shiller that saw home prices rise both on a month-to-month and year-over-year basis.

CreditMortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don't fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.

Credit is likely to remain tight for at least the next six months, says Clifford Rossi, a former Citigroup Inc. consumer-lending executive who teaches at the University of Maryland.

But conditions should improve over time, he says: "There's no question that it will gradually get easier."

That will be welcome news to borrowers like Greg Silver. The 50-year-old real-estate developer would like to buy a second home, but hasn't been able to secure a jumbo mortgage because his income consists of capital gains from sales of the properties he develops. Mr. Silver closed three sales in the past 12 months, netting him a total of more than $25 million, but didn't record any capital gains in 2008 and 2009. Sure, he could use some of that cash to buy a home outright, but he would prefer to mortgage it, get the tax deduction and keep his cash free for business purposes.

"It's a little devastating," says Mr. Silver, who is living in Greenwich, Conn.

PsychologyThe long-term case for buying over renting remains in force. Yet nowadays, "People are simply scared," says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.

Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.

The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.

But it isn't clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one's environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.

Jeffrey Connor may be a bellwether for the future of the housing market. The 40-year-old finance director at a corporate law firm says he thought briefly about buying a house when he moved to Chicago from Washington in October. But he opted instead to rent a luxury two-story apartment in downtown Chicago for $3,559 a month. Mr. Connor says it will take substantial job growth and a sharp drop in foreclosures to convince him to buy.

"The market is clearly soft," he says, "especially when we consider it good news that the unemployment rate is hovering around 9% instead of 10%." Mr. Connor says he isn't worried about missing out on today's low interest rates and will consider buying once unemployment falls to 6%.

Other buyers are showing less willingness to wait for the absolute perfect time to buy. Doug Yearly, chief executive of luxury builder Toll Brothers Inc., told investors in May that "some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most important, the desire to take the next step in their lives. The family with elementary-school kids and a puppy when the housing debacle began five years ago now has middle-school kids and the dog weighs 80 pounds."

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]]><![CDATA[The Millionaire Retirees Next Door ]]>Fri, 13 May 2011 12:29:31 -0800http://www.townsendhalbrook.com/1/post/2011/05/the-millionaire-retirees-next-door.htmlTypical retired couples will collect $1 million or more in Social Security and Medicare. This is more than they paid in, and the cost will fall on today's workers.
By JOHN COGAN

Readers may recall the 1950s TV show, "The Millionaire," which portrayed stories of individuals who were given a "no strings attached" gift of money by an anonymous benefactor. Each week in one of the show's opening scenes, a man representing the wealthy benefactor, John Beresford Tipton Jr., knocked on an unsuspecting recipient's door and announced: "My name is Michael Anthony and I have a cashier's check for you for one million dollars."

That TV program is scheduled to return next year as a reality show, and the new recipients will be the typical husband and wife who reach age 66 and qualify for Social Security. Starting next year, this typical couple, receiving the average benefit, will begin collecting a combination of cash and health-care entitlement benefits that will total $1 million over their remaining expected lifetime.

According to my calculations based on government data, such married couples will begin receiving monthly Social Security checks that will, on average, total about $550,000 after inflation. They will receive health-care services paid for by Medicare that, on average, will total another $450,000 after inflation. The benefactors will be a generation of younger workers who are trying to support themselves and their families while paying taxes to finance the rest of government spending.

We cannot even remotely afford to make good on these promised benefits. Although our system of personal liberty, free enterprise and limited government has made us an affluent and upwardly mobile people, we are not yet a nation of John Beresford Tiptons.
The existence of so many million-dollar couples is not the result of elected officials carefully weighing the needs of senior citizens against the financial ability of younger workers to meet these needs. Rather, it is the result of decades of separate legislative actions by both political parties to liberalize retirement and health-care benefits, the sum total of which no one has bothered to calculate.

Social Security and Medicare were the result of natural human impulses to create safety-net programs to prevent poverty in old age and to help needy senior citizens with their medical bills. But the programs are flawed.

In 1978, Congress instituted automatic cost-of-living adjustments for Social Security. That's reasonable. But Social Security's method of automatically increasing benefits to successive cohorts of retirees by more than inflation makes less sense. It means that the average worker who retires this year receives a monthly benefit that is about 23% higher after adjusting for inflation than the monthly benefit received by the average worker who retired 20 years ago. The average worker who retires 10 years from now is, in turn, promised an initial benefit at retirement that is 14% higher after adjusting for inflation than the average worker who retires today.

Under the federal government's fee-for-service Medicare program, every time a senior citizen meets with his physician or health-care provider for a check-up, lab tests or surgery, somebody other than the patient foots most of the bill. That such a program should produce runaway costs is hardly surprising. Over the years, the government has expanded the type of services covered, such as prescription drugs, and it has assumed a greater portion of the program's finances. Medicare premiums paid by senior citizens once covered half of the cost of physician and related services. They now cover one-fourth. Copayments once covered nearly 40% of these services' costs. They now cover only 20%.

To fix Social Security, Congress should start by limiting the increase in benefits of future retirees to the rate of inflation. Congress should then gradually raise Social Security's normal retirement age. Congress should also allow younger workers to invest a portion of their payroll taxes—and create more incentives for them to invest their earnings—in safe, broadly-diversified, stock and bond funds. This would allow younger workers to become millionaires through their own hard work and thrift.

To fix Medicare, we must move away from the current system of fee-for-services and low copayments. First and foremost, copayments should be increased significantly. Medicare recipients need to have more skin in the game if they are to become cost-conscious medical consumers.

The higher copayments can be offset by reducing Medicare premiums and offering more Medicare health plan choices. Rep. Paul Ryan's proposal—to provide fixed annual grants to enable Medicare recipients to buy an affordable private insurance plan—is a fiscally sound way to achieve this outcome. Competition among providers, not government-administered prices and government boards of experts to determine coverage, is the best way to ensure high quality and reasonably priced health care.

Many of the million-dollar couples believe they rightfully deserve the benefits they have been promised. They have, after all, spent all of their working years paying into Social Security and Medicare. And true enough, the typical 66-year old couple and their employers, on their behalf, have contributed nearly $500,000 in payroll taxes (in today's dollars) toward these benefits during their working careers.

But regardless of how much they have contributed, the hard reality is that the federal government has already spent it. No matter how deserving they are, it is younger generations of workers who have to come up with the money.

So today's seniors need to consider how they want the script for "The Millionaire" sequel to be written: There's a knock at the door. We now know that on the other side there's a check for a million dollars. When the door opens, do we really want to see our children, under the commanding gaze of Uncle Sam, presenting us with that check?

Mr. Cogan is a senior fellow at the Hoover Institution and a professor of public policy at Stanford University. He served as deputy director of the Office of Management and Budget during the Reagan administration.


]]><![CDATA[Unexpected ‘uptick' encourages agents, sellers in housing market]]>Tue, 12 Apr 2011 07:15:10 -0800http://www.townsendhalbrook.com/1/post/2011/04/unexpected-uptick-encourages-agents-sellers-in-housing-market.htmlMonday, April 11, 2011
Most active March in five years in D.C. region, new report says
by Lindsey Robbins | Staff Writer


Home sales are picking up this year, say Maryland real estate agents, but they remain cautious about calling the trend a turning point in a market that's generally been moribund since before the Great Recession.

The metropolitan Washington region last month saw 5,432 signed contracts, the most in the month of March since March 2006, according to the most recent RealEstate Business Intelligence Pending Home Sales Index, a subsidiary of Metropolitan Regional Information Services of Rockville. Pending home sales jumped 34.3 percent month-over-month in the region, with three consecutive months of higher pending sales activity. Median sales price also showed a seasonal increase of 6.7 percent in the first quarter.

"I've had six settlements in four-and-a-half weeks. That's definitely more than usual," said Josh Ross, a Germantown agent with Re/Max. He said he typically settles on two or three deals in that period. "I still have more in the works. I'm still meeting with buyers."

Buyers are capitalizing on still-low mortgage interest rates, with more renters jumping into the market, he said.

"Buyers who had been sitting out are more ready to do something, and sellers are tired of waiting around," said Anne Cavanagh, a Bethesda agent with W.C. & A.N. Miller Realtors, a Long & Foster company. "The last couple months have just been off the charts. ... It's been busier than I've seen in the 22 years I've been in business."

The uptick was unexpected, said Laura Roskelly, a Millersville agent with Keller Williams Realty. Roskelly saw a 32 percent increase in sales in January and a 20 percent-plus increase in February.

"We're back to the pre-2005 levels," Roskelly said. "Some of it has to do with consumer confidence coming back, but most of it has to do with price range. Homes that weren't priced right still aren't selling."

The Anne Arundel County housing market also is getting a boost from military families relocating to Fort Meade due to the Pentagon's Base Realignment and Closure program, plus families relocating for the base's cybersecurity command center, she said.

Yet Clifford Rossi, executive-in-resident with the Center for Financial Policy at the University of Maryland's Robert H. Smith School of Business in College Park, are hesitant to declare an end to the years-long housing slump.

"In these kinds of markets, there's a period of bumping along," Rossi said. "One quarter it might be great and the next, it's soft again. We need to see a few more of these trends before we can really say anything."

While Rossi said he could not characterize what agents are reporting a turning point, it could be the emergence of one. He said people should not expect any "material increases" in home prices for the next few years. Rossi also said that Maryland is unusually insulated from the market problems seen throughout the nation because of its proximity to the nation's capital.

Some agents also remain wary about inferring a general trend in the entire region.

"A lot of those all-encompassing statements can be partially misleading due to ZIP codes," said Eugene Gallagher of Gallagher & Co. Real Estate in Bethesda, adding that increases vary among parts of the region and even within counties.

While Chevy Chase and Rockville might be experiencing high sales, areas such as Clarksburg are seeing less activity, he said.

Year-over-year in February, Maryland saw a 5 percent increase in sold units, to 3,173 from 3,021, and a 25 percent increase in pending sales, to 5,146 from 3,842, according to information from the Maryland Association of Realtors. But counties such as Baltimore, Carroll, Cecil, Frederick, Howard, Queen Anne's, St. Mary's, Wicomico and Worcester continued to see slower sales.

"I'd like to believe everyone is enjoying the briskness, but a lot of people are still suffering," Gallagher said. "We're still a fragile market, but this is a foundation to work from."

He added that many buyers might be getting into the market because they are afraid of losing the opportunity, should conditions shift.

"It's sporadic, but anything close to the [federal] government is doing really well. That's the bottom line," said Pat Terrill, president-elect of the Realtor association. "As long as the market rates stay low, I think we're going to be fine. The market is what it is. It's not good or bad; you just have to work with it."

lrobbins@gazette.net


Original article here: http://www.gazette.net/stories/04112011/businew175812_32556.php

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