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Populist messaging, auditing the Fed, payday loans – Daily Kos

By Rachel Goldfarb, originally published on Next New Deal

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

How Democratic Progressives Survived a Landslide (TAP)

Bob Moser says that populist, localized campaign messages, not the party’s own turnout strategy, saved a few key Democratic races in the 2014 midterm elections.

After every election, the losing side naturally tends to brood over where and how things went wrong. For Democrats this year, there’s no shortage of theories about the party’s avalanche of key losses in Senate, House, and statehouse contests. Perhaps it was wrong to sideline President Obama so thoroughly. Perhaps they shouldn’t have run away from the Affordable Care Act. Perhaps they still haven’t found the formula for turning out young and minority voters in midterms. Maybe it was just a bad map that couldn’t be overcome. Or maybe there had been, as the pundits chorused, no “coherent national message” for Democrats to run on.

You can find shards of truth in these tidbits of conventional wisdom, but it’s a gauzy, overgeneralized kind of truth. It’s more instructive to take a long look at what did work in 2014—at the candidates and campaigns that overcame the Republican drift. How did Democrats beat their odds in Arizona, Minnesota, New Hampshire, and Michigan even as they fell short in Iowa, Wisconsin, Florida, and Colorado? The closer you look, the clearer the picture becomes: They did it the way Kirkpatrick did. They ran with their populist boots on.

Roosevelt Take: Moser references Roosevelt Institute Senior Fellow Richard Kirsch’s post-election analysis on winning populist messaging.

Follow below the fold for more.

What ‘Audit the Fed’ Really Means – and Threatens (WSJ)

Robert Litan explains that Senator Paul’s proposal calls on Government Accountability Office economists to go outside their expertise to report on the Fed’s activity and minimize its independence.

Payday Loans Are Bleeding American Workers Dry. Finally, the Obama Administration Is Cracking Down. (TNR)

Danny Vinik breaks down how payday loans harm consumers: the initial loan might not be so bad, but the repeated roll-overs have a high cost. Limiting those roll-overs is one potential regulation.

The “War on Women” is a Fiscal Nightmare: Taxpayers on the Hook for Millions as Republicans Gut Family Planning (Salon)

Katie McDonough looks at Kansas as an example of where legal fees to fight for potentially unconstitutional abortion restrictions and cuts to family planning services create massive costs.

Is Republican Concern About Middle-Class Wage Stagnation Just a Big Con? (MoJo)

Kevin Drum doesn’t think this is a sign of Republican reformers succeeding in shifting the party in a populist direction, and says that the more likely explanation is an attempt to defuse Democrats.

New on Next New Deal

The Politics of Responsibility – Not Envy

Roosevelt Institute Senior Fellow Richard Kirsch argues that voters are responding not to envy, but to the knowledge that everyone needs to take a fair share of responsibility for shared prosperity.


How Paying Student Loan Interest in College Pays Off

School is back in session, and if you’re like most college students, student loans are a fact of life. For many — focused on grades and weekends of relaxation — repaying those loans is something to think about “later,” after graduation and once they’ve entered the work force. But beginning to whittle away the interest on your student loan debt now could make a significant difference to your finances in the future.

“I had no idea what my loans were when I came to college,” Kansas State University junior Hope Abarr says. “My mom signed me up for loans, and it wasn’t until about halfway through freshman year when I started getting emails about them that I started asking questions and trying to figure out the best way to handle them.”

Seven in 10 college graduates in 2012 turned their tassels on the big day saddled with student loan debt, an average of nearly $30,000 per borrower, according to the Institute for College Access & Success. On top of that, many of these graduates struggle to find work.

The Benefits of Paying Interest

Unless your student loan is subsidized, it starts accruing interest right away. And this isn’t just any interest — if you don’t pay it as it accumulates, it’s capitalized, meaning your interest is added to the principal (amount you borrowed), and it now earns interest, too.

“You’re getting a snowball effect because this debt is growing as you kick it down the road,” says certified financial planner Tim Higgins, author of “Pay for College Without Sacrificing Your Retirement.”

Students have the option to pay or defer their interest payments while they are in school. When these payments are deferred and the interest capitalized, the loan balance grows.

“When you delay your payments, you are paying interest on top of interest,” says Higgins, who recommends that students find a way to make interest payments while in school. Though the interest that accumulates if you defer may not seem like a considerable sum, when you’re faced with thousands of dollars in debt upon graduation, every bit helps.

Abarr is a family studies and human services major who plans to go on to nursing school. When she arrived at KSU, she began in the pre-veterinary medicine program but changed majors in part due to the cost of that program. As the first member of her family to attend a four-year college, she says cost has been a consideration at every stage — from choosing a college where she would qualify for in-state tuition, to choosing a major that was more budget-friendly.

She was fortunate to be connected with a service that pairs finance majors with other students to provide personal finance counseling. That’s where she learned about paying on her loans while in school. “I think the interest payments on my unsubsidized loans are around $50 each month, but I try to pay as much as I can on them,” she says.

While interest-only payments don’t affect the largest portion of your student loan debt — your principal — they do hold the snowball at bay. Higgins explains these payments can provide good financial lessons and encourage academic focus by making the college investment clear to students who may otherwise not pay much attention to the cost of school until after graduation.

The U.S. Department of Education reported in September that of all student borrowers who entered repayment in fiscal year 2011, 13.7 percent defaulted or failed to make their payments as scheduled. While this number is down slightly from past years, it illustrates that a good portion of college graduates are struggling to get their student loan debt under control. Making those payments a habit early on could save you from trouble when it’s time to enter the workforce.

Drawbacks to Paying Student Loans While in School

Perhaps the only drawback to paying your interest while in school is the fact the cost may require you to reprioritize. Students don’t typically have much cash. Fortunately, interest-only payments are relatively small. Depending on the amount you’ve borrowed and the interest rate on your loan, your monthly interest-only payment could cost less than a new pair of shoes.

Higgins says college students should consider a job on campus or in the service industry where they can make money to pay interest, increase cash flow for other expenses and build their résumé.

“Get a job on campus or down the street at a coffee shop,” he suggets. “This does two things. One, it allows you to earn some kind of revenue for living expenses but also that can be applied to your student loan interest. Two, it builds your résumé so you can increase your earning potential when you enter the workforce after graduation.”

Abarr has both subsidized and unsubsidized student loans. Though she typically takes 15 credit hours each semester, she also works full time during the summers and part time at the library during the school year.

“Watching my family make bad financial decisions, I’m trying to make choices now that will give me the best chance when I get out of school,” she says.

Depending on your schedule, working may not be possible. For students who have no choice but to wait to pay interest, Higgins suggests they focus on quality internships.

“If you can’t pay at least your interest, you need to focus on how you’ll pay your debt down when you graduate,” he says. “And more than your expensive school, your internships will help you land the kind of job and income you want.”

Most college students take out loans. And with each loan comes the promise of repayment. If you’re a student, positioning yourself to tackle your student loan debt now — whether through making interest payments or boosting your chances of a high-paying career upon graduation — may reduce your risk of default and ensure a more profitable future.

EducationFinancial Aidstudent loans […]

Banks get generous to hook clients


Advisers warn mortgage deals offering electronics, cash, furniture may cost people more in long run

Banks are offering cash, TVs and furniture vouchers to entice customers into taking out home loan. Photo / Thinkstock

Banks are offering cash, TVs and furniture vouchers to entice customers into taking out home loans – but experts warn consumers not to be taken in, or it could cost them tens of thousands of dollars.

ASB is offering potential customers a Sony 48-inch TV and PlayStation 4 with new loans of $250,000 or more, while Kiwibank recently offered $2000 cash or a $2500 Freedom Furniture gift card for those willing to transfer their everyday banking and loan to the bank.

ANZ is offering between $1500 and $2000 cash, depending on the loan amount, while Westpac is offering a “healthy cash bonus” with loans worked out with customers “on a case-by-case basis”.

But Karen Tatterson of the Professional Advisers Association said consumers should be wary because there was “no such thing as a free lunch”.

Some people could be tempted by gimmicks and inadvertently sign away tens of thousands of dollars refinancing their loan for a bit of extra cash, she said.

“You have to be very careful your loan isn’t going back to a term that’s longer than you’ve currently got. Banks always write a loan over 30 years, so if you refinance to another bank and you’re 22 years into your home loan, make sure you keep it at the current loan term.

“If you go from a 22 to a 30-year term it could add $20,000 or $30,000 interest to the cost of your loan.”

David Chaston of finance website said the value of loan incentives depended on how they were used.

“If you’re able to negotiate a good deal with the bank, ignoring the incentive, and then you add the incentive as a bonus you have a very good deal,” he said.

“And you have an even better deal if you can use the cash incentives to pay down your loan.”

Real Estate Institute head Helen O’Sullivan said an increase in marketing activity from banks usually coincided with the spring property uplift, but also warned consumers to be wary of temptation.

“You’ve got to weigh up the value of it with the overall package that is being offered …

“Don’t get blinded to the downside of the financial cost of something because of the excitement of getting a new PlayStation.”

ASB’s head of home lending and small business Vince Clark said the bank’s spring package was in reaction to it being a typically busier season for house sales activity.

Kiwibank spokesman Bruce Thompson said its promotion was designed to keep the bank on mortgage shoppers’ radars.

“It’s a very competitive market and Kiwibank has never taken the approach of sitting back and waiting for the phone to ring.”

ANZ head of mortgages Sarah Berry said the bank had offered cash with home lending since 2012 and the home loan market in New Zealand was very competitive.

Westpac said every customer’s situation was different and the bank worked with them on a case-by-case basis to ensure they have the right solution for their circumstances.

NZ Herald


Cash warning for university expansion


18 September 2014 Last updated at 01:21

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Delicious Digg Facebook reddit StumbleUpon Email Print By Sean Coughlan BBC News education correspondent An extra 180,000 students could be added by removing limits on numbers

Related Stories

Student loan system ‘tipping point’ Students ‘worth £264,000 more in tax’ Tuition-fee change savings ‘unclear’

University budgets could be put under “severe strain” by plans to remove limits on student numbers in England, research analysing the proposals warns.

The Higher Education Policy Institute says the increase, announced last year, was “sprung on universities”.

“One critical outstanding question is how the policy is to be paid for,” says institute director, Nick Hillman.

A Department for Business, Innovation and Skills spokesman says it is “removing the cap on aspiration”.

The Higher Education Policy Institute report says the government’s proposals, to be introduced from autumn 2015, are expected to mean a 20% increase in UK undergraduates.


Such an expansion could “transform lives, improve social mobility and raise economic performance”, says report author Mr Hillman, a former adviser to David Willetts, the previous Universities Minister.

But the think tank’s report says funding arrangements for adding another 180,000 students remain “fuzzy”.

There are warnings of universities having to stretch budgets more thinly

After three years without number controls, there is an anticipated cost of £720m in extra grants and teaching costs and £700m in loan write-off costs.

The option of raising funds by selling the student loan book has been blocked by Business Secretary Vince Cable, who in July ruled out such a sale before the general election.

The report raises concerns that it could mean the existing higher education budget being stretched more thinly, putting pressure on spending per student.

The expansion in student numbers might not be in traditional universities. The report says that international evidence suggests that much of the growth might be in private providers.

Without any limits on numbers, there could be much more recruitment of European Union students, suggests the research.

‘Aspirational policy’

The research concludes that there is a risk of a “substantial decline” in the amount available for each student’s education, or else there could be “changes to student loans to recoup more of the costs” or the “re-imposition of number controls in some form”.

The think tank analyses why the government has made this shift in policy – arguing that abolishing the cap on numbers has political and economic benefits.

Allowing more people to go to university can be “sold as an aspirational policy” in the run-up to the election, the report says.

It also a recognition that increasing graduate numbers is a way of boosting economic performance.

And the report says that since demand for higher education is continuing to rise, the policy is making a “virtue of reality”.

“The decision to remove student number controls is a vote of confidence in universities and young people,” says Mr Hillman.

But he warns: “It is hard to square current forecasts on the future number of students with the expected cuts to public expenditure.

“Spending on each student may come under severe strain whoever wins the next election.”

Wendy Piatt, head of the Russell Group of leading universities, said: “This report is right to highlight the uncertainty behind the government’s plans to increase undergraduate student numbers in England.

“It would be very worrying if this policy leads to less funding per student. Good teaching requires proper levels of investment.”

“Higher education is not something to be piled high and provided on the cheap,” said Sally Hunt, leader of the UCU lecturers’ union.

“While the policy is admirable in its intention to widen access, the government needs to clearly spell out where the extra funding will be found and introduce robust quality controls.

“Recent concerns about for-profit companies milking the system, while delivering qualifications of questionable value, must be properly addressed.”

A Department for Business, Innovation and Skills spokesman said: “Removing the cap on student places will make a reality of the Robbins ambition that university should be open all who are qualified by ability and attainment.

“This year has seen record numbers of young people admitted to university, including the highest ever number of people from disadvantaged areas.

“These crucial reforms, which have removed the cap on aspiration, have been specifically funded in the Chancellor’s last autumn statement.”


Pensacola leads state in Payday loans | Rick's Blog

Image Burningmoney-150x150.jpg

Greater than one-in-three payday loans made in the state of Florida are done in the Pensacola, according to a study by the Research Institute on Social Economic Policy at Florida International University. Florida’s payday lending industry is a $2.85 billion business.

“The region with the greatest number of payday loans was Pensacola, with Miami and Orlando in distant second and third place, respectively,” reported RISEP. “The Pensacola metropolitan statistical area has a population of about 455,000 compared to Miami’s regional population of 5.7 million. However, the Pensacola region was home to 39.9 percent of all Florida payday loan transactions in 2012 while the more populous Miami accounted for 17.8 percent of payday transactions.”

Another horrible statistic for our community to lead the state.

The size of the payday lending industry is driven by “loan churning” as borrowers renew loans or take out another loan within days of paying back a loan. According to the report, the lenders charge an average annual percentage rate (APR) of 280 percent for a two-week loan. The typical payday lending customer uses 25 percent of their biweekly grow income on payday loans.

The Community Enterprise Investments, Inc. is partnering with the Raise Florida Network, Zion Hope Primitive Baptist Church and Friendship Primitive Baptist Church to host a town hall meeting Payday Lending on Aug. 28 at Zion Hope. I will post more information closer to the date.

Post Published: 13 August 2014

Author: Rick Outzen

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Parents to grads: Those student loans are your problem

Bloomberg Memo to graduates: Get used to working.

Hey kids, don’t come begging us for cash when you can’t pay off your student loans. Love, Mom and Dad.

According to a survey released Wednesday by Discover Student Loans , as student loan debt nears record highs, more parents are just saying no when it comes to helping their kids pay off student loans.

While 58% of parents in 2013 said they were very likely or somewhat likely to help out with student loan payments, just 52% said that this year — the lowest percentage since the survey began three years ago (it was 55% in 2012); the national survey was of 1,000 adults with teens planning to attend college. Danny Ray, the president of Discover Student Loans, says it isn’t clear why fewer parents say they want to keep their wallets closed. Perhaps, he says, parents have more confidence that their kids can do it on their own. Or it could be that parents are simply — after all the headlines about kids graduating and moving back home — ready to cut the cord.

This is coming at a time when college costs are rising at a rapid clip — in the past 10 years, the average real rate of in-state tuition at a public four-year school was 4.2% per year, far higher than inflation — a trend that experts expect to continue.

Already, student-loan debt is at record highs: At the end of last year, outstanding student-loan debt hit $1.08 trillion, up $114 billion over the course of 2013, according to the Federal Reserve Bank of New York. What’s more, currently, more than one in 10 student loans are more than 90 days delinquent — a higher rate than for auto loans, credit cards or mortgages.

Turning down their children’s requests for money may be a smart move, since parents will need to pour most of their extra money into retirement savings.

A survey released last year by the National Institute on Retirement Security shows that households with teens, college-aged kids and older are vastly under-saved for retirement. Households where the head of household is 45 to 54 that have saved anything for retirement only have balances of $60,000, and those with heads of household that are 55 to 64 that have retirement savings have only saved $100,000. In both cases, this is well below what’s needed for retirement, according to many financial experts. A survey by Aon Hewitt, for example, finds that Americans will need roughly 11 times their final working salary in retirement, so someone with a $50,000 salary (that’s the median in America) would need $550,000 upon retirement. (Plus, the Aon Hewitt survey finds that, in actuality, workers are only on track to save 8.8 times final pay.)

See also: Your kids will never let you retire

The silver lining? For grads who are struggling to pay down student loans — and parents who want to help their kids in some way, even if it’s not by writing a check for their student loans — there are solutions.

Graduates should begin by looking into the variety of repayment options available to them like consolidation or income-based options, says Monterey, Calif.-based financial planner Catherine Hawley. Earlier this month, Obama announced an extension of the Pay As You Earn program, which will give as many as five million more Americans the ability to cap their student loan payments at 10% of their income . This joins other income-based repayment options — which take into account your income when determining your debt repayments — as good ways for cash-strapped students to make their student loan debts more manageable. And grads who lose their jobs or face other serious financial hardship may want to consider a deferment or forbearance, which allow you to put off paying student loans for a period. However, Abby Harper, spokesperson for Upromise by Sallie Mae (SLM) , cautions that a forbearance should be a last resort, as interest continues to accrue on the loans. The U.S. Department of Education has calculators and other tools to help you look into your repayment options, or you can call your loan servicer.

For parents who are under-saved for retirement, writing a no-strings-attached check to help the kids with student loan debt often isn’t the best answer.

Instead, parents should sit down with their kids and help them make a budget to pay down the debt and look into loan repayment options with them, says Ray; sometimes that will allow your kid to stay afloat financially. If that isn’t enough, parents may want to consider letting a child live with them again — with rules, says Hawley. That means you should outline what the child’s financial and other obligations are to the household (chores, applying for jobs at a certain frequency, etc.) and the repercussions for not meeting them. “You have to be very clear about the expectations both financial and otherwise,” she cautions.

More from MarketWatch:

Parents, you’re saving for college all wrong

Should you move to Detroit?

5 stores where you should never pay full price

Catey Hill covers personal finance and travel for MarketWatch in New York. Follow her on Twitter @CateyHill.

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Traditional Home Sales and Cash Sales Increase: Twin Cities Sellers Enjoy Their Advantages


Twin Cities Cash Home Sales Increase

There is still strong demand from other cash buyers—including individual investors, second-home buyers and even owner-occupant buyers—to fill the vacuum of demand left by institutional investors. – Daren Blomquist, VP at RealtyTrac

Minneapolis, Twin Cities Minnesota (PRWEB) May 13, 2014

Twin Cities traditional home sales are up 1.4 percent, according to yesterday’s report from the Minneapolis Area Association of Realtors (MAAR). With higher home prices and eager buyers waiting on the sidelines, more Minneapolis sellers find all-cash home sales soaring or are going the traditional route, signaling that Minneapolis sellers can enjoy a number of other advantages, too.

“We see home buyers who pull out their saving to pay in cash for a needed competitive advantage in a market where inventory is low and too many buyers are competing for the same listing,” says Jenna Thuening, owner of Home Destination. “Many sellers favor the certainty of a cash homebuyer over one that is dependent on a lending institution. Sellers who may want to avoid possible closing complications may even offer cash buyers a discount.”

In a post titled Traditional Sales Dominating the Housing Market, the MAAR talks about the Twin Cities housing market adjustments. “Distressed inventory has made up the majority of the lower price ranges, and that market is evaporating,” commented Mike Hoffman, MAAR President-Elect. “We can anticipate more negotiations and transactions with people rather than banks.”

Key housing data in the recent RealtyTrac Investor and Cash Home Sales report:

Average home sale prices for all-cash buyers in Q1 of 2014 was $207,668 nationally, coming in 13% lower than the average estimated real market value of the purchased homes, which was $237,900. Over one half of all-cash home purchases in March came from buyers who post a separate mailing address than the property address. Some housing analysts would surmise that most often indicates either a second-home buyer or investor. The percentage of homes bought in all-cash transactions climbed to 42.7% in the first quarter of 2014, up from 37.8% in the prior quarter and 19.1% in the first quarter of 2013. Home buyers that closed on a minimum of 10 properties in one calendar year comprised just 11% of the all-cash purchases and only 5.6% of all home purchases in the quarter.

According to the Minneapolis Area Association of Realtors, institutional buyers made up much of 2013’s investor owned home sales. March’s housing numbers report that lender-owned home sales plunged nearly 40 percent in the Twin Cities. As a result of the ongoing shift in the types of homes being sold, and their financing, the median sales price for the metro continued upward 8.0 percent to $197,000. Creating 26 consecutive months of year-over-year price gains, foreclosures and short sales combine to comprise just 11.4 percent of all new listings. April 2013 saw their share nearly double at 22.4 percent.

“Observation would indicate that house flippers in the Twin Cities were often able to turn home purchases quickly into a profit or for gaining rental income. The excellent investment opportunities for rentals created competition with the prospective owner-occupant buyer. As fewer distressed properties are for sale, we are seeing diminishing activity in investor-owned homes,” adds Thuening.

“We see even traditional buyers coming to the bidding table with cash offers. When a seller is presented with multiple offers where most terms are equal, many opt for the quick closing date and surety of the cash offer versus entrusting a successful sale to a buyer that needs financing to do the same.”

Cash deals have traditionally gone hand-in-hand with investor activity. That seems to be changing as individuals with cash they can reach don’t want to go through the stringent mortgage application process. Joe Adamaitis, president of the Gulf Coast Mortgage Bankers Association, told the Institute for Economic Competitiveness, “We have had countless people come in to get a loan, and two weeks in, they throw up their hands and say, ‘You people are nuts.’ Every party is under the gun – so it makes sense to pay the cash if you have it.”

Home Destination offers an extensive library of home buyer and seller resources and is a Twin Cities residential real estate consultant serving the metro over 15 years. Dedicated to giving individuals the best opportunity to make solid real estate decision, call 612-396-7832 for Jenna Thuening’s guidance.


Bankruptcy judge OK's $120 million loan for Detroit

(Reuters) – A U.S. bankruptcy judge on Wednesday approved Detroit’s plan to borrow $120 million from Barclays PLC to improve services in the cash-strapped city.

Judge Steven Rhodes, who is overseeing Detroit’s historic bankruptcy case, overruled objections by city creditors who took issue with the timing and structure of the loan.

“This court has previously held the city is service-delivery insolvent,” Rhodes said.

Detroit has said it plans to use some of the loan proceeds on public safety improvements.

The loan deal emerged early last month after a larger loan was rejected in part by the judge in January. The previous loan, backed largely by city casino tax revenue, included $165 million that Detroit wanted to use to pay two investment banks to end soured interest rate swap agreements that contributed to the city’s filing of the biggest municipal bankruptcy in U.S. history in July. Those swaps were used to hedge interest rate risk on some Detroit pension debt.

In January, Rhodes ruled that the $165 million price tag was too high for the broke city.

On Thursday, the judge will hold a hearing on Detroit’s latest plan to terminate the swaps at a deeply discounted cost of $85 million. Given the smaller amount of money and the fact it would be paid over time, the city has said it would no longer need to include it in the borrowing.

Under the $120 million loan, Detroit would no longer pledge the casino tax revenue, which is crucial to helping the city get back on its feet as it restructures its $18 billion of debt and other obligations. Instead, the city is pledging income tax revenue and the proceeds of asset sales, except for property of the Detroit Institute of Arts.

The loan deal received previous approval from the Detroit City Council and Michigan’s Local Emergency Financial Assistance Loan Board.

(Reporting by Karen Pierog; Editing by James Dalgleish and Dan Grebler)

FinanceBudget, Tax & EconomyDetroitSteven Rhodes […]

U.S. bankruptcy judge OK's $120 mln loan for Detroit

(Recasts with direct sourcing, adds quote from judge, background)

April 2 (Reuters) – A U.S. bankruptcy judge on Wednesday approved Detroit’s plan to borrow $120 million from Barclays PLC to improve services in the cash-strapped city.

Judge Steven Rhodes, who is overseeing Detroit’s historic bankruptcy case, overruled objections by city creditors who took issue with the timing and structure of the loan.

“This court has previously held the city is service-delivery insolvent,” Rhodes said.

Detroit has said it plans to use some of the loan proceeds on public safety improvements.

The loan deal emerged early last month after a larger loan was rejected in part by the judge in January. The previous loan, backed largely by city casino tax revenue, included $165 million that Detroit wanted to use to pay two investment banks to end soured interest rate swap agreements that contributed to the city’s filing of the biggest municipal bankruptcy in U.S. history in July. Those swaps were used to hedge interest rate risk on some Detroit pension debt.

In January, Rhodes ruled that the $165 million price tag was too high for the broke city.

On Thursday, the judge will hold a hearing on Detroit’s latest plan to terminate the swaps at a deeply discounted cost of $85 million. Given the smaller amount of money and the fact it would be paid over time, the city has said it would no longer need to include it in the borrowing.

Under the $120 million loan, Detroit would no longer pledge the casino tax revenue, which is crucial to helping the city get back on its feet as it restructures its $18 billion of debt and other obligations. Instead, the city is pledging income tax revenue and the proceeds of asset sales, except for property of the Detroit Institute of Arts.

The loan deal received previous approval from the Detroit City Council and Michigan’s Local Emergency Financial Assistance Loan Board.

(Reporting by Karen Pierog; Editing by James Dalgleish and Dan Grebler)

FinanceBudget, Tax & EconomyDetroitSteven Rhodes […]

Reverse mortgages: Easy money or dumb move?

Faced with rising medical expenses and longer life expectancies, many seniors are turning to their single largest asset as a source of supplemental income: their home.

Indeed, reverse mortgages enable seniors who are 62 and older to convert a portion of the equity in their home into cash without having to sell.

As the name implies, such loans are structured as the mirror image of a regular mortgage. The lender makes payments to you in either a lump-sum amount or in monthly installments based on a percentage of your home’s appraised value. Eligible homeowners can also set up a reverse mortgage as a line of credit, providing access to emergency funds on an as-needed basis.

The money received can be used to pay off your existing mortgage loan and halt your monthly payment, supplement your retirement income, finance a home-improvement project or pay for health-care costs.

(Read more: Plan for financial independence, not retirement )

And the balance, including interest and financed closing costs, need not be repaid until you sell your home, no longer use it as your primary residence or pass away. Another perk? Proceeds are generally tax-free.

Yet such loans, while potentially solving a host of problems for retirees who are house-rich but cash-poor, also come with some pretty significant risks.

“Reverse mortgages are a useful tool for some people,” said Lori Trawinski, senior strategic policy advisor with the AARP Public Policy Institute. “They can enable retirees to age in place, but we always emphasize that these are loans, and as such, borrowers have obligations.”

Among those obligations, borrowers must stay current on their property taxes, homeowners insurance and any homeowner’s association dues and assessments. They must also keep their home well maintained. Failure to comply can send the loan into default and result in a foreclosure, according to Trawinski.

The amount you owe on a reverse mortgage also grows over time.

Interest is charged on the outstanding balance and added to the amount owed every month. Thus, your total debt increases as the loan funds are advanced to you and interest on the loan accrues.

(Read more: How do porn stars plan for retirement? )

That means fewer assets left in your estate to pass along to your heirs, which may not matter if you don’t intend to preserve your assets for future generations, said Marla Mason, a certified financial planner and vice president of Presidential Brokerage.

“If you plan to live out your life in your house and you don’t care about leaving a legacy behind, the reverse mortgage is a very valid option,” she said.

However, Mason explained, these loans come with a lot of fees.

The maximum origination fee allowed for a federally insured reverse mortgage, formerly called a Home Equity Conversion Mortgage, or HECM, is 2 percent of the initial $200,000 of the home’s value and 1 percent of the remaining value, with a cap of $6,000, according to the National Reverse Mortgage Lenders Association.

You will also owe a mortgage insurance premium fee based on the amount of funds withdrawn during the initial year. That fee is 0.50 percent of the appraised value of the home if you take no more than 60 percent of the amount available in the first year, and 2.5 percent if you take more than 60 percent of the available amount. On a $200,000 home, 2.5 percent amounts to $5,000, and 0.50 percent is $1,000.

(Read more: CNBC audience gets importance of retirement planning )

You will also owe a mortgage insurance premium annually, which accrues over time when the balance comes due. The annual premium is equal to 1.25 percent of the outstanding loan balance.

There are also appraisal fees, which vary by region but average around $450. If the appraiser determines that your house requires repairs, you will be required to complete the repairs as a condition of approval, as well.

Finally, there are closing costs, which are comparable to those of any mortgage loan and often amount to about $1,000. Some lenders will also charge a $35 monthly service fee for the life of the loan, but most have dropped that fee, according to Trawinski.

“These loans can be expensive,” she said, noting it all depends upon how much you borrow initially. “If you take out a lot of money upfront and exit the home in a very short period of time, it can be a very expensive way to borrow money.

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“But if you borrow less and stay longer, the costs amortize over time, so it’s comparatively less costly,” she added.

Reverse mortgage loans come in three flavors: single-purpose reverse mortgages, which are offered by some states, local government agencies and nonprofit organizations; federally-insured reverse mortgages (HECMs); and proprietary reverse mortgages, which are private loans backed by the companies that develop them.

According to the Federal Trade Commission, single-purpose reverse mortgages are the least expensive option, but they’re not available everywhere and can be used for only one purpose, which is specified by the lender. The lender might indicate, for example, that the money can only be used to pay for home repairs, improvements or property taxes.

HECMs and proprietary reverse mortgages can be more expensive than traditional home loans, and the upfront costs can be high.

The amount of equity you can borrow in a reverse mortgage depends on your age; the type of reverse mortgage you select, such as lump sum, monthly payments or line of credit; and current interest rates. In general, the older you are, the more equity you have in your home and the less you owe on it, the more money you can take out, according to the FTC.

Other sources of cash
Before taking out a reverse mortgage, homeowners should consider alternatives, said Sean Keating, a certified financial planner and principal and founder at Patriot Financial Advisors. (All borrowers, in fact, must complete government-approved counseling before they can qualify for a HECM loan.)

For those with the means to pay off a home-improvement project or pricey dream vacation over the course of a few years, it’s generally less expensive to take out a home-equity loan, which involves only an appraisal fee and closing costs and does not deplete the value of your estate. The interest you pay is also generally tax deductible.

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Seniors who assume a regular home-equity loan, however, must be prepared to make monthly payments until the loan is repaid.They should also be aware that failure to meet their home-equity loan obligations could result in the loss of their home.

Cash-strapped homeowners who are using a reverse mortgage as a last-ditch effort to hang on to their home should also think twice, Keating said.

“When an older couple cannot afford to live in the home anymore, getting a reverse mortgage will only delay the loss of the house and will leave them with no assets,” he said.

Better to sell the house and downsize, move in with a family member, take on a roommate or explore whether one of your adult children might be willing to purchase the family house through an installment sale, Keating added.

“The kids may not have a lump-sum payment to buy the house outright, but by making monthly installment payments, their parents get to stay in the home, collect a monthly income and the kids eventually own the house so it preserves that asset for the next generation,” he said.

Well-heeled homeowners with a highly appreciated home may benefit the most from a reverse mortgage, according to Keating.

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Rather than using bond ladders to create consistent income-a strategy in which bonds’ maturity dates are evenly spaced to enhance liquidity-they can instead keep more of their money in higher-growth equities and use a reverse mortgage line of credit for living expenses during the months or years when the market is down. A more aggressive equity allocation also protects against longevity risk or the chance of outliving your savings.

“That way, you’re not pressured to sell in a down market,” said Keating, noting such strategy only works for homeowners with enough equity to cover one or two years’ worth of living expenses if necessary. “When the market rebounds, you can take out the amount of money you were expected to withdraw from your stock portfolio and pay back the reverse mortgage loan.”

Many state and local governments also offer low-interest and low-cost deferred-payment loans for improving or repairing your home that function like a reverse mortgage.

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When mining your home for money, be aware of the fees you’ll pay, the impact on your estate and any alternatives that might be a better bet. At the end of the day, the math must make sense.

“For people who have a need for cash, reverse mortgages can be a useful way to access funds without having to sell their home,” Trawinski said. “But you are also spending down your equity, and the balance of your loan continues to grow, so it’s a good idea to think about alternative programs and sources of cash.”

-Shelly K. Schwartz, Special to

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