The plaintiffs, seeking to have the case certified as a class action, or group, lawsuit, on behalf of 60,000 beneficiaries of military life insurance policies, filed an amended complaint yesterday adding the fraud claims and additional claimants. The case was originally filed July 29 in federal court in Springfield, Massachusetts.

The suit claims Prudential fails to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies, instead encouraging them to leave the money in accounts with the company, which pays them a small amount of interest.

Prudential is believed to have made “half a billion dollars or more,” the amended complaint said.

The plaintiffs, who are the beneficiaries of eight military life insurance policies, said Prudential puts death benefits into “Alliance Accounts,” which pay only 0.5 percent to 1.5 percent interest. The company invests the money at a higher rate of return and keeps the difference, according to the suit.

Bob DeFillippo, a spokesman for Newark, New Jersey-based Prudential Financial Inc., declined to comment on the suit. He said the company informs death-benefit beneficiaries of their payment options and that they can immediately withdraw all the money from their Alliance Accounts and invest it wherever they choose.

More than 100 insurance carriers earn investment income on $28 billion owed to life insurance beneficiaries, Bloomberg Markets magazine reported last month.

The case is Lucey v. Prudential Insurance Co. of America, 10-30163, U.S. District Court, District of Massachusetts (Springfield).

Found here.

The Basics of Mortgages

So, what really is a mortgage?  This is a type of loan that you that you have to repay over an agreed time frame.  Normally, a mortgage is secured by a property such as your home.  If you have a mortgage, you are securing a promise that the amount you borrowed from the lender will be repaid in full.   For the majority of consumers, getting a mortgage is one of the biggest and most serious financial decisions that they have to make.

There are many lenders that can offer mortgage loans.  Banks, for example, are the number one originators of mortgages.  You can also get a mortgage from special mortgage lenders, building societies, or you can seek the intervention of a mortgage broker.  You can get a mortgage after finding the crucial information you need.  It is also possible to get the advice of a financial advisor who will give you recommendations on what type of mortgage would be best for your situation.

In general, there are two principal ways to pay your mortgage.  These are the full repayment plan and the interest-only mortgage.  With full repayment, you will promise to pay back the loan and the interest for an agreed period.  For example, you may negotiate for a 30-year repayment plan with a fixed interest rate.

The other mode of repayment is interest-only.  As the name implies, this plan allows you to pay only the interest of the loan for a fixed period.  However, you need to build savings or put your money in an investment plan so that you can repay the whole loan when your mortgage becomes due.

Understanding Reverse Mortgage

Reverse mortgages are getting a lot of attention these days.  Unlike conventional mortgage, borrowers will not pay anything if they get a reverse mortgage.  Instead, the borrower gets a monthly payment or a lump sum from the lender.  The funds are actually taken from the home equity that you have built over time.

A reverse mortgage loan is not taxable.  This special feature makes reverse mortgage loan extremely attractive.  The loan does not affect your Medicare and Social Security benefits.  And most important of all, you will retain ownership of the house as long as you are residing in it.

A reverse mortgage will become due once the last borrower passes away.  If you no longer live in the house or the property has been sold, then the loan is also up for repayment.  You can apply for a reverse mortgage if you are at least 62 years old.  Up to three seniors can apply for a reverse mortgage as long as they meet the requirements.

If you want to have a regular source of income, then a reverse mortgage is good for you.  This loan is best for senior citizens.  If you get an approval, you will receive a lump sum or regular monthly payments from the lender.

Found here.

Homeowners who have spent years paying for their houses may have their houses pay for them. That is the idea behind a reverse mortgage which enables struggling seniors to get equity out of their home in one lump sum, regular monthly payments or a revolving line of credit.

While the homeowner needs to demonstrate a level of need, Jason Levy, the chief executive officer of Guardian First Funding, says a reverse mortgage is not a sign of failure.

“An ideal candidate is someone who is having a hard time making ends meet, so to speak, but has the equity in their home,” says Levy. “It’s not a coincidence that that equity is there. They built it over time and that’s an act of success.”

Seniors must continue to pay their taxes, maintain homeowners insurance and keep the house in good shape. Unlike a home equity line of credit, they don’t have to make any payments on the reverse mortgage.

Once the homeowner passes away, or sells the house, the loan is repaid out of the sale of the home. It will decrease the value of the estate, but Levy says it is a matter of priorities.

“Is your priority to have more equity at the end of the day but struggle to heat yourself in the winter or have air conditioning in the summer?” says Levy “It gives that senior the discretionary income that they need to live a much better lifestyle.”

While for some seniors a reverse mortgage may be key to staying in their home, there are things to consider, like interest which continues to accrue. Unlike a regular mortgage, where homeowners pay a balance down, the reverse mortgage starts at a certain amount and then the balance goes up.

In addition, there are fees. With government insured loans, known as HECMs, a lender can charge up to three percent of the home value, up to $6,000, in origination fees. The FHA also charges an additional two percent for the mortgage insurance premium. There may also be a monthly servicing fee of up to $35 a month, which again, is not paid by the homeowner, but instead gets wrapped into the balance of the loan.

Over time, all of this can add up, and while that may not effect you, Josh Zinner, the co-director of the Neighborhood Economic Development Advocacy Project, says it could impact any adult children who may wish to remain in the house.

“It’s very hard for any heirs to the property, when that senior passes away, to stay in the home, because what they have to do is pay off that very high mortgage balance in order to stay in the home,” he says.

To ensure seniors are protected, the federal government requires borrowers get counseling from a nonprofit agency. To find a lender or counselor, visit the Web site of the Department of Housing and Urban Development at www.hud.gov.

Found here.

The Federal Reserve on Monday issued a package of rules and proposals for mortgages, including a measure that would require lenders to disclose to borrowers how their mortgage payments can change over time.

The provision, which is an interim rule that would take effect on Jan. 30, 2011, seeks to make sure borrowers are alerted to the risks of payment increases before they take out mortgage loans with variable rates or payments, such as adjustable rate mortgages.

Based on the measure, lenders would need to provide details to borrowers about what the maximum interest rate and payment they would need to make during the first five years of their adjustable-rate mortgage, as well as a “worst case” example showing what the maximum rate and payment they could be required to pay.

Lenders also would need to explain to borrowers that they can’t avoid hikes in payments by refinancing their loans, according to the provision.

The new Fed measures come as the Obama administration prepares for an Aug. 17 conference on the U.S. housing-finance system, with lawmakers on Capitol Hill gearing up to battle one another and the powerful housing lobby over the future of the mortgage-finance giants.

In addition, the Fed also proposed new consumer-protection regulations to improve the disclosures consumers receive for reverse mortgages and to make sure that consumers receive new disclosures when they agree with their lender to modify key terms of a closed-end mortgage.

A reverse mortgage is a type of loan that is designed for senior citizens to give them access to the home’s equity in cash payments and frees up money they can use for other purposes. A closed-end mortgage is one where repayment cannot be made prior to the loan’s maturity, and terms prohibit the consumer from borrowing an additional amount against the mortgaged asset without first paying off the current loan.

Based on the proposal, the Fed is seeking to prohibit creditors from conditioning a reverse mortgage on the consumer’s purchase of another financial or insurance product. Consumers also would have to receive independent counseling about costs and benefits of reverse mortgages before a creditor can impose a non-refundable fee, and they need to receive final disclosures about the mortgage three days before closing the loan.

For closed-end loans, the new proposal would ensure that consumers have time to review their loan disclosures before they pay any fees. Lenders would be required to refund the fees if consumers decide to withdraw the application within three days of receiving disclosures.

The central bank also announced it has adopted final rules to ensure that borrowers receive a notice when their mortgage loan has been sold or transferred. The new disclosure requirement has been effective since May 2009, when the Fed published interim rules based on the Helping Families Save Their Homes Act.

Moreover, the agency adopted final rules seeking to protect mortgage borrowers from deceptive lending practices. For example, the rule prohibits a loan originator that receives compensation from the consumer to also receive compensation from a lender or another group.

Paul Leonard, vice president of government affairs at the Financial Services Roundtable, said he supported giving borrowers of adjustable-rate mortgages additional disclosures. However, he raised concerns about differences that exist between the disclosure rules required by the Fed and those instituted by the Department of Housing and Urban Development.

“We think it’s a good idea that borrowers should know what the potential change is to their adjustable loan,” Leonard said. “We just would like to see a single set of disclosure that meets both the Fed’s Truth in Lending Act rules and Department of Housing and Urban Development real estate settlement rules.”

Found here.

Eliyahu Weinstein, who represented himself as a real-estate investor based in New Jersey, allegedly exploited the social and business customs of the Orthodox Jewish community to carry out the scheme, according to a criminal complaint made public Thursday. The scam allegedly began in September 2005.

Weinstein and Vladimir Siforov, of New York, have been charged with fraud in the matter. They’re expected to appear in federal court in Newark later Thursday.

Some of his victims’ money was used by Weinstein to amass a substantial collection of art, jewelry and Judaica, prosecutors from the U.S. Attorney’s office in Newark alleged in the criminal complaint. The collection includes manuscripts and antique Judaica items worth about $6.2 million; a jewelry and clock collection that Weinstein allegedly spent $7.6 million to acquire; jewelry and watches valued at $6.2 million, including items from Bulgari, Cartier, Omega and Harry Winston, according to the complaint.

The items are stored in New Jersey, New York, Florida, Israel and other places, prosecutors said.

In a criminal complaint, prosecutors alleged Weinstein would use his contacts in the Jewish community to meet potential investors and falsely represented he owns or could purchase properties. Many of the victims were from New Jersey, New York, Florida, California and overseas, prosecutors said.

He often claimed to investors that he had another party lined up to buy or rent the property and they could earn a healthy profit in a short period, according to the complaint, but the “buyers” were actually other members of the scheme. When investors tried to collect earnings from their investments, Weinstein allegedly ignored them, made promises to pay or paid a smaller amount.

In one instance, Weinstein allegedly defrauded a Chicago bank out of $6 million related to the purchase of a property in the Bushwick section of Brooklyn, prosecutors said.

In another instance, Weinstein and Siforov allegedly defrauded a victim in the U.K. out of $4.8 million by claiming Siforov owned a company that was preparing to buy the same Brooklyn property from a company controlled by Weinstein for $16.2 million, prosecutors said.

Weinstein allegedly maintained multiple passports and told one investor: “if I want to run away, I can,” according to the complaint.

Found here.

Answer: I can understand your concern — and the temptation to try to ramp up your nest egg by investing more aggressively in stocks. After all, in the wake of an abysmal 10-year span in the market, a return to equities’ historical annual gains of 10% may seem like a good bet.

Yet there’s no assurance that a subpar decade will be followed by a superior one. If anything, economists’ expectations of generally slow growth over the next few years suggest it may take a while for stocks to return to their glory days.

Besides, recent research shows that the market is actually more prone to gut-wrenching setbacks than many investors assume.

So even if you shifted your portfolio dramatically toward equities, and that strategy generated lofty gains for several years, one repeat of the 50%-plus drop in stock prices from late 2007 to early 2009 could wipe out much of your progress.

That doesn’t mean you have to simply accept the shortfall, though. There are several ways to close the gap between where you are and where you’d like to be, the most effective of which is not to invest more aggressively but to save that way.

Clearly, the amount of lost ground you can make up will depend on how much you’re behind and the number of years you have until retirement. But you may be surprised at the level of savings you can rack up — over a relatively short time — if you make a serious commitment.

The table above illustrates the amount a 50-year-old who earns $100,000 a year and is willing to ratchet up his annual savings to 20% of salary can accumulate by 65 — and, even better, by delaying retirement for just three more years.

That’s in addition to any money (plus returns) you had previously put away. So, for example, someone in this situation who had already accumulated, say, two times his salary, or $200,000, could be looking at a total nest egg of about $1.3 million by 68.

Granted, it won’t be easy; you may have to take full advantage of a combination of 401(k) and IRA accounts and catch-up contributions (an extra $5,500 for 401(k)s and $1,000 for IRAs).

But if there’s any time you can put the pedal to the metal in savings, it’s in your fifties and sixties, when the kids have probably flown the coop, your home may be nearly paid off, and your finances are more stable.

Working just a little longer has other benefits too. For instance, putting in an extra three years could boost our hypothetical 50-year-old’s Social Security payment by roughly $500 a month in today’s dollars.

Remember, too, that having substantial equity in your home by the time you retire gives you options. You might be able to sell your house and buy smaller, less costly digs, leaving you with extra cash. Those benefits may be magnified if you relocate to an area with lower living costs.

Or, if you prefer to stay put, you can do so while tapping your home equity via a reverse mortgage. (For an estimate of what you can expect, check out the reverse mortgage calculator at AARP.org).

In short, don’t panic. There are plenty of ways to improve your post-career prospects, even if you’re far behind and retirement is looming. But shifting to a riskier investment plan isn’t one of them.

Found here.

Is the reason for the growing popularity, that seniors have more experiences from the reverse loan and they spread the word to each other? Or have the attitudes changed, I mean the right to use the home equity for the daily expenses? Funny thing is, that according to the research, almost all seniors are very happy with the reverse loan.

1. A Senior Can Pay Away The Old Mortgage.

Because retired people usually cannot increase their monthly income, the only way to get more cash is to sell something or to take a reverse loan. If they will end up to the reverse loan, they will get double benefits.

Because a senior cannot have both the usual mortgage and the reverse mortgage, he has to pay away the usual mortgage. This will bring even more disposable money to him, because the monthly payments will decrease.

2. The Refinancing.

One important factor with the mortgage loan is the interest rate. In the case, that a senior has an old mortgage loan with a high and fixed interest rate, he can pay that loan away and to take a new reverse mortgage loan with either fixed or variable rate, depending which one is lower. This can bring a nice amount of disposable money every month.

3. The Reverse Loan Does Not Change The Home Ownership.

Maximum three seniors can be the borrowers, but all must then be the owners of the home. Many seniors think, that the reverse loan changes the ownership of the home, but that is not the case and the borrowers must take care about the property taxes and insurances and to keep the home in a decent condition.

4. A Borrower Can Enjoy About The Home Price Increases In The Future.

When we usually speak, that the reverse loan eats the home equity, which is true, we have to mention, that usually the home prices will grow substantially during a long period of time. This will increase the home equity.

5. What Happens, If The Lender Becomes Bankrupt?

A senior with the reverse loan may be afraid, that he or she will lose the money, if the lending company becomes bankrupt. That is not true, because the borrower has to take an obligatory mortgage insurance. This insurance makes the reverse mortgage the safest mortgage in the market.

There is one more benefit for the seniors. The reverse mortgage qualification is easy. Everybody, who owns a home and is 62 or older can get the loan. Of course the property must have equity left, because the loan will be taken against that. But no credit or income information will be asked.

Found here.

Instead of paying lump sums to beneficiaries of troops killed, companies like Prudential and MetLife provide them with “checkbooks,” giving parents and relatives the impression that the life insurance money has been put into a bank account for them to draw on whenever they like. In reality, the money sits in general corporate accounts earning Prudential 4.8%, while the beneficiaries receive maybe 1%.

In reality, survivors have the right to take all the money and then put it in money-market accounts that earn a higher rate of interest.

“I’m shocked,” Cindy Lohman, whose son was killed in Afghanistan, told Bloomberg News. “It’s a betrayal. It saddens me as an American that a company would stoop so low as to make a profit on the death of a soldier. Is there anything lower than that?”

Jeffrey Stempel, an insurance law professor at the University of Nevada, Las Vegas, called the scheme “institutionalized bad faith.”

Rep. Bob Filner (D-California), the chairman of the House Veterans Affairs Committee, criticized not just the insurance industry, but also the VA employees who “too often failed to explain all the options available for these families in their time of need.”

David Evans, the Bloomberg reporter who developed the story, says that MetLife created the scheme in 1984. It soon spread throughout the insurance industry, creating “a shadow banking system” worth $28 billion.

Found here.

It’s a home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their main residence.

Age matters (income doesn’t)

If you are 62 or older and have paid off your mortgage (or owe only a small balance), you may be able to tap your home equity to generate extra cash. You can take the money as a lump sum, a line of credit, monthly payments or a combination of a credit line and regular payouts. Unlike a traditional mortgage or home equity loan, you don’t need to meet income or credit requirements to qualify, and you don’t have to repay the loan as long as you live in the house.

Lenders are motivated

Declining property values and stricter lending limits imposed by the Federal Housing Administration last year took a big bite out of the reverse-mortgage market. Now, lenders are looking to gin up new business, partly to satisfy investor demand for government-backed mortgage securities, known as Ginnie Maes, which include reverse mortgages. To attract new borrowers, some lenders are waiving loan-origination fees and other upfront charges, which could save you up to $10,000 and increase the amount you can borrow by the same amount.

It could be a stop-gap solution

Because upfront costs are lower, you may not need to remain in your home for several years to justify the cost of the loan. Say you want to sell your house, but the real estate market stinks, and you need to fix it up to attract potential buyers. You could take out a reverse mortgage to finance the home improvements. You’d then pay off the reverse mortgage when you sell the house and pocket the difference. (The loan is due in full when you move out permanently — or die.)

The older you are, the better

The amount you may borrow depends on your age, your home’s value and interest rates. The older you are, and the more valuable your home (up to a maximum of $625,500), the more you are entitled to take. The loan calculation factors in the interest and fees that accrue over time, reducing the amount of equity you can tap. For example, if you’re 65, you might be able to borrow up to half of your equity. Wait until age 85 and you could tap 70 percent or more.

Borrow sparingly

If you choose a lump sum, you must borrow the full amount that you qualify for, close to $200,000 in the case of a 65-year-old homeowner with a paid-off home worth $400,000. Interest will continue to build on the entire amount until the loan is paid off. If you don’t need the full amount, select a line of credit or monthly payouts and pay interest only on the amount you use.

The loans still aren’t cheap

If you borrow $50,000 on a $400,000 home as a line of credit, you would owe more than $16,000 in interest and mandatory insurance premiums after two years. That combined cost would double, to more than $32,000, if you remained in the house five years. Use the calculator — like the one at goldengateway.com — to estimate how much you can borrow and what it will cost.

Costs could be going up

Fees and interest rates are low now. But the FHA could tighten lending limits and boost insurance fees if its budget for the reverse-mortgage program is scaled back in the fiscal year that begins October 1.

Found here.