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  • 2013 Changes to Reverse Mortgages
  • On Sept. 3, 2013, the US Department of Housing and Urban Development announced major changes to the Reverse Mortgage, also known as the Home Equity Conversion Mortgage:

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Refinance means savings for city

By Traci Chapman

Healthy sales tax collections and low interest rates could mean a savings for the city of Mustang of more than half a million dollars on bond debt over the next several years.

Mustang City Council unanimously approved a resolution refinancing several bonds during a Monday special meeting. The bottom line was the reduction of interest from more than 5 percent to 2.1 percent and a partial “lump sum” pay-down of the current $8.3 million debt, among other benefits, City Manager Tim Rooney said.

“It’s a real positive for Mustang for a lot of reasons it’s a smart financial move,” he said.

Allan Brooks of Public Finance Law Group and Rick Smith of Mutual Finance Service, the city’s bond attorney and financial adviser, respectively, initially presented a possible scenario for Mustang City Council at its regular Tuesday meeting. Brooks returned for the special Monday meeting to provide updated figures and answer several questions posed by Ward 6 Councilman Don Mount before the meeting.

12 Resolution City

Mount voted with his fellow council members in favor of the refinance. The resolution required a “super majority” – six out of seven council members voting for it – because it involved financing.

What this means for taxpayers and for the city itself is the ability to get out from outdated and unattractive terms on the unpaid debt, Brooks said. The city’s debt was incurred by Mustang Improvement Authority. Over the years, the authority has accumulated surplus sales tax, which cannot be used for any other purpose, Brooks said. By refinancing the debt, the city can apply that surplus to the debt, shorten the debt term and save money, he said. It also allows the city the opportunity to pre-pay the bonds without penalty if it is able, Brooks said.

“The Authority/City has been saddled with outdated debt documentation since 1999,” he said. “We have been watching for an opportunity to rewrite the underlying documents for years, but it has never been cost effective to do so.”

Summary Mustang 04-28-2014

The city issued bonds in 1999 for capital improvements. In 2006, city officials approved the refinance of those bonds, but they kept in place the original loan agreements, Brooks said. With those agreements came certain stipulations that were commonplace at that time but which are no longer necessary for the city. One of those requirements was the city must set up a debt service reserve.

“It was a common practice at that time – it guaranteed the city would have a year’s worth of payments in case there was a problem,” Brooks said.

Times – and financial prospects – have changed since that time, the pair said. Mustang would no longer need to hold the reserve, now totaling more than $2.66 million in its coffers and instead could use the funds to pay down the existing obligation. In order to do so, however, council would need to approve new contracts, Brooks and Smith said.

Financing the bonds with BBamp;T Bank, the notes would earn 2.1 percent interest, rather than the 2.2 percent interest originally thought by Brooks and Smith, resulting in a gross savings to the city over the old contracts of $973,019, Brooks said.

“The term of the 2014A Note would be approximately 3.33 years shorter than the 2006 Bonds being refinanced,” Brooks said. “This adjustment, together with a lower interest rate, results in a reduction of the principal amount of the 2014A Note from $8,305,000 to $7,740,000.”

Legal and other costs for the refinance would total $225,850, Brooks said.

“For lack of a better term, the stars have lined up,” Brooks said.

Attention, Elizabeth Warren: Students Are Already Free to Refinance Their …

A new bill championed by Sen. Elizabeth Warren would allow holders of student-loan debt to refinance with the government at a lower interest rate. The “Bank on Students Emergency Refinancing Act” would drop the rate on existing college loans to the current rate on federal loans, roughly 4 percent — a large reduction for students who took out loans for around 7 percent before the 2008 recession.

Supporters portray the bill as simply leveling the playing field: “Homeowners and businesses are often able to refinance their debts. Students should be able to do the same,” according to Representative John Tierney, a sponsor of the House version of the bill. “It is outrageous that students can’t refinance at these historically low interest rates,” added Senator Barbara Boxer. “This legislation gives students the same fair shot as other borrowers have when interest rates decline.”

There’s a problem with that thinking: Students are already free to refinance their college loans. Most of the existing loans are federal-direct or federally guaranteed. Students can take them to any bank of their choosing and ask for a lower interest rate, just as homeowners and businesses can. The reason they don’t is that no private-sector bank is willing to take full responsibility for those loans at a lower rate — or even at the existing rate. The loans are not profitable for private lenders without taxpayer money to prop them up. In other words, students are already getting a great deal on federal loans, it’s just that some are not getting as great a deal as Senator Warren and her cosponsors would like.

The new bill would allow students to refinance with the federal government. But why should the government allow refinancing when it faces no competition? When homeowners ask their mortgage lenders for a lower rate, the lenders will comply only if they fear losing the loans to a competing lender. But the government, being willing to lose money on student loans, has no serious competition in the marketplace.

Senator Warren’s bill does not “level the playing field” or address any structural unfairness. It would simply increase the government’s transfer payments to people who have attended college. 

A Dark Corner in Chinese Shadow Banking: Cash via Credit Cards

Need cash in a hurry in China? You can use your credit card for that — just don’t tell the central bank.

With the Chinese economy slowing, businesses of all stripes are finding themselves short of cash. The banks are proving more reluctant to lend to small and private firms, companies are delaying payment of goods they bought on credit, and the slowing economy means that sales just aren’t as good as they used to be.

So companies are turning to their credit cards. Some people with point-of-sales – or POS – machines will offer to swipe your card, racking up a sale, but instead of handing over the goods they give you cash. They take a small fee, and you get – for all intents and purposes – a bank loan.

This is not exactly new. The People’s Bank of China warned about it late last year. But anecdotally, it’s becoming more visible in Beijing. One China Real Time reporter started receiving the occasional advertisement in his bicycle basket from outfits offering such services earlier in the year. But yesterday, a bicycle parking lot where he occasionally leaves his  bike got spammed with advertising from three different service providers. Given the practice is illegal, that’s kind of a lot.

So, how does it work?

Think of it as an interest-free loan – well, almost. After you swipe your card and receive your cash, you have about 50 to 60 days before the banks starts calculating interest on the amount you’ve charged. But if you’ve got multiple credit cards, you can rollover that amount indefinitely. When the bill on the first card comes due, you just go back to your friendly credit-card-fraud enabler who will swipe your next card and give you the cash needed to pay off the first bill.

But if you only have one card, or you’ve already maxed out your others, the person with the POS machine can provide a ultra-short term loan, giving you enough cash to pay off the credit card bill, allowing you to borrow interest free again right away. The expectation is that once your credit card debt is set to zero, you’ll immediately repay your agent by swiping your card again on his POS machine.

5 Things to Know About Credit Cards

Shopping for a new credit card can be pretty
overwhelming, especially considering you have hundreds of types of cards to
choose from. Should you go for a rewards card, the lowest interest rate card
you can find or the card that comes with a free T-shirt? If you’re trying to
sort through all your options, consider these five tips that I recently shared
on The Tavis Smiley Show from Public Radio International.

Use comparison websites.

The myriad of credit card options today is matched
by a slew of comparison websites that make it easier than ever to customize
your search for the right card for you. Google’s credit card search tool lets
users narrow down their search by interest rate, rewards and a dozen other
factors. IndexCreditCards.com, Bankrate.com, CreditCards.com, CreditKarma.com
and NerdWallet.com all offer credit card search tools.

If you are the kind of person who always pays your
bill in full each month and never carries any debt, then you can take a closer
look at the rewards options. Perhaps you prefer cash back to airline miles, or
points that let you make purchases at retailers such as Best Buy or Home Depot.
If you do carry any debt, though, then you’ll want to focus on minimizing the
APR, or annual percentage rate. Just don’t sign up for the first offer you get
in the mail because it might not be the best one for your situation.

Check up on the extra protections that come with your card.

Credit cards come with various forms of protection,
including from theft, non-delivery of items from a company and even extended
warranties. If you travel a lot, then you might want to focus on cards that
come with travel perks like insurance; if you buy a lot of large electronics,
then the extended warranty protection might be for you. If you’re a big
shopper, then price protection, which offers to make up the difference if an
item you buy drops in price, could be your best bet. The important thing is to
read the fine print, ask questions so you know what perks come
with your card and to pick the card that has the benefits that are important
to you.

Don’t be tempted by freebies.

Credit cards sometimes offer tempting short-term
benefits, including token gifts like T-shirts or a temporary zero percent APR.
For the most part, you don’t want to get sidetracked by these offers because
they mask the far more important factors, namely the interest rate and any
relevant fees. In fact, you should probably ignore introductory gifts all
together because you’ll have your card far longer than you’ll enjoy theadded freebies.You can buy your own T-shirt later.

Avoid rewards cards unless you carry zero debt.

On average, rewards cards carry higher interest
rates than non-rewards cards. According to IndexCreditCards.com, the average
interest rate on a consumer rewards card is currently 17.64 percent, and the
average rate on a non-rewards card is 15.48 percent – that’s a full two percentage
point difference. It might not sound like much, but if you’re carrying debt
each month, then you want to make sure you’re paying as little as possible for
it. (Along with developing a plan to pay it off in full as soon as possible.)
Any rewards are not worth the extra interest payments.

Rates and fees can be negotiable, so always ask.

Credit card providers are sometimes more flexible
than you might think. If you’re a good customer with a strong credit history,
then you might have some leeway to ask for a lower interest rate or for an
unexpected fee to be removed. You can sometimes negotiate better terms for
yourself, especially if you’re a good customer who pays on time. There’s no
harm in calling up the customer service representative to ask what they can do
for you.

bottom line: You want to make sure your credit card
is working for you, and not vice versa. Pay off your bill each month so you’re
not carrying any debt, and take advantage of the free rewards coming your way.
If you do have debt, make a plan to pay it off, because the high interest rates
on credit cards add up quickly over time.

Home Equity Loan Demand to Rise Along with Rates

Tapping home equity is expected to become more popular as homeowners continue regaining equity lost in the recession and interest rates start to rise, according to CoreLogics latest The MarketPulse.

As house prices recover and interest rates rise, existing homeowners are gaining back equity in their homes that they can borrow against, and so are incented to get home equity loans rather than to move or refinance, says an April 15 MarketPulse article.