Current Events in March 2015

You've spent months on real estate websites and toured dozens of properties. You've finally found the right house in the right location for the right price and your offer has been accepted.

Now you have to select the method to finance your purchase, and for most first-time buyers there are two main options – an FHA or a conventional mortgage.

Which is better will depend on your individual circumstances. Both have their advantages.

Guaranteed

An FHA loan is guaranteed by the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). If you qualify for an FHA mortgage, the U.S. government guarantees to the lender that the loan will be repaid.

The loan has some advantages and disadvantages for the borrower. The first is that it is easier to qualify for an FHA loan than it is a conventional mortgage.

Because it is a program to encourage homeownership, and the government stands behind the loan, a borrower may qualify with less than perfect credit. While overall lending requirements are much tighter in the wake of the housing crash, FHA requirements are a bit less tight.

Debt-to-income ratio

For example, a lender looks at a borrower's debt-to-income ratio – what you owe vs. how much money you make. FHA gives you more leeway than conventional loans, meaning if you are early in your career and are still paying on some student loans, an FHA loan may allow you to buy more house than a conventional loan would.

You can purchase a home with an FHA loan without putting 20% down, which is less of an advantage these days because there are many conventional mortgage programs with similar low down payments.

An FHA loan requires as little as 3.5% as a down payment but there are now conventional loans with as little as 3% down.

Lower interest rates

When it comes to interest rates, the advantage usually goes to FHA. FHA loans almost always have lower interest rates than conventional loans, but the rate spread will differ state to state.

If you choose to put less than 20% down you will be required to pay mortgage insurance, whether it is an FHA or conventional loan. Mortgage insurance protects the lender from loss in case the borrower defaults.

Here, the advantage you get with a lower interest rate on an FHA mortgage is wiped out by the slightly higher rate you will pay for mortgage insurance. These insurance costs are based on a percentage of the loan and for FHA mortgage insurance, the percentage is slightly higher.

But in a decided advantage for a conventional loan, you can appeal to the lender to discontinue the mortgage insurance requirement once you have achieved 25% equity in the home. With an FHA loan, the mortgage insurance requirement is permanent for the life of the loan.

Because of mortgage insurance, a conventional loan payment might turn out to be lower than an FHA payment, even though it has a lower interest rate.

If you are just beginning your home search, you should discuss the FHA vs. conventional options with a mortgage officer during the pre-approval process so you will know exactly how much you will be able to pay for a home.

The nation's unemployment rate, which hit 10% in the wake of the Great Recession, has slowly come down over the last 6 years and now approaches normal levels. At least on paper.

As many have pointed out, the official jobless rate only counts people who are still looking for a job. It doesn't count those who have been out of work so long they've given up, or are working a part-time job because they can't find a full-time one.

A closer look at the jobless numbers from the Bureau of Labor Statistics (BLS) also shows that workers at either end of the wage spectrum appear to be most likely to be out of work. In its annual report, released in August, the BLS found the youth unemployment rate was significantly lower than in previous decades.

Older workers

Older workers are also more likely to be out of the labor market. A new report by AARP claims that half of the people in the U.S., age 45 to 70, who lost their job during the last 5 years are still not working.

Fifty percent of people in that age group responding to the survey said they were either unemployed or had dropped out of the labor force and were no longer looking for a job. AARP says nearly half of those who had lost a job and found another were earning less than they did in the job they lost.

"As the economy continues to recover and the unemployment rate falls, there are still far too many people struggling," said Debra Whitman, Chief Public Policy Officer at AARP. "Many Americans want to work as long as possible but our survey confirms that, once unemployed, it can take a long time for older workers to find a quality job."

Of the older Americans in the survey who were not working, 38% described themselves as unemployed and still looking. Twelve percent said they were no longer looking for a job and had dropped out of the labor force.

Interesting facts

AARP says its survey uncovered some interesting facts about older workers. For one, being out of work for a long time usually means you earn less when you finally land a job.

Being out of work for an extended time also increases the likelihood that the job seeker will settle for a part-time job, even though she wants to work 40 hours a week. In fact, 41% of those who experienced long-term unemployment are working in part-time jobs.

It's possible that many of these older workers were in jobs or vocations that suffered serious dislocation because of advances in technology and productivity. The survey seems to suggest that.

Of the long-term unemployed older workers in the survey who were successful in getting another job, 53% were in an occupation different from the one they had prior to becoming unemployed. Of workers out for work for a short time, just 46% were in a different occupation.

Texas veterinarian Dr. Ron Hines says he will ask the U.S. Supreme Court to review his lawsuit challenging the Texas Veterinary Board’s prohibition on offering veterinary advice over the Internet.

The 5th U.S. Circuit Court of Appeals last week upheld Texas law requiring that a veterinarian physically examine an animal prior to offering advice on how to treat or care for it.

Since 2002, Hines kept active in his retirement by providing advice on his website to pet owners around the world, many of them in remote locations, often for free.

But in 2013, the Texas Veterinary Board suspended Hines' license, fined him and made him retake portions of the veterinary licensing exam, finding that he had violated a Texas law tht makes it illegal for a veterinarian to give advice about an animal he has not physicall examined.

“This case stands at the crossroads of internet freedom, free speech, and economic liberty,” said Institute for Justice Senior Attorney Jeff Rowes, who represents Dr. Hines. “Dr. Hines gives advice for a living, and advice is speech protected by the First Amendment. This case is ripe for review because the federal courts of appeal across the country disagree about the extent to which the First Amendment protects the speech of licensed professionals when they give individually tailored advice.”

Hines is expected to file his petition for review with the U.S. Supreme Court in late June. He has 90 days from the date of the Court of Appeals’ decision.

The Institute for Justice is currently litigating a similar case in Kentucky that challenges the state’s use of psychology-licensing statutes to regulate the speech of a newspaper advice columnist.

In June 2014, IJ scored a victory in the District of Columbia, where the U.S. Court of Appeals for the District of Columbia Circuit struck down the city’s tour-guide licensing scheme, finding that it was an unconstitutional infringement of tour guides’ free speech rights.

Home prices continued their rise across the country over the 12 months ending in January, according to the S&P/Case-Shiller Home Price Indices.

At the same time, though, monthly data reveal slowing increases and seasonal weakness.

Year-over-year

Both the 10-City and 20-City Composites saw year-over-year increases, with the 10-City Composite up 4.4% and the 20-City Composite gaining 4.6%. The S&P/Case-Shiller U.S. National Home Price Index, which covers all 9 U.S. census divisions, recorded a 4.5% annual gain in January.

Denver and Miami reported the highest year-over-year gains, as prices increased by 8.4% and 8.3%, respectively. Fourteen cities reported higher price increases in the year ended January 2015 over the year ended December 2014.

Chicago led the way with a reported increase of 2.5% -- up 11 basis points from December. Six cities reported declines, with San Francisco leading the declining annual returns with a reported rate of 7.9%, compared with 9.4% annually.

"The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices" says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices. "Regional patterns in recent months continue: strength in the west and southwest paced by Denver and Dallas with results ahead of the national index in the California cities, the Pacific Northwest and Las Vegas. The northeast and Midwest are mostly weaker than the national index.”

Month-over-month

The news wasn't quite as good on a month-over-month basis. The National index declined for the fifth consecutive month in January, reporting a -0.1%. Both the 10- and 20-City Composites reported virtually flat month-over-month changes.

Of the 9 cities that reported increases, Charlotte, Miami, and San Diego led all cities in January with increases of 0.7%. San Francisco reported the largest decrease of all 20 cities -- -0.9%. Seattle and Washington, D.C., reported decreases of -0.5%. Unusually cold and wet weather may have weakened activity in some cities.

"Despite price gains, the housing market faces some difficulties”, said Blitzer. “Home prices are rising roughly twice as fast as wages, putting pressure on potential home buyers and heightening the risk that any uptick in interest rates could be a major setback.

He also pointed out that the new home sector is weak. “Residential construction is still below its pre-crisis peak,” he said. “Any time before 2008 that housing starts were as low as the current rate of one million, the economy was in a recession."

With Easter just days away, 80% of consumers are eagerly looking forward to a fun, family-filled holiday, according to the National Retail Federation’s (NRF) Easter Spending Survey conducted by Prosper Insights & Analytics.

The survey found that the average person celebrating Easter will spend $140.62 -- slightly more than last year’s $137.46. Total spending for Easter, which includes purchases of apparel, decorations, gifts, candy, food, flowers and more, is expected to reach $16.4 billion.

“Easter will be the perfect segue into spring for both consumers and retailers who have longed for warmer weather for quite some time,” said NRF President and CEO Matthew Shay. “As one of the busiest times of year for several retail sectors and as shelves begin filling with both traditional spring and holiday merchandise, retailers are looking forward to welcoming shoppers with attractive promotions on home goods, garden equipment and traditional Easter items.”

New duds

Consumers, the survey says, will use Easter as the perfect opportunity to spruce up their spring wardrobes, with 45% of those celebrating buying clothing -- spending more than $2.9 billion on bright colored apparel items for themselves and their families.

However, more people plan to buy food for the holiday: 85.7% will purchase food for a family meal or other festivity, spending more than $5.3 billion on Easter fare.

Children and sweet-toothed adults will also purchase candy this Easter: 87.1% of those celebrating say they will buy candy, spending more than $2.2 billion on jelly beans, chocolate bunnies and flavorful chick-shaped Peeps.

Consumers this holiday will also spend $2.4 billion on gifts, $1.1 billion on flowers, $998 million on decorations and $695 million on greeting cards.

Where we shop

With a laundry list of items to buy, 58.6% will head to discount stores to purchase their holiday merchandise. Another 40.7 will shop at department stores, while 23.8% plan to shop at a local or small business. Additionally, 21.8% will head to a specialty store like a florist or jewelry store and 18.8 percent will shop online.

Busy Easter shoppers will take advantage of their mobile devices to help them find meal items, gifts, candy and more. According to the survey, 21.4% of those who own smartphones and are planning to celebrate Easter will use their phone to research products and/or compare prices, and another 13.5% will purchase items with their smartphone.

Nearly one-quarter (24.9%) of tablet owners will research products and/or compare prices for their Easter needs on tablets; 16.6% will purchase something via their tablet.

What we're doing

For the first time, NRF asked consumers about the activities they are planning for Easter Sunday, and the survey found many of the traditional aspects of the holiday will be in play this year. Nearly 6 in 10 (57.4%) plan to visit friends and family, half (50.8%) will go to church and 12.9% plan to open gifts.

Not forgetting the little ones, 3 in 10 (30.9%) adults will plan a special Easter egg hunt for the children in their lives. Additionally, 15% of those celebrating will opt out of doing dishes and head to a restaurant to celebrate the holiday and 24.1% will surf the Web throughout the day.

“Easter remains a beloved affair for consumers young and old, and this year it looks like families are ready to dig into their budgets to make the most of the special day,” said Prosper’s Principal Analyst Pam Goodfellow. “The warm weather should help fuel some interest in celebrations, especially given the record-breaking winter much of the country experienced the last several months.”

A debt collection agency that threatened to have consumers arrested for bouncing checks will pay $50,000 in penalties if a proposed settlement with the Consumer Financial Protection Bureau (CFPB) is approved by a federal district court.

The National Corrective Group used deceptive threats of criminal prosecution and jail time in order to intimidate consumers into paying debts for bounced checks. The company also misled consumers into believing that they must enroll in a costly financial education program to avoid criminal charges.

“National Corrective Group masqueraded as prosecutors and used deceptive tactics to intimidate consumers into paying hundreds of dollars in extra fees to avoid potential criminal prosecution,” said CFPB Director Richard Cordray. “Today we are taking action to put a stop to these illegal debt collection practices.”

The CFPB’s proposed order names National Corrective Group, a privately-held, California-based corporation that operates nationwide and specializes in the collection of consumer debt for bounced checks, and several affiliated companies. Together, these companies operate one of the largest bad check diversion programs in the United States.

The CFPB alleges that National Corrective Group deceived consumers by sending them notices on prosecutors’ letterheads and creating the false impression that consumers may be prosecuted for writing bounced checks. However, the letters went to consumers before any district attorney had determined prosecution was likely.

Consumers were told by the company that to qualify for the diversion program and avoid prosecution they must pay the bounced check debts as well as enroll in the company’s financial education class for an additional fee. The cost of the financial education classes were typically around $200, which was often several times the amount of the alleged bad check debt.

With just over 2 weeks to go before the federal tax-filing deadline, a lot of folks are beginning to realize they are nowhere near ready to send in their returns.

Not a problem, says the Internal Revenue Service (IRS). The tax agency says it's actually easy to get more time; in fact, it can even be done online.

Chill out

If you haven’t yet filed, the IRS has this advice: Don’t panic. Taxpayers who need more time to complete their tax return can request an automatic 6-month extension.

The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to request an extension on Form 4868.

Filing this form gives you until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

No free pass

The IRS stresses that a request for an extension will give extra time to file a tax return -- not extra time to pay any taxes owed. By filing either a regular tax return or requesting an extension by the April 15 filing deadline, taxpayers will avoid a stiff penalty -- the late-filing penalty. Taxpayers should file even if they can’t pay the full amount of taxes they owe.

The late-filing penalty, normally 5% per month based on the unpaid tax balance, applies to returns filed after the April 15 filing deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.

The interest rate is currently 3% per year, compounded daily, and the late-payment penalty is normally 0.5% per month.

No need to ask

Some taxpayers get more time to file without having to ask for an extension. These include:

• Taxpayers abroad. U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due April 15.
• Members of the military and others serving in Afghanistan or other combat zone localities. Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3, Armed Forces’ Tax Guide.
• People affected by certain recent natural disasters.

BMW of North America is recalling 2,067 model year 2015 428i Convertible, 428i xDrive Convertible, 435i Convertible, and 435i xDrive Convertible vehicles manufactured October 22, 2014, to February 27, 2015.

Due to a programming error, the driver's front air bag deployment timing may be incorrect, posing an increased risk of personal injury in the event of a vehicle crash.

BMW will notify owners, and dealers will reprogram the air bag control module with corrected software version, free of charge. The recall is expected to begin in April 2015.

Owners may contact BMW customer service at 1-800-525-7417.

Toyota Motor Engineering & Manufacturing is recalling 16,582 model year 2012-2015 Yaris vehicles manufactured August 31, 2011, to February 9, 2015, and sold in Puerto Rico.

The recalled vehicles may have been manufactured with a roof headliner that does not provide the proper occupant protection in the event of a crash. This could increase the risk of occupant injury in the event of a crash.

Toyota will notify owners, and dealers will replace the headliner, free of charge. The recall is expected to begin in mid-April 2015.

Owners may contact Toyota customer service at 1-800-331-4331.

Aurora Products is expanding its earlier nationwide recall of certain lots of natural walnuts and trail mixes containing walnuts.

The products may contain Salmonella.

No illnesses have been reported to date.

The recalled products were distributed through retail stores nationwide and in Canada and Bermuda.

Private label products that use store branded labeling include: America Choice, Belmont Market, Boiceville Market, Gaul’s Market, Green Hills Market, Harvest Co – Op Market, Hurley Ridge, Lees, Miles Market, Palmers Market, Union Market, Walter Stewart , Windfall Market and Wild Acorns.

The recalled products are listed below:

America Choice Brand Products

Customers with questions may contact Aurora Products at (800)-898-1048 between 9:00AM – 5:00 PM EST Monday – Friday.

Toyota Motor Engineering & Manufacturing is recalling 110,085 model year 2015 Camry, Camry Hybrid, Highlander, and Highlander Hybrid, and 2014-2015 Rav4 vehicles.

A component of the electric power steering (EPS) electronic control unit (ECU) may have been damaged during the manufacturing process. Over time, this damage may result in failure of the electric power steering system, increasing the risk of a crash.

Toyota will notify owners, and dealers will inspect the serial number of the EPS ECU or steering column assembly. If the number is within the affected range, the EPS ECU will be replaced, free of charge.

The recall is expected to begin in April 2015. Owners may contact Toyota customer service at 1-800-331-4331.

What we know about student loan debt is sobering enough.

"The average student loan debt for a U.S. graduate of the Class of 2013 was $28,400, according to the Project on Student Debt," said Deborah Figart of the School of Education, at The Richard Stockton College of New Jersey. "Each month, young adults are burdened with 25% to 30% or more of their net pay dedicated to student loan debt."

The total outstanding student loan debt in the U.S. has now surpassed $1.2 trillion. A September 2014 report by the credit bureau Experian found student loans in the U.S. had surged 84% since the Great Recession, with more than 40 million consumers having at least 1 student loan.

It's a debt burden that many recent graduates – and especially those who left school before graduating – cannot easily bear. In its Project on Student Debt, the Institute for College Access & Success reports that more than 650,000 federal student loan borrowers who began repaying their loans in 2011 had defaulted by 2013. The institute reported that students who attended for-profit colleges had a much higher average default rate than other types of schools: 19.1%, compared to 7.2% at nonprofit colleges.

Horror stories

Behind those statistics are specific horror stories. Figart says she has heard from graduates with tens of thousands of dollars in interest-accruing debt but are earning minimal wages. She's heard from law school graduates who can't get a license to practice, despite passing the necessary bar exams, because of a bad credit record.

She says there are restaurant school graduates hoping to become chefs but earning a fraction of what they owe for their degree peeling potatoes.

While the Experian report shows 40 million consumers with at least 1 student loan, Figart says the reality is actually worse. She says the average student has around 8 to 10 loans and the total student debt far outweighs the nation's total credit card bills.

Solution?

The answer, Figart says, is giving prospective college students full and transparent advice before they take out loans for an education that will follow them from campus to the workplace. She says the federal "Know Before You Owe Private Student Loan Act" does not go far enough in several ways and so also fails to protect students from debt.

Figart has taught financial and economic literacy to students and teachers, covering subjects related to budgeting and consumer debt. And, while some states require courses to include a component related to budgeting and finance, she contends too many students are "falling through the cracks."

The solution? Figart says students must be counseled in topics like loan repayment options, average salaries for a wide range of jobs, suggested debt-to-income ratios, and the likely consequences of defaulting on loan repayments.

"In an economy where job security and job quality are increasingly elusive, students pursue higher education as an investment, not simply a means of personal fulfillment," she said. While financial counseling may dash the dreams of some or at least postpone those dreams, it could nevertheless save thousands of students from a fate worse than debt.”

Pending home sales shot to their highest level in 8 months in February as solid gains in the Midwest and West offset small declines in the Northeast and South.

The National Association of Realtors (NAR) says its Pending Home Sales Index -- a forward-looking indicator based on contract signings -- rose 3.1% to 106.9 last month -- and is now 12.0% above February 2014 level.

The index is also at its highest level since June 2013, has increased year-over-year for 6 consecutive months and is above 100 -- considered an average level of activity -- for the 10th straight month.

Growing demand

Demand appears to be strengthening heading into the spring buying season. “Pending sales showed solid gains last month, driven by a steadily-improving labor market, mortgage rates hovering around 4% and the likelihood of more renters looking to hedge against increasing rents,” said NAR Chief Economist Lawrence Yun. “These factors bode well for the prospect of an uptick in sales in coming months. However, the underlying obstacle -- especially for first-time buyers -- continues to be the depressed level of homes available for sale.”

According to the NAR’s monthly Realtors Confidence Index, the percent share of first-time buyers increased slightly in February for the first time since November 2014 -- up to 29% from% percent in January.

“Several markets remain highly-competitive due to supply pressures, and realtors are reporting severe shortages of move-in ready and available properties in lower price ranges,” adds Yun. “The return of first-time buyers this year will depend on how quickly inventory shows up in the market.”

Activity by region

• The PHSI in the Northeast fell 2.3% to 81.7 in February, but is 4.1% above a year ago.
• In the Midwest the index surged 11.6% to 110.4, and is now 13.8% above February 2014.
• Pending home sales in the South dipped 1.4% to an index of 120.2, but still shows a year-over-year gain of 10.8%.
• The index in the West climbed 6.6% last month to 102.1, the highest since June and 18.3% above a year ago.

A look ahead

Total existing-homes sales this year are forecast to be around 5.25 million, according to the NAR, an increase of 6.4% from 2014. The national median existing-home price for all of this year is expected to rise by about 5.6%.

Existing-home sales declined 2.9% in 2014, while prices rose 5.7%.

Consumers had more money in their pockets in February, which led to an increase in personal outlays.

The Commerce Department reports personal income rose $58.6 billion, or 0.4% the third increase in a row. Disposable personal income (DPI) -- personal income less personal current taxes -- increased $54.2 billion, or 0.4%.

Personal consumption expenditures (PCE), or consumer spending, inched up 0.1% or $11.8 billion -- or 0.1% -- the first increase in 3 months.

Wages and salaries

Wages and salaries were up $23.9 billion in February, less than half of January's increase of $47.3 billion. Private wages and salaries made up $21.9 billion of that , while government compensation came to $2.1 billion. Pay raises for federal civilian personnel added an additional $0.6 billion.

Personal outlays and saving

Personal outlays -- PCE, personal interest payments, and personal current transfer payments – rose $14.2 billion last month after falling $25.4 billion in January.

Personal saving -- DPI less personal outlays -- was up more than $40 billion from January -- to $768.6 billion. The personal saving rate -- personal saving as a percentage of DPI -- was 5.8%, compared with 5.5% the month before.

The complete report is available on the Commerce Department website.

General Motors is recalling 2,295 model year 2015 Buick Encore vehicles manufactured November 27, 2014, to February 24, 2015, and 2015 Chevrolet Trax vehicles manufactured November 18, 2014, to February 17, 2015.

The steering column assembly housing may contact the power steering printed circuit board causing the circuit board to wear. The circuit board wear may cause a sudden loss of electric power steering assist, increasing the risk of a crash.

GM will notify owners, and dealers will inspect and replace the steering column assembly, as necessary, free of charge. The manufacturer has not yet provided a notification schedule.

Owners may contact Buick customer service at 1-800-521-7300 or Chevrolet customer service at 1-800-222-1020. GM's number for this recall is 15168.