Marketplace

Rent my home

Question: I'm a freelance writer, currently making a reasonably comfortable income. I have no student loan or credit card debit, and a Traditional IRA (max contribution every tax year). Part of the reason I can survive as a freelance writer is that I have no mortgage--I inherited my house from my mother (who inherited it from my grandmother).

However, I have been considering leaving the area to go to graduate school--this means I would have to rent the house. The prospect makes me very leery, given how much money I've sacrificed to rehabilitate my old home. I'm all too aware what tenants could do to destroy its value, while I was away, and I'm also nervous about keeping an eye on rent collection/utilities payment from a distance.

My questions: I would need to rent the house to pay for my rent in another area while at grad school. Should I consider this option of renting my house if I am not accepted to any grad schools in my immediate area? And, finally, is getting a PhD in English literature a truly terrible idea, as opposed to continuing 'as I am'? Mary, West Long Branch, NJ

Answer: I'm never going to tell anyone that pursuing a dream is a terrible idea. I just think you should be practical and clear-eyed about the trade-offs. Why do you want to get a PhD in this area? If it's to get a job, then you already know that the academic job market is tough, especially for scholars in subjects such as English, anthropology, and sociology. What kind of jobs might be available to you after spending several years living as a student? What sort of income will you earn once you've gotten your PhD? How do those prospects compare to what you're doing now? Of course, these questions are irrelevant if this is the pursuit of a dream and you have the savings to go for it without worrying about employment at the end of the process.

I would revisit the rental question once you have figured out the work-and-dream equation. I take seriously your apprehension about becoming a landlord, especially if you move far away. Still, there are ways to minimize your concerns about renting. You would need to hire a management rental company to handle routine maintenance and rent collection for you if you move far away. That contract will reduce how much you'll earn off your rental income, but it will also relieve you of some stress. You could rent to a friend or someone you've known for a long-time. I would also get a copy of Nolo's Every Landlord's Legal Guide. Nolo.com is a terrific resource.

I know I'm raising more questions to think about than answers, but what about selling the home to fund the next chapter in your life, assuming you decide on pursuing a PhD? It's probably best to continue owning your debt-free home. But it's another option to consider. You would have a nice financial cushion to buffer the years of transition. You wouldn't have to be a landlord, either. Of course, the price of this approach is letting go of a beautiful home with plenty of memories and no debt. You might also have to wait awhile to go this route since the housing market is still tough.

09/01/09 by Chris Farrell

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Money and emotions

Question: You know how we often despise in others the qualities that are most like our own? Well, I have always been very critical of my mother for her spending habits, that she seems to spend to fill some kind of an emotional void or to feel secure knowing that she can spend (vs. times in her life when money was in short supply). I notice increasingly in my own spending habits, though, the same impulses, that spending money gives me a pleasure akin to eating a food that was forbidden as a child. Money is my Hostess snack cake. Growing up, we didn't have any, and now I can have it any time I want. The question is: What advice can you offer - or what tools, books, etc. can you recommend - to better understand and reshape my emotional response to spending? Because while my husband and I are lucky enough to have the resources (and luckily I hate to shop), I want to be able to set and achieve spending and saving goals, and to get the same satisfaction from having done so. Thank you for any help you can offer. I have just discovered your program (after listening to Marketplace for years) and am an avid podcast fan. Sarah, Efland, NC

Answer: Whew, this is a huge topic. It's also a wonderful question. I'd love to hear from listeners any suggestions they might have for you or personal experiences to pass on.

Looking at this question through a personal finance lens, I believe that giving is central to managing our money lives. Saving for emergencies and for retirement is central to any financial plan. But I would give primacy of place to giving. The mindfulness of giving forges connections with community and strangers. It reminds us that when you think about what matters most it's usually relationships, experiences and making a difference, not things and money. We get to support causes with our dollars and recycle stuff we no longer want and get it to people who need it more. "Money is to be spent or given away," says Ross Levin, a Minnesota based certified financial planner. "Planned, systemic giving to charity helps dislodge the hold that money may have over you. Sharing your experiences and hopes can have a huge impact on those around you. You get to choose to make a difference."

You asked for resources. A practical personal finance book that grapples with our emotional responses to money in a consumer-dominated society is Eric Tyson's Mind Over Money: Your Path to Wealth and Happiness. Another book I've found valuable isn't directly focused on managing money, but its thought provoking along the lines of your question. It's Stumbling on Happiness by Daniel Gilbert. A Harvard psychologist, Gilbert's book is a quirky exploration of our imaginations. He confronts the issue of we do so many things that don't make us happy and pass on the things that do. Hmmm, maybe I should take it off my book shelf and re-read it...

09/02/09 by Chris Farrell

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Estate planning and same-sex couples

Question: Hi Chris - my partner and I are starting to accumulate assets together - equity in a jointly owned house, beneficiaries on each other's life insurance, etc. Although we are legally married in Canada, as a same-sex couple and US citizens our marriage is not recognized by the federal government nor the state of North Dakota. Should we spend the money to set up a trust in order to try to avoid the debilitating taxes that the other would incur should one of us pass away? Is there a better way to try to protect each other? Thanks! David, Fargo, ND

Answer: You have a lot of work to do to financially protect yourself and your partner. I wish I could say it was otherwise, but it isn't in the current environment. To be sure, the law is in flux in a number of states with same-sex marriage, civil unions, and domestic partnerships. But for now the burden is on same-sex couples to protect each other through a combination of a will, a living trust, power-of-attorney, and other legal documents. By the way, a trust won't save your partner or you from a tax hit at death. The real value of a trust is that it makes it more likely that your estate planning intentions are followed by the courts.

My favorite resource for understanding and dealing with the financial issues faced by same-sex couples is The Legal Guide for Lesbian & Gay Couples by Denis Clifford, Frederick Hertz, and Emily Doskow. It's a self-help legal guide published by Nolo.com. You can see it here. I would then work with an attorney to set up your finances in a way that protects both of you.

09/04/09 by Chris Farrell

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Retirement savings and taxes

Question: Hi Chris - my husband and I are in our 50's and trying to plan well for retirement, including how to protect our retirement money from being "taxed to death" when the time comes for us to take distributions. I have recently heard lots of "caution" about the inevitability of everyone's tax liabilities increasing greatly in the coming years in order to deal with our national budget deficit, health care reform, etc. What is your advice for how we can best protect our 401-k and IRA money so it isn't taxed to exhaustion when the time comes for us to take distributions? Currently our retirement accounts are invested in index mutual funds linked to the S&P 500. Thanks for your time and expertise, Chris. Helene, Watsonville, CA

Answer: I have a middle-of-the-road position when it comes to future tax rates. In light of the government's obligations that you mention, such as national defense, Social Security, health care, and the budget deficit it's likely that taxes will go up. I agree with Tyler Cowen, the libertarian economist at George Mason University, who argues that the tax cuts from the Bush years were really deferred tax increases. That said, I don't buy the scare stories that taxes will go so high that our savings will be wiped out. My own guess is that the pressure for revenue without pushing rates too high will lead to major tax reform. The deal would be to offer everyone lower rates in return for closing many loopholes. But that's just a guess.

On a practical what-can-I-do-today level, one of the best moves anyone can make is diversify the tax treatment of their retirement savings. When you withdraw money from your 401(k) and traditional IRA it will be taxed at your ordinary income rate. I would also save in a Roth-IRA. Your contributions are with after-tax dollars but your withdrawals will be tax free. That could be a huge benefit in retirement.

The other thing is to consider converting money from a traditional IRA into a Roth-IRA in 2010 (or after). You could only convert an IRA into a Roth if your modified gross adjusted income was under $100,000. But the income limit lifts in 2010. The argument for converting strengthens the longer your money can compound. There is also a one-time perk for anyone who converts in 2010. You can pay any taxes owed on the conversion in one year or spread it out over the following two years.

However, if you have to use tax-deferred savings to pay the tax bill it doesn't pay to convert under most scenarios. You can begin exploring whether conversion makes sense for you at such online sites as rothretirement.com. Amy Feldman of BusinessWeek has a nice story on this: Is a Roth IRA Right for You?

by Chris Farrell

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College money for nieces

Question: My husband and I are looking for ways to help our two nieces (currently ages 1 and 3, and in two different families) with future college expenses. We'd like to contribute $1000/year to each of them and we're wondering what the best way of doing this is. Should we have a trust set up for each of them? Or is there a better way? Thanks! Valerie, Minneapolis, MN

Answer: That's a wonderful idea. But there is no reason to go the trust route. The easiest thing to do is find out whether the parents have established a 529 college savings plan. If they have, put the money every year into the account. Contributions into the 529 are with after-tax dollars. The earnings grows tax-deferred and withdrawals are free of federal taxes so long as the money is used for qualified educational expenses. In a majority of states withdrawals also escape state taxes. If they haven't set one up I would encourage them to do so. They can open up an account in most states for about $25 or so. A good source of information is savingforcollege.com.

09/08/09 by Chris Farrell

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Mortgage and taxes

Question: I always enjoy listening to your comments and hope that you have a moment to settle a discussion a friend and I are having. Is the "benefit" of the itemized tax deduction on one's income tax worth retaining a mortgage if one is able to satisfy that debt? In this case, we are discussion someone who has about fifty thousand dollars on the mortgage and is of retirement age, no children and few other itemized deductions. There is no other debt. Thank you for your thoughts on this matter. Judith, Reading, OH

Answer: Sure, I'd love to weigh in on your discussion. The short answer is that any financial benefit you get from the mortgage deduction is swamped by the cost of paying interest on the loan. My guess is that the value of your mortgage interest deduction is not only minimal, but it's below what you can get by simply taking the standard deduction. (It's worth finding out.)

The main reason not to pay off the mortgage has to do with your personal financial safety net. You don't want to put all your savings into one asset, like a home. But if you have a well-diversified portfolio and adequate savings why not get rid of the mortgage. And that sounds like you or your friend.

09/09/09 by Chris Farrell

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Early withdrawal from 401(k)

Question: Is it possible to move the majority of my balance in my company's 401k to a self-directed IRA without penalty (or quitting my job)? I'm not happy with the investment alternatives available in my company's 401k plan. David, Lewis Center, OH

Answer: In most cases the answer is no. The general rule is that employers aren't supposed to let you take money out of the 401(k) and roll it over into an IRA. You can only do that when you leave the company--voluntarily or involuntarily.

However, there is one important wrinkle (hey, legislators can't make saving for retirement simple, can they?). By law, companies can offer their employees 59 ½ or older the option of rolling over their contributions into an IRA. It's called an "in-service" distribution. In other words, you're still working for the company, you're 59 ½ or older, and you can roll the money over into an IRA. It's legal, but it's up to management whether they offer the option. A majority of large companies seem to allow it.

To learn more about the twists-and-turns in the in-service distribution world, check out this detailed article in Forbes: The Great 401(k) Escape.

09/10/09 by Chris Farrell

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Buying gold

Question: What is the best way to add some gold to your investment portfolio? It is best to buy shares in a mutual fund, or just buy gold? Andrew, New York, NY

Answer: Gold has been on a tear lately. The price of the precious metal meandered for much of the summer, and then it moved sharply up in September. Gold futures closed at a record high today of $1,004.90 a troy ounce. (That's a "nominal" price record; adjusted for inflation gold reached a peak of more than $2,200 in early 1980.) There are all kinds of theories being batted around the world's largest chat room--the global capital markets--for the run up in gold. The most popular explanations revolve around the prospect of surging inflation in the U.S., worries about global deflation, buying by the Chinese central bank, falling mining production, a weak dollar--and all of the above.

If you're optimistic about gold, I would be wary about buying the actual metal. The metal is volatile. Gold doesn't pay dividends. It doesn't create cash flow. It costs you to store it.

There are intriguing alternatives. There are some exchange traded funds (ETFs) that are a cost-effective option for the individual investor, such as the SPDR Gold Shares ETF. A number of mutual funds focus on owning the precious metal and mining company shares, like the Van Eck International Investors Gold. Another approach is shown by the mutual fund First Eagle Global. A small percentage of its portfolio is invested in gold bullion. It acts like an insurance policy. When the equity markets go down, the price of gold is supposed to go up, cushioning the impact on the portfolio's value.

By the way, if your nervous about inflation here in the U.S. I still prefer Treasury bills and Treasury Inflation Protected Securities. These are investments that preserve capital and make you some money. No one will get rich with these securities, but the value of a dollar will be preserved. Still, if you want to invest a small percentage of your portfolio in gold, I'd investigate the mutual fund and ETF options at a website like Morningstar.com.
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09/11/09 by Chris Farrell

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Social Security penalty?

Question: I'm a professor at Duke University. However, I used to work at a state university, and in the 7 years I worked there, I did not contribute to Social Security except Medicare (we had the option to "opt out")- instead putting money into a TIAA-CREF 401(k). Now, I've worked at Duke (a private school) for 4 years and plan to continue, but I've heard about the "windfall elimination provision" and am wondering how badly the 7 years I worked elsewhere will decrease my eventual Social Security benefits. If I work in my current job for, say, 18 or 25 or 30 years, am I still going to get "penalized" for the 7 years that I didn't contribute, and if so, by how much? Thanks- love your show, by the way! Mohamed, Durham, NC

Answer: Well, like so much in personal finance, it all depends. (I should probably have that phrase programmed into my computer.)

Some background: It used to be that the Social Security formula worked in the favor of people who didn't contribute for a time into the system. The formula assumed that they were long-term, low-wage workers. In practice, that meant they got a Social Security benefit that represented a higher percentage of their earnings and a pension from a job where they did not pay Social Security taxes. Congress passed the "Windfall Elimination Provision" to remove that formula-calculation advantage. Instead, the formula is now adjusted for circumstances like yours.

So, if you worked in your current job for 18 years (as in your question) you will take a haircut on your Social Security payout. But there are few exceptions. The most important is if you have substantial earnings for 30 years (again, as in your question) you won't. Social Security has a nice explanation of the formula, its impact on your potential benefit payout, and the exceptions at this section of the Social Security website.

09/15/09 by Chris Farrell

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Stocks for the long haul

Question: First of all, I really like your steady and reliable counsel. You have a great style too. Here's my question: I believe someone released a study this summer saying that bonds have generally outperformed stocks in the U.S. for decades -- most notably from 1968 through the present. Is this report flawed? If not, why aren't more people talking about it? (It seems to turn the conventional wisdom on its head?)

This link may not be the primary source, but it seems to be citing the information I heard. Dave, Queenstown, MD

Answer: One of the wrong investing mantras in recent history was that stocks weren't really risky. Sure, stocks were more volatile than bonds with an investment horizon of a couple of years. But with time stocks always outperformed bonds, turning into the investment equivalent of diamonds while bonds were cubic zirconium. The height of this thinking came with the book Dow 36,000 by James K. Glassman and Kevin A. Hassert. It was published in 1999. "The Dow Jones industrial average was at 9000 when we began writing this book," they noted in their introduction. By their calculations "in order for stocks to be correctly priced, the Dow should rise by a factor of four--to 36,000... The Dow should rise to 36,000 immediately, but to be realistic, we believe the rise will take some time, perhaps three to five years."

Oops. A closer look at the data suggests that the notion of stocks as a riskless security over the long haul is wrong. Bonds have often outperformed stocks for 10 year periods of time. Stocks did not always do better than bonds even with a 30-year time horizon before 1871, notes Robert Shiller, economist at Yale University. You don't even have to reach into the history books. From 1983 to 2008, the annual total return on stocks was 9.8% a year versus an 11% average annual return on Treasury bonds. The study you mention cuts the data a different way, but the point remains the same: There have been long periods of time when bonds have outperformed stocks.

That said, the fundamental notion informing modern finance is the proposition that returns are only earned as compensation for taking on risk. Stocks are riskier than bonds since equities represent the uncertain rewards for entrepreneurship, while bonds are long-term contracts that spell out when borrowers must make principal and interest payments. "There is no predestined rate of return, only an expected one that may not be realized," says Laurence Siegel, director of investment policy research at the Ford Foundation. "The risk of holding stocks, then, is the possibility that in the long run, returns will be terrible."

I like stocks. Stocks should do better than bonds over a very long time period. But it's the return from taking on greater financial risk. And the risk is that stocks may do poorly for a considerable period of time. I think it's a risk worth taking.

But all the uncertainty is the reason behind my bottom line: Diversify.

09/16/09 by Chris Farrell

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401(k) money

Question: Do I have to remove my money from my 401k when I retire from my company (UPS) even if I don't need it at the time of retirement? I know I can't contribute after I leave but is it ok to leave the money in there till I need it or this market turns around... (I'm being optimistic!) Patricia, Cleveland, OH

Answer: I like your optimism. The law gives company's a great deal of leeway when it comes to their retirement savings plan. The terms of the plan may say its fine to leave the money where it is for now or it may call for a fairly quick withdrawal. So, place a call to human resources and you'll get you the answer you need right away.

09/17/09 by Chris Farrell

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What to do with an annuity

Question: I retired in 2007 from a university. My retirement funds are with TIAA-CREF, split roughly in half in 2 annuities. One is a fixed annuity and the other is a variable annuity, balanced 50/50 between bond and stock funds. I probably lost 20-25% on that fund in the crash last year. The 2 annuities together provide about 40% of my monthly retirement income.

I have resisted freezing the variable annuity and making it fixed because that would provide NO chance to recoup some of my loss. When I set these up in the first place, the fixed annuity was my hedge against the kind of crash we suffered in the past year. I'm not feeling the pinch although my income dropped a little this year but income tax adjustments offset the loss--and I do a little consulting for "egg money." I also have a savings account equal to 1/3 my annual income. I rent, so as not to have house expenses.

Am I crazy to hold firm? If I look at a 20 year time horizon, isn't it likely that my annuity will slowly come back over time (and maybe I could fix it then)? I would be interested in Chris Farrell's opinion about this. Thank you. Elaine, New Berlin, WI

Answer: One reason why I'm posting your question is that I admire your retirement strategy. We can all learn from how you have thought through your finances and what you have done. You set up a smart hedge against a bad market environment. You have savings. You still have some earnings coming in. Your expenses are under control. As far as I am concerned, you've really come up with a sensible strategy for all seasons.

As to your question, I still like the idea of you keeping the hedge with the floating annuity. It allows you to participate in the good times. But your other savings buffer you against the bad times when they come again.

One other thought: I would hold off freezing the variable annuity until you had an answer to this question: How much of your portfolio do you want exposed to stocks, if any? Right now, it seems to me that you're mostly fixed income between the savings, the fixed annuity, Social Security and the 50% of the variable annuity that is in bonds. So, one issue for you is how much of your portfolio would you like exposed to stocks? More? Less? The same?

What do other people think?

09/18/09 by Chris Farrell

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How much of a down payment?

Question: I am buying my first home. I've been a diligent saver, and have enough for 20% of the down payment. I wonder what the drawback is to putting down more than the required 20%. I can put down between 30 and 40% of the purchase price, without interfering with my 1.5 year living expenses safety fund or my retirement accounts. I have no debt. I'm attracted to having lower payments and paying less interest in the long term, and plan to be in the house for more than 10 years. What are the drawbacks to putting down a larger amount for a house, if you already have a safety fund, no debt, and a retirement account? Andrea, Durham, NC

Answer: You sure are a diligent saver. It's really nice to take a question from someone in such terrific financial circumstances. Since you're a first time homebuyer remember to take advantage of the $8,000 tax credit (assuming you qualify). Also, you want to make sure that there is no prepayment penalty with the mortgage loan. In other words, you don't want to pay a fee to the bank if you end up paying off the mortgage early. I have a feeling that's what you'll do, too. My bottom line: You can't go wrong if you put 20% down or 40%. There isn't any real drawback to the larger down payment.

That said, there are two traditional trade-offs for you to consider: In return for a smaller mortgage and less interest payments you could give up 1) some financial flexibility and 2) some potential diversification. (A lot of people will say you're also reducing tax benefits from the mortgage interest deduction. But I think the cost of interest payments and the extra financial security swamps the tax gain.)

Here's what I mean: When you make a 20% to 25% (instead of 30% to 40%) you have more savings readily available to you to fund an investment opportunity, to pay for a career shift, to embark on an adventure or to withstand a severe setback. What's more, the cost of owning, furnishing, and maintaining a home is often more than renters anticipate. So the 20% down payment leaves you a larger cushion while you adapt to homeownership. Of course, you can always borrow the money from your home equity. But why take on debt when you can tap savings? You can always accelerate your mortgage payments and pay off the mortgage early.

Second, with a bigger down payment you tie more of your savings to the performance of one asset--a home.

You'll play with the numbers, but I wonder if this might be a good financial compromise for you? What if you put 30% down instead of 40%? You get benefits of a larger than normal down payment, but you also keep your savings flush while you learn the ins-and-outs of homeownership. And then if you still are flush, I'd pay off the mortgage on an accelerated schedule and save yourself thousands and thousands of dollars in interest payments.

09/22/09 by Chris Farrell

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A more conservative portfolio

Question: After listening twice to your recent commentary about Wall Street and having recently read Robert Reich's blog titled 'The Continuing Disaster of Wall Street, One Year Later' I'm concerned about our stock investments and retirement timeline.

We're looking at retiring at the earliest in 2012. Our present investment portfolio is weighted to 'aggressive' mutual funds. Given our (hopefully) short retirement timeline another major downturn of the market would put us in a serious retirement hole to dig out of. It seems to me that we'd be better off shifting our stock to bond ratio to a safer mix. As always, we enjoy your advice and commentary. Joe, Hagerstown, MD

Answer: You're right to be concerned. We've had two recessions, two bear markets, and a credit crunch in 8 years. My basic assumption is that everyone needs to build a substantial financial buffer with their savings. Economic downturns are as much a part of a capitalist system as expansions and bull markets.

I like the approach of Jack Bogle, the founder of the Vanguard mutual fund behemoth and a regular guest on Marketplace Money. (By the way, any of Bogle's books on investing and money are worth reading.) His rule of thumb is that the fixed income portion of your portfolio should equal your age. So, if you are 30 years old, fixed income securities should be 30% of your portfolio; 55 years old, the fixed income portion is 55% of your portfolio. Bogle walks his investment talk, too. When I talked to him several months ago he was 80 years old and with that much of his portfolio in fixed income securities he didn't really even feel the sharp drop in stocks.

Of course, like all rules of thumb your age is just a starting point. You can decide to be more or less conservative, depending on your circumstances and household wealth. And with your fixed income investments I would stay conservative. For instance, Treasury Inflation Protected Securities, Treasury bills, Treasury notes are default free investments. So are I-bonds. Certificates of deposit and savings accounts that come under the FDIC insurance limits are good, too.

So, I'd play with the numbers and see if this approach works for you.

by Chris Farrell

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A stock market winner

Question: My wife and I are in our mid 30s and we decided to take a gamble back in Jan 09 when everyone said the world was coming to an end. We took $20,000 out of our savings and plunged it into an established travel company we used to work for that was trading below its all time low (lower than after 9-11). Well the world did not end, and 9 months later we're sitting on a handsome sum of money thanks to a 4x growth in stock price. My question is what should we do with the money? Popular ideas are to slowly work the money into a Roth IRA or other investments, or to pay off our $120,000 7.2% 30 year mortgage (25 years remaining), which would free up $1200 in expense monthly.

I appreciate your help and love the program. Jonathan, Miami, FL

Answer: I love your story. We all know that being a contrarian investor is smart, but it isn't easy. As John Maynard Keynes famously wrote eight decades ago, "Worldly wisdom teaches it is better for reputation to fail conventionally than to succeed unconventionally."

What would I suggest doing with the money? You could always refinance your 7.2% mortgage with fixed rates to 5% these days. And then you could use the money to build up a broadly diversified portfolio. But, assuming you like your home and neighborhood, I'd lean toward taking advantage of your windfall to live debt free. Imagine, you're both in your mid-30s and from here on out you could live well off your income from work, add to your savings, and avoid borrowing. Being debt free at your age will give you a lot of financial flexibility and personal freedom down the road.

09/24/09 by Chris Farrell

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Get rid of escrow

Question: My husband and I refinanced last year and since then our mortgage has been sold twice. We have always paid in a timely manner and we have never missed a payment. The previous banks collected escrow for the exact annual amount of our taxes and insurance. This new bank just sent me notification that they have the legal right to collect more so that the escrow balance doesn't go below zero immediately after they pay the taxes. The amount that the account went below was by $3000 but it was all recovered by the end of the year. The bank wants a cushion of $4500 which is even more than the negative balance. I asked to pay eliminate the escrow so that my husband and I can pay the taxes ourselves and not give them all that extra money and we were told that we could make this request but that they were not required to allow us to do so. Is this true? If so, why do the responsible people always get slammed? Any thoughts? Rachel, Cumberland, RI

Answer: Many people don't like escrow accounts. But it's really hard to get a bank to drop an escrow account once it's in place. It's to their benefit and lenders have little incentive to waive it. You should make the request anyway. Sometimes the lender will agree to drop escrow in return for a fee, especially if a good chunk of the mortgage has been paid off. The bank is right: They can require a savings buffer in the account. However, a partial mitigation is that Rhode Island is at least one of only 14 states that insist the lender to pay interest on the escrow funds.

09/28/09 by Chris Farrell

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Taylor Bean and Whitaker

Question: My mortgage is through Taylor Bean and Whitaker which has just been implicated in a fraud scandal, (which made headlines in August.) When no payment was deducted from my husband's bank account in September, we made a call to TBN and were told that the company has ceased to operate, but that we should send a check to the Ocala, FL address. I'm afraid to send my mortgage company now knowing that it has "Ceased to operate," but am equally afraid of missing a mortgage payment. How should we proceed? Jessica, East Waterboro, ME

Answer: You're instincts are right. Before you do anything you need to see who is now responsible for servicing the mortgage. There has been a great deal of confusion since Taylor Bean went under, but it looks like government agencies have straightened it out.

The FDIC and Federal Reserve each offer Taylor Bean and Whitaker customers a hotline to call for more information. The FDIC number is 1-877-275-3342. The Federal Reserve's hotline is 1-888-851-1920.

Basically, if the loan was insured by the Federal Housing Administration, Veterans Administration or USDA's Rural Development, it was probably securitized (turned into a product that can be sold like a bond) by Ginnie Mae. Bank of America has taken over the servicing of government-insured or guaranteed mortgages securitized by Ginnie Mae. The Ginnie Mae website offers more information, and you can get the BofA address. Other TBW loans were securitized by Freddie Mac. It has arranged for Cenlar FSB, Saxon Mortgage Services, and Ocwen Loan Servicing to assume responsibility for the loans. It's website is freddiemac.com.

So, check out where the payment should go first, and then write the check..

09/30/09 by Chris Farrell

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