Daniel Gershburg

The new “buzz” out there from all the experts is that people are finally waking up-based in no small part to the financial crisis most of the country faces-and realizing that they should spend only what they have and to stop using credit cards.  Some experts say that people will stop using credit cards and cushion their savings instead.  The theory being that people in the United States, who have had a negative savings rate for some time (meaning literally saving nothing and spending more than what you earn), have finally awoken and realized that they should save their money.  While a beautiful thought it is not at all pragmatic.  There are, to be honest, numerous individuals out there that have used credit cards to pay for flat screen tv’s, stereo’s, electronics, etc.  They know who they are and they are feeling the crunch of collection agency phone calls, judgments against them, ruined credit, etc.  There are others however, that NEED to use credit cards to supplement the amount that they earn.  A readily available line of credit which can be used to pay for such necessities as food, clothing (not designer), utilities,  phones, etc.  While it may very well that America is finally over its credit binge, it may be more accurate to state that Americans finally know that they are spending money that they may not have.  They are aware that using a credit card to purchase a Bose radio may not be the best move to make, given the fact that they likely will not pay that radio in full for years if they simply make minimum payments.  But there is a large segment of the population for which credit cards are a vital survival tool.  I am in now way condoning the actions of those who would abuse the privilege of revolving credit.  I am simply saying that to suggest that Americans will instantly cut up their cards and turn their financial lives around discounts the ever present reality that many Americans simply need these cards to survive.

An incredibly interesting article for New York city residents discussing the amount of “free seminars” being offered and the scams they may bring.

http://www.msnbc.msn.com/id/23564907/

As the housing market in areas of Brooklyn and Queens continues its decline and people STILL look for ways to turn equity into spending cash, a somewhat new exotic alternative is propping up more and more…Reverse Mortgages.The premise of the Reverse Mortgage goes something like this:Homeowners who are 62 and older are able to borrow against their home equity without having to repay the money until the home is sold or the borrower passes away or moves out permanently. When the house is sold, the lenders recover their principal plus interest. And whatever is left over  goes to the homeowner or to his or her survivors.While that sounds great to many baby boomers who don’t feel secure that their social security checks will pay the bills, the problem with these equity to cash alternatives are the fees, reputability of the lender and the everpresent “fine print.”Some of the drawbacks include a typical interest rate on a reverse mortgage that is anywhere from 1.5 to 3% higher than that of a traditional mortgage.  At those rates, the more sensible solution, should you need the cash, is to refinance or take out a home equity line of credit.Fees Fees Fees:Typically for a reverse mortgage you will have origination fees of approximately 2% of the overall loan (and never less than $2,000), Mortgage Insurance Premium fees of up to 2% of the loan, and much higher closing costs overall.  There are also “service fees” charged throughout the life of the reverse mortgage.  What that means in plain english is that before you have even had the opportunity to touch your mortgage, you will have thousands of dollars added to your loan, which you need to repay, before you even receive a cent.Many “new” Reverse Mortgage brokers will charge finders fees.  These fees are illegal.  Information about reverse mortgages is available and free from AARP, HUD and a number of other organizations.These so called brokers typically try and sell individuals annuities as well.  By the time fees and costs are paid, the typical homeowner is losing money.  With an annuity, these sums of money may be locked in as well.So what is the conclusion:The conclusion, in this humble attorney’s view, is that reverse mortgages should only be used by individuals who are close to retirement, own their own home, have no other assets, and who are in desperate need of additional income.If you are still interested, my suggestion is that you contact AARP,  and the National Consumer Law Center (www.nclc.org)before you consider going forward.