Reverse Mortgages and Senior Retirement Tips

Reverse Mortgage Blog Has Moved

2009-07-05T13:19:00.000-07:00

Thank you for your continued interest in the latest legislative and policy changes within the Reverse Mortgage industry. We have re-located our Reverse Mortgage Blog. Please visit us here and bookmark our new address for future visits.

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Reverse Mortgage - NOT a Loan of Last Resort

2009-06-18T09:40:00.000-07:00

Despite the fact that the media continue to refer to a reverse mortgage as a "loan of last resort" reverse mortgages are still in high demand. It is unfortunate that some so called advisers or financial experts still do not have a comprehensive understanding of how much of a life saving tool a reverse mortgage can be for many senior homeowners.

It certainly can be argued that a reverse mortgage is an expensive option on its' face. However, how expensive is it actually, if you have no other way to supplement your retirement income? I always say, "It is expensive if you don't need the money, but it is NOT expensive if you do need the money." Think about it. If you have no ability to income qualify for a loan or mortgage that requires repayment on a monthly basis, and you do not have good credit or a high credit score, how is it that you are going to be able to access your home equity in any traditional fashion?

Some will argue that you can always get a HELOC - Home Equity Line of Credit without having to prove your income. Well, that was possibly the case a year or two ago, but not now. Even people with stellar credit histories and high credit scores are seeing their home equity lines of credit frozen and or closed arbitrarily and without notice. Underwriting standards for new home equity loans today are very strict and require full documentation of income, credit, and assets. How many retirees can pass this type of credit scrutiny?

You Could Sell Your Home To Get The Cash

Of course, you could sell your house. Then you would have the cash from the sale. But at what price in today's declining market? Is that going to really be the answer to your money problems? More than likely, not. After all, if you sell your home and get some cash from the sale, you still have to live somewhere, right? And how much will that cost? How long will the sale proceeds actually last?

So, pleeeease...........stop listening to the same old tired saw: "A Loan of Last Resort." I find it pretty ironic that all of these talking heads never offer up an alternative solution, after they throw the baby out with the bath water. These two clips are representative of the typical incomplete, half-truth reporting being done at a time of serious financial difficulty for almost every American citizen, young and old. Shame on them!

Watch CBS Videos Online

Visit msnbc.com for Breaking News, World News, and News about the Economy

AARP Says Majority of Reverse Mortgage Borrowers Are Satisfied

2009-06-15T17:54:00.000-07:00

An AARP survey concluded that the majority of reverse mortgage borrowers that have taken out a reverse mortgage are happy with their decision. The AARP survey also said that a reverse mortgage has greatly improved the lives of the senior homeowners that have tapped into their home equity through a government insured HECM reverse mortgage loan. The video below is a testimonial that supports the AARP reverse mortgage survey. The couple in the video are representative of thousands of satisfied retired homeowners that have taken advantage of a reverse mortgage in recent years.

Reverse Mortgage Saves Tennessee Woman's Home

2009-06-09T16:14:00.000-07:00

We are thrilled to report that Lorraine Zickefoose, from Alcoa, Tennessee will not lose her home through a Wells Fargo foreclosure. We first reported her story on this blog on May 21st. Since then her church, her community and a dedicated mortgage broker worked tirelessly to raise money and then negotiate a settlement with Wells Fargo to save her home.

She successfully used a reverse mortgage loan for the bulk of the proceeds to satisfy her current "forward" mortgage. After eight months of effort, the mortgage broker was finally able to get the lender to agree to reduce the mortgage balance by approximately $17,000.

In the end they were able to save Lorraine's home from foreclosure. But according to comments from the mortgage broker, Wells Fargo was less than cooperative throughout the process. It makes you wonder, if it was the recent publicity that finally made the behemoth bank back down and come to a reasonable settlement for the 73 year old Tennessee resident.

Read The Full Story Here.

Sheila Bair of FDIC on 60 Minutes With Scott Pelley

2009-06-01T08:58:00.000-07:00

Scott Pelley, on 60 Minutes last evening, conducted a very telling interview with the chairman of the FDIC, Sheila Bair. During the conversation, she candidly asserts that possibly the regulators need to take a serious look at how large institutions are allowed to get. The notion that "too big to fail" has become the mantra for the likes of AIG, Citibank, Bank of America etc., has lead us as a nation to be in the "bail out" business whether we like it or not.

You can see how carefully she words her answers to several pointed questions from Scott Pelley, but in the end she courageously asserts that the size of some of these institutions has to be examined and possible reforms to limit the size that institutions can get in the future might be prudent.

See The Full Interview Here.

AARP Advice For Keeping Banks Out of Your Pocket

2009-05-31T17:08:00.000-07:00

AARP has a great article describing seven ways to keep the banks from making up for their lost profits at your expense. Even though President Obama just passed the new credit card reform bill, it will not take effect for over 9 months.

Meanwhile, the banks are scrambling to devise ways that they can make up for the anticipated lost profits that they will experience once the bill takes effect. AARP offers some great tips on what you can do to protect yourself from the new tactics that banks have all ready started to impose. Don't let the banks use you as their scapegoat and by all means don't let them reach into your pocket to line their pockets.

Read what AARP has to say here: Seven Ways To Beat The Bank

Senior Housing In High Demand

2009-05-22T15:17:00.000-07:00

The CEO of Emeritus Corporation, Mr. Granger Cobb, explained in an interview conducted on The Street.com why senior housing demand has not slowed in spite of the current turmoil in the housing and stock markets. Emeritus Corp. builds and provides assisted living facilities and senior housing in 37 states. He says they are seeing growth in every one of the 37 states, mainly because their product is "need" driven, rather than discretionary. He goes on to say that, aging is not an optional choice for people, in the same way that deciding whether to go out to dinner or a movie is.

Reverse Mortgage Bill Vetoed In Minnesota

2009-05-22T12:58:00.000-07:00

Yesterday, Tim Pawlenty, governor of Minnesota vetoed SF 489, which would have had unintended and detrimental consequences for senior homeowners in Minnesota that would like to take advantage of accessing home equity through the use of a reverse mortgage loan.

If passed, the bill would have increased the right to rescind (cancel) period from the current three days, to ten days on the closing of a reverse mortgage loan. It also would have imposed a suitability requirement as well as added restrictions on the cross selling of other financial or insurance products at the time a person takes out a reverse mortgage.

National Oversight Is All Ready In Place - No Need For Over-Kill

HUD in conjunction with AARP and NRMLA (National Reverse Mortgage Lenders Association) have collectively taken action to strengthen the protections for seniors on a National basis. In some cases, when states step in and try to implement additional regulations, we see that what actually happens is that the regulations become more confusing and sometimes contradict each other. The so-called "unintended consequences" of meaning well, can backfire and actually cause less availability of a much need product, like a reverse mortgage. We saw that very thing happen in the state of Washington about a year ago. It took until just a couple of weeks ago to get that "unintended consequence" amended, so that now senior citizens in Washington state have full access to competitive reverse mortgage lenders and products.

Had it not been for Governor Tim Pawlenty wisely choosing to veto this bill, something similar could have happened to senior homeowners in the state of Minnesota. Take a look at his comments about his decision below.

Minnesota_Reverse_Mortgage_Veto Minnesota_Reverse_Mortgage_Veto jry1938

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Reverse Mortgage Could Stop Foreclosure For Tennessee Woman

2009-05-21T19:07:00.000-07:00

A 73 year old Tennessee woman is trying to stop the foreclosure of her home with a reverse mortgage. She has been approved for the reverse mortgage, but when her home was appraised, the value of her home was not sufficient enough for the reverse mortgage to entirely payoff her existing mortgage.

Many folks have been able to successfully prevent home foreclosure by using a reverse mortgage, which allows them to payoff the full balance owed on their homes and then live mortgage free for as long as they remain in the home.

The caveat, however, is that the appraised value of the home is the most important component to determine how much money a senior is allowed to borrower from a reverse mortgage. In the case of Lorraine Zickefoose from Alcoa Tennessee, her homes' value was not high enough to completely satisfy her current "forward" mortgage balance.

She is now facing eminent foreclosure unless she can come up with the difference between the amount of money she can get from the reverse mortgage and the loan balance on her current mortgage. As you can see from the video clip linked below, her church and community are rallying around her to try to raise the necessary funds in order for her to save her home from foreclosure.

Even though Lorraine's story is not finished yet, it is clear that without a reverse mortgage she would have had no hope of saving her home from foreclosure. Now with the help of her community and the proceeds from the reverse mortgage, she has a shot at saving her home and being able to live mortgage free for the rest of her life.

Watch her story here :

Credit Card Bill of Rights Approved by Senate

2009-05-19T14:10:00.000-07:00

Today the Senate passed a consumers' credit card "bill of rights" measure that will curb fees and limit surprise changes to the agreed upon terms, by credit card issuers. The legislation however, will not cap interest rates, which some lawmakers had pushed for.

The House passed a similar measure last month. The Senate version will go back to the House where it is expected to get final approval before going to President Obama. The President is expected to sign off on the legislation before Memorial Day, next Monday.

Not surprising, the banks opposed the measure and The American Bankers Association lobbied hard against its' passage, but in the end they did not succeed in thwarting the bill.

If the measure is enacted into law, the credit card industry will have nine months to change the way it conducts business, (which from my perspective, is way too long to wait for this long overdue legislation.) It will be interesting to see what kind of havoc these card issuers wreak on the public between now and nine months from now.

Here is a news clip from CNBC describing the legislation:

AARP Keeping an Eye on Reverse Mortgage Cross Selling

2009-04-06T16:02:00.000-07:00

Even though new legislation was passed last year to prevent sales people from selling additional financial products to seniors when they take money from their homes through a reverse mortgage, AARP says they are getting reports that some people are still engaging in these tactics.

According to Bronwyn Belling, project manager for the AARP Foundation's Reverse Mortgage Education Project, "Despite the new laws, we are still hearing reports of reverse mortgage lenders selling high priced annuities and other investments to borrowers. Regulators are paying close attention to this problem, and we are going to continue to watch it very closely."

If you are interested in reading more about the legislation requiring a firewall between companies and sales people that sell reverse mortgages and sales people that sell other financial investments, such as annuities and life insurance products, you may want to read a couple of our previous blog posts that provide further details on this topic.

Changes to Reverse Mortgages

AARP Monitors Seminars

Long Term Care Expenses Put Retirees at Risk

2009-04-02T15:59:00.000-07:00

The diabolical collapse of the stock market that has devastated retirement savings for millions of retirees as well as workers, has brought attention to the fact that nearly two-thirds of U.S. households are at risk of not being able to maintain their standard of living after retirement if long term health care costs are factored into the equation.

According to a study conducted by the Center for Retirement Research at Boston College, 65 percent of households will have insufficient income to cover the costs of nursing home care and other end-of-life long term health care costs.

Alicia Munnell, director of the Center for Retirement Research said, "the cost of health care will create such an unexpected hardship on unprepared retiring baby boomers that it's imperative to sound the warning now." She has been concerned for years about the imminent retirement crisis caused by several problems. Those problems include a Social Security system that will fall short of being able to provide current levels of support, insufficient personal savings, and rapidly escalating costs for health care.

Current estimates indicate that one third of people age 65 today will need to enter a nursing home for at least three months. Some will need to stay for an extended period of time.

End-of life health care costs are high. Hiring a home health care aide for four hours a day, five days a week costs nearly $20,000. per year. The cost of a private nursing home is $77,000. per year.

Options for funding this type of care include relying on Medicaid, buying long term care insurance, selling the family home and tapping into home equity through a Reverse Mortgage Loan.

However, even if households work to age 65 and annuitize all their financial assets, including the proceeds from a Reverse Mortgage Loan on their homes, The National Retirement Risk Index has shown that 44 percent of people will still be "at risk." "At risk" means they will be unable to maintain their standard of living during retirement.

AARP Tells Washington To Fix Health Care

2009-03-26T15:35:00.000-07:00

AARP has launched an effort called "Divided We Fail," which is a national bi-partisan effort designed to attract attention to the absolute necessity for health care reform in this country. AARP believes that all Americans should have access to affordable, quality health care.

According to their website, Divided We Fail is taking on this challenge so that Americans can achieve long-term financial security and get the health care they need. Their goal is to rally individuals, policymakers, and business leaders to this cause through a number of ways, which may include:

strengthening Social Security
making affordable, quality health care available for all
making prescription drugs more affordable for all
creating incentives to save for retirement, or
expanding job opportunities so people can keep working and contributing to society as they get older.

AARP intends to mobilize its' members and the public to demand solutions.

The Divided We Fail Platform outlines the main areas of emphasis for the organization. They include:

Affordable health care, including prescription drugs, and these costs should not burden future generations.
Wellness and prevention efforts, including changes in personal behavior such as diet and exercise, should be top national priorities.
Long-term care choices that- allow people to maintain their independence at home or in their communities with expanded and affordable financing options.
Social Security must be strengthened without burdening future generations.
Our children and grandchildren should have an adequate quality of life when they retire.
Workers should be provided with financial incentives to save, have access to effective retirement plans, and should be able to keep working and contributing to society regardless of age.
Americans of all ages should have access to tools to help manage their finances and save for the future. There should be better, easy to understand information to help increase financial literacy and manage money wisely.

The Motto: "Divided We Fail, but together we can do anything."

If you are interested in getting involved with Divided We Fail, check out these links at the AARP website:

Get Involved

Take The Pledge

Activist Resources

Retirees Can Benefit From Suspension of Required Minimum Distribution (RMD)

2009-03-23T15:20:00.000-07:00

With the obliteration of Trillions of dollars of investment wealth as a result of the stock market meltdown, retirees can take a small amount of solace from the one-year suspension of the required minimum distribution (RMD) rule.

The RMD rule normally requires folks that are age 70 1/2 or older to take a specified amount of money out of their IRA, 401(k) or similar retirement accounts on an annual basis. The amount you must take out is based on age and account value at the end of the previous year. However, late last year Congress passed temporary legislation waiving the penalty if you do not take out the required amount. Under normal circumstances the penalty is an onerous 50 percent of the amount that you should have taken out of your account(s).

The temporary tax-law change allows seniors some flexibility about how much to withdraw from retirement accounts. Some may choose not to withdraw anything in order to give their balances time to recover from the decline. Others may wish to take only what they absolutely need in order to get by.

Financial and tax experts suggest that for anyone that has the ability to use income from other sources, they should keep withdrawals to a minimum in order to avoid locking in stock market losses. The experts also point out that not drawing down on these accounts now will help them last longer into the future.

A Word of Caution:

Tax law is complicated and everyone's situation is unique. This post is not to be construed as tax advice. Please check with your personal tax adviser regarding the strategy that will be best suited for you.

President Barack Obama On 60 Minutes With Steve Kroft

2009-03-22T14:51:00.000-07:00

If you missed 60 Minutes Sunday Evening, you can watch Steve Kroft's interview with President Barack Obama by clicking the video images below.

The President covered topics ranging from defending his Treasury Secretary, Timothy Geithner, to telling Wall Street executives that they need to "get out of town" in order to appreciate the populists' perspective on why the American people are so angry with those that have received the TARP bailout money, to responding to Dick Cheney's criticism of his decision to close Guantanamo Bay.

The 90-minute interview began with a walk on the White House grounds and ended in the Oval office. President Obama said that some of the decisions that he is faced with are often a choice "between bad and worse." He said that the hardest decision he has had to make so far, was to send an additional 17,000 troops to Afghanistan.

Whatever your political persuasion, I hope we will all unite behind President Obama for the good of us all.

Follow The Money on Open Secrets. Org

2009-03-18T10:44:00.000-07:00

Today I was getting ready to write a post about "Zombie" banks. The term zombie banks has been bandied about quite a bit during the past couple of weeks, so I thought I would explain what they are and how the term came about.

However, in the research process, I stumbled upon a website that I think actually makes a much more interesting post. The website is, Open Secrets.org ,Center for Responsive Politics. "Zombie Banks" post will have to wait for another day.

Open Secrets.org shines a spotlight on the incestuous relationship between money and congressional influence in America. Under the section of the website that is called "Influence and Lobbying" you will find a sub-category called "Revolving Door."

Here is a copy of the first paragraph of this page:

"Although the influence powerhouses that line Washington's K Street are just a few miles from the U.S. Capitol building, the most direct path between the two doesn't necessarily involve public transportation. Instead, it's through a door—a revolving door that shuffles former federal employees into jobs as lobbyists, consultants and strategists just as the door pulls former hired guns into government careers. While members of the executive branch, Congress and senior congressional staffers spin in and out of the private and public sectors, so too does privilege, power, access and, of course, money."

According to their mission statement, CRP's (Center for Responsive Politics) mission is to:

Inform citizens about how money in politics affects their lives
Empower voters and activists by providing unbiased information
Advocate for a transparent and responsive government

When Will We Say; Enough is Enough?

If you are as outraged as I am with the revelations that have been exposed as a result of the global financial collapse, corporate fraudsters, unprecedented corporate greed, utter incompetence on Wall Street and virtually no Congressional oversight, you may want to bookmark Open Secrets.org as one of your favorites and check in regularly to see what latest insult is being perpetrated by these so called "masters of the universe."

Until we, the public, demand better from our elected officials, we deserve the government we have.

Bernard Madoff To Plead Guilty While Facing Victims In Court

2009-03-08T20:18:00.000-07:00

Disgraced financier, Bernard Madoff is expected to enter a guilty plea on Thursday to one of the most monumental Ponzi schemes ever perpatrated. He has been insulated in his luxurios Manhattan apartment, where he has been under house arrest since December.

Before his arrest, the 70 year old former NASDAQ market chairman told an investigator there was "no innocent explanation" and he expected to go to prison.

On Thursday, he is expected to enter a guilty plea in the multi-billion-dollar fraud scheme. U.S. District Judge, Denny Chin invited victims to address the court, setting up an unusual confrontation with the people he is accused of cheating. Prosecutors submitted papers noting that crime victims have the right to be "reasonably heard at any public proceeding in the district court involving a release plea, sentencing, or any parole proceeding."

Mark Seal,of Vanity Fair Magazine provided close up portrayals of several of Madoff's victims in the video clips below as well as in this months' issue of Vanity Fair Magazine. You can read Mark Seal's Vanity Fair article in full here.

The victim's accounts are truly heartbreaking. Bernard Madoff needs to be made accountable to the fullest extent of the law for the devastation that he wrought upon the lives of his many victims.

Seniors Will Get $250.00 Stimulus Checks In May

2009-03-04T18:19:00.000-08:00

In May 2009, senior Social Security recipients and retirees will receive $250.00 per person from Uncle Sam, as part of the economic stimulus plan.

The senior payment figures are; $250.00 for individuals, $500.00 for couples that both receive Social Security benefits. This will include retirees, older veterans, Supplemental Security Income (SSI) beneficiaries, and people with disabilities.

Unlike the previous rebate distribution program in 2008, recipients will not have to file a tax form in order to receive the money. It will simply show up in the regular Social Security distributions - either through direct deposit or a check in the mail.

Federal and State retirees who do not receive Social Security benefits also qualify to receive the payment but may have to file a 2009 tax return in order to receive it.

The House of Representatives draft of the stimulus package, which was approved in January did not include the senior payment, however it did end up in the Senate approved bill after Montana Democrat, Max Baucus, Chairman of the Senate Finance Committee proposed it. The Senate provision was also strongly promoted by Democrat Senator, Sheldon Whitehouse, of Rhode Island.

AARP supported the measure from the beginning. AARP sent a letter to lawmakers arguing that many retirees would be ineligible for "workers' tax credits" but were in need of hardship relief. AARP cited research that shows that older people tend to spend such cash payments immediately.

You can read more about the Social Security's Economic Recovery One-Time Payment by clicking here.

You can also link to Frequently Asked Questions about the the payments by clicking here.

Renewed Interest In Reverse Mortgages

2009-02-27T11:59:00.000-08:00

As the economy continues to unravel on every front, more retirees are turning to Reverse Mortgages to sustain their lifestyle and provide the needed cash to weather the financial storm. Even people that thought they planned well and have diversified portfolios, are having to re-think their retirement strategies.

Many seniors really don't want to touch their investments right now, and yet many cannot wait years for those investments to recover in order to draw on them. So while retirees watch in dismay as both their home values and their investments plunge to new depths, many are turning to reverse mortgages to get through these troubled times.

HECM Reverse Mortgages - New Lending Limit - $625,500.

A ray of hope emerged earlier this week when HUD announced the immediate implementation of the new higher National loan limit for FHA insured HECM reverse mortgages. The previous loan limit was $417,000. As part of the Economic Stimulus package a TEMPORARY increase for FHA/HECM reverse mortgages for the balance of 2009, is now $625,500.

The higher reverse mortgage loan limit is particularly beneficial for people that have homes with a value higher than $417,000. With the new $625,500. lending limit they can now access a much higher amount of equity.

Virtually No Other Jumbo Reverse Mortgages Available

Additionally, since the credit crunch started last fall, virtually all of the proprietary "Jumbo" reverse mortgage products that had been offered previously have dried up. The absence of any jumbo reverse mortgage loan products, left many homeowners with high value homes, disappointed by the small loan amount offered by FHA versus their equity and home value.

If you are someone that never thought you would need a reverse mortgage before or if you have a high value home and have previously been disappointed by the loan amount offered, you may want to take a second look at this option.

Request a no obligation reverse mortgage quote today!

The Anatomy Of The Credit Crisis

2009-02-24T15:48:00.000-08:00

Anyone interested in a simplified visual explanation of the very complicated process that took place in the financial markets that lead us to the disasterous place that we all find ourselves in today, should take a couple of minutes to view these excellent videos by Jonathan Jarvis, a graduate student at the Art Center College of Design in Pasadena, California. What an awesome job he did with a very complex subject!

Standard of Living Will Permanently Change As a Result of Financial Meltdown

2009-02-23T16:28:00.000-08:00

Check out these two video clips from Yahoo finance. Howard Davidowitz, retail industry consultant and chairman of Davidowitz and Associates speaks bluntly about the state of our standard of living. At the most basic level, he says that Americans had better get used to a permanent change in life style and standard of living.

He says "The end of rampant consumerism is ultimately a good thing. But the unraveling of an economy built on debt-fueled spending will be painful for years to come." He foresees higher savings rates and people trading down in both the goods and services they buy - as well as their aspirations.

Reverse Mortgage Could Ease Pain For Bernie Madoff Victims

2009-02-20T15:59:00.000-08:00

Each day that goes by we hear more tragic stories of those that have been vicimized by Bernard Madoff - and his $50 Billion Ponzi Scheme that he allegedly mastermined.

The video clip below is one such heartbreaking tale of Ian and Terry Thiermann from California. They lost their entire life savings of seven hundred thousand dollars. Now at age 90, Ian Thiermann has been forced to go back to work. Fortunately, a neighborhood grocery store "created" a job for him as a greeter.

Could A Reverse Mortgage Help Them?

In the video clip you will hear that he and his wife still have a mortgage. With their sudden loss of fortune, one wonders if they have thought about the possibility of taking out a reverse mortgage. A reverse mortgage loan would eliminate their current mortgage balance and leave them mortgage payment free for as long as one or both of them continue to live in their home.

I hope they decide to consider a reverse mortgage as partial help with their monthly budget. It could relieve some financial stress.

Reverse Mortgage Loan Limit Increased To $625,500.

2009-02-18T15:09:00.000-08:00

President Obama's $787 Billion economic stimulus package included a new higher national FHA - HECM Reverse Mortgage loan limit of $625,500. The previous loan limit was $417,000. nationally except in HI, Alaska and Puerto Rico.

The new higher loan limit of $625,500. is particularly good news for several reasons:

1. Due to the current financial meltdown on Wall Street there are no longer any lenders in the market that are willing to loan "Jumbo" loan amounts on a reverse mortgage. That left anyone with a high value home - (for example $450,000. or higher,) access to such a small amount of their equity, that it was hardly worth their while to even bother with an FHA/HECM reverse mortgage.

2. The new higher loan limit of $625,500. will now offer anyone with a home value of approximately $417,000. or higher access to substantially more money than under the previous limit.

Two Caveats To The New Lending Limit:

1. Under the new law, the higher loan limit will only be available for loans originated for the balance of 2009. (It is possible that Congress could request an extension of this time frame, but as of now, it will expire at the end of the year.)

2. Lenders will not be able to process or close loans based upon the higher loan limit until HUD issues an official "Mortgagee Letter" allowing the implementation of the new guidelines as set forth in President Obama's Stimulus Package.

As a side note, one would hope that since there is a possibility that the higher lending limit will permanently expire at the end of this year, that HUD will act quickly to get this provision implemented. After all it is not called a "Stimulus" package for nothing.

If you are interested in receiving a reverse mortgage loan estimate based upon the new higher lending limit, click here or call our offices toll free at: 1-888-269-1098

"Inside The Meltdown" Frontline Details The Financial Collapse

2009-02-17T22:00:00.000-08:00

Watch this fascinating expose of what went on behind the scenes in Washington and Wall Street as prestigious investment banks and AIG cascade toward the most severe financial meltdown since the Great Depression. PBS's Frontline details the historic avalanche that took place at lightening speed.

Will The Pension Benefit Guaranty Corp. Be Next In Line For A Bailout?

2009-02-17T15:51:00.000-08:00

The Pension Benefit Guaranty Corporation was created by Congress in 1974. Its purpose is to guarantee the retirement security of workers covered by defined-benefit pension plans. It insures more than 29,000 employer-sponsored benefit pension plans and the pensions of 44 million workers and retirees.

The deepening recession spells trouble for PBGC, which all ready has an $11 Billion deficit that more than likely will grow larger as Corporate America continues to falter through the worst economic crisis since the Great Depression. As companies report shortfalls in their pension funds, it is certain that The Pension Benefit Guaranty Corporation will be forced to take over the pension plans of a rising number of bankrupt businesses.

The future financial health of PBGC is difficult to forecast. It hinges on interest rates, the length of the recession and the agency's ability to successfully "play" the market with its own investment portfolio.

Currently the agency has $63 Billion in assets. However, it is obligated to spend $74 Billion on pension benefits in the coming years. PBGC might have time to rebound, but over the long term it could become insolvent and require a bailout.

The agency gets its money from premiums paid by companies that sponsor the pension plans along with revenue that it earns from its investments. The corporation's balance sheet has taken heavy hits in recent years. Nine of the ten largest pension plan terminations in the agency's history, including United Airlines, Bethlehem Steel and Kaiser Aluminum, have taken place since 2001.

When a pension plan is terminated, the agency takes over and pays the benefits to the retired workers. However, the retirees may not get the full amount that was promised by their company. The maximum guaranteed amount from the PBGC is currently $54,000 per year for someone that is retiring at age 65.

Some pension experts shrug off the agency's $11 Billion deficit. They note that the 35 year old corporation has operated at a deficit for most of its existence. They say the agency has many years to recoup its losses and fulfill its obligations to pensioners.

But to those "experts" I say what President Obama and many folks in Congress have been saying recently, and that is: "These are uncharted waters that we are in today." Are we really able to predict the future based upon the past?