On the face, Alan Mulally, President and Chief Executive Officer of Ford Motor Co. is making valiant strides in his bid to win over the American congress and public. However, when you dive a little deeper, you will see his accepting a $1 salary is nothing more than an ersatz attempt to cover up his true goals, to receive the vast majority of his compensation (in 2006 this totaled over $28,000,000, and in 2007 nearly $22,000,000), as his salary in 2007 only represented a mere 10% of his total compensation. This is not an attempt to sabotage the man, nor is it an attempt to discredit what he could possibly do for Ford, the purpose is to make everyone aware of the complete picture.

Taking a deeper look into Ford’s financial statements (namely their 2008 proxy statement, see pg. 55 for executive compensation) you will see that Salaries in total for officers and directors compared to total compensation is rather insignificant. In 2007, the total compensation for all (top) directors and officers  was around $60,704,000, while their salaries were a mere 7,838,000, or less than 13% of their total pay!

These guys are not paid like most people folks, where your salary constitutes 90% or more of your total pay, it’s the inverse, and Mulally and his counterparts are trying to make us feel all warm and fuzzy inside thinking they are working for nothing, when in reality they have alot on the line.

My opinion and point in writing this is as follows;

• Giving up 10% is a nice stride, but their other option is to give it all up as they know if they go bankrupt they won’t get anything.

• Giving the Big 3 money is not in the best interest of the entire American Public, rather in the interest of less than 1% of the Public.
• Giving these guys money hurts the efficient businesses and rewards the poor management of these companies, and stifles innovation

A reverse mortgage (or lifetime mortgage) is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner dies, the home is sold, or the owner leaves (e.g., into aged care). A reverse mortgage is analogous to an annuity where the principal and interest are paid with homeowner’s equity.

In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases within his or her property, and typically after the end of the term (e.g., 30 years) the mortgage has been paid in full and the property is released from the lender. In a reverse mortgage, the home owner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.

If a property has increased in value after a reverse mortgage is taken out, it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home. But in certain countries (including the United States), a reverse mortgage must be the only mortgage on the property.^{[citation needed]}

Reverse mortgages in the United States

Requirements

To qualify for a reverse mortgage in the United States, the borrower must be at least 62 years of age. There are no minimum income or credit requirements, but there are other requirements and homeowners should make sure that they qualify for the loan before they invest significant time or money into the process. For most reverse mortgages, the money can be used for any purpose; however, the borrower must pay off any existing mortgage(s) with the proceeds from the reverse mortgage and, if needed, additional personal funds. A pending bankruptcy which has not been finalized may, however, slow the process. Some types of dwellings do not qualify, while others (like mobile homes) have special requirements (such as being on an approved permanent foundation and built after 1976) in order to be approved. Before borrowing, applicants must seek third party financial counseling from a source which is approved by the Department of Housing and Urban Development (HUD). The counseling is a safeguard for the borrower and his/her family, to make sure the borrower completely understands what a reverse mortgage is and how one is obtained.

Reverse mortgage proceeds

The amount of money available to the consumer is determined by five primary factors:

• The appraised value of the property, whether any health or safety repairs need to be made to the house, and whether there are any existing liens on the house.
• The interest rate, as determined by the U.S. Treasury 1 year T-Bill, the LIBOR index or 1 Year CMT.
• The age of the senior (The older the senior is, the more money he/she will receive).
• Whether the payment is taken as line of credit, lump sum, or monthly payments. Line of credit will maximize the money available, while lump sum provides the cash immediately, but the interest fees are the highest. Monthly payments are set up as a “Tenure” payment. Borrowers receive them for the rest of their lives no matter how long they live.
• The location of the property, and whether the maximum loan amount is subject to the maximum loan limits. These limits change on a county by county basis. There are also efforts to create a national maximum, so you need to check periodically for those numbers. If those numbers go up in your area, you can refinance the reverse mortgage and increase the funds you receive.

All these factors contribute to the Total Annual Lending Cost (TALC) as defined by the US Federal Government Regulation Z, the single rate which includes all the loan costs. The specific formulas to calculate the impact of the factors listed above can be found in Appendix 22 of the HUD Handbook 4235.1.^[1]

There is also a type of reverse mortgage for homes valued over the maximum Fannie Mae limit. These are called “cash” accounts, and are proprietary loan products. The money received (loan advances) are not taxable and do not directly affect Social Security or Medicare benefits. However, an American Bar Association guide^[2] to reverse mortgages explains that if borrowers receive Medicaid, SSI, or other public benefits, loan advances will be counted as “liquid assets” if the money is kept in an account (savings, checking, etc.) past the end of the calendar month in which it is received. The borrower could then lose eligibility for such public programs if his or her total liquid assets (cash, generally) is then greater than those programs allow.^[3]

It is important to note that the homeowner must ensure that taxes and insurance are kept current at all times. If either taxes or insurance lapse, it could result in a default on the reverse mortgage.

Once the reverse mortgage is established, there are no restrictions on how the funds are used. In addition to the tenure monthly payments, the borrower has the option of moving the entire amount of money into investments, or they can simply take the money and spend it as they wish.

Among the options of interest bearing instruments, the borrower can keep them with the lender and (These accounts usually pay more than the interest rate of the loan), move the funds to a directed account with a financial specialist (This option is risky unless you direct the investment options of the financial specialist), or withdraw the funds and manage their investment themselves.^{[citation needed]}

HECM vs. Jumbo

The HECM is the most popular reverse mortgage (accounting for nearly 90% of all reverse mortgage loans in 2007) because it generally offers the highest amount of money to homeowners of average-valued homes - usually homes valued under $400,000. While an owner of an average-valued home is able to apply for a Jumbo loan (the eligibility for either loan does not change), he/she would likely receive a larger loan amount with a HECM. For homeowners of higher-valued homes, a Jumbo reverse mortgage will usually enable the homeowner to borrow significantly higher amounts of money. ^[4] Below is a chart that shows how the available principle limits^[5] will vary depending on the home’s value and the plan chosen.

Location	Home Value	Outstanding Mortgage/ Age of Borrower	HECM Loan Amount	Jumbo Reverse Mortgage Loan Amount
Beverly Hills, CA	$200,000	0 / 70 yrs old	$117,157	$69,222
Beverly Hills, CA	$1,000,000	0 / 70 yrs old	$219,111	$361,538
Palm Beach, FL	$200,000	0 / 70 yrs old	$114,787	$68,037
Palm Beach, FL	$1,000,000	0 / 70 yrs old	$214,769	$355,584

While the chart above is based only on estimates, it is an accurate explanation of how a HECM plan compares to a Jumbo plan. A lower valued home would benefit more from a HECM, but as the value of a home increases so does the benefit from a Jumbo plan. The owner of a home valued at $1 million could potentially borrow double the amount with a Jumbo loan.

The structure of a Jumbo Reverse Mortgage is very similar to a standard HECM - you are able to tap into the equity of your home and will not be obligated to pay it back until the home is no longer used as your primary residence (in the event of your death or should you decide to move). There are no monthly loan payments with either loan and the money you take out can be used for any purpose. Like the HECM, the amount you owe on the Jumbo loan will never exceed the value of the home.

The real difference between the two loans is determined by the value of the home. However, another difference involves interest rates. Interest rates charged on Jumbo Reverse Mortgage loans are sometimes higher than those on a HECM loan. However, a Jumbo Reverse Mortgage will only charge you interest on the sum of money you actually use from a line of credit which is available to you. And, as with all Reverse Mortgages, you will never owe more than the value of the home. Also, as long as you continue to live in the home, you will always retain ownership. ^[6]

Costs and interest rates

The cost of getting a reverse mortgage from a private sector lender may exceed the costs of other types of mortgage or equity conversion loans. Exact costs depend on the particular reverse mortgage program the borrower acquires. For the most popular type of reverse mortgage in the U.S., the FHA-insured Home Equity Conversion Mortgage (HECM), there is an insurance premium of 2% of the loan and a 2% origination fee in addition to normal closing costs, which are typically several thousand dollars, but vary depending on the third-party costs (appraisal fees, title searches, etc.) which must be undertaken. Thus a $200,000 loan would have $8,000 in costs beyond the normal closing costs added onto the loan at the outset. Other programs skip the insurance premium but still require the origination fees and closing costs, and some programs waive the initial costs if the borrower borrows all or most of the maximum amount he or she is eligible to receive. In addition, a monthly service charge (between $25 and $35) is usually added to the total amount of the loan.

In all of these cases, the costs of a reverse mortgage can typically be financed with the proceeds of the loan itself, with the costs and fees being rolled directly into the principal balance of the loan, rather than paid by the borrower in cash. While this does permit borrowers with little or no available cash to get a reverse mortgage, it means that the initial loan principal will be increased, and consequently, that the fees will begin accruing interest. Since there are no payments made during the course of the loan, the compound interest accrued on the principal plus fees are added to the principal of the loan.

Interest rates on reverse mortgages are determined on a program-by-program basis, because the loans are secured by the home itself, and backed by HUD, the interest rate should always be below any other available interest rate in the standard mortgage marketplace for an FHA reverse mortgage.^{[citation needed]} Prior to 2007, all major reverse mortgage programs had adjustable interest rates. Such adjustable rate reverse mortgages are still being offered which are adjusted on a monthly, semi-annual, or annual rate up to a maximum rate.

Several lenders now offer FHA HECM reverse mortgages that have fixed interest rates.^[7] Some of these mortgages have interest rates that are similar to the current FHA/VA rate plus the mandatory mortgage insurance premium.^[8] Some fixed rate reverse mortgages limit the cash proceeds to half of that offered by adjustable rate reverse mortgages.

Some state and local governments offer low-cost reverse mortgages to seniors. These “public sector” loans generally must be used for specific purposes, such as paying for home repairs or property taxes^[3], but most of them are insured by the Federal Housing Administration (FHA) and often have more favorable interest rates and fewer or no fees associated with them. These programs are typically very restrictive in terms of qualification and location, and many regions, states, and areas do not have such programs at all.^[9]

HUD counseling

To apply for an FHA/HUD reverse mortgage, a borrower is required to complete a 45-minute counseling session with a HUD-approved counselor. The counselor will explain the legal and financial obligations of a reverse mortgage. After the counseling session, the borrower receives a “certificate of counseling” that is required before the loan application can be processed.

Related taxes

The American Bar Association guide^[2] advises that generally,

• the Internal Revenue Service does not consider loan advances to be income,
• annuity advances may be partially taxable, and
• interest charged is not deductible until it is actually paid, that is, at the end of the loan.
• The mortgage insurance premium is deductible on the 1040 long form.

When the loan ends

The loan ends when the homeowner dies, sells the house, or, depending on the loan conditions, moves out of the house for 12 consecutive months (for example, to go into an assisted living home or due to physical or mental illness the borrower is not able to live in the property on which the loan has been taken). At that point, the reverse mortgage can be paid off with the proceeds of the sale of the house, or if the borrower has died, the property can be refinanced by the heirs of the homeowner’s estate with a regular mortgage. If the proceeds exceed the loan amount including compounded interest and fees, the owner of the house receives the difference. If the owner has died, the heirs receive the difference. For cases where the proceeds are not sufficient to pay off the loan, then the bank (or insurance which the bank has on the loan) absorbs the difference.

The technical term for this cap on debt is “non-recourse limit.” It means that the lender does not have legal recourse to anything other than the value of the home when the loan is to be paid off.^[3]

In most cases when the borrower moves out of the property or dies, as long as the borrower (or his estate) provides proof to the lender that he/she is attempting to sell the home or obtain financing to pay off the outstanding debt, the investor will allow him up to one year to do so. After the one year extension period is up, the lender cannot provide any further extension of time to the borrower (or estate).

Volume of loans

Home Equity Conversion Mortgages account for 90% of all reverse mortgages originated in the U.S. As of February 2007 the federal cap of 275,000 HECM loan guarantees had been issued since the program’s inception in 1989. Legislators subsequently suspended the cap until September 1, 2007 allowing additional HECM loan guarantees to take place.

Program growth in recent years has been very rapid. The National Reverse Mortgage Lenders Association (NRMLA)^[10] reports that 55,659 HECM loans were endorsed through the first nine months of fiscal year 2006, an 83% increase over the 30,404 loans endorsed during the same period in the prior fiscal year.

Section 255 of the National Housing Act, which governs the HECM program, limits the aggregate number of outstanding HECMs to 250,000. The cap could possibly be reached in 2007 or 2008, and efforts are currently underway to remove or increase the limit.

Other options

A significant drawback to reverse mortgages are the high upfront costs. This upfront cost is tempered by the lower interest rate over time, but some seniors choose other options to draw on their home equity, particularly if they don’t plan to remain at the property more than five years.

Other options which can free up home equity but avoid the high upfront costs of a reverse mortgage include: 1) intra-family loan or sale-leaseback and, 2) selling and moving to a less expensive dwelling or location. However, when selling the homeowner incurs high closing costs including, typically, a 6% commission, moving costs, and purchase costs on the new dwelling. Currently, there is a coordinated government program called “Aging in Place” intended to assist homeowners wishing to remain in their home and/or neighborhood. Studies conducted by various agencies, including AARP, show that over 80% of elderly homeowners do not want to move.^{[citation needed]}

No cost and low cost reverse mortgages are available for those homeowners who anticipate moving from the home in the near future. These ‘no cost’ mortgages do carry higher interest rates than the standard monthly FHA HECM (reverse mortgage). For example, they may select a home equity line of credit (HELOC), requiring interest-only payments for 10 years. These loans typically have very low (or zero) upfront costs. HELOC interest rates are usually based on the prime lending rate and are therefore often higher than the FHA monthly HECM, which is based on the one-year constant maturity U.S. Treasury rate.

Demand

As recently as December 2007 the Senate Committee on Aging spent time discussing the aggressive marketing and sales techniques being used by mortgage institutions to attract senior homeowners into purchasing reverse mortgages. As larger populations of seniors are turning 63 every year, the demand for reverse mortgage loans is on the rise. There was a 56% increase in these types of loan in 2006 from the prior year. The Federal government in December 2007 removed the restrictions on the number of outstanding reverse mortgage loans they would underwrite at any given time. Prior to the new legislation, the original limit was 275,000.

References (from this article on wiki)

In my previous article, I wrote why helping these failing companies is a recipe for disaster and how giving them money hurts everyone more than simply allowing them to fail. However, if the determination by congress is made to help the Big three auto companies with a bailout, for the sake of keeping the jobs, tell me why it wouldn’t make more sense to just give that money to the employees rather than the company?

Let’s break this down: Between the big 3 automakers there are an estimated 628,699 employees working at these companies. The request is to give these guys 25 billion dollars (25,000,000,000) in aid. This equates to roughly $39,675 per employee, right at the average annual income for all Full time workers between the age of 25-64 in the US per the census bureau.

With money to hold them over for at least year, they could surely find equal paying jobs in other, more efficient and effective industries.

We’ve already witnessed in record numbers the reports of misuse and abuse of our $700 billion dollars in tax payer “bailout” money with businesses such as AIG funding lavish retreats and other executives continuing to receive bonuses in spite of running their respective companies into the ground. Not to mention, the sheer lack of accountability in these public companies as to what they’re doing with the money is utterly amazing. Moreover, we’re now seeing several other large companies such as AMEX changing their businesses into holding companies to be able to stand in line for free handouts. What’s more you ask? Well, we’re only hearing about what the government tells us, the bailout has already cost over 3 trillion dollars, not the $700 billion congress sold the American people on.

Now, we turn our heads to the news to see the big 3 automakers are crying for help and Pelosi and President-Elect Obama have willfully obliged their requests for help and are pushing through congress attempts to fund them with an additional $25 billion dollars in help. Additional as in, they’ve already received help back in the late 70’s and early 80’s in a similar manner.

Here are some reasons (if they’re not already evident) why giving out money to these guys is a recipe for disaster and will make things worse than they already are for consumers and workers of those companies:

• Their tax dollars are being used to destroy their own jobs.

• These inefficient and failing companies will squeeze billions of dollars from a credit market that would have sent funds to new smaller and much more efficient businesses which will likely create more lasting jobs for the future. Not to mention, it raises the cost of borrowing for all of the workers, from buying their homes to various other purchases.

• They have already been provided bailout money nearly 30 years ago and they’re back in the same situation.

• This screws over every other business that has ran efficient and been successful in managing their companies as it penalizes them by rewarding the failures with capital and other resources they would not have had otherwise and it raises costs of borrowing for those efficient businesses. Why would you reward the failures and hurt the good businesses?

• There are already 100’s of thousands of auto employees whom have been laid off and have been successful in finding new employment. Whether that mean with those other huge car manufacturers here in the US, or other manufacturing companies. You certainly wouldn’t be smart in putting additional pressure on the other guys when they could easily expand and employ this workforce.
• As the giants crumble, hundreds of new business are created and new opportunities are opened. Allow the new businesses to freely grow, encourage their creation through incentives.

• This raises the cost of all American cars, as naturally the more efficient car makers would have gobbled up these guys. So, in essence, Americans are paying and will pay more for every car they buy because these companies are rewarded with bailout money.
• We have no guarantee what they will do with the money, shafting non management employees will be first on their list though when the going gets worse. Don’t count on management to cut themselves until last.
• These companies have ran themselves in the ground and will simply do the same again, and this time at our expense. They can blame economic conditions or whatever they want, bottom line their ineffective management put them in the situation they are facing. We cannot and should not enable them to do further damage and cause further losses at our expense.
• We are opening a massive can of worms, soon you will witness more and more companies crying for help, asking for hand-outs, but soon it will be us, when they bankrupt our country.

Combine the above points with the summary of what has already gone on with bailout money for banks and you should have major reason to lobby your senators and representatives in congress (and President-Elect Obama) to kick this stupidity to the curb, and quit enabling the problem to worsen. Seriously people, we are merely delaying the inevitable and costing ourselves much, much more in doing so. Please, put aside partisan politics, use common sense and fight against these guys from adding more to our National deficit in the name of saving what cannot be saved.

(some of these points are paraphrased from this Heritage article)

401(k) plans are tax-qualified plans covered by ERISA such that assets held by the plans are generally protected from creditors of the account holder, which in the past was generally not true for IRA plans. In the case of employer bankruptcy, all 401(a) (pension and defined contribution plans) and 401(k) plans are protected, because of the rule that contributions must accrue to the exclusive benefit of employees in general. Even though pension plans are backed by insurance through the Pension Benefit Guaranty Corporation, workers whose company enters bankruptcy may not receive the full value of their pension. ERISA protection of 401(k) assets does not extend to losses in the value of investments that participants choose. Employees investing their 401(k) in their own employer stock face the possibility of losing the value of their retirement accounts that is invested in employer stock along with their jobs if their employer goes out of business.

The Roth 401(k) is a type of retirement savings plan. It was authorized by the United States Congress under the Internal Revenue Code, section 402A [1], and represents a unique combination of features of the Roth IRA and a traditional 401(k) plan. As of January 1, 2006 U.S. employers have been free to amend their 401(k) plan document to allow employees to elect Roth IRA type tax treatment for a portion or all of their retirement plan contributions. The same change in law allowed Roth IRA type contributions to 403(b) retirement plans. The Roth retirement plan provision was enacted as a provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).

Traditional 401(k) and Roth IRA plans

In a traditional 401(k) plan, introduced by Congress in 1978, employees contribute pre-tax earnings to their retirement plan, also called “elective deferrals“. That is, an employee’s elective deferral funds (currently up to $15,500 per tax year for those under age 50 and $20,500 for those over) are set aside by the employer in a special account where the funds are allowed to be invested in various options made available in the plan.

Employers may also add funds to the account by contributing matching funds on a fractional formula basis (e.g., matching funds might be added at the rate of 50% of employees’ elective deferrals), or on a set percentage basis. Funds within the 401(k) account grow on a tax deferred basis. When the account owner reaches the age of 59-and-a-half, they may begin to receive “qualified distributions” from the funds in the account; these distributions are then taxed at ordinary income tax rates. Exceptions exist to allow distribution of funds before 59 and a half, such as Substantially equal periodic payments, disability, and separation from service after the age of 55, as outlined under IRS Code section 72(t).

Under a Roth IRA, first enacted in 1998, individuals, whether employees or self-employed, voluntarily contribute post-tax funds to an individual retirement arrangement(IRA). In contrast to the 401k plan, the Roth plan requires post-tax contributions, but allows for tax free growth and distribution, provided the contributions have been invested for at least 5 years and the account owner has reached age 59 and a half. The amounts of income that can be invested in a Roth IRA are significantly more limited than those to a 401(k) are. For 2008, individuals are limited to contributing no more than $5,000 to a Roth IRA, if under age 50, and $6,000, if age 50 or older. Additionally, Roth IRA contributions are prohibited when taxpayers earn a Modified Adjusted Gross Income of more than $110,000, ($160,000 for married filing jointly). Here is a 401(k) versus IRA matrix that compares various types of IRAs with various types of 401(k)s.

The Roth 401(k) plan

The Roth 401(k) combines some of the most advantageous aspects of both the 401(k) and the Roth IRA. Under the Roth 401(k), employees can decide to contribute funds on a post-tax elective deferral basis, in addition to, or instead of, pre-tax elective deferrals under their traditional 401(k) plans. An employee’s combined elective deferrals– whether to a traditional 401(k), a Roth 401(k), or to both– cannot exceed $15,500 for tax year 2008 if a participant is under 50; if they are over 50, they may contribute an additional $5,000. Employer’s matching funds are not included in the $15,500 elective deferral cap, but are considered for the maximum section 415 limit, which is $46,000 for 2008. Employers are permitted to match contributions to a designated Roth account, but the matching funds must be made on a pre-tax basis, not be made into the designated Roth account, and cannot receive the Roth tax treatment. (Pub 4530)

In general, the difference between a Roth 401(k) and a traditional 401(k) is that the Roth version is funded with after-tax dollars while the traditional 401(k) is funded with pre-tax dollars. After-tax dollars represent money for which taxes are paid in the current year, and pre tax dollars are those which do not represent federal taxable income in the current year. Typically, the earnings on Roth contributions will be tax free as long as the distribution is made at least 5 years after the first Roth contribution and the attainment of age 59 and one half, unless an exception applies.

A Roth 401(k) plan will probably be most advantageous to those who might otherwise choose a Roth IRA, for example, younger workers who are currently taxed in a lower tax bracket, but expect to be taxed in a higher bracket upon reaching retirement age. The Roth 401(k) offers the advantage of tax free distribution, but is not constrained by income limitations. For example, normal Roth IRA contributions are limited to $5,000; whereas, up to $15,500 could be contributed to a Roth 401(k) account, provided no other elective deferrals were taken for the tax year (no traditional 401(k) deferrals taken).

Adoption of Roth 401(k) plans has been relatively slow, and stated reasons for this include the fact that they require additional administrative recordkeeping and payroll processing^[1]. However some larger firms have now adopted Roth 401(k) plans, and this is expected to spur their adoption by other firms including smaller ones^[2].

Additional considerations

• Roth 401(k) contributions are irrevocable, such that once money is invested into a Roth 401(k) account; it cannot be moved to a regular 401(k) account.
• Employees are able to roll their Roth 401(k) contributions over to a Roth IRA account upon termination of employment.
• It is the employer’s decision as to whether the company will provide access to the Roth 401(k) in addition to the traditional 401(k). Many employers may feel that the added administrative burden outweighs the benefits of the Roth 401(k)
• The Roth 401(k) plan will now be available after December 31, 2010 since the Pension Protection Act of 2006 was passed to extend the program. The program was originally set up to sunset, or no longer be in place, after 2010 along with the rest of EGTRRA 2001.
• Unlike Roth IRAs, owners of Roth 401(k) accounts (designated Roth accounts) must begin distributions upon reaching age 70 and a half, similar to required minimum distributions for IRA and other retirement plans. (Pub 4530)

See also

• 401(k) IRA matrix - 401k & IRA comparisons (401k vs Roth 401k vs Traditional IRA vs Roth IRA)