NLIC.org

Hilda Said:

Capitalism Caused the meltdown not politics.?

We Answered:

Let me tell you that regulated capitalism is a good thing. I totally agree that to prevent another crisis like this, there needs to be a lot of regulation in place but it's not that simple.

Let's talk about a tool called credit default swaps. Credit default swaps are basically insurance against default on a debt. The buyer of the contract pays annual payments to the seller who will pay money to the buyer if the issuer of the credit agreement defaults. Credit default swaps are useful as a hedge. If an investor buys a corporate bond, he or she can hedge against default risk by buying a credit default swap. However, an investor does not have to own the bond to buy the swap but rather, he or she can simply buy the credit default swap and bet on the possibility of the company failing because they will get money if the company fails. This speculation is not good in the long run because it makes it more expensive to borrow money, but still, speculation helps provide some short-term liquidity in the market, so if speculation is banned, there is the risk of losing that source of short-term liquidity.

I don't know if you have heard the news but Lehman Brothers, which was among the first in a long line of bank failures, tried to use an obscure accounting principle to hide the level of debt from its balance sheet. This practice ought to be banned. Investors ought to know what they are getting into and companies should not be allowed to be able to dress up their balance sheets.

Also, there should be a minimum down payment requirement on mortgages. In addition, the Fed should take a more active role in preventing bubbles from starting in the first place. If that means that interes rates have to go up, that has to happen. What people don't realize is that bubbles aren't great in the long run because when the value of the asset falls, it falls hard.

Marcus Said:

My father has done well in his lifetime; but, now suffers from profound hearing loss and some dementia?

We Answered:

Its not clear exactly what you are trying to accomplish. Reverse Mortgages are not a good way to go unless the owner needs financial help to survive and has a lot of equity in their primary residence and still making payments on the mortgage. The RM Lender will give a cash payment, usually 50-60% of the appraised value less any outstanding mortgage, They then pay off the mortgage, ending the monthly payments for the owner. The owner can remain in the house payment free until they go into an assisted living facility or die. They must pay taxes and maintain the property in good condition. The RM Lender charges interest that is deferred until the contract is concluded .Basically they own your house and allow you to live in it. You can't move out or rent the house as the contract will be considered concluded.