How Life Insurance Saved a Family & Their Home

In the “Money Mic” series, LearnVest hands over the podium to someone with an opinion on a financial topic.

According to a nationwide study conducted by LearnVest and Guardian, although 57 percent of respondents own life insurance, only 28 percent feel extremely confident in their understanding of life insurance — and 66 percent don’t have a good understanding of how to collect a life insurance payout.

Today, LearnVest Assistant Editor Alden Wicker shares a very personal story from her childhood, which drove home to her just how important it is for parents to have life insurance.

December 1989. My father gathered up his things in his New Jersey office and headed to the door, eager to get home to celebrate the holidays with our family. A co-worker stopped him to chat. “Walter, what do you want for Christmas?”

“Nothing at all. I have everything I’ve ever wanted. I’ve got my three girls.” In other words, my mother, my 9-year-old sister and 3-year-old me.

Up in the air

My father got his private pilot’s license in 1970 right after the Army. “He absolutely adored flying,” my mom tells me. “He didn’t want to do anything else in his free time, besides hanging out with you guys.” He bought a small, used, two-engine Piper airplane in 1988 for commuting back and forth to his two offices in New Jersey and North Carolina. He was a careful pilot and took attentive — almost obsessive — care of his plane.

But just a few weeks before that Christmas, he had an annual inspection, and the mechanic said he was missing a small part for detecting fire in the engine, but he would probably be fine until that part arrived.

My dad climbed in, taxied out to the runway, pushed the throttle forward and lifted into the sky.

The life we had

Life was good for my family in 1989. My father was the well-paid president of a marketing company and made extra income from his side consulting business. My mother stayed at home raising my sister and me. She hadn’t worked since 1980, when my sister was born.

Mom and Dad had just moved us to a tiny town in North Carolina to be closer to family. They bought some land, started building their dream home and convinced my grandparents to build a little home nearby. After looking at the dismal public schools, my parents enrolled my sister in private school and planned to do the same for me.

In short, they had a lot of financial obligations that depended on my father’s income. But they were solid financially, with an emergency fund of about two year’s take-home pay.

My mother set the budget, handled the mortgage paperwork on our new home and paid the bills. Around the time I was born, she took a look at my dad’s life insurance coverage through his job. Many basic policies from employers will pay only about $30,000 — not enough to support a family our size for very long.

So she set about calculating how much we would need if something were to happen, taking into account things like our mortgage and living expenses. She took out an additional term life policy to cover him, and a whole life policy for herself that was also meant to finance my sister’s and my college educations. (Here’s the difference between term life and whole life policies.)

She didn’t know at the time, but it would turn out to be the smartest financial decision she would ever make.

When bad things happen to happy families

My grandmother clearly remembers that day. On a step ladder at my grandparents’ house, my mother called to my grandfather, “Dad? Come quick. I feel like I’m going to faint.” My grandfather got her off the ladder, and she laid down for a few minutes.

My grandmother sees this as proof of my mother and father’s tight bond, because at almost that exact time in New Jersey, my father radioed the airport, saying his right engine was on fire. A few minutes later, he radioed again, saying the engine had broken off and he was in a downward spiral. Those were his last words. The official report listed the damage to the plane as “destroyed.”

My grandmother got the call from a friend of my father’s, when she was in our kitchen with me and my sister. She kept her cool (remarkable, since she considered my dad one of her best friends in the world), calling a relative to come and get me and my sister. Then she drove home to tell my mother.

I was barely 3 at the time, so I don’t remember much about this time. The only utterly sad thing I do remember is a vision of my mother sometime during the weeks after, draped over the steering wheel of her pickup truck, weeping.

The thing is, life went on, and I have many happy memories. I remember my mother asking me a few months later what color I wanted my new bedroom to be. (“Pink!”) I remember Mrs. Stamp’s private pre-school, where I learned about cocoons and how to spell “cat.” I remember walking, my hand in my sister’s, on the way to our grandparents’ house for a delicious Southern dinner of chicken and dumplings. I also remember my mother tapping numbers into her desk calculator, and the “chit chit chit” of it printing the results on ticker tape. She never looked at the numbers on the tape with panic or worry.

None of this would have been possible without life insurance.

If we didn’t have life insurance …

My mother was faced with a long list of sudden expenses: the funeral, lawyer fees for executing my dad’s estate, a mortgage, living expenses, private school and/or child care, and attempting to save for two college tuitions. If not for life insurance, she’d be doing all that with no income whatsoever, no job experience and savings that would only have lasted a few years.

It wouldn’t have been easy for her to get a job after nine years out of the workforce, especially in our tiny town. “I had no career to fall back on,” she says. “I would have had to go back to school.” She would have disappeared into the workforce and night school, and my sister would have been yanked from her school right after we lost our father.

We also wouldn’t have been able to finish the house, which would have meant an unsellable home with a giant mortgage. It would later take us three years to find a buyer for the finished home.

Life insurance answered all those questions. “It’s wrenching, but it’s a relatively simple process,” my mother says of making the life insurance claim. “You call up the insurance company; you tell them what happened. You fill out a form, and you send in a death certificate.” Then they send you a check. (Today, most life insurance companies actually refuse to insure people with non-commercial pilot licenses, presumably because of a rash of accidents.)

In our case, the life insurance paid off the mortgage and provided enough for my mother to continue to stay at home with us until I was in high school. It funded private school for my sister and me through eighth grade. Although we had only paid nine years of premiums, we received a giant influx of money that would sustain us until my mom reinvented herself as an interior designer when I was in high school and re-entered the workforce on her own terms.

Of course, life wasn’t the way it was before. The dinner parties went away, overseas vacations changed to a week at the beach once a year and dining out a trip to Bud’s BBQ. But I was happy. I never noticed anything was “wrong” until I realized in third grade that, hey, everyone else has a dad and I didn’t. But now, as a grown adult, I realize how incredibly lucky I’ve been to have the life and opportunities I did. Things could have been so much worse.

The advice my mom gives anyone who will listen

My mother has this advice for parents: “You have, have, have to get life insurance. Figure out what you can cut so you can afford it. It’s much more important to have life insurance than that extra dinner out.” Depending on your age and your health a 20-year term life insurance policy with $1 million in coverage can cost as little as $50 a month.

Read Life Insurance 101 to learn about the basics. Then, use this checklist to take out a policy yourself.

Hopefully, you’ll never need it. But as my family learned, bad things do happen. Life insurance couldn’t replace my dad, but it did replace the income we depended on, and kept my childhood relatively intact.

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This post originally appeared on LearnVest.com on Dec. 10 and was written by Alden WickerIt is republished here with permission from LearnVest.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

CitiMortgage to Launch Home Rental Program as Foreclosure Alternative

CitiMortgage announced the launch of the Home Rental Program, a program designed to provide an alternative to foreclosure and allow eligible borrowers to stay in their homes.

The Home Rental Program will be managed by Carrington Capital Management, LLC and Carrington Mortgage Services, LLC. CitiMortgage and Carrington developed the program as a pilot.

Under the program, the eligible borrower transfers ownership of the property to a vehicle established by Carrington Capital and its joint venture partner, Oaktree Capital Management, L.P. A lease will then be established for the property at a manageable monthly payment.

Lease payments will be determined by local market rates but are expected to be lower than the borrower’s mortgage obligation. Carrington will work with borrowers to establish a length for each lease.

The program will be tested in six of the hardest-hit markets to evaluate its effectiveness: Arizona, California, Texas, Florida, Nevada, and Georgia. Carrington will contact homeowners who meet eligibility requirements.

In order to be eligible for the program, candidates must: Occupy the property; owe more than their home is worth; be delinquent for 120 days; and be unable or ineligible to receive an affordable loan modification while still having the resources to make monthly rent payments. In addition, candidates must have a loan in the pilot portfolio serviced by Carrington.

To implement the program, CitiMortgage has transferred the ownership of loans in its portfolio through the sale of $158 million in mortgages to the Carrington/Oaktree partnership.

“We’re looking forward to working on this important initiative with CitiMortgage and our partner, Oaktree Capital Management,” said Bruce Rose, founder and CEO of Carrington. “Offering alternatives for borrowers looking to stay in their homes and simultaneously relieving their distress is core to the operating principles of our firm and will help substantially in the overall housing market recovery.”

RealtyTrac Names 10 Best Beach Towns to Buy Foreclosures RealtyTrac Names

Looking for a beach home? Perhaps not, but according to a report released by RealtyTrac, certain beach towns offer sizeable discounts that make vacation dream homes seem a little bit more accessible. Using home sales prices for distressed properties in the first quarter of 2012, the real estate database company ranked the top 10 beach towns to buy foreclosures in its June 2012 Foreclosure News Report.

The number one beach spot as ranked by RealtyTrac was Vero Beach, Florida. Here, the average sales price of distressed homes was $93,188, which is 45 percent below the average sales price of non-distressed homes. RealtyTrac data shows that more than 21 percent of all real estate sales in the Sebastian-Vero Beach metropolitan area were properties in some stage of foreclosure or bank-owned. Geographically, the town is located along the eastern part of the state and is 190 miles south of Jacksonville and 135 miles north of Miami.

The number two spot for beach town foreclosures was Corpus Christi, Texas, where distressed properties in the first quarter of 2012 averaged $78,851, a 44 percent discount. During the first quarter of 2012, 152 home sales were in some stage of foreclosure or bank owned in Corpus Christi. That number accounts for 11 percent of all real estate sales.

Naples-Marco Island, Florida ranked as the third best beach town. Homes are discounted about 40 percent below non-foreclosures, and on average, distressed homes sold for $156,148. The town also has a lot of vacancies. With 17,753 housing units, 42 percent, or 7,522, were vacant, according to 2010 Census Bureau data.

Santa Barbara, California took the number four spot. When averaging the price of the 537 foreclosure sales in the first quarter of 2012, homes sold for $274,077 on average which is a 38 percent discount. Census Bureau numbers reveal that in 2010, the city had 37,820 housing units, of which 35,449 were occupied and 21,665 of those occupied units housed renters.

Ranked at number five, Charleston, South Carolina averaged $159,065 for foreclosure sales in the first quarter of 2012, with 530 foreclosure-related sales during that time. Discounts in Charleston averaged 34 percent compared to non-foreclosures.

Hilton Head Island, South Carolina was number six on the list. In the first quarter of 2012, 159 foreclosure-related sales took place. The average sales price for foreclosure-related sales was $202,454, a 31 percent discount compared to non-distressed transactions. According to the 2010 Census Bureau numbers, there were 33,306 housing units on the island and about half of them were vacant.

Atlantic City, New Jersey ranked number seven and averaged $161,819 for foreclosure-related sales during the first quarter of 2012. With 114 distressed sales during that same period, such transactions accounted for about 13 percent of all real estate sales. The average discount was about 31 percent discount.

Honolulu, Hawaii came in at number eight and had 140 foreclosure sales in the first quarter of this year. That number represents about 6 percent of all real estate sales. Distressed properties sold at an average discount of 30 percent at $345,799 in Honolulu.

Barnstable, Massachusetts ranked number nine. On average, distressed homes were discounted 30 percent and sold at an average price of $237,405. In Barnstable, 151 foreclosure-related sales took place, which is about 7 percent of all sales in the first quarter of 2012.

Santa Cruz, California was number ten and has a high percentage of foreclosure-related sales. In the first quarter of 2012, 39 percent of all residential sales in the city, or 326 properties, were distressed. The average sales price for foreclosures was $355,604, a 28 percent discount. According to RealtyTrac, there are also more renters than owners in the city, with renters occupying 12,282 units and owners occupying 9,375 out of 23,316 total housing units total.

BofA to Offer Principal Reductions of More than $100K

Some Bank of America borrowers may be in for principal reductions in amounts exceeding $100,000, according to the latest developments in the settlement the bank and four other large servicers made with state and federal regulators.

Of the five servicers participating in the settlement, BofA is set to pay the largest portion of the total $25 billion settlement. The bank will pay $3.24 billion to the government and $8.58 billion to borrowers.

Of BofA’s total, $1 billion is part of a separate settlement regarding loan origination issues for Countrywide, which BofA acquired in 2008.

While the other four servicers in the national settlement are being required to diminish principal so underwater borrowers have loan-to-value ratios of 120 percent or less, BofA will be reducing principal for about 200,000 homeowners to fall in line with current market values.

For some deeply underwater borrowers, this may result in reductions of more than $100,000.

The expanded principal reductions may prevent BofA from paying $850 million in penalties, according to the Wall Street Journal.

Fitch Ratings responded to the news stating that the 200,000 principal reductions will be “neutral to negative for some RMBS bondholders and potentially beneficial for the bank.”

Fitch suggests the loans most likely to qualify for the extended principal reductions will be those originated between 2005 and 2007.

“Because the bank has already reserved for penalties, any reversals could help BAC’s income going forward,” Fitch stated. “While the agreement will help the bank reduce the amount of penalties it owes over time, the aggregate best case benefit is moderate from a financial perspective.”

Fannie and Freddie Set Timeline Requirements for Short Sales

Beginning June 15, real estate agents working with distressed homeowners whose loans are backed by Fannie Mae and Freddie Mac should expect to receive a decision on a short sale offer within 30-60 days.

The GSEs issued new guidelines Tuesday that fall under the Servicing Alignment Initiative rolled out last fall and aim to bring greater transparency to the short sale process and expedite decisions related to these pre-foreclosure sales.

Not only is a short sale an effective foreclosure alternative when home retention is no longer an option, but it keeps homes occupied and helps to maintain stable communities, according to the Federal Housing Finance Agency (FHFA).

Addressing real estate practitioners’ No. 1 complaint about short sales, FHFA directed Fannie Mae and Freddie Mac to establish a new uniform set of minimum response times that servicers must follow in order to facilitate more efficient short sale transactions.

The GSEs’ new short sale timelines require servicers to make a decision within 30 days of receiving either an offer on a property under the companies’ traditional short sale programs or a completed Borrower Response Package (BRP) requesting short sale consideration, whether it’s through the federal government’s Home Affordable Foreclosure Alternative (HAFA) program or a GSE program.

If more than 30 days are needed, servicers must provide the borrower with weekly status updates and come to a decision no later than 60 days from the date the BRP or offer was received.

According to the GSEs, this 30-day add-on will provide some leeway for servicers who may need more time to obtain a broker price opinion (BPO) or a private mortgage insurer’s approval for a short sale. All decisions must be made within 60 days.

In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.

The GSEs plan to use the new short sale timelines to evaluate servicer compliance with the Servicing Alignment Initiative.

Edward DeMarco, acting director of the FHFA, says the GSEs new borrower communication and timeline requirements for short sales “set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”

GSE servicers must comply with the new minimum communication time frames for all short sale evaluations conducted on or after June 15, 2012, although servicers are encouraged to begin implementing the new requirements sooner.

“I applaud Fannie and Freddie for finally coming out with real guidance with real world timelines for their servicers,” commented Anthony Lamacchia, broker/owner of McGeough Lamacchia Realty Inc., which specializes in short sales. “There is no question that this will help short sales and the market as a whole.”

Last year Freddie Mac completed 45,623 short sales, a 140 percent increase since 2009. Fannie Mae’s short sale completions shot up by 101 percent over the same period, totaling around 79,800 in 2011.