Friday Financial Five – March 14th, 2014

Friday Financial Five – March 14th, 2014

Britain anticipates rapid interest rate increase

Britain’s economy has become the envy of the developed world, with anticipated growth of over 3 percent in the first half of 2014. The Governor of the Bank of England forecasts an increase to rates by as much as six times the current rate in the next three years. This increase would benefit savers, while also assuredly motivating homebuyers to purchase real estate sooner rather than later. Those holding variable rate loans will try to lock in a lower fixed rate. It’s an enviable state of affairs, but one that the U.S. can’t hope to replicate until growth expands and employment stabilizes.

Social Security options may be limited

Social Security’s viability rests on the government’s ability to properly manage inflows and outflows. The inflows are more or less predictable based on the workforce and wages, but the outflows can fluctuate depending on retirees’ choices of when to receive benefits. People, as they often do, will attempt to maximize income to the extent possible. With that in mind, part of the recent 2015 budget proposal intends to eliminate “aggressive Social Security claiming strategies”. It isn’t clear exactly what options are being targeted, but it stands to reason that higher income retirees and spousal benefits are under the microscope. This leads to another question as to what changes can be made with or without the approval of Congress.

Fannie and Freddie get hit hard

Congress did Fannie Mae and Freddie Mac stockholders no favors this week. Shares are off big following Tuesday’s announcement by the Senate Banking Committee that they intend to phase the mortgage lenders out. There is no timeline for the changes and a vote isn’t even expected this year. However, there is a firm commitment by Congress to remove government from the mortgage business as much as possible. The current proposal would create a Federal Mortgage Insurance Corp, an oversight body modeled after the FDIC.

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Higher deductibles a definite trend

The trend toward higher deductible health plans has been confirmed in a new study by Mercer LLC. Roughly 80 percent of companies have made a change to their health plan or are considering making a shift. This includes many that have concerns that “Cadillac Plans” may result in a hefty tax for what are considered overly generous benefits. Workers that have moved to higher deductible plans must keep an eye out for any co-pays after the deductible is met. This can lead to yearly out-of-pocket expenses much greater than the actual plan deductible.

Payday loan practices under CFPB scrutiny

The Consumer Financial Protection Bureau continues active involvement in the practice of “payday loans”. These loans involve borrowers taking out small loans against the promise of repayment when a future paycheck arrives. The loans have high interest rates and detractors fear the practice places low income borrowers in a never-ending cycle of debt. At the end of 2013, the CFPB recovered $14 million from Cash America International. Now, companies that use or sell internet data to connect lenders and borrowers are under the microscope. Expect some future settlements.

 

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].