Friday, April 20, 2007

Underwater homes (not the fun, aquatic kind)

With adjustable-rate mortgages coming home to roost and the subsequent, entirely predictable and long-predicted collapse of the subprime lending market, the dark side of buying real estate is getting a public airing in the press. But there's not just the risk of taking on a mortgage bigger than you can afford -- there's the risk of being really locked in to the house you buy. In a culture that pushes homeownership as an almost essential step in building financial security, it's a risk that's not often highlighted.

The Washington Post has a piece today on "upside-down homes," where sellers end up owing the bank the difference between the mortgage they took on and the lower price they're able to sell for. The idea that housing prices can go down as well as up isn't a novel one, of course, but I admit that the reality of the consequences that can have didn't hit home for me until I read through a few of the article's examples:

Jeffrey Taylor and his wife bought their dream home in Purcellville for $538,000 last August. Now they have to sell it because they are getting divorced and neither one can afford the mortgage alone.

The most they could get for it was $430,000. After paying all the real estate commissions and taxes, they will still owe the bank $118,000.

When David & I (eventually) get serious about buying an apartment, our plan has always been to buy a place we can envision staying in essentially forever. We probably won't be leaving Brooklyn, and neither of us has any interest in getting a "starter apartment" and trying to flip upwards. But the article did prompt me to proceed with caution and be really damn sure we're both committed. The tales of people being forced by circumstances (usually divorce) to have no choice other than selling into a less-frenzied market than the one in which they bought -- and to actually end up owing money to sell a house -- are pretty scary.

Wednesday, April 11, 2007

Account creep

I think I have a relatively straightforward financial life: no investment accounts, no real estate, just the basics. But eeek. I sat down today to update my bookmarks for my financial sites .... and the total is impressive. A checking account, a 401k, two credit cards, my student loan account, my HSA, and, now, my sharesaver thing. Plus the site I use to manage my pretax monthly subway card purchase funds. That's not counting sites for the other credit card which I never use, my closed 401k (I rolled it over to my new one last year), my closed FSA, my PayPal account, or on which I pay recurring bills, like Verizon's.

This space seems to be screaming out for a mashup -- something that will let you access all your accounts from one interface. But, alas, security restrictions mean no financial services company is exactly rushing to open APIs and let developers plunge in. (Ok, I grudgingly concede that's sensible.) Still, it seems like there must be a more sensible way to keep tabs on the profusion of financial sites. How on earth did people manage years ago and not simply lose track of accounts?

Wednesday, April 04, 2007

Risk-free company stock options

I promise to post something relevant to people beyond me soon, but for today, I'm untangling an interesting stock plan my new (I've been here a year; I'm sure it will eventually stop feeling like my "new" job) company offers: Sharesave. This appears to be a UK thing, which makes sense because somewhere up the food chain my company is actually British. (It's such a typical modern-conglomeration thing ... my magazine is published by a Long Island-based tech publishing company that I think has been sold fortybazillion times, and is currently owned by an even bigger publishing company. In London.)

Anyway, the way this scheme works is: I nominate an after-tax amount to be pulled each month out of my paychecks. I pick a contract term, either three years or five. During that time, my nominated amount is pulled from my paychecks each month and put into a savings account. At the end of the contract term, I have the option to convert my savings to company shares, purchased at a discounted rate fixed at the start of the contract. For the contract term opening now, the fixed price is $12.55, a 20 percent discount to the company's trading share price on the official offer date. (I would mention what the actual share price is today, but I honestly can't figure it out. Whatever currency it's being quoted in doesn't seem to be pounds. What on earth does the London Stock Exchange use?)

The neat thing about this is that it's zero-risk. If my company shares are underwater (meaning that at the end of the contract in three years, they're trading below my $12.55 option price), I'm not obligated to roll my savings into stock. I get it back, plus interest. So, I get to take advantage of the upside if the share price rises, but I'm not gambling my savings if it doesn't.

Which pleases me greatly. My company seems to be a nice healthy company, but I've seen the Enron documentary a few too many times to be willing to sink my savings, or my 401k, or basically any actual cash money, into company stock.

I'm tossing about $100 a month into the Sharesave jackpot. It'll be the first formal savings thing I've set up outside my 401k -- overdue, I know. Check back in June 2010 to see if it's made me rich ...