TODAY | April 18, 2012
AL ROKER reporting: Time now for TODAY'S MONEY 911. It's where we answer some of your biggest financial questions. We've got our panel of experts this morning including Jean Chatzky , the TODAY financial editor, and the author of "Money Rules." David Bach is the founder of finishrich.com and the author of "Debt Free For Life." And Farnoosh Torabi is a personal finance expert and host of "Financially Fit" on Yahoo! Good to see you guys.
Ms. JEAN CHATZKY: It's nice to see you.
Mr. DAVID BACH: Good morning.
Ms. FARNOOSH TORABI: Good morning.
ROKER: All righty. We're going to start off with Skype , we're going to say hello to Sallie . She's coming in from Prescott Valley , Arizona . Good morning, Sallie .
SALLIE: Good morning.
ROKER: Hi , what's your question?
SALLIE: I have a question about earning interest on my bank account because, of course, it doesn't earn any interest in the bank, and I wondered if tax liens on real estate is a good way to go.
ROKER: David , I don't even know what that means.
Mr. BACH: OK, so what's a tax lien ? First of all, a tax lien when you don't pay your taxes, guess what the government does? They come and slap a lien on your property. But the government doesn't want to wait for you to pay them so they auction those liens off to investors. Now, the truth, from what I've seen, most great tax liens are gobbled up by bigger investors, institutional investors . By the time someone smaller like you goes out and says I've got $5,000 and I want to buy a tax lien , often what you're getting is garbage. So the rates can be very, very low, and they're not liquid investment. So if you've got a small amount of money and that's what they told me in the green room, I think it was $5,000, I don't think you should be doing a tax lien . I think what you should be doing is putting that money candidly, somewhere very safe like a certificate of deposit. But you're right. The rates are very low. You're looking at 2 percent. I'll give you some other things that you could do. You can look at a short-term bond fund . I like PIMCO 's Low Duration bond fund . It's got short-term bonds in it. Not a high rate of return but it's a better rate of return than CDs . Or look at a couple other funds that I own. I own a preferred stock fund , the symbol is PFF . The dividend yield right now on PFF is about 7, about 6 1/2, 7 percent. I also like a high yield bond fund , the symbol's JMK . That's about 7 percent. But again, do your due diligence. Those are riskier funds but they're liquid. So you can buy them and also sell them.
ROKER: All right. Let's move on. Thank you so much , Sallie . Want to go to the phones now. We've got Carolyn from Winter Garden , Florida , calling in. Good morning, Carolyn .
CAROLYN: Good morning. Thank you for taking my question.
ROKER: Our pleasure. What's your question?
CAROLYN: My mortgage is upside down with a 6.75 percent rate. I have an A credit rating and never missed a mortgage payment. Wells Fargo is stating that I'm not eligible for the AG settlement refi due to investor code of WSALT 2007 PA2 . What exactly does this mean and what are my options?
ROKER: Carolyn , could you be a little more specific? No, only kidding!
Ms. TORABI: No, no.
ROKER: Farnoosh .
Ms. TORABI: Let me clarify for everybody, just for some background.
Ms. TORABI: The AG settlement refi, what that is, is a new $25 billion settlement program between the state attorneys general and five of the largest biggest banks in this country, including Wells Fargo , which is her bank. Now, what this letter is telling you, Carolyn , and I actually contacted Wells Fargo on your behalf and I've learned the following. In order to qualify for this particular settlement refi, one of the criteria, among many, is that your loan must not only be serviced by Wells Fargo but it has to have been originated from -- by Wells Fargo . Unfortunately her loan was originated by a separate third party private mortgage company.
Ms. TORABI: It's still owned by them. So with this new particular program you don't qualify, unfortunately. And a lot of people are in her shoes. About 10 percent of Wells Fargo 's loans are not theirs.
Ms. CHATZKY: Oh.
Ms. TORABI: They're owned by an outside third party. What you could do and this is what Wells Fargo has told me to tell you, and they're going to call you, by the way...
Ms. TORABI: ...is that you should stay in touch, because frankly, these rules could change.
Ms. TORABI: And the people that you talk to, the education, unfortunately, is kind of thin right now because the rules are changing, they're new. Stay in touch, talk about maybe an alternative program. Of course, this is the harder option you could take which is to pay down your debt so that you have some equity, so you can qualify for a traditional refi, which we know we need at least 20 percent equity. That's a harder thing to do, but stay in touch with Wells Fargo .
ROKER: OK. Thanks so much, Carolyn .
CAROLYN: OK, thank you so much .
ROKER: Good luck.
Ms. TORABI: Sure.
CAROLYN: Thank you.
ROKER: Now let's get -- try to get one more call in. This is from Alicia , from Mark Center , Ohio . Good morning, Alicia .
ALICIA: Good morning.
ROKER: Your question?
ALICIA: My question is, I inherited part of an IRA which put me in a higher tax bracket . I am 60 years old, and I thought if you cash an IRA in at 59 and a half, you don't have to pay taxes on it. Was my taxes done correctly since I inherited this and I was 60 years old?
ROKER: Jean .
Ms. CHATZKY: Yeah. So you're a little bit confused. If you're above age 59 and a half, you don't have to pay penalties. But you're still taxed on the money that you pull out. And because you already pulled the money out, you do have to pay the taxes. For everybody else who is inheriting an IRA , and it happens a lot, you can stretch the withdrawals over your life span . So...
ROKER: All right.
Ms. CHATZKY: ...that's a better way to not get hit with the taxes all at once.
ROKER: OK, thanks.
Mr. BACH: Seriously, a little bit confused, totally confused.
Ms. CHATZKY: So nice.
ROKER: But that's OK, Alicia , you got a little more cash and that's OK, too.
Ms. CHATZKY: There you go.
ALICIA: Yes, thank you.
ROKER: Jean Chatzky , David Bach and Farnoosh Torabi , thank you so much .
Ms. TORABI: You're welcome.
Mr. BACH: Thank you.