money merge accounts --- scam perhaps??? (foreclosure, financial advice, reputation, lender)

[toddjlyons]

I don't think we'll hear from buyer beware! What I have noticed here in the Denver area is the feuds between MMA, CMG, and MacQu. They will enter into forums, discussions, radio shows, etc. touting their product and saying the other guy is selling a scam. I think they are all fairly good products but their bullying sales tactics remind me of MLM or time share sales in Mexico!
Anyway, my wife and I went with the MMA. We went to them, they didn't come to us. March 1st is the start date. We are "trained" and our accounts are set up. Like I promised several pages ago I will start a blog with our results here shortly. We have studied these things so much that I could probably sell these babies all day long! I know that I have asked questions of all of the programs that they could not answer so I had to do the footwork to satisfy myself. This is just a little disconcerning because I'm sure I wasn't the first one to ask. So here we go! I probably not post anymore here except to link my blog. Cheers! Todd in Colorado

[GetABrain]

What these clowns are selling is a $3,500.00 login to a website that shows you how to re-arrange your cash flow's to help you pay less interest to the banks.

Yes you need a HELOC to do it. If you already have one you sure DO NOT need to spend $3,500 friggin bucks for their info.

You can buy even better "REAL SOFTWARE" at [url=http://www.slateboard.com]Amortization Schedules & Tables Software - Loan Payment Schedule and Calculator - Slateboard Software[/url]

They are in Canada and I have there product it's way better then the $3,500.00 CRAP PERIOD

[JimmyDaGeek]

You don't need a HELOC or MMA or spreadsheet to pay off your mortgage. All you need is discretionary income applied monthly to your mortgage. When combined with its $3500 fee and its wasteful way of using HELOC interest cancellation, MMA costs more than simply doing it yourself. Claiming that the program is 20% more efficient than the analysis is bogus. Here is a link to MMA's overview: u1stFinancial.com (broken link) and here is a link to my spreadsheet showing how doing it yourself beats MMA by over $3600, before you add in MMA's $3500 fee.: Google Docs - mma_payoff_example The green table is do-it-yourself and the blue table is MMA with the HELOC. If you absolutely, positively believe that moving money in and out of the HELOC is the best way to use the "bank's money" and "leverage" your interest, than do it the correct way. Make a ONE-TIME INTEREST-ONLY loan from your HELOC equal to your take-home pay and put that toward your mortgage. Run all your income and expenses through the HELOC. Meanwhile, use your discretionary income to pay down your mortgage each month. If you need extra cash, simply borrow it from the HELOC and pay that down to your take-home pay level, before continuing to pay down your mortgage. This is the simplest and most effective way to take advantage of the HELOC.

[mistermgd]

No matter how you slice it, this is a scam. But not just that, in most cases, prepaying principal on a mortgage is a tremedous waste of money. Nobody here has shown that they understand this and why, so please read my letter to David Lazarus in response to his April 9th article on United First Financial's accelrated pre-payment program. FYI, I am a very knowledgeable, ethical mortgage planner of 11 years experience:

Hello Mr. Lazarus,

A friend of mine from the mortgage industry told me about your April 9th article on accelerated mortgages and United First Financial (UFF), and my initial reaction was that I was thrilled. My background is that I am an active mortgage planner of 11 years experience. Obviously, times are lean in my industry, and this looked like a great new sales opportunity when I first heard about it.

I read the article. The pre-payment method didn't seem to make sense, with what I know about conventional mortgage amortization, so I went to UFF's website for more information. Sure enough, UFF is misleading its prospective customers and sales agents. Presuming that we will continue to live in an inflationary economy (a pretty good bet, I would say), this program is a financial disaster and a sham as well.

To edify, conventional fixed-rate mortgages will not automatically re-amortize (re-cast) a loan payment schedule after pre-payments of principal are made unless the borrower requests the loan servicer to do so. A requested re-amortization is costly, typically $300-$750 for each time. Why does it matter? Without re-amortization of the payment schedule, pre-paying principal on these loans is akin to sticking the pre-paid monies into a hole in the ground and letting them depreciate until you have enough cash to pay off your remaining mortgage balance. In effect, the borrower is giving an interest-free loan to the mortgage servicer. This also holds true with another scam perpetrated by mortgage servicers - the "bi-monthly" (sic) mortgage payment plans. (Warn your readers that it is never prudent to pre-pay principal without re-amortization, no matter what they have heard and who has told them so!)

For instance, if you were to borrow $300,000 on a 30-year-fixed mortgage at 6.375%, the first interest payment would be approximately $1,594.00. The second scheduled interest payment may be approximately $1585.00 ( I didn't bother to run a schedule, but it should be close enough to make my point, you will see). So imagine that a rich uncle you didn't know you had dies and leaves you $100,000, and you pay all of it on the first payment for principal along with your regularly scheduled payment. However, you didn't have the loan servicer re-amortize the loan. You might expect your second interest payment to drop to roughly $1055.00, presuming you would now be paying interest on approximately $200,000. You would be wrong. Your second scheduled interest payment would still be based on the $300,000, minus the little principal paid on the first payment, as it is on the original amortization schedule. If you fail to re-cast the amortization schedule with the lender, you will indeed pay off your loan prematurely, because the balance will have been reduced. But the pre-paid money will depreciate. That money is not applied to the loan until the loan is fully paid. You will have lost many tens of thousands of dollars to inflation.

Now imagine if that $100,000 were conservatively invested, maybe in money market funds, bonds or CDs. You will probably still lose some money to inflation, but it will grow, and when it has grown enough to pay off the balance, that time would come much sooner than with the afformentioned one-time pre-payment without
re-amortization.

Of course, re-casting the amortization would be fine. But with the plan UFF proposes, it would be impractical, too costly, and many or most loan servicers only allow it once on a loan. UFF is selling borrowers a formula for significant financial loss, and they want the consumers to pay them a few thousand dollars for this formula.

There are exceptions, thus UFF can make some of their claims legally in a literal way, though not in an ethical way. Any loans that regularly and automatically
re-amortize, such at home equity lines of credit themselves, negative amortization loans, monthly adjustable rate loans, and the like, would remedy the amortization problem but would introduce a new problem of rate instability. The program would work with a simple interest loan, but just try to find a simple interest mortgage loan.

With times so tight in the industry, it's no surprise that snakeoil salespeople will play to an industry with many snakeoil salespeople - the mortgage industry - who are desperate for new sources of income from a new "miracle" product. And it's no surprise that they will mislead consumers this way. I hope you can help nip this kind of chicanary in the bud with a follow-up article explaining the re-amortization problem. I would like the industry restored to a more esteemed postion. I don't want to see another public relations blow-up a few years down the road, this time about "accelerated mortgages".

Feel free to call me for more information. Beware of who you ask for further explantion. Many people in the undustry are not even aware of how amortization works. I have had wholesale lender sales representatives lie to me about this, then admit the lie when I argued the point. Virtually all financial news media people get this wrong, as well.

[sean98125]

I just ran the calculations. If you borrow $300,000 at 6.375% on a fixed rate loan, you'll pay $374,132 in interest if you don't pre-pay any of your principal.

If you make a one-time payment of $100,000 the month after you take out the loan, you'll reduce the total interest paid to $97,506 and the house will be paid off in a little more than 13 years. That's a savings of $276,626. That is a effective return of $176,626 over 13 years, which is the same return you'd get if you'd invested the money at about 8% return per year.

That's not a bad investment, especially since it also increases the equity in your home.

[mistermgd]

Originally Posted by sean98125

I just ran the calculations. If you borrow $300,000 at 6.375% on a fixed rate loan, you'll pay $374,132 in interest if you don't pre-pay any of your principal.

If you make a one-time payment of $100,000 the month after you take out the loan, you'll reduce the total interest paid to $97,506 and the house will be paid off in a little more than 13 years. That's a savings of $276,626. That is a effective return of $176,626 over 13 years, which is the same return you'd get if you'd invested the money at about 8% return per year.

That's not a bad investment, especially since it also increases the equity in your home.

Sean,

You are presuming that the loan servicer and the loan note are drawn up to automatically re-cast the breakdown of interest vs. principal payments. After making my entry above, I double-checked with my own lender if they recacluate the payment of interest after pre-payment of principal. They do - but on that type of loan. On other types of loan they service, "such as our adujstable rate mortgages and our Reg B loans, we would not re-calculate the interest payments."

In additon, my loan servicer confirmed with me that "different notes are drawn up differently, depending on how the loan was originated. Other 30-year-fixed notes with other lenders/loan servicers will not automatically adjust the interest payment." This confirms what I wrote above, and what I had already heard, know and seen before. Your calculation presumes too much. Online mortgage caclulators don't know the difference, so your calcualtions don't paint the whole, true picture.

But even if you have one of the loans that automaticaly recalculates the interest, did you allow for the $3500 investment that this company wants? That money should be added onto the balance, with interest over the life of the loan, as if it didn't get paid off until the end. Or you could calculate the loss of potential investment return had the money been invested. In other words, it is not just simply $3500. It is $3500 plus the loss of investment gain, or the loss of the interest you will pay on that money used. The time + depreciation of the money used has to be accounted. Your mortgage caculator doesn't do that.

What's more, unless you don't pay income taxes, you are forgetting that you would have gotten a huge chunk of that "interest saved" back on your tax return. By paying off the mortgage earlier, you are not saving all of that interest, just some of it. Again, your calculation does not account for this.

In the meantime, instead of pre-paying the mortgage, you could have invested the money in a S&P index fund that has a minimum guanranteed yield of 1%, but can yield as high as the index fund does that fiscal year, minus three points. You never lose dollar value (of course, you can lose to inflation, but that can happen with many investments), but if the S&P finishes up 25%, you get 22%. If it finishes up 15%, you get 12%. If it finsihes down 11%, you still get 1%. And just like with whole life insurance, you avoid capital gains tax by making loans to yourself from the fund that you never have to pay back. This type of investment, among many others, far outgains in growth what net interest savings you would experience by prepaying principal.

Lastly, equity means nothing if you can't use it. I had $80,000 in equity just three years ago, but because my house is a fixer up (the way I bought it, and it has been a long haul, with more to do), it would have been very challenging to sell the house then. Buyers would have loved it, but lenders would have rejected it on inspection. Now I only have about $40,000 in equity, because of the drop in the market. And because my income and property values have dropped drastically, could I get at that equity with a loan today? Not in my case. Not in the case for many people. The very people who need to tap that equity most, in an emergency, cannot get at it because they no longer qualify for a loan to access the equity. This is very widespread reality right now, since values have dropped, incomes have dropped, and credit has tightened in a way that many lenders and homeowners have never seen before. For instance, uder the new guidelines, it would be impossible for most Schedule C income earners to get a loan today, because most of them don't show a profit or much of a profit on their returns. Without the income showing, the lenders won't touch the loan. This was not the case just 18 months ago, and for many, many years before. So wouldn't it be preferable to have the liquid investment instead of the equity? I think so.

Bottom line - a home is a bad financial investment. I never wanted one, I was pushed into by a spouse. I had saved $47,000 in 30 months before buying this house. I haven't saved a dime since then, and that $47,000 went into maintaining and restoring the house over the years. Every downside I presented to that spouse then has now come to fruition, both in my personal case in in the real estate market in general.

I saw all of this calamity coming way back in 2004/2005, and nobody believed me. It's going to get a lot worse when the new appraisal law kicks in on the first of the year. I think we will see a value collaspe that has never been seen before, caused by this poorly devised new law. Having equity today won't matter. Houses just won't sell, and values will plummet, meaning lenders won't lend, except for in relatively rare cases. (We are already seeing it today. My Gold Club, super duper R/E agent hasn't closed on a sale in over four months. What good is equity to the sellers she has listed?) Liquid assests will rule then, as they do now. Prepaying the mortgage will only put many or even most people in a much worse situation, in this new predator investment economic environment the great G.W. Bush has brought us into. (Isn't that what Republican presidents have always tried to do over the past 100 years? But this guy has out-done them all.)

However, I agree that a home can be a good emotional investment. If that's the way you want to raise a family, it could be worth the financial risk. But right now I am aware that a number of my A-paper, rock-solid clients with families have lost their homes. These were professional people with strong incomes, equity and solid credit. One couple had a 5.25% 30-year-fixed-rate that I got them and they lost their house, as far as I can tell. (They both lost their jobs, wanted a new loan from me, and now their home phone line is disconnected.) They had the equity, but couldn't qualify for a home-saving loan. So much for their equity. If they had some liquid assets saved, they could have continued to pay their mortgage until they both got back on their feet.

To repeat, prepaying a mortgage? Foolish, no matter how you argue it. Heck, the lenders would just lovvvvvvvvvvvve to have that 5.25% money back, with real inflation probably well into the double digits. It's why bonds are doing so poorly. And that's why Citibank Home Equity recently froze all of their active home equity loans on their borrowers. Those borrowers can no longer draw on those lines.

Paying 5.25% on a loan when the dollar has lost more than a third of it's value in the past few years is just plain idiotic. A homeowner with a loan is much better served by finding good, varied, sound investments and dropping their extra money into them, not their loan.

[sean98125]

The folks who lost their house would have been in a lot better shape if their house was paid for.

If that professional couple had managed their finances more responsibly, they would probably have kept their home. But they probably were spending $1000 a month in car payments, car insurance and fuel. They probably had high-speed internet, cell phones, and a $250 a month Starbucks habit. And they probably bought a house that was too expensive for their income level. If they had a good income, there's no reason that they shouldn't have had money in the bank unless they had already spent their future earnings through credit cards and car loans.

Obviously, you don't make prepayments on your mortgage until you have your emergency fund in the bank and your other debts paid off.

[mistermgd]

Originally Posted by sean98125

The folks who lost their house would have been in a lot better shape if their house was paid for.

If that professional couple had managed their finances more responsibly, they would probably have kept their home. But they probably were spending $1000 a month in car payments, car insurance and fuel. They probably had high-speed internet, cell phones, and a $250 a month Starbucks habit. And they probably bought a house that was too expensive for their income level. If they had a good income, there's no reason that they shouldn't have had money in the bank unless they had already spent their future earnings through credit cards and car loans.

Obviously, you don't make prepayments on your mortgage until you have your emergency fund in the bank and your other debts paid off.

Sean,

You make so many suppostions about the couple that I knew for years. Let me make this perfectly clear for you:

A) They could not have paid off their house that soon.

B) He sustained a serious back injury on the job through the negligence of his employer, and when he filed his injury claim, his employer fired him in an attempt to not pay for the injury caused by the negligence. It may be years before he can again work, and years before he sees a dime from a lawsuit, if he wins. She was laid off. Even if they had no mortgage payment, they still would have had taxes and insurance to pay, as well as living expenses. With my advice, they would have kept their home longer and maybe rode out the storm. With your advice, they would liquid cash to last perhaps months.

As for their dept-to-income ratio, it was somewhere in the mid-30 percent range. Hardly stretching, compared to most homeowners and the realities of the Chicagoland housing market, whether you own or rent. I would presume they had cell phones, since most people are using them, and for many they are a necessity for work (like me). I don't recall them having any major budget issues, nor comsumer debt aside from car payments. I do not recall how much they had in their emergency fund. What do you suggest? How many months? How invested?

When I last talked to him, he had been out of work for six months and he was then only getting by on his HELOC. With my method, he would always have more money with which to ride out the storm, compared to your method. With your method, he runs out of liguid money much, much sooner, because he has much, much less liquid money. Even if he no longer has the mortgage under your secenrio, he still has other bills, but no money. But with my scenerio he has the full $100,000, plus all of the money he gained on the investment, plus the same emergency money you recommend he should squirrel away. I was recommending my family and friends buy gold when it was in in the $260/oz range several years ago, and buy oil stocks, too. Recently I recommended people stop buying gold for now when it got near $1100, about three months ago. If this guy had listened to me (if I had offered the advice to him - I didn't because I am not so licensed) he would have almost quadrupled his money in just five years. He would have over $400,000 liquid, minus any capital gains taxes he pays as he sells off the gold, which is only 15% right now, plus he would have the emergency fund you recommend. With my method, he would be able to pay off his mortgage in full and buy a second house at a low price in a buyers' market and rent it out for a steady income stream to the people that followed your advice and had to sell their home or lost it to foreclosure. How in any world can you rationalize that your method is better? You can't because it isn't.

Those people that had more equity because they followed your advice and lost their home? A lot of the equity was wasted to penalties, lawyers fees, and the cut-rate auction price on their home, and they were not liquid enough to survive them because they pre-paid on the principal.

What about my tax implications of which I wrote? And you completely ignored the fact that many mortgages don't amortize the way you think or your mortgage caluculator calculates. You seem to have pleasantly skimmed over those inconvenient truths.

The only thing of which you've convinced me is that you don't know the first thing about financial planning or mortgage planning. But maybe I have you wrong. Please explain your extensive experience in the fields. And if you are in either of these fields - PLEASE GET OUT. Your ignorance of the fields is giving we experts in the field a bad name-by-association. I've already suffered a lot because of the abundance of hack mortgage planners with which I share my profession. Most of them couldn't pass the three-hour state exam their first two or three times trying (a fact), while I passed it with flying colors within 42 minutes. Some of these people had been working within my field for decades, but still couldn't pass after even three shots. Are you one of them?

ATTENTION FELLOW READERS, take Sean's advice and you are more likely to experience financial doom and waste your money.

[sean98125]

I'm not a mortgage professional, so I don't have a professional or financial interest in making sure that people keep their mortgages as long as possible. I'm just a home owner.

I don't have to worry about riding out the storm, because we are storm-proof. Foreclosure is impossible in my case because my home is paid for 100%. It took a number of years living like grad students, but now we have no debt and a combined income of $150K. Even if we have to face lay-offs and dire medical situations in the future, we're never going to find our home at risk. Never. It's taken care of and we are putting more than an entire year's escrow payment in investments and savings every month.

My method means that we're putting a third of our income toward retirement and savings every year. It means we'll never have to go into debt to buy a car or consumer goods ever again. It means that $200,000 that we otherwise would have paid in interest will now remain in our pockets instead of going to a mortgage company.

Did I lose money by not investing it instead of paying off my home? Maybe. But here's the thing - I'm not going to miss it. I'm not going to need a nest egg that is big enough to pay my mortgage and HELOC and car payments, because I'm not going to have any. Regardless of whether my home increases in value or decreases, it doesn't matter because even though I have 100% equity in it I'm not going to need that equity to make ends meet or to make repairs or improvements on my home.

I probably don't know the first thing about financial planning. But at this point, because my home is paid for, I don't need to worry about it all that much.

[EdatGenesis]

These so called "money merge" accounts are nothing more than a fresh coat of paint on the old worn out home equity line to reduce debt garbage

It works like this ...

The homeowner is sold a "miracle" software program for about $3500 bucks & then advised to suck up all their positive equity (HELOC) & use it to pay down the principle on their existing 1st mortgage (trouble ahead) they are then advised to use this new equity line as their "personal" checking account & refuel it by depositing all of their liquid assets (paychecks) into every month..That keeps the balance down on the equity line & then they can re use it to incur the same debt they did the previous month..

Are you following this bouncing ball still?

The $3500 "miracle" software program is used to track this trainwreck & allegedly keeps it all under control with it's "psychic" predictive powers ..Uh HUh...

Living in a perfect world, this system could work BUT we all know that unless you're meticulously detailed & almost obssessvie about monitoring your monthly expense's, this trains gonna derail soon & when it does, the homeowner's on a fast track to ruin ..

This systems been around forever & was created by the Bank of New Zealand..... the loser's (failed Amway, Tupperware, and Pre Paid legal salespeople) promote this as working in the UK for years, blah blah blah ..Like they know anything about banking rules & regs in the UK right?

The simple fact is we DO NOT live in the UK & American banking is very different & what works there, won't work under our rules

People selling this POS program ae in it for the money! A former colleague of mine got into this & chaed me for months trying to recruit me into his "downline" Oh yea, it works like an MLM .. One day I finally gave in & let him demonstrate the "magic" software...What a freakin JOKE! I saw better technology in a PacMan Game!

The software never accounted for the homeowner's initial $3500 investment & did not compensate for ever changing rates on the HELOC.. HELOC's are traditionally based on Fed prime + whatever & there's no way in hell a software program can predict changes in the fed prime!

I kept challenging the math during this demonstration & my colleague's "conditioned" (almost cult like) was "you just don't get it" like I'm some kind of idiot .. I hold two degrees, was a math major & was a VP for one of America's largest lenders ..yea, I'm an idiot ..

No, I'm not the smartest guy in the World but this dressed up pig isn't exactly rocket science ...

All I can say to summarize is this, if you don't care about throwing clients under a financial bus & don't care about putting them in harms way just to turn a buck, go for it ..However, if you do have any type of integrity & professional ethic, run this "miracle" program through it's paces & I gurantee you'll quickly discover it's nothing more than a different shade of lipstick on the same old tired HELOC