Florida Mortgage Report

Flight Planning Your Retirement (Enroute)

In my previous post on the subject, Flight Planning Your Retirement (Pre-Flight), I discussed how airline pilot's prepare for their flights and how it relates to your own financial "preflight planning".  This post will discuss how pilot's constantly monitor their flight and adjust the plans enroute and how you should be doing the same with your finances.

Now that our airplane has taken off, we know we are far from over.  During the remainder of the flight, pilots must monitor the flight, weather, systems, and more and adjust the plan as necessary.  We hope the flight will be "boring", but we plan for the worst as we go along.  By constantly monitoring and adjusting the plan, we can minimize the effects of any changes.

Now that you have implemented your retirement plan (or any financial plan for that matter), you must also monitor it.  I don't mean every day, but regularly check and make sure you are on course.  The regularity depends on you, but it should be at least once per year and any time there is a "life event", such as new child, marriage, etc.  While you certainly don't want life to be boring, you also want to be prepared for life changing events.

As happens during airline flights on occasion, things do go wrong and we have to adjust our plan accordingly.  The issues are usually minor and don't involve much more than an altitude or speed change.  Sometimes things get more dramatic, which you have likely seen on TV or in the paper.  No matter what, preparation is still key and that means planning ahead for problems along the way.

As you go through life, your financial plan will change also.  Besides normal life events, chances are good that you will encounter some sort of financial crisis.  It may be minor, or it may hit you hard.  Again, planning for those types of events is a huge part of ensuring your financial success.  Hopefully, you will not see your house get destroyed by fire, tornadoes, or hurricanes, but what if it does?  Plan ahead, just in case.

Sometimes pilots have to divert and get the plane on the ground quickly to handle an emergency.  That does not mean it is the end of the flight, though you will likely have a change of airplanes and/or crew.  But once that is completed, your flight will likely continue to its destination.

You may encounter major problems in your financial picture along your journey as well, causing a divert of sorts.  It may require you to change your thinking, re-diversify your investments, or completely rework your plan altogether.  Just be ready to get together with your team and do what is necessary when a major problem hits, and remember that while you may have to delay arrival a bit, you will get their if you plan accordingly.

Now that we are well under way along our route, we have to begin preparations for our arrival.  Yes, more planning is involved, frankly it doesn't end until we have left the aircraft.  As we get closer to the airport, we are setting up for our landing and arrival at our destination.  The next post will cover your financial approach.

Robbing Peter to Pay Paul?

There are many things in life that catch my eye and this one scares me.  In a MSNBC article, it discusses the fact that more and more Americans are taking loans out against their 401(k)s and even stopping contributions.  The reasons for doing this are varied, but some are doing it just to keep up with their lifestyle instead of making necessary changes.  That is just scary.

Why would you want to sacrifice your future to live in the present?  Do you plan on dying early?  This is backwards thinking as any sacrifices should be done now, even if it means moving in a down market.

As home prices fall and banks tighten lending standards, more people are doing the same thing: raiding their retirement savings just to get by and spending their nest eggs to gas up SUVs, pay mortgages or put food on the table.

I purposefully underlined the gassing up SUVs comment as SUVs are a luxury and there are many cars out there that are just as well suited for your needs and have better gas mileage, but lack "status".  Chasing "status" will destroy your finances and I see that everyday in South Florida, where BMWs and Hummers account for a large portion of the automobiles.

Charlton and his wife used the retirement money and $7,000 from savings to pay down their credit card debt. They also cut monthly expenses by pawning a diamond ring and selling camera equipment he owed money on. And he's looking for someone to take over his $550 monthly payment on a gray BMW 335i he leased last April.

Need I say more?  Well, yes I do as he makes a very common thought process...

"I made the best decision I could," he said. "I keep hearing about bankrupting your future retirement. But I feel like it's far enough away that I'll be able to save up enough."

The time value of money went from working side by side with him to against him, though he does not realize it.  That is a common problem with Americans all across the country.  Focusing on paying down debts, especially mortgages, can be detrimental to your financial health overall.  Not setting up emergency funds and doing other financial planning is what leads to these problems to begin with. (check out my "Flight Planning Your Retirement Series")

There is also an important tax issue for those deciding to get a loan against their retirement account...

Consumers who tap their retirement accounts can take a loan from their 401(k) accounts worth up to $50,000, or 50 percent of the amount invested, whichever is less. There are no tax consequences for a loan in good standing. But if a borrower defaults, the loan is considered a withdrawal and subject to the same tax penalties.

Taking out a loan against your retirement account can have dire consequences.  Besides the tax issues above if you default, if you fail to contribute to your account for five years, you can expect nearly 20% less money available for retirement if you are 40 years old already.  That could easily spell financial disaster for you in the long run.

Flight Planning Your Retirement (Pre-Flight)

Flight planning and retirement planning are very similar in what it takes to achieve success.  Flying requires excellent planning, modifications to the plan enroute, a proper vehicle, and constant monitoring to ensure we reach our destination.  Retirement planning, will also require proper planning, proper vehicles, modifications to the plan along the way, and regular monitoring to ensure you reach your destination.  In fact, the only real differences are the time it takes and the fact one destination is a location and the other is a financial goal.

There is an old saying about the 3 most useless things in flying, which are:  runway behind you, altitude above you, and fuel left in the truck except when you are on fire.  While those rank high on the list, failure to plan is another, and proper planning will ensure the other 3 don't matter.  The same will hold true in your retirement planning.

Before a pilot even gets out to the airplane, he is already preparing his plan.  Keeping with the airline style flying, we will plan along with several other "team" members.  Our team includes dispatchers, load planners, air traffic controllers, and more.  Most of the time, our team members have the flight plan set up for us when we get to work and we likely agree with the plan to start with (we have a good team at American Airlines). 

When working your retirement plan, you will need a team also.  That team should include financial advisors, insurance agents, mortgage planners, tax advisors, and anyone else that can help you make your destination.  You will work together to develop your specific plan to get you started, ensuring everyone is working together to get you to your destination.

The next step for the pilot is to preflight the airplane and make sure it is ready for its flight.  "Walk-arounds" are down to make sure the vehicle doesn't have any exterior problems, while interior checks are performed as well.  If any issues are found, modifications to the plan are made to ensure safety, including switching aircraft if necessary. 

Your pre-flight retirement planning will cover types of investment vehicles that can help you attain your financial goals and which ones to use.  While flying requires only one vehicle, investments should be diversified for better chances of success.  This could include stocks, bonds, mutual funds, currency exchanges, options, real estate.  Then you can wrap those up into IRAs, 401(k)s, 1031 Exchanges, or other "vehicle" to get you there.  Choose your option wisely and minimize "overlap".

The remaining portion of a pilot's pre-flight is to ensure adequate fuel to get there, have an alternate (or two), and more to deal with problems that may arise enroute.  We also get a clearance for departing, get in position and go.  Thus, we have done the best we can to ensure a safe completion of that flight at our destination.

The final preparation of your retirement plan will be to bring it all together and implement it.  No investment ever pays off if you don't put any money into it, so get your plan together, make sure it looks good, and get it going.

Now, that we are on our way, the next part of the series will cover handling problems enroute and making adjustments along the way.

Is Home Equity Safe? (Originally Published in 2006)

(This is another article written back in 2006 when interest rates were higher, originally posted on my AR blog)

Would it be better to have $400,000 in Home Equity or $400,000 in a safe, conservative investment account? Many Florida and Gulf Coast homeowners no longer need to pause and think about it, they can easily answer that question now.

One of the least publicized lessons from hurricanes Katrina, Rita, and Wilma taught us concerns personal finance and the best way to own your home. Most Americans strive to pay down or pay off their mortgages. However, those that followed this advice were worst hit when the hurricanes arrived, including Senator Trent Lott.

Senator Lott was living the “American Dream” by owning his home outright. Like many Americans do, he considered it his retirement nest egg, which accounted for half his net worth. When hurricane Katrina completed its destruction, the Senator’s home, and his nest egg, were wiped out. He estimates he lost the $400,000 he built up in home equity, and he’s still fighting with the insurance company to pay claims so his loss doesn’t grow any higher. The reason is many insurers are balking at paying claims citing that the damages were the result of floods, not hurricane winds.

Senator Lott was not the only politician that was affected. The Mayor from Port Arthur, TX had his house burned down in the aftermath of hurricane Rita. His comment was “the sad thing is we just paid off our house.” Even when those affected by the storms do settle with the insurance companies, it will take a long time to rebuild or repair there homes and be in position to take out their equity.

As the victims of these hurricanes found out, home equity is not as safe as they originally thought. It can be wiped out completely in a short period of time. The Senator and Mayor would have been better off if they had separated their homes’ equity and placed it in a safe, conservative bank account prior to the storms. In fact, all homeowners are better suited to keep as little cash in their homes as possible, and instead allow their home’s equity to build up in a safe side investment account.

Those homeowners that had separated their home’s equity prior to the hurricanes were able to get back on their feet much quicker. The reason is they had cash available to them and were not dependent upon the insurance companies to decide whether their damage is covered. This is a good example of how cash is king and the ones with cash hold all the cards. In Senator Lott’s case, if he had the $400,000 in an investment account, he would have many more options and more leverage while dealing with the loss of his home. Instead, the insurance company is in control and he is dependent upon them to replace his cash.

With another busy hurricane season forecasted, will there be more disasters? How many people affected will have their homes paid off and lose their nest egg? How many will reposition their equity into a safe investment account and be prepared?

With mortgage rates being around 6.5% today (about 4.7% after tax savings), it’s relatively easy to realize a higher rate of return in a conservative investment account. In addition to increasing safety and liquidity, a higher rate of return can be achieved and allow your money to grow and compound also! For more information on strategic mortgage planning concepts, contact Robert D. Ashby, CMPS at (954) 432-3450 or visit www.solidrockmortgage.com. As Florida’s first Certified Mortgage Planning Specialist, he can verify if it makes sense which mortgage solution is best for a particular family to better protect their home equity, increase their liquidity, and build their wealth.

Stimulus Package Means Recession is Over

I am sure you have heard it, but the House has put together a bi-partisan plan to provide tax rebates to stimulate the economy.  That means the recession is over.  Or does it?

The details are basically this, you may receive a tax rebate check from $300 to $1,200 (what I have heard was the max) and that is supposed to get you to spend more money and keep the economy from tanking.  Yeah, that'll be enough to get me to buy that Hummer I always wanted.

Let me make a suggestion, which you can take or leave, but take the money and invest it instead, and I mean throw it into something that will have the potential for great returns, what have you got to lose?  Put the money at risk because you wouldn't have had it anyway.

You think I am nuts?  If you take this money and invest it and the market tanks more, you only lose that money and you continue your life as it ways before you ever received the check.  However, if you invest that money reap great returns, the money will multiply over time, becoming an even greater "stimulus" later.  Your chances are better now that the markets have been beat up for a while, so much so that virtually the only way for the markets to move is up.

So, if and when you get that check, fight the urge to spend it and go out and invest it instead.

Don’t Pay Off That Mortgage, It Could Be the Biggest Mistake!

(This is a repost of an article I wrote back in 2006, even before I started blogging)

Paying additional principal toward your mortgage, or even getting a bi-weekly mortgage program, could be detrimental to your financial health?

That’s right. In most cases, instead of paying extra principal, there may be a better way to pay that mortgage off and experience financial freedom faster. “The truth is, you may never want to pay off your mortgage,” says Robert D. Ashby, President of Solid Rock Mortgage Corporation.

Mr. Ashby continues, “Why? Your home’s equity is not a safe investment. Equity has no rate of return and has no liquidity. You cannot access your equity without qualifying for a mortgage of some kind, which requires you to pay fees, and borrow your equity on the banks’ terms, plus you must prove you can qualify.” This is especially true in cases of job loss or some other financial crisis.

Additionally, by taking the money normally put toward extra principal and investing them in other safe investment vehicles, families can increase their liquidity, and realistically be able to pay off their mortgages faster. Families may even want to take out a new loan or refinance their current loan to increase safety, liquidity, and rate of return.

The majority of Americans carry huge credit card balances with high interest rates and most do not have enough money in savings to tide them over in a financial emergency. For this reason, refinancing or taking out a new loan may be even more beneficial for them by increasing their cash flow, which can then be invested to create a college savings plan, vacation plan, or even increase their retirement plan.

There are several strategies for the homeowner to consider that can allow them to experience financial freedom sooner than trying to pay off their mortgage as quickly as possible. Obviously, these strategies will not be advisable to everyone, so seeking the guidance of a Certified Mortgage Planning Specialist to find out which strategy is the best is a wise decision.

For more information regarding these concepts, contact Robert D. Ashby, Certified Mortgage Planning Specialist, at (954) 432-3450 or visit www.solidrockmortgage.com.

Email Conversation With a Fellow Mortgage Broker Who Sells Money Merge Accounts...

This past November, I had an email conversation with a fellow mortgage broker from Florida that centered around how the Money Merge Accounts and CMG Homeownership Accelerator can be beneficial and that I am doing more harm than good with "general blanket statements like 'most likely not right for you.'"  He even claimed "you are missing the main point: The MMA/CMG systems focus is to PAY OFF THE MORTGAGE, not claim to have the best investment strategy".

Well, you can imagine how the conversation went, but here is a quick breakdown...

He continues to believe that I am missing the point and my running the numbers is doing a disservice to the consumer, commenting "WHAT I AM STANDING UP FOR I DO NOT SEE YOU DOING IS JUST THAT. WHICH IS THE GREATER GOOD FOR THE MAJORITY OF PEOPLE? DO YOU EVER PAUSE TO CONSIDER SOMEONE LOOKING ON THE INTERNET TO UNDERSTAND THE CMG OR MMA SYSTEM WILL NOT FOLLOW YOUR FINANCIAL ADVICE BUT SEE YOUR COMMENTS & DECIDE THESE SYSTEMS ARE FALLACIES OR SCAMS?"  Educating the public on how these works allows the consumer, not the salesman, to decide if these programs are in their best interest.  By presenting other options and a little education, how can that be not helpful to the vast majority of people.  I have no problem calling fallacies and scams by what they are?  I also want the consumer to know there are other options and those options are most likely more beneficial, both short and long term.

His belief is that I go solely based on a spreadsheet and not look at the client's overall picture, yet I have talked repeatedly about my unique process called MEDS™ which runs people through a process that ensures there mortgage matches their goals.  Sure spreadsheets are involved, but they are like every other financial plan, they predict or forecast the future and need to be updated regularly because that picture changes.

He also lumped separated the "average homeowner" from a "highly disciplined investor".  Why?  All it takes is a little education to bring the "average homeowner" an understanding of how money works and then they can make an educated decision on what is in their best interests, which is likely not the Money Merge Account or even CMG HOA.

I could go on and on with this, but I think you get the point.  The man did demonstrate that he tries to find the best solution for his clients.  A visit to his company website shows he has taken some material from my own and reworded it, interestingly enough.  Just check out his company's page and mine. 

So, if you think I am doing a disservice or would like to here what Rich has to say about your situation, check him out.  Also, if you think I am doing a disservice, let me know, but with client testimonials like this one from those I don't even get paid for helping, I would beg to differ.

Another Testimonial From a "Non-Client" Client

As I mentioned before, I started asking some of the families I am assisting outside of the state to provide a testimonial if they wouldn't mind.  The results have been spectacular as I continue to realize just how much of an impact my advice has been for those outside of the state whom I do not even get paid for my services, except for satisfaction of knowing I helped them.

These people sometimes have to wait several days for my advice as I have to prioritize clients which do pay me for my services, so their patience is appreciated by me and the testimonials show that the wait has been worth it for them.

Here is the latest testimonial I have received, this time from a family which desires to remain nameless and withhold the location, at least for now...

“After e-mailing Robert Ashby on several occasions and reading many, many of his postings and articles, it has become clear to me that he is first and foremost committed to helping people.  His strong sense of the mortgage industry as well as his keen pulse in other areas including investment options, retirement considerations, financial strategies, etc. is indicative of his enduring capacity as not only a multi-faceted mortgage professional, but a truly committed advisor.  Thanks for all your help Robert!”.

Once again, I was blown away by the impact I have had on this family.  All I can say is for those looking for advice on their situation, please contact me, especially if you are in Florida.  The more people I can help, the happier I am and I look forward to more and more of these types of testimonials.

Poole Does Have Something of Value to Say to Mortgage Brokers

I know I ripped on what Fed President Poole said today in his speech, but now I would like to look at the good he talked about.  That good advice can be found within what he addressed by this question:  How could better education and financial decision-making have helped people avoid these mistakes?

He broke the question down into three responses, those for borrowers, mortgage brokers and investors.  I am going to provide his statements which can be found here, followed by my own commentary.

Borrowers. Too many know too little about credit and what its costs and risks are. Starting with coursework on credit usage in elementary and middle schools and continuing with financial literacy and economics in high school would go a long way toward equipping borrowers with the information they need, or at least give them enough knowledge to ask the right questions about what they can afford and what lending terms mean.

While I agree with this statement, I lack faith in our school systems to provide a solid foundation in this area.  There is plenty of good information on the 'net when you spend a little time looking for it.  One of the best resources should be that of your mortgage professional when looking for a home loan, but that leaves the borrower on their own for other sources.  However, if you have a trusted mortgage professional you work with, they can help with other credit issues as well.

Mortgage brokers. Many have closed their doors and gone out of business through unsatisfactory lending. In the July realtor speech I mentioned earlier, I emphasized that a durable stream of profits in mortgage lending requires a continuing flow of capital from investors willing to buy the mortgages an originator wants to sell and securitize. Given the difficulty any mortgage broker faces in differentiating its own products, the best way to stand out and survive over the long term is to give outstanding service to mortgage shoppers. Turning outstanding service into future business prospects is precisely the role for reputation. A firm’s good name spread through word of mouth will pay the highest dividends over the long term. And going the extra mile by making certain that borrowers understand lending terms and are able to service those loans can cement that reputation and keep those doors open a long time.

Thank God many of these guys have left the business already and many more will likely leave this year.  That being said, not all that have left, and many that remain, still do business that screws up the borrower's financial strength.  Many that remain have just grabbed onto the latest "fad" to provide an added revenue stream at their clients' expense. I have underlined his best statements that all mortgage professionals should take to heart.

Investors. Here I want to look at individual investors, the ones you know so well. It may be true that many if not most such investors put their money heavily into mutual funds, reducing some of the risk of holding individual stocks and bonds. What would help them greatly, I believe, is a much better understanding of what their funds hold. Mutual funds are professionally managed, but the subprime fallout has hit the pros hard, too. In one example from our Federal Reserve District, two investors in two Regions Morgan Keegan mutual funds severely affected by subprime mortgage problems are suing over sharp declines in the values of their investments. As of Dec. 13, 2007, the Select Intermediate Bond Fund and the Select High Income Fund were down 47 and 56 percent, respectively. News media accounts tell of disastrous results being faced by other investors in similar types of securities. Would investors equipped with better knowledge have avoided such steep losses? More organizations should get behind efforts to improve investor knowledge.

Everyone falls into a category of investor, even if you are simply contributing to your company 401(k) or even just owning a home.  While investment professionals should be doing a better job of managing their funds, you as an individual should be watching what your fund is doing. 

I am willing to bet the vast majority (if not all) of you reading this do not know the top ten holdings in each of your mutual funds.  I am also willing to bet that those top ten holdings have a lot of "overlap" in them, meaning if one fund goes down, the other does as well.  While you may think spreading your money across a variety of funds, even fund strategies, equates to diversification, it doesn't.  Don't worry though, you are not alone as many financial professionals believe that same thing.

What about your real estate holdings?  What about even your own home?  Many financial professionals fail to take the truths of home equity into consideration and provide erroneous advice in this area as well, including advice in relation to your personal residence.  Studies have shown that financial professionals do not consider their clients' real estate holdings, especially not how the mortgage is working for them, as an integral part of their clients' financial plan.  That can lead to financial disaster.

You need to educate yourself, find a team of advisors you can trust (covering the spectrum), and develop your financial and investments plans to meet your financial goals and dreams.  Developing a team of like-minded individuals that understand the strategies and concepts will help you achieve financial freedom.

And for those in the business of real estate and financial planning, aligning yourself with those who truly understand the strategies and concepts will help you grow your business.  For the mortgage professionals, you better be up to speed on "mortgage planning" or you will become another statistic.  Understanding how money works, the strategies involved, and the essential concepts will be a requirement to survive as more and more home owners will be seeking that type of advice.

Providing Solutions is What's Best

I have been asked to put some real case studies up of client's I have worked  with in the past and provide examples of how mortgage planning differs from your typical mortgage broker.  Since I have had several requests to do so, I am going to start adding some of the cases every now and then to provide examples of how I come up with solutions for clients.  (Client identities will not be used).

These posts will begin next week, but I want to give you an idea of how I do business first since that background is needed to understand how their stories play out and help you understand how that solution is derived.  You will clearly see how focusing on "lowest rate" and/or "lowest fees" will lead to financial destruction.  You may even learn a thing or two you didn't realize about the time value of money and how your decisions today compound the consequences of your future.

How does a process with myself and other mortgage planners work?

I cannot tell you about everyone else, but here is a rundown of how I do it.  (I will be holding back some of the "ideas" as I am working to market the system to others as well, so all I can say is it is different.)  The whole process doesn't start with you completing an application (online 1003 or "quick app" form).  It starts very simply with you contacting me.

From there I schedule your first appointment to discuss your situation in greater detail and provide a questionnaire developed to help me truly understand what financial situation you are in and where you want to be in the future.  After you complete the questionnaire, the second appointment is made to rehash and confirm answers and ensure we are on "the same page". 

Then the education process begins, which occurs side by side with searches for best loan programs to match.  Here is where you, as a client, learn what a mortgage is, the whole process, pros and cons of various programs (those which will be possible solutions), understanding of financial concepts, etc. 

Once again, we schedule a time to discuss what you have learned and show possible solutions in a side by side comparison spanning the range of solutions.  We will review the pros and cons of each and mutually agree which program is in your best interests.  If you aren't completely satisfied and comfortable with a solution I show, you can always opt to fall back on what you want at anytime during the process, but then again, you will also understand the financial consequences of doing exactly that.

Throughout the process, how you answer questions and the process itself will help me determine your level of fiscal discipline and your ability to maintain the plan.  Of course, once you complete the loan process and start your mortgage plan, we will maintain contact to ensure you stay on that plan and annually review it to ensure the plan adapts as your financial goals and dreams change (marriage, children, etc.). 

Please keep in mind that sometimes the solution is to maintain the loan you are in, simply put.  Rest assured your interests supersede mine.  I will not recommend any solution that is not in your best interests and which we mutually agree to be so.

Keep in mind that the planning process works for everyone from the first time homeowner up to the real estate investor with multiple residential and/or commercial properties.  The program is adapted to your level of experience and financial understanding and combined with your specific situation, goals, dreams, etc.  In simpler terms, it is truly "custom fit" for you.

So, there you have a little background in how I differ from others.  I hope that helps you understand where I come from and how I develop solutions.  Now, take what you learned about how I do mortgages and keep them in mind as I show some solutions I have provided.  They will be posted sporadically, so don't forget to subscribe to the feed and check back regularly.