Florida Mortgage Report

Tomorrow is the Last Day at This Domain

I still see many of you subscribing to this feed and/or commenting on this blog.  This post is a reminder that the Florida Mortgage Report will not be located at www.floridamortgagedaily.com after tomorrow.  I will be moving my Florida Mortgage Daily (mortgage market updates) blog to this domain March 1, or shortly thereafter.

That being said, this blog is currently hosted under Typepad, so the blog will remain here for nearly a year, though no comments will be accepted (stopped 2/15/08) and the blog will not be updated any longer.  To follow my writings, please jump over to www.flmortgagereport.com and while there, don't forget to subscribe to that feed to stay up to date.

This will ensure lively discussions continue on the "hot topics" such as Money Merge Accounts and other mortgage acceleration strategies, as well as current events.  All prior posts are over there already (and some new ones), so if you liked a post (or even linked to one), check out the same post (and link to it) over at the new location, www.flmortgagereport.com. 

There are two main reasons for the change that I mentioned before in case you are wondering.  Number one is the change to WordPress to add more flexibility and control.  Since I rely on feedback from you, you can have an effect on how the site looks and its functionality.  I want it to be a very user interactive site and WordPress allows that more easily.  Number two is that I wanted to match domain names to the blog titles.  It was rather awkward, as you can imagine, say the Florida Mortgage Report was at www.floridamortgagedaily.com then turning around and saying Florida Mortgage Daily didn't have its own domain.

So, once again, please go over and visit www.flmortgagereport.com and subscribe to its feed to continue staying up to date on the Florida Mortgage Report.  If you want to see mortgage market commentary, keep www.floridamortgagedaily.com bookmarked and return in March when I have that blog up and running on this domain.  You can also check out my contributions over at Lenderama and Agent Genius.

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.

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.

Money Merge Accounts: My Sincerest Apologies to Those With MMAs

I have some regret that I have to admit to about these programs.  I feel like I failed consumers by allowing them to be misled for far too long.  The truth of the matter is that I have done some more calculations, many of which I should have done back before I even posted my first blog about the subject way back in February 2007.  The bottom line is that I have now done those calculations and it is time to let the truth out.

Once again, I have simply taken the information from United First Financial's own presentation on their Money Merge Account™ program and run the numbers.  Then I ran them again because I couldn't fathom the results.  Being as skeptical as I am, I just couldn't believe the results, so I ran them more times and was absolutely astonished at the results.

Over and over again, the results came back with a very clear message:

"MONEY MERGE ACCOUNTS ARE A COMPLETE WASTE OF MONEY AND WILL ACTUALLY COST YOU MORE MONEY NOT SAVINGS"

That's right, and I am sure those UFF agents will want to argue this left and right in trying to defend this product (after all, they want your money), even saying that it's benefits found in the "sophisticated algorithms" go above and beyond the benefits related to the primary mortgage payoff, including that of being able to see the true cost of a purchase (cost plus interest over time, or cost of not investing elsewhere).  Try as they may, their own presentation shows its real value, $0.00, actually it costs you.

Here are the calculations once again and how it proves the Money Merge Account (MMA) actually prolongs the payoff and costs you basically its full price tag:

Mortgage:                    $200,000
Interest Rate:                         6%
Loan Type:               30-Yr Fixed
Discretionary Income:      $1,000

Quick recap:  The United 1st Financial presentation's claim is that the MMA program will pay this mortgage scenario off in 10.4 years and the program costs $3,500.

OK, here is where my calculations changed.  All I did was add the $3,500 price tag to the 2nd mortgage payment as extra principal, then simply added $1,000 extra principal (all the discretionary income) each month from the 2nd month going forward until payoff and guess what.  Well, since numbers don't lie, here are the results...

	UFF Presentation	$3,500 Extra Payment
Mortgage Payoff	10.4 years	9.92 Years
Investments @ 6%	$973,000	$1,023,307
Investments @ 8%	$1,231,000	$1,306,090
Investments @ 10%	$1,575,000	$1,685,967

Run the numbers for yourself, but the truth of the matter is this...MONEY MERGE ACCOUNTS WILL ACTUALLY COST YOU TIME AND MONEY!!!

The arguments that the sophisticated software will payoff over time don't hold water.

The arguments that the software can do a better job than you can on your own doesn't hold water either.

In fact, since you are making your mortgage payment every month already, all you have to do is adjust the payment amount on that check and that's it.  If you have recurring payments automatically, you never have to think of anything again.  YOU CANNOT GET ANY SIMPLER THAN THAT AND YOU WILL BEAT THE MMA according to their own presentation and facts presented.

So, tell your friends, family, anyone you come in contact with to prevent them from wasting their money on this expensive software.  They can do better.  You can do better.  Of course, I can help you employ strategies that create even more wealth, but this information will help you beat the mortgage acceleration programs.

So, again, please accept my sincerest apologies for not running these calculations and exposing these facts to all of you earlier.  I may not have saved everyone from buying these programs, but I may have helped a few people from being ripped off.

(Update for clarification due to some apparent confusion...1) The "2nd mortgage payment is the second payment on the primary mortgage, not a real 2nd mortgage.  2) I do not advocate simply throwing all of your money into your home like the comparison suggests.  Of course, if you have been reading my posts for any length of time, you would already know that.)

MMA (Money Merge Account): What is the True Cost of That $3,500 Price Tag?

I have had several inquiries about the "real" cost of the Money Merge Account software as it relates to the mortgage.  Of course, your real cost may vary as it is dependent on how much longer you have in the mortgage and what interest rate you are paying.

But, going to the same numbers used in United First Financial's own presentation, as I have done in my series on the MMA, here is a breakdown of it's cost over the course of the loan...

The question really is summarized as this:  "If I simply paid $3,500 extra toward principal, how much of a savings would I get?"

So, using a a primary mortgage of $200,000 and an interest rate of 6% in a 30-year fixed product, that $3,500, if used as an extra principal (in the second month) would result in a $16,560.18 savings and knock off 16 months from your mortgage.

Looking at it as a cost, that MMA program is actually costing you up to $16,560 dollars over time!  Now, will it truly cost that much?  No.  Why?  With the program you will not have the mortgage that long.

However, it does show that the cost of the software does take a bite out of the savings and adds to the timeframe of your mortgage payoff.  It also should be noted that with basic understanding of how the program works and cost of things over time, such as my Starbuck's coffee example, the software is a waste of money.  In fact, unless you need to be spoon fed, if you want to use a mortgage acceleration program, you are better off adding the $3,500 towards principal instead of the software.

(Update:  Further evidence the program is a waste of money...)

I decided that the above information was not satisfactory enough to thoroughly convince you that the Money Merge Account is a complete waste of money, so I ran some more numbers.  Of course, since I love playing with strategies and scenarios as I am a numbers guy, it was fun.

So, to give you a better understanding of the cost of the MMA program, let me return to the same assumptions made in my Money Merge Account/Mortgage Acceleration Series.  So, this will now be a Pseudo Part 2 1/2.

Taking the same assumptions from United First Financial's (UFF) own presentation, we will now simply compare the MMA payoff date with that of taking the $3,500 added to the principal instead of buying the MMA program, followed by sending in the $1,000 discretionary income each month and guess what.  That's right, not buying the software and simply sending in the money each month pays off the loan faster, in fact, you would be free and clear in 10 years versus the 10.4 years the MMA is showing as a payoff. 

As you can see now, the MMA program is costing you at least .4 years of your mortgage and that is without you utilizing a HELOC to add interest cancellation effects at all!!!

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.

Mortgage Conformity Can Cost You Bundles

I was reading Asch's Conformity Experiment (hat tip Yves Smith at Naked Capitalism) and realized a new perspective on why people still flock to pay off their mortgage, rather than learn the rules of money applicable today and seek new strategies.  The simple answer is "everyone else does it, so why should I be different".

I suggest you go read the article to fully understand what I am talking about, but I will summarize my thoughts here.

Asch's Conformity Experiment proved that people do not follow logic and reason when in groups.  So, when several people say an incorrect answer, even when the answer is obvious, others will answer incorrectly even when they know the correct answer to be correct.

Apply that to today's mortgage shopper.  The media, government, neighbors, family, you name it, all say get a 30 year fixed (or even a 15 year fixed) and stay away from ARMs, Interest Only, and especially Option ARMs.  You will also see masses (usually agents) pushing Money Merge Accounts and other mortgage acceleration programs since the "group logic" is that it is the fastest way to get out of debt, including your mortgage and is the best thing for you.

But why listen to them?  Do they know your specific situation?  Are they the real experts?  Can they analyze your situation, look at ALL strategies and truly determine what is in your best interests based on your overall financial goals and dreams?

Think about that for a while.  Are you falling prey to "group logic" even though the real answer is something else?  Well, in mortgages, as well as most other financial decisions, it will cost you dearly if you choose incorrectly.  The time value of money will work against you if you make the wrong decision, whereas it will work for you when you choose wisely.

Ever Read the "Fine Print" on Those Money Merge Account™ Programs?

In case you have never bothered to look at the disclaimer available on the UFF  agent's websites, here it is...(cut and pasted from this site)

Disclaimer: United First Financial, its independent agents and subsidiaries provide web-based software and support services.  United First Financial does not provide accounting, tax, legal, real-estate, mortgage, or investment advice.  Interested parties should seek and consult with persons or entities licensed and qualified in those areas for advice relating to those matters.  United First Financial is not liable or responsible for claims or representations made by any party and which are not included in the Money Merge Account™ Limited Guarantee.

Let's dissect this a bit to bring clarity...

1. The Money Merge Account is web-based software and nothing else.
2. They do not provide accounting, tax, real estate or even mortgage advice, nor investment advice.
3. They inform you that you should seek qualified professionals to obtain  advice in those areas (hence stating their agents are not necessarily the best ones to seek advice from).
4. They are not responsible for anything that is not included in their "limited" guarantee.

Now, I know that disclaimers are there for a reason, to cover their...well, you know.  But why would you go to a company, or their representatives, about a mortgage product when their own disclaimer says they do not provide mortgage advice?

I am sure there are some of their agents that can provide mortgage advice, but it should drive home the fact they are trying to sell you a product only.  Their agents tell you that it is the best product to pay off your mortgage (yet they don't give mortgage advice?)  Their agents are known as Certified Mortgage Payoff Specialists now, what a joke.  Why?  Almost always, their product is not the best solution.  I show that it my Money Merge Account series and various case studies I have done, some published to the web.

Yes, I do offer similar products as they do play a role for some, so it behooves me to keep them in my "arsenal".  However, I don't end up selling much at all once the client is educated on the what and whys of the other solutions I present to them. 

So, ask yourself who you should work with.  Should you go with an agent of a company that doesn't provide mortgage advice, or should you seek a fully qualified mortgage planner who can help you decide what is the best solution for your unique situation.  Keep in mind that a fully qualified professional will show side by side comparisons of the whole spectrum, not just one solution.