Florida Mortgage Report

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.)

Countrywide's Troubles Worsen, Is Bankruptcy Imminent?

Bankruptcy rumors are sinking Countrywide's stock and the love has again faded for CW.  Of course, Mozilo will come out today and say something about it, so you can expect another post presenting Mozilo's side soon.

As reported in the Sun-Sentinel, Countrywide has been ordered to provide documents and testimony to federal officials over allegations of false mortgage claims against bankrupt South Florida homeowners.  The company has until the end of the month to provide those documents and must submit to questioning under oath next month.

"As a general principle, if it is judicially determined that lenders are intentionally attempting to rip off their customers with false or fraudulent proofs of claim, that would have serious consequences for lenders," U.S. Bankruptcy Judge A Jay Cristol, who's presiding over a similar case in Miami, said Tuesday in an interview.

The stock fell drastically yesterday and trading was halted for about 10 minutes in the early afternoon.  Shares ended the day at $5.47 after hitting a 52-week new low of $5.05.  If you remember, I posted how it resembled ACA holdings back in November and where CW could be today (about 6 weeks later).

Whether or not Countrywide does end up filing for bankruptcy, CW is certainly facing serious issues in regards to litigation.  They have at least 2 cases in Florida and several others as part of a nationwide investigation.  Other states involved include Texas, Pennsylvania, and Arizona.

Call to Action by the NAMB

This is a little late, but I was overwhelmed yesterday (about 150 - 200 emails behind and needed to provide responses to them).  Anyhow, for those of you following the mortgage reform laws running through the Senate and the House, while the House's version past that was reasonable, the Senate's version is not.

So, below is what the National Association of Mortgage Brokers has asked its members to write to their Senators:

"To: All NAMB Members and National Briefing Participants

From:  Denise Leonard, NAMB Government Affairs Chair

RE:  Call to Action – “Home Ownership Preservation and Protection Act of 2007"

Thank you for participating in the national briefing today on Sen. Christopher Dodd’s (D-CT) proposed mortgage reform bill, S. 2452, the “Home Ownership Preservation and Protection Act of 2007.”  Please contact your Senator immediately and voice your opposition to the bill.

Phone Number to Senate:  202-224-3121. This is a general number that will connect you with an operator.  Ask the operator to be connected with your Senator. 

Web Address: Visit http://capwiz.com/namb/home/ and enter your state or zip code to find your Senator’s contact information. 

One of the most effective grassroots tools is a personal call from you to your Senator’s office that expresses your personal beliefs and or experiences related to the bill.  Below are very generic talking points for you to call your Senators office.  Please use them to develop your own more specific talking points regarding the bill. 

Senator Dodd proposed the mortgage reform bill, S. 2452.

1. I oppose this bill. 
2. It disadvantages small business.
3. It outlaws the way we get paid.
4. It forces us to send customers away from our business and down the street to the big banks.

It will make the housing depression worse – hurting rather than helping."

Once again, this is from the NAMB and does not necessarily reflect my own position entirely.  However, one point to be reiterated that the Senate's version opposes is that of YSP.  To read my take on it, read the following posts:

Is Yield Spread Premium Good or Bad for Consumers?
"Homeownership Preservation and Protection Act of 2007"

Fannie and Freddie to Go Jumbo? Is the Government Going Insane?

"Stop the insanity" is the first phrase that comes to mind after reading this headline.  Why?  Think about what is truly happening in the mortgage market and where all of this is headed.

Basically, the government is trying to overtake the mortgage market through endless regulation.  They feel they must do something or else and are succumbing to pressures to "bail out" a market that was in desperate need of a correction to bring itself back to reality.

But is "over-regulation" what we truly need?  Don't take me wrong here as I am all for added regulation which protects the consumer, but when the government steps in, they tend to overdo it.  Allowing Freddie and Fannie to go into the Jumbo market, even if only temporarily, is one case in many of how the government is throwing Band-Aids on the gaping wound.  Sure it stops the bleeding some, but basically just prolongs death.

Paulson and Bernanke are doing everything in their power to Band-Aid the mortgage market.  Bernanke and crew are cutting the Fed Funds Rate and Discount Rates even with inflation showing signs of growing and the economy slowing.  He is giving stagflation an "open door".  Both are looking for any changes they can make or get other parts of the government to make in order to "save homeowners from foreclosure." 

Who stands to win though?  The homeowner?  Not likely.

The real winners in this game they are playing are the lenders and other financial institutions that are struggling due to their risky lending practices or over leveraged positions on mortgage backed securities.  Citigroup, Wachovia, Bank of America, Washington Mutual, Countrywide, the list goes on and on.  All are shouldering huge losses and will likely continue to do so into 2008.  They "need" the government to do something.

The homeowner's facing foreclosure, for the most part, deserve to be foreclosed upon.  While the media and government play that the typical foreclosure is a subprime borrower facing increased mortgage costs due to their payment adjusting, that represents the minority, yes the minority of foreclosures out there.  Factor in that the government portrays the mortgage professional that sold them the loan as an unscrupulous one and reality shrinks even further from the truth.

Again, don't get me wrong.  There are unscrupulous originators and there are homeowners that truly should be helped somehow, but they are the smallest percentage of the pie. 

So, why is the government willing to screw up the entire industry over the few?  Well, because that is what they do.  They disguise "bail outs" as "homeowner salvation plans".  They usually go out of their way to appease the minority groups on an issue, while sacrificing the desires of the majority groups. (Note:  I am not talking about racial or ethnical issues here, so don't even go that route in any comments please).

"Homeownership Preservation and Protection Act of 2007"

I have been reviewing the proposed bill formulated by Senator Dodd and, once again, there are provisions that will screw the consumer more than protect them.

Please keep in mind that I am not against legislation that works in favor of the consumer, but provisions in both the House's "Mortgage Reform and Anti-Predatory Lending Act of 2007" and this bill will actually hurt the consumer by making it harder to obtain potentially the best loan solution for them.  Both bills do have some good provisions, but its the harmful ones, such as outright prohibiting Yield Spread Premiums (YSPs) from being used.

In the House's "Mortgage Reform and Anti-Predatory Lending Act of 2007", there was an amendment to allow YSP when used to pay for justifiable fees as part of paying for the closing costs associated with the loan.  The Senate's "Homeownership Preservation and Protection Act of 2007" does not allow for that on many beneficial types of loans.  There are similar limitations on other types of loans.

When it comes to the use of YSP in the Senate's version, it is prohibited on all subprime and "nontraditional loans".  Nontraditional loans include interest only loans, thereby minimizing the access to a proven beneficial program.  Strangely enough, for high cost loans, YSP is allowed so long as it is not used to "steer" borrowers into a high cost loan when they can qualify for a better loan.  (There may be a few times when these limits will actually force borrowers into the high cost loan).

The Senate version also adds the requirement to escrow for any subprime or nontraditional loan.  While for subprime this is a good thing, for interest only loans it is not.  Why?  Most homeowners who use the interest only loans are financially savvy and would be better off waiving escrows.  Another limitation that would hurt many homeowners.

Limitations on low and no documentation loans may be excessive.  In fact, it leaves the Federal Reserve in charge as to what is deemed appropriate and they will likely not allow much.  This puts severe strains on small business owners and commission based workers that need the stated income programs to qualify.

So, once again the government is going after implementing legislation that will ultimately harm the consumer.  Also, as I mentioned before, there are good provisions, even many aimed at limiting mortgage brokers from screwing their clients for money which I agree with.  The points I made here are targeting provisions that will do more harm than good for the American homeowner.

Money Merge Account/Mortgage Acceleration Warning

I am posting this warning inform readers that there are more and more "mortgage professionals" and "real estate professionals" grabbing on to these programs as they are the latest "fad". 

Struggling mortgage and real estate personnel are looking for all kinds of ways to survive and that is never good for the consumer as they will get sold on a product that may not truly be in their bests interests.  The question is whether or not we will be hearing about these agents being "unscrupulous" years from now, much like those selling the Option ARM are today.

Anytime a "professional" sells a product simply for financial gain without knowing and understanding ALL other options and which is truly best for the client, the client gets screwed.  I can see this happening, particularly with the way United First Financial's Money Merge Account is being sold and it makes me sick.

Now, not all of the agents are doing this, but I have yet to see any one of their agents show a side by side comparison of other equity management strategies, let alone demonstrate the full expertise needed to do so.  Everyone that approaches me, stating these products are much better than other strategies has demonstrated their lack of knowledge of how money works, especially as it relates to time value of money and liquidity.

Again, don't take my word for it, do your own research.  But keep in mind these presentations are designed to sell the product with "oohs and aahs".  In particular, the Money Merge Account is simply software and can do absolutely nothing if you don't use it or you do not have the other tools necessary, which will likely mean you have to obtain a new HELOC, even if you already have one.

Use caution when trying to decide if these products are the solution for you.  Mortgage acceleration programs can be beneficial, but he software is not what generates the savings, rather it is the use of discretionary income.  I continue to see a lot of deception as it relates to selling these products.  Even if the program you select seems like the best solution for you, remember that it may not be as there are a lot of other solutions out there.

As I stated at the beginning of this post, THIS IS A WARNING POST.  I am not trying to prevent you from getting this type of program, simply warn you to do plenty of research and be careful.  Without a side by side comparison as it relates specifically to your situation, you cannot be guaranteed you are getting the best solution!

Foreclosures Hit New Record...Well, Duh

"The rate of loans entering the foreclosure process during the third quarter, as well as the percent of loans in the foreclosure process during that time, were at the highest levels in the history of the Mortgage Bankers Association's quarterly delinquency survey, the group reported on Thursday."

That is how the article in MarketWatch started.  This comes as no surprise to most readers as I have mentioned that foreclosures were going to get worse.  I have also mentioned that it wouldn't be just a "subprime" thing.

Guess what.  It isn't.  The more interesting numbers hidden in the new release is that of the percentage of prime loans, you know those with credit not worth screwing up. 

"Adjustable-rate loans are performing "much, much worse than their fixed-rate counterparts," he said. Subprime ARMs accounted for 43.0% of all new foreclosures during the third quarter, even though they make up just 6.8% or all loans outstanding. Prime ARMs made up 18.7% of the foreclosures started, and make up 14.5% of all outstanding loans."

First off, if Subprime ARMs accounted for just 43% of all new foreclosures, what about the other 57%?  Since virtually all subprime loans are ARMs, that would leave the vast majority, if not all, as Prime loans!

Let's also look at the numbers and find another hidden gem.  Total ARMs, including Prime, represent a total of 61.7%.  That means that over 1/3 of all foreclosures, 38.3% in fact, are fixed rate mortgages!!!!

That is a far cry for the facts the media and the government have been portraying.  They are painting the picture of a homeowner being foreclosed on because they have bad credit and are in an adjustable rate mortgage that will reset beyond what they can afford.

As is typical, reality is different as we can clearly see, around half actually have (or had) good credit and nearly 40% are in fixed rate loans!!!

How to Determine Whether Your Loan Officer is Reputable

In slower markets, some loan officers may feel pressured to close deals that      aren’t in the homeowner’s best interest. In order to avoid getting into difficult and financially compromised positions with their mortgages, borrowers are well advised to be acutely aware of the signs of a responsible loan officer when selecting a mortgage professional.

First, look for a Mortgage Planner whose values are focused on helping individuals to achieve their financial goals in both the fastest and the safest way possible. A reputable Mortgage Planner will show you the numbers associated with the proposed loan and provide you with concrete information that backs up his or her claims. Review all of the numbers. If they don’t add up, ask for clarification. If your loan officer can’t or won’t answer your questions, move on--without the loan.

Secondly, a responsible Mortgage Planner will present you with financial information that goes beyond the point of the transaction, and will illustrate the total cost of the loan over time. If your loan officer is focusing only on rates and fees, you may be working with someone who’s looking out for his or her own best interests, not yours.

Responsible Mortgage Planners will also tailor their strategies to fit your unique situation. In other words, they always take your personal financial goals into account. No one should try to place you into a loan without knowing the intricacies of your personal financial situation.

Finally, if your loan officer is advising you on issues other than mortgages, you could be working with someone who is compromising your best interests. Issues like investment rates of return and real estate appreciation aren’t the areas of expertise for the vast majority of mortgage professionals and should be left to the professionals who have training and direct experience in those areas.

When seeking a loan officer, look for someone who specializes in mortgage planning, which is the process of evaluating a borrower’s unique financial situation and advising the borrower on a loan that best suits his or her individual needs and goals. If your loan officer is trying to put you into a loan without evaluating how that loan will effect your entire financial situation--including debt management, tax benefits, investment goals and net worth--it’s quite possible that you’re only getting half of the picture.

The bottom line is that your mortgage representative should always be looking out for your best interests, regardless of market conditions.

No Love to be Found at Countrywide (Except Mozilo's Love)

Countrywide's troubles continue and in my recent post talking about their stock tanking on liquidity concerns, I mentioned that Mozilo (or other lackey) would try to persuade people to believe their are no issues, which is exactly what happened.  Now, people are even taking up picketing outside Countrywide, at least in San Diego.

Now, I have to go against the picketers on this one though.  Why?  They are picketing to get Countrywide to stop foreclosing on people.  While some may have been deceived for real, as the picketers argued, many probably deserve what is coming to them.

Now, there are definitely issues at Countrywide, probably even some related to the "steering" accusations, but to demand CW to bailout basically everyone is ludicrous.  They asked that Countrywide, and others, extend the low introductory rates on their mortgages as if that will truly help.  The Governator had signed something similar this week.

Will "freezing" mortgage rates help?  According to Mish's Global Economic Analysis, the answering is no.  Here is a very truthful analysis taken from his sight:

"For starters the very best thing that could happen to most of those stuck in mortgages they cannot afford would be to lose their home. The American nightmare is not losing one's home but rather being a debt slave on one's house, owing more on it than it is worth for an eternity.

Where are all the affordable housing advocates anyway? The more foreclosures there are, the more affordable housing will become. Those who really want affordable housing should be cheering asset deflation."

The truth of the matter is that most of the homeowners facing foreclosure had no business buying those homes in the first place.  So, as I have said before, help the few deserving ones, but let the rest go through foreclosure so they can learn from their mistakes (hopefully) and move on. 

The entire mortgage and housing market needs the cycle to keep moving, not get stuck in a bureaucratic red tape parade that can only allows politicians to "steal lollipops while kissing babies" (line taken from a movie a while back).

HR3915 Passes House, Set to Go Quickly to Senate

Lawmakers voted 291-127 to approve new rules for borrowing standards, predatory lending and nationwide broker licensing.  As is typical, both parties offer opposing viewpoints.

Democrats argue that the bill would help stamp out abuses and preserve lending to people with weaker credit.

Some Republicans and the White House contend that the bill could wind up restricting credit and actually worsen the housing crunch.  Even the White House has concerns and issued this statement..."The administration has concerns with the bill as drafted because it includes provisions that unduly restrict access to credit for potential homebuyers and reduce refinancing opportunities for current homeowners."

As I obtain more details on the updated bill, I will add my own opinion.