Florida Loan Advocate

The Asher Institute Report: Fact, Fiction, or Distorted Reality?

Many of you may have heard about the report titled “Profiting from the Banking Industry’s Biggest Secret” released by the Asher Institute for Consumers. If you have, hopefully you saw through some of the so-called facts portrayed in this report and did not succumb to its fallacies.

This report provides an ingenious mix of both fact and fiction to ultimately sell a product. This report has been used by numerous Money Merge Account and other Mortgage Acceleration program agents as a way to get people to buy their products. While there is some truth to it, which we will get into, people who use this report should be avoided at all costs.

In our dissection of this report, let’s start with the correct statements. Basically, there is one basic premise that the whole report surrounds itself upon. That premise is that all mortgage payments are based on amortization tables which end up being “front-end interest loaded”. That is about the only true fact in this entire report. Beyond that, the report goes on to twist the fact and tries to get you to believe that a fixed rate mortgage is actually an adjustable rate mortgage.

As we said, the report takes fact and then distorts reality to produce false and/or misleading statements to lead readers (or prospective clients) into one conclusion; their product is the only solution to your problems. What is amazing is that the product is a beneficial tool for some people (not all mind you) but they feel the need to use this report as a way of providing credibility to their product, not the simple facts about their product(s).

So, now let’s look at their ludicrous claims that are very misleading. To compel readers to believe their statement, they formulated an equation and coined the term “effective rate”. The easiest explanation of this rate is to say that it is a comparison of the principal you pay versus the amount of interest you pay. Here is the formula…

PV = equity built in a given time period

N = number of years being analyzed

PMT = monthly payments (as a negative sum)

CPT, then I/Y (Compute, then interest/year) = Actual Interest Rate (“Effective Rate”)

So, what they go on to tell you is that a 6.0% loan kept for 25 years is really a 9.43% loan. The further this distortion by showing varying examples of loans paid off sooner showing “actual rates” as being as high as 580% for a loan that is paid off in 1 year. These are absolutely insane statements!!

While we agree that the difference in interest versus equity is heavily favored to the banks, the real issue, making false statements to sell a product should be met with major penalties and anyone using these types of statements should be avoided at all costs.

Let’s look at reality (not to defend banks, but to show the truth)…

We will use an interest only loan as a comparison and a $100,000 amount for simplicity sake. If you have the same interest rate of 6.0% in this case, the interest you would pay every year would be $6,000. Since that amount does not change annually, it proves that a fixed rate loan is truly a fixed rate loan. And to prove that their statements are false, try using their formula to compute the “effective rate”. It does not compute because you never paid any principal on the loan. So, according to their calculations, despite having a “fixed” amount of interest you pay annually, your “effective rate” is infinite regardless of when you pay it off, hardly a factual statement.

Again, mortgage acceleration products do have their benefits to some Americans, but distorting fact to dupe prospects into buying their products should be outlawed. If you are researching these products and anyone mentions the following, please run, don’t walk, run away immediately (or hang up the phone)…

“A 30-Year Fixed Rate loan is really an Adjustable rate loan” (or even worse, they add “and I can prove it”) or anytime they mention the Asher Institute’s report.

Using these types of statements means they are most likely trying to distort reality in order to sell you their particular product and they should be avoided.

Money Merge Accounts: Are They Really Worth It?

A UFF agent placed the following scenario of a client he was putting into a Money Merge Account on one of my blog posts.

The client had just closed on a $244,000 mortgage at 6.875% Fixed for 30 years, which creates a $1,602.91 monthly payment since it is fully amortizing. I wish I had talked with this client before he closed as I could have saved him thousands. The client makes $4,616 per month, of which $1,000 is said to be discretionary.

The UFF agent goes on to provide a fairly accurate representation of what the client could do on his own versus using an MMA or other mortgage acceleration product. That is, if the client simply added $1,000 per month to his mortgage payment as added principal, the mortgage would be paid off in 11.17 years (August 2018). He goes on to say that if the client uses the Money Merge Account the mortgage would be paid off in January 2017 instead, a full 1 year and 8 months earlier.

Where I disagree and the facts the UFF agent mentions in his client’s analysis are in regards to using equity management strategies to focus on investing money instead of paying off the mortgage. Some of the benefits of doing this strategy instead are increased safety, liquidity and even rate of return. Also, you would undoubtedly be able to receive greater than a 4% rate of return as used in his comparison. Additionally, he fails to factor in the benefits of tax deductions and their inclusion into the overall plan.

So, as is typical in the way these things are marketed, misinformation is used to show the only real solution is to use their Money Merge Account product, when in reality other options may in fact be better.

Here is the more accurate comparison, using simply 6% rate of return on the investments, an easily achievable return. If the client used a 30 Year Interest Only loan and simply invested the $1,000 plus $205 difference in payment (payment compared to fully amortized payment), then the mortgage COULD be paid off in the same time frame as if he sent in extra monthly payments. However, he would be better prepared to handle any emergency down the road because his money is easily available to him.

Now, if the client also decided to invest the tax savings he received (my recommendation), this client would be able to pay off the mortgage in 9 years and 4 months, which is in fact 3 months faster than what the client could do with the Money Merge Account!!!

What is amazing is that the equity management approach offers greater flexibility to achieve even greater rates of return than 6%. Imagine what 8% or greater could do for the client. Unsure if you can earn that much? Check out the Icelandic Krona. The current rate on a 3-month CD is 11.75% (nearly 13% APY). Since a CD is considered a safe investment, why can’t you do that? There are a multitude of places you can invest, but it depends on your “suitability”.

I am not saying this particular client would be an ideal candidate for using equity management strategies. What I am saying is that the client could have used a more balanced approach to his situation so he could make a truly informed decision. Readers of this post, I ask that you please seek the guidance of a fully qualified mortgage professional that can assist you in determining the best solution for your specific needs.

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