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.

Comments

[Jeff Belonger]

Robert.... I totally agree with your statements. While distorting the facts, they are selling you their product.

As I have stated in several comments and a few of my pwn blogs, when people lenders pray on other programs, for the most part, they are just trying to sway you to one that they make money on. Nothing in this business is completely awesome. As you mentioned and what I have stated before.... each loan is different and each client is different.

Good post.

[Lydia]

So, there's errors, and they want to sell a product, thank God we live in America. Can you begrudge someone working on a new idea and adding to it? Do we live in a socialist country or what? Ever had a trades person in your home (electrician, plumber, sheetrocker, etc) and say boy that's easy, I could have done that. True, but you didn't know how, so you paid them for their knowledge and expertise. Now that we're clear, how about some Solution Focused conversation. Any better ideas? I've tried the bi-monthly payment and adding the one payment a year, and this does work, but not as fast as the what I can see a money merge account can help me do. I will tell you that your comments have been thought provoking and I will have a conversation with the person that showed me the product and did give me a copy of the Biggest Secret and they should reconsider how they present this information. So for that I thank you. Again, have any other suggestions? Lydia

[Robert D. Ashby, CMPS CITRMS]

Jeff...I agree that nothing in this business is awesome and thanks for confirming that each client is different as is each loan program. That stresses the importance of seeking someone who can offer a wide variety of solutions to help find the best one for the client's specific situation.

[Robert D. Ashby, CMPS CITRMS]

Lydia...First off, thank you for taking the time to comment.

This report does not contain errors, its sole purpose is to persuade clients through false comparisons and statements. Do you think false advertising, misleading advertising, and such are OK just because we are in America? Don't we already have enough of that crap in the mortgage industry?

I agree that we pay tradesman for their knowledge and expertise and I have provided solutions in other posts I have made on varying blogs, most notably on this blog...http://activerain.com/blogs/certifiedmortgageplanner (cut and paste to view).

Truth be known, focusing on paying off your mortgage as fast as possible, in any program, may cost more in the long run when compared to other strategies. Everyone is different and no one strategy is best for all, that is why consumers need to seek fully qualified mortgage professionals that have demonstrated their level of knowledge and expertise in all solutions.