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The Coming Mortgage Acceleration Tsunami (Part 1 of 2)

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United First Financial (UFF) is marketing an equity accelerator mortgage plan which promises homeowners quicker loan payoff. I’ve been approached by several of their sales people in the past few months on the wonderful virtues of this program. These folks make amazing promises and quite honestly scare me. It’s not that I fear the program, its that I fear this program will be the next mortgage fad that will rob people of their homes.

Here is what UFF promises (from their website):

Qualified homeowners using the Money Merge Account system can now potentially pay off their mortgage within 1/3 to 1/2 the regular time – with little to no change to their day-to-day spending habits and without increasing their minimum required monthly mortgage payments.

The key word on this statement is “qualified”. Being qualified doesn’t only mean having the right income, credit score or liquid assets. Being qualified means fully understanding how the program works and what it means for you. If you don’t believe me about this definition I can put you in touch with the folks who got into Option ARMs thinking they were “qualified”.

To be perfectly clear, I have nothing against this program and I believe an equity accelerator program can help many homeowners. However, like the Option ARM before it, there is potential for abuse. It’s not just a hunch either. It comes from speaking with a few UFF sales people. They seem to act like carpenters walking around with a hammer seeing nothing but nails. I can already see Congress drafting legislation in 2011 to stop “past” abuses in equity acceleration. So, homeowners need to pay attention now!

To compensate for these sales folks who won’t give you anything concrete but only regurgitate what they’ve been told in their PowerPoint training, let me explain how the program works.

You start by either purchasing a home or refinancing your mortgage into a HELOC (Home Equity Line of Credit). This HELOC account also serves as your primary checking account. Meaning you make all your deposits into this account as well as pay all your bills.

As a deposit is made into this account, the amount gets credited immediately to the principle balance. Since interest owed is calculated on a daily basis, this in turn reduces the interest you owe on the balance.

So, instead of paying a fixed principle amount every month (as in a conventional mortgage), you get to apply all your income towards paying down the principle and reducing the interest owed. This simple act of reducing the amount of interest you owe cuts into the time that it takes to pay off the loan.

Since this HELOC account is also a checking account, as you make withdrawals against the account, you increase the principle amount you owe (you’re taking back from what you paid). As long as stay within budget, and leave some money in your checking account you will come out ahead. And over the long term this “left over amount” act as an additional payment to principle, resulting in a quicker loan payoff.

So, in essence, you attack the mortgage by reducing the interest owed and by applying additional money that would normally just sit in your checking account. Sounds good doesn’t it? In theory it is a great plan. It’s your ability to execute the plan that needs careful thought.

How do you know if you’ll be able to execute? I’ll discuss this in part two.

Writer for national real estate opinion column AgentGenius.com, focusing on the improvement of the real estate industry by educating peers about technology, real estate legislation, ethics, practices and brokerage with the end result being that consumers have a better experience.

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6 Comments

6 Comments

  1. Robert D. Ashby

    November 20, 2007 at 3:56 pm

    Shailesh,

    I have posted numerous times, and I am doing a series on the Money Merge Accounts and the “myth” that they are the best. Mortgage acceleration programs are OK for some, but there are much better options for most, depending on “qualifications” as you mentioned.

    Also, UFF and their Money Merge Account is about the worst choice out there. I have also received numerous phone calls from homeowners saying that they are being harassed even by UFF agents. You can imagine the amoutn of “hate mail” I get since I actively show other options to be better.

    Anyhow, I saw this post and felt like adding my opinion for what its worth. Have a Happy Thanksgiving.

  2. Wade Young

    November 27, 2007 at 11:33 pm

    I have heard that CMG financial offers the same product at no cost to the borrower. Does anyone know anything about CMG? I looked into UFF too, and it smells of scam to me.

    https://www.cmgfs.com/

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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