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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.

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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

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

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Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

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Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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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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