Real Estate Blog - Money Merge Accounts Vs Equity Harvesting: Harvesting Wins by Over $1.5M

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Money Merge Accounts Vs Equity Harvesting: Harvesting Wins by Over $1.5M

This is actually another look at the whole Money Merge Account, Mortgage Acceleration post I did a while ago that spawned a lot of debate. Click the link below to see that post if you have not already read it.

Money Merge Accounts: Are They Really the Best Thing for You?

Now for the real "blow your mind away" data that really proves that Money Merge Accounts (MMAs) and other mortgage acceleration products are going to cost you in the long run. The truth is that Equity Harvesting can generate tremendous wealth for those families that are able to follow the plan.

We will use the same couple we talked about in the last post as an example and here is there situation in case you do not remember:

Estimated Home Value = $400,000
Current Mortgage = $196,000 with an $1100 P&I payment (4.875% 30 Year Fixed)
Income = $4,500 net per month
Monthly Expenses = $1,500 per month
Credit Cards = $20,000 ($600.00 per month @ 18%)
Auto Loan = $15,000 ($550.00 per month @ 5.5%)
Discretionary Money = $500.00 per month

Using the original mortgage planning process from beofre, the comparison after 30 years between the two options was already $112,497 in favor of the mortgage planning process over the Money Merge Account. The only issue is that it would take slightly longer to be in a position to pay off your mortgage (1.5 years).

Now, let me introduce you to the concept of Equity Harvesting. This is the term used to either obtain cash-out refinancing or increase cash on hand when changing homes. It really doesn't matter how you do it, but keep in mind that FNMA shows the average mortgage life to be 4.2 years and the average aount of time a family is in their home is only 7 years.

With that in mind, let's apply the concept to this couple, and we will assume the following:

Rate of Appreciation of Home = 4% (below the average between 1982-2002)
Couple stays in same home for 30 years
Couple Refinances every 5 years and harvests all equity added
Everything else is the same as before

So here is how much equity the couple harvests and how much it is worth after the remaining amount of time...

Year 5          $ 86,661     $636,107
Year 10        $105,437     $519,467
Year 15        $128,279     $424,208
Year 20        $156,072     $346,424
Year 25        $189,886     $282,901

Now, let's look at where the couple is in life thirty years down the road using the Equity Harvesting plan. The couple would have "harvested" an additional $666,335 of equity resulting over time in an additional $2,209,107 in their investment account. That means even after they paid off their additional mortgage, they would still have an additional $1,542,772!!!

So we go back to the question of whether or not Money Merge Accounts, Mortgage Acceleration programs, or even paying off your mortgage as quickly as possible makes sense. The difference between the MMA, the supposed fastest way to pay off your mortgage, and the mortgage planning methods, utilizing Equity Harvesting, is now $1,655,269!

Keep in mind that I did not factor in the benefits of the additional tax savings, and yes their are ways to still deduct the increased mortgage interest. If they were to reinvest their tax savings, this couple's wealth would be even higher.

(new post - Equity Harvesting, Money Merge Accounts and the Benefits of Using Both)

Posted by Florida's #1 Mortgage Planner on 05/16/2007 10:14 AM

Comments (43)

money merge account, mma, mortgage acceleration, equity harvesting, equity management, florida mortgage, certified mortgage planner

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43 Comments on Money Merge Accounts Vs Equity Harvesting: Harvesting Wins by Over $1.5M

MAY

2007

Good post! I've written on here about my doubts on the MMA's particularly the fact that home equity lines are variable products and that leaves the home owner open to rate swings. You're plan addresses this issue to a certain degree. If rates go up, then you simply stay put until they come back down. Am I right?

Bob Mitchell

ValueList

Bob,

Thanks for chiming in. Yes, MMA products are variable rate mortgages in part, so they are subject to interest rate risk. Now, the good thing about equity management strategies like this one, is that they are flexible. You have the option, but you do not have to implement the plan.

MMAs are a complete waste of money unless you implement the plan and act upon it with maximum intensity until your mortgage is paid off. Anything less and it will not work as advertised and will cost you more money in the long run.

Regarding investing if rates go up, there are things to consider. Usually if rates go up, rates of return on your investments go up as well, so the plan will still work. Additionally, if taxes go up, you can make even more money off the arbitrage, so through proper equity management, one can have a huge potential for creating more wealth over time.

As I always state, you need to seek an adequately qualified professional to find your best solution and anyone who sells or pushes one product is not doing the borrower justice.

You might listen to Robert here:

http://www.bloodhoundrealty.com/BloodhoundBlog/?p=1407

MAY

2007

Great example but wouldn't be fair to assume that in the MMA scenario, the client would begin to save $2,750 per month in year 7 at 8%? Then wouldn't it also be fair that in year 15, when the payments on the equity harvest exceed the original $2750 debt service that the client would need to save that different to truly compare to equity harvest. Don't get me wrong, I love what you have done here but this is what I came up with.

Payment @	MMA Mthly	Growth Over
Harvest	Orig. Loan	New Balance	6.625% I/O	Savings	30 years
1	$0	$296,000	$296,000	$1,634.17	$0	$0
5	$86,661	$296,000	$382,661	$2,112.61	$0.00	$99,115.59
10	$105,437	$296,000	$488,098	$2,694.71	$0.00	$349,728.29
15	$128,279	$296,000	$616,377	$3,402.91	$652.91	$771,076.66
20	$156,072	$296,000	$772,449	$4,264.56	$1,514.56	$1,462,131.88
25	$189,886	$296,000	$962,335	$5,312.89	$2,562.89	$2,568,725.44

Sorry that looks confusing up there, but I come up with the MMA clients having $2,568,725 at the end of 30years. For simplicity, I didn't talk about tax issues either.

Michael,

You are correct, I did not factor that in, but by the standard rules of the velocity of money, ie Rule of 72 and others, lump sums will always outweigh a monthly contribution, so Equity Harvesting will always win, but I will try to get you exact numbers as soon as I can.

For starters though, I already factored in the complete monthly payment going into the investment account after year 7. Refer to the previous post for that information, so the above example and amounts are beyond those numbers. That means that your numbers and my numbers for an accurate comparison are invalid, sorry.

Sorry if that creates confusion, but I did not want to get too long with this example.

Thanks for the discussion.

MAY

2007

Robert,

I love what you've done here and in your post about borrowing at 6% and investing at 4%. Have you ever run some numbers based on doing the equity harvesting and using an Option Arm product and investing the difference between a 6% loan and the minimum payment to really fire up your investment?

Either way, great stuff.

Jason

Is a risk associated with investing? Is the return in all of these examples guaranteed? Do we forget that things change.

Gary

Gary,

There's risk associated with everything you do. It sounds to me like you're approaching this from a very negative standpoint. Is everything guaranteed? No. All your money could be kept in a safe under your bed but you still run the risk of a burglar coming in and stealing the safe, and you'll never out pace inflation that way.

There aren't guarantees but there are higher probability ways to deal with things. If you wear a seatbelt, there's no guarantee you won't get hurt in a car accident but it improves your chances.

Jason

Jason,

Thanks for your contributions and compliments. It is very clear that guys like Gary will never understand that everything carries risk and that everything is 100% financed.

By the latter I mean you either risk money to make a return or you give up that opportunity by paing cash. The lost opportunity carries a cost as well, and that is why you effectively finance the ability to pay cash.

Gary,

Thanks for the additions, but you need to understand all aspects of mortgages and home equity and the risks associated with them.

Happy to be a part of the team Robert.

Any thoughts on my other question about using an Option Arm product to fund the investment even more?

Your friend,
Jason

Jason,

Sorry. I forgot to mention that.

Option ARMs, especially using Equity Harvesting can provide greater results than what is above. The only real caution I have with them is that the client fully understand the pros and cons, how they work, and a worst case scenario is shown and understood. If they are comfortable and te Option ARM suits them, then I do them.

MAY

2007

Thanks for quantifying this. I know a number of MMA True Believers, and I can almost start a riot by pointing out that all their rosy "Money from Nowhere" (if you've seen their presentations, you know what I mean by that) projections never show the lost opportunity cost of beurying their extra cash flow intheir house instead of having it working for them.

Tom,

Very true and misrepresentative of their program.

MAY

2007

I am a United First Financial MMA Agent. From the looks of this blog i might be looked down upon. Maybe i am seen as one that wants to make a quick buck on a program that will screw all. First, i want to say if you haven't spent time to actually learn the MMA program you are being cynical not skeptical. Check out my website @ www.u1stfinancial.net/moreinfo and watch the MMA video tour to learn the program from the source. Honestly, I just want to put people in better financial situations and the MMA can do this. I was extremely skeptical when i first looked at this program but after weeks of study, i came to the conclusion that this will help people. You can call it baby investing, because all it is, is one investing in there only investment they probably have, their home. For some this is all they can handle. MMA not only makes the best possible way homeowners can invest in their homes, but makes it so simple a caveman can do it. Everyone needs less stress. Instead of the bank winning, the homeowner wins for once in this day and age. Call it mortgage education, call it simplification of finances, call it baby investing, the bottom line is it does work. BUT.... I am one that wants to make the BEST possible financial situation for my clients. I understand the power of compound interest and I have been working with an investment company who deals with annuities and other compound interest products. We are looking to use the MMA along with a product like this. Could you imagine doing a cash out mortgage, investing it in a compound interest no-risk product and paying that mortgage off with MMA in half the time, in the long run you gain the best of both worlds. Instead of created a 2 million dollar retirement nest egg for the cost of $300,000 in interest, you can create it for the cost of $150,000 in interest. Please email me with comments, we are just beginning this process and would love some skepticism, cynics not welcome @ robertalanklein@gmail.com

MAY

2007

"..Instead of created a 2 million dollar retirement nest egg for the cost of $300,000 in interest, you can create it for the cost of $150,000 in interest..."

And this is EXACTLY the power, magic and strongest benefit of the MMA....Many skeptics will produce all types of financial go-arounds and scenarios to show you that one can earn more money on their own, with complex equity harvest moves neglecting to mention how much your interest payments continue to work for the bank with nothing coming to you....This is the 1st real simple program that will maximize your money's hard work and to your benefit. Secondly, less than 10% of the 200 million mortgage holders in the country cant understand all that mumbo-jumbo know-it-all financial analyst spew. With the MMA, its this simple; U use the Equity in your home to accelerate payments to your principal balance. U do this with a hands on guide - the MMA software, and you can pay off your home in 12 years or less, saving hundreds of thousands in interest. You invest the savings and just as rapidly build yourself a nest egg in the same amount of time you pay off your home - 12 years or less!!! Stop complicating the obvious - keep it simple - This is not for everyone. If you cannot see it in this simple form, then its not for you. Advise your clients to do Equity harvest and all that and good luck with you hoping they are disciplined enough!!!! By the way, when was the last time you maintained your discipline on ANYTHING!!! We all fall off the band wagon - MMA works because the numbers are there as evidence and it holds us all accountable every day and month - only a small amount of discipline is required, compared to the ridiculous assertions all these genius CMPS financial planners/accountants/whatever else professionals tell you. My advice is, if its too hard for you to SEE the reality of the MMA, dont do it!!! There are millions of folks who cant wait to do it - especially those in the NBC affiliate in Nevada who just recently totally endorsed the MMA!!!

MAY

2007

Andrew,

Welcome to the discussion. You are not looked down upon, just that the MMA program does not take into consideration all aspects of mortgage planning and is not in the best interests of everyone, only a relative small percentage. It is a decent product for that small group.

Now, I have watched the videos, learned the programs and fully understand their intent and how they work. I also understand a lot of other concepts tat I think you may not understand even thoug you are an "investment head".

Also, hw can you state that you have the best interests of your clients in mind when you are only selling one product and not looking at all avenues of wealth creation available to them?

To the unknown,

You don't get any respect or validity if you cannot even leave your name, in my opinion anyways.

But, since you took the time to "attack" me, let me look at your comment...

First off, the media does not endorse anything that doesn't make them money too. Just because the media talks about a program, since when are they experts in anything other than selling air time? That is where they make money, and that is what they are paid to do.

Secondy, there are millions of sheep lined up for the slaughterhouse as well, does that make it right? By the way, I use sheep as that is what the ible uses to describe human nature.

Thirdly, numbers and analsys don't lie and are used to show the comparisons between several solutions. Attacking trained professionals does not do you any justice, unless you can truly back up your attacks with true facts, not misleading statements or false assumptions.

I would like to continue to hear your comments, but please place a name to the comment and act like an expert in your field and not lack expertise.

JUN

2007

especially those in the NBC affiliate in Nevada who just recently totally endorsed the MMA!!!

Aha! There's a credible source for financial advice! (said with dripping sarcasm)

JUN

2007

Robert D. Ashby,

I've been called Bob, Bobby or Robert, but i am not sure where you got Andrew. But anyways,

I agree that MMA is not for everyone, it does take a specific client to for it to work well for. But that client may not be as few and far fetched as you think. Also, I am open to all ideas, programs, products that companies offer. I would love to hear more about your products you offer through your company. I do not want to limit myself in the least bit. The fact is that there are a million products out there and my goal is to do what works for my clients. I see that MMA works and has been working for my clients and they love it. But MMA is only the beginning for most people. It opens up possibilities for people that they never thought they had. I am not just selling one product, i will sell whatever works for my clients. I think that many products or programs will work along side MMA. I am still open to scepticism.

Robert K.,

My sincerest apologies. I unfortunately carried Andrew's name over from the other MMA post and did not realize that I typed his name instead of yours. Again, not intentional and please accept my sincerest apologies for the typo.

Also, welcome to AR as I see you are a member now. I look forward to reading your posts as well. I am glad to see you are one who does seek out the best interests of your clients, even if it is not the MMA type solution.

I offer the MMA program as well, but I have found that it works best for only a small percentage through my own experience and research. Your experiences may be different. Many of my clients have been skeptical and the concepts require an open mind, even though they are completely sound and proven. But, after going through my MEDS™ program, most of my clients decide they do not want to pay off their mortgage or at least "focus" on paying off their mortgage and choose to utilize other strategies instead.

The MEDS™ program is a multi step process that starts with an extensive questionnaire, followed by an initial interview, just to see what the goals and dreams are of the client. Then it becomes and educational process, not just on mortgage planning concepts, but detailing the entire loan process so the client has a complete understanding of what a mortgage truly is, and how it can be best used for their situation, even if it means using a MMA type product.

Many of the clients I have come to me will ultimately not do any business with me right now becuase they need to wait a while before they can implement their specific desired strategy. I am willing to forego getting paid now in order to do what is best for them in their future. I am currently working with a client who could not implement a plan 2 years ago, but is in a position to start his plan now.

Skepticism never hurts, unless it controls you. We can never live our lives to their full potential when fear is allowed to control any part of our lives. I have learned that in my life. I am afraid of heights in general, but I fly airplanes for a career as well as doing mortgage planning.

Thanks again for the discussion and for correcting my mistake of names.

JUN

2007

Hey Robert,

What's "MEDStm"?

Jason

Jason,

MEDS stands for Managing Equity and Debt Strategically, both are trademarked so they carry the TM for that purpose. Mortgage Meds is also trademarked.

MEDS is a program I derived using my financial planning background and expertise in both finances and mortgages. It takes a client through a multi-step process that helps both myself and my client understand what their goals and dreams are relating to an overall financial and investment plan. The process then provides education of various strategies and concepts adapted to the particular client and covers the loan process, what to expect, etc. Ultimately, they fully understand all the whys, hows, pros and cons of the mortgage plan they decide to implement. It is nothing overly fancy, just that it takes longer and is a unique process that ensures the mortgage they obtain is properly integrated into their overall financial plan.

Also, if "suitability" does become a law, the process already shows the fact that the mortgage plan is suitable for the client, so it is a step ahead in that respect. Let me know if you have any more questions about it.

Robert,

I recently met with a mortgage planner/cfp who proposed the idea of using the MMA in conjunction with equity harvesting. In his view the MMA would allow for faster equity gain for a larger cash out and then the MMA could be rolled over to the new mortgage to have the process repeated. Could this be a viable strategy?

By the way, thanks for this BLOG. I enjoy the open minded discussion.

Jared,

Thanks for the continued discussion. There is a potential for it being beneficial, however IMHO I would not recommend this as the strategies differ somewhat and could create too much confusion overall. Additionally, since home equity is not a very good investment, I would rather have clients who choose not pay down their mortgage use all of their discretionary money to fuel their mortgage/financial plan.

I would also point out that most who could benefit from using a combo strategy would likely have the ability to manage their money in a way that does not require the MMA software itself. Again, just my opinion.

Robert Ashby,

If a client does not have enough discretionary income to really fuel a mortgage/financial plan, but just enough for the MMA to work well for them, would you think that would be a client that for MMA? They would be increasing their equity much quicker, which in turn would allow them to invest that equity later on down the road. If you look at the math of MMA, you gain more equity with the program than just putting your discretionary money towards your mortgage yourself. Please email me a link to your mortgage/financial plans, i am quite interested in your philosophies.

Robert Klein,

I have a website that covers some of the concepts that is located here. I warn you that it is not well written at the moment and I have not had the time to rewrite it as yet, but here is the link... www.flmortgageplanner.com.

Regarding actual mortgage plans, I can only post general scenarios as I must respect client privacy. Some have elected various investments, including using their mortgage to fund their IRAs, which they would not be able to do otherwise. Others have chosen investment grade life insurance as a way to remain conservative and further protect their assets, but be careful about these policies as they have to be set up correctly or they can be very costly.

Again, everyone is different and therefore requires different solutions. Thanks for the continued discussion.

Also, I should mention, not that it matters to most, that I am a Christian and believe in the Bible. Therefore, I follow its principles and have found that home equity is not really any different than burying money in the ground, so the Parable of the Talents (Matt. 25) was very revealing to me.

Here is a link to that comparison...

Which is the Safer Investment - Home Equity or Burying Your Money in the Backyard?

JUN

2007

Robert,

I am Florida's 6th CMPS and while Gibran, Doug Andrew, Rick Edelman and others are touting equity harvesting and how wonderful it can be for wealth creation there are issues which they rarely if ever touch upon. The concept of using a mortgage to create an arbitrage relies heavily upon the tax deductible nature of mortgage interest. What many of these strategies fail to take into consideration is the difference between Acquisition Indebtedness and Home Equity Indebtedness.

Acquisition Indebtedness is the debt that is created when the home is acquired and all the interest paid on that indebtedness is tax deductible up to $1,000,000.00, but here's the rub, once that balance is reduced through making regularly amortizing payments it's gone. For example, if you buy your home for $100,000.00 and get a 100% mortgage, then you reduce the balance by $10,000.00 your Acquisition Indebtedness is now $90,000.00 and subsequently only the interest you pay on that $90,000.00 is tax deductible.

Here is the second part, Home Equity Indebtedness. You may deduct the interest on an additional $100,000.00 above your Acquisition Indebtedness. So let's continue with the previous example.

Original Loan Amount $100,000.00 (Acquisition Indebtedness)

Balance Reduced to $90,000.00

Max Amount of New Loan to Maintain Tax Deductibility $190,000.00

Now if the money is borrowed to make home improvements it is also tax deductible, but if we, as mortgage professionals, put home improvement on a loan application as the purpose of the refinance instead of cash out - other we are committing mortgage fraud.

The next LANDMINE in the equity harvesting strategy is the AMT. As more and more middle class family are subjected to the AMT, their mortgage interest tax deduction is being phased out, either partially or in full and thus eliminating the potential for arbitrage. As I am not a tax professional I will not go into details about this particular part of the topic, but I will say that before an equity harvesting strategy can be recommended, a tax professional MUST be consulted.

My final point of contention with equity harvesting is in the selection of the investment vehicle used to create the arbitrage. Most of the calculations I see on equity harvesting use an 8% rate of return and fail to take into consideration the tax implications of the investment. While Doug Andrew's answer to this is to invest the money in a life insurance policy touting a tax free rate of return averaging 8%, this investment has a high cost of acquisition. You have to over fund the policy in order to get the ROI, in the process you have to pay the cost of the insurance coverage and that money earns nothing. In addition many have high redemption fees if you attempt to access the money in the first 11 years. The Zero Spread Loans that are available on these products are an option to access the money in the over funded portion of the policy, but then you are borrowing money on borrowed money. Alot of sense that makes.

The other two investments that can achieve a tax free rate of return are US Treasuries and Municipal Bonds, neither of which are going to yield 8% tax free. In addition the AMT will rear its ugly head in many instances and again erode the tax preferred treatment of these bonds.

While equity harvesting relies heavily on the supposition of multiple unquantifiable variables and in very many instances assumptions that can be wrong in their entirety, reducing the debt on your primary residence through the MMA uses factors that can be easily and accurately quantified with little supposition. In addition the Home Equity Indebtedness that is used in the HELOC can be kept to a level that maintains the tax preferred treatment of the mortgage interest.

While I do not advocate making principle reduction payments at the expense of participating in tax deferred retirement plans, as many people do according to the report released by The Federal Reserve Bank of Chicago. Owning your home free and clear and having no mortgage payment while saving 100's of 1000's of dollars in interest is a strong financial plan. Also upon retirement a Reverse Mortgage can be obtained, which will allow you to keep your property, access your equity and maintain a mortgage payment of zero dollars. As the primary requirement for qualifying for a Reverse Mortgage is your equity position in your home and your age (credit score & income do not apply) the lower your mortgage balance is the more cash you can get. In addition as mortgage interest is accumulated on a reverse mortgage it does not have to be paid until both you and your spouse die, there by, you can you can postpone the tax implication until after death.

So here is my Real Estate Wealth Building Strategy in a nut shell:

1- Buy Primary Residence

2- Maximize Your Contribution to Your Employers Tax Differed Retirement Plan

3- Set up MMA to Accelerate Paying Off Your Mortgage

4- Use Equity Line to Acquire Investment Property

5- Use MMA to Pay Down Equity Line

6- Use Equity Harvesting & Depreciation on Investment Property to Diversify as Tax Treatment on Interest is Different on Investment Properties.

7- Reach Retirement and Increase Cash Flow Through Reverse Mortgage.

In addition paying off your mortgage early will free up cash flow that can be applied to investments. Imagine what your savings, checking and investment accounts would look like if you did not have to make a mortgage payment anymore. Then imagine increasing your mortgage balance every five years and subsequently increasing your mortgage payments to harvest equity. Tell me which image is more appealing. Lowering your cost of living expenses is a good thing. It absolutely amazes me that mortgage brokers and loan officers have no problem recommending taking a 5 to 6 year installment debt, secured by a depreciating asset (a car loan) and advising people to stretch that into 30 years and in the same breath advocate increasing their debt load in order to invest borrowed money.

There is a reason margin accounts have limits, it is because through experience (like the 1929 stock market crash), the SRO's like the NYSE & NASD have found that having an excessive amount of borrowed money invested in the markets is BAD for the markets and investors alike. Equity Harvesting proponents could do themselves well by studying the history of our markets and learning the laws and rules that the SEC, NASD & NYSE have enacted and why they enacted them

Why don't we just use our houses to buy our groceries, clothes and gasoline while we're at it? Oh wait, many people already have, which is why we are seeing people over leveraged and upside down on their properties. Unable to sell, unable to make the mortgage payment and unable to refinance because the equity is tapped out = foreclosure, short sale or bankruptcy.

As a people and as a nation we are over leveraged. At some point these notes are going to be called due. How is it that we have come to the point that paying double what something costs by paying financing charges is smarter then reducing debt. Our country has a negative savings rate and I hate to be the one to tell you this, but investing borrowed money is not the same as saving. Even Barry Habib tells us that reducing principle on a loan is an act of paying ourselves and if this act of paying ourselves first (a primary rule in good financial planning) saves us on what we would have to pay to the bank then my contention is that the interest saved creates an ROI. If a penny saved is a penny earned, then interest not paid is interest earned as well.

JUN

2007

Jason,

Thanks for the input on the discussion, but some of the points you make may not be applicable. You make some very good points and the strategy you mention will be a good strategy for some, but you miss some points.

While tax deductibility is a tremendous benefit, and there are limitations (Mortgage Interest Tax Deductability - What Are The Limitations? and Mortgage Interest Tax Deductability - Revisited), they are not a requirement for equity harvesting or any other strategy per se. Also, Equity Harvesting can be done when someone moves, thus Acquisition Indebtedness is reset every time. Since the "average" home is only held for 7 years these days, it makes sense to harvest when moving.

Achieving a higher rate of return is a plus, but mostly you want safety of principal and, more importantly, liquidity. Also, higher rates of return do not have to be from strictly stocks and bonds nor do they have to be tax-free investments. What about other real estate, 1031 exchanges, or even business opportunities? They all could be worthwhile investments as well, yet without liquidity, they may never happen.

Regarding your impressions that I recommend using equity to buy consumable or depreciable assets, you are way off. While many mortgage brokers do just that, do not lump me in with them. Buying groceries, or any other method of using your home as another ATM machine is ludicrous and should be avoided. Regarding studying SEC, NASD, Stock markets, etc., I guess you didn't read my profile which tells you that I had a Series 6 and 63 License for Securities as well as my Life and Health Insurance licenses. Before you state something about someone, do some research please. Also, the historical average of the S&P500 is still running around 12%, even with all of the down markets. Bonds returns generally yield historical averages of around 8-9% as well. They have their ups and downs, just like every market, but those are the long term averages.

Additionally, my posts on Money Merge Accounts are primarily to show other options and strategies, not to diminish the strategy itself, but merely to show time value of money, or as Barry Habib puts it, the Velocity of Money, works against you if your focused solely on paying off your mortgage as fast as possible.

My main thing against the MMA program is that the software is not worth $3,500. It's benefits are found in the added principal payments and not totally in the program itself. While it may provide some benefit over someone doing the same thing themselves, it will not save a significant amount more than someone who dumps all of their disposable income into their mortgage on a monthly basis, despite what arguments they may make. Since it is an MLM business model, they are sold many times through BS and people are not shown other options, that is where I am against these things. Again, not the concepts, just the ways they are presented and the costs involved.

Even you mentioned Acquisition Indebtedness and its limitations, so if you pay off your house, then take money out later, you only have Home Equity Indebtedness ($100,000) to work with. Does that make sense?

Reverse Mortgages, while benficial for some, are extremely limited and capped at FHA limits, so many wealthy families (those with large valued homes) will not be able to use them as extra income, at least not as much as they may be led to believe. They are primarily for those without any other income streams or cannot afford monthly mortgage payments.

Again, you make some valid points, but even your strategy has flaws in it. Being through CMPS and knowing Barry Habib's Velocity of Money, you should know that paying off your mortgage is only a fixed rate of return for a limited time (usually around 4% or so for most Americans (net mortgage cost) and that focusing on that will work against you when factoring in your ability to start compounding interest in your favor through investments. Basically, which would you rather have working for you, $100,000 trapped in your house or an additional $100,000 in your invesments?

Oh, in case readers do not fully understand, every strategy, whether in a post or comment, is not valid for everyone. You need to seek a professional for advice on your particular situation and do your own research to find the best solution for your unique situation.

Robert Ashby -

I want to comment on your objections for the mma software program. First, you say that it is too expensive. What we are looking at is whether or not the software program will save you $3500 more than you would save just putting all your discretionary money towards your mortgage. I have showed all my clients how much money they could save by putting all their money towards their mortgage and then i show them what mma will do for them. MMA always comes out thousands ahead. Why? Because you are placing larger chunks of money into your mortgage earlier rather than just transferring small chunks every month. I tell them that if MMA will not save you $3500 dollars more than if you did it yourself than i wont even sell them the program. I also tell them that gives the client the discipline that they need to continue with the financial plan, by showing them exactly how long they have until their mortgage is paid off and also showing them how every purchase made affects that pay off. When you are talking about canceling interest a little bit goes a long way. MMA allows the client to cancel the most interest possible in their given financial situation. It is like have a math genius facilitating the pay off process. The second objection that I see you having is the problem with the MLM structure. To some U First may appear to be MLM, however, on closer examination you will find huge differences between U First and any other MLM company that clearly distinguish and separate us from being an MLM. United First Financial is a direct sales and marketing company.

1-There is no residual purchase by the client and no residual income for an agent. It is a one-time purchase and commissions are paid only once per sale. There are no recurring monthly purchases or commissions paid.
2 – Unlike MLM companies, there is no benefit to “recruiting” a new agent until that new agent makes a sale. There is no immediate commission or income paid to a recruiting agent from the enrollment fee. An agent must make a sale before there are any commissions paid.
3 – U First agent must go through an extensive training course, take a 100 question test, and become certified with a 95 (or above) score on the test before they can be paid commissions. (A new agent has 30 days to complete the training, take the test, and become certified.) MLM companies do not require their agents to train, be tested, and certify before they can be paid.
4 - The U First pay structure is based on the Insurance Industry. The gentleman who put together the U First pay structure came from 27 years experience as a Financial Planner and the Insurance Industry. The pay structure only rewards the people who properly train the people they recruit into U First.

MMA is working very well for many people, they are seeing possibilities they have never seen before. It is obviously not the only route to go, but it is a possible route that people should look into and understand before they right it off as some scam. MMA is not just paying off your house as fast as possible. There are so many different options for you when you have your money working for you like it does with MMA. Discover these options yourself and see if it is best route for you. Email me if you want to see what your MMA analysis comes to. Or you can send me an analysis through my website: www.engageyourmortgage.com .

JUN

2007

Robert Klein,

First, let me ensure you understand I am not 100% against these programs as I know they are needed for some. I even offer similar programs as part of my portfolio of services as there is a benefit to them, enough to make me want to be able to offer them.

My biggest problem with these programs is that they are a one-sided approach to the problem, divesting themselves of other possibly better strategies. While there is no residual income, you have to develop a "team" in order to increase your commissions, just like an MLM does. MLMs are OK to some degree as every business is esential a tiered platform, but they encourage people with little or no expertise to sell a product and make a quick buck. That is just there nature.

I am glad to see people need to be trained to sell these things, I am trained myself on these products, so I know what I am talking about. The problem with the training is that it is on one product and not the whole sectrum of possible solutions, nor does it take into account various misunderstood concepts about mortgages and home equity.

You talk about other MLM companies don't require training. I disagree. Primerica Financial Services is another MLM type structure, and to get paid for most of its services, you must get the appropriate licenses. Pre-Paid Legal is another MLM type structure that requires training to do some of its products, and in many states requires a license as well. MMA programs do not require their agents to obtain any type of license and only attend their "in-house" training. Hardly unbiased training like you may be required to get elsewhere.

Additionally, I have seen many proponents of these programs distorting information to show this product as something better than it is. I have seen everything from deceptive rates of return claiming a fixed rate mortgage is not a fixed rate and they can prove it to discrediting tax strategies and other concepts that have been proven to be true. I could go on, but do not want to rant.

I encourage people to look into ALL options, including these as part of their research to determine what is best for them. I do not agree with the price tag that UFF has placed on the software, but for some it will be worth it. More savvy people can do the same or close to it by exercising fiscal disciplines and even more savvy people will be able to use other startegies to grow their wealth over time better than this product can offer.

We may not agree on the means, or even many of the concepts about mortgage and home equity, but we do not have to. The bottom line is that readers need to digest both sides, do their research and seek someone who can truly analyze both sides together to provide the best possible solution for their specific situation.

JUN

2007

New post on the subject...Equity Harvesting, Money Merge Accounts and the Benefits of Using Both

JUN

2007

Thank you very much for sharing, there are arguments on both sides, but obviously the best way is to use the Missed Fortune principles, but at the same time there are those that are born with the feeling that they want to payoff their mortgage as fast as possible. I educate those that want to accelerate and let them borrow my book and cd's and if they still want a CMG HOA type product, then no problem I will give them what they want, but at least I let them see the other side.

Shane,

You are correct in your statements. The key is that the homeowner see both sides in an analysis from a qualified mortgage professional. I prefer my clients keep as much "equity" in the form of safe, liquidable investments, but I have come across some that are still skeptical, or otherwise would like to pay off their mortgage as quickly as possible. That is where the MMA type product comes in. It depends on the goals and suitability of the homeowner.

My new post (linked just above) shows a way to harvest equity, maintain a fixed principal balance on the primary and use the MMA type product to harvest equity in a "recycled" fashion. I believe many financially savvy skeptics would like this strategy as a "balanced" approach.

AUG

2007

Update...(required due to unfounded character attacks)

Apparently, UFF agents and other advocates of this program feel the need to attack my character to try and discredit my opinion, again believing I am against the MMA type product, to which I am only against the BS associated with it.

If you think I am not an expert on the subject or do not understand the product, so be it, you are entitled to your opinion. However, read the post, and I mean read it. In fact, read every post I did on the subject and formulate your own opinion. Here they are and this comment will be added to each post for easier navigation....

Money Merge Accounts: Are They Really the Best Thing for You?
Money Merge Accounts Vs Equity Harvesting: Harvesting Wins by Over $1.5M
Equity Harvesting, Money Merge Accounts and the Benefits of Using Both (do not formulate an inaccurate opinion of me before reading this) Also, a UFF agent and fellow AR member, Jason Leone said this in a comment on his own post (originally attacking me)...

"It seems Robert and I got off on the wrong foot and have been in direct communication vial e-mail. Both of us had the same intentions in posting our blogs. Robert felt that the people advocating the MMA were not showing both sides of the coin and I felt the same way about the equity harvesting post. Robert and I are in agreement that their is no one strategy that is right for everyone.

I have edited my initial and quite frankly harsh response and would like to state that I am proud to call Robert a Colleague and fellow CMPS."

Money Merge Accounts: Are You Dealing With a Professional?
Does Your Competition Hate You?

Ok, two other answers to questions about me others mentioned...

1. I have an agenda, just like everyone else. Only my agenda is like Jason came to realize. I am about spreading the truth about these and how they are being marketed. They are not a "magic pill" or even the best solution for most Americans. The best solution depends on the homeowners unique situation and you need a mortgage professional that understands all options to assist in finding the best solution for you.

2. The reason for cutting off the non-member comments is that spamming was getting out of hand. Anyone who understands SEO understands that when you get to the top of the list on Google, comments simply trying to direct you to their site occur and do not provide value to the post anymore. I mentioned this fact on at least one post before yet many of my attackers feel that I did it for other reasons. Google my name in quotes ("Robert D. Ashby") and you can read their opinions about me.

Now, my character attacks can easily be seen as unfounded, especially when you look at what Jason Leone has to say about me. So, again, formulate your own opinion, but understand who I am and what my character truly is by reading all of the posts on the subject and others of mine as well. You will clearly see their opinions are faulty, or you may still agree, it is your choice.

AUG

2007

Hey Robert,

I hope you are well. Another issue that I have started to find is that with the current liquidity issues taking place within the banking system, HELOC/ALOC rates have been on the rise and qualification has become more challenging. Many lenders now want to see 12 months of reserves before approving a HELOC. Well, if a client has 12 months of reserves and wants to reduce his/her mortgage balance the cheapest and most effective way still is (and always will be) to write a check reducing principle. I am not looking to start a debate over what is better, keeping it liquid or reducing debt, I am simply stating that if you have a debt adverse client the current market conditions may make an alternative debt reducing strategy more prudent. As Robert has said, there is no one strategy that is right for everyone. There is no magic bullet and in the end the money has to come from somewhere.

Jason...Great points. It is not as easy for most everything these days, at least until the "dust settles". I would also state that some non-conforming loan products are also placing limits on some strategies due to increased rates. There are still plenty of strategies to be used and, as you emphasized, there is no one that works for everyone. Thanks for the input.

NOV

2007

There are other systems such as Equity Genie, that only cost $600 and do the same thing. When you push an MLM product, such as MMA, the consumer pays too much for the product.

www.youtube.com/yieldfinancial

NOV

2007

Funny, I was going to write a similar post in the next week. You beat me too it. I think that concept of using both mortgage accelleration and equity harvesting as a way to quickly build equity and then harvest it is a powerful financial tool.

MAY

2008

06/17/2007 10:09 AM

by Logical Choice Lending, Inc.

Jason Leone's intial post have points that deserve further comment:

Inability to write off mortgage interest - right and wrong at the same time. Right in respect to limitations related to acquisition indebtedness and AMT (especially when coupling with coupling with tax exempt growth investments). Wrong in thinking the story ends there. Harvested equity funneled through to taxable investments can absolutely have the interest deducted as "investment interest" rather than mortgage interest. Tell your CPA or EA about this and ensure there's a paper trail.

Don't harvest your home, but harvest your investment properties - odd, especially given his stance on EH'ing, but even more so when considering that the primary purpose of many real estate investors is to build cash flow properties. Ric Edelman actually doesn't recommend EH'ing rental properties, and he, not Douglas Andrews, is really the first to widely publicize the benefits of EH'ing (first paper on subject published in 1987).

Debt consolidation inclusion of car loans - true, many mortgage originators tell their clients to do this, but the good ones ALSO tell the client to reposition that monthly savings, either BACK into the mortgage to pay down the principle a lot faster than they would've on the car loan - esp when coupled with paying off other credit card debts - or to use that money to invest in long term investments (or both, w/one of the long term investments being saving enough cash to buy the car in cash next time!).

Last three paragraphs about margin accounts, over leveraged homes and debt frenzied Americans - hey, not going to argue these points too much, only with the exception that had (1) the borrowers not already been so comfortable with living an indebtedness lifestyle and (2) had the borrowers worked with a qualified mortgage professional who gave good advice about not getting back into silly debt and stop living beyond their means (true, there are too few LOs out there that have the guts to do this), then perhaps this mess would be a lot less ugly than it is (let's not forget the investment bankers who (a) created all these 'exotic' loans which they knew would bait-hook-and sink the average American and (b) the hedge fund and institutional investors who bought these CDO's using rediculous amounts of leverage and (c) of course the wonderful rating agencies who called these investments AAA cream of the crop!

I digress. Back to work! :o)

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