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Money Merge Accounts: Good Fairy or Demon?

By Robert D. Ashby

Services for Real Estate Pros with Cruise Planners of South Florida Remote Pilot - FAR 107

June 11, 2007 03:41 AM

Many of you know that I have talked about these before, and one of my posts even is ranked #2 on this subject. As a proponent of proper mortgage planning, these violate many of the concepts that most Americans don't understand. I will not go through those concepts here, as it will take away from the real intent of this post.

I was reading the Mortgage Professor's website, a well respected mortgage expert who started the Upfront Mortgage Broker concept and mostly looks out for the best interests of the borrower, and I came across his article about these. That is where most of the information I will discuss can be read in greater detail as well as his opinion. While I don't agree with everything Jack Guttentag says, he does a pretty good rundown on the realities of these programs. It is a must read of anyone looking at any type of mortgage acceleration program.

Why is it that everyone wants to believe that there exists a good fairy that can save us from ourselves? This belief, as well as the desire to hold on to the past principles, is what continues to keep Americans from truly becoming financially free. They continue to waste money on lotteries and other high risk "games". And thus, mortgage acceleration schemes abound, some outright fraudulent. Most use misleading advertising to push their product, not unlike those 1% rate advertisements though some are even worse.

One of the most popular is the bi-weekly payment program. Most of you have come to realize that you don't need to pay anyone to do this as you can, with a little discipline, accomplish the same thing on your own. You will also find that doing any type of mortgage acceleration, while OK for some, may in fact be costing you more money over time.

Now, enter in the Money Merge Account type products. CMG, United First Financial (UFF), American Mortgage Educators (AME), and others have started their versions of these programs. They all use a mortgage, a HELOC (Home Equity Line of Credit), as checking account. You deposit your paycheck into the account, then write checks, make charges, or use an ATM to take money out. Effectively, you end up with some "interest rate cancellation", or the equivalent of receiving a savings rate that is equal to your mortgage rate. The two things to ask yourself at this point are...What is the after tax rate on this savings? and Do I really want to pay off money that cheaply or invest it instead?

Using UFFs, which seems to be the most marketed do to its MLM (Multi Level Marketing) scheme, let's go over how it works (simplified, much how they present it). They claim it does not require a refinance, yet you are required to put in place a HELOC (or ALOC as they call it) that has the right features. Now assume you make $5,000 per month, that gets deposited on the first day of the month. Well, the program suggest you take a $5,000 draw on the HELOC on day 1 and it is applied to the main mortgage. Then, the deposit is used to pay off the HELOC, leaving you with a zero balance and no interest charges.

Then, as the month goes, you take out your monthly expenses and the balance slowly rises, but since the HELOC is like a credit card, and is computed on average daily balance instead of monthly like the mortgage, your average daily balance would be $2,500, so you are saving your $5,000 at your mortgage rate while incurring interest at the rate of the HELOC.

Most Americans have mortgages around 6% right now, while the average HELOC is nearly 10%, particularly with these features. So, you save $25 on the main mortgage side, but it costs you $20.83 to receive that benefit. Wow, a monthly savings of $4.17!!! Now, that being said, if you want to use ALL of your savings to pay off your mortgage (a ludicrous idea as it could actually put you in danger of foreclosure), you could receive a larger savings.

Since the program costsa $3,500, if you were to make a one time payment to your mortgage at 6%, you would save $210 annually. The Mortgage Professor even stated that this number is "probably more than most borrowers would save using the MMA."

Since most people do not get paid on the first of the month and rather are paid bi-weekly, the savings amounts are likely to be even lower. The exaggerated claims of being able to pay off your mortgage in 1/3 to 1/2 the time require you to devote all of your savings to pay off your mortgage, leaving you to bypass vacations and other "luxuries", lest you finance them at the HELOC's rate.

All of this comes down to the fact that these programs, are certainly not a Good Fairy by any means. While they may not be Demons for some, many that buy into these programs may find they are in fact worse off.

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Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Dennis,

Glad you turned it into a post. I did stop over there and make a comment and thanks for the mention in your post as well.

Jun 11, 2007 09:56 AM

mike smith

setplans - Lacelle, IA

Robert,

It looks like you may have some good experience in the mortgage and finance arena. I have looked at some of these "mortgage acceleration" companies and I have to agree that some of them look as though they may not be a good option for homeowners, and some of them are down right dishonest.

I have to say though, I found a company that you have mentioned by the name of United First Financial after reading an article written by G. Edward Griffin (A world renowned expert on Banking and Finance). I have found after significant research that the mma program that you have been aggressively commenting on looks as though it does far more for homeowners than you have described. You can find G. Edward Griffins article here:

http://www.freedomforceinternational.org/freedomcontent.cfm?fuseaction=slash_mortgage&refpage=issues

You can also find more background information on Mr. Griffin's expertise here: http://en.wikipedia.org/wiki/G._Edward_Griffin

I have known about G. Edward Griffin and his work for years, and my dad and his associates have been reading his books and following his research for years also.

What he has said about this appears to shed a lot of light about United First Financial and the MMA program.

I have read your other posts, and you have made mention that it is best for people to never pay their homes off and to draw out their equity and put it into investments. I have to say, back in the 9/11 time, I knew many homeowners that lost their homes due to advice like that. I have also known many since 9/11 that have lost their homes from advice like that. (Not to mention biblical advice against such ideas).

After reading the article from G. Edward Griffin, I did further research on this UFF company. What I have found is very enlightening. UFF isn't telling people to stop investing; they are simply saying it can be risky to further mortgage your home to invest in the stock market. You seem to be advising people to draw out the equity of their home to invest. The only difference is that UFF seems to be saying, secure your home and then invest. That way if you loose money in the stock market or other investments, your home will never be at risk. After doing my research, the mma saves homeowners far more money than you have indicated. Even the "Mortgage Professor" Jack Guttentag posted a Postscript to his initial article stating: "I may have underestimated the magnitude of the savings of this program" referring to the mma program.

I think it would be fair that you tell your readers that your advice is only right for up to 20% of homeowners, only the most financially savvy, who can tolerate risks. It is clear why you have included your contact information. I stand to gain nothing from my detailed research.

Just my 2 (informed) cents.

-Mike S.

Jun 11, 2007 04:59 PM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Mike,

Thank you for joining the discussion. I have not read the article from Mr. Griffin, I will and comment again after I am done. I will say that Jack Guttentag (the Mortgage Professor) did include a Postscript saying he may have underestimated their savings, but he aslo said three important things in that same Postscript...

UFF never offered this potentially best advocate of the program a free copy to work with to provide a better review (Mr. Guttentag, like myself refuse to pay $3,500 just to "try" a program).
Based on everything he knows, he has "considerable confidence" in his main conclusion that the bulk of the savings comes from the borrower's savings rather than from the program mechanism. His statement was "a borrower who allocates 10% of income every month to principal reduction is going to reduce interest payments and shorten the life of the mortgage, and no special program is needed to do this."
He stated "Neither the MMA nor any of its siblings provide the means for seperating the contribution of the program to interest saving from the contribution made by the income the borrower allocates to the principal reduction.. The reason they don't is that they want to pretend that it is the program that generates the entire benefit."

The last one in particular is a very powerful statement, and those are his words, not mine. I happen to like the program for some, it is just that people need to know that these are not all they are made out to be. I am just one (I am sure there are more) who has elected to show both sides of the equation and let the readers decide. That was the intent of my first post on the subject.

The first post showed these programs, while showing the fastest way to pay off your mortgage, were not necessarily the best for wealth creation over time. The time value of money works against them, so they may end up worse off by "focusing" on paying off the mortgage.

Regarding 9/11, a very sad day (I work for American Airlines as a pilot), I am sure many people lost their homes during that time period, but these were "gamblers". I don't push people to gamble away their home's equity, rather to seperate it and put it into safer investments. Also, you cannot lose your home if you keep paying your mortgage monthly. Those that lost their homes did something, dare I say, stupid. They over leveraged to the point they needed their investments to pay the mortgage and that is not a wise choice. As you mentioned, the Bible is against that 100%.

Speaking of the Bible, what does it really say about debt? It is not an advocate of debt, but it is not totally against it either. The key being not to become a slave to the lender, meaning do not go so far in debt than to where you are working simply to pay that debt or, even worse, cannot pay that debt. Very good advice.

But what does it say about home equity (and this is where I was convicted)? May I suggest reading Matthew 25:15-28, the Parable of the Talents. Let me then ask, what is the difference between home equity and burying your money in the backyard? Now, before you say anything, I am far from trying to preach anything, simply stating my personal convictions here.

UFF, and other mortgage accelerator programs using HELOCs is that it requires depositing all of your money into this "checking account" in order to create the interest cancellation effect. The problem with that is that if the money is in there, any moeny that you take out, for whatever reason, is effectively like taking out a new loan at the interest rate of that HELOC. That will never be a very good deal unless it is a short investment strategy, and I mean a few months or you have an opportunity that will play out considerably more than its net cost. Nobody seems to talk about that fact.

Yes, UFF and others say you can continue investing, yes, they even talk about sending kids through school and buying cars, among other things, but they don't talk about the fact that by doing these things, you are effectively financing them at the interest rate of the HELOC and, additionally, have now pushed back your mortgage payoff date to somewhere down the road. Why don't they mention these effects?

As for your statement about 20% being right for the strategic equity approach, I disagree. The Chicago Federal Reserve published their own study on the subject saying that at least 37% of Americans would be better off. I will try to remember to provide a link to that report later today as well.

Thanks again for the discussion, and I will add more when I get to read the article.

Jun 12, 2007 12:06 AM

REMOVE REMOVE

International, IT

Well said Robert.

I personally am not a believer in paying off your mortgage until you've accumulated enough wealth that it's "no big deal" to throw a chunk of change at it and then, only for the peace of mind that comes with it since paying your mortgage off today or in 25 years or whenever, is never truly the best plan IMHO.

As for the end of your comment about the Chicago Fed Reserve stating that 37% of Americans would be better off, I would imagine that skews the numbers well above the 20% Mr. Smith suggested. I'm sure the CFRB's report factored in the numerous Americans already using their mortgage to set up diversified retirement plans. That 37% would be added on top of those who already do it.

That equates to quite a few people. Or you could always pay your house off as fast as possible and work the rest of your life because you have no adequate retirement plan.

Jason

Jun 12, 2007 12:47 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Jason...Good points.

I suggest people read Ric Edelman's book, Ordinary People, Extraordinary Wealth. Not because of his writing or his book per se, but because it is filled with his clients speaking their thoughts on the subject.

The book's premise is about the 8 secrets of how 5,000 of his clients who were ordinary Americans became successful investors. Their #1 secret...They carry a mortgage on their homes even though they can afford to pay it off. Why, because they use their mortgage as a financial tool, leverage, as a way to create wealth.

There are 25 testimonials to that fact in the first chapter. If nothing else, go to the bookstore and read the end of Chapter 1, starting on page 19. That is where the clients put things in their own words. To me, that says a lot.

Jun 12, 2007 01:10 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Mike,

Alas, as promised, I have returned to comment on the Article and Mr. Griffin himself. Frankly, I do not consider him to be a very good advocate to say the least. The fact that he is a conspiracy theory author questions his integrity somewhat. That being said, assuming he is credible, let's look at his article.

It is extremely narrowly focused and does not, like most proponents of the program, shed any light on why it works as the Mortgage Professor pointed out. Anyone who dumps their savings into their mortgage can do it and do not need a software program to tell them how.

The article, being one sided and narrowly focused, does not offer comparisons with other strategies that could actually pay off your mortgage faster.

I can tell you about a stock that, at last check, wa paying dividends of around 10%. Since dividends are taxed only at 15%, that yields 8.5% after tax. So if you borrowed money (mortgage) at a net cost of 4% and made 8.5% after tax, you gain 4.5% tax free. I would do that any day. Do to SEC rules, I am not sure the legalities of disclosing the stock as my dad owns it, I do not. He bought the stock low enough that the dividend yield is actually over 10%.

By focusing on paying off your mortgage as fast as possible, you are giving up the opportunities to earn more elsewhere, that is what I advocate, if it is part of your financial goals. The MMA does not allow the efficiency necessary to accomplish that and, as I said, the CFRB said that at least 37% of Americans would benefit from this type of strategy, many who would not be able to retire, put kids through college, etc. without it.

The key is to look at the overall financial picture of the client, find their true goals and dreams, and then apply a strategy that is "suitable" to achieve those goals. You need to ask the right questions in order to understand what your client truly wants, and you need to offer both sides of the spectrum through education to verify their goals. Only from there can you truly act in the best interests of your clients.

Jun 12, 2007 01:41 AM

mike smith

setplans - Lacelle, IA

Robert,

Thank you for your comments, great discussion.

You have made comments that it is better for people to put their money into some kind of investment other than paying off their mortgage. Depending on the homeowners needs and goals, I agree and do not debate this point.

After years of research in the financial industry, I have found that it is important to find all the facts regarding certain subjects. One point I have found about UFF is that they are not telling homeowners to strop investing. What they are informing people on is how they can get even further ahead financially with their "sitting around" money in addition to investing.

I would ask you a question: Out of all of the people you talk to about investing, how many of them would you say invest 100% of their "disposable income" into investments.

I work with a lot of different financial advisors and for an outside perspective; I asked them this same question. The response I received from all of them is that less than 1% of their clients invest 100% of their "disposable income" into investments, and that the "average" client only puts a maximum of 50% of their "disposable income" toward different investments.

You may wonder what my point is. My point is that the mma program does not threaten our industry, it compliments it. Let me give an example:

If you have a homeowner that puts 50% of their disposable income toward investments, and say (just for round numbers) their disposable income is $1,000 a month, then they would be putting $500 a month toward investments. Now say that the client keeps $500 a month in their savings or checking just because it makes them feel safe, and they want to have access to it. Is it better to have that money sitting in a checking or savings account earning around 1 to 2% just so they have access to it if they need it, or is it better to have it sitting against a mortgage at a rate of 5.5, 6.5 or 7% while still having access to it if they need it through the heloc? The answer is obvious of course.

Also, the mma program allows you to cancel further interest dollars with the money that you allocate toward your monthly expenses until you spend that money. In your first post of this thread you said:

"Now assume you make $5,000 per month, that gets deposited on the first day of the month. Well, the program suggest you take a $5,000 draw on the HELOC on day 1 and it is applied to the main mortgage.(For the record, the program does not advise you to transfer like you indicated here) Then, the deposit is used to pay off the HELOC, leaving you with a zero balance and no interest charges.

Initially I had the same understanding as you have presented here, but what I found after further research is quite different. I would just like to show you how your description of the savings concepts is off. You have stated that if someone makes $5,000 and then transfers $5,000 to their primary mortgage from their HELOC, and then deposits their income of $5,000 toward their Heloc and pays bills throughout the month, that by the end of the month the daily average balance on the Heloc would be around $2,500. In reality, the homeowner has the ability to pay all of their monthly expenses on a credit card so that their income can off set the majority of the balance until the end of the month. Then, at the end of the month the homeowner simply writes one check from their Heloc to pay off their credit card before the credit card company has a chance to charge any interest fees. And the cycle starts all over again the next month. Basically, the homeowner is able to use the banks money in addition to their own money at close to a zero interest charge. So instead of saving $4.17 in interest as you stated, they are actually saving close to the $25 amount on the main mortgage side, and paying close to zero on the Heloc side. This may still sound like pennies, but if you work in the mortgage industry you already know how that can compound over time.

If you want another reputable source that helps to shed some light on the concept, you can take a look at this news story that an NBC affiliate did on the program here: http://www.freedomforceinternational.org/videos/MMA.wmv

When I have additional time, I will be happy to send you links to many other reputable sources that I have found.

The mma does not threaten our industry; it simply compliments it by assisting the homeowner to maximize on all of their sitting around money, in addition to their investment money.

Sorry for the long post. Thanks for your time.

Mike S

Jun 12, 2007 04:59 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Mike,

I admit that I simplified it dramatically, but there still are some issues that need to be emphasized.

While a user of the system can use a credit card (not the wisest thing to do) to delay or eliminate interest, it does not address the subject of investments. Yes, you can invest says you, but what really is happening. Since all of the money is being deposited into the HELOC, you are in essence financing your investments through the HELOC since you are extracting money from there. Again, I am simplifying things, but that is the basics.

Now, regarding your credit card savings, let's say you save $25 per month. That is hardly worth the $3,500 investment is it? Well, again this is simplified and the savings may be higher, especially when factoring in compounding effects, but that still does not address a solid point...Why do you need software to do this?

The real answer is you don't, certainly not one that costs $3,500. The real savings is made by the application of disposable income into paying off the mortgage faster. You do not need software to tell you that.

Let's face it. Anyone could open a HELOC account and not touch it. Then they take all of their disposable income and dump it into their mortgage instead. They can then use their HELOC for emergencies if needed, but each month they will be doing effectively the same thing the software tells them to do. They may not be as timely about it, but they will be able to pay off their mortgage just as quickly, or at least close to it.

Also, the media sells space, so they will put anything on the air that sells that space. Heck, I could be on the media (and in fact have, but not for mortgages). The media still believes that bi-weekly payments are worth it.

Let's also look at another point. What happens if you rush to pay off your mortgage as fast as possible, leaving limited liquidity to fall back on? Financial crisis hits and ironically you could end up facing foreclosure. Also, what happens if a tragic event occurs and destroys your home? What then? You are left with a home that needs to be repaired and no place to live. You rent and you are still required to pay your mortgage payments as well, thus you ironically may be facing foreclosure here as well.

You talked about financial advisors saying 1% invest all disposable income. I suggest it is 100%, the only issue is that they do not invest wisely at all. A checking account is a savings vehicle, even if it does not accrue interest, so they do invest. The financial advisor sees only those investments that he receives, not the whole picture, so to ask that question is irrelevant in my opinion.

My investments are mixed, I have stocks, mutual funds, 401(k)s, IRAs (both types) that we have accrued over the years. I even have investment grade life insurance contracts. I also have savings and checking accounts and even momeny market accounts and CDs. I would say I am diversified and I am not the typical American. Yet, part of the reason I have this much investments and the diversity, liquidity, etc. that come with it is through using my mortgage as a financial tool. I am 38 years old and I am on track to retire at age 60 with well over $4 million dollars and that is not counting all of my investments nor the pension I could recive from American Airlines. That is the power of strategic equity management at work. The MMA showed that I would pay off my mortgages in 23 years when I ran the numbers for myself. I tell you that I could pay it off much faster through my investments. Heck, a bi-weekly mortgage can pay it off in 23 years.

Sorry for going off on a slight tangent and bringing my personal situation into it, but it helps drive the point home (no pun intended). Thanks for the continued discussion and your time as well.

Jun 12, 2007 06:29 AM

mike smith

setplans - Lacelle, IA

Robert,

Thanks for your comments. I would just like to address some of the comments you have made point by point.

In your previous comments you stated the following:

"While a user of the system can use a credit card (not the wisest thing to do) to delay or eliminate interest, it does not address the subject of investments. Yes, you can invest says you, but what really is happening. Since all of the money is being deposited into the HELOC, you are in essence financing your investments through the HELOC since you are extracting money from there. Again, I am simplifying things, but that is the basics".

Let me help to clarify how this system works in conjunction with investments. You have stated in the above paragraph "Since all of the money is being deposited into the HELOC, you are in essence financing your investments through the HELOC since you are extracting money from there." With the mma program, any homeowner that wishes to invest can simply keep the amount they wish to invest in their standard checking account. This way they are never "financing" their investment as you have stated. On the contrary, when you advise people to finance the equity out of their home to invest in the stock market, you are actually advising people to "finance" their investments.

"Now, regarding your credit card savings, let's say you save $25 per month. That is hardly worth the $3,500 investment is it? Well, again this is simplified and the savings may be higher, especially when factoring in compounding effects, but that still does not address a solid point...Why do you need software to do this?"

You may want to run your savings numbers again. The compounding effects of an additional $25+ interest savings in the first month can create tremendous savings when continually compounded month after month. Those of us working in the mortgage industry can run those numbers to the penny.

"The real answer is you don't, certainly not one that costs $3,500. The real savings is made by the application of disposable income into paying off the mortgage faster. You do not need software to tell you that."

It is clear by the comment that you made above that you have never actually used the mma software. By giving your opinion of the benefits of the software without ever using the software is kind of like trying to describe what salt tastes like without ever actually tasting salt. The software is far more vital to the progress and over all benefit than you realize. Without the software and support, the majority of homeowners across the US could attempt to mimic these concepts on their own. But the difference in time and interest savings would be like someone using a paper map compared to a proven navigation system. Both ways you will get where your trying to go, you simply get there much quicker with the assistance of the navigation system. The software takes into account your income, outgo, increases, decreases, debts, expenses, goals, and all other technical and financial variables and instructs you on exactly what is needed to be done to achieve the greatest possible savings under this concept. The day you start using your software it begins to learn all of your earning and spending habits, similar to an artificial intelligence system. The accountants in our office that have inspected the software have said that expecting homeowners to carry out the same savings without the mma software would be similar to expecting people to work out at a gym with no exercise equipment.

"Let's face it. Anyone could open a HELOC account and not touch it. Then they take all of their disposable income and dump it into their mortgage instead. They can then use their HELOC for emergencies if needed, but each month they will be doing effectively the same thing the software tells them to do. They may not be as timely about it, but they will be able to pay off their mortgage just as quickly, or at least close to it."

Again, it is clear that you have never actually used the software and service. By simply opening a HELOC to have sitting around just in case you ever need it (like you suggested above) will still never help the homeowner to experience the kind of savings that are delivered with this system. The HELOC is not simply used to draw money out if you need to; it is also used to help deliver additional interest savings. With this system, you are able to save interest with your disposable income, your expense income and the banks money. The HELOC enables you to not only leverage your disposable income but the money that you also plan on paying toward expenses until you spend it. The longer you keep both your monthly expense money and your disposable income in your mma the more interest and time you save.

"Also, the media sells space, so they will put anything on the air that sells that space. Heck, I could be on the media (and in fact have, but not for mortgages). The media still believes that bi-weekly payments are worth it."

The media does sell space. But the media also has serious liability to answer to when they give their "personal" endorsement to a product like this media outlet did, if the product does not actually work. After taking an up close and personal look at the software and service, I can tell you that this endorsement was not given blindly.

"Let's also look at another point. What happens if you rush to pay off your mortgage as fast as possible, leaving limited liquidity to fall back on? Financial crisis hits and ironically you could end up facing foreclosure.

Let's look at this situation in reality. If your home is paid off, there is no mortgage to foreclose on. If you still have money owing on your mortgage but you are paying it off quicker, your credit is most likely improving and you can easily increase the equity limit on your line of credit to fall back on if you ever need to. I think we can both agree that it is easier to write a check from your line of credit to pay your expenses than to try and access your money in the stock market prematurely.

"Also, what happens if a tragic event occurs and destroys your home? What then? You are left with a home that needs to be repaired and no place to live. You rent and you are still required to pay your mortgage payments as well, thus you ironically may be facing foreclosure here as well."

This one is easy. First, we all know that you always need to carry homeowners insurance. If your home is damaged your insurance will pay the monthly rent until your home is repaired. Also, which is more likely to happen, loosing your home in an earth quake or loosing your nest egg in the stock market? Please don't answer that question; I have worked in both the insurance and finance industry. I think we both know the answer to that question.

"You talked about financial advisors saying 1% invest all disposable income. I suggest it is 100%, the only issue is that they do not invest wisely at all. A checking account is a savings vehicle, even if it does not accrue interest, so they do invest. The financial advisor sees only those investments that he receives, not the whole picture, so to ask that question is irrelevant in my opinion."

Your response here is a little ambiguous. No homeowner looks at their "checking" account as an investment as you have implied above. They simply look at it as a secure place to hold their money until they write checks. Without "side stepping" the point, most homeowners will never put 100% of their disposable income into investments. If they do, they are not very wise investors.

"My investments are mixed, I have stocks, mutual funds, 401(k)s, IRAs (both types) that we have accrued over the years. I even have investment grade life insurance contracts. I also have savings and checking accounts and even momeny market accounts and CDs. I would say I am diversified and I am not the typical American. Yet, part of the reason I have this much investments and the diversity, liquidity, etc. that come with it is through using my mortgage as a financial tool. I am 38 years old and I am on track to retire at age 60 with well over $4 million dollars and that is not counting all of my investments nor the pension I could recive from American Airlines. That is the power of strategic equity management at work."

All of this looks fantastic, on paper. If everything goes according to plan this looks great. The only difference between now and retirement is "time". Nothing is without risk, and the investment vehicles you have shown all carry risk. Some financial advisors with their own personal agenda will tell clients that there is too much risk in getting rid of your mortgage for a paid off home. In reality, you are reducing your risk. I paid my home off years ago and it's a piece of mind that can't be described. If I want to re-mortgage my home for an investment opportunity, that's my decision. But now I am investing all of the money that I would have been paying to the lender in interest, into the investments of my choice. This is the truly secure way of doing it, regardless of what my greedy investment bone could do with a maxed out mortgage.

"The MMA showed that I would pay off my mortgages in 23 years when I ran the numbers for myself. I tell you that I could pay it off much faster through my investments. Heck, a bi-weekly mortgage can pay it off in 23 years."

Just so you know, if you would only have your mortgage paid off in 23 years under this program, UFF wouldn't activate you on the program. Your savings must be much higher than that to be activated. There are some people that simply don't qualify for the program. There are no "one size fits all" programs out there.

Also, UFF is constantly coming out with better and better versions of the mma at no additional charge to the consumer. The version they are using right now is just the tip of the iceberg.

It is clear that neither of us may ever see eye to eye on some of these points. That is the great thing about America, we dont always have to agree.

I don't mean to come across offensive. Again, the mma does not threaten our industry, it compliments it.

Once again, I am sorry for the long response. Thanks again for your time. Great discussion.

Mike S

Jun 13, 2007 09:39 AM

K C

Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT

Robert,

It's been a while since I've been active on Active Rain and I'm happy your still posting great articles. But I've read the same article by the upfront Mortgage Broker, and personally I and many others feel he's kind of a nut when it comes to some of his pet peeves when it comes to mortgage professionals making commissions. So for Jack to have an opinion about any new program that is negative is not a surprise either. I actually sent him an email last year about the UFF program, and sent him my comments regarding the program due to my familiarity of how it works.

If you want to throw stones at that companies version of mortgage payoff acceleration then I won't stop you, because personally I think anyone who lumps mortagages and MLM's together is asking for big troubles. But, as for the financial strategy I can see risks and reasons why many clients would be predisposed to wanting to payoff their mortgage. Sometimes it maybe an age factor, how much can a 59 1/2 year old borrower really put aside in 7 years with Doug Andrew's program, or Steven Marshalls? Not much.. They'd be smarter to reduce the mortgage as quickly as possible to preserve cash flow and get a reverse mortgage when they hit retirement. There is no way your going to get great returns on 7 years investments with a client at that age.

What about the new home owner? Normally there is little to on equity in someones first purchase. Perhaps they may have 10k in equity with a liberal appraisal. So what then, invest what difference at this point into a retirement account. They still need a rainy day fund, they need all their non-secured debts to be paid off, and they'd be better off with another 6 months salary saved for an opportunity account! So where do they get this from. That's the big problem, if you allow that client to be landed by some UFF agent, he's going to convince them to pay down the mortgage and the other poster was correct, one of the founders of the UFF program is a insurance agent. They will then alter their strategy to include large chunks of the paid off equity to then be transfered to insurance grade contracts.

The problem is that Rick Eldlemen's two brother theory, Doug's program and others are great for about 20% of the market with large equity positions in their homes. It's not so great for those in equity markets that are lean or with new buyers who flat out don't have it.

I don't use the UFF program because I think their a bunch of idiots for allowing their program to be hijacked by Network Marketing crazies. I am however impressed with a new group that everyone will be hearing allot of in the future. This particular company is launching soon and they will be primarily be recruiting insurance agents to sell their product. They also will have a follow-up program built into their product which is one of the biggest weakness of UFF's program.

So to sum it up, I've always believed that you should provide your client as many options as possible. Some clients are more aggressive then others. Some clients have more equity then others. What's good for 20% of the population may not be great for the other 80%. But I'd like to work with a larger net and bring more clients in from either side of the equation, provide them great advice and let them decide how much equity to utilize in the stock market at one given time. Personally I like Bert Whiteheads philosophy when it comes to someones financial portfolio. It can't be top heavy in securities and equities, there needs to be balance. I really think IF UTILIZED CORRECTLY that the mortgage payoff acceleration program could be used as a equity creator, which then if managed the created equity could then be injected into a qualified investment fund. I really think the two could work hand in hand.

Robert I was violently opposed to it when it first came out. I live not 15 minutes from UFF headquarters, and the new group which I believe will blow UFF out of the water is 10 minutes from my office. I had hour long debates with several planners that are all over this program. I was able to get one concession from these owners. This is that if Doug Andrews plan was followed to the "T", and NONE of the invested equity was ever consumed, then Rob we're right about investing ALL the equity.

Personally there is risk on both sides of this debate. The insurance company could fold shop with the Doug Andrews philosophy, or if you keep your money in equities too long you could lose big time in the markets. With the mortgage transfer accounts you could end up with a paid off home and a natural disaster could make it difficult to get back anything close to the value that it was before the disaster. But more important is what stage is the investor at, are they just beginning, are they close to retirement? I always look at both strategies.

Anyway great debate on this topic. I'm probably going to write a blog update on my own page soon about this subject as well.

Jun 13, 2007 11:57 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

FYI,

I am on a trip flying, 2 days turned into 3. I will make comments on each of the above when I get back as I feel some things still needed to be clarified, on both sides of the equation.

I just wanted to let you guys know thta I am limited access to the internet (I am out of the country) and will respond accordingly hopefuly tomorrow or over the weekend. Thanks for your unerstanding and patience.

Jun 14, 2007 07:58 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Mike S.,

I don't like long comments, so I will try to keep this short and concise.

Regarding the financing issue. Yes, most people can keep money in their checking accounts and invest from there, but the MMA sellers set people up and encourage direct deposits straight into their HELOC, thus most MMA users would be taking money out of their HELOC and financing their investments. That was the point. Those who direct deposit into their own checking account, then move money over to their HELOC are losing the interest cancellation effect on the money every day they do not move money over, so they lose a little that way as well.

Yes, $25 per month compounded does create a significant savings over time, so does a one time $3,500 investment over time. No, I do not use the MMA program myself and I cannot give 100% accurate facts on it, but I can give 100% accurate analysis of what it is actually doing for you. You are prepaying your mortgage with your disposable income or at least a portion of it. That is where the real savings are at, much like the way a bi-weekly mortgage works, which is another scam that can be done by on your own.

I have actually been offered access to the software by a UFF agent who does not like the programs anymore. For obvious reasons, his name will be protected. I do not have access to the software as I turned down his offer.

Taking a HELOC and not touch it is going to provide most of the benefit. They could also make similar payments as the MMA program would instruct if they choose and still would not need a program to tell them to do so. Again, the savings are in the prepaying of the mortgage, not the software. You did highlight a very important fact. If the money you spend comes out as soon as the income is deposited, you don't really benefit from it at all. A lot of Americans live paycheck to paycheck, so this is definitely not for them.

While a mortgage is technically needed to foreclose on a property and not having a mortgage prevents that, the reality of the situation is that if you need to increase your equity line or refinance to gain cash to survive, despite excellent credit, you will likely be unable to access the money. Why? Very simple. A mortgage is a loan against your income and is secured by your home. If you have no income or your home is destroyed, you will not be able to get that loan or extension, period.

Also, the stock market is not the only place to invest. Everyone has to decide where to place their money. Also, I suggest having an emergency fund first and foremost, and then invest elsewhere. Liquidity is the second biggest issue, behind safety. Even stock money can be received within one week, but a loan takes up to a month or more, if you can get it.

I agree that most Americans are not wise investors and that more people need to seek financial advisors for help. I will tell you that despite your comment on checking accounts being an investment, I have seen clients come to me with over $50,000 in a checking account. Rest assured, they do not spend that much and they do not have it there any more.

You have a misconception about me. You imply that I am greedy and that is why I will have that amount of money when I reach retirement. That is an invalid statement and you are prejudging me, one of the reasons I did not want to post that info. The Bible says to leave an inheritance for your children's children and that is what I am trying to do. I need a certain amount to live on, the rest transfers.

I am glad you chose to pay off your mortgage, but remember that if you take money out later, you are now limited to $100,000 for tax deductibility purposes. Regarding risk, home's are not a great investment and do carry risk as well. Senator Trent Lott stated he lost an estimated $400,000 in his home when it was destroyed by Katrina. Just one example, there are more. Just keep in mind that the time value of money will show that placing all of your money in investments now will show less than if you had invested long ago and had more money working for you already.

I am glad to see agents saying that they would not sell the product if it does not save over 7 years off your mortgage. That is one thing that I have never seen stated. I also agree that there is no one size fits all strategy, just as those I advocate to not work for everyone.

I hope I covered the big points you did and I agree that we won't see eye to eye. These are two diverse strategies and the readers need to look at both and decide which one would suit them best. These posts are to provide a better look at these and other strategies and to allow readers to see arguments for both sides in one place.

For the readers, do your research and keep in mind that anyone selling one product is likely unable to provide an unbiased opinion and will not necessarily work in your best interests. Seek professional guidance from someone who can analyze your specific situation and show the pros and cons of all strategies and help you decide what is best for you.

Jun 18, 2007 07:07 AM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Karl,

Welcome back to AR. I am glad to see your return and look forward to your posts.

As I mentioned about Jack Guttentag, I do not agree with everything he does or says, but he is a credible source overall. He does have an agenda, just like everyone else. I do like the Upfront Mortgage Broker Concepts, but I do not agree with setting limitations on compensation, just making it clear to the consumer how much someone is making on the loan. I have both earned loans and lost loans due to the fact I will agree upon a commission at the beginning and not change it, whether YSP or cash at closing.

As you know, I agree with you that there are many determining factors that go into the development of a family's mortgage planning strategy. Regarding one person about to retire, when he was getting a lump sum payout, I told him to payoff the mortgage and get a reverse after that. That would have been his best deal at the time. Unfortunately, his lump sum didn't materialize.

I also agree with providing ALL avenues and strategies and do include mortgage acceleration as an option. I have mentioned this numerous times, but people always comment in ways I have to take opposing views always as no one seems to be willing to oppose these programs and show the other side.

Another thing I agree on is Bert Whitehead's philosophy. Having done financial services (licensed in Securities and Insurance), I believe in the well balanced portfolio of investments and strategies. They allow for minimizing risk overall while keeping rewards above the average level. Safety is key when it comes to home equity, followed by liquidity and rate of return but above all else, it has to make sense for the family's goals.

Some points I disagree with you on, for starters, the new homeowner. Many of my clients have come planning to place large down payments on their new home, so mortgage planning can be a big advantage for them, expecially in regards to setting up their Acquisition Indebtedness (AI for short - the largest limitation on mortgage tax deductibility).

For the most part, I am against prepaying mortgage if using strategic equity strategies as there are major limitations on tax deductibility, particularly around the AI. Paying down a mortgage reduces that benefit and limits the deductibility of mortgage interest. But, if the plan allows the best of both worlds, then I am absolutely for it.

You have peaked my interest in this new company and if they offer a truly genuine advantage, rest assured I would like to incorporate it, so please send me more info if you can.

One thing I will say Karl, is that your comment has the most balanced view of any comment on this subject I have seen, and is one of the first comments I have seen that addresses the fact paid off homes are still at risk. Thanks for adding to the discussion and providing a balanced view under this post.

PS - As you likely already know, I use a financial planning approach to all of my clients addressign all aspects of the financial goals, limitations, suitability, etc through my process, MEDS™. I do offer both sides of the equation, mostly to ensure the best solution for my clients, but also it allows me to make money on both sides and not input any bias in my analysis of a client.

Jun 18, 2007 07:34 AM

K C

Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT

Robert,

Thanks for your kind words. As for your philosophy, I think we're not that far apart. What I think most of these "pay your mortgage off" programs do not address is the retirement and future tax problems that many seniors will face in retirement, and this is critical if your positioning yourself as an adviser or consultant. The other problem with "pay your mortgage off" programs is they cater to someone who wants to make a quick "buck". Some of these programs like United First will pay up to $2500 dollars when someone joins. So UFF is taking in 1000-1200 dollars and the rest is paid out in down line commissions. The other issue is that anyone can run around and sell their program, and the person who agrees then loses the opportunity to be advised on how it will affect their over all long term financial strategy.

If your in Florida, Robert Ashby should be the guy you run to for this type of advice.

Jun 18, 2007 07:47 AM

mike smith

setplans - Lacelle, IA

Robert,

Thank you for your response. I just wanted to let you know that I did not mean to imply that "you" are a greedy person. I meant that some investment advisors will advise people to take money out of their homes and advise them to invest it into investments that may or may not pay off for them, many times there are risks that investment advisors do not even advise their clients on. Some homeowners are cut out for that, but not nearly as many homeowners as some of todays investment advisors are advising to do so. Again, I was not implying that you are one of those people.

We both agree that there are some great ways to move ahead financially through diversified investments. Based on my experience, I have found that for many of the homeowners across America, a more conservative approach is desired and needed. If you make paying off your home one of your first priorities, you don't take the chance of having your home foreclosed on due to unexpected investment losses. This is much more likely than loosing your home to a natural disaster. History has proven that, and I have seen it personally by working in both the insurance and investment side of things. If you have proper insurance on your home, the loss of your home due to a natural disaster is much less likely than a loss in the stock market.

Just a few comments, you stated in your previous post to me:

"Regarding the financing issue. Yes, most people can keep money in their checking accounts and invest from there, but the MMA sellers set people up and encourage direct deposits straight into their HELOC, thus most MMA users would be taking money out of their HELOC and financing their investments."

The MMA program is designed to help maximize the benefits of every penny the homeowner earns. This means that the mma program helps to maximize the benefit of the money homeowners have in their checking and savings accounts toward interest reduction, in addition to the investments the homeowner may already have. Again, this program does not create a conflict with homeowners who choose that they want to invest while they use the program. Like I stated in my previous post, most people do not truly invest 100% of their disposable income, if they did they are not wise investors. So, if they are only investing a certain percentage of their disposable income, what are they doing with the rest of their disposable income? Currently, most people are just letting it stagnate in a standard checking or savings account. The only institutions that really benefit from that is the lenders and the banks. I agree that it is important to keep a side a "liquid" cash reserve in savings. I also know that there are aditional available benefits to homeowners that work with many investment strategies.

"Yes, $25 per month compounded does create a significant savings over time, so does a one time $3,500 investment over time. No, I do not use the MMA program myself and I cannot give 100% accurate facts on it, but I can give 100% accurate analysis of what it is actually doing for you. You are prepaying your mortgage with your disposable income or at least a portion of it. That is where the real savings are at, much like the way a bi-weekly mortgage works, which is another scam that can be done by on your own."

The one time fee for this program is something that is usually liquidated within the first 3 to 4 months of using the program. Those who do not have actual experience using the program should not make statements like "No, I do not use the MMA program myself and I cannot give 100% accurate facts on it, but I can give 100% accurate analysis of what it is actually doing for you." There are currently thousands of certified financial planners offering this program to their clients across the nation in conjunction with other financial options, and many of them are using it themselves. I just don't see how you can imply that this is not advantageous to the homeowner or how you feel that this is a threat to our industry. It works in perfect harmony. In addition to the homeowners that can benefit from this program in conjunction with their existing investments, how can you help the homeowner that is not comfortable with investing their money in the stock market or most other investments? After 9/11 there are millions of homeowners that say they will never invest again.

"Taking a HELOC and not touch it is going to provide most of the benefit. They could also make similar payments as the MMA program would instruct if they choose and still would not need a program to tell them to do so. Again, the savings are in the prepaying of the mortgage, not the software."

You have stated several times that you don't need the MMA software, yet you said above "They" can make similar payments on their own. I can see how you could make statements like this if you don't have personal experience with the software and service. I agree, that "They" (meaning the average homeowner) could attempt to make similar payments on their own, but for most, there would be a considerable difference in the final outcome. In fact, for many years you have been able to buy books starting at $29 that attempt to "tell" homeowners how to apply these principals on their own, but there is a big difference between reading a pamphlet on how to do it and actually using a tool that is specifically designed to create the greatest advantage and to make it realistic in applying the benefits of the concept in the average Americans daily lives.

There are $29 books on how people can invest on their own, so why do people need financial advisors? Again, this program is much more effective in helping homeowners pay off their home than the traditional attempts that most homeowners are making, including trying to do it on your own. This statement is taken from one of the thousands of homeowners across the US that initially wanted to do it on their own, then decided to try the mma program.

"You did highlight a very important fact. If the money you spend comes out as soon as the income is deposited, you don't really benefit from it at all. A lot of Americans live paycheck to paycheck, so this is definitely not for them."

Homeowners that are living penny to penny and paycheck to paycheck will not qualify for the program. If someone is living paycheck to paycheck, they are trying to hold on to their home, they are not trying to pay it off, and they would not be put on the program.

"While a mortgage is technically needed to foreclose on a property and not having a mortgage prevents that, the reality of the situation is that if you need to increase your equity line or refinance to gain cash to survive, despite excellent credit, you will likely be unable to access the money. Why? Very simple. A mortgage is a loan against your income and is secured by your home. If you have no income or your home is destroyed, you will not be able to get that loan or extension, period."

I very much agree with you on the above statement. That is why many of the homeowners using the program will increase their HELOC credit limit incrementally as their mortgage balance decreases. It is very easy to incrementally increase your HELOC limit, especially if your lender sees that you are paying your primary mortgage down well ahead of schedule. By increasing your HELOC balance incrementally as you pay down your mortgage balance you continually have access to the equity in your home should you ever need it, and you don't have to re-qualify if you have a job loss or some other situation happens.

As far as tax deductibility, I would rather save .67 cents in interest than get back .33 cents in taxes on each $1.00 of interest (this is a general example). Also, if you want additional tax write offs, those who payoff their mortgages ahead of schedule with this program can begin to more strategically purchase investment properties. While you have a loan on those properties you can write off the interest on your taxes and benefit from the interest savings until each new property is paid off ahead of schedule. This is a proven strategy and many people can significantly increase their personal wealth for retirement this way. Many real estate investors would disagree with your statement in your last post of "Regarding risk, home's are not a great investment and do carry risk as well."

There are many more benefits to this program. As I stated before, there are thousands of certified financial planners across the country that have added this program to their portfolio of products. They and I also advise homeowners to take a look at all of their options and then make a decision from there. This product is not for everyone and should be research closely.

Thanks again for your time.

Mike S.

Jun 18, 2007 12:00 PM

K C

Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT

Mike,

I've enjoyed the counter by counter approach to both your arguments. I've have worked with United First Financial, and am currently working with one of their competitors. I use the product with those investors who are a little more risk sensitive then with those whom truly understand what Robert is trying to say in his argument.

As for UFF's program, I really am not happy with a number of recent decisions they've made. Furthermore I do not like the fact that they target average joe and jane as their sales agents. The simple fact they attached network marketing to this product is one sure reason I do not see it succeeding in the long run.

As for the UFF or MTA strategy, it has it's place and I think it's a viable option for 80% of the public. As for the other 20% whom wish have the equity to reposition, then you have to admit that the time valued earning potential of investing dollars today far out competes dollars you invest tomorrow. I've run the numbers and Doug Andrews program does out perform any MTA program.

The program that I sell is marketed only to financial planners and mortgage loan officers. They also direct sell through door to door and commercials. The referral income isn't as high, but the company isn't built on the MLM concept. I think longevity will play out in this case, and one area that UFF misses the boat completely is the reinvestment of equity into qualified insurance or real estate investments.

The scary thing about UFF is that ANYONE could be advising their friends and neighbors about this program. Not EVERYONE is qualified to give out long term financial advise. That's where I have my major issue with UFF and other MLM programs that attempt to unite financial planning and investing.

But bravo to both you and Robert for the excellent debate!!!

Jun 18, 2007 12:13 PM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Mike,

Apology accepted and thanks for the clarification. Both sides have been shown and that is what needed to be said. I am not going to break apart your comment any further than that, except two things.

Be careful when you state the ability to deduct mortgage interest on investment propeties. That is incorrect the way you mention it. There are ways to use investment properties to lower taxes, but that is a whole other subject and the interest is generally not tax deductible.

Many real estate investors would agree with home equity not being a great investment. I left out the word "equity" and I apologize. Many investors prefer to leverage their properties to gain more properties and increase cash flow. As with any investment, ROI and cash flow are key. Think of it this way...

Which would you rather have $100,000 in control only one property that yields $10,000 annual profit or $20,000 and control five properties, providing $10,000 annual profit total. Same cash flow, yet there are more diversification, etc. with holding multiple properties.

Real Estate does carry risk, the risks may be different than securities, but anyone who says homes do not carry risk should be avoided as they are missing a key factor.

Thanks again for the discussion. As I said, both sides have been shown and that is the important factor of the discussion and I am glad the comments have shown that.

Jun 18, 2007 02:29 PM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Karl,

You are welcome and thanks for the kind words, and endorsement, in return. Also, I agree we are not far apart in our philosophies.

I am glad to see that the discussion here has been fruitful for fellow readers and your "bravo" can attest to that.

You mentioned some very good short comings of the mortgage acceleration programs in regards to overall financial planning. You also showed how those marketing these programs could lack the expertise to truly be advisors, a point I have not mentioned before. I did mention the MLM style (whether a true MLM or not) and the fact they push one product and how that can prevent one from providing unbiased advice. That was one of my major concerns about how these are marketed.

Thank you again for your contributions to this discussion and please send me info on what you are using to see if it is better than what I am currently providing.

Jun 18, 2007 02:40 PM

mike smith

setplans - Lacelle, IA

Jun 18, 2007 05:37 PM

Robert D. Ashby

Cruise Planners of South Florida - Plantation, FL

Providing Personalized Travel

Sue,

I tried to email you to repost a more concise comment. For some reason my internet is not letting me send that contact form. If you read this, please rewrite the comment as I would like to read it, but please keep it more concise as the comments are getting way to long and I have received complaints on the lengths of them. Thank you.

Jul 09, 2007 05:19 AM

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