MMA Accounts and Are you REALLY Ready to Pay Down Your Mortgage?

There has been much discussion and hype associated with MMA Accounts over the last 12 months. The webinars tout how you can make huge commissions by selling the software and build a MLM downline to provide residual income. The websites are flashy, the PowerPoint presentations are slick and the idea of paying off your mortgage in 8-10 years sounds wonderful, right?

Well, maybe.  Ask yourself, "Would I rather have $500,000 in cash or a paid off mortgage?"

For the record, I watched the MMA presentation from U1st Financial twice this morning before writing this.

What I am about to present is not based on spreadsheets, amortization schedules, or algorithms, just some common sense mixed with 12 years in the mortgage business, 32 years in the workforce, 51 years on the planet, and a desire to stimulate people to think for themselves rather than to get wrapped up in hype. I don't need to have a finance degree to speak with confidence on the following points. This is going to be a bit long, but that's the way it goes.

I will leave what Kevin or what any other MMA advocate presents stand on its own because, mathematically speaking, it will work if adhered to in the strictest sense. OK, I said it. However, as a practical matter for MOST homeowners it doesn't make sense. In the course of my employment as a mortgage originator and team leader, I see about 10-15 credit reports and loan applications every day from homeowners wanting to refinance their mortgages for various reasons. We mainly target the A, A-, B credit demographic to give you a point of reference.

We even keep some pretty good statistics to help us define our target markets. The following is comprised of information from 4,245 refinance loan applications over last 2 years, 7 months, through July 2007.

• Average mortgage loans-to-value 72%
• Average loan size $273,647
• Average amount of non-mortgage installment debt $31,437
• Average amount of non-mortgage installment debt service $725 per month
• Average amount of consumer revolving debt $15,379
• Average amount of consumer debt service (min. pmt.) $619 per month
• Average household gross income $107,844
• Average total debt-to-income ratio 38%
• Average mid FICO 712
• Average age 35-40 bracket
• Average NON-retirement cash position (regular checking/savings) $10,966
• Average combined retirement savings (IRA, 401K, 403B, 457, etc.) $29,659
• Average # of months since last refinance, 21 months
• Average # of times they have refinanced (non-purchases) in last 7 years, 2.4 times
• Average # of homes they have owned in the last 7 years, 1.5

If you are a mortgage professional, try to relate the above to your own clients. If you are a non-mortgage person, relate it to your own life experience. Does anything here just really scream out at you as being out of balance for a healthy financial picture?

How about the small amount of retirement savings? I don't think I am revealing anything too startling here, Americans are not saving NEARLY enough money towards their retirement, even though virtually everyone who owns a house has access to some type of deferred savings plan, right? Pretty much everyone can defer AT LEAST 15% of their gross monthly income, some people more than that.

How about the debt service? $1,645.00 per month is a TON of money, with much of going towards interest, not reducing the balances.

The vast majority of the homeowners who we see have too much consumer debt that they are not reducing and have too little retirement savings to which they are under contributing. Again mortgage/financial pros---Agree? Everyone else?

OK, I know this is long, but I had to set up the following questions that (In my opinion) should be asked of any homeowner BEFORE they consider the MMA, CMG or any other method of accelerating the principal reduction of their mortgage.

• Do you have any revolving type of debt costing you compounding interest?
• Do you REALLY have the discipline to remain debt free?
• Are you contributing the maximums allowable by law or your employer to any type of deferred income/savings/retirement plans?
• Regarding your investments, Do you understand the power of compounding interest and doubling (the Rule of 72?) Would you like to see how it works?
• In 10 years, would you rather have $300,000 in retirement/savings/cash or a paid off house of the same value? (Assuming you are even in the same house)
• If you are willing to spend $3000-$3,500 for the MMA, would you be willing to spend $350.00 to have a financial planner sit down with you for an objective look at the best way to achieve whatever goals you have?

Now, I don't think these questions are too far-fetched and don't deserve at least some consideration before jumping into an aggressive principal reduction plan. Actually, I think that aggressive mortgage principal reduction is a fantastic idea. Again, in my opinion, I don't believe that it should be the primary focus of a homeowner, jumping ahead of more conventional, tried & true methods of investing as a method of creating financial strength.

After this ramble, here is why I am dead set against these MMA programs offered through a MLM structure.

Harkening back to the last few years in the mortgage business when every used car salesman, cell phone salesman and baby-sitter jumped in for a quick buck selling 1% Option ARM loans, I fear that this product is becoming the next greatest fad being hyped by people that have no clue to helping people manage their finances. The Option ARM is a very useful too for some homeowners, but very few people understood it before they jumped in either selling it or buying it. The aftermath is wrecking the housing market as I write this. The MMA is being offered to and offered by people who have even a lesser understanding of current financial management or financial planning. And is it complicated? Well, you can make that judgment for yourself.

I take my role as a mortgage planner very seriously, and somehow I have survived through the ups and downs of this business without letting myself or team members get swayed, by pushing high profit/low suitability loans on our clients.

OK, thanks for indulging me on this rant. I have probably left out some important stuff, so sorry about that.