Clark Gable, Bugs Bunny and mVesting

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May 25, 2005 6:07 pm

"Including myself, many of you have been spammed by e-mail, over-loaded with junk mail or called during dinner on how to “lower” your current mortgage payment. Trust me, I don’t want to listen to another Mortgage Company if I don’t have to. But truth be told, this program works."


Pot calling the kettle black?

May 25, 2005 8:38 pm

I'm going to make some assumptions about this program and I don't like it. Remember the Primerica motto, "Buy term and invest the rest"?


Well, it appears this mortgage program involves converting the first mortgage to an interest-only mortgage (which substantially reduces the monthly payment, by nearly half in some cases) and investing the difference. Of course, the interest-only mortgage is adjustable, meaning that their monthly interest payment goes up or down, depending on interest rates. Think interest rates are going up, some more?


This program may also involve getting cash out of the equity in the home, assuming there's enough equity available.


Gee, a lump sum to dump in a mutual fund with monthly investments. Sounds like a broker's dream! Not.


I'll admit that I have a personal bias, concerning this program. I'm very conservative financially and I believe two things: that rates will continue to go up (for a while anyway) and that we are in a housing bubble.


If I'm right, and your clients participate in this program and they max-out this new, adjustable rate mortgage, your countdown to arbitration has begun.


Picture this:


1- Your client will have no equity in their house, so they can't sell it. Besides, if housing prices drop 10-20% (remember, I think we're in a bubble), they'll be even further in the hole. 


2- Their monthly house payment is going up, as rates go up. Of course, they could refinance back into a fixed rate mortgage, But rates have been going up, the housing bubble has burst, and they maxed out their home equity. So now, their house payment has doubled and they've had to cash out their market investments because their house didn't appraise for enough to borrow enough to pay-off the first mortgage.


3- What usually happens when rates go up? The market goes down. So, your clients probably won't be able to cash-out their market investments to come up with enough to pay down their adjustable rate mortgage by any substantial amount, in order to refinance.


Therefore, I believe the increasing use of adjustable, interest-only mortgages (in a housing bubble) is going to result in a "perfect storm" of unforeseen consequences and it ain't gonna be good. Incorporating these mortgages in your client's financial planning can only result in arbitration, down the road. As for me, I'm keeping my fixed rate mortgage and leaving my home equity alone. And that's what I'm recommending to my clients.

May 25, 2005 11:46 pm

here here

May 25, 2005 11:51 pm

doberman pretty much said it all...this thing is total insanity....and
the fact that ANYONE would seriously consider doing something like this
is further evidence of a real estate bubble ready to burst....!

May 26, 2005 1:31 am

Doberman,


More likely it is a dump of the equity into a UL (preferably an equity indexed UL).


The UL would be run on a MEC calculation with the savings from the refinancing of the mortgage supplying additional premiums to the equity dump into the policy.


This achieves a high face amount life insurance policy and a means to have access to the cash value in the policy free from taxes.


Further, the right mortgage product will have limits on how much the interest rates will go up so it will not be a substantial jump in mortgage payments if rates rise.  There will be a cap on the mortgage payment increase within a specified period.


Actually, it is not a bad concept if you guys quit thinking about securities (dump into mutual funds?  wrong) and cover more total needs planning.


Of course the way he/she advertised their program is all wrong.

May 26, 2005 2:30 pm

Let me respond by saying thank you for your honest responses to my
original post. Sure, the concept is new and controversial. But I've
learned a lot from old dead guys that know more than I do.



"Innovators are inevitably controversial."

Eva Le Gallienne, 1965




Let me further explain. mVesting was created as an online consumer
service that links borrowers to a network of qualified mortgage brokers
and financial advisors throughout the nation.



Right now, Lenders offer these types of loan products to willing
consumers with little to no advice about the financial impact to the
borrower. The mVesting solution completes that circle with the advice
given by their financial advisor.



"Dollars do better if they are accompanied by sense."

Earl Riney, 1951




I've condensed a recent article that seems to confirm we are on the right track.



As Prices Rise, Homeowners Go Deep in Debt to Buy Real Estate

James R. Hagerty and Ruth Simon



The article basically says that many people are using refinancing and
ARMs to invest in real estate. Economists say this move to tap equity
may inflate housing bubble; like buying on margin.



Over the last five years, US home values have increased an average of
50% and added an estimated $5.3T to total residential market value. As
a result, most Americans no longer think of their home as a place to
live.



Last week, the Fed issued guidelines calling for Lenders to tighten
their criteria for making loans backed by home equity by looking more
closely at borrower's ability to repay under various possible future
market conditions. Among regulators' top concerns: the surge in
popularity of interest-only loans, which allow people to pay only
interest in the initial years and face the burden of paying back the
principal later.



"Your home is one of your biggest assets," says a brochure from Merrill
Lynch & Co. "It's also a powerful borrowing tool." A Merrill Lynch
Spokesman said the home-equity loans it offers to consumers are
"prudent."



That's our position as well - mVesting synergies the relationship
between your largest asset and your financial goals. It's also an
alternative to buying a home if you aren't going to live in it more
than five years.



I'd be inclined to have a phone conversation with you by logging into
mVesting.com with this User ID: CYW9T49 and going through the 3 step
process (View Demo, Fill-out Survey and Schedule a Phone Appointment).



Respectfully,



mVesting Customer Care Team
May 26, 2005 3:20 pm

I have also learned a lot from dead people:


1.  "I don't want to go to the theater tonight." Mary Todd Lincoln


2.  "We have peace in our time." Neville Chamberlain


3.  "I'd rather have two girls at 21 than one at 42." W. C. Fields


4.  "One fish, two fish, redfish bluefish." Dr. Seuss


5.  "I don't want no steenking mortgage broker posting on my Registered Rep bulleting board!" Pancho Villa