This evening I was channel surfing and happened to come across the 60 Minutes segment “House of Cards: The Mortgage Mess“. Steve Kroft did the story, and I thought that it was a pretty good summary of the sub-prime mortgage meltdown in plain English even a layman can understand.

Even though the appraisers were not mentioned in the story, this is another sad example that ignorance of the law common sense excuses no one….except Charles and Stan - they are laughing all the way to the bank.

One can slice it and dice it any way they want - but everybody was party to this dance.

Is Mortgage Acceleration for Real? And For You?

If you could pay off your mortgage more quickly and save thousands in interest, would that get your attention? It got mine. It started when I sat in on what turned out to be a multi-level marketing presentation that promised these things could happen when you bought their $3,500 web-based software. That made me suspicious, because I know that mortgage acceleration relies on mathematical principles and financial discipline, not magic software.

Using what I learned from that infomar I did some research and found www.SpeedEquity.com founded by Mr. Harj Gill. He came up with the mathematical and banking principles to allow mortgage acceleration without having to refinance your 30 year mortgage, changing to bi-weekly payments, or even changing your spending habits. He developed the program in Australia based on principles that are sound but not generally known and understood. If the user has financial discipline, he or she can cut years off a mortgage and save thousands in interest. Harj answers most frequently asked questions here.

Gill is a consumer advocate crusading against the companies that are promoting $3,500 software and high cost consulting for what people can do on their own. His influence has spread from Australia to Great Britain, Europe, Canada, and lately the U.S.

After some research and exchanging emails with Harj Gill, I decided to go to his seminar in Las Vegas on July 6 where I joined what looked like 800 to 1,000 other people at the Luxor Hotel. It was astounding. The local TV station, KVBC, did a story about a company which sells a similar software for $3,500.00, and with the help of Nick DiArchangel (producer of “Saving you Money”) and reporter Jim Snyder, the spotlight was put on Harj and his program.

It is bewildering that this story has not spilled over to the Greater Phoenix Metropolitan Area and it is amazing that the local media has not picked up on this story yet. The only thing I could find about mortgage acceleration in the local media was this article in the Arizona Republic. Ironically this was published the day prior to Harj Gill’s event a the Luxor Hotel in Las Vegas.

The bottom line is that Harj Gill’s book explaining the system, Own Your Home Years Sooner!, will be out soon with a price tag of $24.99, and the web-based software has an equally low annual fee. That sure beats $3,500! Or, you could get a Ph.D. in mathematics and create your own spreadsheet.

Speed Equity® seems like something that could help a lot of people get out of debt sooner.

Mortgage acceleration can be part of a financial plan and is one of many strategies. There are other strategies which call to maximize all available home equity, extract it, and to re-invest it in other investment-vehicles. So naturally there are pros and cons of paying off your mortgage sooner, but ultimately it depends on each individuals goals

The concept of Arbitrage is not something new but before you jump on paying off your mortgage sooner or extracting every bit of equity you have to re-invest in another investment vehicle, you should consult with a financial planner, mortgage planner, investment consultant and/or a CPA to weigh out all your options.

The majority of middle class Americans do not have much savings, not to mention a financial plan; and a 401K is just something what an employer offers and the fellow co-worker has. So it is time for everybody to wake up and educate themselves… At the end of the day it is always better to have a plan rather than having no plan at all.

I hate to see people lose their homes. These days it is happening too often as many folks are unable to keep up with mortgage payments for many reasons. Sometimes a home goes to foreclosure because of divorce, or illness in the family, or because someone loses their job.

Today, most buyers end up in foreclosure because they bought overpriced homes at the crest of the Phoenix Housing Market and abused the wrong loan product such as 100% financing, pay-option ARMS or stated income loans. These people find themselves “upside down” in their properties – owing more than the property is worth. They cannot afford to sell the house because it would mean finding cash to bring to the closing-table, and not having enough cash, income or a combination of both is most likely the cause they got in trouble to begin with. If they were already at the limit of their financial resources, any kind of little bump in the road could send them to foreclosure.

Welcome to the world of the Short Sale. This is where a knowledgeable real estate agent can help these people sell their home in what looks like an impossible situation. The secret is understanding how a short sale works to every-one’s advantage, and then acting as the deal-maker between all the parties.

The homeowners don’t want to lose their home to foreclosure – they need to get out but can’t afford the cost to settle. Most of the times, homeowners facing foreclosure are under such emotional stress that they don’t consider their near future. No doubt, a short-sale will still negatively impact the seller’s credit-score; however, it is not nearly as bad as having a foreclosure on the credit report for seven years.
With lending guidelines tightening up and the sub-prime mortgage market in trouble, it is most likely that borrowers with a foreclosure on their record will have a more difficult time to get a mortgage in the future when trying to get back on their feet.

Lenders don’t want to go to foreclosure – it costs time and money because of the cost associated with a trustee’s sale, trustee’s fees and legal fees. On top of that, all the foreclosed loans become non-performing on the books and may affect the lenders ability to sell their loans on the secondary market. Therefore many lenders may be able to be convinced to let the borrower sell their home for less than what is owed on the property.

So, at the start of the short sale process you have both sides wanting to turn a bad situation to one with a “happy ending”. Add to this a qualified buyer recognizing the opportunity to acquire a property at below market value. Now you have the ingredients for a successful resolution all around:

• The sellers avoid foreclosure

• The lender takes a discounted pay-off to avoid the foreclosure process and saves money

• The new buyer steps into the property with immediate equity

Most homeowners who could benefit from a short sale don’t even know the option exists. Too many real estate agents don’t know about short sales, either, and are missing opportunities for growing their business with a win-win solution.

Disclaimer:

There are a couple of things to consider! A short sale will affect the seller’s credit score. Sellers must understand the terms of the short sale and should obtain any agreements in writing (some of the forgiven debt may be required to be paid back as a personal obligation). Forgiven debt may be treated as income for tax purposes. Buyers be aware that short sales take a long time to close (they call them short sales for a different reason). The purchase contract always is contingent upon a short sale agreement acceptable to both , the seller and the lender. And finally, always consult with your attorney and tax professional.

Overall the loan process is very similar to that for Americans. First of all the borrower will need to complete a mortgage application. The two most important components in the application is the proper disclosure of employment, liquid asset and immigration status. The borrower will be required to furnish a letter of employment, relevant bank statements and a copy of the passport with an acceptable visa stamp. Once all the information has been verified the lender can then determine the most suitable program.

In my experience I have found that there are two distinct program options available. The first option works if the borrower has perfect Canadian credit. In this case the lender can go through a large credit depository like Chase and pull Canadian credit into their system. The lender can then use this in making a credit decision. There is no tolerance for bad credit in this option. Even one late payment on a small credit card account twelve months ago can kick the application out.

Armed with solid Canadian credit the borrower now has access to a wider choice of loan programs. They can qualify for fixed rate loan programs with limited pre-payment penalties and other features common to prime loans.

In the second program option the lender does not pull Canadian credit and only verifies employment, the liquid assets and the visa status of the applicant. In this case the loan programs are rather limited. These programs usually involve high down payment, variable interest rates, balloon payments and pre-payment penalties. Not all of these features may apply to the loan but will most certainly include a combination depending on the lender.

The two program options I describe above are only available for the purchase of a second home. Purchasing a primary residence is still available but will require a long-term US visa such as an H-1B. It also requires proof of continued employment in the US for up to three years. The process is then exactly the same as that for Americans.

No, I am not going to reheat this great debate since Jay and Shailesh got it covered, however the same topic was part of an offline discussion I had at lunch today. A discussion which lead to another subject – boosting your credit score by 10 points by opting out receiving pre-screened credit offerings

Perhaps I have been oblivious to knowing about a website called www.optoutprescreen.com and in a nutshell this is what they do:

Under the Fair Credit Reporting Act (FCRA), the Consumer Credit Reporting Companies are permitted to include your name on lists used by creditors or insurers to make firm offers of credit or insurance that are not initiated by you (”Firm Offers”). The FCRA also provides you the right to “Opt-Out”, which prevents Consumer Credit Reporting Companies from providing your credit file information for Firm Offers.

Through this website, you may request to:

• Opt-Out from receiving Firm Offers for Five Years - (electronically through this website).
• Opt-Out from receiving Firm Offers permanently - (mail Permanent Opt-Out Election form available through this website).
• Opt-In and be eligible to receive Firm Offers. This option is for consumers who have previously completed an Opt-Out request - (electronically through this website).

There are many loan officers who believe that opting out from getting these pre-screened offers can boost the individual credit score by 10 points, however optoutprescreen.com states that opting out will not do anything to your credit. Frankly, I am tired of getting so much junk mail and I am considering to get to the bottom of it a la MythBusters (testing a hypothesis).

Unfortunately, I have not kept track of how much junk mail (credit offerings) we have received in the mail and opting out right now will most likely not give me an accurate result even though I am very tempted to do it right now. Also, I have not pulled my own credit rating lately so I cannot be sure right now what my wife’s and my scores are. There will also be most likely a change to our score due to a recent sale of one of our investment properties. So there are too many variables right now and not enough historic data which does not allow to accurately test this hypothesis.

So here is the plan:

For the next 60 days Blair and I are going to count all the pre-screened credit offerings from companies which we are not customers. We will pull our consumer credit score tomorrow to establish the basis for proving or busting the myth. On August 8th we will tally up on how many pre-screened offerings we received, verify our FICO scores again and opt out from the pre-screened offers. Then we will repeat the same process for the following 60 days and see if there is really a significant decrease in the amount of credit card offerings we received and if our FICO scores went up the 10 points.

Let’s see if we can prove or bust this myth raising the credit score by 10 points. I am just wondering on how many trees could be saved if every consumer would opt out right now….

Shailesh and I share some common traits, as you may have learned from another blog post recently. We are both from another country – Shailesh is from Nepal and I am from Austria. English is a second language for both of us. We have advanced education in an area other than real estate – I studied and worked in the hospitality industry, and Shailesh has an MBA and worked in technology. And we are now both enthusiastically working in real estate in Arizona.

Something else we share is a desire to give our clients the best service possible. This means that we work to stay up to date on what’s happening in the market, and we share what we know whenever and wherever possible. That’s why I’m excited about having his expertise available on my blog from time to time – he really is the guru of home loans in Arizona.

With all the changes and challenges in the mortgage industry lately, I know there is much we can learn from Shailesh. I’m looking forward to hearing more about government FHA/VA loans, especially since other options such as sub-prime lending are disappearing. And I know that his understanding of all aspects of the mortgage business will be a great asset for all readers.

Welcome, Shailesh!