There has been quite a bit going on over the past several months and it has reflected on this site.  If you have been following my struggle to keep my house and grow my business, then you know that I have slashed my budgets to the max and frankly it hasn’t been enough.

Whether it was poor planning or just bad luck or a bit of both, the last year has seen my financial situation plummet.  There have been months when I barely had enough money to buy gas to get to work or to eat.  The last few months have been better.

The business is growing steadily and I am getting new customers every week.  I have increased my gross income by about 45 percent over the last three months and I should continue to see a steady increase.  Moving the business to the new location has helped immensely.

The bad news is that it still isn’t enough to meet my financial obligations.  I have made the decision to sell my house.  It is currently listed for what I paid for it.  I will lose money on the commission and closing costs but as I told the Realtor, I am losing money every day that I keep it.

I have made arrangements to move in with a friend.  It will cost me about a tenth of what it costs me to maintain the house during the winter which will help while the business is struggling.  I will be commuting twice as far so my gas costs will go up but they will not be nearly as much as it costs me in mortgage, insurance, taxes and fuel oil.

Once I sell the house, whatever equity I get will go into an emergency fund or go to pay off bills.  When that is done, I can start working on my retirement.  All in all, I suppose it’s a good thing all around but it has been a very difficult decision.

Now if the house will just sell!

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In subsequent testimony, both Ben Bernanke and Henry Paulson testified that both companies reserves were in excess of the requirements and that they were “working through this challenging period” but neither would speculate on what the consequences would be of either a government bailout or the failure of either or both companies.

Jon Ogg at 24/7 Wall Street takes a look at the impact that these giants have on not only the mortgage industry but the entire financial system.  He states

But think about the ramifications if one of these or both of these actually failed.  If you thought a Bear Stearns meltdown would have caused a panic, “you ain’t seen nothing yet” sure comes to mind.  It isn’t that the lending institutions would be changed for future mortgages.  The ramifications for the entire financial system would be at risk.  Imagine if all the outstanding debt issuances, mortgage-backed securities, CMO’s, and other pieces of paper widened out to massive spreads over treasuries.  You would have write-down waves at banks, brokers, insurance companies, credit unions, every pension system, mutual funds, and private money managers.  It would effectively destroy more value in just about every portfolio that exists.

The mortgage industry which pretty much depends on Fannie Mae and Freddie Mac loans is in a wait and see  mode and not sure they want to read the news on Monday morning.  I personally hope that the Congress will pull the white rabbit out of it’s bag of tricks and we will see some stability on Monday morning.  I’m not even sure what to hope that the white rabbit is anymore and will be interested to hear any comments on what others think the Congress should do.

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by roarofthefour

I heard someone say this the other day and I couldn’t believe my ears. There point was that they weren’t planning on selling or refinancing their house for a couple years and so the current real estate/mortgage situation would be a thing of the past. They live in an nice neighborhood and really didn’t think that their value would be affected by the declining markets.

With friends in the mortgage and real estate industry, I hear a new horror story every day. People in nice, upscale neighborhoods are going to sell or refinance their house and having it appraise at 25% to 30% less than they expected. In many cases, the appraised value is less than what they paid for it three or four years ago and less than what the tax assessment is.

On the surface, the gentleman above is correct. He doesn’t have to sell or refinance his house right now but if you look a little deeper, you can see that the declining real estate market affects everyone. For many Americans, our homes are our major investment. We have always been told that it’s a safe. We have watched our homes appreciate every year and so we have a good deal of our wealth tied up in them.

Let’s take a look at his situation. He bought his house in a good neighborhood three years ago. He got a pretty good deal on it at about $425,000. He put 20% down and got a fixed rate loan. His house appreciated pretty rapidly for the first year and he took out a second mortgage for $25,000 to redecorate and pay off some bills so he now owes around $365,000.

He knows that there are several houses for sale in his neighborhood and a couple of vacant homes. What he doesn’t know is that a couple of those houses have gone to foreclosure and been sold by the mortgage company at bargain basement prices. This has lowered property values in the neighborhood considerably causing other people to negotiate short sales with their lenders. All in all, home values have dropped in his neighborhood about 25% in the last year.

The home for which he paid $425,000 is now worth $318,000. He owes $365,000 on it. If the market continues to decline at even 10% per year for the next two years, his home will be worth $257, 580 in 2010 when he expects to either refinance it or sell it. That’s a loss of $167, 420 and right around $100,000 less than he owes on it.

Real estate analysts are predicting the decline to continue for two to three more years before it starts to turn around. Even when it turns around, they predict a much more gradual rate of appreciation over the next decade. I’m going to use 10% appreciation which may be on the optimistic side for a few years. At 10% appreciation, it will be 2013 before his house is worth what he owes on it and 2016 before it is worth what he paid for it.

Hopefully for all of us, the measure that Congress has recently enacted will stem the tide of foreclosures and short sales. My friends in the mortgage industry tell me that banks and mortgage companies will go out of their way to help people who can’t make their mortgage payments if they are contacted by the homeowners.

If you are in a declining market there isn’t much you can do but wait it out.   I got caught the beginning of it and it is part of the reason I am in the position that I am financially but it could have been worse.  If I had not sold my house when I did, I would be upside down in it and I would not have been able to sell or buy a new house.  In the midst of all of this, I am counting my blessings, rebuilding my retirement fund, my emergency fund and my credit.

If you are having trouble making your mortgage payments, call your lender imeadiately.  They do not want to foreclose on your home and almost all of them will work with you to keep that from happening.  It is the best way to stop this madness.

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*Money Merge Account is a trademark for a patented, proprietary software program solely owned by United First Financial and my comments are not endorsed by United First Financial.

Robert Kiyosaki, author of “Rich Dad, Poor Dad, “Rich Dad’s Guide to Financial Freedom”, and other books, said this: “The reason that most people struggle financially is that they learn to work hard for money but never learn three things that are essential to earning the income and having the freedom they desire: 1. How to Use Leverage, 2. How to Create Passive or Residual Income, 3. How to Make Money and Make Money Work For You.”

Leverage: Having money in an investment portfolio that gives you a good return is using leverage. Having a mortgage isn’t.

How to Create Passive or Residual income: Again, investments do that, mortgages don’t. One of the best reasons for people to consider a Network Marketing Opportunity is that if you work at the business and build an organization, you can potentially leverage your efforts and create Residual Income.

How to Make Money and Make Money Work for You: Working is a way to make money, investing is a way to make money work for you. Having a mortgage isn’t.

It doesn’t matter if you are a $5.00/hr. clerk or a doctor or a corporate executive making $250,000.00/yr, if you are exchanging your time and talents for money, you can only earn if you are working.

Everyone who works for someone else is a slave to the clock. It tells them when to get up and go to work and when it’s time to leave work. And tomorrow they have to get up and do it all over again. In fact, many people do that 40-60 hours each week for 50 weeks a year for 20-40 years and still have to worry if they are going to have the health and the money to do the things they desire when they retire.

We are also slaves to our mortgages. We don’t have to be. Albert Einstein said: “The person who understands compound interest will earn it. The person who doesn’t will pay it.” A mortgage is a closed-end loan. A Home Equity Line of Credit is an open-end loan. What is the difference and why is that important?

Let’s look at them in the context of a “Money Merge Account”. With a closed-end loan you can only put money in and you must make at least the minimum payment. Closed-end loans have the interest loaded at the front and for the majority of its life; you pay more interest than principal. You cannot take money out. An open-end loan can work exactly like a checking account. Write checks, do online transfers, deposit money into it and take money out of it. Payments are applied whenever they come into the account. Interest is paid only on the average daily balance through the month and that can fluctuate constantly. That interest is sometimes called “simple interest”. Home Equity Lines of Credit, personal lines of credit, and credit cards are examples of open-end loans.

My mother grew up in the Great Depression and knew how to be frugal. She is one of the few people I know who consistently paid extra on the principal portion of a mortgage. If she had known about the Money Merge Account, she would have jumped on it! Why? Because she would see the same thing that the over 30,000 clients who have it do. (There are approximately 60 million mortgages in America. Approximately 45 million qualify for UFF’s program. UFF started business in October of 2006. Find out more at:United First Financial ) And that is by using the bank’s products, an open-end loan, and spending 15-20 minutes every month updating information (the MMA software only wants to know two things. How much money is coming in and how much is going out) is easier than trying to pinch pennies to pay a little extra on the principal.
This is more than just using your discretionary income, which is harder to come by all the time, it’s also using the bank’s money taken from a HELOC, with most of the interest accumulation avoided with your paychecks. That’s leverage!

What if, you were 40 years old, and through this program, you were able to pay a 30 year mortgage off in 10 years? And you took the money you were paying on the mortgage and the discretionary income involved with the MMA program and invested it, what might happen?

Cindy used a 30 year, $200,000.00 mortgage at 6% and a payment of $1199.10. in that example, the mortgage paid off in 10.4 years. Investing that money every month into an interest earning vehicle that gave you 6% ROI, after the remaining 19.6 years you would have a “nest egg” of $973,000.00. That is using leverage (your money working for you) and creating residual or passive income (interest). You didn’t have to go to work to earn it!

You have 2 options.
Option 1

Years to pay off mortgage – 10.4
Interest paid (includes HELOC) – $70,422.00
Interest saved – $167,219.00
Retirement account – $973,000.00
Pay off at age – 51
Pay/Save – $3500.00

Option 2

Years to pay off mortgage – 30
Interest paid (includes HELOC)  – $231,677.00
Interest saved – $0
Retirement account – $0
Pay off at age – 70
Pay/Save – $1,140,219.00*
*Total of interest saved and retirement account

That seems to make sense to me. This is just an example and everyone’s situation is different. Not all people will qualify. For those who do, there is tremendous customer support. And, if the information that you originally give is correct, there is a money-back guarantee if the software doesn’t perform as initially shown.

American consumers need to investigate everything they can to reduce personal debt and have more income which can potentially give you more personal freedom and options for your future. There are other programs out there. The “Money Merge Account” is the only one that uses your current 1st Mortgage and a HELOC, fully integrated with a computer program which takes specific variables entered into complicated algorithms to instruct movement of funds in order to maximize the power of your money. There are books, financial planning software, refinance programs, and other products out there. None offer a program like “The Money Merge Account” from United First Financial.

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by markcreeten

Someone on a financial email list made a statement about paying off their house in half the time with a Money Merge Account. I had never heard of this type of account before so I contacted him about it to learn more. As it turns out, I would not qualify for it at this time but it is an interesting program and I thought I would share my thoughts on it, both pro and con.

The program that I am looking at is offered by United First Financial and their part of it is a software program that advises you when to make additional principal payments on your existing mortgage. You enter into the program by getting a HELOC (Home Equity line of credit) through a bank of your choice. You use this account to do what UFF calls interest cancellation.

A very basic idea of how this works is like this, you have an existing mortgage of 200,000 and you would take out a HELOC for $15,000. The MMA system advises you when and how much you should pay to your existing mortgage out of the HELOC to start off, the example that they use is approximately 10,000. You then use all of your income for the month to pay down your HELOC and pay your regular monthly payments and mortgage payments from the HELOC as well. As your discretionary income pays down the HELOC, the software prompts you for additional principal payments to your existing mortgage.

The United First Financial website and Doug have assured me that this software uses algorithms that took years to perfect and it cannot be duplicated by most of us mere humans. I would tend to agree that it would be way over my head as I am still trying to grasp the concept of using a loan to decrease your debt. However, the example on the website is impressive.

What I like the most about the software you won’t find in the example on the website but was provided in some training material that Doug sent me. The software has some interesting features that help you to determine what changes to your income or expenditures will have on your mortgage.

Let’s say that you decided to purchase a new car which would increase your monthly expenditures. You plug the amount into the software and it gives you the new date of payoff on your mortgage. Would you really buy that luxury car if you knew it was going to add 10 years to your mortgage and add 50,000 or so thousand in interest?

The software can also tell you what it will cost you in mortgage years and interest if you decide to take a job paying less money than you make now or if you or your wife are thinking about quitting your job. It goes so far as to warn you about how many months that you have before you have maxed out your HELOC in either situation.

Aside from the benefit of paying your mortgage off and saving hundreds of thousands of dollars in interest, I think it could be a useful tool for many people to plan their budgets. It definitely increases your focus on what effect your actions will have on your budget and that in itself could be a good thing.

The two major drawbacks that I see in it is the financial investment for the software itself although this is not an out of pocket expense. It still figures in to the bottom line.

The second drawback I see is the current financial situation. Many of the larger mortgage lenders are s which would make the software pointless. Chances are good that if you have enough equity to qualify for one, it would not happen to you but there are no guarantees. The HELOC freezes have caught some people short.

Some other posts related to Money Merge Accounts from around the web:

Is a Money Merge Account a Good Way to Pay Off Your Mortgage from Get Rich Slowly.

Money Merge Accounts: Are They A Good Deal for Home Borrowers? from The Simple Dollar.

Both have slightly different viewpoints on them and both have a great deal of comments. You can get more information on the Money Merge Account at the United First Financial website. Anyone out there have any personal experience with one? I’d love to hear from you.

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One of his first articles is on Pre-Approvals and how they help both buyers and sellers. Stop by for a visit and be sure to subscribe. You won’t want to miss any of the upcoming articles.

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I get these daily and I can post them if people are interested. Click on it to see full size (and readable) version

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Easy Money

For years, mortgage companies were offering a plethora of tempting and highly advertised loans; 1% interest rates, interest only loans, pick a payment, 125% of value refinances, and the list goes on and on. Bad credit? No problem, they would find you a mortgage. People of every income bracket fell prey to the temptation of easy money and low interest rates.

Credit Crunch

With several major mortgage companies showing multi billion dollar losses, it seems that subprime loans are a thing of the past. Imagine… you have to have good credit to buy a house these days and reasonable debt to income ratios. As lenders deal with short sales, rising foreclosures and a housing glut on the market, they are tightening requirements across the board, and lo and behold, my mailbox is no longer full of refinance offers.

Falling Values

With the glut of homes currently on the market, home values have decreased in many areas. This has affected people both looking to refinance and looking to sell their homes. Many are finding that instead of being upside down in their car loan, they are upside down in their mortgage and owe more than their home is worth in today’s market.

Rich and Poor

In my area, this has hit upscale homes much harder than the “starter home” market. Those who have homes valued over $400,000 are finding that their homes will appraise for 20 or 30 percent less than they did 3 years ago. This is following a period where home prices skyrocketed, in some instances, doubling the value of a home in 2 to 3 years. In the Northern VA area, realtors and lenders are calling this a market “correction” which in the long term is probably a good thing. Just don’t tell that to people who bought a home in the latter part of 2006 when prices peaked.

Help on the Horizon

Congress is currently considering several bills that hope to reduce the foreclosures that are predicted over the next several years. According to The Hill, HR3609 would allow a bankruptcy judge to alter the repayment terms of mortgage loans for those facing Chapter 13 bankruptcy. The problem with this bill is that it will force people to bankruptcy in order to get relief.

The Bush Administration has negotiated an initiative with the mortgage industry to freeze interest rates for 5 years according to Fox News. This initiative will help some homeowners who are current on their payments but will be in financial trouble when their interest rates reset. Along with this, The Washington Post reports that there is a bill to expand the FHA loan program to help subprime borrowers.

None of this directly helps homeowners watching their equity drop but in the long run stopping the flood of foreclosures will help to stabilize the market and hopefully, stabilize home values.

Bright Side?

Yes, there is a bright side to all of this. If you have good credit, are not head over heels in debt, and are looking to purchase your first home, the news is good indeed. Today’s market is definitely a buyers market. Home prices are reasonable and interest rates are still low. Competition from investors is low and there are fewer buyers.

Before you go shopping for a house, go shopping for a lender. Find one who is willing to work with you, check your credit and income and give you the amount of home you can reasonably afford to purchase. Make sure that you are getting a fixed rate interest loan. With rates so low, it would not take much to see them double in a year or so. A fixed rate mortgage will mean that while the ARMs are rising yearly, yours will stay at the same rate until you pay it off.

Once you know your price range, you are in a better position to look at and purchase a home. Your loan should be pre approved up to a certain amount and that gives you a bargaining chip when you make an offer. Motivated sellers may be willing to take a lot less than the listed price for their home for a solid offer.

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