Aug 06

I’ve used the term Innumeracy here to describe the equivalent to numbers what illiteracy is to reading. However, I now seek a stronger word or phrase to describe the egregious claims I’ve run across. I’m leaning toward “numerical blasphemy,” but am open to suggestions.

A Money Merge Account agent sent me a link to a You Tube video titled Truth in Lending. The author wanted to illustrate the concept of “front-loaded” interest on a 30 year mortgage. I’ve never seen a post that started with that idea end in anything that made sense, this video was no different. The video itself was well done, nice animation and voice over, but the numbers soon fall apart. I’ll offer two screen shots that show this.

truth1

As this slide came up, it seemed innocent enough,unfortunately it ends incorrectly. When working with a financial calculator you need to be very specific. N is not the number of years but number of payments, in the video’s example, 360. PMT, the payment, can be positive or negative depending on the calculator. Excel looks for it to be negative, a classic TI BA-35 calculator, positive. PV is not the equity built, but the present value of the mortgage, starting at the borrowed amount, and of course, ending with a FV (future value) of zero. He then says Compute, but there are two variable missing, %i (the interest rate) as well as FV. So, while I have no idea what his intention was, he now suggest taking I (the interest rate, I suppose) and dividing by Y (years, but why?) to produce a number which is admittedly large but meaningless.

truth2

Here, you can see that he author suggests that somehow the interest rate over 15 years is over 24%. But, back to a calculator or spreadsheet, we can see that PV = $200K (original loan) i = .5% (monthly rate or 6%/12) N=360 months (30 years) FV = 0 (after 30 years it’s paid to zero. If we enter these numbers we can comput the missing variable, the payment, which is $1199.10. Then it’s simple to set N to 180 (year 15) and compute the new future value, $142,097.69, as he shows above. On the other hand, we can enter PV =$200K, i = .5%, PMT = $1199.10, N=180 and FV = $142,097.69, and ask to calculate the rate, which of course comes back as .005 or 6% per year. By the way, it’s easy to look at the interest column above and divide say, the 2021 interest into the prior year ending balance and see you get under 6%. A couple hundred video views and no one saw how silly this all was?

As far as front loading is concerned, there’s nothing diabolical in how mortgages are calculated, you owe interest on the principal outstanding at any given time. Since you owe far more in the early years, more of your payment is interest. On this example $200K mortgage, in the first month the interest is $1000, but the principal paid is only $199.10. Pay more if you wish, that’s your decision. But don’t fall for an abomination of bad math. What does this have to do with the Money Merge Account? Only that every time I see numbers abused this badly I’m reminded of my friends at UFirst and the MMA.

Joe

written by Joe \\ tags: , , , , , , , , , , , , , , , , , , , ,

May 28

After Tuesday’s Credit Card Reform post, I received a number of emails asking how to get one’s credit score for free. I had written about this over a year ago, telling my readers how a WAMU (Washington Mutual) credit card offered free access to your credit score as a benefit. Sure enough, WAMU was taken over by Chase Bank, and that little perk was canceled. Now, another company offering free access to one’s score is Credit Karma. This is currently the only free credit score (with no 30 day trial to some monitoring service) that I’m aware of. A credit score doesn’t tell the whole story, but as in can have an impact on the rate you’ll pay for a mortgage, car loan, or credit card, it’s a good idea to know your score and maybe heko inch it up a bit before applying for new credit.

This would also be a good time to recap how your credit score is calculated:
FICO chart

By the way, the above is from a PBS special, “Secret History of the Credit Card.”
FICO formulas are still a bit of a secret, but the above is a good start. As I’ve read more about each of these criteria, I understand that ‘amounts owed’ are a ‘percent available credit used’ more than total dollars. So accepting a new card and instantly using the entire line may have a bit of an impact, but this is where unused credit on other cards actually helps bring down the total percent used. Of course, applying for too many cards in a short timespan also will impact your score. Canceling cards can hurt you in two ways, raising the ‘percent credit used’, and reducing average age of accounts, so you are correct, these are concerns.
I’d also suggest an article “Five Mistakes That Hurt Your Credit Score” by Jeffrey Strain of TheStreet.com which adds to the thoughts I presented here.
Last, you can go to annualcreditreport.com and request to view your credit report from each of the three nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Since each one permits you you view your report annually, you are able to view a different one every four months. I’ve not seen the value in paying for credit protection since your credit cards’ liability limits you to $50 so long as you repost a card stolen soon after you are aware it’s missing. Keep in mind – Credit Report is a list of all your current debts, including open accounts along with their available credit as well as recently closed accounts, Credit Score is one number ranging from 300-850. Neither shows your income but only reflects how you’ve handled the credit you have. The credit report will show late payments and that will impact your credit score. I believe the changes in our banks’ behavior will impact all of us, and result in undeserved lower scores.
JOE

written by Joe \\ tags: , , , , , , , , , , , ,

Apr 30

My regular readers will recognize this is a post regarding the Money Merge Account, an expensive mortgage accelerator I consider to be a scam. New readers should note, this was part of a series confined to a weekly Thursday post, and today this series ends as my intent is to provide a variety of articles well beyond this one issue. Now for the last MMA post…….

Well, I found this in my draft folder, seemed a waste to delete it:

I offer one agent’s rants, and my response:
“Yes, you might be able to do this kind of interest cancellation without the use of the software only IF:
1. you have the financial discipline and mathematical skill
2. you have the right kind of ALOC
3. you are willing and able to account for every penny at all times
4. you can tally all the variables and refigure your financial position each and every day
5. you can do this day in and day out for 5 to 10 years
6. you can do this without personal support if something goes wrong or you get confused
7. you are willing to forfeit tens of thousands of dollars in monetary gains in addition to doing all the work all by yourself.”

My response:
1. One need to write the checks regardless, the discipline is no different with or without this program. There is no mathematical skill required. If you can balance your checkbook, you’re all set.
2. The right kind? The “HELOC shuffle” provides little benefit and more risk than any agent understands.
3. Every penny? Hardly. This is just a scare tactic. You see, MMA with all its claims falls short by many dollars per month, adding up to quite a bit over the years. Skip MMA entirely, and now you’re watching those pennies.
4. Paying off your mortgage early is no more complex than paying extra toward your principal each month. The secret is…. there’s no math involved, just those payments. A spreadsheet or calculator will let you calculate the days until it’s paid in full, but MMA doesn’t add any value any more than a tape measure helps your child grow taller by frequent measurements.
5. I have better things to do with my time, so do you. It will take you a few seconds to make the extra payments at month end. You decide, do you really want to have to report every penny every night to your computer, and achieve worse results than you can on your own?
6. Per UFF disclaimer, they will not offer you any mortgage or financial advice, you want support, UFF isn’t going to be much help.
7. MMA costs you both time and money, doing it yourself will save you both.
Now, I think I’m done, the draft folder is empty. I will update the PDF to include the last set of articles in this series.
Joe

written by Joe \\ tags: , , , , , , , , , , , , , , , , , , , ,

Apr 23

Last week, I hinted that it was time to move on, and this will be my last regular post regarding the Money Merge Account scam sold by UFirst agents. A few reasons. After 30 weeks of non-stop analysis, there’s simply not too much left to say. I believe I’ve covered most aspects of the (bad) math used, the tactics agents use to promote the program, and the alternate ways to pay down your mortgage if that’s what you’re goal is. Those who seek an alternate not so objective view, the opposite of the agents pushing it, are welcome to read through my postings or download the PDF summary, which I will bring up to date. I’ll continue to discuss my thought on mortgages in general and take questions on the topic. I realized over the last few weeks that my time was better spent bringing articles to my blog for a more general readership, and to focus less on just one scam. For more discussion on MMA, there are a number of ongoing comment threads, including at The Simple Dollar, The Fraud Files, Bargaineering, and ActiveRain. So long as there are desperate people seeking solution to some kind of problem, there will be those who are happy to separate them from their money. The battle continues, I hope I helped save some readers from throwing their money away.

If something major happens which is worth sharing, or if someone offers an interesting guest post, I’m open to posting another installment in the future. Caveat emptor.

Joe

written by Joe \\ tags: , , , , , , , , , , , , , , , , , , , ,

Apr 16

Part 30? Wow, it seems like yesterday that I started this series. The good news from where I sit is that UFF has a defector problem. You see, any MLM (multilevel marketing) sales requires a serious dedication to recruiting new salespeople. I guess it’s tough to sell a $3500 piece of software that has you in debt a bit longer than simply prepaying on your own.
Back in October I wrote about a mortgage broker who was a client of Jubilee (Jaime Buckley’s company) and he was happy with his purchase, but didn’t understand how interest worked, despite the fact that he is a mortgage broker himself. If a broker doesn’t understand, what chance do most people have but to believe the claims of a scam artist? Funny thing, though. Jaime and his friends at Jubilee have already moved on to their next deal. I don’t have all the details, but instead of MMA (Money Merge Account), it’s now a MCA (Mortgage Checking Account.) I trust it has ‘factorial math’, ‘sophisticated algorithms’, etc, but is different than the UFF product. As Jaime owned and moderated the UFirst Forum (now down), I wonder if he’s going to pass the torch.

It will soon be time to move on, I believe I am close to exhausting all my thoughts on this topic. The math is simple, the product is a waste. The arguments in its favor quickly turn away from numbers and logic, to long rants about anything but. Until next time.

Joe

written by Joe \\ tags: , , , , , , , , , , , , , , , , , , , ,