Aug 09

If you have a child in your family, you’re probably familiar with the work of Laura Numeroff. She authored the books If You Give a Mouse a Cookie, If You Give a Moose a Muffin, and If You Give a Pig a Pancake. The premiss in this series is simple, one thing leads to another in a fashion that brings us right back to the beginning.

I couldn’t help but think how the same thing applies in the economy. There’s a cycle of companies hiring, people feeling secure in their jobs, spending on new homes, bigger homes, and other goods which drives up demand in all sectors and keeps those companies profitable. Of course, you might say there’s a bit of chicken and egg going on, the companies aren’t hiring because demand isn’t there.

We are now looking at companies having a cash hoard of over $2 Trillion. There are times that interest rates are too high and the cost of money keeps investment down. That’s when the Fed (The Federal Reserve Bank, the Central Bank of the US) typically lowers rates in order to encourage businesses to expand. We are at a very strange juncture in this economic cycle. Mortgage rates are at an all time low but housing is still stagnant. The current 3.75% 30 year fixed rate means that a $1000 per month mortgage payment can cover a mortgage of just under $216,000. That $1000 is below the amount a median income family can budget to the mortgage, while the $216,000 is well above the median home price in much of the country. Why is no one buying? Uncertainty. People are not secure in their jobs, and are afraid to spend. Businesses are waiting to see the results of the election and understand the costs they’ll have over the next year for health care, taxes, etc.

Former Federal Reserve Chairman Alan Greenspan was interviewed last month by CNBC’s Larry Kudlow regarding this issue with the economy and he offered, “The best way I would describe it is to think in terms of two separate economies,” he said. “One is probably 90, 92 percent of the GDP and is doing actually reasonably well. The other 8 percent is largely structures or more exactly, long-lived assets. The attitude of business and households against committing to long-lived assets is extraordinarily suppressed.” This is a great observation, much of the behavior of both the consumer and corporations seems to be similar in this regard, little in the way of long term spending. It’s as though capital itself is on strike.

This brings me right back to today’s title, the fact that Quantitative easing won’t help. That’s not where the problem is. I have banks willing to lend me money short term at 2.5% (my HELOC) and even 1% for just a year (a credit card’s cash advance deal) but I’m not likely to take advantage of either. You’ll note, I don’t have answers, just observations. Something needs to give the economy a needed jump start (imagine Uncle Sam using a defibrillator on the economy) to get out of the strange cycle we are in.

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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.


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.


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.


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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.

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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.


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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.


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