DO NOT FALL FOR THIS!

Remember the Bruce Cockburn song entitled "If I had a Rocket Launcher"

Not being a violent person, I can't really identify.
But sometimes...

Hey, here's a little know Mueller Factoid:
Did you know I have never actually touched a gun? I've been very very close to some really big guns. See this: LINK

Back to my Rant
I work in a large office building. In our building there is a mortgage company that hires extremely un-qualified loan officers, as many as they can. They do not have desks, they are outside sales people.They get them in, they hype them up, they give them scripts, and then they unleash them to the world like a swarm of bad door to door salesmen.

They train them on two, and only two loan programs.
Want to guess which ones?
That's right! The Payment Option Arm and this new thing they call the Mortgage Accelerator Program.

They are trained on what to say and how to say it.
They are NOT trained and do not understand the features of the loan, or how to be a LO in the first place.
They are really birdogging - that's all.

They'll start conversations with everyone. In the elevators, in the cafe, in the lobby.
The conversations all start the same, "Have you heard about this new loan program, OOOH, I'm sooooo excited!..."

I can't tell you how many people in the building really shun them.
They also all say that they have signed up all their Friends, Family and Co-workers!
If everyone's doing it, it must be a good thing, eh?

Right now I can imagine my grandmother would have then pinched my cheek and said,
"If everyone jumped off a cliff would you jump off a cliff as well?"
What, yours too?

But hey that's sales - and if that's the business model the company chooses to use - so be it.I won't go into the how when I ask insightful questions of this new program - they don't have a clue what I'm asking.

My problem is in the facts.
No matter what this loan is titled, "The Super-De-Duper Payoff Your Mortgage in 8 Years Program" or whatever they want to call it;

This loan is an ARM, this loan is a HELOC, this loan is a Hybrid.
I've seen it reported as a HELOC on Steroids.
Come on, give me a break!
And besides look what they did to Pro Athletes! (the steroids - not this loan)

So tell me what caps are there?
What's the Index? The Margin?
Does this loan have to be paid off in 30 years?
Does it recast? Does it reset?

This loan is quickly becoming one of the new HOT marketing products in the business.
Will it be the POA of 2007? Too soon to tell.

The charts and figures rely on the fact that the consumer will continue consuming in the same manner or less.
Yet we all know that as a group, consumers will, when given access to money at reasonable rates, tend to use that money.
So the loan balance may go up not down.
That's just human nature.
Knowing that's human nature, are they not lying with their projections?

Looking at POA people as an example.
It's true that if you took the extra cash you might have spent on a traditional 30 year fixed and invested in stocks, bonds and the like you will be light years ahead down the road (net worth wise).

Some people who have POA's were sold on that premise.
Others were sold on the minimum payment.
Virtually none were shown what happens when the loan recasts.
None were shown that their loan may recast in as soon as 3 years or less.
None were shown how their minimum payment would double or even triple!
Here's the truth: http://www.patagoniafinance.com/poa

Industry figures maintain that a full 75% of those people with a POA (Neg-Am loan) consistently make only the minimum payment.
Now with all those Neg Am payments out there and all that extra cash floating around you might expect to see savings and investment rates at all time highs.
Conversely, those savings rates are at all time lows!

Put everyone in this glorified HELOC program, let them spend what they want, or paydown what they want and you tell me what's going to happen when the loan needs to re-amortize.

This program isn't all that new, I did a quick search and found an article in my paper from back in May 2005 warning of it's pitfalls.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/05/26/BUG95CULR51.DTL&type=business

From the Article:
People who continuously spend more than they earn will keep adding to the principal and their mortgage will end up like a negative amortization loan.

Joyce Franklin, a financial planner with JLFranklin Wealth Planning, says "a borrower with financial discipline who wanted to pay down principal could do so on her own, without a fancy product" that charges a premium rate.

Any good financial planner will tell you to keep a mortgage on your primary residence for as long as you can.
Additionally, paying off your mortgage early is dead money.
I'd explain further on that thought but it's another posts worth.