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  1. #1
    Join Date
    Jul 2007
    Posts
    557

    The Australian Mortgage Reduction Hoax

    I thought I should break this into it's own thread.

    Since many of the people promoting these mortgage reduction schemes like to claim (with no evidence) that some number of Australians (some claim 30%, some claim 70%, they can't seem to get their story straight) use these HELOC linked or totally HELOC based mortgages that it must be a great idea for Americans as well.

    What they don't tell you is 3 years ago the Australians cracked down on the people promoting these schemes for using various misleading pitches that are very similar to pitches made by promoters in the United States.

    Link to article in The Sidney Morning Herald

  2. #2
    Join Date
    Jul 2007
    Posts
    557

    Re: The Australian Mortgage Reduction Hoax

    Here are some more quotes from other articles about the Australian Mortgage:

    A large mortgage broker is charging borrowers thousands of dollars for loans they could get from a bank for a few hundred dollars.

    Sample and Partners, which has 380 staff in Sydney, Melbourne and Brisbane, puts borrowers into line-of-credit home loans for a fee of $2995, but can leave them with other fees and charges of $8000 once loan refinancing, stamp duty and brokerage fees are paid.

    The company offers consumers a "mortgage reduction service" which promises to help them save thousands of dollars and pay down their loan a decade quicker than they could with a traditional home loan.

    But a Herald investigation has found that some clients' debts increased rather than fell after they took out a World Home Loans mortgage through a Sample and Partners' mortgage broker.

    The line-of-credit loans carry some of the highest interest rates in the mortgage market and they are often difficult for even sophisticated borrowers to manage. Lawyers from the Australian Securities and Investments Commission are examining copies of internal company documents.
    Do Matthew Sample's excuses, below, sound familiar?

    Matthew Sample, a director and part-owner of Sample and Partners, said the company's fees were justified because the loans helped people reduce their debt. "We monitor our clients over a period of time."

    But documents seen by the Herald reveal that the company shows potential borrowers a complex example of the speed with which two home loans are repaid: one a World Home Loans' line-of-credit loan, the other a traditional home loan. It is not obvious from the example that extra repayments are required with the World Home Loans product.
    Those quotes came from an earlier article before Samples got officially smacked and had to cough up a ton of money in the later article below:

    A court ruling has found it misled borrowers on debt reduction schemes.

    Sample and Partners, a mortgage broker exposed by Money for charging borrowers thousands of dollars in fees for a mortgage reduction scheme involving high-interest line-of-credit loans, may have to compensate borrowers following a court action.
    I wouldn't want to be an agent who has been misleading clients in order to pocket a multi-thousand $$$ commission.

  3. #3

    Re: The Australian Mortgage Reduction Hoax

    It seems like you don't understand the process at all.
    While the Hoax appears to be just that, the principal is sound.
    The borrower uses ALL OF THEIR DISCRETIONARY income to pay down the loan. Right?

    Wrong. The borrower doesn't pay off the Amortized product you are used to. The borrower pays off a credit line. Why?

    Interest on a holding account is 0-5%
    Interest paid on the first year mortgage is 6-7%

    Interest paid out is an "outgoing dollar"
    Interest paid in is a "Growing Asset".

    Unfortunately, the growing asset is taxed and it's value is reduced by inflation, Schedule A taxes. So the catch up is very difficult. Balance is hardly ever achieved.


    The HELOC with Embedded Checking Account does not pay the loan off early by saving interest. In Most cases comparing a 30 year fixed with an ordinary checking account accumulating most of the "discretionary" deposits, the net asset growth is less than a thousand dollars on the HELOC side, mostly by forcing the principal balance down.


    Now the discussion turns to why paying down the balance to zero is worth it, when equity doesn't pay interest.

    The HELOC first of all allows 30 year access to the equity you've built up. If you agree that the urge to refinance to cash-out equity is prevalent, then the obvious savings just from this aspect is substantial (12-15K in costs every time a borrower turns over his mortgage for another product). If a borrower is therefore relieved of re-borrowing, and recasting his interest/principal ratio on every payment, then they can pay off the loan and every deposit made toward investments, annuties, savings accounts move them forward.


    So finally, how does a borrower pay off a loan using their own funds?

    The interest charged every 30 days on the credit line is added to the balance of the credit line. Consistent deposits (1st and 15th) leaving discretionary income to pay down the balance every month, forces the interest charge downwards, sometimes as much as 20.00 per month.
    Add 20.00 to the "discretionary" assets month after month, 20, then 40, then 60, etc...creates the "accelerator" effect.

    Now this doesn't necessarily happen every month guaranteed, But when the deposit and expense activity is fairly consistent, (most people are consistent, being that the average borrower has a fico of 700 or better) , the borrower will see rapid accumulation of equity, and less and less interest charges.

    So how does this relate to Home Acceleration MYTH? It's self-evident considering that most borrowers who take and benefit from the products listed as CMG's Home Ownership Accelerator (BY THE WAY THIS IS A LOAN PRODUCT< NOT SOFTWARE OR SOME GURU MLM)
    and the Money Management Accounts, etc.. are legitimate methods to achieve this.

    BUT AGAIN, you have to assume that the borrower has the ability to write a $1,000.00 check at any given time. This process doesn't work for the indigent, or Option-Arm victim, or the individual who doesn't understand that just having a checkbook with blank checks doesn't mean that they are rich.

    I hope I have clarified some issues and definitions.

  4. #4
    Join Date
    May 2005
    Location
    West of the Pecos
    Posts
    121

    Re: The Australian Mortgage Reduction Hoax

    At the risk of being redundant on these kinds of issues, the people who benefit most from these programs are the promoters of them, as is/was Harj Gil.

    In theory, these machinations might work for some number of people in certain circumstances. But in reality, there aren't enough people in the world who could benefit from them to allow the promoters to make a decent income. Hence, they have to be marketed to a much larger base without regard to efficacy.

    And reality check number 2 comes into play; the people who are already having financial issues aren't ever going to be able to make such a program work, but that doesn't stop them from being targeted as prospective buyers.

    The Honorable Judge Roy Bean
    http://www.loansharks.blogspot.com

  5. #5

    Australian Mortgage broker

    wonderful! what a vast knowledge you have! though earlier i rarely read your articles as i did not have any web site or blog.but now i have a blog so regularly read you. i am really impressed by you.and i appreciate the service you render.

    thanks a lot

    Australian Mortgage broker

  6. #6

    Property and House sales Davao

    Davao real estate: House sales davao, buy and sell property, davao homes for sale, philippines retirement

    Property and House sales Davao

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