I thought my 20 years of financial planning background had me well learnt. But a friend just asked me about this mortgage proposal they received.
What is this “recast” issue and how does it provide the kickback as described?
I enjoyed our conversation today! I have attached
> an example of my
> > VIP program at 417k managed on 30 year fixed and
> 20 year fixed
> > programs as discussed. To allow my team to better
> serve you please
> > review this email thoroughly and reply with
> specific questions.
> >
> > My pipeline of clients is predominantly business
> owners, and
> > professionals. Our clients are predominantly AAA
> credit ratings, loan
> > sizes from 250k-10MM, 6-12 months worth of PITI in
> Assets, and have a
> > minimum 10% equity in home.
> >
> > 417k VIP loan example;
> >
> > You will receive rebates/credits equivalent to one
> payment as we
> > recast your loan every 120 days. For maximum
> wealth creation we
> > recommend that your rebate goes towards any
> combination of the
> > following strategies.
> >
> > 1. Debt Eliminator: Every 120 days you receive
> your credit for one
> > full payment you would make one “double” payment
> to your principal.
> > Make your normal payment, and apply the rebate to
> your principal
> > balance. Your fixed rate loan is reduced and
> payments are recast
> > every 120 days. Your loan balance decreases by
> approximately $2,700
> > plus the monthly $359 in equity building through
> each of the 3
> > payments made per cycle. We finance our clients
> using fixed 20 year
> > and fixed 30 year rates.
> >
> > 2. Wealth Enhancer: Credit directed to
> investment professional for
> > diversified planning/IRA contributions
> >
> > 3. Legacy Planner: Credit directed as a
> contribution to College
> > funding
> >
> > 4. 401Condo*,** A 2nd home up north or down
> south will provide
> > your family with countless memories while creating
> wealth through
> > appreciation and equity creation.
They sent along some amortization schedules that look normal (no reference to these “recasts” within the tables), although the quoted rate of 6.875% seems on the high side.
What kind of blue smoke and mirrors is this?
Replies
"Recast" every 120 days sounds to me like a variable-rate mortgage -- one of the factors in the current mortgage meltdown.
To me also. But note it specifically states it is a fixed rate.
But a variable recast doesn't produce a kickback.
The blue smoke is getting thick...
Edited 10/13/2007 10:56 pm ET by peteshlagor
Fixed for 120 days, I suspect. There maybe some swizzle there that allows them to call it a fixed-rate loan (by giving "rebates" vs reducing interest rates when the rate goes down, eg), but I'd be highly suspicious.
If your view never changes you're following the wrong leader
Specifically, it says "fixed for 30 years." The schedules show 360 fixed payments.
I agree with the "swizzle," but a reset does not throw out a refund, kickback, whatever.
I thought for a minute that the broker was "loaning" the note to different firms for 90 or 120 days, but what is in it for the loanee? He may get swindled once for a "loan" fee, but not 100 times, nor can I imagine 100 different banks going thru this process, either.
But I've also see and heard ads about these recent mortgage programs getting paid off in as little as 5 to 7 years. What is the mechanism to allow so without doubling up payments (going to biweekly instead of monthly, but that's still double payments).
With the focus on the subprime issues, I can't see how this can occur in this environment.
There's been focus on subprime, but no new regulations. Crooks are gonna try to befog the paperwork to make unattractive loans look more attractive, however they can do it.(Not saying that's necessarily the case here, but I'd just be very, very, very wary.)
If your view never changes you're following the wrong leader
Oh, and the talk of "wealth accumumlation" is probably a red flag. Making it sound like you're gonna get rich by taking out a mortgage.
If your view never changes you're following the wrong leader
Reading it again, they MAY mean that the payments are refigured every 120 days, based on how much you've paid down the principle. Thus if you made an extra principle payment in the first 120 days that amounted to half the outstanding principle, the size of payments would be cut in half (but the term of the loan would remain unchanged). But they could also mean (in addition) that you have a never-ending mortgage, since they could be implying that the clock is restarted every 120 days.
Note that this feature (if I'm reading it correctly) is really covering their behinds more than yours. By slowly reducing the size of your payments they're making it less likely that you'll refinance down the road, when you have the principle paid down quite a bit. They're also preventing you from paying off early, maximizing their interest collection potential.
And the "rebate/credit" thing sounds like a gimmick to get you to buy a larger loan -- probably for folks who are well below the $417K cutoff. You get money back (but presumably get the full tax deduction), kind of like getting cash out of a refi, only every 4 months, and you can either pay down the loan with that or spend the money. Guess which they really want you to do?
My bogosity sensor is still flashing red.
The 417k appears to be the "name" of the program."417k VIP loan example"This is the range of loans." loan
> > sizes from 250k-10MM,".
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Who (what kind of person) was this directed to, if you know?
I tried google on several combinations of key words and really did not find anything that related.
This is the closes that I found.
http://www.raincityguide.com/2007/04/26/two-offers-to-refi-in-one-dayjust-how-lucky-can-a-gal-be/
" “Your Mortgage Master loan in the amount of $375,000 can be restructured to a (you better sit down for this one) a 10 year payment at only $79. This is not a typographacial error. Your payment rate is only 1/4% and is fixed for 10 years….
Call us today and have no house payments until June 2008“.
Of course I had to call them! The gentleman was very friendly (much nicer than the chaps I dealt with trying to help Jillayne uncover the Vacation Mortgage). First you must meet their guidelines. “Slick†tells me that one of their biggest “catches†to get around is loan to value…lucky for me, we meet the 70% or less LTV requirement. You also must have credit scores of 680 or better and not plan on moving for 3 years or you’ll have the opportunity to pay a prepayment penalty.
Me: What is the rate based on?
Slick: 0.25% interest only
Me: I mean, what is the base rate? How much is the deferred interest?
Slick: Wow, you seem to know a lot! 6.750%
Me: At what point does the mortgage recast?
Slick: 150% (yep…that’s what he said….150%). I can’t believe it either!
This means that every month you make the 0.25% interest only payment of $79; the difference between that and the fully amortized payment is tacked on to the back of your loan. This difference is $2,322.17.
This would be allowed to continue until my original mortgage balance of $375,000 reaches $562,500! I estimate this would take 80 months (or just shy of 7 years). Although the rate is fixed for 10 years, the loan will recast into a fully amortized mortgage when it reaches the 150% cap.
If we assume that my house is worth $550,000 today and has a mortgage balance of $375,000. In 7 years, we know that if I did this refinance with Slick, my mortgage balance would be $562,500. We really have no guarantees on what my $550,000 home will be worth in 7 years. Not to mention what would happen to my credit scores having a mortgage balance that was increasing over the original loan balance.
Last but not least…we’ve finally uncovered the “vacation mortgage†mystery! With this program, they also offer to give you 12 months off of your mortgage payment as a “creditâ€. It’s very easy for this type of lender to do. At $79 a month, 12 months of mortgage payments would be $948. It’s simply priced into the loan by rebate, margins or the prepayment penalty.
Pretty slick….huh? "
Nothing to do with your details, but somehow I feel that they are related.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.